Not once or twice but thrice. Heritage Oil just keeps losing to URA. First it was on the legality of paying capital gains from sale of shares in Uganda. Heritage Oil lost. It took the case to London. And lost again. Each time with cost. Back in Uganda, the UK-listed oil and gas firm tried to have bill of costs struck down from the lawsuit judgement, but there was no luck even at the third time of trying.
There is something called ‘third time lucky.’ Yes, it exists and is the magic wand for many in difficult situations. But Heritage Oil will want to take exceptions and think such a thing only exists in fables after having its third attempt to gain a softer arbitration landing dismissed.
The Tax Appeals Tribunal, on Friday, dismissed with costs Heritage Oil’s attempt to at least have bills of costs—list of expenses the oil company has to pay for legal services in a tax dispute lawsuit with URA—struck down.
Heritage Oil is an independent Jersey-based oil and gas exploration and production company with core activities focused on Africa, the Middle East and Russia.
Background
In the mid-2000s when oil exploration activities in the Albertin oil wells gained momentum, the UK-listed oil and gas company was among the major firms on the ground.
However, in late 2009, Heritage Oil moved to sell its stake in two blocks on Lake Albert. The firm initially entered a sales agreement with Italian firm Eni for up to USD1.5 billion. But Tullow exercised its pre-emption and matched the offer, paying Heritage as much as USD1.45 billion for the two blocks.
Uganda Revenue Authority (URA) had then moved in and demanded that Heritage pays capital gains tax to the tune of UGX1.1 trillion. Heritage refused, claiming the sale was not taxable.
Following an objection decision by URA on November 18, 2010, in which URA made a withholding tax assessment of UGX43 billion against Heritage Oil, the latter filed applications TAT 26/2010 and TAT 28/2010 in which they disputed the tax assessment.
Heritage Oil claimed that the proceeds it earned from the transaction with Tullow Oil were not taxable in Uganda. The firm also argued that the sale of assets took place outside Uganda, in the Channel Islands off the coast of France and that the company filed its tax returns in Mauritius.
But seeing that URA was not going to budge, Heritage sought the intervention of Tax Appeals Tribunal, but arbitration went URA’s way when, in November 2011, a three-member panel dismissed with costs Heritage Oil’s appeal challenging the tax body’s decision to slap a $404 million income tax assessment.
Before the Tax Appeals Tribunal chaired by Asa Mugenyi had pronounced itself on the matter, Heritage lawyers requested the Tribunal to halt proceedings on grounds that the firm had already started an arbitration process in London over the tax dispute, an appeal that was also dismissed. The oil firm appealed that decision before the High Court in Kampala in September but failed to get a favourable decision.
To London
In the UK, Heritage took the matter before an arbitration tribunal in London under the United Nations Commission on International Trade Law.
This would turn out to be a landmark case that will be remembered for the controversial ‘oil handshake’ scandal that followed it. Uganda government had invested billions of taxpayers money in the arbitration in London, and, upon victory, decided to reward a select team of officials from various agencies, mainly URA, with billions of shillings in apparent ‘well done gesture’ that would later be dubbed oil handshake.
Heritage’s second shot at wrestling URA down would prove futile as the tax collectors remained lithe and agile like a cat, dealing the oil company a major blow at its own backyard.
The oil firm lost the case again.
Fighting off bill of costs
In miscellaneous applications 09 of 2017, Heritage Oil then sought an order to have the bill of costs struck down. But, like the first and second moments, the tax appeals tribunal, on Friday, yet again dismissed Heritage Oil’s application proving that third time is not always the charm.
“Pursuant to section 21 of the tax appeals tribunal act and section 98 of the Civil Procedure Code Act, the tribunal has power to award costs to successful parties in a case as a reward, to indemnify them or to punish the unsuccessful party,” the tribunal said in its ruling.
“It is in this regard that the tribunal allocated payment of URA costs to Heritage Oil.”
Heritage Oil, however, did not agree with the costs assessment citing that there were no instruction fees as URA used in-house counsel and as such did not incur costs in the proceedings. They aver that the lawyers used in the cases are an employees of URA and, therefore, payment of legal fees remains URA responsibility as per their contract of employment however this did not play out in their favour.
With every word clearly articulated by Mugenyi as he gave the ruling, the left hand side of the courtroom occupied by Heritage Oil took a dismal attitude with their legal team from Kiwanuka Karugire Advocates looking stone-faced for the entire 15 minutes it took for the judgment to be read.
“Once a tribunal has awarded costs, the registrar has no power to strike them out as his only job is to tax the bill of costs. This application was mis-conceived and grant of such an order would have been prejudicial to the rule of law and the entire justice system,’’ Mugenyi said.
With these words, Heritage Oil’s fate was sealed.