Ann K Clapp and David S Clapp and Harvey R Clapp Iii and Guy O Dove v Enron (Thrace) Exploration and Production Bv Ect Europe Finance Inc.
| Jurisdiction | England & Wales |
| Judge | Lord Justice Buxton,Lord Justice Sedley,Lord Justice Jonathan Parker |
| Judgment Date | 08 December 2005 |
| Neutral Citation | [2005] EWCA Civ 1511 |
| Court | Court of Appeal (Civil Division) |
| Date | 08 December 2005 |
| Docket Number | Case No: A5/2005/0788 |
[2005] EWCA Civ 1511
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE AIKENS
Lord Justice Buxton
Lord Justice Sedley and
Lord Justice Jonathan Parker
Case No: A5/2005/0788
Mr Michael Briggs QC and Mr John Machell (instructed by DLA Piper Rudnick Gray Cary UK LLP) for the Appellants
Mr Murray Rosen QC and Mr Kenneth MacLean QC (instructed by Herbert Smith LLP) for the Respondents
In this judgment I set out only such facts as are necessary for an understanding of the issues and decision. A much more extensive account of the case is given with, if I may presume to say so, pellucid clarity by Aikens J [2005] EWHC 401 (Comm). Anyone who needs to find out more about the case may safely seek enlightenment there. The first part of what follows has indeed been extracted more or less verbatim from the judge's judgment. Additionally, some further matters relevant to the cross-appeal are set out in the judgment of Jonathan Parker LJ.
The parties
The two Claimant companies are part of the Enron group. Neither is in any form of administration or liquidation in the USA, UK or elsewhere. The first Claimant, Enron (Thrace) Exploration and Production BV [ETEP] is a Dutch company. The second Claimant, ECT Europe Finance Inc [ECT] is a Delaware Corporation with offices in Texas, USA. The four defendants are individuals, three of whom are resident in the USA and one resident in the US Virgin Islands. They are all shareholders in Thrace Basin Natural Gas (Turkiye) Corporation [TBNG], which is a company registered in the British Virgin Islands. Mr Harvey Clapp and Mr Guy Dove direct the business of that company. Mr Clapp is the Chief Executive Officer of TBNG and the Chairman of the Board.
In 1995 TBNG was granted hydrocarbon exploration licences in relation to certain carbon deposits in an area near Tekirdag in the northern region of the Republic of Turkey. During 1999 TBNG, acting through Mr Harvey Clapp, entered into negotiations with the Enron group, acting primarily through a Mr Nigel Friend, about setting up a Joint Venture to exploit the Tekirdag concessions. The plan was that the Enron group should provide both financial and technical assistance for the project.
The contracts
On 4 February 2000 TBNG and ECT concluded a Joint Venture Agreement [JVA 1]. That Agreement was replaced by a second Joint Venture Agreement [JVA 2], which was concluded on 20 December 2000 and was between TBNG, ECT and ETEP. The basic structure of the two JVAs is the same. There are two key aspects of both JVAs. The first is that ECT agreed to fund the costs of an exploration consultant and pipeline engineer in connection with the Exploration Programme as defined. TBNG agreed to repay ECT up to US$ 150,000 of that expenditure in four instalments starting on 10 August 2000. The second key aspect is that TBNG granted ECT an Option to acquire a 55% interest in the Tekirdag Assets (which included the Tekirdag Concessions and associated assets) in consideration of a commitment by Enron to fund the capital expenditure (called Capex) necessary to undertake the Project, up to US$ 3 million. That was described in JVA 2 as the "minimum commitment". The Option was exercisable up to 30 June 2001. By the time JVA 2 was concluded, Enron had started to incur some capital expenditure (ie. "Capex"), but had not exercised the Option.
By a deed dated 21 December 2000, the Defendants, as Chargors, and the Claimants, as Chargees, entered into a Charge Agreement. By Clause 2.1 of the Charge the Defendants covenanted to pay the "Secured Liabilities", which meant sums due from TBNG to Enron under or in connection with two clauses in JVA 2. Those clauses are Clause 2.5.2 and 5.4.4.
JVA 2 was amended by an agreement dated 23 January 2001. On the same day ETEP exercised the Option. On 25 January 2001 an application was made to the Turkish authorities to transfer a 55% interest in the Tekirdag Concessions from TBNG into the name of ETEP. That transfer was completed by 2 May 2001.
The judge identified four important aspects of JVA2. First, under the terms of JVA 2 there was a "Closing Date". That was defined in JVA 2 as the date on which all the various conditions set out in Article 5.2 were satisfied or waived. Those conditions concerned the exercise of the Option and requirements about registering the claimants' interest as licensee; obtaining a permit for a proposed pipeline; and the receipt by the claimants of legal opinions about the validity of certain acts of TBNG. Secondly, the importance of the Closing Date is that, following that date (and therefore the fulfilment of all the conditions referred to above), ETEP would fund all Capex up to a minimum amount and also fund further Capex as agreed thereafter: Article 5.1. Thirdly, under Article 5.3 of JVA 2, ETEP was entitled (by itself or through ECT) to fund Capex in relation to the Tekirdag Assets prior to the Closing Date occurring. Any such funding was to be treated as a loan from ECT to TBNG, such sums being defined as "the Loan" in Article 5.4.4. Subject to two terms of JVA2, that loan became repayable on demand from Enron on the earliest of several dates: the "Final Date"; the Closing Date; or the date of termination of JVA 2. Fourth, when the Closing Date occurred the claimants had to pay to TBNG an amount equal to 55% of the Tekirdag Net Revenues, for the period from the time of exercising the Option until the Closing Date.
The dispute
In December 2001 it was disclosed that there had been serious accounting errors in the accounts of the Enron Corporation and of some of its subsidiary companies. Some companies in the group (but not the claimants) filed for Chapter 11 protection in the Federal Court of the Southern District of New York. By the end of 2001 the claimants had ceased to be involved with the joint venture. On 11 January 2002 TBNG served on the claimants a formal "Notice of Immediate Termination" of JVA 2, pursuant to Article 11 of that agreement. The Notice said that amongst the grounds for termination were several alleged "Events of Default" under Article 11 of the agreement, including alleged failures by the claimants to "close the transaction"; various specific breaches; and inability of the claimants to pay their debts.
On 23 January 2003 the claimants formally demanded from TBNG repayment of the Loan plus interest. On 27 January 2003 the claimants themselves served a Notice of Immediate Termination of JVA 2 under Article 11.2, claiming that the Closing Date had not occurred prior to the Final Date of 30 September 2001. Then on 3 September 2003 the claimants demanded payment from the four defendants of the secured liabilities pursuant to Clauses 2.1 and 1.1 of the Charge Agreement. The Claim Form in the current proceedings, seeking payment of the secured liabilities, alternatively damages in the same amount, was issued on 3 October 2003.
These proceedings
Judgments on that claim in default of defence were entered in December 2003. After some exchanges in relation to enforcement, which it is not necessary to detail, the defendants in March 2004 applied to set aside the default judgments. A draft Defence and Counterclaim was exhibited to the claimants' affidavit in support of the set aside application. It should be noted at this stage that paragraph 1 of that pleading stated:
"This defence and counterclaim is pleaded without prejudice to the right of the Defendants and/or [TBNG] to claim in these proceedings and/or in any other proceedings in any other jurisdiction and/or in any arbitration that [ETEP] and/or [ECT] procured that TBNG and the defendants entered into the joint venture agreements, charge and other agreements referred to below by fraud and/or acted fraudulently in the performance or purported performance of the agreements"
That plea was not further elaborated.
The hearing of the application to set aside the default judgments took place before Langley J in June 2004, judgment being delivered on 20 July 2004. Various arguments on the construction of the documents were put to the judge, most conspicuously that in the events that had arisen the Closing Date had occurred before 30 September 2001. If that was so, ETEP had been obliged then to pay the balance due for the purchase of the 55% of the Tekirdag Assets, and only when that had been done would TBNG have to repay the loan. If TBNG was not liable to repay the loan such an obligation did not feature amongst the secured liabilities which the defendants, as chargors, were liable to pay to the claimants.
Langley J rejected all the arguments before him that sought to set aside the default judgment on the merits of the asserted case, holding in particular that the Closing Date had not yet occurred. He was however persuaded that it had not been demonstrated with sufficient certainty that part of the quantum claimed was in fact due. He therefore held that the default judgments should be set aside as to that amount, but that there was no defence to the balance of the claim, some $3.9 million.
On 8 August 2004 the defendants applied to this court for permission to appeal Langley J's judgment. That permission was granted, but effectively limited to issues relating to the Closing Date, on 13 October 2004. On 23 November 2004 the claimants were given permission to cross-appeal in...
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