Tullow Uganda Ltd v Heritage Oil and Gas Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Burton |
| Judgment Date | 14 June 2013 |
| Neutral Citation | [2013] EWHC 1656 (Comm) |
| Date | 14 June 2013 |
| Docket Number | Case No: 2011 Folio 471 |
| Court | Queen's Bench Division (Commercial Court) |
[2013] EWHC 1656 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Burton
Case No: 2011 Folio 471
Mr David Wolfson QC and Mr Richard Mott (instructed by Ashurst LLP) for the Claimant
Mr Khawar Qureshi QC, Mr Jonathan Brettler and Mr Alexander Cook (instructed by McCarthy Tétrault) for the Defendants
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Hearing dates: 12, 13, 14, 18, 19, 20, 21, 25, 26, 27, 28 March and 26 April 2013
Prior to January 2010 the Claimant, Tullow Uganda Ltd, and the First Defendant (whom I shall call the Defendant), Heritage Oil and Gas Ltd, each held a 50% interest in the licence of certain petroleum exploration areas in Uganda, known as Blocks 1 and 3A; in addition the Claimant held 100% of the interest in Block 2. These were very significant oil fields in Uganda, where oil was only relatively recently discovered, and their development was of great significance to the Government of Uganda ("GOU"). The Claimant's parent company and the Second Defendant, the Defendant's parent company, are both substantial FTSE companies. Both companies are involved in the business of oil and gas explorations. The Claimant wished to extend its commitment to Uganda and the Defendant to realise its investment in Uganda and move on.
It was a term of the Joint Operating Agreement ("JOA") between them that in the event of the Defendant wishing to dispose of its 50% interest the Claimant had a right of pre-emption, and when the Defendant entered into first a Letter of Intent in November and then a Sale and Purchase Agreement in December 2009 with a third party, Eni S.p.A., the Claimant exercised its right of pre-emption, with the result that the Claimant and Defendant entered (on the same terms) into a Sale and Purchase Agreement ("the SPA") dated 26 January 2010, whereby conditional (by Article 2) upon various matters, in particular the consent of the GOU, the Defendant agreed to sell, and the Claimant to purchase such 50% interest. The condition of the GOU's consent was obviously crucial, and by Article 2.3 each party agreed to use best endeavours to procure it. The consideration was a Base Purchase Price of $1.35 billion, plus an Adjustment Amount (Article 3.3(a)) to be determined, and by Article 3.1(b) a Contingent Amount of $150 million (or in certain circumstances a lesser amount) conditional as there set out. This amounted to a sum which the Claimant asserts, and the GOU subsequently calculated, to amount to a profit to the Defendant of some $1.3 billion.
Provision was made by the SPA for the incidence of taxes. By Article 7.1 all " Transfer Taxes", defined as " stamp duty payable under the laws of the Republic of Uganda" were to be borne by the Claimant as purchaser. " Non-Transfer Taxes", meaning " any Taxes other than Transfer Taxes", were to be the responsibility of the Defendant as Seller. This dispute arises out of the indemnity sought by the Claimant in respect of the payment by it on 7 April 2011 to the GOU of US$313,477,500, claimed by the GOU in respect of Non-Transfer Taxes, thus made the responsibility of the Defendant.
Articles 7.2 and 7.3 read as follows, the " Indemnifying Party" being the Defendant and the " Indemnified Party" being the Claimant:
" 7.2 Any Non-Transfer Taxes arising in respect of the Transaction, including any capital gains tax, shall be borne by the Seller. The Seller shall be solely responsible for the determination of, timely filing for, and prompt payment of, any such Non-Transfer Taxes imposed upon, or attributable to, the Seller or any of its Affiliates. In the event that any Non-Transfer Tax is charged at any time to the Buyer … in connection with the Transaction, the Seller shall in each case pay to the Buyer an amount equal to such Tax.
7.3 The Indemnifying Party shall pay to the Indemnified Party any amount claimed under the indemnities in Articles 7.1 and 7.2 on or before the date that is the latest of (1) 10 (ten) Business Days after demand is made therefor by the Indemnified Party, (2) 10 (ten) Business Days prior to the latest date on which the Tax in question can be paid to the relevant Tax Authority in order to avoid a liability to interest or penalties accruing and, (3) in circumstances where the Tax in question is not payable in advance of the date on which the amount of Tax is finally and conclusively determined, within 15 (fifteen) Business Days of such date. For this purpose, an amount of Tax shall be deemed to be finally determined when (i) the Indemnified Party makes a binding agreement with the Indemnifying Party as to the amount payable in respect of such Tax under the indemnities in Articles 7.1 and 7.2, as appropriate, (ii) the Indemnified Party makes a binding agreement with the relevant Tax Authority in respect of the amount of such Tax, or (iii) a decision of a court or tribunal of competent jurisdiction is given or any other binding agreement or determination is made in respect of the amount of such Tax from which either no appeal lies or in respect of which no appeal is made within the prescribed time limit. For the avoidance of doubt, this Article 7.3 is subject to the following provisions of this Article 7."
By Article 3.2 of the SPA, the Base Purchase Price was to be paid into an escrow account on the third business day prior to the Closing Date. The Closing Date was in the event 26 July 2010. By an Agreement of that date ("the Supplemental Agreement") the parties set out as follows, Recital A having referred to the SPA:
" (B) On 6 July, the Minister, Ministry of Energy and Mineral Development (the "Minister") issued Assignment Approvals to the Seller that were conditional upon the Seller paying all taxes accruing from the Transfer as shall be assessed by the Commissioner, Uganda Revenue Authority (the "Conditional Assignment Approvals").
(C) On 6 July the Commissioner, Uganda Revenue Authority, delivered to the Seller an Income Tax Assessment assessing taxes in relation to the Transfer in the amount of $404,925,000 (the "Assessment"). The Seller disputes with the Government and the Uganda Revenue Authority (the "URA") that any tax is payable on or in relation to the Transfer, that either the Government or the URA has the right to issue the Assessment or any other assessment of tax levied on or in relation to the Transfer and the content of the Assessment (the "Dispute").
(D) On 16 July the Permanent Secretary, Ministry of Energy and Mineral Development wrote to … McCarthy Tetrault [the Defendant's solicitors] and confirmed that upon the Seller depositing with the URA an amount equal to 30% of the amount of tax stated in the Assessment and providing a bank guarantee acceptable to the Government to secure the remaining 70% of the amount of tax, the Government will be satisfied that the conditions set out in the Conditional Assignment Approvals are met.
(E) In order to facilitate the satisfaction of the condition set out in the Conditional Assignment Approvals and the procurement of the Assignment Approvals on an unconditional basis such that the parties are able to proceed to Closing, the parties have agreed to enter into this … Agreement in relation to certain matters that are supplemental to or which amend the Sale and Purchase Agreement."
After these Recitals, there was provision, so far as the consideration was concerned, by Article 3.1(c) and Article 4.2, for the Contingent Amount to be settled in the sum of $100 million, and for the following payments:
(i) $1,045,075,000 to be made direct to the Defendant:
and, as to the balance of the figure now agreed as $1.45 billion,
(ii) $121,477,500, being the 30% of the Income Tax Assessment referred to in Recital (C), to be made by the Claimant, on the Defendant's behalf, to a GOU nominated bank account:
(iii) $283,447,500 into an escrow account established with Standard Chartered Bank in London, pursuant to the terms of an Escrow Agreement dated 23 July 2010.
Although the letter dated 16 July 2010 referred to in Recital (D) of the Supplemental Agreement was indeed written to the Defendant's solicitors by the Permanent Secretary, it soon became clear that the payment of the 70% of the tax into an escrow account in London was not regarded by the GOU as a satisfactory compliance with the provision for an acceptable bank guarantee and on 3 August 2010 the Minister of Energy and Mineral Development, Mr Onek, wrote to both the Claimant and Defendant stating that the conditions stipulated for Government consent had not been fulfilled, and therefore the transaction was of no effect.
A tax assessment had been issued on the Defendant by the Uganda Revenue Authority ("URA") dated 9 April 2010, assessing the tax payable on the Defendant's gain by reference to the Base Purchase Price of $1.35 billion at $404,925,000. The Defendant responded, by letter dated 13 April 2010, asking for the withdrawal of such assessment because it was premature " to demand payment of tax in respect of the Proposed Sale when the sale may not be completed and at a time when [the Defendant] has yet to receive, and has no basis for receiving, any sale proceeds". The URA withdrew the assessment by letter dated 22 April 2010 " without prejudice" to its reissue, and such reissue occurred by Notice dated 6 July 2010, under letter signed by Mrs Allen Kagina as Commissioner General, the same day as the issue of Minister Onek's letter of conditional consent. This is the assessment to which reference is expressly made in Recital...
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