Friday, October 30, 2020

Uganda court summons 3 UK law firms for enabling $1.1 billion tax avoidance scheme

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The Commercial Court has summoned three United Kingdom-based law firms who were the masterminds of the deal in which Tullow Oil plc avoided paying taxes worth $1.1 billion (about Shs4.1 trillion) to the Ugandan national treasury following an agreement with the central government and Uganda Revenue Authority (URA).

In the May 18 summon, court has also asked Three Curtis, Mallet-Prevost, Colt & Mosle, Freshfields Bruckhaus Deringer, Three Crown Services, together with Tullow Uganda operations PTY Limited, and its affiliate Tullow Uganda, URA and the Attorney General, to file their responses to a suit recently lodged by Jackson Wabyona, a private citizen, within 15 days.

Before the main case in which he essentially challenges the settlement deed saying it is illegal and has corruption written all over it is heard, Wabyona has asked the court to first determine a separate application he filed on May 15.

In the application, Wabyona demands that before the main case is heard, Tullow Uganda Limited and Tullow Uganda operations PTY first furnish the court with security worthy $ 1.1 billion and property comprised in 33.3 per cent stake in each of the Lake Albert development project licenses EAl, EAIA, EA2 and EA3A and the proposed East African Crude Oil Pipeline (EACOP) System valued at $1 billion.

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Demands
Though Tullow in theory sold off its interests in Lake Albert to French oil giant Total E&P in a deal worth $575m (Shs2.1 trillion), in the application, Wabyona asks the court to preserve or detain Tullow’s interests in the lake.

Wabyona says court should appoint a receiver for Tullow’s stake in Lake Albert and the proposed EACOP system before the main case is heard.

“An order committing the first [Tullow Uganda Operations PTY], second [Tullow Uganda ] respondents’ 33.3334 per cent stake in each of the Lake Albert development project licenses EAl, EAI A, EA2 and EA3A, and the proposed East African Crude Oil Pipeline (EACOP) System to the possession, custody and management of the receiver appointed herein with such powers as the court thinks fit,” Wabyona’s application reads in part.

Having sold off its remaining interests in Uganda, Wabyona says Tullow’s farm-down deal worth $525m (Shs2 trillion) is in bad faith and prejudicial to Uganda in as far as it is meant to enable the Anglo-Irish oil company quick exit from Uganda and quit jurisdiction without paying the taxes due under $2.9b farm downs or determining the legality and validity of tax waivers under the settlement deed it was agreed upon in 2015.

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According to Wabyona, both Tullow Uganda and Tullow Uganda Operations PTY are on the verge of bankruptcy as their stock is so low while their debts are accumulating and unserviced.

“The first [Tullow Uganda Operations PTY] and second [Tullow Uganda] defendants sold their interests valued at $992.2m (about Shs3.7 trillion) at an undervalue of $575m in order to mitigate material uncertainties facing the first and second defendants at the Group level,” Wabyona says, referring to the deal Tullow signed with Total E&P in April, which now awaits Cabinet approval.

Tullow, Wabyona says, is scheming to quickly close the $575m farm down transactions during this time of lockdown in Uganda and worldwide.

“The courts that would subject the settlement deed to a legality and validity test are currently not operational and functional save for criminal matters and urgent civil matters,” Wabyona says in an application drawn by Nyanzi, Mbabazi, Kiboneka advocates.

“The first and second defendants want to take advantage of the lockdown and close the farm downs and thereafter quit Uganda without determining their liability to pay the waived and forfeited taxes under the settlement deed.”

If Tullow quits Uganda before the final determination or disposal of the case, Wabyona says it would be akin to giving the company a blank cheque to cheat taxes due and payable.

“The plaintiff [ Wabyona] shall aver and contend that present suit raises issues of great national importance that are likely to affect the economy of Uganda, it is urgent that it should be considered and heard expeditiously and urgently during this lockdown period,” the court filings read.

UK lawyers
In respect to the UK lawyers, Waybona contends that by the mere fact that they were witnesses of the settlement deed and legal advisors of the signatories to the deed, they are liable for professional negligence or legal malpractice.

First, Wabyona attacks Curtis, Mallet- Prevost, Colt & Mosle, the law firm that was outsourced by Uganda during the drafting of the settlement deed saying it didn’t know or didn’t bother to do research and understand the applicable laws of Uganda in respect to such settlements.

“The fifth defendant [Curtis, Mallet- Prevost, clot &Mosle] had no competency, capacity nor the ability to advise the government of Uganda on issues arising from the execution and implementation of the settlement deed, that required knowledge of the tax laws generally jurisprudence of Uganda,” Wabyona says, adding that Curtis, Mallet- Prevost, clot & Mosle colluded with both Freshfields Bruckhaus Deringer and Three crowns services to mislead and misadvise the Ugandan government and URA to enter into the questioned settlement to cheat taxes due to be paid in the Ugandan Consolidated Fund.

It is Wabyona’s case that David Robert Hesse, who represented Uganda’s Attorney General, Hellen Buchanan (Tullow Uganda Operations PTY), Constantine Partasides QC (Tullow Uganda) are partners of Curtis, Mallet- Prevost, Clot &Mosle, Freshfields Bruckhaus Deringer and Three crowns services respectively, acted in the course of their employment as counsel for their respective clients.

Accordingly, he says the three law firms are liable vicarious for the professional legal malpractice of their partners while executing the instructions of their clients.

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Signatories

Wabyona insists that the signatories of the settlement deed, who included Ms Doris Akol, the then Commissioner General of URA or URA as an institution, the Attorney General or Solicitor General of the government of Uganda lack the legal capacity to waive taxes or otherwise forfeit taxes that have been assessed and are due and payable to the Consolidated Fund. Such an act, he says, of waiver or forfeiture does not bind the government and is to all intents and purposes void and a nullity.

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