Heritage Oil And Gas Ltd & Anor v Tullow Uganda Ltd

A contractual notice or claims-conduct provision will not ordinarily be construed as a condition precedent to an indemnity unless the agreement uses clear language to make loss of the indemnity the consequence of non-compliance. The use elsewhere of express condition-precedent language is a material contrast. A reference making a payment provision subject to later provisions does not, without more, impose every later obligation as a condition of entitlement.

Where a statutory agency notice depends upon money held for a taxpayer, a live issue as to the amount held requires a factual finding before the full amount can be recovered under a contractual indemnity.

Heritage agreed to sell petroleum interests in Uganda to Tullow under a sale and purchase agreement. The agreement required Heritage to bear non-transfer taxes and indemnify Tullow if such tax was charged to it. Following agency notices issued by the Ugandan Revenue Authority, Tullow paid US$313,447,500 in respect of Heritage’s assessed tax liability.

Burton J held that Tullow was entitled to a full indemnity: [2013] EWHC 1656 (Comm). Heritage appealed. The principal issues were whether the notice and conduct provisions in article 7 of the sale and purchase agreement, or clause 3.1(a) of a supplemental agreement, were conditions precedent to indemnity, and whether Tullow established its claim for the full US$30 million demanded by the Second Agency Notice.

1. Appeal allowed to a limited extent. The court upheld Tullow’s entitlement to an indemnity in principle, but held that the sum recoverable under the Second Agency Notice had to be reduced from US$30 million to US$27,461,286.30.

2. Article 7.5(a), requiring notice of a tax claim within 20 business days, and article 7.5(b), concerning reasonable requests for action to contest the claim, were not conditions precedent to the indemnities in articles 7.1 and 7.2. Article 7.4 showed that the parties knew how to make an indemnity conditional upon timely written notice. The same introductory obligation governed both limbs of article 7.5, and the qualified and evaluative obligations in article 7.5(b), together with article 7.6, were inconsistent with automatic forfeiture of an indemnity for any breach.

3. The words making article 7.3 subject to later provisions concerned the timing of payment. They did not convert each later provision into a condition precedent. Article 7.7 merely identified when an indemnified party was free to settle a tax claim; it did not impose an additional condition on the existence of the indemnity.

4. Beatson LJ also concluded, although it was unnecessary to decide the point, that clause 3.1(a) of the Supplemental Agreement did not make Heritage’s sole conduct of the tax dispute a condition precedent to Tullow’s indemnity. Clear language would have been needed to displace the detailed claims-conduct machinery in the sale and purchase agreement or the indemnity’s application notwithstanding breach of duty.

5. On the Second Agency Notice, the amount actually owed by Tullow to Heritage was a live issue relevant to the statutory-agency mechanism under Uganda Income Tax Act. The judge had not made the necessary finding. The recoverable amount was therefore reduced as stated.

• Court of Appeal (Civil Division) — Allowed Heritage’s appeal only in relation to the amount recoverable under the Second Agency Notice; otherwise upheld the contractual-indemnity ruling.
• High Court, Queen’s Bench Division, Commercial Court — Burton J held that Tullow was entitled to an indemnity for the full payment made to the Ugandan authorities: [2013] EWHC 1656 (Comm).