There are hardly any Uganda court decisions because the principle of legitimate expectation has not been addressed extensively before. However there is nothing wrong in relying on decisions from elsewhere especially where they are very persuasive. In Attorney General v Musalu Musene and others (supra) the Supreme Court noted: “We are of the considered opinion that the decisions in HATTER and BEAUREGARD from U.S.A and Canada, respectively, are very persuasive and ought to be applied in interpreting Article 128(7) of the Constitution.” If the Supreme Court sees no problem in applying authorities from courts of other jurisdictions in interpreting the Constitution, the Tribunal likewise sees no problem in relying on authorities from other jurisdictions.
In his letter of 17th September 2010, Exhibit A30, the Minister of Energy and Mineral Development wrote to Mr. Aidan Heavy the Chief Executive Officer of Tullow Oil Plc in respect of the acquisition of Heritage’s interest and the farmdown of Tullow’s interest inter alia as follows: “(iii) The transfer from Tullow to Total and CNOOC will attract capital gains tax as will be assessed by the Commissioner, Uganda Revenue Authority in accordance with the Laws of Uganda.” Mr. Aidan Heavey acknowledged receipt of the said letter in his letter of 19th September 2010. He did not object to the payment of capital gains tax. He merely stated that “Tullow will require clarification of the tax due by Tullow on its sale to Total and CNOOC…”
In a letter of 1st October 2010 to the Minister, Mr. Graham Martin stated that: “Tullow has been seeking confirmation that the exemption from taxes enshrined in the EA2 PSA will be respected. This sanctity of contract is of critical importance to Tullow and its new partners.” From the above correspondences, the applicants cannot say that they did not expect to pay capital gain taxes in accordance with the laws of Uganda. Rather they preferred to abide to sanctity of contract. A contract cannot override a statute. Any expectation to the contrary would not be in line with the law and is not legitimate. Even in the SPAs the applicants made with Total and CNOOC, the applicants were aware about the obligation to pay capital gains tax. Under Clause 11.2(b) of the SPAs dated 29th March 2011 it was provided that Tullow shall be responsible for and “shall pay any or all Tax in the nature of income, turnover, capital gains or similar taxes payable on or in respect of the transactions contemplated by this Agreement…” Hence it cannot be said that Tullow did not expect to pay capital gains tax. The Tribunal notes that the respondent is a tax collecting body.
Its mandate is to collect taxes according to the relevant statutes and law. The applicants seek to cite an expectation arising from Article 23.5 of the EA2 PSA that they will not purportedly pay capital gains tax from a sale of their interests in Block EA2. The said promise was done in contravention of the ITA. Hence it was not lawful. The Tribunal does not see any unfairness in the decision of the respondent to implement the ITA provisions against the applicants. The applicants, only legitimate expectation is that they should be taxed according to the ITA and not a wrong interpretation of the law. Any such promise or representation under Article 23.5 of the EA2 PSA cannot be relied upon to form a claim for legitimate expectation.
A promise made on an illegal claim cannot form the basis of a legitimate expectation. It is an illegitimate expectation which the Tribunal cannot uphold. Before the Tribunal can leave issue 1.5, it noted that the applicants cited the international law principle of pacta sunt servanda which requires those entering into contracts to honour their obligations. William W. Bishops, Jr. “International Law: Cases and Materials” 2nd Edition p. 133 states that: “One of the most fundamental rules of international law is that treaties must be performed in good faith; the rule of pact sunt servanda.” The applicants have not convinced the Tribunal that the EA2 PSAs are international agreements or treaties.
The Constitution requires international agreements to be ratified by the cabinet. The applicants have also not convinced the Tribunal that they are international bodies. In the absence of any satisfactory submission, the Tribunal will not labour much to address the application of pacta sunt servanda in this application. 6.2 REINVESTMENT RELIEF/ INVOLUNTARY DISPOSAL The applicants called a number of witnesses who gave testimony to the effect that Tullow did not wish to dispose of 66.67% but 50% of its interests. According to AW1, Mr. Graham, Tullow acquired Heritage’s interests in EA1 and EA3A with the intention of selling them. It had wished to sell 50% of its interests in each of the PSAs. However the GOU would not give its consent to a sale to only one party. There was pressure from the GOU for the Tullow to break the monopoly in oil exploration. Mr. Graham informed the Tribunal that Tullow was forced to sell an extra 16.67% of its interests. Tullow sold 66.67% of its interests in each of the PSAs to CNOOC and Total on 21st February 2012, each purchaser taking 33.33% of the interests. There was no official communication that Tullow should sell 66.67% of its interests. However there were several meetings with GOU officials at different levels where it was indicated that Tullow should retain a third of its interests. Mr. McDade, the Chief Operating officer of Tullow, testified that the GOU indicated to the senior Tullow executives that a 50% farmdown would not be acceptable to it.
The GOU wanted to avoid a monopoly. He testified that Mr. Richard Inch emailed to him about a conversation he had with Mr. Kiiza, the Director of Economic Affairs, that the GOU would not allow a 50% split. Mr. McDade contended that the disposal of 16.67% was therefore an involuntary disposal. He testified that Tullow was planning to reinvest considerable sums from the farmdown proceeds in assets of a like kind within one year from the disposal of the Heritage interests. Mr. McDade told the Tribunal that the intention to sell 50% of its interest was not expressed in any form of board resolution. Furthermore, he testified that there was no correspondence between GOU and Tullow that indicated that the latter wanted to sell 50% of its interest. He stated that there was a draft SPA which was on a 50:50 basis made in February 2010. Mr. McDade admitted that he did not clearly understand what a re-investment relief was.
AW3, Mr. Richard Inch, the Head of Tax at Tullow, also told the Tribunal that Tullow had intended to sell 50% of the interests in EA1, EA2, and EA3A. However before the GOU would grant the necessary consent, it required Tullow to sell a further 16.67% of its interest. He stated that in a meeting of the 2nd February 2010 with Mr. Lawrence Kiiza the Director of Economic Affairs, he told him that GOU was not going to allow a sale of only 50% of Tullow interests and it wanted a single distinct operator for each PSA, with each taking 33.33% interests. The respondent’s first witness, RW1 Mr. Rubondo, testified that the GOU did not indicate to Tullow who to sell to, but the GOU wanted to avoid a monopoly in the Albertine Graben. He stated that Tullow decided on the percentages to sell in the three EAs.
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