Minera Las Bambas S.A. v Glencore Queensland Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Leggatt,Lord Justice Longmore |
| Judgment Date | 14 June 2019 |
| Neutral Citation | [2019] EWCA Civ 972 |
| Docket Number | Case No: A4/2018/2453; A4/2018/2442 |
| Court | Court of Appeal (Civil Division) |
| Date | 14 June 2019 |
[2019] EWCA Civ 972
THE CHANCELLOR OF THE HIGH COURT
Lord Justice Longmore
and
Lord Justice Leggatt
Case No: A4/2018/2453; A4/2018/2442
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES
COMMERCIAL COURT
MRS JUSTICE MOULDER DBE
Royal Courts of Justice
Strand, London, WC2A 2LL
Fionn Pilbrow QC and Charlotte Thomas (instructed by White & Case LLP) for the Appellants
Conall Patton and Alyssa Stansbury (instructed by Linklaters LLP) for the Respondents
Hearing dates: 8 and 9 May 2019
Approved Judgment
This case raises questions about the correct interpretation of certain tax indemnities and warranties contained in a contract for the purchase of shares in a company which owns a large copper mining project in Peru (and of a further deed of indemnity made pursuant to that contract). The tax liabilities to which the contract terms must be applied are liabilities under Peruvian law for value added tax (VAT). But although the relevant transactions and their subject matter have no other connection with this country, the contracts are, through the parties' choice, governed by English law and provide for disputes to be decided in the courts of England and Wales.
Contractual claims for indemnity raising a plethora of disputed issues were tried in the Commercial Court before Mrs Justice Moulder DBE. Her reasoning is set out in a judgment dated 29 June 2018: see [2018] EWHC 1658 (Comm). Each side has appealed, with the permission of this court, from parts of the judge's order.
The share purchase
The Las Bambas project is a very large project to develop, construct and operate copper mines in the Apurimac region of Peru. At the time of the share purchase the project was owned by a Peruvian company called Xstrata Peru SA through a wholly owned subsidiary, Xstrata Las Bambas SA.
Pursuant to a Share Purchase Agreement dated 13 April 2014 (the “SPA”), a Peruvian company which I will call “the first purchaser” and the second claimant purchased all the issued shares in Xstrata Peru SA from the first and second defendants (with the third defendant acting as their guarantor). Closing under the SPA took place on 31 July 2014. The overall price paid for the shares was around US$7 billion.
On 31 December 2014 the first purchaser and Xstrata Peru SA were absorbed by merger into Xstrata Las Bambas SA, which was renamed Minera Las Bambas SA (“MLBSA” or the “Company”). The Company is therefore not only the operating company for the project but also the corporate successor of (a) its parent company, Xstrata Peru SA, whose shares were sold under the SPA and (b) the first purchaser. The Company is the first claimant in this action. In this judgment I will refer to the claimants collectively as the “Purchasers” and to the defendants as the “Sellers”.
Peruvian VAT
Under the Peruvian tax system VAT is levied in a broadly similar way to VAT in the UK. It is a tax charged on the supply of goods and services. There is a system of credits whereby a taxpayer can set off against the input tax which it charges and collects on its supplies of goods or services to others any output VAT that it pays on goods or services purchased from its own suppliers. A taxpayer with a surplus of output VAT in a given month can carry forward the credit to future months on a rolling basis to offset against its input VAT.
The Las Bambas project had a long development and construction phase before the production of copper commenced and income began to be earned. Construction started in October 2012 and was continuing at the time of the SPA. The project finally achieved steady state commercial production on 1 July 2016. During the construction phase substantial sums were spent on goods and services purchased from third party suppliers. As a result, the Company accumulated a large VAT credit balance. It is common ground that this accumulated VAT credit balance was an important asset and source of working capital for the project.
There is a scheme in Peru (the “early refund scheme”) under which, during the construction phase of a large mining project, a taxpayer can obtain a cash refund of VAT credits instead of carrying them forward to future months. (A different refund scheme operates once production has begun.) Under the early refund scheme the Company has claimed and received various cash refunds of VAT credits. It is common ground that such refunds represented a key source of cash inflow and funding for the project during the construction period and until the mine reached a steady state of commercial production.
The New Town VAT
During the development and construction phase of the project, the Company acquired land belonging to a rural community, “Comunidad Campesina de Fuerabamba”, in exchange for building a new town for the community in a location away from the Project site. The community was then resettled in this new town of “Nueva Fuerabamba”. The agreement under which this land exchange and resettlement took place was made in November 2011 and the new town came into existence on 27 June 2014 (i.e. before closing under the SPA).
After closing under the SPA, the Peruvian tax authority, known as the Superintendencia Nacional de Aduanas y de Administración Tributaria (“SUNAT”), conducted a number of audits which led ultimately to SUNAT issuing a tax assessment resolution dated 29 January 2016. By this resolution SUNAT assessed the Company as having incurred a liability to pay VAT in a principal sum of PEN 28,400,661 (an amount of Peruvian Nuevos Soles equivalent to about £6.3 million) on 27 June 2014 when the new town came into existence. SUNAT claimed to deduct this sum – which I will refer to as the “New Town VAT” – from the Company's accumulated VAT credit balance as it had stood in June 2014. SUNAT also charged penalties and interest as a result of the Company's late payment of the New Town VAT which totalled PEN 15,875,970 (equivalent to about £3.5 million) at the time of the assessment.
The rejected VAT credits
The assessment resolution issued by SUNAT on 29 January 2016 also determined that the Company had claimed tax credits for taxable supplies purchased from third parties between January and November 2014 for which it could not produce adequate supporting documentation and which, for this reason, were disallowed. Some of these rejected tax credits had been refunded to the Company under the early refund scheme. The amount which SUNAT concluded had been unduly refunded in respect of the period before closing under the SPA was PEN 18,777,336 (about £4.2 million). Of this amount – which I will refer to as the “unduly refunded” VAT, part (PEN 9,223,322, equivalent to about £2 million) had been paid out to the Company before closing and the rest was paid after closing under the SPA took place.
Other credits relating to the period before closing were also disallowed which had not been refunded to the Company were also disallowed. The total amount of these further rejected credits was PEN 10,416,979 (about £2.3 million), which SUNAT again claimed to deduct from the Company's accumulated credit balance. SUNAT also assessed the Company as liable to pay penalties for wrongly claiming the rejected VAT credits (and interest on such penalties) amounting in total to PEN 26,806,699 (about £6 million) at the time of the assessment.
Appeals against the assessment
The tax assessment has been appealed. The first appeal lies to SUNAT itself. SUNAT resolved this appeal by an “intendancy resolution” dated 1 December 2016, which confirmed its determinations. The second appeal is to the Peruvian tax court. The Company has lodged such an appeal but the appeal has not yet been determined. From the tax court, further appeals in principle lie to higher courts in the Peruvian legal system.
Conduct of the tax claims
Under clause 12.5.1(iv) of the SPA, the Sellers have the right to take over the conduct of a claim by, or action against, a third party if it may give rise to a claim against the Sellers under the SPA. In order to exercise this right, the Sellers must give notice to the Purchasers and “agree in writing to indemnify the Purchasers against the full amount (if any) payable under such Third Party Claim (if adversely determined).” Provided this is done:
“the Sellers shall be entitled at their own expense and in their absolute discretion … to take such action as it shall deem necessary to avoid, dispute, deny, defend, resist, appeal, compromise or contest the Third Party Claim … in the name of and on behalf of the Purchasers or member of the Purchasers' Group concerned and to have the conduct of any related proceedings, negotiations or appeals, subject to the Sellers not taking any action which could reasonably be considered to be likely to be materially prejudicial to the legitimate commercial interests of the Las Bambas Project or the Group Companies;”
In November 2014 the Sellers exercised their right under this clause to take over the conduct of the claim relating to the New Town VAT. For that purpose, the Sellers entered into the Deed of Indemnity with the Purchasers dated 24 November 2014.
The Sellers have not taken over the conduct of the claim relating to the rejected VAT credits, which is therefore being handled by the Company.
The graduality regime
Under Peruvian law a tax assessment issued by SUNAT becomes enforceable when the time allowed for filing an appeal expires, if no appeal has been filed within that time. If an appeal is filed, the tax debt...
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