“Heritage Oil & Gas Ltd vs. Uganda Revenue Authority”
The case in question was between Heritage Oil and the Uganda Revenue Authority. It was heard and decided in 2011 by the Hon. Lady Justice Hellen Obura. The appellant was Heritage Oil and Gas Limited while the respondent was the Uganda Revenue Authority. The case was an appellate case and was the 14th civil appeal case of 2011. Heritage Oil limited is a company that deals with the distribution of petroleum products in the several countries worldwide. The company is based in London. The Ugandan Revenue Authority as the name suggests is the organization that is in charge of the collection and the setting up of taxes in Uganda.
This case was an appellate case meaning that it had already been decided but the decision was not satisfactory to one of the parties involved. The basis of the appeal was due to the fact that some of the findings of the Tax Appeals Tribunal were fabricated. The said findings were from the ‘Miscellaneous Application No 6 of 2011.’ The appeal was favoured due to the requirements of ‘section 27 of the Tax Appeals Tribunal Act’, commonly known as the TAT Act. The case was also supported by the Civil Procedure Act’s section 76(d) (1). Several events led to the case in question (N.a, 2012).
The appellant, Heritage Oil, got into an agreement with the government of Uganda. They were to take part in the exploration, production and development of petroleum and any other products related to it. The agreement that they made was a ‘Production Sharing Agreement’ (PSA). It was officially signed on the 1st of July, 2004 (N.a , 2012). As part of the agreement, an arbitration clause was included. It categorically stated that in the event that any disagreements arose between the two parties involved should be affably and amicably settled within 60 days.
If this was not the case, arbitration would be conducted in accordance to the regulations of the United Nations Commission for International Trade Law (UNCITRAL). After a while, the appellant sold to Tullow Uganda Limited the interests that it had with regard to the agreement in question. The sale was legalized through a Sale and Purchase Agreement. Subsequently, the respondent allotted tax assessments to the appellant. Issuance of these documents was in line with the requirements of the law as provided by the Income Tax Act (ITA) (N.a, 2012).
In response to these documents, the appellant objected them and they filed two submissions in the Tax Appeals Tribunal (TAT). The submissions that were filed were No. 26 and No. 28 of 2010. In addition to this, the appellant also filed another application which was supported by both section 5 and 71 ofthe Arbitration and Conciliation Act (ACA). The appellant sought that the arbitration process stated in the original agreement should be followed. In response to this, the tribunal dismissed the case with costs. This led to the appeal that is in question (N.a, 2012).
The appeal case had three fundamental points that it was based on. First, that the Tribunal made a very crucial mistake by declining to allow the legal proceedings to take place as stated in the arbitration clause of the PSA that they had agreed to and was, therefore, legally binding. Second, the Tribunal erred by stating that the Arbitration and Conciliation Act was inoperable since the respondent did not participate in the production sharing contract that had been agreed upon. The final point was that the Tribunal made a mistake in holding that the mandate of the Tax Appeals Tribunal should not have been and cannot be affected by a simple provision in an agreement (N.a, 2012).
The points that the appellant had based their case on were fundamentally strong points. This is mainly because they were all in line with the requirements of the laws of the country in question, Uganda. In the first point, the two parties, URA and Heritage oil had made a lawful agreement. As part of the agreement was a clause that explained the steps to be taken if any disagreements were to arise between the two parties in question. However, after the filing of the applications, the Tribunal decided to overrule this aspect of the agreement that was previously made (N.a, 2012).
This action was contemptuous and completely disregarded the laws that they were expected to uphold in the country.It was expected that the Tribunal would have allowed the arbitration process to take place as explained in the PSAthat they had consented to in 2004.This is because the arbitration process in question was present in a lawful document that two consenting parties had agreed to in the first place. Failure to uphold the agreement in question seems to be a viable reason for the appellate to file for an appeal as they have done. In the case of the second point that they brought forth, it was not as persuasive as the first.
It stated that the tribunal was at fault since they had considered the Arbitration and Conciliation Act to be inoperable as the respondent in this case was not involved in the Product Sharing agreements. As much as this may be an ungrounded reason, it is not one that a multinational company should use as their main points in an appeal case as they have done in this case. The use of this point in their case makes it appear weakened to some extent and this may affect the ruling of the presiding judge. For this reason, as much as the point is supported by the law, it may end up to be a negative addition to the defence of the appellant as opposed to a positive one that will enable them to win this case (N.a, 2012).
The final point that the appellant brought forth was that the tribunal erred by stating that the TAT should not be affected by the provisions that were included in the agreement in question. This was a fundamental point aired by the appellant. As much as TAT was an independent government organization, it is expected that they should respect and uphold the law. They can do so for instance by respecting the provisions in agreements made as long as they are lawful. Utilization of this point is an important advantage for the appellate. This is because they are able to paint the TAT in bad light.
That is, if the government body is not able to respect the law in this instance, how is the same body expected to perform all its other duties in line withthe law? By casting such doubt, the appellant in this case will be able to gain an uncanny advantage over the respondent in question. Therefore, the grounds that the appellate has set forth in this case are viable and they have an equal chance of emerging victorious in this appeal. The appellant’s legal counsel was Mr Peter Kauma while the respondent’s counsel was Mr Ali Sekatawa.
As expected in several prominent cases involving large organisations, the legal counsel first presented skeleton arguments which basically revolved around similar points for both parties. The appellant side argued the second point first followed by the third and finally the first points. With regard to the second point, he provided the legal definition of a participant in an agreement and that of an arbitration agreement. In the case of the former, it is explained as ‘a person claiming through or under a party.’ For the latter, it is“an agreement by the parties to such agreement to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not”(N.a, 2012).
From these definitions, he was able to point out the weakness that the respondents’ case had. He based his argument on the TAT Act particularly from section 21. From this act, it is stated that the tribunal is allocated some powers of the High Court. In addition to this, rule 30 of the TAT Rules provided that if the rules in question were not able to amicably solve any disagreements, they are mandated to refer the said matters to arbitration. However, the Tribunal in this case is seen to have overlooked this. Apart from this, he also explained that the URA was acting as an agent of the government in this case. By so doing, it is clear that they were a participating party in all the agreements that they made with Heritage Oils.
This point overrules the Tribunal’s ruling that the URA was not party to these agreements. He further explains that as much as the government participated in the PSA agreement ultra vires, they are contractually bound to fulfil all the requirements stated in the agreement that they made. Therefore, it was not right that the URA was only considered to be part of the government when it came to the collection of taxes but in the case of this disagreement they were assumed to have been working independently. As previously stated, any agreements that the URA participated in, being a government body, is binding to the government as well since they are under their control. The previous ruling made by the tribunal, that the agreement made was a PSA rather than a tax collection agreement was disregarded. For this reason, the second point that the appellant brought forth was viable (N.a, 2012).
The legal counsel that the appellant had was remarkable when arguing out this point. The second reason that they had provided was considered to be a weak one that may have turned out to favour the respondent as opposed to the appellants who introduced it. He was able to prove without a doubt that the initial ruling made by the Tribunal was in direct contempt with the laws of the country. Several articles were referred to during his arguments which made it more authentic and plausible. The use of these articles from various acts of parliament further strengthens this point which is beneficial for the appellant.
Based on ground 3, the appellant’s counsel argued that it was erroneous that the Tribunaldeclared that granting a verdict that insisted on the proceedings being conducted in the country would lead to the fettering of their mandate that would in turn diminish their powers in Uganda. It was also pointed out that arbitration was a recognized method of settlement in the country; therefore, the tribunal should have opted for that method since it was also in the PSA. He supports his claims by citing proof from the ACA whereby any tribunal or court is allowed to resort to alternative methods of settling conflicts (N.a, 2012).
Such methods may include the likes of arbitration. Subsequently, he asked the court to reverse the decision made by the tribunal in the light of this information. He also points out that there exists a conflict between the TAT Act and the ACA Act and that the court should consider an amendment to this effect. In this case, the counsel has without a doubt explained the mistake that the tribunal made as they made a ruling with regard to the third point the appellant stated. In addition to this, he has provided substantial evidence that supports his claims. He cites from the ACA to this effect. Therefore, his argument in this case is a convincing one since he also includes information from the ACA.
Finally, the appellant’s counsel argued out the first point that they had presented. He categorically stated that the ACA‘s section five had mandatory wording. For this reason, they were expected to follow the provisions given by the ACA with regard to arbitration. This act states that the court should refer to arbitration at all times with only a few noted exceptions. For this reason, the agreements made in the form of a PSA were not null and void as previously thought. At this point, he also let the court know that two arbitration proceedings, completely separate, had been started in London by the appellant.
Apart from the acts that he referred to, he also made references to previous cases that had a similar basis as this one. Such cases included the likes of Mungereza vs. Price Waterhouse Coopers Africa Central (2002). In conclusion, he stated that the verdict given by the tribunal was erroneous and that the court should reverse all the rulings that the tribunal had initially made. He asked that the court also disregard all the outcomes obtained by the TAT, that the proceedings in question are referred to arbitration as stated in the PSA and that the respondent should cater for the costs of this appeal as well as that incurred in the tribunal hearings (N.a, 2012).
In response to the three points, the respondent’s legal counsel made only one argument. He stated that the findings obtained by the tribunal were all lawful and should not be disregarded. For this reason, he expected the courts to uphold the decisions made by the tribunal. First contention he raised was that the respondent was not a participating party in the PSA. This was because the PSA involved only two parties, the Government of Uganda and Heritage Oil. The URA was not involved in agreement in any way. Therefore, the Tribunal was right in excluding the respondent from this matter
He supported his claims by citing from the ACA, in particular from section five. In addition to this, he also referred to previous cases like Indowind Energy Ltd vs. Wescare Limited, Supreme Court of India Appeal no 3874 of 2010. His argument at length concentrated on the fact that the PSA did not involve the respondent but that it was legally binding to the government. To this regard, given that the two were separate and independent entities, they reserved the right of being sued and by extension suing independently (N.a, 2012).
Therefore, it was not right to associate the respondent with the problems between the appellant and the government. Proof to this effect was provided from both the ACA and the PSA. Some of the remarkable arguments that he brought forth included that in the PSA article 14 clearly explains that all that all the taxes should be paid in line with the laws of the country and at the right time. From this statement, the appellant seems to blatantly disregarding the PSA that they signed since they have refused to pay the required taxes. In addition to this, the respondent’s counsel also inferred from the constitution of the country, which stated that parliament was at liberty to form any tribunals with regard to the question of taxes.
These tribunals were to be set up in order to settle any problems that may have arisen. For this reason, honouring of the provisions of the PSA would be fettering the jurisdiction of the tribunal. Finally, the TAT Act clearly explains that for any tax assessment cases, only two avenues were to be used, the use of tribunals or High Court. Arbitration was not among the mentioned avenues that could have been used. Therefore, the tribunal had not erred by deciding to disregard the process of arbitration. In conclusion to his argument, he explained that all the decisions that the tribunal had made were in line with the requirements of the constitution and that the appellant should accept them and pay the taxes that they owe to the country in question, Uganda (N.a, 2012).
In light of these arguments presented to the judge, by both the respondent and the appellant, she made a ruling that could not be overruled. She decided to uphold the decision made by the Tribunal with regards to the case against Heritage Oil. She stated that all the rulings made by the tribunals were constitutional and that they should be upheld. In addition to this,she explained that the appellant’s arguments did not hold any grounds since they were all refuted by the respondent. Therefore, the appellant, Heritage Oil, was required to pay the taxes in line with the assessments that were issued to the company by the URA.
Several reasons led to the dismissal of this appeal. First, the grounds that the appellant set forth were all proven to be wrong by the respondent. For instance, in the case of the first and second points the appellate based their appeal on. It was proven that the two said points were unfounded based on the provisions of the ACA act, specifically section five. It stated that all the matters with regard to taxes were statutory and non-contractual. Therefore, the tribunal was right in the decisions that they made. In addition to this, the constitution gives independence to the judiciary.
For this reason, the tribunal was constitutionally obligated to make the ruling as opposed to referring it for arbitration processes. Furthermore, the TAT and ACA acts do not offer any provisions that allow the referral of proceeding with regard to tax issues for arbitration. For this reason, the grounds filed by the appellant were not viable. As a result, the three grounds the appellant based the case on were disregarded and the respondent won the case. The findings obtained by the tribunal were upheld and Heritage Oil was asked to pay the taxes they had been asked to by Uganda Revenue Authority.
References
N.a. (2012). Heritage Oil & Gas Ltd vs. Uganda Revenue Authority (Civil Appeal No 14 of 2011). Retrieved April 7 from: http://www.ulii.org/ug/judgment/commercial-court/2011/97
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