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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Clapp & Ors v Enron (Thrace) Exploration & Production BV ECT Europe Finance Inc [2005] EWCA Civ 1511 (08 December 2005) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2005/1511.html Cite as: [2005] EWCA Civ 1511

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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
[2005] EWHC 401 (Comm)

		Royal Courts of Justice Strand, London, WC2A 2LL
		08/12/2005

Lord Justice Buxton :

1. 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

2. 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.
3. 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

4. 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.
5. 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.
6. 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.
7. 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

8. 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.
9. 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

10. 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.

11. 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.
12. 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.
13. 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 relation to Langley J's conclusion that there was an arguable defence with regard to the balance of the quantum. Meanwhile, and without revealing to this court in the course of the permission application what their intentions were, the Defendants had on 10 September 2004 served a Defence and Counterclaim. That was in terms strikingly different from the draft pleading on which they had advanced their set aside application, as described in § 10 above, and on the basis of which they then sought to appeal the decision of Langley J on that application. In this new defence it was asserted, for the first time, that JVA 2 and the Charge Agreement had been entered into by TBNG and the defendants respectively as a result of false representations made on behalf of ETEP and ECT by Mr Friend and others. At that stage no allegation of fraud was made, but such a plea was sought to be added by an application to amend on 9 December 2004. Mr Briggs QC frankly told us that that step was taken in an attempt to avoid the effect of certain clauses in the agreements that might otherwise be thought to preclude the availability of the misrepresentation defence. Other than the wording at the head of the draft Defence and Counterclaim produced in March 2004 there had been no hint of a misrepresentation defence until the pleading of 10 September 2004 had been served.
14. On 15 October 2004 the claimants moved to strike out the misrepresentation defence. The defendants countered with their own motion seeking permission to amend the Defence and Counterclaim to allege fraud, as indicated above; and an order under CPR 13(3)(1)(a) seeking to set aside the balance of the default judgments (that is, the part that Langley J had refused to set aside) on the basis that the misrepresentation claim provided a potentially good defence to the whole of judgment.
15. Aikens J heard these issues over a period of two days, having also received extensive written submissions; and gave a full and careful judgment on them. He concluded as follows:

i) He considered that he did not have jurisdiction to set aside the balance of the default judgments, that matter having been concluded by the judgment of Langley J.

ii) If he had had jurisdiction to consider the new application, he would not have excluded it either as an abuse of process or on the basis of issue estoppel; but:

iii) the misrepresentation defence had no real prospect of success, so (a) it should be struck out; and (b) the new application, even if there had been jurisdiction to entertain it, would have failed on that ground.

The judge gave the defendants permission to appeal.

The proceedings in this court

16. So far as the judgment of Aikens J is concerned, we are therefore faced with three issues:

i) Did the judge have jurisdiction to consider the new application to set aside the default judgment?

ii) If he did have jurisdiction, should that jurisdiction be exercised (in effect, by this court) in favour of the defendants? That question is not confined to, but is importantly affected by:

iii) whether the misrepresentation defence is arguable. That issue is also important in determining whether there is a defence to the balance of the default judgment in respect of which Langley J held there to be an arguable defence on grounds of quantum.

17. So far as the judgment of Langley J is concerned, there were two issues before this court. The first was the cross-appeal of the claimants in relation to the quantum of the judgment. That issue is logically separate from the other issues before us, and is considered separately below. The second was the appeal of the defendants in relation to Langley J's ruling on the Closing Date, permission for which was granted in October 2004 (see § 13 above). But by notice dated 19 April 2005 the defendants applied to this court for permission to amend their notice of appeal against the judgment of Langley J to complain that he had erred in not setting the default judgments aside in full on the basis of the misrepresentation allegation: an allegation that had never been mentioned to him. That motion was stood over to be heard with the appeal.
18. On 1 November 2005, four working days before the opening of the appeal, the defendants notified the court that they were abandoning the ground on which they had been given permission to appeal, and in respect of which a substantial amount of work had already been undertaken by the court and, no doubt, by the opposite party. No explanation was provided for the lateness of this change of front. The effect of it is that the defendants have no extant appeal against the judgment of Langley J, but only their application to amend their notice of appeal.
19. Although it is logically subordinate to the issue of jurisdiction, it will be convenient first to consider whether the misrepresentation defence is reasonably arguable, because that question affects both the appeal and the application. If the defence is arguable, it then necessary to consider both the existence and the exercise of the jurisdiction of Aikens J. If Aikens J was correct in not setting aside the default judgments, then the application to appeal the judgment of Langley J becomes of crucial importance, as the only method available to the defendants of getting the misrepresentation defence before the court.

The misrepresentation defence

20. A "final" version of the misrepresentation defence was handed to Aikens J on the second day of the hearing. He very helpfully appended it to his judgment, and I follow the same course. In reading what follows it will be necessary to keep an eye on that appendix, only a small part of which is reproduced in the body of this judgment. This judgment will follow the form of the pleading in using the term "Enron" to refer to the Enron group of companies, and "Enron Corp" to refer to the parent company Enron Corporation.
21. Put in the first instance very shortly, the complaint is that in the course of the negotiations leading up to the JVAs and the Charge employees of Enron made or adopted representations about the financial strength of Enron and Enron Corp that were intended to encourage TBNG and the defendants to enter into the transaction. It is accepted, at least for the purposes of the present appeal, that (i) the statements complained of were untrue; and (ii) belief in their veracity induced the making of the agreements. The issue in dispute is whether these particular claimants are responsible for the misrepresentations.
22. Two types of representation to TBNG are pleaded. These were (i) representations as to the financial condition of the Enron group that were made in Enron Corp's publicly filed quarterly and annual financial statements, which are called "the Public Financial Representations", and (ii) representations made by employees of Enron in the course of the negotiations, called the "Employee Representations". In paragraph 8A, the draft alleges that the Public Financial Representations were made in the quarterly financial reports from early 1999 until the third quarter of 2000 and in the annual reports for 1998 and 1999. The Employee Representations were made by various Enron employees, including in particular Mr Friend (see paragraph 3 above), during the course of the negotiations.
23. It is accepted by the defendants that Mr Friend (and, it would seem, such other Enron employees as were involved) did not know that the claims made or adopted by them as to the standing and probity of, in particular, Enron Corp were false. That was however at the relevant time known to, and not revealed by, senior officers of Enron Corp not involved in the negotiations, for whose fraudulent concealment Enron Corp was thus responsible. Responsibility for that fraud therefore has to be attributed to these claimants, who were equally ignorant of the true position of Enron Corp, by a somewhat indirect route.
24. That route is set out in paragraph 42A of the proposed pleading. Its effect was, with respect, very clearly explained by the judge, in terms of the argument addressed to him by Mr Briggs, in paragraphs 87-88 of his judgment:

Negotiations that resulted in JVA 1, JVA 2 and the Charge were led by Mr Nigel Friend, who was employed by Enron Europe Limited. The other negotiators on the Enron side were employed by various Enron Group subsidiaries in London and Houston. These negotiators should be regarded as agents of either the Enron group as a whole or Enron Corp, the ultimate owner of the group. Moreover, these negotiators were either the "directing mind and will" of Enron group/Enron Corp, or their agents. It was always contemplated that the entity contracting with TBNG would be either Enron Corp or one of its subsidiaries, as was ultimately the case. Once Enron selected ECT and ETEP as the vehicles to be the contracting parties with TBNG (for the JVAs) and the Defendants (for the Charge), the negotiators became the agents of the Claimants as principal. The representations that the negotiators had made on behalf of Enron group/Enron Corp continued to be made by the negotiators, but once ECT and ETEP had been identified, the representations were made on behalf of the Claimants. These continuing representations continued to be false to the knowledge of Enron group/Enron Corp. Therefore they were made fraudulently by the Claimants, because Enron group/Corp became and then continued to be agents of the Claimants.

25. The judge referred to the reality of life in a group of companies, in that a person who is formally employed by one subsidiary may have actual or ostensible authority to act for other subsidiaries or for the parent: see the observation somewhat in those terms of Mance LJ (as he then was) in the last sentence of § 25 of his judgment in MCI WorldCom v Primus International [2004] EWCA Civ 957. The judge therefore concluded, at his §92, that:

it is arguable that Mr Friend and other persons engaged in the negotiations could be clothed with the apparent authority of the Enron group or Enron Corp to make representations of fact about the group or Enron Corp's financial status. There is a plea that the "Employees" acted on behalf of Enron group or Enron Corp in making representations of fact. I cannot say that is unarguable on the facts. Nor can I conclude that this aspect has no real prospect of success as a matter of law.

26. The judge however held that that conclusion did not lead to any responsibility of the claimants for the misrepresentations. He put it in this way in his §§ 96 and 98:

First, the lack of any evidence or pleading that the Claimants authorised Mr Friend, other individuals or Enron Corp to make authorisations on their behalf means that there can be no case that [they] had any actual authority from the Claimants to continue to make the alleged representations. Secondly, there is no evidence or pleading to suggest that the identification of the Claimants as parties to the JVAs meant that the Claimants were clothing Mr Friend or other individuals or Enron Corp [with authority] to make representations on the Claimants' behalf. Whilst I am prepared to accept that the Employees acted on behalf of the Claimants (as their principals) in completing the negotiations for the JVAs and the Charge, it does not follow that these Claimants clothed them with authority to continue to make all representations of fact regarding Enron Corp.

In this case the Defendants do not plead that the "directing will and mind" of ECT and ETEP knew that the continuing representations about Enron Corp's financial status were false. It is pleaded that Mr Friend and others made representations about the financial status of Enron Corp (the so-called "Employee Representations", but there is no plea that those employees knew that the representations were false. So the only way that the Claimants can be held liable for the fraudulent misrepresentations about Enron Corp's financial status is by saying that the Claimant companies are vicariously liable for fraudulent misrepresentations made by Enron Corp in its Public Financial Representations, which were known to be false by its directing will and mind, ie. its "top men". But that then brings the Defendants back to the problem that they have not pleaded or pointed to any evidence to demonstrate that Enron Corp itself (not the employees who have been identified) had the authority of the Claimants to make representations on their behalf.

27. Mr Briggs would, I think, regard this as an unattractively technical response to the problems faced by people dealing with group companies; and to the fact that on the judge's findings or the concessions untrue representations had undoubtedly been made by "Enron" at one stage of the negotiations. He however recognised that he had to fit those complaints into the corporate structure of the claimants in this case. He approached that task in the following order.
28. First, a principal is liable if he fraudulently causes an innocent agent to communicate a misrepresentation to a third party: Armstrong v Strain [1952] 1 KB 232 at pp 248-249, per Romer LJ. Since the judge had found it arguable, see §25 above, that Mr Friend had authority from Enron Corp to make statements of fact about Enron, those statements were in the circumstances, and despite Mr Friend's innocence, fraudulent misrepresentations made by Enron. Second, Mr Friend's authority was not limited to making statements. Everything he did, he did as Enron Corp; as it was put at one stage, he carried Enron Corp around with him. Third, therefore, once the claimants had been identified ( it is to be assumed, by the directing mind and will of Enron Corp) as the Enron entity that was to enter into the agreements, thereafter Enron Corp, through Mr Friend, acted on behalf of the claimants and as their agents in the further negotiations. That produced a situation of liability which was the obverse of that set out in the citation from Romer LJ at the beginning of this paragraph. The principal is liable for the fraudulent representations of his agent if they are made within the ambit of that agent's authority, even if the principal himself is innocent. Here, the claimants were innocent, but they were liable for the fraudulent representations of their agent: their agent in this regard being Enron Corp acting through the agency of Mr Friend, rather than Mr Friend himself.
29. In support of that analysis Mr Briggs relied strongly on the decision of the House of Lords in Briess v Woolley [1954] AC 333. In that case the managing director (R) of a food making company (A Co) deliberately and dishonestly increased the production of its product (synthetic cream) by diluting the ingredients with water, thus contravening the government approved formula. He then approached another company (B Co) and proposed that it should buy the shares in A Co. R did not disclose that the accounts of A Co were based on dishonest trading. All this was done without the knowledge or approval of the other directors and shareholders of A Co. Then R told his fellow directors and the shareholders in general meeting that there was a proposal from B Co to buy A Co's shares. The general meeting authorised R to carry on and conclude the negotiations, which he did. After B Co had purchased the shares, it discovered the fraud and purchasers of the shares brought an action against shareholders of A Co, who had no actual knowledge of the fraud of R. The House of Lords held that the fraudulent representations made by R (that the accounts were based on the true position of A Co) continued after the general meeting of A Co's shareholders. Although R was not the agent of the shareholders of A Co prior to the general meeting, he became so after the resolution was passed that he should carry on and complete the share sale agreement. Therefore R made the continuing representations as agent for the shareholders of A Co and they must be liable for them, even though they did not know at any stage that he was making fraudulent misrepresentations.
30. Mr Briggs claimed that Briess v Woolley was authority for a detailed principle that conveniently fitted the facts of our case. That was that where a party [in casu, Enron Corp] originally negotiates as a principal, but is then authorised to continue the negotiations as an agent [in casu, of these claimants], any continuing representations made by that party will stand, irrespective of whether his eventual principal knew of the representations or of their falsity. But Briess v Woolley cannot be fitted into that straitjacket, because when R told his original lies he could only be acting as a "principal" in relation to such shares as he himself owned. What the case does establish is that, as Lord Reid put it at p 349, R knew, when negotiating on behalf of the company, that the counterparties had been placed by him under a misapprehension, and it was his duty to correct them before they acted to their detriment. The principals, as they by then were, were liable for his fraud, although innocent themselves. That was no new proposition. As Bowstead § 8-185(c) points out, that has been the law since at least the judgment of Willes J in Barwick v English Joint Stock Bank (1867) LR 2 Ex 259: see §28 above.
31. However, granted that principle, or even granted the more specific rule for which Mr Briggs contended, there is still a fundamental difficulty in the way of his argument. As the judge pointed out in his §98, R was specifically authorised by A Co to negotiate; but there is no evidence and no pleading that Enron Corp, as opposed to the identified employees, had the authority of the claimants to make representations on their behalf. That objection is sought to be met in two ways.
32. First, the defendants argue that the judge was wrong to say in his §96, quoted in §26 above, that it did not follow from the fact that the claimants authorised the employees to act for them that they "clothed them with authority to continue to make all representations of fact regarding Enron Corp." I would be prepared to accept that objection as arguable, but the best that it can do is to implicate the claimants in the innocent representations of Mr Friend and his colleagues. It is accepted that the defendants must succeed in what they have set out to do, and prove fraud. But in any event, and second, because of the need to prove fraud the case has to be, not that the claimants' agent was Mr Friend, but that Enron, or more accurately Enron Corp, was the claimants' agent.
33. That proposition can only be established by the argument that is in fact advanced, that everything that Mr Friend did was to be taken to be done as the agent of Enron Corp. That produces the very artificial transformation contended for in this case, that Enron Corp was originally a principal in the negotiations, but once the claimants had been identified as the principals Enron Corp did not then drop out, as one would expect when another principal took over. Rather, Enron Corp moved from being principals to being agents of the new principals. There is no reason at all, other than a wish to implicate the claimants in Enron Corp's misrepresentations, to adopt that analysis. And the fact that Mr Friend was Enron Corp's agent when they were the principals does nothing to establish that when the claimants became the principals Mr Friend, although acting for them, did so as the agent of Enron Corp: as has to be established if the claimants are to be held liable for the fraud of Enron Corp as their agent. In reality, the only way, if at all, that the claimants could be inculpated with the knowledge of Enron Corp was by showing that they either adopted or ratified the resulting misrepresentations: but the judge recorded in his §96 that both of those arguments had been specifically disclaimed, as they had to be since the claimants were not even in existence when the original representations were made. Nor was there any suggestion that Enron Corp had in some way ordered or required the claimants to use the services of Mr Friend as an agent for Enron Corp to act on their behalf, as opposed to using his services as their own agent.
34. The misrepresentation plea therefore fails, as the judge found, at the crucial stage of establishing that Enron Corp acted as the agent of the claimants in the negotiations. I see no prospect of making that deficiency good. The judge was right to strike out the misrepresentation defence.
35. That finding concludes both the appeal and the application in favour of the respondents. However, in deference to the arguments addressed to us I go on to consider the other issues identified in §§ 16 and 17 above, on the hypothesis, which I have rejected, of the misrepresentation defence being reasonably arguable.

Jurisdiction

36. As Willes J said in GNR v Mossop (1855) 17 CB 130 at p 132:

"The very object of instituting courts of justice is that litigation should be decided, and decided finally"

In that spirit, once a judgment has been perfected and entered it is final in the sense that the court whose judgment it is cannot recall it, even if it has been obtained by fraud: Preston Banking Co v Allsup [1895] 1 Ch 141 at p 143, per Lord Halsbury; R v Cripps, ex p Muldoon [1984] 1 QB 686 at p 695, per Donaldson MR. Once perfected, the judgment can only be attacked by appeal; or by a collateral action to set it aside, the only ground for such action being fraud (as to the limits of the latter jurisdiction see Odyssey Re (London) Ltd v OIC Run-Off [2001] Lloyds Rep (Insurance) 1). So much is agreed. The dispute is as to the status under that rule of a decision on the merits of the action that a default judgment should not be set aside, such as was the decision in this case of Langley J.

37. Mr Rosen said that Langley J's decision was of exactly the same status as a judgment after trial. It bound both parties, and converted the default judgment into a judgment that was final in the sense of the authorities cited in §36 above. Mr Briggs said that the application before Aikens J was not an attempt to interfere with the judgment of Langley J. It was an application to set aside the administrative act that had resulted in the default judgment, just as the application to Langley J had been such. A decision on such an administrative application did not achieve finality, so it was open to the unsuccessful party to make a further such application. Any fear that that jurisdiction might lead to excessive or repetitive applications would be controlled by the court, whether it be regarded in that respect as exercising discretion or as exercising judgement.
38. I have no doubt that Mr Rosen is right in his submissions. I would first respectfully adopt a distinction suggested by Mr Briggs between applications to set aside a default judgment on grounds that might be broadly described as technical; and applications to set aside the judgment on the merits. In the latter case the defendant, who through his own fault has not had the protection of a trial, seeks to persuade a judge that if a trial were to take place he might be successful. If he fails in that endeavour he is in exactly the same position as, and has had legal protection equivalent to that of, a defendant who loses at trial. There is no sensible reason why such a judgment should not be recognised as final and binding once it is entered. And as Mr Rosen pointed out, it has never been suggested that a judgment under CPR Part 24 is not final and binding: so there is no magic in a judgment having been issued after a trial.
39. Mr Briggs sought to counter these arguments of principle by appeal to authority. The only English case that he claimed to assist him was the decision of this court in Atwood v Chichester (1878) 3 QBD 722. A summons to set aside a default judgment was dismissed by the Master. After committal proceedings had been mooted a further application to set aside the judgment was dismissed by Pollock B and by the Divisional Court, but granted by this court. The argument on the applicant's side stressed that the original judgment had been defective on its face, being against a married woman sued personally and without joinder of her husband. The objection that was raised to the set aside made no mention of the jurisdiction issue with which we are concerned, but concentrated on complaints about delay. Not only was the present issue not raised, but also we do not know what was the nature of the original application, and whether it was indeed an application on the merits. I would not permit Atwood to deflect me from the view expressed in §38 above.
40. We were also taken to a series of Australian cases in which judges of great eminence have said or assumed that a second application may be made to set aside a default judgment, in some cases referring for support to Atwood v Chichester. The most important of those cases are Hall v Nominal Defendant (1966) 117 CLR 423, per Barwick CJ at p 429 and per Taylor J at p 440; Carr v Finance Corpn of Australia (1980-81) 147 CLR 246, per Gibbs CJ at p 248 and per Mason J at p 254; and Sanofi v Parke (1981) 149 CLR 147, per Gibbs CJ at p 153. I hope it will not be thought discourteous if I say that I did not gain assistance from that authority, and will not extend this judgment by citing it in detail. In none of the cases was the issue that is before this court addressed or even considered. What tended to be in issue was whether a decision on an application to set aside a default judgment was interlocutory or final, in the context of the procedural question of whether or not leave was required to appeal it. That meant that such applications (which, as we have seen, can include technical applications not in relation to the merits) were discussed in general terms, without specific reference to the particular case of an application that results in the default judgment being upheld on the merits. Persuasive as a decision of Barwick, Mason or Gibbs CJJ would be on that question, such a decision is not to be found in any of the cases put to us.
41. Aikens J was therefore right to hold that he had no jurisdiction to hear the renewed application to set aside the default judgments.
42. The judge did not therefore go on to consider whether, if he had had jurisdiction, and if he had been persuaded that the misrepresentation defence was arguable, he would have exercised his discretion or judgment in the defendants' favour. With some hesitation, I enter briefly on that question, on which again we received substantial submissions.
43. Mr Briggs relied on two considerations. First, on the assumptions mentioned in §42 above there was going to be a trial in any event on the balance of the default judgment. It was therefore artificial to limit that trial to part only of the claim. Second, he placed weight on the fact that the judge refused to hold that the matter was res judicata, and held that the second application was not an abuse of process. Care has to be taken in relation to the latter two points. Those findings of the judge were related to a particular argument put to him by the claimants, that since Langley J's judgment had not been set aside the Charge remained valid, and therefore there could be no claim for rescission. The abuse was said to be an attempt to avoid that barrier by bringing a claim for damages. The judge had no difficulty, in his §§ 57-67, in pointing out that damages might be available for inducing a party to make a contract, even if that contract was binding. That was why there was no issue estoppel.
44. As to abuse, the claimants understandably complained that the defendants had said nothing substantial about the misrepresentation until 10 September 2004, many months after the judgment of Langley J. The judge in his §§ 37-38 quoted an affidavit of the defendants' solicitor that accepted that the misrepresentation defence could have been advanced at the time of the original application to Langley J; and an e-mail of Mr Clapp in December 2002 which showed that fraud was even then in mind as a defence. Some attempt to explain the failure to plead fraud was made before us by saying that the English lawyers only received sufficient instructions at the end of 2004, and therefore could not properly advance the plea until then. Mr Rosen effectively countered that by pointing out that, whatever instructions they choose to give to their English lawyers, TBNG and the defendants had been perfectly content as early as March 2004 to issue proceedings in Harris County, Texas, alleging fraud by the claimants: that is, some months before the judgment of Langley J.
45. The judge held, in a passage in his §70 relied on in this connexion, that

"it is not suggested (and could not be on the evidence) that the Defendants deliberately held back their misrepresentation defence until after Langley J had considered the matter in June/July 2004"

The certainty of that conclusion may have been somewhat generous, granted that the judge had been given no evidence to explain that part of the delay. However, even accepting that conclusion I am quite clear that even if Aikens J had had power to indulge the defendants he should not have indulged it or them. Even though the delay was found not to have been dishonest, there is no question but that it was unexplained and exorbitant. These were sophisticated parties, who had access to skilled advice. They came before the court in mercy, mercy that it would be a misuse of the court's jurisdiction to extend to them.

The application to amend the Notice of Appeal

46. The considerations just ventilated apply equally to the application. The court's reluctance to permit a change of stance between the first instance trial and the appeal is well-known. I need only cite part of §52 of the judgment of May LJ (which was agreed in full by Hale LJ) in Jones v MNBA (unreported, 30 June 2000):

"a party cannot…normally seek to appeal a trial judge's decision on the basis that a claim, which could have been brought before the trial judge but was not, would have succeeded if it had been so brought. The justice of this as a general principle is, in my view, obvious. It is not merely a matter of efficiency, expediency and cost, but of substantial justice"

In this case it is conceded that the misrepresentation claim could have been brought before Langley J. No reason has been shown for departing from the normal practice of the court in such a case, and there are substantial reasons for not following that course. I would refuse the application in any event.

Disposal of the appeal and of the application

47. Despite the able and persuasive submissions of Mr Briggs I fear that the appeal and the application fail on every front. I would dismiss them both.

The cross-appeal

48. I respectfully agree with the judgment of Jonathan Parker LJ. There is nothing that I would wish to add.

Lord Justice Sedley:

49. I agree with both judgments.

Lord Justice Jonathan Parker:

50. As to the appeal and application I agree with the judgment of Buxton LJ. I now deal with the cross-appeal

INTRODUCTION

51. By its Respondents' Notice in the appeal against Langley J's order, Enron cross-appeals against his finding (in paragraph 31 of his judgment) that Enron is not entitled to be paid its 55 per cent share of the revenue from the Tekirdag assets before the Closing Date as defined in JVA2 (a date which, on the judge's findings, was never reached). Enron contends that on a proper construction of JVA2 it is so entitled, and that the contrary is unarguable.
52. In paragraph 31 of his judgment, Langley J said this:

"Enron was not in my judgment entitled to be paid its 55 per cent share of the revenue from the Tekirdag assets before the Closing Date. That is, I think, the plain inference from Article 5.4.6(i) of … JVA2 (both originally and as amended) which in effect required an accounting when Closing occurred in which Enron would then be credited with its share from the date of exercise of the Option to the Closing Date."

53. It is common ground that the effect of that finding is that to the extent that such revenue was paid to Enron or applied for its benefit, it is repayable by Enron; and that in consequence it gives TBNG a right of set off against the default judgment.
54. The evidence before the judge was that as at the date when the venture came to an end revenue from the relevant assets amounting to US$1.7M or thereabouts had been applied by TBNG in meeting capital expenditure on the project (Capex) which JVA2 obliged Enron to fund by way of loan. On the basis of that evidence the judge found (in paragraph 31 of his judgment) that the defendants, as chargors, were entitled to set off US$1.7M against their liability under the default judgment.
55. It is to be noted that in finding that Enron "was not … entitled" to payment of the revenues in question the judge went further than was necessary in order to determine the issue before him, which was whether it was arguable that Enron was not so entitled, and hence that TBNG arguably had a right of set off.

THE CONTRACTUAL BACKGROUND RELEVANT TO THE CROSS-APPEAL

(i) The Charge

56. The defendants were not parties to either JVA1 or JVA2; their liability to Enron arises only under the Charge. The Charge secures their obligation (under clause 2.1 of the Charge) to pay and discharge on demand any sums owing by TBNG under clauses 2.5.2 and 5.4.4 of JVA2 (see the definition of 'secured liabilities' in clause 1.1 of the Charge).
57. Clause 19(e) of the Charge provides that the defendants' liability under the Charge shall not be affected by:

"… the existence of any claim, set-off or other right which any [of the defendants] may have at any time against [Enron] or any other person".

58. Mr Rosen accepts that it is arguable that clause 19(e) does not prevent the defendants from asserting a right of set off which is vested in TBNG. Hence he does not rely on clause 19(e) as a bar to the set off for which the defendants contend.

(ii) JVA1

59. Mr Briggs relies on JVA1 as setting the context for the alterations made by JVA2. Mr Rosen, on the other hand, submits that since the whole purpose of JVA2 was to alter JVA1, JVA1 is of no relevance to the true construction of JVA2. However, since various provisions of JVA1 were referred to in argument on the cross-appeal, it is convenient to return to JVA1 at this point.
60. JVA1 recites (in recitals C(ii) and (iii)) that the parties wish JVA1 to provide for the grant of an option to Enron to acquire an interest in the relevant assets in consideration for the payment of a nominal sum; and to prescribe the terms and conditions on which, should Enron choose to exercise its option, Enron and TBNG will finance the appraisal and development of those assets.
61. The grant of the option is contained in clause 4.1.1 in Section 4 of JVA1. It is there described as:

"… an irrevocable and exclusive option … to acquire an interest, at its sole discretion, of fifty-five per cent (55%) of [the relevant assets], in consideration for a commitment to fund all Capex up to the Minimum Commitment [i.e. up to limit of US$3M]".

62. Clause 4.1.2 provides that the option may be exercised by Enron at any time before 30 June 2001 on written notice to TBNG.
63. Section 5 of JVA1 is headed "Funding and Ownership Percentage". Clause 5.1 is headed "Capex", and provides as follows (so far as material):

"Following the Closing Date [i.e. the date on which all the conditions in clause 5.2 have been either satisfied or waived: see the definition in clause 1.1], Enron will fund … all Capex up to the Minimum Commitment …."

64. Clause 5.2 sets out nine conditions, including the exercise by Enron of its option, the transfer of the 55 per cent share to Enron, and Enron's registration with the appropriate authority of its ownership of its 55 per cent share.
65. In the event, Enron exercised its option in January 2001, the 55 per cent share was duly transferred, and registration was completed by May 2001. It is common ground that registration completed Enron's legal title to its 55 per cent share.
66. Clause 5.3 of JVA1, which is headed "Returns", is in the following terms:

"Following the Closing Date, the Tekirdag Net Revenues [i.e. the revenues from the Tekirdag Assets less any operating costs: see the definition in clause 1.1] shall be distributed to the parties pro rata to their ownership percentages in the Tekirdag Assets."

67. Section 6 of JVA1 provides for the appointment of a consultant to oversee the venture, with specific duties as set out in Annex 2. We have not been provided with a copy of Annex 2 to JVA1, but I assume that it was in similar terms to Annex 2 to JVA2 (a copy of which we have seen), to which further reference is made below.
68. Clause 6.5.6 provides as follows:

"For the avoidance of doubt, prior to the Closing Date and to the extent that no Additional Funding has been undertaken in accordance with Section 8 hereto, TBNG shall (i) fund all Capex in relation to the Project, and (ii) be entitled to all revenue generated by the Tekirdag Concessions [which were included in the Tekirdag Assets]."

69. Section 8 of JVA1 deals with the funding of other concessions, not being 'Tekirdag Assets'.
70. Section 11 of JVA1 is headed "Events of Default". Clause 11.2, which is headed "Reimbursement", is in the following terms:

"In the event either Party [terminates JVA1 pursuant to clause 12.1] prior to the occurrence of the Closing Date, Enron shall be entitled to reimbursement of any funds expended by Enron for purposes of the Project pursuant to the terms of this Agreement and such amounts shall become immediately due and payable by TBNG to Enron …"

71. Clause 12.1 of JVA1 enables a party to terminate JVA1 by a Notice of Immediate Termination on the happening of any of the "events of default" listed in clause 11.1.

(iii) JVA2

72. JVA2 includes the same recitals as those in JVA1 to which I drew attention above. The general thrust of the operative provisions in JVA2 (including Section 4 relating to the grant of Enron's option) is similar to JVA1, save that JVA2 introduces (in Section 5) an obligation on Enron to fund Capex incurred in the intermediate period between the exercise of its option and the Closing Date. In consequence, a number of new definitions are added to clause 1.1, including the expression 'Enron Pre-Closing Tekirdag Capex'. By an amendment to JVA2 dated 23 January 2001 that expression is defined as meaning (in shorthand) all Capex reimbursed to TBNG by Enron prior to the Closing Date. 'Loan' is defined as having the meaning ascribed to it in clause 5.4.4 of JVA2; and the expression 'Secured Liabilities' has the same definition as that which is contained in the Charge (see above).
73. I turn, then, to Section 5. Clause 5.1 is to the same effect as clause 5.1 in JVA1. Clause 5.2 contains the same nine conditions as are listed in clause 5.2 of JVA1, but adds two further conditions at (x) and (xi), as follows:

"(x) TBNG shall have executed and delivered [the Charge] to [Enron]; and

(xi) TBNG shall have executed and delivered [an additional security] to [Enron]."

74. Clause 5.3 has no equivalent in JVA1. It provides as follows (so far as material):

"Notwithstanding Sections 5.1 and 5.2 above, Enron may fund … Capex in relation to the Tekirdag Assets prior to Closing Date occurring and any such Enron Pre-Closing Tekirdag Capex shall be repaid in accordance with Section 5.4."

75. Similarly, clause 5.4 has no equivalent in JVA1. It is headed 'Closing', and it provides as follows (so far as material):

"5.4.1 If the Closing Date does not occur upon the same date upon which the Option is exercised, then from the date Enron exercises the Option until the Closing Date occurs (or [30 September 2001], if the Closing Date shall not have occurred by such date), TBNG shall pay itself any and all Capex expenditures required to be made in relation to the Project in accordance with this Agreement.

5.4.2 Enron … shall reimburse TBNG for all Capex expenditures incurred by TBNG in accordance with Section 5.4.1 … upon the receipt from TBNG of valid invoices in respect of expenditures incurred ….

5.4.3 Without prejudice to the other provisions of this Section 5.4, in particular Section 5.4.4, and for the removal of doubt, all Enron Pre-Closing Tekirdag Capex shall be included in the Minimum Commitment.

5.4.4 It is hereby agreed that the total Enron Pre-Closing Tekirdag Capex amounts will be treated as a loan (the "Loan") from [Enron] to TBNG. Subject to Sections 5.4.6 and 11.4, the Loan shall become payable on demand from Enron … on the earlier of [30 September 2001], the Closing Date of the date of termination of this Agreement and such Loan shall bear interest at the rate of twenty-five per cent per annum (25%) from [such date] until payment in full by TBNG. The repayment obligation of TBNG under this Article shall be secured by [the Charge] ….

5.4.5 [A provision for early repayment of "the Loan" by TBNG]

5.4.6 Forthwith upon Closing Date occurring

(i) Enron shall pay to TBNG as further consideration for the transfer by TBNG of [the 55 per cent share] an amount equal to the Loan less fifty-five per cent (55%) of the Tekirdag Net Revenues (less royalties) relating to the period from exercise of the Option under Section 4.1 up to and including Closing Date; and

(ii) TBNG shall repay the Loan to [Enron]."

76. (As the judge noted in paragraph 31 of his judgment, clause 5.4.6(i) was subsequently amended. However, the amendments are not material for present purposes.)
77. Thus, the joint effect of clauses 5.4.4 and 5.4.6 of JVA2 (without for the moment looking beyond their express terms) is that on the Closing Date, should it arrive – albeit on Langley J's finding it never did arrive – the loan and the purchase price for the option cancel each other out, save only for so much of the loan as is equal to the income from Enron's 55 per cent share accrued since the exercise of the option, such latter amount being payable by TBNG to Enron with interest thenceforth at the rate of 25 per cent per annum. In the course of argument, Mr Briggs referred to such income as "the intermediate income", and I shall do the same.
78. Clause 5.6 of JVA2 provides a mechanism whereby TBNG may in certain circumstances 'buy out' Enron's 55 per cent share.
79. Section 6 of JVA2 provides for the appointment of a consultant, the terms of the Section being similar to Section 6 in JVA2. Paragraph 1.6.9 of Annex 2 provides as follows (so far as material):

"Unless otherwise agreed by the Parties, the Consultant shall pay out to each Party, on or before the twentieth Day of each month, the Net Revenues generated during the prior Calendar month as stated in the [monthly] statement for the month concerned."

80. Paragraph 1.3 of Annex 2 provides that the expression "Net Revenues" includes the intermediate income.
81. Clause 6.5.6 of JVA2 provides (in shorthand) that from the date of exercise of the option the consultant shall oversee the venture on behalf of an operating committee.
82. Section 8 of JVA2 is in similar terms to Section 8 in JVA1.
83. The "events of default" set out in clause 11.1 of JVA2 are the same as those set out in clause 11.1 of JVA1. However, clause 11.2 of JVA2 differs from the equivalent clause in JVA1. It is headed "Final Date" (rather than "Reimbursement") and it provides as follows:

"In the event that the Closing Date shall not have occurred on or prior to the Final Date [30 September 2001] then Enron shall be entitled to [sic] at is sole discretion at any time from the Final Date up until the date Closing Date occurs (if it does), to serve on TBNG a Notice of Immediate Termination."

84. Clause 11.4 provides that in the event that either party serves Notice of Immediate Termination on the other prior to the Closing Date (as, on Langley J's finding, happened in this case) Enron shall be entitled to reimbursement of any funds it has expended on the project, and the loan shall become immediately due and payable by TBNG to Enron.
85. Clause 11.5 provides that where one party (the 'Non-Defaulting Party') serves a Notice of Immediate Termination on the other (the 'Defaulting Party') after the Closing Date, the 'Non-Defaulting Party' may buy out the interest of the 'Defaulting Party'.
86. Clause 12.3 provides that the reimbursement provisions in clause 11.4, the buyout provisions in clause 11.5 and the provisions of Annex 2 (among others) shall survive the termination of the agreement and continue in full force and effect.
87. Clause 18.2.2 provides that either party shall be entitled to assign its "economic interest … in the Project", provided that it retains legal ownership of its interest. This represents another change from JVA1, clause 18.2 of which contained a prohibition on assignment without the consent of the other party.
88. Clause 22.2 of JVA2 is an arbitration clause (there was no such clause in JVA1).

(iv) The side agreement

89. In about April 2001 (that is to say some three months after JVA2 had been entered into) an oral side agreement was made between Mr Harvey Clapp (the first defendant) on behalf of TBNG and Mr Friend on behalf of Enron whereby it was agreed that part of the intermediate income should be applied in meeting Capex.
90. In an e-mail to Enron dated 28 April 2001 Mr Clapp referred to this agreement in the following terms:

"I recently agreed with Nigel [Friend] that, if necessary, we would advance funds from OPEX [the operating expenditure account] to CAPEX (or for CAPEX expenses). If we do so, it will reduce the amount we must pay back upon Closing."

91. Mr Clapp refers to the side agreement in paragraph 47 of his second witness statement, saying this:

"Without undertaking a detailed review of the [joint venture] accounts and records, it is not possible for me to state with any certainty how much revenue was advanced to [Enron] in this way. The amount is clearly very substantial. By May/June 2001 Enron was claiming to have made Capex contributions of between $3M and $4M. The total claim in these proceedings is for $5.3M …. As far as I am aware, Enron made no contributions from its own resources after May 2001 (other than $350,000 in respect of the pipeline). Consequently, I can only assume that the balance of their 'contribution' must have been funded from revenue. (The sum funded in this way, as stated in the draft Defence served with my first statement, was my estimate of $1.7M but, having looked through the numbers again, I do not think that I can be confident of the amount without a thorough review being carried out.)"

92. It was that evidence which led Langley J, for reasons explained earlier, to reduce the amount of the default judgment which was not set aside by $1.7M.

THE ARBITRATION

93. We were informed that an arbitration is presently on foot between TBNG and Enron, pursuant to the arbitration clause in JVA2, in which TBNG contends that in the events which have happened (that is to say, the Closing Date not having been reached) Enron is obliged to retransfer its 55 per cent share to TBNG. That is not, of course, an issue which arises directly on the cross-appeal, which is concerned only with the intermediate income. However, it is of some relevance (if only by way of background) that TBNG's full case is that on the true construction of JVA2 and in the events which have happened Enron is obliged to repay or restore to TBNG not merely the income of its share which was income applied in defraying Capex (i.e. the intermediate income) but also the underlying 55 per cent share which generated that income.

THE ARGUMENTS

The arguments for Enron

94. Mr Rosen submits (as indicated earlier) that JVA1 is of no relevance to the construction of JVA2 since the whole purpose of JVA2 was to alter JVA1. Ergo, he says, one cannot treat the meaning of JVA2 as being coloured or influenced in any way by the very contract which it is designed to supersede.
95. So far as JVA2 is concerned, Mr Rosen submits that in finding that Enron is not entitled retain the intermediate income Langley J misconstrued clause 5.4.6(i) of JVA2. In Mr Rosen's submission, clause 5.4.6(i) does no more than provide for an accounting process to take place on the Closing Date. He submits that the overwhelming inference from JVA2 construed as a whole is that the transfer of the legal title to the 55 per cent share following exercise of Enron's option (a transfer which was duly completed by registration) was intended to carry also the beneficial title to the share, which in turn includes the right to receive the intermediate income.
96. Mr Rosen submits that clause 5.4.6(i) is not in any sense inconsistent with that construction, once it is appreciated (as he submits it should be) that the clause is concerned not with beneficial entitlement but merely with a process of accounting as at the Closing Date. He submits that the consideration for the option was Enron's commitment to fund Capex pending the Closing Date (i.e. to make "the Loan"); and that it makes complete commercial sense that, as a quid pro quo, Enron should be entitled to the intermediate income.
97. Mr Rosen relies on the provisions of Annex 2 to JVA2 (and in particular paragraph 1.6.9, quoted above) as supporting his construction, on the footing that they apply before as well as after the Closing Date. He also relies on the fact that the beneficial interest in Enron's share is assignable (see clause 18.2.2), together with the buyout provisions in clauses 5.6 and 11.5, as further indications that the transfer of the 55 per cent share pursuant to the exercise of the option carried with it the right to the intermediate income. He submits that the various changes made by JVA2 support, or at the very least are consistent with, that construction.

The arguments for the defendants

98. Mr Briggs submits firstly that JVA2 must be construed against the background of JVA1. He submits that under JVA1 there can be no question but that the beneficial title to the 55 per cent share was not intended to pass to Enron until the Closing Date (if that date were ever reached): that is to say, on payment of the price.
99. On that premise he submits that there is nothing in JVA2 which displaces that intention. He submits, in particular, that the mere fact that under JVA2 Enron becomes a secured lender in respect of Capex which it has funded prior to the Closing Date is not sufficient to displace it. He submits that JVA2 grafted onto the arrangement in JVA1 a provision that during what he called "the wait-and-see period" prior to the Closing Date Enron would be a secured lender at a high rate of interest, on terms that on the Closing Date (if it were ever reached) the amount of the loan would be converted into part of the purchase price for the 55 per cent share. He submits that the fact that JVA2 contemplates that Enron would complete the transfer of the legal title to the 55 per cent share by registration prior to the Closing Date says nothing as to the beneficial interest in the share.
100. He submits that a construction of JVA2 which leaves Enron entitled to the intermediate income (or for that matter, as Enron asserts in the Turkish arbitration, to the underlying 55 per cent share), notwithstanding that JVA2 was terminated prior to the Closing Date, would be a commercial nonsense. In any event, he submits, clause 5.4.6(i) is decisive of the point, since it clearly envisages that the beneficial interest in the 55 per cent share will not pass until the price is paid.

CONCLUSION

101. Notwithstanding Mr Rosen's submissions, I find myself wholly unable to conclude that the contention that TBNG is entitled to repayment of the intermediate income is unarguable, and hence that the court can at this stage conclude finally that the defendants are not entitled to a set off in respect of such income in reduction of their liability under the default judgment. On the contrary, the contention seems to me to be plainly arguable. It would indeed be surprising if it were otherwise, given that in paragraph 31 of his judgment Langley J found the contention to be not merely arguable but correct.
102. However, as noted earlier, it was not necessary for Langley J to go that far, and I do not do so. I merely conclude that the contention is arguable. The crux, as I see it, is whether under JVA2 the beneficial interest in the 55 per cent share passed to Enron when it acquired the legal title in the share, or whether it was not intended to pass until completion: that is to say, until the Closing Date (if that date were ever reached). That in turn will no doubt depend to a material extent on the true meaning of clause 5.4.6(i), construed in its proper factual context. In my judgment, in the context of a transaction which specifically provides for the transfer of legal title to the 55 per cent share prior to completion, the beneficial ownership of the share during the period between transfer and completion is at least open to argument.
103. That conclusion is sufficient to dispose of the cross-appeal. Having so concluded, the less I say about the various arguments the better. They will have to be addressed to the trial judge.
104. I would dismiss the cross-appeal.
A P P E N D I X The Draft Proposed Amendments to the Defence: the misrepresentation defences

The negotiations with Enron

" …………..

105. From early 1999, TBNG engaged in discussions, and later negotiations, with the Enron group of companies ("Enron") as to the possibility of a joint venture or other contractual relationship between Enron and TBNG. The Claimants are companies in the Enron Group.
106. Representatives of TBNG (namely, Harvey Clapp ("Mr Clapp") and on one occasion Professor Ahmet Ayan) met representatives of Enron at conferences / seminars in Dallas, Ankara and Istanbul in late 1998 and early 1999. At these conferences / seminars:

a) Enron extolled the virtues of project finance as opposed to bank financing of energy deals. According to Enron, project finance permitted the lender (or financier) and the promoter to be the same entity, blurring the line between equity and debt.

b) Enron repeatedly represented itself to be an incredibly well-financed company, with steadily growing profits and prospects. They claimed to be an entrepreneurial company who could come up with financial and engineering solutions for energy transactions, as well as possessing state-of-the-art gas field and pipeline technology.

107. During the discussions and negotiations, Enron made the following representations to TBNG ("The Representations"). The Representations comprised (i) representations as to the financial condition of Enron made in Enron's publicly filed quarterly and annual financial statements ("the Public Financial Representations") and (ii) representations made by employees of Enron in the course of the negotiations ("The Employee Representations").

8A. The Public Financial Representations were made in the quarterly financial reports for first quarter 1999 to third quarter 2000 (inclusive) and the annual reports for 1998 and 1999 ("the Financial Statements"). The Financial Statements purported to show that Enron was an extremely profitable and financially sound group.

8B. The Employee Representations were as follows:

a) At a seminar in Istanbul on 10 to 12 February 1999, a Finance Originator in Enron's London office, Bodgen Berneaga, represented to Mr Clapp of TBNG that Enron has over $2 billion budgeted for projects such as (but not exclusively for) the Tekirdag project.

……

p) In or about 2000 Mr Friend gave Mr Clapp a copy of Enron's annual report for 1999. A week or so later, he brought dozens of copies to TBNG's office to be used as a marketing tool to potential customers. By so supplying the annual report, Enron represented that the matters and facts stated in the report were true and that the report had been prepared honestly and with reasonable care and skill.

…………………….

The Representations and their effect

108. The Representations set out in paragraphs 7 and 8 above ("The Representations") were made by Enron (including the Claimants) to TBNG with an intent to induce TBNG to enter into, and amend the terms of, a joint venture or other contractual arrangement with Enron.

42A. The Claimants are liable for the Representations as follows:

a) The negotiations that led to the execution of the JVAs and the Charge were undertaken by TBNG and the Defendants with employees ("the Emplyees"),particularly Mr Friend employed by various companies within a (purportedly) large international group of companies in circumstances in which the identity of the Enron contracting party was not known at the time of the commencement of the negotiations but in circumstances in which it was envisaged that the contracting party would be a subsidiary of Enron Corp (whether pre-existing or incorporated for the purpose).

b) The subsidiaries chosen were ECT and ETEP. ECT entered into the 1^st JVA. According to recital (B) to the 2^nd JVA, by a Deed of Novation dated 22 July 2000, ECT's rights, duties and obligations under the 1^st JVA were novated to the ETEP with the exception that the right to receive payment of the ECT Advance remained with ECT although the rights to enforce such repayment may be exercised by ETEP. ECT and ETEP entered into the 2^nd JVA and the Charge.

c) ETEP was incorporated on 20 June 2000 in Rotterdam. It is wholly owned by Enron Thrace Holdings BV ("ETH"), which was also incorporated on 20 June 2000. ETH is wholly owned by ECT Europe Inc (a company registered in Delaware) and is ultimately owned by Enron Corp. ETEP and ETH both have a single corporate director, namely, Equity Trust Co NV. Given that neither ETEP nor ETH appears to have undertaken any other transactions and has not disclosed in their accounts any substantial assets or liabilities, it would appear that they were incorporated specifically for the purposes of the Project.

d)in the premises

i)d) The Representations made in the cporse of the negotiations (whether specifically by those involved in the negotiations or generally by way of publicly disclosed financial statements) were made by the Employees on behalf of the Enron group (that is to say, Enron Corp).

e) The Representations were of continuing effect. Upon identification of ECT and (later) ETEP as the contracting parties, Enron Corp became agent for ECT / ETEP for the purposes of continuing and completing the negotiations (and acted in such capacity through the Employees). The Representations made before each subsidiary was identified (which were continuing representations) were, by virtue of their continuing nature, repeated by Enron Corp (acting through the Employees and on behalf of ECT / ETEP) after ECT and ETEP were selected and continued to have effect down to the execution of the 1^st JVA, the 2^nd JVA and the Charge. Alternatively they were adopted or ratified by ECT and ETEP. Alternatively, ECT and ETEP became vicariously liable for such Representations.

f) The Representations made after ECT / ETEP were selected were made by Enron Corp (acting through the Employees) on behalf of ECT /ETEP. In the premises the Representations were made by ECT/ETEP. In any event, ECT / ETEP are responsible for the representations made by their agent Enron Corp.

109. The Representations were material to TBNG's decision to, and TBNG reasonably relied on the Representations in making its decision to, enter into a joint venture with Enron and in deciding to enter each of the 1^st JVA, the Deed of Novation, the 2^nd JVA and the 2^nd Amendment Agreement (together "the JVA Contractual Documents"). The Representations were important and material factors in TBNG's decision to choose Enron as a contractual partner over other companies, such as Wilco, Amity Oil, and Callon Petroleum, or continuing to develop the Terkidag Assets from its own resources or from funds to be raised from its shareholders. In particular from 1999 onwards, Guy Dove read and relied upon Enron's quarterly and annual reports. Mr Dove was impressed with the (apparent) financial strength of Enron and felt sure that a group of such size and profitability would be an ideal partner of TBNG. Mr Dove relied on the information contained in the publicly filed statements when recommending to Mr Clapp that TBNG enter into a joint venture with Enron and the Defendants enter into the Charge. Mr Clapp would not have seriously considered seeking a partner that did not have a strong balance sheet and profitability. TBNG chose to enter into a joint venture agreement with the Claimants because of Enron's (apparent) financial strength disclosed in its Financial Statements.
110. Further, Enron the Claimants knew, or ought to have known, that the Defendants would rely upon the Representations, including those made in November 2000, in deciding whether to enter into the Charge and that the Defendants would be induced thereby. In any event, by the time of the execution of the Charge, the Representations had not been retracted and they were material to the Defendants' decision to, and the Defendants reasonably relied on the Representations in making their decision to enter into the Charge.
111. In fact, the Representations were false. The Representations, so far as they related to the financial condition of Enron, were made fraudulently. Alternatively, and (without prejudice to the burden of proof on the Claimants under section 2(1) of the Misrepresentation Act 1967), Enron did not have any reasonable grounds for believing (at the time that each of the JVA Contractual Documents and the Charge were entered into) that the Representations were true.

45A The Claimants made the representations as to the financial condition of Enron fraudulently.

PARTICULARS

a) Paragraph 42A is repeated. The said representations were made by or on behalf of the Claimants for the reasons there stated.

b) It was Enron Corp which through the Employees, mad the said representations on behalf of the Claimants as their agent.

c) Enron Corp knew that they were untrue. In this respect the Officers were the directing mind and will of Enron Corp.

d) The Claimants are responsible for the fraud of their agent Enron Corp.

i) Particulars of the fraud are given in Schedule 1

112. Had TBNG and the Defendants known the truth, it and they would not have entered into the JVAs and the Charge
113. In the premises:

a) TBNG is entitled to (and has by a letter from its solicitors, DLA, to Weil Gotshal & Manges, the Claimants' solicitors, dated 10^th September 2004 elected to) rescind the 2^nd JVA;

b) The Defendants are entitled to (and have by the letter dated 10^th September 2004 elected to) rescind the Charge.;

c) TBNG is not liable to the Claimants under clauses 2.5.2. and/or 5.4.4. of the 2^nd JVA (the 2^nd JVA having been rescinded); and

d) The Defendants are not liable to the Claimants under the Charge (the Charge having been rescinded).

114. Further or alternatively, TBNG and the Defendants are entitled to damages at common law and/or under section 2(1) and/or 2(2) of the Misrepresentation Act 1967, which damages can, in the case of TBNG, be set off in extinction or reduction of any sums due under clauses 2.5.2. and/or 5.4.4. of the 2^nd JVA (as amended) and, in the case of the Defendants, be set off in extinction or reduction of their liability under the Charge.
PARTICULARS

a) TBNG is entitled to such damages as would put it in the position it would have been in had the Representations not been made. Had the Representations not been made, TBNG would not have entered into the JVA Contractual Documents and would not have pursued the project with Enrons itself (with either funds generated internally or funds raised from its shareholders) or with funding from another third party. Had TBNG done so, the value of the Tekirdag Assets would not have been substantially higher than the value of the Tekirdag Assets following Enron's abortive involvement in the Project. TBNG's loss is (a) the value that would have been generated with the involvement of, and investment from, a typical prudent international gas company during the period of Enron's involvement and the value that the Project would have had at the end of that period ("the Counterfactual Position") minus (b) the actual value generated during the period of Enron's involvement and the value of the Project at the end of Enron's involvement ("the Factual position"):- TBNG's loss very substantially exceeds the sums claimed by the Claimants. Further particulars will follow.

i) Counterfactual Position:

The value that the Project would have had with the involvement of, and investment from, a typical prudent international gas company:

(1) Accrued project value during the period of Enron's involvement, namely, April 2000 to January 2002 based upon total discounted cumulative monthly cash flow (FV10):

$5,743,221

(2) Remaining project value as at January 2000 valued on the basis of the discounted value of the future cash flow (FV10) assuming total proved reserves for the Project of 32.5 Bcf:

$63,905,895

(3) Total $69,649,116

Minus:

ii) The Factual Position

The value of the Project with Enron's involvement was as follows:

(1) Accrued project value during the period of Enron's involvement, namely April 2000 to January 2002 based upon total discounted cumulative monthly cash flow (FV10)

$1,388,184

(2) Remaining project value as at January 2000 valued on the basis of the discounted value of the future cash flow (FV10) assuming total proved reserves for the Project of 32.5 Bcf:

$59,676,966

(3) Total: $58,288,782

Loss: $11,360,334

b) The Defendant's are entitled to such damages as would put them in the position in which they would have been in had the Representations not been made. Had the Representations not been made, the Defendants would not have entered into the Charge and would not be under any liability to the Claimants. The Defendants' damages are therefore, equal to any sum for which the Defendants are liable to the Claimants under the Charge.

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