On 23 July 2014 the Court of Appeal dismissed the vast majority of an appeal brought by Heritage Oil and Gas Ltd and Heritage Oil Plc against the first instance decision of Burton J. that they were liable to pay c.US$345 million to Tullow Uganda Ltd (a subsidiary of Tullow Oil Plc).
The claim arose out of Tullow’s widely-reported pre-emption of Heritage’s sale of the entirety of its petroleum rights and interests in Uganda, and Tullow’s subsequent acquisition of those rights and interests for US$1.45 billion pursuant to a Sale and Purchase Agreement concluded in January 2010. The Government of Uganda assessed Heritage as liable to pay tax in Uganda, but Heritage denied that it had any such liability. Shortly after the completion of the transaction in July 2010 the Government served agency notices on Tullow appointing it as Heritage’s agent in respect of its tax liability. Tullow ultimately made payment to the Government in April 2011 of c.US$313 million pursuant to those notices. It then commenced proceedings against Heritage in order to obtain a contractual indemnity.
At first instance Heritage defended the claim on the basis that Tullow had knowingly submitted to unlawful and ineffective demands by the Government of Uganda. Heritage also advanced a number of arguments as to true construction of the SPA. Following a three-week Commercial Court trial Burton J. held that Tullow’s claim succeeded in its entirety.
On appeal Heritage renewed its arguments on construction. It submitted that various contractual provisions had the status of conditions precedent, that Tullow had breached those provisions, and that Tullow was accordingly disentitled from its contractual indemnity. Heritage also appealed against a finding that it was liable to indemnify Tullow for the full amount of the second agency notice. The Court of Appeal dismissed Heritage’s appeal on the first issue but allowed it on the second issue, with the result that Tullow’s entitlement to c.US$345 million was reduced by c.US$2.9 million.
The Court of Appeal’s judgment is notable for its analysis and restatement (at paragraph 33 onwards) of the principles of interpretation which apply when determining whether a contractual provision is a condition precedent, both in relation to general commercial contracts and also specifically in relation to insurance contracts.
Tullow was represented by David Wolfson QC and Richard Mott of One Essex Court.
Read the full text of the judgment.