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

A party generally cannot make a second application to the High Court to reopen a perfected judgment where the issue has been decided after full argument and an appeal is available. Any exceptional jurisdiction to reopen must be exercised sparingly.

A default judgment, as affirmed after an application to set it aside, may create an issue estoppel as to the validity and binding effect of the underlying contracts. That estoppel does not necessarily prevent a claim for damages for fraudulent or negligent misrepresentation, provided the claim is consistent with the contracts remaining valid. A proposed misrepresentation defence must nevertheless have a real prospect of success. Agency liability requires an arguable basis for actual or apparent authority to make the representations on behalf of the claimant companies.

The claimants sought to enforce liabilities under a charge over shares securing sums allegedly due under joint venture agreements. Default judgments were entered against the defendants. Langley J partly set them aside, leaving judgment for approximately US$3.9 million, and the defendants appealed.

While that appeal was pending, the defendants sought to set aside the balance of the judgments and to introduce a substantially expanded defence based on alleged fraudulent, negligent and innocent misrepresentations concerning Enron’s financial position. The claimants sought to strike out the defence. The issues concerned jurisdiction to reopen the judgments, issue estoppel, abuse of process and whether the proposed defence had a real prospect of success.

1. Second application. The court had no jurisdiction to reconsider the balance of the default judgments after Langley J had determined the issue and an appeal was pending. Alternatively, the jurisdiction would not be exercised. The relevant considerations included the prior determination after full argument, the pending appeal and the absence of exceptional circumstances. Atwood v Chichester was not sound authority for a general power to hear serial applications. In re Barrell Enterprises, [1973] 1 WLR 19, and Taylor v Lawrence, [2003] QB 528, supported the need for finality and the restricted power to reopen perfected judgments.
2. Issue estoppel. The default judgment, together with Langley J’s decision, established that JVA 2 and the Charge Agreement were valid and binding. The defendants were therefore estopped from seeking rescission of the Charge Agreement. The precise effect of a default judgment after an unsuccessful setting-aside application depends on the circumstances.
3. A claim for damages for deceit, fraudulent misrepresentation or negligent misrepresentation does not necessarily impeach the validity of the contract. Such a claim may therefore be advanced consistently with the judgment, including as a set-off or counterclaim, subject to its merits. The proposed damages claim was not barred by issue estoppel.
4. The proposed defence was not an abuse of process. The part of the claim for which the default judgment had been set aside still required determination on the merits, and raising a defence to that claim did not amount to a collateral attack on the judgment that remained in force.
5. Merits. It was arguable that employees engaged in negotiations could possess apparent authority to make representations about the financial status of Enron Corp or the Enron group, even if employed by a subsidiary. However, the pleading contained no sufficient basis for concluding that the claimant companies had authorised, or clothed with apparent authority, Enron Corp or the employees to make continuing representations on their behalf after the claimants were identified as contracting parties. The proposed pleading therefore had no real prospect of success.
6. The misrepresentation defence was struck out. The question of setting aside the balance of the default judgments remained for the Court of Appeal.

High Court (Commercial Court): Langley J partly set aside the default judgments on 20 July 2004, leaving judgment for part of the claim. Permission to appeal was granted by Clarke LJ, and the appeal was pending when the present applications were heard.

Present decision: the High Court refused to reopen the balance of the default judgments, rejected the issue-estoppel and abuse-of-process objections to the damages aspect of the proposed defence, but struck out the misrepresentation defence for want of a real prospect of success.