Significantly, the court also clarified the application of the "ownership and control" test under the
In the present case, the court clarified that the ownership and control test requires an "existing influence" by a designated person over the relevant affairs of the company, not just one they may be in a position to bring about. Whilst
We consider the decision in more detail below.
Background
In 2021, the claimant (a Swiss oil trading company, which is wholly owned by a Russian oil company) entered into a contract with the first defendant (a Senegalese oil trading company) for the supply of crude oil. The agreement provided that the parties could suspend performance of their obligations due to a force majeure event or a change in applicable sanctions regimes.
The first defendant made partial payments of the purchase price but failed to pay the balance. The parties restructured the debt and the second defendant (the first defendant's parent company) provided a guarantee in respect of the outstanding sums.
In
The claimant commenced proceedings and issued a summary judgment application against the defendants for the outstanding sum. The defendants advanced a number of defences, including pursuant to change in sanctions and force majeure clauses. The defendants also submitted that although neither the claimant nor its parent were designated persons under the
Decision
The force majeure defence
The force majeure clause provided that where either party was "delayed or hindered or prevented from complying with its obligations" under the agreement, it could, on notice to the other, suspend performance of its obligations.
The defendants submitted that the force majeure clause had been engaged, adducing evidence of five African banks who were unwilling to make payment to the claimant because of sanctions concerns.
The court rejected the defendants' submissions and held that, on the facts, the reality was that they simply did not have sufficient foreign currency to make payment. While the
In reaching this conclusion, the court commented on the difference between force majeure clauses triggered when a force majeure event "prevents" performance and those where performance is "hindered", which have a wider field of operation. The concept of prevention can be equated to something "rendering delivery impossible", whereas hinderance means "something less than that namely rendering delivery more or less difficult, but not impossible".
The court also commented that a seller who has an accrued right to payment has, by definition, already done what it is necessary to do on its part to be paid. Against this background, an argument that a party owing an accrued debt obligation is relieved of performance because paying the debt has been made more difficult is one which must be approached with particular circumspection. Even in the context of force majeure clauses under which hindering performance is sufficient, a significant degree of difficulty would be required (perhaps one approaching, albeit falling short of, impossibility) before difficulty in making payment would suspend performance of an accrued obligation.
The sanctions defences
The defendants sought to rely on a change in sanctions clause, which provided that the payment obligations under the agreement could be suspended where a change in applicable sanctions regimes resulted in the risk of penalty for complying with such obligations.
The court found that the clause was not engaged because, inter alia, it related to a change in sanctions that were "directly or indirectly applicable to one or both of the parties or to the transaction". The contract was between a Swiss subsidiary of a Russian company and two Senegalese companies, in relation to the delivery of Nigerian crude to
The defendants also relied on Regulations 7 and 12 of the 2019 Regulations. Regulation 12 provides that a person must not make funds available directly or indirectly to a designated person, or "a person who is owned or controlled directly or indirectly... by the designated person".
Regulation 7(4) provides that an entity (C) is owned or controlled directly or indirectly by a designated person (P) if, inter alia, it is reasonable to expect that P would, having regard to all the circumstances, be able "by whatever means and whether directly or indirectly, to achieve the result that affairs of C are conducted in accordance with P's wishes".
The defendants submitted that they could not make payment to the claimant (although it was not a designated person under the
In this context, the defendants relied upon recent obiter comments made regarding the ownership and control test in Mints. In that case, the
In Mints, it was submitted, however, that the
In the present case, the court clarified that the ownership and control test requires an "existing influence" by a designated person over the relevant affairs of the company, not just one they may be in a position to bring about. Whilst
Interestingly, the court also analysed the question of control in the context of the relevant restriction. Indeed, in a discussion regarding a predecessor to the Regulation 7(4) test, namely a control test in the Broadcasting Act 1990, the court noted "that it is always necessary to look at the context in which the issue of control arises when applying a definition of control". In this case the issue of control arose in the context of Regulation 12 (the 'making available' prohibition), and therefore the relevant "affair" which the designated person would need to direct for Regulation 7(4) purposes was the availability of funds. The court found that there was no evidence which suggested that any funds received by
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