Enron (Thrace) Exploration and Production BV & Anor v Clapp & Ors

Under Civil Procedure Rules 1998, rule 13.3, a default judgment may be set aside only where the defendant shows a real prospect of successfully defending the claim. A defence may succeed on quantum even where liability is established. Contractual security obligations must be construed by reference to the liabilities expressly secured, and a surety may rely on a set-off available to the principal debtor unless the contract excludes it. Where contractual conditions precedent to closing remain unsatisfied, negotiations about the sums payable on closing do not ordinarily establish waiver, estoppel or closing by conduct. An exclusive jurisdiction clause will generally be enforced, and a stay in favour of an uncommenced arbitration requires exceptional and compelling circumstances.

The claimants obtained default judgments against four defendants for sums said to be secured by a charge over their shares in a Turkish joint venture company. The defendants applied under rules 13.2 and 13.3 of the Civil Procedure Rules 1998 to set aside the judgments, alleging that closing of the joint venture transaction had occurred, that repayment was conditional on re-transfer of a 55 per cent interest, and that the claim was overstated. They also sought a stay pending arbitration and opposed an anti-suit injunction concerning proceedings commenced in Texas. The central issues were whether the defendants had a real prospect of defending the claim, what liabilities fell within the charge, and whether the English jurisdiction and arbitration provisions should govern the disputes.

1. Default judgments. The defendants failed to show a realistic prospect of defending liability. The acknowledgements of service did not extend time for service of defences, and there was no proper basis for relief under rule 13.2.
2. Under rule 13.3 of the Civil Procedure Rules 1998, the relevant question was whether the defendants had a real prospect of successfully defending the claim. They established such a prospect only on quantum.
3. The joint venture agreement contemplated that exercise of the option could precede closing and that closing depended on satisfaction or waiver of the specified conditions precedent. Conditions concerning registration and legal opinions had not been fulfilled. The parties’ discussions about calculating closing payments did not amount to closing, waiver or estoppel. Silence was insufficient, particularly where the agreement required waiver to be in writing.
4. The defendants could realistically argue that approximately $1.7 million in revenues reduced the amount due, because a surety may rely on a set-off available to the principal debtor unless excluded. The claim also included approximately $1.25 million of expenditure which was not shown to fall within the defined secured liabilities. The officer’s certificate did not conclusively determine those issues at the interlocutory stage.
5. The charge secured the ECT advance and the defined pre-closing capital expenditure, but did not clearly extend to additional liabilities under article 11.4 of the joint venture agreement.
6. The stay was refused. The charge created original and independent obligations and contained an exclusive English jurisdiction clause. No arbitration had been commenced, and granting a stay would deprive the claimants of their contracted rights.
7. The anti-suit injunction was granted substantially in the terms of the undertakings previously given. The Texas proceedings arose out of or were connected with agreements containing wide English jurisdiction provisions.
8. The default judgments were set aside only to the extent necessary to address quantum. They remained in place for the principal sum of $2,292,587.13, together with applicable interest, subject to the order to be prepared by the parties.

First instance decision. No prior or subsequent appellate decision is stated in the judgment.