Glencore defeats SPA tax indemnity claim in the Court of Appeal

Minera Las Bambas S.A. and anr v Glencore Queensland Ltd and ors [2019] EWCA Civ 972

The Court of Appeal has today handed down judgment on a claim brought under a tax indemnity contained within an SPA, in circumstances arising from the sale by Glencore to MMG of a company operating the Las Bambas copper mining project in the Apurímac region of Peru.

The case concerned the effect of tax assessments issued by the Peruvian tax authority to the mining company after the date of the SPA, which asserted that the company had paid too little by way of VAT and had over-claimed VAT credits.

Contained within the SPA was a tax indemnity provision which (in summary) rendered the sellers liable to indemnify the buyers in respect of tax which was “payable” by the company and which related to the period prior to closing under the SPA.

The core dispute both at trial and on appeal focused on the meaning of the word “payable”. The principal issue was whether the tax authority’s assessments meant that VAT was “payable” in circumstances where, as a matter of Peruvian law, a taxpayer could not be compelled to pay the tax asserted by the tax authority to be due, pending appeal.  

After a five-day trial in the Commercial Court, Moulder J accepted Glencore’s contention that VAT was not “payable” in such circumstances with the consequence that no obligation could arise under the indemnity until the VAT was “coercively enforceable” under Peruvian law.

The Court of Appeal upheld Moulder J’s judgment, holding that the tax becomes “payable” under the SPA only when an enforceable obligation to pay the relevant amount arises. The Court of Appeal observed that “payable” is not a term of art, but reached its view for two main reasons in the context of the contract. First, to require the sellers to pay an amount of money to the purchasers before there was an enforceable obligation for the latter to pay the tax authority would be inconsistent with the nature of an indemnity, which is a promise to prevent the indemnified person from suffering loss (damnum). Secondly, it would be commercially unreasonable to interpret the indemnity as obliging the sellers to put the purchasers in funds for an amount of money which they may, or may not, come under an enforceable obligation to pay in the future – clear words would be required to find that this was the parties’ intention.  

Of interest also was the Court of Appeal’s finding (on another of the issues on appeal) that a limitation clause in the SPA which specified a “but for” test did not import the standard principles of legal causation or any reasonableness test, but instead imposed a pure factual test of causation.

The judgment can be found here.

Conall Patton and Alyssa Stansbury appeared for Glencore, instructed by Linklaters.