Sanctions risk is now a central concern in oil, gas and commodity trading. Since 2022, many energy companies have reviewed their counterparties, payment chains, cargo origins, banks, vessels and contractual protections. However, an important English Commercial Court decision shows that sanctions arguments will not automatically excuse a party from payment obligations under an already executed oil trading contract.
A useful case for energy traders is Litasco SA v Der Mond Oil and Gas Africa SA and Locafrique Holdings SA [2023] EWHC 2866 (Comm), decided by the English High Court.
Background of the dispute
Litasco SA, a Swiss oil marketing and trading company wholly owned by Lukoil PJSC, entered into a contract with Der Mond Oil and Gas Africa SA, a Senegalese oil trading company, for the sale of 950,000 barrels of ERHA Nigerian crude oil, delivered CFR Dakar, Senegal. The cargo was delivered, and Der Mond made partial payments, but a substantial balance remained unpaid.
After non-payment, the parties entered into a Deed of Payment and later an Addendum to reschedule the debt. Litasco then claimed approximately €44.4 million in principal, plus interest, after Der Mond failed to comply with the payment schedule.
Der Mond and its parent company resisted the claim by relying on several defences, including force majeure, sanctions, illegality, frustration and alleged misrepresentation connected with proposed future joint business.
The sanctions argument
The defendants argued that payment to Litasco was affected by the UK Russia sanctions regime. The contract contained trade sanctions provisions, and the defendants said those provisions, together with UK sanctions law, prevented or excused payment.
The court rejected this argument.
One important point was timing. The court held that under the contract, a relevant “Sanctions Change” had to occur after the relevant obligation was assumed. In this case, the relevant payment obligation had already been assumed and rescheduled, and the defendants could not identify a later sanctions change that triggered the sanctions clause.
The court also emphasised that the cargo had already been delivered and that the buyer’s payment obligations had already accrued before the alleged force majeure or sanctions event. The contract contained wording indicating that parties were not relieved from paying sums that had already become due.
“Control” under UK sanctions law
The case is also important because it considered the concept of “control” under UK sanctions law. The defendants suggested that Litasco might be controlled by a sanctioned person, including Mr Vagit Alekperov or President Putin.
The court found no triable case that Mr Alekperov controlled Litasco. The judgment noted that neither Litasco nor Lukoil had been named as sanctioned entities under the relevant UK regulations, that Mr Alekperov had stepped down from Litasco’s board, and that there was no evidence that he continued to exercise control over Lukoil.
The court also rejected the argument that Litasco was controlled by President Putin for the purposes of the relevant payment restriction. The judge considered that the better interpretation of control required an existing influence over the relevant affairs of the company, not merely a theoretical power that a state actor might be able to exercise.
This is a commercially important point. It shows that sanctions analysis cannot rely only on broad assumptions about nationality, political environment or ownership history. It requires factual evidence, corporate analysis and a careful review of the applicable sanctions wording.
Payment obligations and frustration
The defendants also argued that the payment obligation had been frustrated because banks might not process payment or because payment would be illegal. The court rejected this defence as well. It found it difficult to see how an accrued payment obligation under a fully executed contract could be frustrated by later events, and it had already rejected the factual basis of the illegality argument.
This matters for oil and gas traders because payment risk often increases after delivery. Once the seller has delivered the cargo, the buyer may not be able to avoid payment simply by pointing to general market disruption, sanctions concerns or banking difficulty. The contract language, timing of obligations and evidence of actual legal prohibition will be critical.
Commercial lessons for energy trading companies
This decision provides several practical lessons for oil, gas, LNG and petroleum products trading:
First, sanctions clauses must be carefully drafted. A clause should clearly state whether it applies only to future sanctions changes or also to sanctions existing at the time of contracting.
Second, payment obligations should be protected clearly. Sellers should ensure that force majeure and sanctions clauses do not unintentionally suspend payment for delivered cargoes or accrued debts.
Third, KYC and due diligence must be evidence-based. Allegations of control by a sanctioned person require proper evidence, not assumptions.
Fourth, contract amendments and payment rescheduling documents matter. When parties enter into deeds of payment, addenda or settlement agreements, they should restate sanctions warranties, payment obligations and remedies clearly.
Finally, banking difficulty is not automatically a legal defence. A party relying on sanctions or illegality must show why performance is actually prohibited or legally impossible.
Conclusion
Litasco v Der Mond is a strong reminder that English law will look closely at the wording of the contract, the timing of the obligation, the evidence of sanctions exposure and the practical commercial structure of the transaction. For energy traders, sanctions compliance is not only about screening names; it is about aligning the contract, counterparty due diligence, payment route and risk allocation before the cargo moves.
Venus Energy Global provides contract management and compliance support for energy businesses, including sanctions checks, KYC and due diligence, and sanctions clause review for oil, gas and commercial trading transactions.