PetroSaudi Oil Services (Venezuela) Ltd v Clyde & Co LLP

A trustee is not generally required to act where doing so exposes it to a real, non-fanciful risk of personal liability, including criminal prosecution under foreign law. The court must balance the beneficiary’s interests against the trustee’s contractual and general-law protections. A foreign order which has not been domesticated in England may nevertheless be relevant to the practical risk faced by the trustee. The supervisory jurisdiction over trusts is not excluded without very clear contractual words. Where the evidence establishes a real risk of prosecution if trust assets are transferred, the court may refuse to order payment into court, even where the beneficiary faces serious financial prejudice.

PetroSaudi held approximately US$325 million in an account administered by Clyde & Co LLP as escrow agent under an arbitration-related agreement. Following a final arbitral award in PetroSaudi’s favour, Clyde was required to transfer the balance, subject to its legal and regulatory obligations.

After the Malaysian authorities froze the funds and the United States Department of Justice obtained and served an in rem forfeiture warrant, Clyde declined to make further payments. PetroSaudi sought orders under the court’s supervisory jurisdiction over trusts and CPR 64, requiring Clyde to pay the funds into court and permitting payments for creditors and legal expenses. The central issue was whether the court should compel that transfer despite the asserted real risk of United States prosecution or liability.

1. Application dismissed. The court refused to order Clyde to pay the funds into court or to make payments to PetroSaudi. The evidence established a real, as opposed to theoretical or remote, risk that the United States Department of Justice would prosecute Clyde if it transferred the funds, including under a compulsory order of the English court.
2. The court accepted that it had inherent supervisory jurisdiction over trusts and powers under CPR 64 and PD64 to require a trustee to pay trust money into court or perform a particular act. Those powers had to be exercised consistently with substantive trust-law rights and the parties’ contractual arrangements.
3. A trustee is not required to expose itself to a real risk of personal liability. A trustee may retain trust assets to protect itself against prospective or contingent liabilities where the risk is more than fanciful. The same principle applied to the risk of foreign criminal prosecution.
4. The escrow agreement remained effective after the arbitral tribunal became functus officio. Its protective provisions, including clauses 5.11, 6.2, 6.3 and 6.12, naturally applied when payment under the final award was required. Clause 6.12 gave Clyde a contractual discretion not to act where it determined, in good faith and without arbitrariness, capriciousness, perversity or irrationality, that the act might contravene applicable law or expose it to liability.
5. The agreement did not clearly waive PetroSaudi’s right to invoke the court’s supervisory jurisdiction. Nevertheless, its contractual protections were an important factor in the discretionary balance. PetroSaudi’s financial distress and the absence of United Kingdom domestication of the United States warrant did not outweigh Clyde’s protection against the established prosecution risk.
6. The court declined to defer judgment pending the United States proceedings and declined an alternative procedure involving payment into court followed by submissions from the United States and Malaysian authorities.

First-instance decision. The judgment records that Sir Alastair Norris had granted summary judgment against PDVSA and discharged an injunction in related proceedings: [2020] EWHC 2819 (Ch). An application for permission to appeal that decision was pending.