UK High Court overturns worldwide freezing injunction granted in support of arbitration in New York

In Mobil Cerro Negro v. Petroleas de Venezuela, the English High Court has affirmed that an appropriate connection with England is required to justify the grant of a worldwide freezing injunction in aid of proceedings abroad. It therefore set aside an injunction over the defendant's assets worth up to US$12 billion.

The underlying dispute between the parties involved claims by Mobil (an ExxonMobil affiliate) against Venezuela's state-run oil company, PDVSA, for breaches of a participation agreement to explore the Cerro Negro oilfield in Venezuela. The Venezuelan government took control of Mobil's 41.7% stake in the project last year, in accordance with new Venezuelan legislation which "migrated" oil interests held by foreign companies to companies which were at least 60% Venezuelan owned. In response, Mobil commenced an ICC arbitration against PDVSA, alongside an ICSID investment treaty arbitration against the government of Venezuela.

Mobil went on to obtain a freezing injunction in the English courts. This was granted under section 44 of the Arbitration Act 1996 in support of the ICC arbitration in New York, but was challenged by PDVSA in this case.
Walker J set aside the order on the basis that Mobil had failed to satisfy a number of the requisite criteria:

1. Except possibly in cases of fraud, it will be inappropriate for the English court to intervene in support of foreign arbitration unless a sufficient connection with England is established. The judge suggested that in the present case the appropriate place for seeking a freezing injunction was Venezuela, where most of PDVSA's assets are situated;
    
2. Mobil had failed to establish a good arguable case that PDVSA would take steps to dissipate its assets and it was therefore not just and convenient to grant the injunction; and
    
3. Mobil was unable to show the requisite degree of urgency for the grant of a freezing injunction (necessary where the court does not have either the permission of the arbitral tribunal or the agreement in writing of the other parties).

Significantly, the decision confirms that the court has the same power to grant interim relief in respect of foreign arbitral proceedings as it does for foreign court proceedings (under section 25 of the Civil Jurisdiction and Judgments Act 1982), but that, in both cases, it should only do so in narrow circumstances. Where an order would run counter to principles of comity, the court must exercise at least the same degree of caution as it would in relation to an order in aid of foreign litigation.

In practice, this decision restricts the possibility of "injunction shopping" in the English courts. It has been welcomed as a suitable restraint on the powers of the English court and as exhibiting due deference to the courts of the seat of the arbitration. (Mobil Cerro Negro Ltd v Petroleos de Venezuela SA [2008] EWHC 532 (Comm)).
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