Contingent liabilities and legal proceedings

12 Months Ended

Jun. 30, 2025

Disclosure of contingent liabilities [abstract]

Contingent liabilities and legal proceedings

19. Contingent liabilities and legal proceedings

Accounting policies

Provision is made for the anticipated settlement costs of legal or

other disputes against the group where it is considered to be

probable that a liability exists and a reliable estimate can be

made of the likely outcome. Where it is possible that a

settlement may be reached or it is not possible to make a

reliable estimate of the estimated financial effect, appropriate

disclosure is made but no provision created.

Critical accounting judgements and estimates

Judgement is necessary in assessing the likelihood that a claim

will succeed, or a liability will arise, and an estimate to quantify

the possible range of any settlement. Due to the inherent

uncertainty in this evaluation process, actual losses may be

different from the liability originally estimated. The group may

be involved in legal proceedings in respect of which it is not

possible to make a reliable estimate of any expected

settlement. In such cases, appropriate disclosure is provided but

no provision is made and no contingent liability is quantified.

(a) Guarantees and related matters

As of 30 June 2025, the group has no material unprovided guarantees

or indemnities in respect of liabilities of third parties.

(b) Acquisition of USL shares from UBHL and related

proceedings in relation to the USL transaction

On 4 July 2013, Diageo completed its acquisition, under a share

purchase agreement with United Breweries (Holdings) Limited (UBHL)

and various other sellers (the SPA), of shares representing 14.98% in

USL, including shares representing 6.98% from UBHL. The SPA was

signed on 9 November 2012as part of the transaction announced by

Diageo in relation to USL on that day (the Original USL Transaction).

Following a series of further transactions, as of 30 June 2025, Diageo

has a 55.88% investment in USL (excluding 2.38% owned by the USL

Benefit Trust).

Prior to the acquisition from UBHL on 4 July 2013, the High Court of

Karnataka (High Court) had granted leave to UBHL under the Indian

Companies Act 1956 (the Leave Order) to enable the sale by UBHL to

Diageo to take place (the UBHL Share Sale) notwithstanding the

continued existence of certain winding-up petitions that were pending

against UBHL on the date of the SPA. At the time of the completion of

the UBHL Share Sale, the Leave Order remained subject to review on

appeal. However, as stated by Diageo at the time of closing, it was

considered unlikely that any appeal process in respect of the Leave

Order would definitively conclude on a timely basis and, accordingly,

Diageo waived the conditionality under the SPA relating to the absence

of insolvency proceedings in relation to UBHL and acquired the 6.98%

stake in USL from UBHL at that time.

Following appeal and counter-appeal in respect of the Leave Order,

this matter is now before the Supreme Court of India which has issued

an order that the status quo be maintained with regard to the UBHL

Share Sale pending a hearing on the matter before it. Following a

number of adjournments, the next date for a substantive hearing is yet

to be fixed.

In separate proceedings, the High Court passed a winding-up order

against UBHL on 7 February 2017, and appeals filed by UBHL against

that order have since been dismissed, initially by a division bench of

the High Court and subsequently by the Supreme Court of India.

Diageo continues to believe that the acquisition price of INR 1,440 per

share paid to UBHL for the USL shares is fair and reasonable as regards

UBHL, UBHL’s shareholders and UBHL’s secured and unsecured

creditors. However, adverse results for Diageo in the proceedings

referred to above could, absent leave or relief in other proceedings,

ultimately result in Diageo losing title to the 6.98% stake in USL

acquired from UBHL. Diageo believes, including by reason of its rights

under USL’s articles of association to nominate USL’s CEO and CFO and

the right to appoint, through USL, a majority of the directors on the

boards of USL’s subsidiaries as well as its ability as promoter to

nominate for appointment up to two-thirds of USL’s directors for so

long as the chairperson of USL is an independent director, that it would

remain in control of USL and would continue to be able to consolidate

USL as a subsidiary for accounting purposes regardless of the outcome

of this litigation.

There can be no certainty as to the outcome of the existing or any

further related legal proceedings or the time frame within which they

would be concluded.

(c) Continuing matters relating to Dr Vijay Mallya and

affiliates

On 25 February 2016, Diageo and USL each announced that they had

entered into arrangements with Dr Mallya under which he had agreed

to resign from his position as a director and as chair of USL and from

his positions in USL’s subsidiaries.  

Diageo’s agreement with Dr Mallya (the February 2016 Agreement)

provided for a payment of $75 million to Dr Mallya over a five-year

period of which $40 million was paid on the signing of the February

2016 Agreement with the balance being payable in equal instalments of

$7 million a year over five years (2017-2021). All payments were

subject to and conditional on Dr Mallya’s compliance with the

agreement. The February 2016 Agreement also provided for the release

of Dr Mallya’s personal obligations to indemnify Diageo Holdings

Netherlands B.V. (DHN) in respect of its earlier liability ($141 million)

under a backstop guarantee of certain borrowings of Watson Limited

(Watson) (a company affiliated with Dr Mallya).

On account of various breaches and other provisions of agreements

between Dr Mallya and persons connected with him and Diageo and/or

USL, Diageo did not make the five instalment payments due during the

five-year period between 2017 and 2021. In addition, Diageo has also

demanded that Dr Mallya repay the $40 million paid by Diageo in

February 2016 and sought compensation for various losses incurred by

the relevant members of the Diageo group.

On 16 November 2017, Diageo and other relevant members of the

Diageo group commenced claims in the High Court of Justice in England

and Wales (the English High Court) against Dr Mallya in relation to

these matters. At the same time DHN also commenced claims in the

English High Court against Dr Mallya, his son Sidhartha Mallya, Watson

and Continental Administration Services Limited (CASL) (a company

affiliated with Dr Mallya and understood to hold assets on trust for him

and certain persons affiliated with him) for in excess of $142 million

(plus interest) in relation to Watson’s liability to DHN in respect of its

borrowings referred to above and the breach of associated security

documents. Dr Mallya, Sidhartha Mallya and the relevant affiliated

companies filed a defence to these claims, and Dr Mallya also filed a

counterclaim for payment of the two instalment payments that had by

that time been withheld as described above.

Diageo continues to prosecute its claims and to defend the

counterclaim. As part of these proceedings, Diageo and the other

relevant members of its group filed an application for strike out and/or

summary judgement in respect of certain aspects of the defence filed

by Dr Mallya and the other defendants, including their defence in

relation to Watson and CASL’s liability to repay DHN. The application

was successful resulting in Watson being ordered to pay approximately

$135 million plus various amounts in respect of interest to DHN, with

CASL being held liable as co-surety for 50% of any such amount unpaid

by Watson. These amounts were, contrary to the relevant orders, not

paid by the relevant deadlines and Watson and CASL’s remaining

defences in the proceedings were struck out. Diageo and DHN have

accordingly sought asset disclosure and are considering further

enforcement steps against Watson and CASL, both in the United

Kingdom and in other jurisdictions where they are present or hold

assets, including actively taking steps to retain the right to

enforcement against Watson in Mauritius.

A trial of the remaining elements of these claims was due to

commence on 21 November 2022. However, on 26 July 2021 Dr Mallya

was declared bankrupt by the English High Court pursuant to a

bankruptcy petition presented by a consortium of Indian banks. Diageo

and the relevant members of its group have informed the Trustee in

Bankruptcy of their position as creditors in the bankruptcy and have

engaged with the Trustee regarding their claims and the status of the

current proceedings. An appeal by Dr Mallya against his bankruptcy (and

an appeal by the bank consortium against orders made in the course of

the bankruptcy proceedings) was heard in February 2025, and on 9 April

2025 the English High Court issued a judgement denying Dr Mallya’s

appeal and granting the appeal of the bank consortium. Dr Mallya is

currently pursuing an application for annulment of the bankruptcy

orders, which is scheduled to be heard on 13 October 2025. In light of

ongoing proceedings in relation to the bankruptcy orders, the trial of

Diageo’s claim, which was scheduled to take place in March 2025, has

been deferred and is currently awaiting rescheduling.

At this stage, it is not possible to assess the extent to which the various

ongoing proceedings related to the bankruptcy will affect the remaining

elements of the claims by Diageo and the relevant members of its group.

Upon completion of an initial inquiry in April 2015 into past improper

transactions which identified references to certain additional parties

and matters, USL carried out an additional inquiry into these

transactions (Additional Inquiry) which was completed in July 2016.

The Additional Inquiry, prima facie, identified transactions indicating

actual and potential diversion of funds from USL and its Indian and

overseas subsidiaries to, in most cases, entities that appeared to be

affiliated or associated with Dr Mallya. All amounts identified in the

Additional Inquiry have been provided for or expensed in the financial

statements of USL or its subsidiaries in the respective prior periods.

USL has filed recovery suits against relevant parties identified pursuant

to the Additional Inquiry.

Further, at this stage, it is not possible for the management of USL to

estimate the financial impact on USL, if any, arising out of potential non-

compliance with applicable laws in relation to such fund diversions.

(d) Other matters in relation to USL

In respect of the Watson backstop guarantee arrangements, the

Securities and Exchange Board of India (SEBI) issued a notice to Diageo

on 16 June 2016 that if there is any net liability incurred by Diageo

(after any recovery under relevant security or other arrangements,

which matters remain pending) on account of the Watson backstop

guarantee, such liability, if any, would be considered to be part of the

price paid for the acquisition of USL shares under the SPA which

formed part of the Original USL Transaction and that, in that case,

additional equivalent payments would be required to be made to those

shareholders (representing 0.04% of the shares in USL) who tendered in

the open offer made as part of the Original USL Transaction. Diageo

believes that the Watson backstop guarantee arrangements were not

part of the price paid or agreed to be paid for any USL shares under the

Original USL Transaction and that therefore SEBI's decision was not

consistent with applicable law, and Diageo appealed against it before

the Securities Appellate Tribunal, Mumbai (SAT). On 1 November 2017,

SAT issued an order in respect of Diageo’s appeal in which, amongst

other things, it observed that the relevant officer at SEBI had neither

considered Diageo’s earlier reply nor provided Diageo with an

opportunity to be heard, and accordingly directed SEBI to pass a fresh

order after giving Diageo an opportunity to be heard. Following SAT’s

order, Diageo made its further submissions in the matter, including at a

personal hearing before a Deputy General Manager of SEBI. On 26 June

2019, SEBI issued an order reiterating the directions contained in its

previous notice dated 16 June 2016. As with the previous SEBI notice,

Diageo believes that SEBI's latest order is not consistent with applicable

law. Diageo appealed against this order before SAT and, after a hearing

in March 2023, SAT allowed Diageo’s appeal on 26 July 2023.

Accordingly, SEBI’s order dated 26 June 2019 stands quashed at present.

While SEBI has filed an appeal against SAT’s order before the Supreme

Court of India, the next date for a substantive hearing is yet to be fixed.

There can be no certainty as to the outcome or the timeframe within

which such appeal will be concluded.

(e) USL’s dispute with IDBI Bank Limited

Prior to the acquisition by Diageo of a controlling interest in USL, USL

had prepaid a term loan taken through IDBI Bank Limited (IDBI), an

Indian bank, which was secured on certain fixed assets and brands of

USL, as well as by a pledge of certain shares in USL held by the USL

Benefit Trust (of which USL is the sole beneficiary). The maturity date

of the loan was 31 March 2015. IDBI disputed the prepayment,

following which USL filed a writ petition in November 2013 before the

High Court of Karnataka (the High Court) challenging the bank’s

actions.

Following the original maturity date of the loan, USL received notices

from IDBI seeking to recall the loan, demanding a further sum of INR

459 million on account of the outstanding principal, accrued interest

and other amounts, and also threatening to enforce the security in the

event that USL did not make these further payments. Pursuant to an

application filed by USL before the High Court in the writ proceedings,

the High Court directed that, subject to USL depositing such further

amount with the bank (which amount was duly deposited by USL), the

bank should hold the amount in a suspense account and not deal with

any of the secured assets including the shares until disposal of the

original writ petition filed by USL before the High Court.

On 27 June 2019, a single judge bench of the High Court issued an

order dismissing the writ petition filed by USL, amongst other things,

on the basis that the matter involved an issue of breach of contract by

USL and was therefore not maintainable in exercise of the court’s writ

jurisdiction. USL filed an appeal against this order before a division

bench of the High Court, which on 30 July 2019 issued an interim order

directing the bank to not deal with any of the secured assets until the

next date of hearing. On 13 January 2020, the division bench of the

High Court admitted the writ appeal and extended the interim stay.

This appeal is currently pending. Based on the assessment of USL’s

management supported by external legal opinions, USL continues to

believe that it has a strong case on the merits and therefore continues

to believe that the secured assets will be released to USL and the

aforesaid amount of INR 459 million remains recoverable from IDBI.

(f) Tax

The international tax environment has seen increased scrutiny and

rapid change over recent years bringing with it greater uncertainty for

multinationals. Against this backdrop, Diageo has been monitoring

developments and continues to engage transparently with the tax

authorities in the countries where it operates to ensure that the group

manages its arrangements on a sustainable basis.

The group operates in a large number of markets with complex tax and

legislative regimes that are open to subjective interpretation. In the

context of these operations, it is possible that tax exposures which

have not yet materialised (including those which could arise as part of

tax assessments) may result in losses to the group. Where the potential

tax exposures are known to us and may lead to a possible material

outflow, the group assesses the disclosure of such matters as

contingent liabilities, taking into account both assessed and unassessed

amounts (if any), their size and nature, relevant regulatory

requirements and potential prejudice of the future resolution or

assessment thereof.

Diageo has a large number of ongoing tax cases in Brazil and India, for

which contingent liabilities are disclosed on the basis of the current

known possible exposure from tax assessment values. While not all of

these cases are individually significant, the current aggregate known

possible exposure from tax assessment values is up to approximately

$906 million for Brazil and up to approximately $90 million for India.

The group believes that the likelihood that the tax authorities will

ultimately prevail is lower than probable but higher than remote. Due

to the fiscal environment in Brazil and in India, the possibility of

further tax assessments related to the same matters cannot be ruled

out and the judicial processes may take extended periods to conclude.

Based on its current assessment, Diageo believes that no provision is

required in respect of these issues.

Payments were made under protest in India in respect of the periods

1 April 2006 to 31 January 2025 in relation to tax assessments where

the risk is considered to be remote or possible. These payments have

to be made in order to be able to challenge the assessments and as

such have been recognised as a receivable in the group's balance sheet.

The total amount of payments under protest recognised as a receivable

as at30 June 2025 is $120 million (corporate tax payments of

$108 million and indirect tax payments of $12 million).

(g) Other

The group has extensive international operations and routinely makes

judgements on a range of legal, customs and tax matters which are

incidental to the group's operations. Some of these judgements are or may

become the subject of challenges and involve proceedings, the outcome

of which cannot be foreseen. In particular, the group is currently a

defendant in various customs proceedings that challenge the declared

customs value of products imported by certain Diageo companies. Diageo

continues to defend its position vigorously in these proceedings.

Save as disclosed above, neither Diageo, nor any member of the Diageo

group, is or has been engaged in, nor (so far as Diageo is aware) is

there pending or threatened by or against it, any legal or arbitration

proceedings which may have a significant effect on the financial

position of the Diageo group.