Heritage Oil & Gas Ltd Vs Uganda Revenue Authority
With reference to the quotation extracted from the article entitled, Heritage Oil arbitration case in London deprives Ugandan Citizens of Right to Information 2012, if Heritage Oil was to win the case and avoid paying taxes, then Uganda would face a deep sense of injustice or unfairness for many years to come. The main facts that gave rise to the appeal were that, on 1st July 2004, the Heritage Oil & Gas Limited (Appellant) engaged in a sharing agreement for petroleum development, exploration, and production by the Ugandan government. The agreement included an arbitration section that outlined that any disagreement that could not be settled under the Production Sharing Agreement (PSA) within 60 days, it would be transferred to arbitration as per the UNCITRAL (United Nations Commission for International Trade Law). The Heritage Oil & Gas Limited did not have any adequate reason that supported the need to pay taxes in a timely manner the Company established the need to impose the tax evaluation for Capital Gains as highlighted under the authority of ITA (Income Tax Act). The appellant obliged to the tax assessments and compiled two applications, which are the Tax Appeals Tribunal (TAT) Applications No. 28 and 26 of 2010. Before finalizing the proceedings of the mentioned application, the appellant filed the case claiming that justice had not prevailed as per the Appeal. No 6 of 2011 under sections 5 & 71 in the Conciliation and Arbitration precede rule 30 under TAT rules, and under the CPA section 101. Thereafter, the tribunal heard and discharged the application and the following were the grounds of the appeal.
At this point, there was a need to analyze the grounds of appeal carefully to decide whether or not to plea the case. The first ground of appeal was that, the Tribunal made a mistake in denying the application to have legal proceedings under the TATA (Tax Appeals Tribunal Applications) Nos. 26 and 28 of 2010 (Global Witness 2012, p1). The second ground of appeal was that, the tribunal was legally wrong in claiming that the adjudication and pacification Act was terminal since the URA was not a member or a party of the PSA. The last appeal was that the tribunal erred in a legal proceeding in affirming that the Tax Appeals Tribunal authorization could not be impeded by the contractual provision in the agreement (New Vision 2013, p1).
Both the appellant and respondent were represented effectively to argue in the court. According to Ratio Magazine (2013, p1), Mr. Kauma Peter represented the appellant while Mr. Sekatawa Ali, Mugabi Mathew, and Golooba Rodney represented the respondent. Each counsel presented his argument based on the mentioned ground of appeals. For instance, the appellant was supported by his counsel who based his argument on ground 2, 3 and 1 respectively. In regard to ground 2, the counsel claimed that an arbitration agreement is a contract made by the parties to submit to adjudication in regard to disputes that may arise. Based on TAT Act section 21, the counsel believed that the Tribunal had the power of ruling and if he rules fail to provide a matter, then the rules and procedures of the High Court were to be conducted to align with the TAT section 30 (Ratio Magazine 2013, p1). With this, the counsel for appellant affirmed that the Tribunal was mandated as obligated in the Article 5 of ACA, which defines matters of arbitration.
The counsel further claimed that URA) had the legal right to be the government agent and be supervised by the Finance’s minister as per the Article URA section 2 (3) (McGraw-Hill Companies 2013, p1). He stated that it was accepted that an agent cannot perform anything that the appointing party is incapable of contracting. Additionally, the principal who in this case is the government was confined by its legal obligations. The Counsel disagreed with the Tribunal for claiming that URA is a government agent only in terms of remitting and collecting revenue to the government and implementing the laws thereto. The counsel affirmed that there was no authority either in the URA act or in Uganda law that supported this contention. He further disagreed with the Tribunal observation and ruling that the Production Sharing Agreement (PSA) was not signed by the Finance’s Minister as ought to be, but by the PS) and Minister of Energy. The Counsel claimed that it was flawed in both fact and law to claim that the agreement that made by the Government could only be legally binding based on the ministry that signed it. If such was to happen, then it would infringe the Article Income Tax Act (ITA) Sec 89 (B) (2) (Ratio Magazine 2013, p1). He disagreed on the Tribunal’s observation that the agreement made was a Product Sharing Agreement and not a Tax Collection Agreement. He affirmed that, that was the misconception of the law that was inconsistent with the provisions section of the ITA (New Vision 2013, p1).
To support his argument, the Counsel quoted the Article of PSA. Under Article 14, he emphasized that all central, municipal, administrative, district, and other administrators are paid by the Ugandan government. Additionally, he stated the Article 26.1, any disagreement that cannot be settled within 60 days is referred to as an Arbitration as per UNCITRAL arbitration rules. Thus, the Counsel affirmed that the tax dispute was a dispute that occurred between two people, and under the agreement it was right for it to be referred to arbitration. Arguing on the ground of appeal, the counsel concluded that the Tribunal made a law mistake of ruling that the adjudication agreement was terminated and with this, he requested the court to reverse the decision made (McGraw-Hill Companies 2013, p1).
On ground 3, the counsel argued that the Tribunal inaccurately established that to make an order stay of proceeding there would be a need to restrict its mandate. The arbitration agreement is distinguished in the government of Uganda and enforceable under the act of ACA. He emphasized that by virtue; the law recognizes such an agreement, and thus this could not have fettered the mandate of the court or tribunal. Accordingly, the counsel beseeched the court to find a valid reason that would make them reverse their decision and discover that suggestion to an arbitration agreement would not impede the mandate of the court or tribunal. He further submitted his appeal that, if the tribunal found there is intrinsic disagreement between the TAT Act and ACA Act, then this court should find a reason and the need for the amendment to address the issue (Ratio Magazine 2013, p1).
Based on the 1st appeal, the counsel emphasized that the quotes under the Article ACA Sec 5 are mandatory, and the instances that the court should not take the dispute to the arbitration are indicated in section 5 (1) and section (b) (McGraw-Hill Companies 2013, p1). The counsel asserted that the two arbitration agreements found in the PSAs were not void, null, incompetent or inoperative of being performed. Further, the Counsel said that the two arbitration proceedings had previously been launched by the appellant against the Ugandan government. With this concern, the government elected legal representatives to deal with the legal proceedings and appointed its parties as per the UNCITRA rules. The counsel submitted that there was a disagreement between the two parties on whether the tax calculated was lawfully imposed or not (McGraw-Hill Companies 2013, p1).
At this point, the Arbitral Tribunal had the core responsibility to evaluate and consider whether it had authority or not as per Article UNCITRAL Sec 21 (1), which affirm that the arbitration tribunal can decree any objections that has no authority. The counsel argued that since there were no instances found to exclude the reference to arbitration, the tribunal was bound to obey the ACA section 5, but failed to do so. For further clarifications, the counsel provided previous cases such as Mungereza V Price Water-hose Coopers Africa Central; (2002) 1EA 174 pages180 and 182 (All Africa 2013, p1). From the counsel point of view, the parties freely agreed on the conditions set for the arbitration agreements as a way of solving their differences. Additionally, the counsel quoted Halsbury’s Law of England 3rd Edition Vol.2 where the law emphasized that the court must ensure that there are no sufficient evidences or reasons why the dispute should be taken to the arbitration as per the agreement (Gyezaho 2013, p1). In concluding his arguments on all the mentioned grounds of the appeal, the appellant’s counsel hoped that the court would consider the following orders. The first order was that the appeal was to put aside the pronouncements, ruling, observations, and the findings of the TAT Tax Appeals Tribunals. Application No. 6 of 2011. Secondly, the legal proceeding under the orders of the TAT Applications Nos. 26 & 28 of 2011 should be referred back to the arbitration, and lastly the respondent to pay the cost of the appeal in the court (Lehane 2013, p1).
The respondent lawyer discarded the appeal and affirmed that all the three grounds supported the decisions and findings made by the Tribunal. The counsel stated that injustice was made by the Appellant in that the respondent was not a member or a party of the PSA. Further, he asserted that the Article ACA emphasized that, there should be a dispute focused on the arbitration agreement before a magistrate, and a party before abiding to the magistrate’s ruling and for the matter to be placed back to the arbitration. The party should apply after the documentation and filing of the defence statement. The counsel argued that, both the government and the appellant were legally bound to the PSA agreement, but not the respondent (Wulf & Sokol 2005, p90).
Further, he contended that by law the arbitration agreements are interpreted with respect to the signatories made and cannot be understood by way of agency or inference. Additionally, he argued that the URA Act establish the respondent as a body with a common seal and perpetual succession and power of being sued and suing. He contended that the legal proceedings Act Cap 77 confirmed that the respondent and the government of Uganda were two different entities capable of being sued and suing based on their own reasons and rights. Additionally, he argued that the two parties were different in the arbitration proceedings and in the tribunal proceedings. He asserted that the appellant failed to meet the principles provided in the Section 5 of the ACA and in this regard, the Tribunal did not make mistakes in denying the application to have legal proceedings under the TAT applications 26 and 28, 2010. Based on the Article of PSA Section 14, the counsel concluded that taxes were to be paid on time and this is what motivated both parties to abide by the agreement of paying taxes as obligated in the Article PSA Sec 14. Any agreement that was contrary to the Article, it infringed the laws of Uganda (Mugume 2006, p70).
The counsel stated that the mechanism of tax dispute in Uganda was constitutionally deep-rooted. Article 152 (3) of the ITA regards the government of Uganda to implement laws that govern people and citizens to pay taxes and the TAT was established to ensure that Tribunals understood how to settle tax disputes. With this, he submitted that this authority could not be altered by the alleged arbitration minister, commissioner, or any clause (Crandall & Kidd 2010, p88). He affirmed that sections 101, 100, and 99 of the ITA together with the TAT Act presented two principles of the objection to the tax assessment as indicated in the case (Crandall & Kidd 2010, p90).
According to the consoler, the arbitration by the agreement was not listed in the ITA for settling tax disputes. The appellant submitted the crime of tax dispute willingly, and took the required measures in the objection of prosecution. Thus, this proved that the alleged arbitration was an afterthought incidence and thus, this demanded legal actions to be taken. The Tribunal exercised its legal duties after evaluating all the circumstances and incidences of the case and arrived at their final decision. He urged the court to respect and value Tribunal decisions in that it had carefully followed the law. However, the counsel asserted that the appellant’s did not meet the principles of the law for the stay of proceeding as specified by the Supreme Court in the
“American Express International Banking Corporation v Atul Kumar Sumantbhai Patel; S.C.C.A. No. 5 of 1985” (Ledgerwood & White 2006, p19).
Based on the above proceeding, the court should find adequate reasons to dismiss the appeal at a cost. The main issues were whether the Tribunal erred in denying the application to stay of proceedings, and whether the matter was referred to arbitration. In this case, the counsel affirmed that the URA was not a member or a party of PSA and this terminated section 5 of ACA. He further affirmed that it was disputed that the URA was a body capable of being sued and suing in its corporate power and name. The Court was evaluating whether the corporate power of URA while determining whether the Commissioner General was a suitable party to the suit. The consoler believed that the case was not appropriate since the law did not affirm that URA should collect revenue. He affirmed that URA Act claims that the URA body is established as a government agent that operates under the supervision of the Finance Minister. The URA act Sec 3 (1) puts it clear that the duties and responsibilities of the URA include assisting the department of finance in matters of revenue implication and tax policies (Kangave 2005, p44).
This follows that, the URA was an important agent of the Ugandan Government. In light of this fact, the government cannot separate itself from the PSA in that the government signed an agreement with the appellant. Still, it was wrong for the appellant’s side to affirm that the ACA act Sec 5 was valid to the Tribunal based on TAT Act Sec 21 and 30, which states that the Tribunal possess the powers and authority of the High Court. The Counsel for the respondent agreed that the findings and facts of the Tribunal that Sec 5 of the ACA was terminal. He only found the arguments valid on the fact that the ACA and TAT Act do not provide stays of proceedings and transfer of the tax disputes before the Tribunal. If the stay of proceedings had been presented, then the Tribunal would have been erring in accordance with law. The three grounds failed except for the small portion that seemed valid, the counsel rejected the given appeals and approved the decision made by the Tribunal. The findings indicated that, if Heritage Oil won the case and avoided paying tax, then the government of Uganda would undergo a lot of economic crises in the future (Global Witness 2012, p1).
Based on the above findings, there are many reasons that contributed to the success of this case. The Ugandan government considers tax matters as statutory and not contractual. The Article of the PSA Sec 14 claims that the licensee should pay all levies, taxes, duties, or other legal impositions on time as regarded by the law. Taxation is a vital tool that helps the government in extracting funds or finances from its people to support the public expenses and government expenditures. Most governments regard taxation as a reliable source for creating resources and enhancing economic growth. With this, it could be legally wrong for the Government of Uganda to agree that tax dispute be referred to arbitration. This would contradict the laws of Uganda in regard to taxation and contradict the Article PSA Sec 14 that states that tax should be paid in a timely manner. Making the tax dispute pass through the arbitration process would not augment the timely tax payment as agreed with the law.
Bibliography
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