Enron (Thrace) Exploration and Production Bv and Another v Ann K Clapp and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Aikens |
| Judgment Date | 22 March 2005 |
| Neutral Citation | [2005] EWHC 401 (Comm) |
| Docket Number | Case No: 2003 FOLIO 872 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 22 March 2005 |
[2005] EWHC 401 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
Mr Justice Aikens
Case No: 2003 FOLIO 872
Kenneth Maclean QC and Matthew Shankland (instructed by Messrs Weil Gotshal & Manges) for the Claimants
Michael Briggs QC and John Machell (instructed by DLA Piper Rudnick Gray Cary U.K. LLP) for the Defendants
Hearing dates: 7th 8th and 9th of February 2005
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
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This is the second stage in litigation which has already been before Langley J, who, on 20 July 2004, partly set aside a judgment obtained in default of defence. Although Langley J refused permission to appeal, that was granted by Clarke LJ. The date of the appeal hearing had been fixed for March 2005, but it was agreed during the hearing before me that the appeal should be adjourned until the parties had been able to consider my judgment on the two applications that are before me. These relate both to the part of the default judgment that was not set aside by Langley J and also to the part that was. The applications raise interesting and difficult points of law.
A: Synopsis of the Case so far
(1): 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 In (" ECT"), is a Delaware Corporation with offices in Texas, USA. I will refer to these two companies together as " Enron", although I shall have to refer to other Enron companies in the course of this judgment.
The four defendants are individuals, three of whom are resident in the USA and one is resident in the US Virgin Islands. They are all shareholders in Thrace Basin Natural Gas (Turkiye) Corp "( 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 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.
(2): 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 1. 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 (called " the ECT Advance") 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 to US$ 3 million. That was described in JVA 2 as the " minimum commitment".2 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 over Shares": (" the 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, (the General Directorate of Petroleum Affairs of the Republic of Turkey � " GDPA"), to transfer a 55% interest in the Tekirdag Concessions from TBNG into the name of ETEP. The transfer was completed by 2 May 2001.
For the present, four important aspects of the terms of JVA 2 should be noted. 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 Enron's interest as licensee; obtaining a permit for a proposed pipeline and the receipt by Enron 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 capital expenditure (called " Capex", as defined in JVA 2) 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. If ETEP did that then any such Enron Pre � Closing Tekirdag Capex was to be treated as a loan from ECT to TBNG (and such sums are defined as " the Loan" in Article 5.4.4). That loan became repayable (subject to two terms of JVA 2), on demand from Enron on the earlier of several dates: the " Final Date"; the Closing Date or "the date of termination of�" JVA 2. If repayment was made in those circumstances then it attracted interest at 25% per annum.
The fourth point to note is that when the Closing Date occurred Enron had to pay to TBNG (as further consideration for the transfer of the Enron interest in the Tekirdag Assets) an amount equal to 55% of the Tekirdag Net Revenues, for the period from the time of exercising the Option until the Closing Date. Langley J held (in para 31 of his judgment) that under the terms of JVA 2, Enron was only entitled to be paid its 55 % share of the net revenues of the Tekirdag Assets after the Closing Date. He also held that the Closing Date had not occurred by April 2001, because the conditions set out in Article 5.2 had not been fulfilled by that date.
(3): The History from April 2001
Nevertheless, towards the end of April 2001 it was agreed between Harvey Clapp and Mr Friend that TBNG would advance to Enron 55% of the net revenues of the Tekirdag Assets so as to allow Enron to use that credit to fund pre � Closing Date Capital Expenditure. By that time Enron had decided not to invest any further sums in the project except for $350,000 which was invested in a pipeline.
During the remainder of 2001, there was discussion between Mr Clapp and Mr Friend about the financial position that would arise upon "Closing". There were disagreements about this. Then in December 2001 it was disclosed that there had been serious accounting errors in the accounts of Enron 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 Enron 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, first, that the Closing Date had not occurred before the "Final Date" under the agreement, which was 30 September 2001 and, secondly, that several "Events of Default" had occurred under Article 11 of the agreement. These "Events of Default" were said to be alleged failures by Enron to "close the transaction" as well as various alleged specific breaches and an alleged inability of Enron to pay its debts.
The Notice concluded by stating:
"TBNG will tender the requisite amount of the loan�if and when [Enron] files an application with GDPA in form and substance acceptable to TBNG to transfer back legal titles to the 55% of three concessions now in legal limbo".
On 23 January 2003 Enron formally demanded from TBNG repayment of the Loan plus interest. On 27 January 2003 Enron itself 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 Enron 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 was issued on 3 October 2003.
(4): The pleaded case of Enron
In the Particulars of Claim it was alleged that between 29 February 2000 and 5 October 2001, Enron made payments totalling US$ 5,236,588.75 "under or in connection with The Loan and the ECT Advance". In his judgment on the application to set aside the default judgment, Langley J analyses the breakdown of that figure as follows (at paragraphs 45 and 46):
"45�.The quantum of the claim has been further explained in the fifth...
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