The Devil's Excrement

I am a little behind in writing about some things and many will be not
covered as I am planning a long trip soon. But during the Easter week,
the Royal Court of Justice in London ruled in favour of PDVSA h.,
essentially cancelling the freezing order for US$ 12 billion on the
company’s assets. ExxonMobil had requested the freeze over the dispute
between the two companies over the takeover of Cerro Negro by PDVSA.
ExxonMobil refused to accept the change in ownership whereby PDVSA
would acquire a 60% control and simply walked away from the project
demanding compensation.

The judge in the case did not rule so much on the merits of PDVSA’s
actions, but more on the details of the freeze order and whether it is
the competence of the Court and whether the injunction is justified or
not. Thus, in a long and complicated decision, the Court ruled in the
context of UK laws whether to extend the injunction granted by a lower
judge.

The judge said in the decision that these type of freezing orders are
made to avoid companies from dissipating its assets and explicitly says
that for a freeze like the one requested by ExxonMobil to be justified,
there has to be compelling evidence of serious international fraud,
which is not the case for PDVSA.

However, the judge does refer to the takeover of Cerro Negro as an
expropriation and says that ExxonMobil does have an arguable case, but
it not only finds that the freeze can not be justified, but states that
ExxonMobil has other courses of action for its demands. The case is
found to be justified because the original agreements of the
association were breached and PDVSA acted in bad faith, but it is not
clear what the worth is and the judge made no attempt to resolve the
point as to whether the US$ 12 billion is justified or not.

The judge also ruled that in the absence of fraud, PDVSA would need to
have substantial assets located in the UK and Wales, which is not the
case. Moreover, the judge states, the fact that the seat of arbitration
is not UK-based, would make it inappropriate to grant the request. The
Judge also faults ExxonMobil for not seeking relief within the
Venezuelan Court system, which is clearly laughable given the current
state of the Venezuelan Justice system.

There are still injunctions in place in The Netherlands and the United
States that PDVSA will have to deal with in the near future. The ruling
does force PDVSA to abide and follow the arbitration steps as the judge
says the company has followed the steps even if with some delays. We
suspect that PDVSA and ExxonMobil will eventually settle a negotiated
agreement in which PDVSA will pay ExxonMobil with its stake in the
Chalmette refinery.

This entry was posted on March 30, 2008 at 7:46 pm and is filed under Venezuela.