Minera Las Bambas SA & Anor v Glencore Queensland Ltd & Ors

In a professionally drafted commercial agreement, the meaning of “payable” depends on the language, contractual context, factual matrix and commercial consequences. A tax liability may be an actual liability without being payable where it cannot yet be coercively enforced. A tax indemnity therefore becomes operative only when the relevant liability is due for coercive enforcement, unless the contract provides otherwise.

A third-party claim indemnity may provide a complete indemnity without temporal limitation. Where the seller assumes conduct of the claim, its contractual power may be exercised to reduce or avoid its own indemnity exposure, subject to any express contractual restriction.

The claimants purchased the shares in Xstrata Peru SA under a share purchase agreement from the defendants. The company indirectly owned the Las Bambas mining project in Peru. The dispute concerned tax indemnities, related provisions governing third-party tax claims, and warranties concerning VAT records and information.

The claimants sought declarations and payment in relation to NFB VAT arising from the relocation of a community, and Third Party VAT arising from supplies made during 2014. The relevant Peruvian tax assessments and appeals remained unresolved. The central issues were the construction of “payable”, the scope of the Deed of Indemnity, the defendants’ power to conduct the tax proceedings, and whether VAT credits, refunds, penalties and interest fell within the SPA indemnities.

1. Meaning of “payable”. The word was construed objectively by balancing the contractual language, the documentary context, the factual matrix and the commercial consequences. The authorities on contractual construction, including Rainy Sky v Kookmin Bank [2011] UKSC 50, Arnold v Britton [2015] UKSC 26 and Wood v Capita Insurance Services Ltd [2017] UKSC 24, did not justify disregarding the language of the professionally negotiated SPA.
2. Under clause 10.1.1 of the SPA, the NFB VAT assessment created an actual liability but not an amount presently “payable”. It would become payable only if the Peruvian tax court determined that VAT was due and the resulting debt became coercively enforceable under the Peruvian Tax Code. The same conclusion applied to NFB VAT penalties and interest. A reduction in the accumulated VAT credit balance was not itself an actual payment or tax payable.
3. The Deed of Indemnity used the same concept of “payable”. However, its reference to an Assumed Tax Matter being “if adversely determined” referred to an adverse determination of the third-party claim by SUNAT, not to a determination that the sellers were liable under the SPA. The defendants therefore gave a complete indemnity for any amount payable under the SUNAT claim, without temporal limitation as to when the underlying VAT liability accrued.
4. The defendants’ power to assume conduct of the SUNAT proceedings could be used to reduce or avoid their potential liability under the indemnity. The words permitting action “in the name of and on behalf of” the purchasers were procedural and did not require the defendants to act in the purchasers’ interests. Subject to the express proviso protecting the legitimate commercial interests of the project and group companies, there was no implied restriction preventing conduct detrimental to the purchasers.
5. For Third Party VAT, rejected VAT credits, reductions in the accumulated credit balance and unrefunded VAT were not presently “tax payable” under clause 10.1.1, unless the adjustment resulted in a tax debt for the relevant period. An amount representing repayment of a VAT refund previously received fell within the SPA definition of Tax, but was not payable until coercively enforceable. Penalties and interest were treated likewise.
6. The Unrefunded VAT could constitute an Indemnified VAT Receivable under clause 10.1.2, but it had not yet been found to be cancelled, lost or unavailable. The Unduly Refunded VAT Amount could also fall within that clause if the tax court required repayment. No breach was established of the warranties concerning the correctness of returns or reasonable access to information. The defendants’ mitigation defence failed, but liability for the difference between the available 60% and 40% penalty discounts was excluded because the claimants chose not to pay earlier.