PDVSA Servicios S.A. v Clyde & Co LLP & Ors

A conventional escrow or stakeholder arrangement does not create a trust merely because money is held pending an arbitral award. Clear words are required to establish proprietary or fiduciary rights. The arrangement must be construed from its language, factual matrix and commercial purpose.

Where the agreement requires payment in accordance with the tribunal’s final order, and the tribunal is then functus officio, the escrow arrangement normally ends when that order is made. The court will not imply terms preserving the arrangement during annulment proceedings where those terms would contradict the agreement or require construction of an entirely new bargain. A party cannot use the court’s trust jurisdiction to obtain indirectly a freezing order against the opposing party.

PDVSA Servicios S.A. sought to restrain Clyde & Co LLP from distributing approximately US$300 million held in an escrow account established during a Paris-seated UNCITRAL arbitration between PDV and Petrosaudi Oil Services (Venezuela) Ltd.

The escrow terms required Clyde to act in accordance with the tribunal’s orders. The tribunal subsequently issued a final award in favour of POS and instructed transfer of the escrow balance to POS. PDV challenged the award before the Paris Court of Appeal, but that challenge did not automatically stay enforcement.

PDV applied under CPR 64.2, contending that the escrow funds were held on trust and that the escrow arrangement survived the award pending annulment proceedings. The central issues were whether a trust existed and whether the arrangement continued after the tribunal’s final order.

1. Disposition. The interim injunction was not continued. Summary judgment was given for Clyde and POS on PDV’s Part 8 claim.
2. Nature of the escrow. The proceeds of the standby letter of credit belonged to POS. A conventional escrow or stakeholder arrangement is ordinarily contractual and does not create a trust or proprietary interest in a segregated fund. The Tripartite Agreement contained no clear words creating a trust. Its language imposed personal and administrative obligations, and clauses 6.1 and 6.3 pointed against fiduciary obligations.
3. Construction. The agreement had to be interpreted by reference to its words, factual matrix and commercial common sense. The contextual matters relied upon by PDV did not establish a contingent beneficial interest. Any possible equitable charge would not make Clyde a trustee or permit PDV to invoke the court’s inherent trust jurisdiction.
4. Effect of the final award. The agreement required the escrow monies to be dealt with in accordance with the tribunal’s orders. The tribunal’s final order instructed payment of the balance to POS and was not stayed under French law. The tribunal was then functus officio; the contingency had occurred and the escrow account had ceased to exist.
5. Implied term. No term could be implied preventing execution of the final order during annulment proceedings. Such a term was neither necessary for business efficacy nor obvious, conflicted with the express agreement, and would require a new agreement dealing with uncertain consequences of annulment. The temporary measures made under article 26 of the UNCITRAL Rules lapsed with delivery of the final award.
6. The authorities concerning directions to trustees did not assist because they involved an existing express or possible trust. PDV’s claim was in substance an attempt to obtain a freezing order against POS while avoiding the requirements for that relief.

The judgment records earlier interlocutory applications before Zacaroli J, Trower J and Snowden J. The present court determined the return-date applications, refused continuation of the interim injunction and entered summary judgment for Clyde and POS.