From: mike.mcconnell@enron.com
To: jeffrey.mcmahon@enron.com, rebecca.mcdonald@enron.com
Date: 2001-04-09 12:05:00+00:00
Subject: CATS litigation

FYI, as we discussed.
m
---------------------- Forwarded by Mike McConnell/HOU/ECT on 04/09/2001 
12:04 PM ---------------------------


Mary Nell Browning
04/04/2001 01:59 PM
To: James Derrick/Enron@EnronXGate, Michael R Brown/LON/ECT@ECT, John 
Sherriff/LON/ECT@ECT, Mark Evans/Legal/LON/ECT@ECT, Fernley 
Dyson/LON/ECT@ECT, Paul Chivers/LON/ECT@ECT, Mark Frevert/Enron@EnronXGate, 
Greg Whalley/HOU/ECT@ECT, Mike McConnell/HOU/ECT@ECT, Jackie 
Gentle/LON/ECT@ECT, Richard B Sanders/HOU/ECT@ECT, Claire Wright/LON/ECT@ECT, 
Raj N Patel - Tax/LON/ECT@ECT, Rex Rogers/Enron@EnronXGate
cc: Richard Harper/LON/ECT@ECT, Paul Turner/LON/ECT@ECT, Peter 
Crilly/LON/ECT@ECT 
Subject: CATS litigation

Disappointingly, the House of Lords ruled 5 - 0 against Enron in the CATS 
litigation today.  This will mean that we will repay to the CATS parties 
approximately $150 million plus interest and court costs, putting the final 
figure at an estimated $155-160 million.  We expect to be invoiced for the 
principal amount in the next week or so; sorting costs and interest may take 
as long as 60 days.  The written opinion reflects a determination on the part 
of the Lords to rule against us regardless of what the contract says.  The 
opinion seeks to conclude "what rational businessmen could have intended" 
rather than applying the provisions of the contract.  

For example, Lord Hoffman (author of the primary opinion) makes it clear that 
the  "retrospective consequences" of discovering a latent defect after 
payments have been made (and would therefore need to be refunded) are 
unacceptable.  His view seems to be that because we were not ready to flow 
J-Block gas during the period of the T-6 leak, we are not damaged and 
therefore not entitled to relief under the contract.  Furthermore, he says 
that the Commencement Date notice sent by the CATS parties was in the nature 
of a declaration and as long as it is sent in good faith it is effective.

As far as the price reduction formula in Clause 7.5, Lord Hoffman opines that 
the clause is not operative until TGTL had tied in the J-Block field.  The 
contract makes no reference to this requirement.  Hoffman's view is that it 
is only upon tie-in that the CATS parties' obligation to provide the 
Transportation Service is triggered and therefore there can be no price 
reduction for not providing the service unless tie-in is complete. This 
statement is in stark contrast with Hoffman's earlier statement in the 
opinion that upon the giving of the Commencement Date notice the CATS parties 
have an absolute obligation to provide the Transportation Service.

Equally disappointing and surprising is the fact that the Lords rejected our 
submission for reimbursement of our costs incurred in connection with the 
restitution issue.  As you may recall, restitution was the primary issue upon 
which the CATS parties obtained leave to appeal, and they conceded the point 
at the commencement of the hearing.  Reimbursement of these costs should have 
been a given. 

Although I have not yet been able to speak to our most senior barrister, our 
other counsel have assessed the opinion as "appalling" and "pathetic," and 
describe the situation as one where Enron has been "stitched up".  
Unfortunately, given that this is the court of last resort in this country 
(except of course the Court of Human Rights), there is not an avenue for 
recourse.

In conclusion may I say that although we did not get the result we wanted or 
expected from the House of Lords, I very much appreciate all the support from 
each of you for these past six years.  The case has been a roller coaster 
ride;  I hope our earlier victory in the Court of Appeal will evidence in 
fact that some tribunals in this country recognize that we did get it right. 

Please call me if you wish to discuss the case in any further detail, or if 
you wish to have a copy of the opinion.  My telephone number is 011 44 207 
783 6582.  Many thanks.