Litasco SA v Der Mond Oil and Gas Africa SA & Anor

[2023] EWHC 2866 (Comm)

Litasco was seeking summary judgment of sums said to be due under an agreement reached by the parties on 4/5 November 2022. Litasco is an oil marketing and trading company incorporated in Switzerland, but wholly owned by Lukoil PJSC, a Russian oil company. One of the defences raised related to clause 14, which dealt with force majeure: 

"14 FORCE MAJEURE

14.1 If by reason of 'force majeure', which for the purpose of this Agreement shall mean any cause beyond the reasonable control of the affected Party including, but not limited to, any act of God, war, terrorism, riots, acts of a public enemy, fires, strikes, labour disputes, accidents, or any act in consequence of compliance with any order of any government or governmental or executive authority, either Party is delayed or hindered or prevented from complying with its obligations under this Agreement, the affected Party will immediately give notice to the other Party stating:

     14.1.1 the nature of the force majeure event;

     14.1.2 its effect on the obligations under this Agreement of the Party giving the notice; 

      and

     14.1.3 the estimated date the contingency is expected to be removed.

14.2 To the extent that the affected Party is or has been delayed or hindered or prevented by a 'force majeure' event from complying with its obligations under this Agreement, the affected Party may suspend the performance of its obligations until the contingency is removed.

The defendants argued that the force majeure clause was engaged because payment had to be made through the international banking system and, on the evidence, no European clearing bank would make payments to Litasco. This refusal of the banks approached to make the payments was an event "beyond the reasonable control" of the defendants which "delayed, hindered or prevented" them from complying with their obligations to pay Litasco, with the result that the payment obligation had been suspended.

Foxton J noted that it was well established that clauses triggered when a force majeure event "hinders" performance of an obligation have a wider field of operation than those limited to events which "prevent" performance. 

Foxton J stressed that it was performance of the obligation which must be rendered "more or less difficult", not a particular method of performance where the contract does not require performance by that method. Further, here, the defendants relied on clause 14 to suspend their obligation to discharge an accrued payment obligation. Whereas the suspension of an obligation to deliver goods will ordinarily have the effect of relieving the other party of its concurrent obligation of payment, 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, such that suspension of the payment obligation will inevitably operate asymmetrically. 

Accordingly, 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 care. . Even in the context of force majeure clauses under which hindering performance is sufficient, before difficulty in making payment would suspend performance of an accrued obligation, a significant degree of difficulty would be required, perhaps one approaching, albeit falling short of, impossibility. 

Here, in the view of the judge, the evidence fell “far short” of establishing a realistic prospect that payment of the accrued debt was hindered for the purposes of clause 14. For example: 

(i) The defendants had adduced evidence of five African banks with whom they had established banking relations who were unwilling to make payments to Litasco because of sanctions concern when contacted between February and May 2022 and, in one case, when contacted again in November 2023.

(ii) However, Litasco had adduced evidence showing payments it had made through to, and received from, a variety of international banks throughout 2022 and 2023. 

(iii) Further, the whole premise of the joint venture arrangement was that West African customers would be able to open letters of credit directly in favour of Litasco, which would provide at least one of the means by which the defendants could meet their payment obligations. Those plans did not materialise, but that was because of issues relating to the sale of oil of Russian origin rather than because of issues about paying Litasco.

(iv) The defendants were able to make payments to Litasco in both November and December 2022. It was no answer for the defendants to say they were able to make the first of those payments because they had sufficient Euros deposited with the bank to do so, but the payment exhausted its balance. Lack of foreign currency was not a force majeure event, and no explanation was offered as to why funds could not have been transferred by the defendants from elsewhere. While the Russian-Ukraine war and the sanctions imposed in response to it may have caused a downturn in the defendants’ trade, and reduced its inflows of foreign currency, those events could not be said to have hindered or prevented performance of accrued payment obligations. The causal effect of such events on the defendants' ability to pay was too remote. 

The reality was that the defendants simply did not have the foreign currency to make the payments, not that they had been hindered by difficulties in the international banking system in making payments they were otherwise able to make. This was clear from the correspondence.  

Writing in 1918, Sir Thomas Scrutton ("The War and the Law" (1918) 34 LQR 116, 132) had summarised the resultant disputes in the following terms: 

"Did the inability to pay arise from the war; or was it, like Mr Micawber's, a chronic inability, equally present in war or peace? Numbers of debtors, however, urged with great vehemence to an unsympathetic Court that only this unforeseen war had prevented them finding El Dorado."

The judge here said that it was equally important, in the context of a force majeure clause such as clause 14, to distinguish between those prevented from, or hindered in, complying with their obligations because of the effects of a force majeure event, and those, such as the defendants, who simply lack the financial resources to meet their obligations.

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