Supreme Court dismisses Heritage Oil appeal in $435m tax row

An aerial view of the Ngiri 3 well pad in Buliisa District. The first well was spud August 6, 2023. (Image: Petroleum Authority of Uganda – PAU)

The Supreme Court has rejected an appeal by Heritage Oil in the long standing $435m tax dispute with the Uganda Revenue Authority (URA).

Heritage Oil had filed an appeal at the Supreme Court seeking to block some of the arguments by URA in the case at the High Court over the same dispute.

In a unanimous decision written by Prof Lillian Tibalemwa, five justices dismissed the appeal on the grounds that the Supreme Court lacked jurisdiction to handle it.

“I note that what the appellant (Heritage Oil) is seeking to appeal against is an interlocutory order given by the High Court in the exercise of its appellate jurisdiction and my analysis…this court does not have jurisdiction to entertain such an appeal,” reads part of the judgement dated October 5, 2023.

Heritage and URA have since 2011 been engaged in a legal battle over the $435m capital gains tax. The tax arose from Heritage’s sale of its oil and gas blocks to Tullow Oil in the Albertine Graben.

Heritage has been pushing for the release of $405m on deposit with the URA in the escrow account with Standard Chartered Bank.

While the URA is seeking to keep the $405m and an additional $30m as capital gains tax from the sale, the Tax Appeals Tribunal transaction was taxable and the $434.9m as assessed by URA.

Heritage Oil was against paying the tax arguing that the transaction was not taxable in Uganda because Heritage was incorporated in The Bahamas and later registered as a tax resident by continuation in Mauritius. Uganda has a double taxation agreement with Mauritius.

The oil firm demanded to settle the tax dispute via the International Court of Arbitration in London in which Uganda’s tax body declined and settling for the Ugandan Tax Appeals Tribunal. The Tribunal chaired by Asa Mugenyi, ruled that Heritage was liable to pay the tax as assessed.

Dissatisfied by the decision of the tribunal, Heritage Oil made two appeals in the High Court which were consolidated.

During the proceeding in the High Court presided over by Justice Jane Elizabeth Alividza, Heritage Oil objected to some of the arguments made by URA.

The judge did not accept Heritage Oil’s prayers; directing the parties to prepare their final submission for hearing of the appeal bearing in mind that questions of law not appealed against should be excluded.

“All parties have been given notice of points of law that would be the focus of the appeal and can adequately prepare for their arguments. So, at this stage, it is sufficient for the hearing of the appeal to start and it will also assist the court if arguments are drafted in the offensive point of law made by TAT (Tax Appeals Tribunal) that are grounds of the appeal. This will enable the appeal to move in a structured manner,” the judge said according to available records.

Heritage Oil was unsatisfied with this decision and before further proceedings, it filed an appeal to the Court of Appeal seeking to rescind Justice Alividza’s decision.

However, the Court of Appeal upheld the High Court’s decision saying that the judge had not heard the main appeal and that she had rather directed the parties at scheduling conference on how to proceed so as to make progress in the appel.

“It was still open for the court to consider all the skeleton arguments including the preliminary matters such as whether the points of law, the subject of the appeal were canvassed in terms of the law confining the appeal to only points of law stated in the appellant (Heritage’s) notice of appeal,” Justice Christopher Madrama ruled in the lead judgement.

Justice Madrama further stated that the best approach for Heritage Oil was to ask the court not to consider the portions of URA’s arguments that were offensive, adding that Heritage did not have any right to appeal decisions of the High Court sitting on appeal from the decisions of the Tax Appeals Tribunal.

“Such an appeal if held to be valid had to be on the certificate of the High Court that it raises matter of law of great public and general importance and there is none in this matter. Thirdly, the law doesn’t envisage an appeal from the direction of the learned judge allowing parties to submit on their skeleton arguments and declining to strike out portions thereof,” Judge Madrama added describing the appeal as incompetent before dismissing it with costs.

Heritage Oil was again not satisfied with the Court of Appeal decision, lodging another appeal to the Supreme Court. Heritage’s lawyers asserted that the justices of the Court of Appeal made errors in concluding that there was no right of appeal from the High Court’s decision in a Tax Appeals Tribunal matter.

Heritage also challenged the characterisation of their appeal as a third appeal, requiring a certificate of importance under Section 73 of the CPA and also contested the Court of Appeal’s stance that there is no legal provision for striking out contentious submissions.

Heritage asked the Supreme Court to overturn the Court of Appeal’s judgement, permitting their preliminary points and the removal of URA’s argument in the case before the High Court.

In the ruling, the Justices of the Supreme Court firmly upheld the Court of Appeal’s decision, emphasising that the statutory provisions at the time of the appeal unequivocally indicated that there was no entitlement to appeal interlocutory decisions made by the High Court.

Prof Tibatemwa observe that while there have been amendments to allow appeals to the Court of Appeal and Supreme Court from tax disputes, this was only effected after the Court of Appeal had delivered its decision.

“I am alive to the fact that Section 27B of Tax Appeals Tribunal Amendment Act 2021 now allows appeals to the Court of Appeal and Supreme Court from tax disputes as of right. The amendment came into effect on July 1st 2021. This was approximately a year after the Court of Appeal had delivered its decision in the matter before us. It trite that statutory law does not apply retrospectively unless the statute by express words or necessary implication states so. Consequently, the said amendment does not apply to the instant appeal,” Prof Tibatemwa said.


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