Acquiring A USD 313 Million Problem

In Heritage Oil and Gas & Anor v Tullow Uganda Ltd the Court of Appeal upheld Tullow's right to be indemnified for a USD 313,447,500 payment it made to the Government of Uganda in connection with the acquisition of a petroleum exploration licence from Heritage. This recent decision provides a stark reminder of the need to ensure that close attention is paid to the drafting of tax clauses in a sale and purchase agreement.

The Ugandan revenue authority initially assessed Heritage for tax in respect of the proceeds of disposal of the licence. However, the burden was shifted on to Tullow because Heritage (a non-resident company) disputed liability. The difficulty for Tullow was that the Ugandan Government was not prepared to give its required consent for the transfer unless the tax liability was dealt with first.