Mobil Cerro Negro Limited v Petroleos de Venezuela S.A. [2008] EWHC 532 (Comm)
This case involved a successful application by Petroleos de Venezuela S.A. (“PDV”), the national oil company of Venezuela, to set aside a freezing order obtained by Mobil Cerro Negro Limited (“Mobil”) under s44 of the Arbitration Act 1996 (the “1996 Act”). The grounds for setting aside the freezing order were: (1) it was not “just and convenient” under s37 of the Supreme Court Act 1981 (the “1981 Act”); (2) the case was not one of urgency under s44(3) of the 1996 Act; and (3) given the seat of Arbitration was not in England, it was “inappropriate” to grant the order under s2(3) of the 1996 Act.
Background
In 1997 Mobil, part of the Exxon Mobil group, entered into an “Association Agreement” with a subsidiary company of PDV named Lagoven Cerro Negro, S.A. (“CN”). PDV guaranteed the performance of the obligations of CN under the Association Agreement pursuant to a guarantee subject to ICC arbitration in New York.
Venezuelan legislation which took effect in June 2007 in relation to Venezuelan oil effectively brought about the expropriation of Venezuelan oil interests from foreign companies to companies which were at least 60% Venezuelan owned. This ‘expropriation legislation’ envisaged that replacement commercial arrangements would be made with those affected by the expropriation. Negotiations led to agreement with many other oil companies, but not with Mobil. Mobil therefore made a demand under the PDV guarantee in respect of compensation said to be due under the Association Agreement.
On 24 January 2008 Mobil applied for and obtained a ‘without notice’ freezing order against PDV which froze its assets worldwide up to a total sum of US$12 billion. This was the largest freezing order ever granted by the English court. Soon after the granting of the freezing order Mobil commenced ICC arbitration proceedings in New York to enforce the guarantee. PDV duly applied to set aside the freezing order, and succeeded in doing so on 18 March 2008.
The Decision
Mr Justice Walker set aside the freezing order for three reasons:
1. There was not a sufficient connection with England and Wales. Such a connection was necessary, in the absence of fraud, for the order to be just and convenient under s37 of the 1981 Act. As the court had no personal jurisdiction over PDV, and the seat of arbitration was in New York, the only way Mobil could have established a sufficient connection with the jurisdiction was by showing that PDV had significant assets within England and Wales. It attempted to show this, but failed. In particular Mobil failed to show that PDV was the “effective controller” of certain bank accounts belonging to other companies located within England. The judge agreed that PDV had no office, conducted no business operations, had no bank accounts, real property or other assets of any kind in the jurisdiction.
In any event, Mobil did not establish that PDV was unjustifiably disposing of its assets. In particular the fact that PDV had adopted a policy of disposing of assets in America and Europe and transferring them into Venezuela, or to countries perceived to be friendly to the Venezuelan government, did not amount to unjustifiable conduct. Mr Justice Walker noted that Venezuela was a party to the New York Convention and that therefore an ICC award under the guarantee was enforceable against PDV in Venezuela, including through the use of injunctive relief by the Venezuelan courts. Mobil had produced no evidence which showed that enforcement in Venezuela would be any more difficult than in any other Country.
2. Mobil was unable to show that the case was one of urgency as required by s44(3) of the 1996 Act. Mr Justice Walker noted that the only urgency relied upon by Mobil concerned the need for prompt action to prevent dissipation of assets. As the Judge concluded that Mobil had not shown that PDV was dissipating its assets, Mobil had failed to show that the case was one of urgency.
3. Given that the seat of the arbitration was New York, in the absence of fraud or some other significant factor, and in the absence of substantial assets located within the jurisdiction, it was “inappropriate” under s2(3) of the 1996 Act to continue the freezing order. The most appropriate jurisdiction for Mobil to seek a freezing order was Venezuela. Mr Justice Walker reviewed the authorities and noted that just because the 1996 Act places further restrictions on the power of the court to grant freezing injunctions in aid of foreign arbitration than in respect of foreign litigation (i.e. urgency and appropriateness), the general principles of comity nevertheless remain notwithstanding the additional hurdles.
Conclusion
This decision is important as it confirms that the Court has the same wide power to grant freezing orders in aid of foreign arbitration as it does in aid of foreign litigation (subject to the further hurdles imposed by the 1996 Act). However although the Court has this wide power it will only use it sparingly. Indeed unless there is an allegation of fraud, or there is a substantial link with England and Wales, the English court will show deference to the Court of the seat of the arbitration.