Clapp & Ors v Enron (Thrace) Exploration & Production BV ECT Europe Finance Inc

A perfected default judgment cannot ordinarily be reopened by a renewed merits application. A decision determining whether a default judgment should be set aside on the merits is final and binding, like a judgment after trial. A fraudulent misrepresentation defence against claimant companies must identify a sustainable agency route connecting the alleged fraud to those companies; arguable authority in negotiating employees is insufficient if the alleged agent company’s authority is not pleaded or evidenced. A party will not normally amend its appeal to raise a case that could have been advanced below. On a cross-appeal concerning an arguability finding, the appellate court should not finally determine a genuinely open contractual construction issue.

The appellants were individual shareholders and directors of TBNG. The respondents sought enforcement of liabilities secured by a charge connected with joint venture agreements concerning Turkish assets. Default judgments were entered. Langley J set them aside only in part, finding no defence to the balance and holding that the Closing Date had not occurred.

Before Aikens J, the appellants sought to introduce a fraudulent misrepresentation defence and to set aside the remaining judgment. Aikens J held that he lacked jurisdiction to entertain the renewed application and that the proposed defence had no real prospect of success: [2005] EWHC 401 (Comm). The appeal concerned jurisdiction, the misrepresentation defence and an application to amend the notice of appeal. The respondents cross-appealed on TBNG’s arguable right to set off revenue applied towards capital expenditure.

The Court of Appeal dismissed the appeal, refused the application to amend the notice of appeal, and dismissed the cross-appeal.

1. Misrepresentation. The appellants accepted, for present purposes, that the representations were untrue and induced the agreements. It was arguable that negotiating employees had apparent authority to make statements about the Enron group or Enron Corporation, consistently with the observation in MCI WorldCom v Primus International [2004] EWCA Civ 957. That did not establish liability of the claimant companies for fraudulent misrepresentation. The pleaded case required Enron Corporation to have acted as agent for the claimant companies. There was no pleading or evidence that it had authority to make representations on their behalf. Adoption and ratification had also been disclaimed. The defence therefore had no real prospect of success and was rightly struck out.
2. An innocent principal may be liable for fraudulent representations made by an agent within the scope of the agent’s authority. The principles in Armstrong v Strain [1952] 1 KB 232, Briess v Woolley [1954] AC 333 and Barwick v English Joint Stock Bank (1867) LR 2 Ex 259 did not remove the need to prove the relevant agency and authority.
3. Finality and renewed applications. Once perfected and entered, a judgment is final and cannot be recalled by the court that gave it, even for alleged fraud. The recognised routes are appeal or a collateral action founded on fraud, subject to the limits explained in GNR v Mossop (1855) 17 CB 130, Preston Banking Co v Allsup [1895] 1 Ch 141, R v Cripps, ex p Muldoon [1984] 1 QB 686 and Odyssey Re (London) Ltd v OIC Run-Off [2001] Lloyds Rep (Insurance) 1. A merits decision upholding a default judgment is final and binding; there was no jurisdiction under the Civil Procedure Rules 1998 to entertain the renewed application.
4. Even if jurisdiction and an arguable defence had existed, the unexplained and exorbitant delay by sophisticated parties justified refusing relief. The application to amend the notice of appeal was also refused because the misrepresentation case could have been advanced before Langley J, applying the substantial-justice principle in Jones v MNBA unreported, 30 June 2000.
5. Cross-appeal. The issue was only whether TBNG’s claim to repayment of intermediate income was arguable. The proper construction of JVA2, including clause 5.4.6(i), and whether beneficial ownership passed with legal title before the Closing Date or only on completion, were genuinely open questions. The court therefore declined finally to determine them and dismissed the cross-appeal.

• Court of Appeal (Civil Division): dismissed the appeal and renewed application, refused amendment of the notice of appeal, and dismissed the cross-appeal: [2005] EWCA Civ 1511.
• High Court, Commercial Court (Aikens J): held that there was no jurisdiction to hear the renewed application and struck out the misrepresentation defence as having no real prospect of success: [2005] EWHC 401 (Comm).
• High Court (Langley J): set aside the default judgments as to part of the quantum, but found no defence to the balance and held that the Closing Date had not occurred.