Blakes

Jim: Here is the background of the "dispute" with Blakes. There is a lot of
emotion on both sides. I believe we need Blakes on a going forward basis in
Canada.

Mark Haedicke
----- Forwarded by Mark E Haedicke/HOU/ECT on 02/26/2001 04:56 PM -----

Peter Keohane
02/08/2001 03:52 PM

To: Mark E Haedicke/HOU/ECT@ECT
cc:
Subject: Blakes

Mark, I understand that you and Jim D. are meeting in Houston next week
regarding Blakes, their mismanagement of the NGX litigation, and other
matters. I am providing you the following report, so as the facts and issues
are clear. I am taking the time to send you this report because I am
concerned that Dan Fournier has demonstrated to date that he either does not
understand the facts and issues (which is amazing) or believes he can
obfuscate and resolve the issues through political maneuvering.

You will recall that this matter kicked off late in Sept./00 with NGX giving
us two days' notice that they were taking over control of the methodology for
determining the prevalent gas indices effective Oct. 1/00. You will also
recall that the matter was of significant concern to John Lavorato and Greg
Whaley, among others, and following a conference call with John, Greg, Steve
Kean, Rick Shapiro and others, it was agreed that we would consider our legal
remedies, including that I would prepare a draft stern letter to NGX advising
them of our concerns and the potential for litigation with Enron, both for
internal review and review by outside counsel. I discussed the facts and the
letter with Blakes (Dalton McGrath) who advised me that he would also be
discussing the matter with a competition law partner in Toronto. In the end
Blakes had some minor comments on the letter and provided a cover letter
confirming that in the circumstances we had a difficult put provable case.

One issue raised by the letter was the potential involvement of NGX's
shareholders, for a number of reasons, including: (i) NGX had only two
shareholders, Westcoast Energy and OM Gruppen, who to our knowledge
controlled the mind and management of NGX; (ii) OM Gruppen is in the
business around the world of purchasing or creating electronic exchanges and
had recently purchased its position in NGX from Westcoast; Westcoast is the
sole shareholder of Engage Energy, a energy trading competitor; (iii) NGX's
transaction for acquiring control of the indices was an aggressive,
structured attack designed to cause harm to EOL and regain market share that
EOL had taken away; and, (iv) NGX is a limited liability entity with little
in hard assets and therefore may have been judgment proof. Obviously, if the
evidence or commercial/strategic reasons warranted not proceeding against the
shareholders at any time, it was our intention not to continue to proceed
against them.

In short, Blakes was aware from the outset of our intention to involve
Westcoast in any litigation.

As expected, we did not receive a satisfactory response to our letter to NGX,
and between late Sept./00 and Nov. 29/00, the date we filed the lawsuit and
applied for injunctive relief, I had countless further discussions with
Blakes to draft, and redraft, and redraft again, a Statement of Claim and
Motion documents, all of which clearly involved Westcoast as a named
defendant.

Although the Court would not grant an injunction "ex parte", an aggressive
timeline was established for filing affidavits and briefs, completing
cross-examinations, etc. with the injunction application set for Dec. 20/00,
to our strategic advantage.

We were proceeding vigorously on this basis when to my surprise I received a
phone call from Dan Fournier on Dec. 4/01 (9 weeks into the matter) to advise
me that there was a "legal" conflict problem involving Westcoast, who is
occasionally represented out of Blakes' Toronto office by Glenn Leslie.

I explained to Dan that if there was a conflicts problem between Enron and
Westcoast, and although I was willing to do what I could in the
circumstances, I was extremely concerned as to what could be done at that
stage prior to the injunction hearing, noting the conflicts problem was of
Blakes own making. Indeed it seemed it was the problem of a Toronto-based
partner who did not pay enough attention at the outset to look after his
firm's and his own client's interests, which then needed to be resolved on an
after-the-fact basis.

Although the problem was initially misleadingly presented to me by Dan as a
legal conflict on the basis of Blakes having "certain confidential
information regarding Westcoast", which I suspected to be a justification
rather than the truth, when probed, Dan admitted that the conflict was a
business conflict rather than a legal conflict.

Nonetheless, it was suggested by Dan that Blakes could proceed if Enron
discontinued the action against Westcoast, which obviously was not advice
given in Enron's interest.

I responded that this was not only unacceptable from a strategic if not legal
position, and it was emphasized by me to Dan as being unnecessary and
meaningless for the purposes of the injunction application, as the injunction
was being sought against NGX and Canadian Enerdata, and no immediate remedy
was being sought against Westcoast.

Nonetheless, and as a favor to Blakes, I agreed that if Blakes acted on the
injunction only (which, as noted, did not involve Westcoast) scheduled for
Dec. 20th, I would transition the file to another firm immediately after the
injunction, in an orderly manner that did not adversely affect Enron's
interests.

This result was not apparently acceptable to Blakes. Late that evening I was
advised by Dan that a call was being had at Blakes first thing the next
morning involving Blakes' Chairman, Blakes' Managing Partner, the Westcoast
responsible partner (Glenn Leslie) and the Enron responsible partner (Dan
Fournier) to discuss the issue, and if it could not be resolved
satisfactorily, Dalton McGrath, who is a more junior partner, would likely be
held accountable.

Unsatisfied that my relationship with Dalton McGrath was being put into
issue, and after reviewing the matter that evening at the time and
inconvenience of Milnthorp at home, I called Dan first thing (7:00 am) the
next morning to nonetheless reiterate to him that I would not only undertake
to relocate the file, but I would try to do my best to move the file if
possible ASAP, even BEFORE the injunction application, provided I could be
satisfied that it could done in a way that was not adverse to Enron's
interests.

Again, my unusual and more than reasonable accommodations to solve a problem
of Blakes own making were not apparently satisfactory, as after the Blakes
internal management call, I was advised late that next morning by Dan that:

(a) Blakes had decided that, regardless of our wishes, the file must be
transferred to another firm ASAP, such that, although Blakes would assist in
the transition and the pending cross examination of Jon MacKay and Seabron
Adamson, Blakes would have no involvement in the briefs to be filed nor in
appearing at the injunction application, and would cease immediately to
appear as solicitors of record, notwithstanding that the injunction was then
for only a few business days hence under a greatly abbreviated court ordered
timeline for examinations, briefs, etc.; finding and educating replacement
counsel would have to be done at year end, with extraordinary demands on
replacement counsel (not to mention Enron's other year end commercial
business concerns, requiring better use and allocation of our resources).

(b) In making its decision, Blakes had considered:

- the relative complexity of the Enron vs. Westcoast work (I would have
assumed Enron would have won this one.)

- relative annual billings (I would have assume, and it was later confirmed
to me, that Enron's annual billings were more than 2-3x Westcoast's for the
past 3 years.)

- relative strategic importance to Blakes (Enron is the only international,
Fortune 500 firm represented by Blakes out of its Calgary office. I also
would have assumed that Blakes Toronto has an interest in the deregulating
Ontario power markets, in which Enron expects to be a market leader. I also
would have assumed that Blakes would have appreciated the increased profile
that Enron has given it in the pulp and paper industry, the gas industry, the
power industry, the insolvency industry, the derivatives and commodity
trading markets, and in other jurisdictions such as in the Province of
Quebec, in the Province of British Columbia, in Houston and with other
counsel which historically act for Enron.)

- its policy not to sue established clients (Although admirable and a policy
with which I agree, I assume it was weighed against what must also be a long
standing and overriding policy of not dumping established clients, especially
having regard to ethical obligations; the immediacy of the matter; the time
of year; the business rather than legal conflict; Enron's more than
reasonable offers to move the file ASAP under its own control but even prior
to the injunction application; the various misdirections and excuses; the
fact that Blakes, and particularly the Westcoast responsible partner, knew or
ought to have known of the conflict for approx. 9 weeks; and, most
importantly, that Blakes problem was one of its own internal making. Simply
put, Blakes did not have the luxury of strictly relying on such a lofty
principle in the circumstances.)

© The arrangement had been pre-approved by Westcoast. In other words, not
only did Enron not have a say in the matter, its litigation adversary had all
the say.

In short, it is difficult to conceive how on any reasonable basis Blakes came
to its decision, or decided to communicate its decision in the way it did.
The situation was of Blakes making, Enron had given Blakes a reasonable way
out, and, with minimal fortitude by Blakes, and commercial reasonableness and
respect of Westcoast towards Blakes, the decision to act for Enron on the
terms proposed by me was obvious.

* * * * * * * * *

Mark, I have no clue why Blakes came to the decision it did in the
circumstances. Perhaps Blakes Toronto partner serviced clients are
preferred? Perhaps Blakes Calgary partners do not, or do not have the
ability to represent the legitimate concerns of Enron within Blakes Toronto?
Perhaps the Enron relationship is not adequately valued or Blakes does not
like Enron's style? Perhaps Blakes misjudged Enron's reaction relative to
what would have been Westcoast's reaction in the alternative? Whatever, the
decision and the approach was wholly unsatisfactory. Blakes needs to be
accountable, and after-the-fact explanations, justifications, confessions,
etc. are easily given, do not measure up to prior actions, and are
necessarily self-serving.

It is also noteworthy that Blakes decision partly resulted in an adjournment
of the injunction application to Feb. 18/01 and fundamentally destroyed our
opportunity to win the injunction which has since been dropped at
considerable out-of-pocket cost and business prejudice to Enron. It is also
noteworthy that Westcoast soon after sold out its position in NGX to OM
Gruppen, and that we have dropped both NGX and OM Gruppen from the lawsuit.

Mark, I have told Blakes that in these circumstances, more than explanations,
excuses and promises are necessary. I also told them that we are focused on
developing more external counsel relations, and since I have retained Oslers,
Stikemans, and Ernst & Young on various matters with good results. I told
Blakes that we certainly would not preclude using them, but that before I did
so I wanted an explanation as to how these circumstances arose and how Blakes
took the decision it did and communicated it the way it did.

I also told Blakes that the quality and staffing of their work had been
slipping for some time, and that I would want a renewed commitment to
staffing files with quality lawyers who are responsible for the working
relationships.

If you want to discuss the matter in advance of your meeting, please let me
know.

Peter.