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

In a detailed, professionally drafted commercial contract, the court ascertains objective meaning from the language, contractual context and commercial consequences, with particular weight ordinarily given to the text.

A tax indemnity for tax which is “payable” is ordinarily engaged when an enforceable obligation to pay arises, rather than when an unenforceable liability is merely established. The reduction of an unrefunded VAT credit is not itself tax payable.

A limitation excluding losses which would not have occurred but for a purchaser’s act, omission or transaction imposes factual causation. It does not import common law legal causation, reasonableness or culpability unless the contract says so. An omission must nevertheless concern a lawful step within the purchaser’s power and reasonably available to it.

The Purchasers acquired the shares in a company owning a large Peruvian copper-mining project under a share purchase agreement governed by English law. The agreement contained tax indemnities, tax warranties and limitations on the Sellers’ liability. A related deed indemnified the Purchasers against liabilities concerning VAT on the construction of a new town.

After closing, the Peruvian tax authority assessed the Company for VAT, penalties and interest. It also rejected VAT credits for which it considered the supporting documentation inadequate. The assessments remained under appeal and were not coercively enforceable.

Moulder J determined numerous indemnity issues in the Commercial Court: [2018] EWHC 1658 (Comm). Both sides appealed. The principal questions concerned when tax became “payable”, the scope of the indemnities and warranties, and whether a limitation clause applied a purely factual “but for” test.

1. The Purchasers’ appeal was dismissed and the Sellers’ appeal was allowed in part. The words “Tax payable” in clause 10.1.1 required an enforceable obligation to pay. An assessment establishing an actual but presently unenforceable liability was insufficient. The tax would become payable only if and to the extent that the Peruvian proceedings confirmed the liability and the debt became coercively enforceable. The same construction applied to the deed of indemnity.

2. An indemnity ordinarily protects the indemnified party from loss. It made neither legal nor commercial sense to require payment where funds were not yet needed and might never be needed. The Purchasers could nevertheless notify and litigate a claim before the right to payment accrued.

3. The disallowance of an unrefunded VAT credit, resulting only in a reduced accumulated credit balance, was not “Tax payable”. It could attract an indemnity only under clause 10.1.2. That clause required an indemnified VAT receivable to be found definitively cancelled, lost or unavailable as a result of a specified breach of warranty.

4. The VAT refunded before closing had not been included as a receivable in the completion statement. VAT actually refunded, whether before or after closing, could not constitute a right to repayment which had been cancelled, lost or made unavailable. It therefore fell outside clause 10.1.2, although an enforceable obligation to repay it could fall within clause 10.1.1.

5. The warranties were construed according to their distinct language. “Possession” of information did not depend on its organisation, location or ease of retrieval. “Reasonable access” was an alternative requirement, satisfied where information could be obtained cost-effectively and promptly. A return made “on a proper basis” referred to its accounting basis, not the availability of supporting evidence. No relevant breach was proved.

6. Clause 11.8.2 imposed a purely factual “but for” test. It did not incorporate legal causation, unreasonableness or culpability. Failure to obtain the maximum discount on penalties was an omission which excluded the additional loss. An omission must, however, concern a lawful step within the Purchasers’ power and reasonably available to them.

7. The Sellers’ possible defence concerning failure to produce documents remained undecided. The order was varied so that they could raise clause 11.8.2 if the VAT, penalties or interest became payable. The judge’s order was otherwise upheld.

1. Court of Appeal (Civil Division): By [2019] EWCA Civ 972, unanimously dismissed the Purchasers’ appeal, allowed the Sellers’ appeal in part and varied the order concerning the availability of a defence under clause 11.8.2.
2. Commercial Court: Moulder J determined the contractual indemnity claims in [2018] EWHC 1658 (Comm). Her decision was upheld except as to the scope of clause 10.1.2 and the preservation of the Sellers’ possible clause 11.8.2 defence.