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1 Thursday, 21 March 2013
2 (10.30 am)
3 Housekeeping
4 MR JUSTICE BURTON: I have read Mr Atherton's witness
5 statement and it does seem to me that large chunks of it
6 are, if not the majority of it, either quotations from
7 other documents or arguments. So it may be you won't
8 take the whole day.
9 MR WOLFSON: I don't know whether your Lordship has actually
10 read the first page of my cross-examination notes but
11 that was precisely the point I was going to make.
12 MR JUSTICE BURTON: Yes.
13 MR WOLFSON: My Lord, I do not intend to cross-examine --
14 and I say this with all respect to you, Mr Atherton, it
15 is not a criticism, I know how these documents are put
16 together --
17 MR JUSTICE BURTON: He was drafting out counsel's skeleton
18 arguments probably.
19 MR WOLFSON: Precisely. I don't propose to cross-examine
20 a witness when the witness is commenting on documents
21 which he was not a party to, which he didn't know about
22 at the time and which my learned friend can make
23 submissions on.
24 MR JUSTICE BURTON: Indeed so. I raise it only because it
25 seems to me that it may reflect upon the amount of
1
1 time -- I hadn't read the witness statement before,
2 because it wasn't part of my pre-trial reading and so I
3 only read it last night preparing myself for your
4 onslaught today and I would have thought it wouldn't be
5 very long.
6 That said, see how long it is, but we may still not
7 start Mr Inch. We'll see how it goes.
8 MR WOLFSON: We will see how it goes. I made the point in
9 my opening submissions that this was not a balanced case
10 in that regard.
11 MR JUSTICE BURTON: No.
12 MR WOLFSON: My learned friend has to prove --
13 MR JUSTICE BURTON: You are trying to point out that he is
14 earning his brief fee more than you are, is that it?
15 MR WOLFSON: That is almost invariably the case, my Lord.
16 MR JUSTICE BURTON: Can I ask, one thing, Mr Qureshi, before
17 we seek to put Mr Atherton in the witness box in-chief.
18 It is something that I didn't really understand in
19 opening and still don't understand, and it seems to me
20 I ought to get it in my head before Mr Atherton is
21 called.
22 You are counterclaiming in respect of the money in
23 the escrow and Mr Atherton describes two ways of
24 recovering alleged losses, either interest loss or loss
25 of financial opportunity. But at the moment I don't
2
1 grasp how it is that you have a counterclaim in respect
2 of -- you say, on some basis or other, but you will no
3 doubt tell me, that the money would have come out of
4 escrow in April 2011, but for something -- and I am not
5 sure what the something is -- and had it done so, I
6 quite understand Mr Atherton then describes what you
7 could or would or might have done with the money since,
8 I think it is 9 April 2011.
9 But I don't understand the cause of action.
10 MR QURESHI: My Lord, so far as the cause of action is
11 concerned, if the pleading hasn't articulated it with
12 the clarity that we believed it had, ultimately the
13 issue is essentially that the purpose for which the
14 escrow arrangement had been entered into and those funds
15 were locked in is a purpose that no longer exists.
16 MR JUSTICE BURTON: Help me. The purpose for which your
17 client voluntarily put the money into the escrow
18 account, and you rely on the fact that they paid it in
19 as showing that they were always willing to be sensible
20 about the tax and everyone else around them was not
21 acting so reasonably, and certainly the Government went
22 back, perhaps, on a deal that everyone thought had been
23 done, et cetera, et cetera.
24 But it was put in voluntarily by your clients to
25 await the outcome of the tax liability and that has
3
1 still not been resolved, either the Tax Appeal Tribunal
2 because although you lost first time round you are
3 appealing it, or in the arbitration because the
4 jurisdiction has not yet been resolved, never mind the
5 substance. And so surely the money ought to be staying
6 in the escrow account, subject to any order I may be
7 invited by either of you to make, until the outcome of
8 the tax liability is resolved one way or t'other. At
9 the moment I don't see the case for how it could or
10 should have come out on 9 April 2011.
11 MR QURESHI: My Lord, of course our primary position is that
12 there was no liability to tax.
13 MR JUSTICE BURTON: Of course.
14 MR QURESHI: On the --
15 MR JUSTICE BURTON: That is not something they can agree.
16 That is something the Government will have to give in on
17 or you lose on.
18 MR QURESHI: My Lord, it is essentially as follows: Tullow's
19 high point starting --
20 MR JUSTICE BURTON: Sorry, to interrupt. It just seemed to
21 me we ought to try to resolve it before you start.
22 MR QURESHI: Tullow's position is that as of the payment
23 made purportedly pursuant to the Memorandum of
24 Understanding and the letters of 15 March, Heritage's
25 tax liability is discharged. That is Tullow's point.
4
1 That is Tullow's case; if that is correct, then the
2 purpose of the escrow arrangement no longer exists.
3 MR JUSTICE BURTON: I am sorry, I have not understood what
4 you have said: "As of the payment made pursuant to the
5 ..." and then the [draft] transcript says -- I don't
6 know what that is -- "to the Memorandum of Understanding
7 and the letters of 15 March your tax liability is
8 discharged. That is Tullow's point."
9 Tullow paid it, rightly or wrongly, on the basis
10 that they were being required by the Government under
11 108 which on their analysis means that they must pay it,
12 whether it is payable or not, if it is due. That is
13 their case: section 108 requires the agent to pay it up
14 if it is due but not if it is payable.
15 Then you fight out whether it was in fact due and
16 payable and if you win, the money comes back and if you
17 lose -- ie, back to you or possibly to them -- we have
18 to see, and if you lose, the Government gets it. And
19 that was done voluntarily by your client. That is what
20 it says.
21 Where is the purpose fail?
22 MR QURESHI: My Lord, so far as the establishment of the
23 escrow arrangement in July 2010, we maintain the
24 position that it was clear to Heritage and clear to
25 Tullow that Heritage were to have sole conduct of the
5
1 tax dispute --
2 MR JUSTICE BURTON: Yes.
3 MR QURESHI: -- up until the conclusion of that dispute by
4 final determination --
5 MR JUSTICE BURTON: Certainly.
6 MR QURESHI: -- by arbitration or court.
7 MR JUSTICE BURTON: Yes.
8 MR QURESHI: What Tullow sought to do through the exchange
9 of letters, the Memorandum of Understanding with the
10 Ugandan authorities was to put itself in a position
11 where it now says: "Your liability has been discharged."
12 MR JUSTICE BURTON: No, I don't think so.
13 MR QURESHI: My Lord, that is their case.
14 MR JUSTICE BURTON: Is it?
15 MR QURESHI: That is their case.
16 MR JUSTICE BURTON: They paid it as agent for you because
17 they were required to. I mean, this is all to be
18 discussed later. They paid it to you because they were
19 required to do so while you, and despite the fact that
20 you had rendered at any rate the 283 non-payable by
21 paying your one-third or they paid it on your behalf and
22 disputing the balance. Leave aside the extra 30 for the
23 moment. That was bound to take some time and the escrow
24 account would remain in place until then.
25 Mr Atherton seems to say that something happened on
6
1 9 April 2011. I am perhaps --
2 MR QURESHI: Perhaps I could turn to the --
3 MR JUSTICE BURTON: Had the escrow monies been released
4 in April 2011? I am just looking to see, because
5 I couldn't understand why April was lit upon.
6 MR WOLFSON: That is the date we paid the Government,
7 I understand.
8 MR JUSTICE BURTON: The date you paid the Government, I see.
9 MR QURESHI: My learned friend --
10 MR WOLFSON: If I can try to shed some light on it, my Lord,
11 it may tie it up with another point I was going to
12 mention to your Lordship which is that we have put
13 together the note on a constructive way for your
14 Lordship to deal with the Heritage tax point, if I can
15 call it that, and we will hopefully hand that up after
16 the short break this morning.
17 The two points are tied in this respect. As
18 I understand my learned friend's case, it goes something
19 like this -- let us see if I can put it for him:
20 because, Tullow, on your alternative claim in
21 restitution and in fact on the secondary way you put
22 your alternative claim of restitution you, Tullow, are
23 saying that you have discharged our tax liability and,
24 therefore, you have a claim to restitution. Because of
25 that and because the escrow monies -- this is the
7
1 purpose point -- are there in some way as security for
2 our tax bill. Thanks very much you have discharged our
3 tax bill and now we can have the escrow monies out as
4 well.
5 We have a number of answers to that. But as
6 I understand it, it is a fairly brazen point, but that
7 as I understand it is actually the point being made
8 against us.
9 MR JUSTICE BURTON: So it is an answer to your alternative
10 case. Your primary case, which is what we have been
11 listening to for the last few days, is that you are
12 required by the Government to pay it over
13 notwithstanding that the tax position had been secured,
14 as far as the 288 was concerned, by a dispute, a payment
15 of the one-third and an arbitration or a tribunal as to
16 the balance.
17 MR WOLFSON: Yes.
18 MR JUSTICE BURTON: But because you are putting forward an
19 alternative case that you settled their tax liability if
20 all else fails, then they say, "Well, if you settled our
21 tax liability, thank you very much, we should have had
22 the money back". But the trouble is -- I haven't heard
23 Mr Qureshi yet, but the trouble is that on your
24 second -- on that case, if that succeeds, you get it
25 back and you should have had it back on April 7, 2011.
8
1 MR WOLFSON: All I would say, my Lord, we are not making
2 closing submissions, it does seem a somewhat
3 counterintuitive result that Tullow has both discharged
4 Heritage's tax liability, because this assumes there was
5 a valid tax liability, and we have paid it.
6 MR JUSTICE BURTON: Yes.
7 MR WOLFSON: And the 283 in the escrow still somehow ends up
8 with them --
9 MR JUSTICE BURTON: And not with you.
10 MR WOLFSON: That would seem to be an odd result.
11 MR JUSTICE BURTON: It is only if your alternative case
12 succeeds we have to worry about this. No doubt
13 Mr Qureshi expects your alternative case to fail, but if
14 it succeeds, then you paid their tax liability, you
15 should get the money back with interest since
16 7 April 2011.
17 MR WOLFSON: Well, without wishing to be perhaps overly
18 pedantic at this stage, if the alternative case succeeds
19 we would have a claim against him in restitution so we
20 would get a judgment. Whether we get the escrow monies
21 out goes to the question of the jurisdiction on the
22 escrow and you know our position on that, which is that
23 actually our primary position is that neither party has
24 it because there is no jurisdiction -- you know the
25 sense I am using that word -- there is no jurisdiction
9
1 in this court over that contract.
2 MR JUSTICE BURTON: Yes, I follow that. Yes, there it is.
3 But you are relying on 7 April as being the date when
4 they paid your tax liability.
5 MR QURESHI: Our purported tax liability. They made
6 a payment.
7 MR JUSTICE BURTON: I don't know. I think it has to be your
8 tax liability. I mean, it is all basing on alternative
9 cases. It doesn't arise -- only on one of the various
10 cases does this arise that they paid your tax liability,
11 that, if they have paid your tax liability I entirely
12 follow you should have the money back out of the escrow
13 account but they should have it. The circumstance in
14 which you get the money out of the escrow account and
15 have interest or capital or alternative of vast amounts
16 because you could have invested in Nigeria, at the
17 moment seems to me pie in the sky but at least I now
18 understand the position and Mr Atherton can give his
19 evidence.
20 MR QURESHI: My Lord, if the pleading hasn't expressed the
21 position with sufficient clarity, we can seek to --
22 MR JUSTICE BURTON: I hadn't understood it but I now do
23 begin to understand it. Yes?
24 MR QURESHI: My Lord, there are some notes that I am handing
25 up which I believe have been provided to my friend, the
10
1 notes that your Lordship has requested be prepared on
2 clause 3.1 (Handed).
3 MR JUSTICE BURTON: Thank you very much indeed.
4 MR QURESHI: The first --
5 MR JUSTICE BURTON: These are the same notes as I have had
6 from Mr Wolfson?
7 MR QURESHI: My Lord, yes.
8 MR JUSTICE BURTON: Thank you very much.
9 MR QURESHI: The first one is on the clause 3.1. The second
10 is on 7.6. The third is 106. The fourth is the
11 payments that continue to be made, and the fifth is the
12 comparison between the December 2010 document that
13 Mr Martin signed off on, the 15 March 2011 Memorandum of
14 Understanding.
15 MR JUSTICE BURTON: Good, that is very helpful. Thank you
16 very much.
17 MR WOLFSON: Can I just raise one further point of
18 housekeeping before we start with the witness.
19 Obviously we are somewhat in the dark on this point
20 but your Lordship was very keen that that letter would
21 go to the Arbitrators.
22 MR JUSTICE BURTON: Yes.
23 MR WOLFSON: Of course we are outside the loop and we are
24 equally keen to know what's going on.
25 MR JUSTICE BURTON: I am very keen to know.
11
1 MR QURESHI: My Lord, I asked about this yesterday. I asked
2 yesterday afternoon and this morning. We have not had
3 an answer from Messrs Curtis. There are two
4 representatives here in court from Messrs Curtis.
5 MR JUSTICE BURTON: I wonder if I could ask them to find out
6 now for me, please. You are sitting at the back.
7 Hello, good morning to you. You sat here yesterday
8 morning, and I know that you reported back but I would
9 like an answer, please, at the short adjournment. There
10 are two of you. Why don't one of you make a phone call
11 and the other stay and listen to the evidence?
12 I would like to know, please, from Messrs Curtis by
13 11.45 whether the letter has gone and if not why not.
14 Do you want to make a phone call now?
15 THE SOLICITOR: Yes, I want to say I will make the phone
16 call but so far we haven't had instructions about the
17 reply.
18 MR JUSTICE BURTON: Perhaps simultaneously there could be
19 contact made by your solicitors, Mr Wolfson, to the
20 relevant person whoever you are in contact with, if
21 anybody, in Uganda reminding them of the obligation of
22 the Government under the Memorandum of Understanding and
23 that this would be part of their obligation.
24 MR WOLFSON: We will certainly make such phone calls as we
25 can.
12
1 MR JUSTICE BURTON: Thank you very much.
2 MR WOLFSON: Of course we are dealing with a Government body
3 but we will certainly do whatever we can.
4 MR JUSTICE BURTON: Thank you very much indeed. Are you
5 going to make the call? Thank you. At least I shall
6 need to know what steps have been taken, thank you.
7 Yes, right. On we go.
8 MR QURESHI: My Lord, it is Mr Atherton's turn. Good
9 morning, Mr Atherton. Mr Atherton, there is somebody
10 helping you with the bundles I believe.
11 MR PAUL RICHARD ATHERTON (sworn)
12 Examination-in-chief by MR QURESHI
13 MR QURESHI: Mr Atherton, in front of you there will be some
14 bundles with pink spines that are numbered E and you
15 should have a bundle which is on the back of it numbered
16 E1 onwards but the bundle I would like you to turn to is
17 bundle C. It has a yellow spine. If I could ask you to
18 turn to tab 9 of bundle C. Do you see that?
19 A. Yes, I do.
20 Q. It is headed "First witness statement of Paul Richard
21 Atherton." If I could ask you to turn to page C/313 of
22 the bundle, page 86 of 86 of the witness statement, do
23 you see that?
24 A. Yes, I do.
25 Q. Mr Atherton, is that your signature?
13
1 A. Yes, it is.
2 Q. This is your statement?
3 A. Correct.
4 MR QURESHI: I believe Mr Wolfson will have some questions
5 for you.
6 MR JUSTICE BURTON: Yes, can I ask just one question before
7 that happens. I understand the position on the 288,
8 that you disputed that and of course you knew that the
9 claimants were paying, you had agreed that they would
10 pay the one-third of the debt on your behalf out of your
11 money that they owed you so that you were fully engaged
12 with a dispute about the 283 million both by having paid
13 your one-third and by having entered into arbitration as
14 to the balance.
15 I am unclear about the 30, the next lot, that is the
16 one-third or so of the extra 100 or the 30 per cent of
17 the extra 100. You plainly disputed the 30 in a letter,
18 or the formal notice that you sent in answer to the
19 assessment. But why didn't you pay up the -- it is
20 chicken feed in the context of what we are talking
21 about. Why didn't you pay up the one-third of the 30 so
22 as to trigger, I think it is section 104, but I can't
23 remember which section it is, as you had done or as they
24 had done on your behalf in relation to the 288?
25 A. We had -- it was 283, my Lord.
14
1 MR JUSTICE BURTON: 283.
2 A. And we had objected to that in August.
3 MR JUSTICE BURTON: You had?
4 A. I believe August the 18th.
5 MR JUSTICE BURTON: Yes.
6 A. We then received an assessment on August the 19th for
7 $30 million being the 30 per cent of the $100 million
8 contractual settlement.
9 MR JUSTICE BURTON: You did.
10 A. We on advice felt that the case was linked with the
11 $1.35 billion, that we had objected -- we had objected
12 in fact the day before -- that it could not be taxed on
13 a standalone basis, that we would therefore object in
14 due course, which we did, that because the two were
15 linked intrinsically, because the contractual settlement
16 was clearly outside of Uganda and was, as I say, linked
17 to the original sale, that there was no need or no
18 requirement to deposit 30 per cent of $30 million.
19 MR JUSTICE BURTON: Has the Government either in
20 correspondence or in the course of the Tax Tribunal or
21 in the course of the arbitration made the point that you
22 aren't entitled to dispute or haven't successfully
23 disputed because you didn't pay the 30 per cent of the
24 30 million?
25 A. My Lord, yes, I believe the Tax Appeals Tribunal has
15
1 accepted our objection and it is being heard and has
2 been heard.
3 MR JUSTICE BURTON: Accepted that you made an objection even
4 though you didn't pay the 30 per cent?
5 A. Correct.
6 MR JUSTICE BURTON: So the Government did take the point but
7 weren't successful in front of the Tribunal, is that
8 correct?
9 A. Correct.
10 MR JUSTICE BURTON: We have, of course, the judgment of the
11 Tribunal. I have skim read it. If it is dealt with
12 somewhere in the judgment, I would be grateful to have
13 it drawn to my attention. Thank you.
14 A. Thank you.
15 Cross-examination by MR WOLFSON
16 MR WOLFSON: Just to clarify that point, Mr Atherton, before
17 we get going properly. I think we can probably agree on
18 this: that Heritage's position, vis à vis the Government
19 was, well, since Tullow has actually now put in 313
20 there is enough scope for the other 30 out of that?
21 A. No, my Lord.
22 Q. Okay, we'll come back to it then.
23 A. We are looking at a time of August 19 for the
24 assessment. The period of time whereby we had to object
25 was, I believe, 45 days.
16
1 MR JUSTICE BURTON: And you did object.
2 A. Which we did.
3 MR JUSTICE BURTON: So strictly speaking you should have
4 paid the 30 per cent in that 45 days.
5 A. But I believe it was considered by the Tribunal well
6 before the payment date of around mid April, so it's
7 unrelated, my Lord, to my knowledge.
8 MR WOLFSON: As I said, Heritage has never taken the
9 position that that 30 million is to be found if
10 necessary in the monies paid by Tullow.
11 A. Heritage's position has always been maintained that the
12 $30 million tax assessment will be -- is being contested
13 and is not payable as we have taken advice. That is --
14 Q. That is not the question I asked.
15 MR JUSTICE BURTON: What you are being asked is whether you
16 ever argued in the alternative, that if you were
17 required to pay one-third of the 30, which would only be
18 10 million, the Government had had the 313 out of Tullow
19 and they should look to that.
20 A. I believe we have never considered it, my Lord.
21 MR WOLFSON: If need be, we'll come back to this point.
22 MR JUSTICE BURTON: Thank you.
23 MR WOLFSON: Let me say now good morning, Mr Atherton. As
24 you were sitting in court when we had the exchange
25 earlier, let me just make clear, so we both know where
17
1 we are going, that I am not going to ask you questions
2 about documents where you are providing a running
3 commentary in your witness statement on documents which
4 you are not involved in, which you didn't see at the
5 time and where you are saying: it can be shown from X or
6 Y that such-and-such. For the avoidance of doubt and
7 for the record we don't accept your comments but I am
8 not going to cross-examine you on it because my
9 submission will be that that is not helpful evidence for
10 my Lord.
11 Before we look at any documents can we just clear up
12 what documents we have. Do you ever make notes of
13 meetings?
14 A. I periodically do make notes of meetings, my Lord.
15 Q. The more important the meeting, the more likely you
16 would be to take a note of it; is that fair?
17 A. In the main, yes.
18 Q. And I think we can accept that Heritage's disposal of
19 its Ugandan assets was at the very least one of the
20 biggest transactions Heritage has ever entered into?
21 A. The sale of the Ugandan assets was a substantial sale
22 and one of the largest, if not the largest, we have
23 entered into, that's correct.
24 Q. I think we can also agree that you haven't disclosed
25 a single handwritten note in these proceedings?
18
1 A. I haven't seen all of the information that has been
2 disclosed, been handled by our lawyers. I'm aware that
3 certain meeting minutes were taken, correct.
4 MR JUSTICE BURTON: Any handwritten notes by you?
5 A. Yes, I did -- I see the key meeting where I did take
6 notes, jottings rather than notes potentially, was the
7 key meet I saw was the meetings with Government with the
8 URA which took place at the beginning of June 2010.
9 MR JUSTICE BURTON: Have you disclosed those?
10 A. I believe that's a question for the lawyers. As I say,
11 I have not seen everything.
12 MR JUSTICE BURTON: Have you handed them to the lawyers?
13 A. Yes, I have. But I believe that those meeting minutes
14 and all of the meetings were without prejudice and,
15 therefore, may not have been disclosed.
16 MR QURESHI: My Lord, your Lordship will recall that there
17 is an email from Mr Kiiza passing on the without
18 prejudice, strictly private and confidential letter of
19 McCarthy Tetrault and the minutes of the meeting that
20 Mr Atherton I believe is referring to where the without
21 prejudice offer was made which found its way into
22 Mr Martin's witness statement, the objection had been
23 made and sustained that that was always a without
24 prejudice discussion and it was always meant to be
25 confidential. So what I had said to your Lordship was
19
1 whilst those documents had found their way into the
2 bundle, in the face of our objection, we maintained the
3 fact that they were with reference to a without
4 prejudice discussion.
5 MR WOLFSON: My question is on a much broader basis,
6 Mr Atherton. It may be -- is your evidence to
7 my Lord that that was the only meeting relevant to the
8 matters we are discussing where you took a note?
9 A. In connection with the sale?
10 Q. No, in connection with the matters we are discussing,
11 together with the sale, your tax liability, discussions
12 with the Government, discussions with Heritage, any
13 briefings to the press, any internal meetings at
14 Heritage, is your evidence that the only meeting at
15 which you took a note was that meeting with the
16 Government for which privilege is being claimed, without
17 prejudice privilege?
18 A. I believe yes.
19 Q. That is the only meeting you took a note, yes, that is
20 your evidence?
21 A. I believe that to be the case, yes.
22 Q. Did Mr Buckingham ever take notes?
23 A. It is a question for Mr Buckingham, but I --
24 MR JUSTICE BURTON: We can't put it to Mr Buckingham, can
25 we?
20
1 A. -- don't believe he does.
2 MR JUSTICE BURTON: You don't believe he's a notetaker?
3 A. No.
4 MR WOLFSON: What about the other individuals whom Heritage
5 has apparently searched for documents as part of its
6 disclosure individuals? Let me just read out the names.
7 There are only six of them, and you tell me whether
8 these individuals are in the habit of taking notes of
9 meetings.
10 Brian Smith, Brian Westwood, Mitzi Westwood, Dmitri
11 Tsvetkov, Gordon Wittard and Patrick -- and you are
12 going to have to help me with the surname here, Mr
13 Atherton. I am not going to even try, if you can
14 pronounce it for me?
15 A. I think we'll keep it with Patrick.
16 Q. Very wise.
17 A. We do in-house.
18 Q. We can agree on some things, Mr Atherton. So those five
19 individuals and Patrick, are they in the habit of taking
20 notes of meetings?
21 A. I can confirm Mr Smith doesn't take notes. As to Mr and
22 Mrs Westwood, Patrick and Dmitri, I don't believe Dmitri
23 takes notes, Patrick and Mr and Mrs Westwood I can't
24 say. I don't know. I have not seen any notes from
25 those individuals.
21
1 Q. The reason why I am asking is that we have not had
2 a single handwritten note disclosed by Heritage in these
3 proceedings. There might be a jotting on an occasional
4 document but there is no note of any meeting, no note of
5 internal discussions, nothing of the sort. I am asking
6 whether there were any taken and they have been lost or
7 whether your evidence is that none were ever taken.
8 A. My evidence I have provided is: for certain individuals
9 I don't know. I know people requested. I know that we
10 were sent information from our lawyers about destruction
11 of documents. I'm not aware of any document being
12 destroyed, destructed or withheld.
13 Q. Maybe the notes got lost when you moved ship from the
14 Bahamas to Mauritius?
15 A. None of those individuals were based in the Bahamas or
16 Mauritius.
17 MR JUSTICE BURTON: Where were they based?
18 A. The Westwoods and Patrick, the Westwoods were based in
19 Uganda and then they retired and live in South Africa.
20 Patrick is based in Uganda. Gordon Wittard is based in
21 Scotland. Dmitri Tsevetkov was based -- he is no longer
22 with Heritage -- he was based in the London office.
23 Mr Smith was based in Europe.
24 MR JUSTICE BURTON: So there was a Uganda office and when
25 did that close?
22
1 A. Following the sale we had.
2 MR JUSTICE BURTON: Then you had the ongoing runoff, didn't
3 you, for quite some time?
4 A. Which is still carrying on. Patrick --
5 MR JUSTICE BURTON: So you still have an office in Uganda?
6 A. Yes. Patrick is still based in Uganda.
7 MR JUSTICE BURTON: So those offices have been searched for
8 relevant handwritten documents?
9 A. I believe he's been requested to provide the
10 information, that's correct, and I believe in terms of
11 all the documentation that was in the Heritage office
12 together with the employees will have transferred
13 across. I believe everything was moved across by
14 Tullow.
15 MR JUSTICE BURTON: What has moved across?
16 A. All of the documentation, all the archives, all the
17 information. The computers were transferred and handed
18 across.
19 MR JUSTICE BURTON: To?
20 A. To Tullow.
21 MR JUSTICE BURTON: To Tullow?
22 A. In accordance with the SPA.
23 MR JUSTICE BURTON: But you wouldn't hand over handwritten
24 notes, would you?
25 A. I was not involved in the process but I don't believe
23
1 there was ever an edict that we would not hand over
2 handwritten notes.
3 MR WOLFSON: A handwritten note, for example, discussing
4 internally whether you should move the registration of
5 the companies from the Bahamas to Mauritius, you are not
6 suggesting that those sort of notes would have been
7 handed over to Tullow?
8 A. I don't believe those discussions took place with Mr and
9 Mrs Westwood or with Patrick or with people in the
10 office in Kampala.
11 Q. I am only asking because we haven't had any notes about
12 that either, just to pick an example.
13 A. That was based on discussions over the phone.
14 Q. I see. So you get a couple of chaps on the phone, you
15 have decided to move from the Bahamas to Mauritius, is
16 that basically where we are going?
17 MR QURESHI: My Lord, I am not sure why this particular
18 issue is relevant for the pleaded case.
19 MR WOLFSON: We will see where we are going. Anyway,
20 I think we have your evidence that there were no
21 documents.
22 Let us look at a document, therefore, which we do
23 have, your witness statement. It should be in front of
24 you, bundle C, tab 9. Can we start with paragraph 36,
25 please. I think we can hopefully do this fairly quickly
24
1 because this is somewhat of a piece of advocacy on your
2 matter.
3 The point, as I understand it, you make in
4 paragraph 36 is that three previous deals had not been
5 taxed by the Ugandan Government and therefore the idea
6 that your sale to ENI, which turned out to be the sale
7 to Tullow, might be taxed came as a shock. I hope that
8 is a fair summary of your position.
9 Let us go in reverse order and look at the
10 transactions which you are talking about. First of all,
11 the transaction in which Tullow acquired Hardman. This
12 was, I think we can agree, a corporate deal, an
13 acquisition of shares in an Australian company and not
14 a Ugandan asset. That is right, isn't it?
15 A. It was the acquisition of an Australian listed company
16 I believe. I'm assuming an Australian company.
17 MR JUSTICE BURTON: Of the shares?
18 A. Of the shares which had a significant portion of its
19 business within Uganda.
20 MR JUSTICE BURTON: Yes.
21 MR WOLFSON: So your point is that, as I understand it, the
22 Ugandan Government should have levied tax
23 extraterritorially on the sellers of those shares
24 wherever in the world they were. Is that the point you
25 are making.
25
1 A. The point I'm making is that no tax was levied by the
2 Ugandan Government.
3 Q. Are you inviting the court to infer from that that the
4 Ugandan Government's failure to levy tax
5 extraterritorially meant that it knew that no
6 substantive tax was due? Is that the point you are
7 making?
8 A. I'm not a Uganda tax expert and I'm certainly not an
9 Australian tax expert. All I'm aware of is that Tullow
10 has allocated a significant portion of the
11 consideration, I believe in excess of $400 million, on
12 that transaction to the assets within Uganda and that
13 they were not taxed in Uganda.
14 Q. I don't need to trouble you about that any more. Let us
15 look at the next one, Tullow's acquisition of Energy
16 Africa. This is even more extreme, isn't it, given that
17 the licence holder in Uganda was not actually Energy
18 Africa but a subsidiary of Energy Africa?
19 A. That's correct, an Isle of Man company.
20 Q. So are you making a point here that the Government
21 should have levied tax extraterritorially on the sellers
22 of shares in a company which itself owned shares in
23 a company which held licences in Uganda?
24 A. Again, I'm aware it was a corporate transaction and I'm
25 aware that was no tax was levied or charged by the
26
1 Ugandan Government, my Lord.
2 Q. Let us look at the last one then, the Government's
3 failure to tax Heritage's disposal to Energy Africa in
4 2001.
5 Now, to get the background facts on this, at
6 paragraph 32 of your statement on the previous page you
7 note that the first drilling successes occurred between
8 2006 and 2009 and, as I understand it from your witness
9 statement, by 2001, which is the date of the
10 transaction, you had just done a seismic survey and you
11 were bringing in Energy Africa to do another survey, is
12 that fair?
13 A. Correct. The consideration for the acquisition of the
14 assets was to fund further monies into the licence by
15 way of a seismic programme.
16 Q. Yes. So when you sold to Energy Africa in 2001 you had
17 forked out a lot of money in costs but the licence
18 hadn't yet increased substantially in value, had it?
19 A. At the time I haven't got a valuation of the licence but
20 we are talking of a few million dollars. We are not
21 talking of billions of dollars, clearly.
22 Q. So we can probably cut this short. I think we are
23 agreeing, Mr Atherton, that in commercial terms, that
24 sale, we are not comparing like with like when we are
25 looking at that sale to looking at the sale from
27
1 Heritage to ENI which became Heritage to Tullow in 2010?
2 A. My Lord, I would say we are to the extent that it was
3 a disposal of a 50 per cent interest in a licence in
4 Uganda. The consideration was different but the asset
5 was a 50 per cent interest which was sold or
6 transferred.
7 Q. What was Heritage's gain on the sale to Energy Africa in
8 2001?
9 A. I don't know.
10 MR JUSTICE BURTON: Did you make any gain at all?
11 A. Possibly, I would imagine we made a small gain but not
12 a significant gain but I don't have the figure to hand,
13 my Lord.
14 MR WOLFSON: It wasn't in the order of $1.35 billion.
15 MR JUSTICE BURTON: He has agreed that. At the moment he
16 isn't able to recollect whether there was any gain at
17 all.
18 A. It was 11 years ago, my Lord. If there was it would be
19 --
20 MR JUSTICE BURTON: It would be very small, if it was
21 anything at all.
22 A. Absolutely correct.
23 MR WOLFSON: I think we can move on to the next topic,
24 my Lord.
25 Mr Atherton, I am going to give you the references
28
1 in bundle E. I will also try to give my Lord the core
2 bundle references. The first document is E1/122 which
3 hopefully now should be core 1 and I have it marked as
4 (xi).01.
5 MR JUSTICE BURTON: Yes.
6 MR WOLFSON: It should be a document, Mr Atherton, headed
7 "Statement of the Parliament of the Republic of Uganda",
8 and you will see it is a statement delivered to the
9 Ugandan Parliament by Minister Onek. If you turn to the
10 last page, so to put it in context for you, you will see
11 that the statement is dated 26 November 2009. That is
12 at point 07. This statement is about Heritage's
13 proposed sale to ENI. Have you looked at this before?
14 A. Yes, I have.
15 Q. I will take you to some paragraphs but if I am going too
16 quickly please tell me and I'll slow down. If you look
17 at paragraph 11, you will see the Minister says that:
18 "ENI was first introduced to the Government as
19 a potential buyer of Heritage's 50 per cent interest in
20 area 1 and 3A during August 2009."
21 Is the Minister correct about that?
22 A. ENI approached us in July 2009. I believe ENI then
23 approached the Government. This document refers
24 to August 2009. There is no reason why I would question
25 that. But not a formal introduction by Heritage -- we
29
1 were not involved in any meetings with Government with
2 ENI.
3 Q. I don't think the Minister is saying in paragraph 11
4 that you were, the way I read it.
5 MR JUSTICE BURTON: Yes.
6 MR WOLFSON: You are just saying that to make that clear,
7 are you?
8 A. Correct. It is the way it says "first introduced to
9 Government", it is as though Heritage had introduced I
10 had inferred but we didn't.
11 MR JUSTICE BURTON: It doesn't say that.
12 MR WOLFSON: Paragraph 13, just to put this in context for
13 you, the Government welcomed ENI. Paragraph 14, the
14 proposed price is $1.5 billion to purchase your
15 50 per cent interest, and at paragraph 16 the Minister
16 says in unambiguous terms:
17 "There will be taxation for the sale by Government
18 of Uganda."
19 At paragraph 20 the Minister calls the sale a normal
20 business transaction. You can see that in the third
21 line, Mr Atherton, in paragraph 20, and says that:
22 "The existing legislative framework in the country
23 is sufficient to ensure that this and any similar
24 transaction and undertaking without causing loss to the
25 country."
30
1 Would you agree that when he refers to avoiding
2 a loss to the country, one of the things he must be
3 talking about is a loss of tax revenues?
4 A. My Lord, I would infer any loss to the country by
5 Heritage selling the assets as we did and, based on our
6 advice, no tax being paid, there is no loss to the
7 country. There is no loss to the extent that on this
8 question -- and I think people infer it as Capital Gains
9 Tax -- the purchase consideration does not become
10 a factor in the ongoing tax computation of the
11 purchaser, so the base costs of what they are acquiring
12 is essentially what have we spent and been agreed in the
13 licence, which is between 100 -- later on we talked of
14 US$182 million.
15 The base cost for Capital Gains Tax in accordance
16 with the Ugandan legislation is not uplifted to the
17 $1.35 billion. It remains at the $180 million which is
18 what we have spent on the licence and there is no loss
19 of revenue to the Ugandan Government if they did not
20 tax -- as I said, there is no precedent of tax -- they
21 did not tax this transaction.
22 Conversely, if they were to impose a Capital Gains
23 Tax, there would be a super profit made.
24 MR JUSTICE BURTON: That is your analysis of paragraph 20.
25 Paragraph 16 is clear, isn't it?
31
1 A. We had taken advice.
2 MR WOLFSON: Mr Atherton, we are not going to get very far
3 if you don't answer the questions which I am putting to
4 you. The only question I was putting to you was whether
5 paragraph 20, when it talks about loss to the country,
6 did you read that as tax revenues? As I understand it
7 you are saying: no, you didn't. Is that right?
8 A. Correct.
9 Q. I mean, I am grateful for the lecture on Ugandan Capital
10 Gains Tax and we may come to that if we need to.
11 What I am putting to you, Mr Atherton, is a very
12 simple proposition, that the position of the Ugandan
13 Government is that companies which make a large amount
14 of money in Uganda should be paying tax in Uganda; is
15 that your understanding of their position too?
16 A. I think we can make it even a simpler process. We will
17 pay any tax that's legally and lawfully due. We -- the
18 structure, we know we are disputing the tax with the
19 Ugandan Government. Everyone does. It is a fact, and
20 there are two elements. There is a tax element and at
21 this time we were looking at consent. But with the tax,
22 we provided for the tax. It is reserved. It has either
23 been deposited in country or it has been deposited into
24 an escrow account such that we can go through the due
25 processes, the legal processes within country, in
32
1 accordance with their rules and regulations and we can
2 determine whether tax is payable or not.
3 MR JUSTICE BURTON: That is your general position in this
4 case and you have now stated it and it is very well
5 understood by me and by the court. But let us try at
6 the moment to stick to what you are being asked about,
7 and at the moment the implication of the first part of
8 your statement is, because tax had never been levied
9 before on transactions which you say were similar, you
10 didn't expect to pay tax and that is what you are being
11 asked about; not whether you are liable to pay tax, not
12 whether you are rightly or wrongly disputing tax. That
13 will come later.
14 Try and concentrate on the questions being asked.
15 At the moment all that is being put to you is that when
16 you read this press release you knew that the Ugandan
17 Government would be expecting tax. They might have had
18 a wrong expectation but they were expecting tax to be
19 paid.
20 A. That would be correct, my Lord.
21 MR JUSTICE BURTON: Right.
22 MR WOLFSON: So just to be clear, I think we are now,
23 although your internal position may have been that no
24 tax was payable you understood that the Minister's
25 position, honestly held, was that tax would be payable;
33
1 is that fair?
2 A. As at the November 26, the Minister had stated that he
3 considered that tax would be payable and our view was:
4 you have not seen any documents, not considered this,
5 we'd only announced the sale with an MOU three days
6 before this. We hadn't provided any documentation to
7 them and so we felt this premature, but clearly this
8 refers to taxation.
9 Q. I am asking because in your witness statement in
10 paragraph 60 you characterise this as political
11 posturing by the Minister. What I'm trying to get at is
12 whether you are saying that the Minister was saying
13 something which he didn't believe or something with
14 which you disagreed. You will appreciate that there is
15 a distinction between those two. Which is it?
16 A. We believed that he was incorrect or poorly advised.
17 Q. Would you like to reconsider the phrase "political
18 posturing by the Minister" or are you happy to stick
19 with that in your paragraph 60?
20 A. I'm happy.
21 Q. Having made the clear and unambiguous statement in
22 paragraph 16 of the statement to Parliament that there
23 will be taxation for the sale by the Government of
24 Uganda, you would have appreciated that it would be
25 politically difficult, if not political suicide, for the
34
1 Minister later to say, "There's a company which has just
2 made $1.35 billion profit in Uganda but it turns out we
3 can't tax it at all"? You must have appreciated that,
4 didn't you?
5 A. No.
6 Q. Mr Atherton, what I am putting to you, so there is no
7 misunderstanding, is that it was perfectly apparent to
8 you from November 2009 at the latest that your sale was
9 going to be assessed to tax in Uganda?
10 MR JUSTICE BURTON: Rightly or wrongly.
11 MR WOLFSON: Yes, rightly or wrongly. I am not saying that
12 the Government's position was correct. That is for
13 another -- we'll come back to that but you understood
14 that the Government's position was that the sale was
15 going to be taxed in Uganda, and you understood that at
16 the latest from November 2009?
17 A. No, that is not correct.
18 Q. Since we are on -- I think your Lordship may have
19 paragraph 60 of the witness statement open?
20 MR JUSTICE BURTON: Yes.
21 MR WOLFSON: While we are on here, let us just pick up
22 paragraph 61, Mr Atherton, where you describe how -- it
23 reads a bit like a movie -- Heritage received a leaked
24 briefing purporting to be from Minister Onek to the
25 President. I am looking at the last part of your
35
1 witness statement where you say this:
2 "This briefing was passed to Heritage in rather odd
3 circumstances by two gentlemen who visited HOGL's
4 offices in Uganda on 6 January 2012 claiming to be from
5 the office of the President. They offered the
6 possibility of being able to provide more leaked
7 documents in exchange for payment."
8 Then you say that was unacceptable, so you didn't
9 engage in further communications.
10 Can you shed any further light on this rather
11 tantalising extract as to what actually happened or is
12 that all you are prepared to say about it?
13 A. I think the witness statement summarises it. Two people
14 arrived into our local office in Kampala.
15 MR JUSTICE BURTON: Were you there?
16 A. No, I was not.
17 MR JUSTICE BURTON: So this is hearsay?
18 A. This is based on a discussion with the country manager
19 who was there.
20 MR WOLFSON: I see.
21 A. And they provided the document. They would not leave
22 their names. We tried to trace them to understand who
23 they were. We never saw them again. They never came
24 back to our offices to our knowledge.
25 MR WOLFSON: To --
36
1 A. It was very strange. Any of our offices. We do not
2 believe they made contact with any Heritage personnel to
3 our knowledge.
4 MR JUSTICE BURTON: At any rate, they gave you some
5 documents which emanated from the Government.
6 A. That's correct.
7 MR JUSTICE BURTON: And they made this statement that you
8 record in paragraph 61.
9 MR WOLFSON: Yes, it is not clear from your witness
10 statement that this was information passed on to you
11 from your chap in Uganda.
12 A. It was passed on by our Ugandan office.
13 Q. But you are certain that Heritage wouldn't have actively
14 sought out this briefing and they came to you
15 unannounced?
16 A. Absolutely. It was very strange. I would point out
17 that through the disclosure documents it has become
18 apparent that Tullow also received the same documents
19 which were considered to be confidential and sensitive
20 according to an email in the core bundle.
21 Q. Mr Atherton, are you the CFO of Heritage?
22 A. Yes, I am.
23 Q. You will know that you are shedding out large sums of
24 dosh to my learned friend who can put your case so your
25 knowledge of what Tullow received, as I understand it,
37
1 is knowledge which you have got from looking at the
2 documents. If you continue to try to make points like
3 this, it is absolutely fine but I will still ask the
4 questions I am going to ask, okay?
5 Bundle E3/743, core 1/80.001. I hope that that will
6 be an email from Mr Kaplanis to you. Core 80.001, an
7 email from Mr Kaplanis to you on 12 February. He is
8 forwarding a new story from the Dow Jones and if you
9 look through, you will see that they have been told by
10 a Mr Kaujju of the URA that the URA will levy CGT at 30
11 per cent once the deal is finalised.
12 So before we saw the Minister saying it and on
13 12 February 2010 we have the URA itself saying that. So
14 I put to you the same point, that by February 2010 it
15 was obvious that, come what may, Heritage was going to
16 be served with a tax assessment in Uganda.
17 A. My Lord, if I can backtrack one second in terms of
18 the November -- is it the 27th, which was the
19 parliamentary notes which we looked at? I think it
20 was November.
21 MR WOLFSON: Yes, it was, I think it was the 29th but I'm
22 not sure anything turns on that.
23 A. Where they said there would be taxation on this. We
24 hadn't signed the agreement with ENI at that time. If
25 you go to the sale and purchase agreement which is
38
1 included in the documents, it is clear that one
2 mechanism, one way that the contingent consideration of
3 $150 million would be payable was by the purchaser
4 obtaining very large tax breaks in country for up to or
5 more than 10 years. That is what ENI at the time was in
6 discussion with, and believed they would receive.
7 So back in the day of November it was thought that
8 the purchaser would receive significant tax breaks. We
9 then move forward to February with the URA statement by
10 Peter Kaujju, who is a public and corporate affairs
11 officer. He was often in the press and this is on the
12 12th. If you go to the February 17th, he is in the
13 press again, this time saying: "We're thinking of taxing
14 the transaction", and I am paraphrasing here but it is
15 in the bundle. Shall we go to it? It makes sense
16 rather than me getting it incorrect.
17 Q. Actually can you just answer the question I put to you?
18 It was a very short question and if the answer is "no"
19 we can move on. The question was simply this: was it
20 obvious to you by February 2010 that Heritage was going
21 to be served with a tax assessment in Uganda?
22 A. No.
23 Q. Good. We can move on. As I understand your case, you
24 allege that Tullow assisted, advised and encouraged the
25 Government to tax Heritage. Are you saying, just so I
39
1 understand where you are coming from, that but for acts
2 of Tullow the Government wouldn't have served the
3 6 July 2010 assessment on Heritage?
4 A. I believe if the ENI transaction had completed and
5 Tullow had not pre-empted the transaction, that we would
6 not have received the 6 July 2010 assessment.
7 Q. Is there anything else which you are relying on in that
8 regard other than the fact that the transaction ended up
9 with Tullow and not ENI as a result of Tullow's exercise
10 of its contractual pre-emption right?
11 A. I think two things. One is that is correct that it was
12 Tullow rather than ENI, and secondly I think the date,
13 if they were to tax or issue an assessment, it would
14 have been significantly earlier than July.
15 MR JUSTICE BURTON: I have been looking for the 17 February
16 and the only thing I can find is at 744 where Mr Kaujju
17 says if it is to do with the transfer of shares there is
18 no tax applied but if it is a sale of assets then they
19 will be taxed. Is that what you had in mind? It
20 doesn't seem to accord with how you remembered it?
21 A. He says on 744, my Lord, in the third paragraph, towards
22 the end:
23 "Mr Kaujju told the Daily Monitor that the full
24 details of the transaction were not yet to be completed.
25 We are still trying to pick up the details, we got
40
1 a copy of the sales agreement between Tullow and
2 Heritage and it is being studied by a team in URA."
3 MR WOLFSON: Do you want to carry on. Read the next
4 paragraph.
5 A. "Explaining when Capital Gains Tax would apply to
6 a sale, he said: if it's to do with the transfer of
7 shares there is no tax applied, but if a sale of assets
8 then there will be tax."
9 MR JUSTICE BURTON: That is what I quoted to you and that
10 doesn't appear to be the way you remembered it.
11 A. No, I was looking at the paragraph before, my Lord.
12 MR WOLFSON: It is always difficult when you read a bit of
13 a document, Mr Atherton, because the fact is the
14 Heritage/Tullow transaction was an asset sale, not
15 a share sale, wasn't it?
16 A. Pardon? Can you repeat the question, I was reading the
17 document.
18 Q. Yes, the Heritage/Tullow transaction was an asset sale
19 not a share sale, correct?
20 A. Yes, it was an asset sale.
21 Q. When it exercised the right of pre-emption, Tullow was
22 presented, as per the contract, with the same contract
23 that you were otherwise going to enter into with ENI,
24 correct?
25 A. The basis of pre-emption is it is the same but
41
1 essentially you change the names of the purchaser,
2 my Lord.
3 MR JUSTICE BURTON: Yes. I am not going to stop you, at
4 least I am going to try not to stop you, Mr Atherton,
5 but this is simply indicative of the fact that --
6 Mr Wolfson put it much more colloquially but you have
7 got counsel who will pick up anything that is overlooked
8 and it does seem to me that this is example is one in
9 which you said he said the contrary five days later and
10 in fact when one looks at the document he didn't say the
11 contrary five days later. So in fact it has not got you
12 out of the answer that you were going to make.
13 A. If we can carry on to further paragraphs on this
14 document 744, my Lord?
15 MR JUSTICE BURTON: Yes.
16 A. Under the one, the penultimate paragraph on initial
17 revenue and if we go to the last sentence:
18 "Miss Sarah Banago, [apologies for my pronunciation]
19 the Assistant Commissioner for Public and Corporate
20 Affairs at URA said she could not comment on the
21 statements but confirmed nothing had yet been finalised.
22 At this point it would be speculation for us to state
23 which taxes qualified ..."
24 MR JUSTICE BURTON: That is in the context of them not
25 knowing whether it was the transfer of shares, in which
42
1 case there would be no tax, or the sale of assets in
2 which case there would. All I think I am asking is
3 there is nothing in here which would entitle you to say
4 that the Government didn't expect to charge tax if the
5 transaction was a sale of assets?
6 A. We felt at the time that there was some mixed messaging
7 in the press, that it was confusing but clearly there
8 was considerable more weight towards the Government was
9 looking to tax the transaction, correct. Our advice at
10 that time, and still has been --
11 MR JUSTICE BURTON: You see, the reason why Mr Wolfson is
12 asking you these questions is because it seems to be
13 suggested that it was really the claimants who had
14 caused the Government to get you charged tax, and that
15 is part of your pleaded case, as I understand it. At
16 the moment he is exploring the question as to whether,
17 even before the claimants were involved, the Government
18 were saying they were going to be charging for tax so it
19 wasn't the claimants' idea, it was the Government's
20 idea. That I think is what he is on about at the
21 moment.
22 A. Understood.
23 MR JUSTICE BURTON: And that does appear to be the case,
24 doesn't it?
25 A. Sorry to interrupt, my Lord, but there was certainly
43
1 information in the press to that extent and through
2 press releases, correct.
3 MR WOLFSON: I think you said earlier -- I will try and find
4 it on the transcript, Mr Atherton, so I don't misquote
5 you -- you said:
6 "If the ENI transaction had completed and Tullow had
7 not pre-empted the transaction, we would not have
8 received the 6 July 2010 assessment."
9 You later made the point that the date may have been
10 different. Are you suggesting that if the transaction
11 had gone through with ENI, rather than Tullow, you
12 wouldn't have been assessed by the Government to tax at
13 all?
14 A. I don't know. It is a hypothetical question where
15 something that did not take place. I do not know.
16 Q. Because I think we can agree that the deal, so far as
17 Heritage is concerned, is exactly the same deal. All
18 you are doing is you are selling to X instead of to Y,
19 you change the name on the document, as you say?
20 MR JUSTICE BURTON: He has agreed that.
21 MR WOLFSON: My Lord, I was going to move to another topic.
22 MR JUSTICE BURTON: I have put that in as 80.001A.
23 MR WOLFSON: Yes, my Lord. Would this be a convenient
24 moment, my Lord?
25 MR JUSTICE BURTON: No, we'll carry on.
44
1 MR WOLFSON: I am sorry. Of course. I am sorry.
2 Can we turn to B1/3, Mr Atherton. B1 should be the
3 SPA and at page 3 -- sorry, when I say page 3, I'm using
4 the B numbers not the document numbers -- you will see
5 that Heritage Oil & Gas Limited is described there as
6 being registered in the Bahamas. You provided a copy of
7 this SPA to the Government shortly after it was
8 executed, didn't you?
9 A. Yes.
10 Q. And you knew in mid February 2010, because that is
11 apparent from the press release we were looking at
12 a moment ago, that this was the document which the
13 Government was looking at, the URA was looking at, to
14 decide whether you were liable to pay tax in Uganda; is
15 that correct?
16 A. I would assume that to be correct.
17 Q. In the document we were just looking at a moment ago --
18 you may still have it in front of you -- do you still
19 have E3, that press release, or has it gone back? You
20 see what Mr Kaujju said, just to remind you, is "We are
21 still studying the agreement". That agreement is the
22 SPA, isn't it?
23 A. I would assume that, yes. I have no reason to dispute
24 that.
25 Q. If you can just keep that open then, let us go back to
45
1 B1 for a moment then, page 21, clause 4.1. These are
2 warranties and indemnities which are provided. In your
3 own time, would you have a look, please, at subparagraph
4 (a)(i) of clause 4.1. (Pause). Have you read that?
5 A. Yes.
6 Q. The seller is Heritage, isn't it?
7 A. Heritage Oil & Gas, correct.
8 Q. And you warrant that that is a company duly organised
9 and validly existing under the laws of the jurisdiction
10 of the Bahamas.
11 Could you now turn to page 39 of the bundle,
12 clause 5.1.
13 "Until closing each party shall notify the other
14 party promptly after such party becomes actually aware
15 [interesting use of "actually"] there is any warranty
16 given by it in this agreement is untrue, inaccurate or
17 misleading in any respect or will be untrue, inaccurate
18 or misleading in any respect as of the closing date."
19 When was the closing date?
20 A. 26 July, 2010.
21 Q. So you accept, I think, that you had an express
22 contractual obligation to inform Tullow if Heritage
23 is -- I am using "Heritage" for HOGL -- if HOGL's
24 domicile changed, correct?
25 A. There is a requirement here based on 5.1 to provide
46
1 information to them, yes.
2 Q. Is that a "yes"?
3 A. Yes.
4 Q. We know that Heritage had re-domiciled itself from the
5 Bahamas to Mauritius on 15 March 2010, correct?
6 A. By continuation, correct.
7 Q. Mauritius has a double taxation treaty with Uganda, does
8 it not?
9 A. Yes, it does.
10 Q. Would you turn to bundle E4/934. The core bundle is
11 core 1/104.002. I am sorry the writing is small. But
12 there are emails in even smaller writing. You will see
13 the bottom email is from Daniel O'Neill. You will see,
14 Mr Atherton, he is a senior legal adviser at Tullow and
15 he is sending this email to Robert Brant. He is at
16 McCarthy Tetrault, isn't he?
17 A. Correct.
18 Q. They are your lawyers?
19 A. Correct.
20 Q. When I say "your lawyers", I don't just mean in this
21 litigation but they generally act for Heritage, is that
22 fair?
23 A. That's correct.
24 Q. Geoff Peters, who is he?
25 A. Again, he was at the time working with McCarthy's so he
47
1 was our lawyer.
2 Q. Graham Martin my Lord has seen over some days and Peter
3 Sloan is another Tullow man.
4 Just read it to yourself, Mr Atherton, if you would.
5 So you will see that he says that the escrow bank, which
6 is Standard Chartered, is carrying out KYC -- Know Your
7 Customer -- checks and in the course of those
8 investigations it has been discovered that Heritage has
9 just been re-domiciled to Mauritius and basically he
10 asks you to explain what's going on and whether the
11 Government has been told.
12 Mr Brant replies at the top of the page:
13 "Dan, that change has been in the works for a while
14 for internal Heritage group purposes but has only just
15 now become effective. The warranty at article 4.1(a)(i)
16 is no longer correct because the company is now
17 registered in Mauritius but the change should have no
18 bearing on the sale. Heritage will be corresponding
19 with the Ugandan Government in due course."
20 There is then an email which is copied to you at
21 bundle E3/804. I am afraid there is no core bundle
22 reference for this one. Bundle E3/804. I am afraid you
23 now have gone down a notch in the print size.
24 MR JUSTICE BURTON: Yes.
25 MR WOLFSON: And you see it attaches a revised draft of the
48
1 escrow agreement. There are a number of changes. If
2 you just turn through 806, 807 and thereafter, a number
3 of changes are made but there is no change to the point
4 on page 806 setting out Heritage Oil & Gas' registered
5 office at the Bahamas. You see that, do you, yes?
6 A. I am just reading it.
7 MR JUSTICE BURTON: It is at the top of the page.
8 A. Yes.
9 MR WOLFSON: So is the position this: despite the fact that
10 you were under a contractual obligation to tell Tullow
11 when any warranty became untrue, you did not do so,
12 correct?
13 A. I believe just at 1 April there were still some various
14 corporate matters required in Mauritius. The date of
15 the continuation was 15 March, so a couple of weeks
16 before, and I believe there was a licence we had to
17 obtain which we obtained at the beginning of April.
18 MR JUSTICE BURTON: Beginning of February.
19 A. No, April.
20 MR JUSTICE BURTON: I see. 12 April says the company is now
21 registered in Mauritius, so by 12 April it was all in
22 place?
23 A. That's correct, my Lord.
24 MR JUSTICE BURTON: So you are being asked about why you
25 didn't notify the --
49
1 A. And that was because there was various documents and
2 licences we had to obtain which we hadn't obtained at
3 this date. I think we obtained them right at the
4 beginning of April, my Lord.
5 MR WOLFSON: Are you suggesting that you looked at this
6 warranty and thought: "Well, because we haven't obtained
7 the licences we don't have to tell them about the change
8 of domicile"? Is that what you are saying?
9 A. I'm saying there is various documentation which was
10 going through and in due course would have been provided
11 by the warranty.
12 Q. And you hadn't told the Government either, had you?
13 A. No, we hadn't.
14 Q. Despite the fact that you knew that the URA was
15 considering your tax liability on the basis of the old
16 Bahamas domicile rather than the new Mauritian domicile?
17 A. We were aware of the URA were looking at the documents
18 based on the February press report. I believe the
19 Government was aware in -- I don't know the date the
20 Government was made aware. I believe it was May.
21 MR JUSTICE BURTON: May.
22 A. May. I don't have a specific date. We didn't --
23 MR JUSTICE BURTON: Was there a document to say that?
24 A. I'm not aware of a document, but I'm sure counsel will
25 provide it.
50
1 MR WOLFSON: We may come to this, my Lord. Mr Atherton,
2 what I am putting to you is that looking at these
3 documents, the conclusion would appear to be, but tell
4 me if I am wrong, that Heritage must have told its
5 lawyers to conceal the fact of Heritage's re-domicile
6 from the Government?
7 A. No.
8 Q. Do you have any other explanation for why your lawyers
9 would not have made the amendment to the domicile point?
10 Is that just an error on their part?
11 A. As I said, there was various documentation still going
12 through. It may have been an error. There was never
13 any discussion about withholding the information from
14 Tullow. In terms of Government, we didn't tell
15 Government until later. With hindsight we should have
16 told them earlier, absolutely we should have done. We
17 didn't. They were aware of it in May and we should have
18 informed Government much earlier.
19 Q. The fact is, Mr Atherton, what was going on was you were
20 moving from the Bahamas to Mauritius, I assume not for
21 the weather but because Mauritius is one of the few
22 countries which has a double tax treaty with Uganda;
23 that is the truth, isn't it?
24 A. We went to Mauritius for a number of reasons.
25 MR JUSTICE BURTON: Was that reason included in them?
51
1 A. We say it is corporate planning which would include
2 fiscal reasons, yes. Heritage Oil & Gas has other
3 licences, has other interests in other countries and we
4 were looking at planning for those other countries as
5 well, not specifically Uganda.
6 MR JUSTICE BURTON: You said that this was one of the
7 largest -- I think you actually accepted the largest
8 transaction --
9 A. That's correct. It is public record.
10 MR JUSTICE BURTON: -- Heritage had done and moving to
11 Mauritius was part of the tax planning and you are being
12 asked whether -- just let us get this straight what the
13 question is -- Mauritius was one of the few countries
14 which had a double tax treaty with Uganda and that was
15 why you went there?
16 A. It was a factor. It was one of the reasons in our
17 planning.
18 MR JUSTICE BURTON: What were the other factors?
19 A. It was better regulated. The time zone was working
20 better in terms of our jurisdictions in terms of where
21 we were based. They are much more efficient and banking
22 is better and we felt overall that the level of service
23 we were provided in Mauritius was much better than we
24 were being provided in the Bahamas.
25 MR WOLFSON: When you say "being provided", these are by
52
1 service companies, effectively?
2 A. By financial -- by third party agents and professional
3 bodies.
4 Q. How many Heritage employees work in Mauritius?
5 A. Directly employed by Heritage?
6 Q. Yes.
7 A. Zero.
8 Q. Right.
9 A. That would be the same in terms of jurisdictions
10 throughout the world. Many, many companies --
11 Q. Absolutely.
12 A. -- will use directors' positions. Isle of Man, many
13 other places. Many, many international companies have
14 a similar tax status as we do.
15 Q. Mr Atherton, I am only asking these questions because,
16 first, the re-domicile is not mentioned anywhere in your
17 witness statement, correct? We can read it.
18 A. I think it is.
19 Q. Okay. You haven't given any disclosure in these
20 proceedings evidencing the reasoning or rationale for
21 moving to Mauritius, correct?
22 A. That's correct, but I do refer to it in my witness
23 statement. I am sure I do.
24 Q. If you want, we'll go through what you say but I think
25 we can probably move on after a couple more questions.
53
1 MR JUSTICE BURTON: Over the short adjournment, the five
2 minute break, you can have a quick flip through and see
3 if you can find it.
4 MR WOLFSON: Mr Atherton, I think we actually can agree on
5 this.
6 MR QURESHI: It is paragraph 6, my Lord, right at the
7 outset.
8 MR JUSTICE BURTON: You have found it already.
9 MR QURESHI: It is paragraph 6, right at the outset.
10 MR WOLFSON: I am very happy to go to paragraph 6 because
11 there all is revealed. Let us see what we are told in
12 paragraph 6.
13 MR QURESHI: I am not promising all will be revealed. I'm
14 not sure what my friend has in mind.
15 MR WOLFSON: What we are told in paragraph 6 is:
16 "On 15 March HOGL was registered by continuation as
17 a private company limited by shares in the Republic of
18 Mauritius."
19 The point I was trying to explore with you,
20 Mr Atherton, and I think we can probably end here before
21 the break because I think we now agree, is that when we
22 read in documents that the move was made for internal
23 Heritage group purposes, I think you are accepting that
24 one of those purposes was the perceived tax advantages
25 relating to your potential tax liability to the URA from
54
1 this deal, correct?
2 A. One of the reasons for going, as I explained, was there
3 was a double taxation agreement but there were other
4 reasons as well.
5 MR WOLFSON: My Lord, I am going to go to a slightly
6 different topic. That may be a convenient moment,
7 my Lord.
8 MR JUSTICE BURTON: Yes. I hope we are going to have
9 a report when we come back, which will be before five to
10 12, from Curtis & Co. Thank you.
11 (11.45 am)
12 (A short break)
13 (11.55 am)
14 MR WOLFSON: My Lord, we will provide a new folder.
15 MR JUSTICE BURTON: We are doing well at the moment,
16 thank you very much. Any news from Curtis & Co?
17 THE SOLICITOR: My Lord, I telephoned the partner in charge
18 of his clients here in London and he explained to me,
19 my Lord, he has been in touch with the Government of
20 Uganda but they have not had any instructions as to what
21 (inaudible) and he was involved in the GOU and they
22 might get some correspondence by next week but they
23 haven't yet, but they have been in touch with them.
24 MR JUSTICE BURTON: They have been in touch with their
25 client?
55
1 THE SOLICITOR: Yes.
2 MR WOLFSON: My Lord, we will chivvy the Government as well
3 so far as we can. We are obviously not a party.
4 MR JUSTICE BURTON: Thank you very much. You are going to
5 tell me at some stage your constructive suggestion.
6 I don't know whether it is one you have discussed yet
7 with Mr Qureshi.
8 MR WOLFSON: No, it isn't yet but we thought we would put it
9 in a note so there is no ambiguity as to what we are
10 proposing. We hope it will be agreeable because it is
11 really trying to find a way forward and hold the fort.
12 I think it is being printed so I'm sorry it is running
13 a little bit late. That is the substantive Ugandan tax
14 point.
15 MR JUSTICE BURTON: Yes.
16 MR WOLFSON: Mr Atherton, before the short break we were
17 talking about Mauritius. In addition to many other
18 delights of Mauritius, I think we can agree that one of
19 the advantages of Mauritius is in fact it has no Capital
20 Gains Tax at all, is that right?
21 A. I believe it's similar to the Bahamas in that respect,
22 that depending on your business licence it can have no
23 Capital Gains Tax.
24 MR JUSTICE BURTON: The Bahamas doesn't have a double tax
25 treaty with Uganda.
56
1 A. I don't believe it does, my Lord.
2 MR JUSTICE BURTON: So if the double tax treaty operates and
3 Uganda has Capital Gains Tax but Mauritius doesn't, that
4 means that you don't have to pay Capital Gains Tax; is
5 that right?
6 A. My Lord, I'm not an expert in Ugandan tax, I am afraid.
7 MR JUSTICE BURTON: There we are, thank you.
8 MR WOLFSON: And I think you agreed, Mr Atherton, that one
9 of the purposes -- and I say one -- one of the purposes
10 of the move to Mauritius was to take advantage of the
11 fiscal rules applicable in Mauritius.
12 A. Correct, in terms of we went to Mauritius.
13 Q. Mr Atherton, could you look, please, at bundle E24/6503.
14 My Lord, it is now in the core. It is in core 3. It is
15 a document which is now noted as 984.020.004.
16 Just to show you what it is, Mr Atherton, while you
17 are turning it up, if you look at 6500, this is the tax
18 bill Tribunal ruling in Uganda. Do you have that, 6500?
19 A. Yes, I have.
20 Q. Good. You were a witness for Heritage in those
21 proceedings, weren't you?
22 A. That's correct.
23 Q. I think you were the only witness for Heritage in those
24 proceedings, as you are here, correct?
25 A. That is correct.
57
1 Q. And to be fair to you, the Tribunal found you to be
2 "composed" and said that your evidence was "reliable".
3 That is not a question. That is a compliment. The
4 question is: if you would look at 6503, the penultimate
5 paragraph, where you tell the TAT, who accept this
6 evidence:
7 "The change in registration was based on corporate
8 planning. It was not purposely done to take advantage
9 of the benefit Mauritius could offer in light of the
10 transaction with Tullow."
11 I am afraid what I have to put to you, Mr Atherton,
12 is that evidence which you gave to the TAT, and which
13 the TAT accepted because it found you to be a composed
14 witness, was in fact untrue?
15 A. This is I think the findings from the TAT? I have only
16 looked at one page just now.
17 Q. No, it isn't, Mr Atherton.
18 A. It is the ruling, sorry.
19 Q. Sorry, it is the ruling but here what we are doing is
20 they are repeating your evidence and, as I said, they
21 found you to be a reliable witness. If you just go
22 back, for example, let us turn the pages through. 6500
23 is the start. At 6501, they set out the issues and then
24 halfway down:
25 "The applicant called one witness, Mr Paul Richard
58
1 Atherton."
2 That is you, isn't it?
3 A. That's correct.
4 Q. And you gave your evidence by way of a video conference,
5 correct?
6 A. Yes.
7 Q. So there is no dispute that you were talking about it?
8 A. No, that's me.
9 Q. Then throughout the rest of that page and the next
10 page 6502 --
11 MR JUSTICE BURTON: We don't need to go back that far. The
12 paragraph in question says that: "Mr Atherton told the
13 Tribunal ..."
14 MR WOLFSON: Absolutely. The point I am making, my Lord, is
15 that it is in a whole section which is setting out your
16 evidence, and what you told the TAT was untrue, wasn't
17 it?
18 A. No, my Lord. What I told the TAT that it was in
19 connection with corporate planning and that there were
20 better time zones is what I told the TAT.
21 MR JUSTICE BURTON: That is also not what you told me. What
22 is being put to me is that this evidence, without
23 characterising adjectives, is different from what you
24 have told me today.
25 A. Based on the ruling I accept that, my Lord, but I did
59
1 not tell the TAT and I did not specifically say it was
2 not purposely done to take advantage of the benefits
3 Mauritius could offer. That's correct.
4 MR JUSTICE BURTON: So they have inaccurately recorded your
5 evidence.
6 A. That's correct, my Lord.
7 MR WOLFSON: Where were you when the video conference was
8 given?
9 A. I was in London.
10 Q. Was it recorded?
11 A. I don't know, my Lord. I don't know.
12 Q. To your knowledge, does Heritage have a recording of
13 your evidence?
14 A. I don't know, my Lord. No, I'm not aware of a recording
15 but I don't know. I'm not sure what facilities there
16 were. It was a video conference. Whether it was --
17 MR JUSTICE BURTON: There will probably be a transcript of
18 it, won't there?
19 A. I don't know, my Lord.
20 MR JUSTICE BURTON: So this statement is not what you said,
21 that is right? You did not say the change in
22 registration was based on corporate planning? You did
23 say that?
24 A. I did say that.
25 MR JUSTICE BURTON: You did not say:
60
1 "It was not purposely done to take advantage of the
2 benefit Mauritius could offer in light of the
3 transaction with Tullow."
4 You did not say that?
5 A. I didn't say it.
6 MR JUSTICE BURTON: Because it is a very important sentence,
7 isn't it, and they obviously thought you said that and
8 relied on it.
9 MR WOLFSON: You did say the rest of the previous bit of the
10 paragraph so you did say it was registered by
11 continuation?
12 A. That's correct.
13 Q. I'm not asking whether it is correct as a fact but you
14 did say it to the Tribunal. They have recorded your
15 evidence correctly in that first sentence?
16 A. Yes.
17 Q. Right, and the second sentence. You told them?
18 A. Yes.
19 Q. And the third sentence?
20 A. No.
21 Q. The third sentence is a change in registration?
22 MR JUSTICE BURTON: That is right, isn't it, the change in
23 registration?
24 A. Sorry, I read that as the second. Yes, that's correct.
25 MR JUSTICE BURTON: The first three sentences accurately
61
1 record what you said. The fourth sentence does not
2 accurately what you said. You did not say anything of
3 the kind.
4 A. Correct.
5 MR WOLFSON: I am not going to go through the whole thing
6 but let us just look at the next sentence.
7 You did testify that during the time the applicant
8 was in Uganda the respondents -- that is the URA -- had
9 never requested it to file any tax returns; you told
10 them that?
11 A. Yes, I presume that's the case.
12 Q. And the next sentence?
13 A. I presume so. We did not submit any tax returns. I
14 can't remember whether I said they were aware of it
15 because they had nothing on their record. I can't say.
16 Q. My Lord, I am not going to go through the whole of that
17 document.
18 MR JUSTICE BURTON: No.
19 MR WOLFSON: Mr Atherton, the parent.
20 MR JUSTICE BURTON: Was it on oath this statement to the Tax
21 Tribunal?
22 A. Pardon?
23 MR JUSTICE BURTON: Was it on oath the statement to the Tax
24 Tribunal?
25 A. I think it was, my Lord. I think it was but I can't
62
1 remember for sure.
2 MR WOLFSON: My Lord, I think that is actually recorded. If
3 your Lordship looks at 6501, Mr Mott reminds me, that it
4 does say right at the outset.
5 A. Yes, it does say oath.
6 MR WOLFSON: So it does look like you swore to tell the
7 truth: "Mr Atherton gave his testimony on oath." Bottom
8 on 6501, my Lord.
9 MR JUSTICE BURTON: Yes, "testimony on oath". Thank you.
10 MR WOLFSON: Then just so your Lordship has a reference:
11 "The witness was composed and the Tribunal finds his
12 evidence reliable".
13 MR JUSTICE BURTON: Yes, I have that.
14 MR WOLFSON: My Lord, I was going to move on to a slightly
15 different point. Mr Atherton, I think we can agree that
16 the parent of HOGL Heritage Oil Plc, that is not
17 domiciled in Mauritius, that is domiciled in Jersey,
18 that is right?
19 A. The ultimate parent company is Heritage Oil PL and it is
20 domiciled in Jersey, correct.
21 Q. And that is where Mr Buckingham lives as well?
22 A. Mr Buckingham lives in Jersey, correct.
23 Q. I think actually at one point the Daily Telegraph called
24 him the richest man in Jersey but I'm not going to put
25 that to you. The Daily Telegraph called Lord Sumption
63
1 the cleverest man in Britain but I don't know whether
2 that gives the paper any more probative value on any
3 other statement. All this is way above my pay grade.
4 Mr Atherton, can I just try and put this into some
5 sort of context. We are talking here of $400 million of
6 potential tax liability, aren't we?
7 A. The assessment was for $404 million, correct.
8 Q. Today's market cap of Heritage Oil Plc is about,
9 allowing for pound/dollar, about $700 million, is that
10 about right?
11 A. I would say closer to $800 million.
12 Q. My understanding is that it is £548 million. I am not
13 quite sure where the pound/dollar is at the moment.
14 Shall we say 750?
15 A. Actually I would probably say it is probably closer to
16 above 800, but between $750 million and $850 million,
17 my Lord .
18 Q. So in the context of Heritage the potential tax
19 liability of $400 million is a huge amount of money, is
20 it not?
21 A. $400 million is a considerable sum but it has been
22 reserved. It has been parked to one side with
23 a question mark subject to assessment and determination
24 of the dispute, so it is not a factor in our share
25 price.
64
1 Q. Mr Atherton, I am now going to turn to a different topic
2 which is your engagement with the Government with regard
3 to your potential tax liability. The first document
4 I would like you to look at is in bundle E4/927. This
5 is core 1/102. I am afraid it is not a great copy,
6 Mr Atherton. I hope you can read it.
7 Let us start from the top. It is from URA. It is
8 addressed to Heritage in Jersey care of Heritage in
9 Kampala.
10 "Taxes on disposal of licence in trusts in
11 exploration areas 1 and 3A. We refer to the sale and
12 purchase agreement (SPA) between Heritage Oil & Gas and
13 Tullow". It gives the date. "Tullow has exercised its
14 pre-emptive rights and purchase Heritage licence
15 interest". Refers to section 17.2 of the Income Tax
16 Act. Then says it gives rise to income sourced in
17 Uganda under 79G and 79S of the Income Tax Act and sets
18 out the taxes which applied.
19 Where you get to, the nub of it is on the second
20 page: they are asking you to pay $404,925,000 in tax,
21 yes?
22 A. That's correct.
23 Q. And the assessment is on the next page at 99. Your
24 response to this demand and this assessment at this
25 stage was to say that no tax was due because the
65
1 transaction had not completed. That is correct, isn't
2 it? And the assessments were premature, correct?
3 A. One of my colleagues replied, my Lord, in a matter of
4 days after that saying this is totally premature. We
5 haven't sold anything. It is subject to consent. If
6 there is to be tax it will be taxed at a later date --
7 in fact.
8 Q. It is 940?
9 A. Correct.
10 MR JUSTICE BURTON: So you agree with that?
11 A. No, we didn't. We said it was premature and it should
12 be --
13 MR JUSTICE BURTON: No, but you agree with Mr Wolfson. I am
14 only trying to save time, that's all.
15 A. Okay.
16 MR JUSTICE BURTON: All you needed to say was "yes", yes?
17 MR WOLFSON: I hope I am right in this question as well and
18 we can agree, that what this letter doesn't say, the
19 letter we are now looking at at 940, 108 in the core, is
20 something on the lines of: look, in any event, no tax is
21 ever going to be payable on this transaction because
22 none of the $1.35 billion we have made is Ugandan
23 sourced income. The letter doesn't make that point,
24 does it?
25 A. At this stage it just says it was premature.
66
1 Q. It also doesn't say to the URA, "Look, chaps, we have
2 just re-domiciled to the Mauritius so you had better
3 look at the Mauritius/Ugandan double taxation treaty
4 before you serve any more assessments", it doesn't take
5 that point either, does it?
6 A. That's correct, and I said earlier on the transcript
7 that we didn't tell the Ugandan Government.
8 Q. And so --
9 A. And with hindsight I would have told them or we would
10 have told them earlier.
11 Q. Sorry, I interrupted.
12 MR JUSTICE BURTON: Counsel is suggesting that this was an
13 opportunity to tell them.
14 A. Which we did not.
15 MR WOLFSON: Because what I am putting to you, Mr Atherton,
16 is that the internal Heritage position at this stage
17 was: let's get consent from the Government for the
18 farmdown, let the transaction complete, we are going to
19 leave the country and the URS can try to find us if they
20 can. That was Heritage's position, wasn't it?
21 A. Absolutely not, my Lord.
22 Q. Let us look at page 1000 in the same volume, core 115.
23 I am afraid it is another poor copy, Mr Atherton. This
24 is the URA's response to your letter, the date is
25 22 April. You receive it on the 23rd and on page 1001
67
1 the URA says:
2 "On the basis of the above information, we without
3 prejudice withdraw the assessment attached to our letter
4 [that is the one we have just seen] pending assignment
5 approval by the Minister of Energy. We take this
6 opportunity to notify you of the fact that tax will be
7 due and payable on approval of the transaction by The
8 Ministry of Energy and Mineral Development."
9 So it was clear to you, was it not, that as and when
10 the Government did provide its consent the URA is going
11 to serve another identical assessment, correct?
12 A. It was clear that the URA was looking to assess the
13 taxation on the transaction, that's correct.
14 Q. Mr Atherton, I am sorry to be a bore but that really
15 wasn't the question I put. I asked you:
16 "It was clear to you, was it not, that as and when
17 the Government did provide its consent the URA is going
18 to serve another identical assessment, correct?"
19 A. Whether it would be identical I don't know, my Lord, but
20 it was clear that they were looking to issue an
21 assessment, correct; that's what I said.
22 Q. The price wasn't going to change, was it, Mr Atherton?
23 A. We hadn't had -- at this time we hadn't had any
24 discussions with Government in terms of --
25 Q. The price you were getting for selling the assets,
68
1 Mr Atherton, wasn't going to change, was it?
2 A. There was some contingent consideration so it was
3 possible of course.
4 Q. Are you talking about the 150?
5 A. That's correct, or it could be zero, it could be between
6 zero and $150 million.
7 Q. Putting that to one side. The price Tullow was paying
8 was the price you had agreed with the URA, yes?
9 A. And with Tullow, correct.
10 Q. Could you now turn to page 999. It is 118.001 in the
11 core. You have to turn the bundle round perhaps. It is
12 an email from Mr Martin, you are aware of who he is, to
13 Mr Brant who we have seen at McCarthy Tetrault, copied
14 to Mr Sloan and yourself, subject Uganda. If you just
15 read it to yourself.
16 You see:
17 "I understand Aidan [that is Mr Heavey] CEO of
18 Tullow was speaking to Tony [that is Mr Anthony
19 Buckingham, is it not?] that Heritage have yet to fully
20 engage with the URA on the tax issue."
21 That was an accurate statement, was it not?
22 A. We had engaged with Government. We hadn't engaged -- we
23 had engaged with the URA through the letter
24 correspondence. We hadn't engaged in person.
25 Q. Can you turn, please, to page 968, core 111. If you
69
1 just read that email to yourself. Mr Brant first, the
2 bottom email. (Pause)
3 So Mr Martin has passed on the details of a meeting
4 he had had on Friday with the Government. He is saying
5 that Heritage tax issues don't need to be resolved fully
6 before completion but you have to engage with the
7 Government. Sorry, that is Mr Brant. Mr Martin is
8 replying, clarifying that he doesn't think Heritage will
9 get an easy ride and that "Heritage will need to be
10 conciliatory and constructive". I am now looking, you
11 see, at the top email. Mr Martin says:
12 "Thanks Rob, your note has captured our conversation
13 well. Now reading it starkly...(Reading to the
14 words)... from GOU on the tax issue. I don't think that
15 will be the case. Who can tell what might happen after
16 serious engagement between Heritage and the tax
17 authorities."
18 Just pausing there. I think it is fair to say that
19 there hadn't been serious engagement by this stage, had
20 there?
21 A. Yes, there had, my Lord.
22 MR JUSTICE BURTON: I don't understand. When you say "there
23 had been", what's the serious engagement which you say
24 there had been?
25 A. This was with Government and it the meeting that
70
1 Graham's referring to here which took place on Friday,
2 16 April.
3 MR JUSTICE BURTON: What was the serious engagement?
4 A. Which was a meeting where Heritage and Tullow was
5 requested by Government to meet, which we did, and we
6 were represented by our country manager, Brian Westwood,
7 and by one of our local lawyers, independent lawyers
8 from a company called K&K based in Kampala. We didn't
9 have time to send anyone else because the invite had
10 only come the afternoon before on the 15th and there the
11 engagement was, there were three things required in
12 order to complete this transaction. And those three
13 things, from memory, were: they were looking to split
14 the $1.35 billion consideration between the licences,
15 which we didn't understand why but that was provided in
16 due course. There was a question mark over the time --
17 at the time there was an error in one of the or the
18 production sharing contracts saying that Heritage was
19 Isle of Man registered which was a pure typographic
20 error and had been rectified in a following addendum
21 many years later, or a couple of years later sorry, many
22 years before is what I meant to say. And then there
23 were some reporting deficiencies in terms of what we
24 should be reporting to Government on either a monthly or
25 a quarterly basis which had never been flagged before.
71
1 Those were the three things which were required in order
2 to move the transaction forward.
3 There was then a discussion on taxation with URA but
4 that was not linked to the consent with Government.
5 MR WOLFSON: So that meeting was a serious engagement which
6 you are saying you had with the Government; is that
7 right?
8 A. That is a request for a meeting which both Heritage and
9 Tullow attended on that Friday.
10 Q. I think it is fair to say that Mr Martin certainly
11 doesn't regard that as having been a serious engagement,
12 from looking at his email. That is plainly his view.
13 You would disagree?
14 A. I believe the invitation to the meeting was from the
15 Permanent Secretary, Fred Kaliisa, requesting that both
16 Heritage and Tullow turn up. I believe the meeting was
17 such there were two parts to the meeting.
18 Q. I am sorry to interrupt but is this an answer to the
19 question I have asked?
20 A. It is if you let me finish. In that there were two
21 parts to the meeting. The first was which Heritage was
22 invited to with Tullow which was in connection with the
23 Heritage disposal to Tullow, and then I believe the
24 second part, which we did not attend, was then looking
25 at the Tullow farmdown to Total and CNOOC. So I believe
72
1 it was an important meeting.
2 Q. Where is it mentioned in your witness statement?
3 A. I didn't refer to it in my witness statement.
4 Q. Sorry, I didn't get that.
5 A. I haven't. I do not refer to the meeting on the 16th in
6 my witness statement.
7 Q. I see, but this is the important meeting with your
8 serious engagement with the Government?
9 A. No, the most important meeting and the serious
10 engagement was later which was with the URA. This was
11 in answer to a question which was: did we engage with
12 Government and I said yes, we did. The most important
13 meeting --
14 Q. No, that wasn't the question, Mr Atherton. The question
15 was whether there was serious engagement with the
16 Government. Your position, as I understand it --
17 I think we have your evidence -- is that there was
18 a serious engagement, the meeting of 16 April. You have
19 given your evidence as to what took place. I have put
20 to you it is not in your witness statement and you have
21 agreed; is that correct?
22 A. I do not refer to a meeting of the 16th in my witness
23 statement, that's correct.
24 MR JUSTICE BURTON: Mr Brant is referring to that meeting.
25 A. Yes, which Mr Brant --
73
1 MR JUSTICE BURTON: In the email.
2 A. -- didn't attend. As I say, we have local
3 representation in Uganda from a company called K&K.
4 MR JUSTICE BURTON: Mr Brant refers to it and Mr Martin
5 characterises it as not yet serious engagement, but you
6 say it did constitute serious engagement.
7 A. With Government we hadn't engaged seriously in person
8 with the URA. We had engaged with Government.
9 MR WOLFSON: So you are drawing a distinction, as
10 I understand it, based on Mr Martin's reference to tax
11 authority. This is the point you are making?
12 A. The tax authority is the URA but in the meeting with
13 Government, as I said there were four issues raised,
14 discussed and three were specifically linked to the
15 consent of the transaction and taxation was not.
16 MR JUSTICE BURTON: So then you don't disagree with
17 Mr Martin's characterisation that there hadn't yet been
18 serious engagement between you and the tax authority?
19 A. That's correct. There had been the written
20 correspondence, having received the assessment earlier
21 in April which we had replied to.
22 MR JUSTICE BURTON: And you'd rejected it for the reasons we
23 have seen?
24 A. Correct.
25 MR WOLFSON: Mr Martin goes on to say:
74
1 "We sense that if that discussion is approached
2 [that is the discussion between the Heritage and the tax
3 authorities] in a conciliatory and constructive manner
4 then a way through the consent issue may be found."
5 Heritage did not in fact adopt a conciliatory and
6 constructive approach, did it?
7 A. The meeting minute that we have from our local lawyer --
8 Q. I am not talking about the lawyer. We are at
9 cross-purposes, Mr Atherton. Mr Martin is looking to
10 the future and he is saying that when you engage with
11 the tax authorities, which you accept you haven't yet
12 done, in any meaningful way, you should adopt
13 a conciliatory and constructive manner. And what I am
14 putting to you is that when Heritage did come to engage
15 so far as it did with the tax authorities you did not
16 approach that engagement in a conciliatory and
17 constructive manner; is that correct or not?
18 A. No, it is not correct. We had a series of meetings with
19 them.
20 Q. What I am putting to you, so we are absolutely clear, is
21 that in a strategy -- no doubt driven by Mr Buckingham
22 who is renowned for many things but being conciliatory
23 is not one of them -- you played and absolutely hard
24 ball tactical game with the URA?
25 A. That is not the case at all. The meeting -- from that
75
1 same meeting that Graham's referring to in his email is
2 that there's three key areas which we have to resolve.
3 Q. I'm not talking about that meeting.
4 MR JUSTICE BURTON: Don't let us go back on that. That
5 wasn't the meeting with the tax authorities. That was,
6 as you yourself have pointed out, a preliminary meeting
7 with the Government. You hadn't engaged with the tax
8 authorities by then except sending them the letter, and
9 it is now being put to you that after this you didn't
10 engage with the tax authorities in a conciliatory and
11 constructive manner.
12 A. And I said we did.
13 MR JUSTICE BURTON: We will come to it. All I'm pointing
14 out is that it is no help to me going back on this
15 meeting which wasn't an engagement with the tax
16 authorities.
17 MR WOLFSON: Mr Atherton, if you could look, please, at
18 page 1005 in E4. I am afraid, my Lord, this is not in
19 the core. You will see this is a letter from
20 Mr Kabagambe-Kaliisa -- the person we have heard of as
21 Fred, without being disrespectful -- to Heritage and he
22 has clarifying the status as to which Heritage company
23 is signatory to the PSA and holds the licence and which
24 entity has contracted with Tullow, and he wants to
25 separate out the consideration on the two blocks.
76
1 You will see that on the penultimate paragraph on
2 the first page he says:
3 "I wish to encourage and advise Heritage to engage
4 in detailed discussions with the tax authorities in
5 order to ease the approval process."
6 I think we are agreeing so far there hadn't been
7 those detailed discussions with the tax authorities,
8 correct?
9 A. That's correct, they took place in May, my Lord. This
10 was April.
11 Q. If we turn forward to page 1047 you will see, I hope, an
12 email from the same gentleman to Heritage, chasing up
13 his request. A couple of weeks have gone by. He hasn't
14 had an answer. So it was the case that Heritage had
15 ignored that letter which I have just shown you; you
16 hadn't answered it, had you?
17 A. The letter, if I remember, if you can give me the
18 reference again, it was 26 April?
19 Q. Yes.
20 A. And then this is a follow-up on May 2 so I don't think
21 it is a couple of weeks, my Lord. We replied on 5 May.
22 The reason we didn't reply earlier was we were in
23 correspondence, I believe, from memory, with Tullow
24 because we couldn't understand why they wanted to split
25 the consideration between the two blocks and so we felt
77
1 obligated, which we did, to go back to Tullow and say:
2 is there any reason, any concerns, any thoughts why they
3 require this information? And in terms of the written
4 consideration how is it best determined and have you got
5 any advice.
6 Q. I don't think it is controversial, Mr Atherton. All
7 I am trying to get really is a chronology. You hadn't
8 gone back, for example, to the Government, to Fred and
9 said, "We just need to talk to Tullow. We need to sort
10 a few things out. We'll get back to you." You hadn't
11 gone back at all but you did reply on 5 May; is that
12 correct?
13 A. I know we replied in writing on 5 May. Whether there
14 was anything on the telephone I don't know.
15 Q. Can we have a look at 1051. This is also not in the
16 core, my Lord. You wouldn't have seen this email at the
17 time, Mr Atherton because this is an internal Tullow
18 email. It reports a conversation between Mr Demetriou
19 of Tullow and Mr Westwood of Heritage. I think you said
20 earlier Mr Westwood, was he the man on the ground in
21 Uganda, if I can put it in those terms?
22 A. He was the country manager.
23 Q. If you have a look at the first sentence, verbatim
24 extract:
25 "Tony will never agree to the 400 million Capital
78
1 Gains Tax but would consider a significant reduction as
2 the only basis for negotiation once you have paid us of
3 course. If necessary Heritage would much rather wait
4 until contract or when we have exhausted the stipulated
5 contractual timeframe, cancel all existing contracts,
6 drill the ten wells and watch the share price and
7 reserves go up, after all we know there's shedloads of
8 oil there."
9 What we get from that is two things, is it not:
10 First of all, Mr Buckingham had no intention of paying
11 $400 million in tax, correct?
12 A. That's not correct at all. That is not correct. As we
13 demonstrated we put $404 million reserved to one side
14 where can it be disputed, where it can be resolved.
15 MR JUSTICE BURTON: Where did you put the 404?
16 A. We deposited $121 million in Kampala and we have
17 $283 million in an escrow in London. That is $404
18 million.
19 MR JUSTICE BURTON: This is May 4 2010.
20 A. We hadn't done it on May 4th. I accept that.
21 MR WOLFSON: So where Mr O'Hanlon is reporting
22 a conversation between Mr Demetriou and Mr Westwood
23 where Mr Westwood has plainly said, and it is put in
24 quotes, "Tony will never agree to 400 million Capital
25 Gains Tax in May" Mr Westwood has it wrong; is that
79
1 right.
2 A. We had legal advice. We had legal advice that there is
3 no tax payable in Uganda.
4 Q. The second point we get from this document is that
5 Mr Buckingham's position is that he is only going to
6 negotiate on the tax after he has received the full SPA
7 consideration from Tullow, correct?
8 A. My -- as I said earlier, we saw this as two issues. One
9 was the completion and consent and the other was
10 a taxation issue. We had always seen them as two
11 issues, and in terms of the assessment we received
12 in June clearly it was premature. You have to complete
13 the transaction in order then to determine whether it is
14 taxable.
15 Q. In the real world once Tullow has paid Heritage the
16 consideration under the SPA Heritage will have disposed
17 of its Ugandan assets, would have left the country and
18 effectively the URA wouldn't be able to collect its tax.
19 That is the strategy, isn't it, Mr Atherton?
20 A. I think if we look at the real world we have
21 $121 million in Kampala. We have an escrow. We have
22 maintained people in country. We've got relationships
23 in country. We have people, with this Patrick in
24 Kampala, and we have continued to provide transitional
25 services to Tullow in the last more than two years.
80
1 That's the reality.
2 Q. As I understand the position put forward in this email
3 the proposition is, Heritage's position is: that we'll
4 negotiate about the tax, and for these purposes I accept
5 your position for the purposes of this argument, the
6 argument you are putting to me that Heritage is not in
7 fact liable to tax, but the position that is being put
8 forward is that the transaction should complete, the
9 money should be paid and then we'll have a discussion
10 with the Government or the URA about the tax
11 consequences; is that right? Do I have that right now?
12 A. We were of the opinion that we'd split the two and that
13 it would be taxable. The question of taxation would be
14 after the event.
15 Q. After what event?
16 A. Of the completion.
17 Q. Money is paid on completion, isn't it?
18 A. Correct.
19 Q. So you have completion, Tullow pay up and then you have
20 the negotiation about the tax, correct?
21 A. Based on what's in this email but this is two people in
22 Kampala. The reality is we met with URA in May, later
23 in this month.
24 Q. Was this a strategy which you agreed with that the
25 transaction should complete, Tullow should pay and then
81
1 you would negotiate about the tax?
2 A. We were considering a number of things at this stage.
3 We felt that and if tax was payable it would be
4 post-completion but clearly, as demonstrated by the
5 series of meetings we had later that month and into June
6 we engaged with the URA prior to completion, but we saw
7 them as two events.
8 Q. It was plain to you, wasn't it, that from the
9 Government's perspective who had to give consent to the
10 deal, didn't they, I think we can agree on that?
11 A. Yes.
12 Q. It was plain to you that the Government was going to
13 make its consent conditional on payment of tax, wasn't
14 it?
15 A. No, it was clear that taxation had been -- we had
16 received an assessment and they were going to assess the
17 completion monies but I wouldn't say it was clear they
18 were linked in any way. We just had the meeting with
19 the Government on the 16th where it clearly was not
20 linked.
21 Q. So let us see if I have understood. Your evidence is
22 that there were two issues. From the Government's
23 perspective then there were two issues: There's
24 completion of the deal and there is payment of tax, and
25 your understanding was that the Government's position
82
1 was not that the payment of tax was a pre-condition to
2 its consent to the deal?
3 A. Correct.
4 Q. Can you look at paragraph 116 of your witness statement,
5 please. We are in April 2010, so that is before the
6 emails I am showing you. You say this, it is only a one
7 sentence paragraph:
8 "It was plain to HOGL..."
9 And as you say at the beginning of your witness
10 statement you are the only person with knowledge of all
11 the companies as to what's going on so when it says HOGL
12 it must mean you, musn't it?
13 A. Mmm.
14 Q. "... that the Government fully intended to make payment
15 of tax a precondition to granting its consent to the
16 transaction."
17 Why are you giving evidence now which is just flatly
18 contradictory to what you have said in your statement?
19 A. I said at the time I would say that was in May 2010 it
20 became apparent is what I would say which is why we
21 engaged with URA in May 2010 at this stage.
22 Q. It is not in your witness statement in May, is it? It
23 is under the April heading?
24 A. I may be out by a couple of days.
25 Q. Mr Atherton, you are making it up as you go along.
83
1 A. I object to that statement. It's incorrect.
2 Q. Can you turn, please, to bundle E4/1053. There is no
3 core, my Lord. I am sorry, Mr Atherton, this is another
4 one of our very small typed documents. I think you
5 might need a magnifying glass. I'm not casting any
6 aspersions, but if you would like one.
7 Can you just help me with this, Mr Atherton, this is
8 a note from Laura Hughes of Tullow -- bottom of the
9 page -- who is a senior commercial adviser to Tullow's
10 Ugandan operating company. She is reporting on
11 a meeting she has had with Patrick. I think that's
12 Patrick with the unpronounceable surname, your finance
13 manager. If you read the first sentence he has told her
14 that under the sale agreement with ENI it was agreed
15 that there would be no CGT. Let me direct you to the
16 relevant bit:
17 She says:
18 "Some feedback with the meeting with the Patrick.
19 Under the agreements with ENI it was agreed that there
20 would be no CGT. Therefore this is a new issue for
21 Tullow transaction which materially impacts on the
22 transaction. Did not know with whom that arrangement
23 had been made. Heritage are considering their position
24 and arguments in relation to CGT with their lawyers and
25 not yet sure how they'll respond but Patrick would not
84
1 share with me their arguments."
2 Who in the Government had reached the agreement with
3 the Government that there would be no CGT on the sale
4 agreement assuming it went through with ENI?
5 A. It was our understanding, our discussion with ENI that
6 they were going to get significant tax breaks. Hence
7 the linking to the consideration, the contingent
8 consideration to tax breaks. They are set out in the
9 sale and purchase agreement and there was an
10 understanding, we felt, that there would not be any
11 taxation.
12 MR JUSTICE BURTON: You got this from ENI not from the
13 Government?
14 A. That's correct.
15 MR WOLFSON: Just so I understand. Do the contingent tax
16 breaks go to the taxation Heritage would have to pay or
17 the consideration Heritage receives under the deal? Is
18 this the 150 million point?
19 A. The 150 million is linked on tax breaks that ENI would
20 receive. It is not linked to a tax break.
21 Q. So if ENI received those particular tax breaks, it would
22 have to make the additional payment to Heritage but if
23 it didn't receive the tax breaks, it wouldn't have to
24 make that additional payment. I am simplifying; that is
25 right?
85
1 A. Correct, there was a sliding scale of however many
2 years.
3 Q. But that is only on the 150 million, isn't it? So from
4 Heritage's perspective, all that would mean is that you
5 wouldn't have to pay CGT on that amount because you
6 wouldn't have received it from ENI, correct?
7 A. No, the contingent consideration was based on a sliding
8 scale of them getting significant tax breaks. It was
9 not specific to them.
10 MR JUSTICE BURTON: That is what is being put to you.
11 A. That is not correct.
12 MR JUSTICE BURTON: It doesn't impact upon the basic
13 consideration.
14 A. No, but it was our understanding from ENI that that
15 would not be the case.
16 MR JUSTICE BURTON: Sorry?
17 A. It was our understanding that there would not be any CGT
18 on the transaction.
19 MR JUSTICE BURTON: But you didn't get that from ENI and you
20 didn't get that from the Government.
21 A. No, from the discussions with ENI it was our
22 understanding, not with Government, but with ENI that
23 there wouldn't be any tax. For them they would have
24 a non-taxable and then it wouldn't be taxed. Whether
25 that is correct or wrong or incorrect I can't say.
86
1 MR JUSTICE BURTON: It says here it was agreed that there
2 would be no --
3 A. I would say Patrick is our finance manager in Kampala.
4 He was not involved in any of the ENI discussions and so
5 I don't know what was in his precise mind set at this
6 point of time.
7 MR JUSTICE BURTON: He was wrong.
8 A. He was never briefed to -- I don't know who Laura Hughes
9 is to be honest. He was never an integral part of the
10 negotiations either with ENI or the sales process with
11 Tullow.
12 MR WOLFSON: I'm not a tax lawyer, Mr Atherton, as you have
13 probably worked out by now. So can I just get this
14 straight. Heritage is receiving consideration from the
15 deal from whoever the purchaser is, whether it is ENI or
16 Tullow, correct?
17 A. Correct.
18 Q. There is a base consideration of, let us use round
19 numbers $1.35 billion and there is an extra possible
20 consideration of $150 million, correct?
21 A. Correct.
22 Q. And Heritage will or will not receive that $150 million
23 depending on whether ENI get or don't get the tax breaks
24 on this with this sliding scale being in operation,
25 correct?
87
1 A. There was another mechanism as well for the contingent
2 consideration but that was one of the mechanisms, yes.
3 Q. So far as the $1.35 billion is concerned Heritage are
4 going to get that come what may, correct?
5 A. Pardon, can you repeat?
6 Q. Heritage are going to get that come what may, correct?
7 That doesn't depend on any tax breaks ENI get, whether
8 you get the 1.35 billion?
9 A. That's correct.
10 Q. And you are going to get that regardless of whether your
11 purchaser is ENI or Tullow?
12 A. That's correct.
13 Q. What I am struggling with is how Mr Westwood has plainly
14 come to the position that if the transaction goes
15 through with ENI rather than Tullow your understanding
16 was that you wouldn't have to pay CGT at all even on the
17 1.35?
18 A. 2.2, it was Patrick.
19 Q. Sorry, you are right.
20 A. Who, as I said, wasn't intrinsically linked.
21 MR JUSTICE BURTON: Is he just wrong about this?
22 A. I think -- is what he is saying here.
23 MR JUSTICE BURTON: So there wasn't any agreement with the
24 Government, there wasn't any agreement or discussion
25 with ENI about whether CGT would be payable on the 1.35.
88
1 A. Correct, he's wrong. As I said, I don't know what was
2 in his mind-set at the time.
3 MR JUSTICE BURTON: So he's wrong, but there wasn't any.
4 A. Correct.
5 MR JUSTICE BURTON: Thank you.
6 MR WOLFSON: Can we turn to page 1166, please, Mr Atherton.
7 Again, this is not in the core bundle.
8 MR JUSTICE BURTON: I am sorry, I just want to go back to
9 what you said:
10 "It was our understanding [you said] from ENI
11 that" --
12 The question, my question was:
13 "It doesn't impact upon the basic consideration?
14 "Answer: No, but it was our understanding from ENI
15 that that would not be the case. It was our
16 understanding there would not be any CGT on the
17 transaction. And it was from the discussions with ENI."
18 I think you have now said that's not the case. That may
19 be what Patrick thought but in fact he was wrong.
20 A. He was wrong. And from my side there was an
21 understanding, there was one discussion with ENI where
22 we felt that there would be no CGT for us and no --
23 I know they are two subjects which are not linked -- and
24 no taxation that would have a significant tax holiday.
25 But later on -- there's no agreement, there really was
89
1 no agreement.
2 MR JUSTICE BURTON: Not an agreement but I don't know where
3 you are getting this from. You are saying that you
4 personally had a discussion with ENI?
5 A. Correct, yes.
6 MR JUSTICE BURTON: Which led you to believe not only that
7 the additional 150 would be affected if they got some
8 tax breaks but on some basis or other there would be no
9 CGT on the 1.35.
10 A. No taxation for us as well. That was based on one
11 conversation.
12 MR JUSTICE BURTON: When was this?
13 A. This was during the autumn of 2009.
14 MR JUSTICE BURTON: So Patrick wasn't wrong?
15 A. But Patrick would never have been briefed. Patrick
16 hadn't worked for us at that stage.
17 MR JUSTICE BURTON: So it is a coincidence?
18 A. It is.
19 MR JUSTICE BURTON: Because Patrick is under this mistaken
20 belief --
21 A. Correct.
22 MR JUSTICE BURTON: -- that there nevertheless was some
23 discussion or other between you?
24 A. Yes.
25 MR JUSTICE BURTON: And someone from ENI?
90
1 A. Correct.
2 MR JUSTICE BURTON: Who?
3 A. One of the team -- they had a large, a significant
4 number -- from their London office. I can't remember
5 specifically. I really don't remember.
6 MR WOLFSON: Is this linked to what you were telling my
7 Lord earlier this morning? I was asking you about the
8 involvement of Tullow and you made a point about the
9 assessment notice would have been a different date but
10 you also made another point that you were saying so to
11 speak: it was because the sale went through to Tullow
12 and not to ENI that the Ugandan Government levied CGT
13 because our understanding was that if it had gone
14 through to ENI, we wouldn't have been levied with a CGT
15 assessment even on the 1.35. That is the same point as
16 we are on now.
17 MR JUSTICE BURTON: I think he has gone back on that and his
18 eventual answer was that it is all hypothetical.
19 A. Quite.
20 MR WOLFSON: You must have been flabbergasted, Mr Atherton.
21 How do you begin to understand a statement put to you by
22 ENI on the lines of, "Well, if the deal goes through
23 with us, you, Heritage, won't have to pay CGT on the
24 1.35"?
25 A. No, we have legal advice. There is no --
91
1 Q. In which case you wouldn't have to pay it whoever the
2 purchase was with. You are making the point that your
3 understanding was that if it went through with ENI,
4 there was some additional upside for you.
5 A. I think the transaction -- first of all, we have always
6 disputed this tax. We are going through the same
7 process point, and I think in terms of ENI, if we were
8 to look at the sale and purchase agreement, which was
9 identical with Tullow, that there was a possibility that
10 the 150, we would receive the $150 million.
11 Q. I am not talking about the 150 million, as you very well
12 know, Mr Atherton.
13 A. No.
14 Q. Heritage was quite annoyed, wasn't it, that Tullow
15 exercised its pre-emption rights?
16 A. Tullow had pre-emption rights, of course, we understood
17 that.
18 Q. That wasn't the question. Heritage was quite annoyed,
19 wasn't it, that Tullow had exercised its pre-emption
20 rights, correct?
21 A. Up to the time of pre-emption, which was 17 January, we
22 felt ENI had done a lot of work, had been received very
23 favourably by the Government and within the SPA, the
24 sale and purchase agreement, there was -- the deferred
25 consideration, the contingent consideration was linked
92
1 to a number of factors on tax, both upstream and
2 downstream, including the building of a refinery.
3 Tullow pre-empted, they had the right to pre-empt. We
4 felt that if Tullow pre-empted, that meant that the
5 transaction in terms of consent would take longer
6 because the Government had already made it very clear
7 that they did not want a monopoly, ie one company owning
8 all three licences in the Albert Basin and therefore
9 Tullow clearly would have to -- which they were running
10 a process but they would have to farm down to some other
11 larger companies. So we felt that would take time and
12 also Tullow had made it known, it was public knowledge,
13 that they didn't want to build a refinery, and so it
14 would mean that certain of the tax breaks clearly would
15 not be coming to Tullow.
16 We were also aware of Tullow having made promises to
17 Government before, which they had reneged on, and
18 therefore there would be potential concerns and delays
19 to the transaction.
20 Q. Are you going to address my question at some point?
21 A. If you can repeat your question?
22 MR JUSTICE BURTON: I think the answer is "yes", isn't it?
23 MR WOLFSON: Is it? I wasn't quite sure.
24 MR JUSTICE BURTON: You were angry that Tullow was going to
25 take over the pre-emption rights?
93
1 A. They had the right to. They had pre-emption rights. It
2 was in our documentation. We knew that.
3 MR JUSTICE BURTON: Sorry, not angry, quite annoyed?
4 MR WOLFSON: "Quite annoyed", I think I said.
5 A. I think legally they had the right to do it.
6 MR JUSTICE BURTON: You have said that several times.
7 A. They had the choice.
8 MR JUSTICE BURTON: What is the answer to the question:
9 Heritage was quite annoyed that it was Tullow rather
10 than ENI who were going to take over the deal?
11 A. At the time we would have preferred ENI to provide the
12 interests than Tullow for commercial reasons.
13 MR WOLFSON: And that has nothing to do with your apparent
14 understanding, at least at one stage, that if ENI were
15 the purchaser and Tullow were not, then as a result of
16 some mechanism which I don't quite understand, Heritage
17 wouldn't have to pay Capital Gains Tax even on the 1.35?
18 That wasn't part of your thinking at all, was it?
19 A. We had an internal view at that time, with advice, was
20 there is no taxation on this agreement anyway.
21 MR JUSTICE BURTON: Whoever, whoever it was?
22 A. Yes, it made no difference.
23 MR JUSTICE BURTON: Whether it was ENI or Tullow, right.
24 Thank you. Is that right? You nodded.
25 A. Correct, yes.
94
1 MR WOLFSON: Mr Atherton, if you could look at page 1166.
2 It is not in the core bundle, my Lord.
3 A. Is that E5?
4 Q. Yes, it is E5. Sorry, I should have said we were going
5 to a different bundle. E5. You will see at the bottom
6 of the page, Mr Atherton, a Bloomberg report which is
7 set out:
8 "The URA is demanding $404 million from Heritage Oil
9 as income tax and Capital Gains Tax. Heritage Oil is
10 selling block."
11 And you will see at the top of the page Mr Inch's
12 reply. You know Mr Inch is a tax chap at Tullow. He
13 refers to a trading statement put out by Heritage. You
14 see in the second line of his email:
15 "Trading statement today by Heritage says they are
16 expecting 1 billion net cash after special dividend (see
17 below). This is consistent with the December comment
18 and doesn't suggest any current intention to pay
19 a significant amount of tax."
20 Now, the December comments are where you were saying
21 "We are not paying any tax at all", and it is correct,
22 isn't it, that you told your shareholders
23 in December 2009 that you didn't intend to pay any
24 significant amount of tax and you are now repeating that
25 statement in May 2010, correct?
95
1 A. Correct.
2 Q. Despite the fact -- you are repeating it despite the
3 fact that in the interim the Ugandan Government has
4 stated publicly that Heritage will be assessed to tax,
5 correct?
6 A. I don't -- they have stated in the press, correct.
7 Q. And despite the fact that by this stage the URA has
8 actually served an assessment on Heritage, correct?
9 A. Which has been withdrawn.
10 Q. Fair enough. But they have served an assessment,
11 correct?
12 MR JUSTICE BURTON: Withdrawn on the basis that you told
13 them it was premature.
14 A. Correct.
15 MR WOLFSON: And also withdrawn on the basis that they told
16 you that as soon as the deal goes through you are going
17 to get another one, we agreed on that, yes?
18 A. We agreed that there would be another assessment.
19 Q. And despite the fact, I think we also agreed, that by
20 this stage you hadn't engaged with the URA to get any
21 comfort that it would be able to negotiate a lower
22 figure than the 404 million sought by the Revenue
23 authority, correct?
24 A. Correct. This was based on the independent advice we
25 had taken that there was no taxation on the transaction.
96
1 That is how we made the statement back in December and
2 how we reiterated it in May.
3 Q. To your shareholders? These statements, just to be
4 clear, these statements are made to your shareholders?
5 Well, the trade trading statement is made to the market?
6 A. The trading statement, yes. This is a Bloomberg.
7 Q. If you could turn to 1174, please -- it is not in the
8 core, my Lord -- summarised as a meeting, you will see
9 with Mr Kabagambe-Kaliisa, Fred. It says there will be
10 a full meeting at 9 am on the following day, the 20 May.
11 If you just look at the second bullet point, it says
12 there that:
13 "A letter will be addressed to Heritage and copied
14 to Tullow approving the Heritage sale to Tullow, based
15 on (or other such wording less than conditional) the CGT
16 issue being resolved and it will state an actual dollar
17 amount."
18 And you will see that further down the page after
19 those bullets, Fred says:
20 "It will be for the full amount [that is the 404]
21 and if Heritage has a problem with it they can go
22 through the tax appeals procedure like anybody else. He
23 did say that these letters should be sent out tomorrow
24 but it may be only Friday by the time they are ready."
25 You will see if you look at the last substantive
97
1 paragraph that, so far as certainly Fred is concerned,
2 he doesn't see the tax issue as a negotiation.
3 MR JUSTICE BURTON: Where's that?
4 MR WOLFSON: It is the first line of the last substantive
5 paragraph:
6 "Whilst surely Fred ..."
7 MR JUSTICE BURTON: Yes, thank you.
8 MR WOLFSON: The position of the Ugandan Government, is it
9 not, is that Heritage is a taxpayer like anybody else,
10 it will be served assessments like anybody else and if
11 it wants to object to them it has the appeals process
12 like any other taxpayer, correct?
13 A. Correct.
14 Q. There is no sense here that Heritage is being treated by
15 the Ugandan Government differently than any other
16 taxpayer, is there?
17 A. No.
18 Q. And so far as I understand your position, there may not
19 be an issue here between us, you are not complaining
20 that so far as the Ugandan Government is concerned, that
21 they have treated you differently to anybody else and
22 sort of picked on you in some way?
23 A. The only thing I would say is we always believed
24 consent -- or prior to we had perceived consent and
25 taxation were two issues and consent to the transaction
98
1 and then we pay -- we dispute or would negotiate in
2 accordance with Ugandan law.
3 Q. When you say "We always believed it was two issues",
4 that is your perspective, but you knew -- we looked at
5 this earlier -- you knew that the Government did regard
6 them as linked?
7 A. In May, correct, at this time which is why we then
8 entered into discussions with the URA at the end of this
9 month.
10 Q. Just to go off on a slight tangent for a moment, if you
11 could turn through to page 1186, core 1/136, my Lord,
12 this is an internal Tullow email on 20 May. It is
13 Mr Glover and Dan O'Neill. You will see that at the
14 bottom of the page --
15 MR JUSTICE BURTON: Can I just ask this, I am sorry, before
16 we leave 1174: there was to be a formal meeting
17 tomorrow, on 20 May, with Tullow and Heritage present,
18 yes? That took place, did it?
19 A. I was not involved. I --
20 MR JUSTICE BURTON: You were not involved.
21 A. Certainly not with me but I was not in country.
22 MR JUSTICE BURTON: But somebody on behalf of Heritage took
23 part, did they?
24 A. I'm not sure. I don't know, my Lord. It may have done.
25 I don't know.
99
1 MR JUSTICE BURTON: Did you at that stage know that there
2 was going to be a letter addressed to Heritage which was
3 to be copied to you, approving the Heritage sale to
4 Tullow based on the CGT issue being resolved and stating
5 an actual dollar amount?
6 A. No, my Lord. This is an internal email from Tullow,
7 obviously. We were not ...
8 MR WOLFSON: Mr Atherton, you may be able to assist
9 my Lord a little further if we look at core bundle 1/137
10 or stay in the same bundle at 1190.
11 My Lord, this is just in response to the point your
12 Lordship just made. This is 21 May and you will see at
13 point 2 Mr O'Hanlon reports:
14 "Heritage CGT."
15 A. There was a meeting.
16 Q. You don't deal with it in your witness statement again,
17 Mr Atherton. But "Yesterday's depressing meeting ...",
18 Onek, Minister of State, Fred, B Smith, B Westwood --
19 they are Heritage?
20 A. They are Heritage. It is clear there was a meeting on
21 the 20th.
22 Q. "... revealed no significant engagement between Heritage
23 and the URA had taken place to date actually broke the
24 logjam. Heritage openly admitted they have not been
25 proactive on this issue and must now change tack. Onek
100
1 was actually perfect on the day showing his fangs and
2 stating categorically: the deal will not be approved
3 until the tax issue is resolved."
4 Yes? So that was a meeting, and the Government
5 stance is absolutely unambiguous, isn't it?
6 A. I think it is clear from -- if this is correct, which
7 there is no reason to dispute, that there was a meeting
8 on 20 May and the Government was linking the consent to
9 the taxation and making it clear that Heritage has to
10 meet with the URA.
11 Q. Yes, and I think you are accepting that still by this
12 stage there had been no significant engagement between
13 Heritage and the URA?
14 A. Correct, but it followed very shortly.
15 Q. Unless your Lordship had a further issue on that meeting
16 I was going to move on.
17 If we can go back, Mr Atherton, to 1186, this is the
18 internal email exchange. You will see at the bottom of
19 the page Brian Glover emails Dan, who is one of the
20 Tullow legal team, I think:
21 "Dan, would you know what the legal arguments ..."
22 It is almost like a Haiku. I'm not sure those full
23 stops are meant to be there.
24 "Dan, would you know what the legal arguments
25 Heritage would use to say they would not pay tax? Best
101
1 regards, Brian."
2 Actually I think that might be a Haiku. That might
3 not be accidental, and the answer is:
4 "Brian, my understanding is they are arguing that
5 the rights under the PSA and exploration licence are not
6 assets under Ugandan law and therefore do not attract
7 CGT. Have not looked at the point. Doesn't strike me
8 as a strong argument. Apparently they have dug up
9 a local tax lawyer who supports their cause."
10 I am not asking you to be absolutely clear,
11 Mr Atherton, as to the content of the advice which you
12 got. I am just asking you whether you can confirm that
13 the local tax lawyer was Mr Akunobera or was he somebody
14 else?
15 A. Somebody else.
16 Q. Can you give me the name of the person who it was?
17 A. We had been taking --
18 MR QURESHI: My Lord, I am not sure whether that is covered
19 by the scope of privilege, the name of the tax lawyer.
20 MR JUSTICE BURTON: How is it? Your witness has said
21 several times in the witness box: "We were given legal
22 advice that we would not be liable to pay tax." I would
23 have thought it would have been a clear waiver of any
24 privilege if there was any.
25 MR WOLFSON: I am not even asking about the content.
102
1 MR QURESHI: My Lord, if he can answer, he can answer.
2 A. We had taken advice from a number of places. In Uganda
3 specifically there were two. We had sought advice from
4 K&K, who are our legal representatives for a number of
5 years.
6 MR WOLFSON: And we see reference to them later, don't we?
7 A. And also a former Commissioner General of the URA who
8 had been an adviser to the oil companies, including
9 Heritage, for a number of years.
10 Q. Do you recall the gentleman's name?
11 A. It was a lady.
12 Q. Forgive me for assuming.
13 A. Annebritt.
14 Q. Is that B-R-I-T-T?
15 A. Yes, and the surname was Asslund, Annebritt Asslund, who
16 was a former Commissioner General of the URA.
17 Q. Thank you. Can we turn to E7, Mr Atherton, and it is
18 page 1647. This is core 1/205.05. These are minutes of
19 a meeting you had with the Government.
20 At 1651, if we turn through to core 205.09, you can
21 see that your position was that you were putting forward
22 an offer of $36 million tax, and I get that because --
23 sorry, I think I have given the wrong -- yes:
24 "Based on the above considerations the tax due on
25 the considerations [(iv)] was $36 million if a tax rate
103
1 of 30 per cent was to be applied."
2 So your offer to the Government, as I understand it,
3 was that on a net profit of about $1.2 billion you were
4 offering 36 million, is that correct?
5 A. I think it is important to say these meeting minutes
6 were all without prejudice. That is clear from looking
7 at 5.2.
8 Q. Yes, well, be that it as it may, no doubt your counsel
9 will take a point if he wants to, my question was as to
10 what the minutes say, which is, is it correct that on
11 a profit of about $1.2 billion earned in Uganda your
12 position was that you would pay $36 million in tax, is
13 that right?
14 A. Just in terms of this, it is a series of meetings. I
15 think we had six meetings over this time period with the
16 URA and with Government and I believe these are the
17 minutes that Lawrence Kiiza had provided to Tullow. He
18 chaired the meeting and --
19 Q. Were there sandwiches served, Mr Atherton? Because so
20 far I'm hearing a lot about the meeting and I'm still
21 waiting for an answer to my question.
22 MR JUSTICE BURTON: I think it is right. You have counsel
23 here to protect you. No one has risen to object so
24 please let us answer the question.
25 A. So we had a series of meetings during which we, together
104
1 with our tax advisers, we brought in Robert Nearing and
2 you will see his name is on the front cover of the
3 minutes. We had gone through the arguments of why this
4 was not taxable, the sale was not taxable in Ugandan
5 under 79G and 79S. During these meetings Government was
6 at a different opinion and it was felt that in order to
7 move forward, and by which time we had, as in my witness
8 statement had linked consent with taxation that we
9 suggested a settlement and I'd suggested a payment of
10 $36 million.
11 They, the URA and Government, had then determined
12 how can we justify $36 million? And that's why there
13 was a formulaic approach taken to justify the 36 million
14 which became based on sort of certain activity within
15 Government.
16 So there was an offer to settle without prejudice
17 for US$36 million, correct.
18 MR WOLFSON: Earlier today I put to you the proposition that
19 Heritage's approach in these negotiations was to play
20 hard ball and you said that wasn't the case. What I am
21 putting to you is that when you have earned $1.2 billion
22 in a country and you are sitting down with the Revenue
23 authority who has previously served you with an
24 assessment of $404 million has withdrawn it as premature
25 but has made it clear it is going to reserve them in the
105
1 same sum to offer them 36 million is about as hard ball
2 as you can get; isn't that right?
3 A. I would disagree. We have arguments why it is not
4 taxable under 79G and under 79S. Then within the
5 various documents and agreements we have with Government
6 we have something called a stabilisation clause whereby
7 if the tax rate changes adversely it cannot be applied.
8 And that was the situation where it was very clear in
9 Uganda that the sale of an asset was tax free.
10 Q. Did you mention the stabilisation clause in this
11 meeting? I don't see that referred to.
12 A. Yes, we did.
13 Q. One thing that is referred to is on the next page,
14 Mr Atherton, where we see that you relied on your move
15 to Mauritius and the double tax treaty as reducing your
16 maximum tax exposure from 404 million to 120 million and
17 in fact saying that the effective underlying rate was
18 zero. In the third line:
19 "Noted that the underlying tax rate would be zero."
20 That is a jolly good tax rate to me.
21 A. I think if you look at clause 6 it does say, and it is
22 important because this was added at our request, that
23 each party put forward lots of additional arguments and
24 rebuttals.
25 Q. Not contained in the minutes.
106
1 A. Correct, so there was a lot more --
2 Q. Fine so you are back on the stabilisation point. I'm on
3 the Mauritian point. You were telling the Government at
4 this meeting that you had moved to Mauritius, there was
5 a double taxation treaty which you've accepted was at
6 least part of the reason you moved there and you were
7 telling the Government two things: first of all, it is
8 not 404, it is 120 at tops. And in fact, the underlying
9 tax rate is zero. That was your position, wasn't it?
10 A. And the Government was aware that we had moved to
11 Mauritius at this time.
12 MR JUSTICE BURTON: Yes, by then they were aware?
13 A. Yes, they were.
14 MR JUSTICE BURTON: But the point being put to you is that
15 your negotiating position made it plain if you couldn't
16 reach agreement that was to be your final stance: tax
17 nought.
18 A. Our view was that it was nought.
19 MR JUSTICE BURTON: Because of the Mauritius double taxation
20 treaty.
21 A. Because of 79G, 79S and stabilisation.
22 MR JUSTICE BURTON: They had answered 79G. We got that
23 at -- whether that was right or not we don't know. We
24 are not dealing with that. 79G, they have put forward
25 an answer. 79S, they have put forward an answer.
107
1 A. Correct.
2 MR JUSTICE BURTON: But this one is a US cavalry point, is
3 it not? They are coming up with heavy artillery in the
4 background. This one's your final long stop.
5 A. The discussion about Mauritius was in fact a very short
6 part of the meeting in fact.
7 MR JUSTICE BURTON: Yes.
8 MR WOLFSON: My Lord, Mr Buckingham tends to operate with
9 heavy artillery in the background. My Lord, that may be
10 a convenient moment.
11 MR JUSTICE BURTON: Yes, certainly.
12 MR WOLFSON: But we are making good progress. I am
13 confident that we'll be able to finish with this witness
14 today as I anticipated.
15 MR JUSTICE BURTON: Good. If we finish a bit early it will
16 suit me because I have three cases to prepare for
17 tomorrow. So we won't start Mr Inch come what may.
18 MR WOLFSON: Just to say that we have written, while I have
19 been on my feet, to my learned friend's solicitors
20 asking for any transcript which that exists of
21 Mr Atherton's TAT testimony. We have sought a response
22 by 2 o'clock. Obviously we appreciate we may not get
23 a document by 2 o'clock but at least would like
24 confirmation if there is a transcript or not.
25 MR QURESHI: It would have been nicer if that request had
108
1 been made earlier but if fine we will look for it of
2 course.
3 MR JUSTICE BURTON: There we are. It arose out of answers
4 this morning.
5 MR WOLFSON: These things happen.
6 MR JUSTICE BURTON: Very good.
7 (1.00 pm)
8 (Luncheon Adjournment)
9 (2.05 pm)
10 MR QURESHI: My Lord, before my learned friend continues the
11 exercise he's engaged in, he is absolutely right,
12 a letter was sent by Messrs Ashurst to McCarthy Tetrault
13 demanding a copy of whatever was recorded by way of
14 a transcript of the hearing before the Tax Appeal
15 Tribunal.
16 MR JUSTICE BURTON: Requesting, I hope, rather than
17 demanding.
18 MR QURESHI: My Lord, it looked more like a demand with
19 a deadline but in any event it doesn't matter. We have
20 met it. I would like to provide your Lordship with
21 a copy of a document and I will explain its provenance.
22 A copy has been provided to my learned friend and I have
23 extra copies for anyone else who would like a copy.
24 MR JUSTICE BURTON: Good.
25 MR QURESHI: Your Lordship will see this is a document of
109
1 26 pages, the last page has three names, no pp's.
2 MR JUSTICE BURTON: Yes.
3 MR QURESHI: Your Lordship will see that it is dated
4 26 July, it seems. That is the date that it refers to,
5 and my understanding from Messrs McCarthy Tetrault is as
6 follows.
7 This is a summary produced by the Tax Appeal
8 Tribunal, point one.
9 Point two, no transcript was produced, verbatim or
10 otherwise, by anybody.
11 Point 3, this was received in late 2011 by the
12 Ugandan lawyers, just prior to or contemporaneous to the
13 receipt of the decision which your Lordship finds in
14 bundle E24.
15 Point 4, whilst the decision is disseminated and is
16 available publicly, this relates to the proceedings
17 which were themselves in private, in camera,
18 confidential.
19 MR JUSTICE BURTON: Yes.
20 MR QURESHI: And therefore it is in that context that this
21 document came into existence and it is in that context
22 that, my Lord, I provide a copy to your Lordship and to
23 my friend.
24 MR JUSTICE BURTON: Thank you very much. Good. Yes,
25 Mr Wolfson?
110
1 MR WOLFSON: Mr Atherton, could you have a look at page 4 of
2 this document, please.
3 A. Can I have a copy, please? I don't have a copy.
4 MR QURESHI: Sorry, I wasn't sure my learned friend was
5 going to refer to it.
6 MR WOLFSON: We might as well since you have provided it.
7 Do you have it, Mr Atherton?
8 A. I am just going there, one second.
9 Q. If you just turn to 24 at the bottom, that is how you
10 will find 24. The question by the first hole-punch:
11 "HOGL was registered in Mauritius in March 2010 and
12 registered in the Bahamas in 1992. What were
13 considerations for the change in registration from
14 Bahamas to Mauritius?
15 "Answer: The change of registration was based on
16 corporate planning. We found Mauritius more applicable
17 to our group. Mauritius has a better time zone than the
18 Bahamas.
19 "Question: Why did these changes happen
20 in March 2010 and not August 2010?
21 "Answer: We continuously reviewed our group
22 structure and felt it was applicable to do so.
23 "Question: We would like to put it to you that the
24 change in registration in March 2010 was purposely done
25 to take advantage of the benefit Mauritius could offer
111
1 in light of the sale transaction to Tullow Uganda
2 Limited.
3 "Answer: It is not correct, that is your opinion."
4 You told my Lord this morning that the sentence in
5 the judgment of the TAT did not accurately reflect the
6 evidence you gave to the TAT. Would you now accept that
7 that statement you gave to my Lord this morning was
8 itself incorrect?
9 A. I would say that I didn't say: I said I had not said it.
10 That was a correct statement. I didn't say it.
11 I didn't remember saying it. Sorry, that is correct.
12 There was a question which referred to "purposely done"
13 and my view is we did it for a number of reasons, which
14 incorporated --
15 MR JUSTICE BURTON: A number of purposes, one of which was
16 to take advantage of the tax position?
17 A. That's correct.
18 MR JUSTICE BURTON: Then you could have said that, couldn't
19 you, to the Tax Tribunal: "That was only one of our
20 purposes"?
21 A. Correct.
22 MR WOLFSON: But you actually said, "It is not correct".
23 When you said, "It is not correct", that was false?
24 A. That, it says, "was purposely done for a number of
25 reasons", and I have not read this document, but it says
112
1 Tullow, you -- this is a minor point -- we knew we were
2 selling to Tullow, of course. I'm not sure if that was
3 the entity we sold to. I don't know, I haven't read the
4 document. So it may be defined. I don't know.
5 MR WOLFSON: Mr Atherton, could you have a look at
6 page 1610, please, core 1/203.001. It is E7/1610. You
7 will see this is the bottom email. It is an internal
8 Tullow email so you wouldn't have seen it at the time
9 obviously. You will see, it is a short email, Mr Glover
10 reports to Mr Martin:
11 "Government position hardening."
12 This is 15 June.
13 "They [the Government] believe Heritage playing
14 games and are aware Tony Buckingham misled shareholders
15 by saying no taxation, no tax to be paid. They [that is
16 the Government] would accept about $120 million and the
17 rest arbitration but require the latter [that is the
18 rest] to be in a safe place. They will not move from
19 this. They expect further meetings tomorrow ... further
20 news. FKK text below. We think HOGL is playing games
21 and we [that is Tullow] can't be in there."
22 Would you accept that that is an accurate reflection
23 of the Government's position by mid 2010, that they
24 thought that Heritage was playing games? They were
25 requiring 120 deposit and the rest secured pending an
113
1 arbitration, is that accurate?
2 A. No.
3 Q. That is not an accurate reflection of the Government's
4 position at the time?
5 A. I don't believe it's an accurate representation of the
6 position from our perspective, that is Heritage.
7 Q. Could you turn, please, to page 1614. This is core
8 223.001. This is an email from you, Mr Atherton, to
9 Mr Martin. You will see that email starts off at the
10 email at the bottom from him to you, then you reply and
11 he replies.
12 You will see from the top email that there had been
13 discussions between Mr Heavey and Mr Buckingham and
14 Mr Buckingham's position was that they would cancel the
15 SPA transaction and do an alternative transaction where
16 they would sell shares, is that correct? That was
17 Heritage's position at the time?
18 A. I'm not sure. It may have been a discussion between
19 Tony Buckingham and Aidan Heavey. I'm not sure of the
20 details of that discussion in any detail at all.
21 Q. The reason I put it that way is that if one looks at
22 a document -- keep bundle E7 with you if you would, and
23 just take up E5 for a moment just so I can explain why
24 I'm putting this. If you look at the fourth bullet?
25 A. Sorry, which reference?
114
1 Q. 1173.
2 MR JUSTICE BURTON: E5, what page?
3 MR WOLFSON: 1173.
4 MR JUSTICE BURTON: Is it in the core bundle?
5 MR WOLFSON: Yes, it is, my Lord, now. It is 133.001. This
6 is May 19th, the fourth bullet:
7 "He [Brian Westwood] said there was no corporate
8 deal in place with ENI in case this deal with us
9 unravels but there is a corporate deal ready with
10 another Middle Eastern buyer for Heritage."
11 So what I'm putting to you is that Heritage was
12 playing hard ball and saying to the Government: "Look,
13 if you don't reach agreement with us on tax, on our
14 numbers, we'll just cancel the SPA, because it won't
15 close, we'll sell to another buyer, maybe this unnamed
16 Middle Eastern buyer, and we'll do it on a share sale
17 and not an asset sale so you won't be receiving any
18 taxation at all."
19 That was Heritage's position, was it not?
20 A. I'm not aware of any Middle Eastern buyer interested in
21 the assets or corporate for the acquisition of the
22 Heritage Uganda deal. I don't know where Mr Westwood,
23 this statement came from. I'm not sure what was in his
24 mindset at the time.
25 Q. There are only two executive directors of Heritage,
115
1 aren't there?
2 A. Yes.
3 Q. There is you, and you don't know anything about it, and
4 there is Mr Buckingham who owns about 30 per cent of the
5 company, is that correct?
6 A. That's correct.
7 Q. Do you think Mr Westwood would be likely to be making
8 this up or is it more likely that he had had
9 a conversation with either you or Mr Buckingham?
10 A. I don't know. I don't know what --
11 MR JUSTICE BURTON: What is Mr Westwood like? This is the
12 second thing apparently he has done off the top of his
13 own bat without any kind of justification that we have
14 heard of today. Is he an incompetent person?
15 A. No.
16 MR JUSTICE BURTON: So do you think he made this up or do
17 you think he must have got it from either you or
18 Mr Buckingham or from his own knowledge of the existence
19 of this alleged third party purchaser?
20 A. All I can say is I'm not aware of a Middle Eastern buyer
21 for the Heritage Uganda assets.
22 MR JUSTICE BURTON: Yes.
23 MR WOLFSON: I think you can probably put E5 away. We just
24 took that out to look at that document. Let us go back
25 to E7, where we were, and if we move on to 1727, please.
116
1 My Lord, this is in the core at 206. This is an email
2 from Mr Buckingham to a number of people who we can see,
3 I won't read out. Mr Westwood happens to be copied, as
4 are you, as are some chaps from Tullow:
5 "Dear Members of the Committee ..."
6 He is writing to the Ugandan committee dealing with
7 the tax issue, isn't he?
8 A. Correct, from the Ugandan side, yes.
9 Q. First paragraph:
10 "... the meeting didn't happen. Briefly on
11 Heritage's current position [this is 5 July]: sale and
12 purchase agreement terminated at midnight on 17 July.
13 Heritage will withdraw from the agreement at that time."
14 That is pretty unambiguous, isn't it?
15 A. Correct.
16 Q. "I am growing extremely concerned by the
17 ever-increasings delays we have experienced. No
18 response to numerous call. Consequently, as set out
19 above, Heritage plans to terminate the SPA and intends
20 to continue as operator of and retain our working
21 interests in the exploration areas. We will seek an
22 extension."
23 So what Mr Buckingham is telling the Government and
24 Tullow is that if they don't consent to the transaction
25 then Heritage will remain as operator and of course in
117
1 that regard it will be able, if it wants -- if it
2 wants -- to do a deal with somebody else as well.
3 That's what he's saying, isn't he?
4 A. The transaction had a long stop date where either party
5 could pull out of the transaction after I think 180 days
6 or essentially six months. That period was coming to
7 a head. It was a case of trying to put some pressure on
8 and also us feeling that consent may not be granted.
9 One of the licences, which was Block 3A, has a tenure
10 until 8 September 2010 and we had to make a decision.
11 We were either going to complete the transaction or if
12 not we had to go back to Government, we had to continue
13 on and we had to arrange for an extension of the
14 Block 3A licence.
15 Q. So the answer to my question was "yes", is that right?
16 A. Could you repeat the question, please?
17 Q. Yes. What Mr Buckingham was telling the Government and
18 Tullow is that if they don't consent to the transaction
19 Heritage will remain as operator.
20 Let us pause there. Is that correct?
21 A. Telling the Government -- it is the Government consent
22 rather than Tullow consent but what we were saying at
23 that point in time is that we were looking, if the
24 consent was not granted, to pull out of the transaction.
25 Q. And the Government didn't want Heritage to remain as
118
1 operator, did they?
2 A. There had been no discussion of whether they wanted
3 Heritage to remain or not.
4 Q. Are you honestly saying that you don't know that the
5 Government's position was that it did not want Heritage
6 to remain as operator?
7 A. It was not discussed. We were selling the assets. We
8 would never have a conversation with Government to say:
9 "Do you want us to remain as operator?" We were selling
10 the assets, we were leaving, so why would we remain as
11 operator?
12 MR JUSTICE BURTON: You wouldn't remain as operator, of
13 course. If you didn't sell the assets that would be the
14 only situation in which you would remain as an operator.
15 A. Correct.
16 MR JUSTICE BURTON: What is being put to you is that you
17 knew that the Government did not want you to remain as
18 an operator, and therefore were pleased for you to sell
19 the assets.
20 A. When we announced the ENI transaction, correct, the
21 Government was delighted. We had thanks from the
22 Ministry of Energy and from the President.
23 MR JUSTICE BURTON: You have rather latched on to my second
24 point which was only seeking to summarise what
25 Mr Wolfson said. Did you know that the Government did
119
1 not want you to continue as an operator?
2 A. No, we had no information to that.
3 MR JUSTICE BURTON: If you have a case to put, Mr Wolfson
4 you must put it.
5 MR WOLFSON: Absolutely. We will come to this as we go
6 through.
7 MR JUSTICE BURTON: Thank you.
8 MR WOLFSON: Now, we have reached July 2010 and we saw the
9 document on 15 June -- let me just summarise, I hope
10 fairly -- which said that the Government's position was
11 that it would accept a deposit of 30 per cent, there
12 would be an arbitration over the balance but the balance
13 had to be in a safe place. We saw that, the email
14 recording the Government's position. You were caviling
15 as to whether you agreed that was the Government's
16 position or not but you know the email I'm talking
17 about?
18 A. That was an internal email within Tullow.
19 Q. Yes.
20 A. We on the 16th have made a proposal in a meeting to the
21 members of this committee that had been set up between
22 URA and Government who we had met at the beginning
23 of June, whereby we said that we would place
24 30 per cent, at that time $180 million in Kampala and
25 then we would give some form of guarantee for the delta,
120
1 for the balance, in order that that be sufficient that
2 we can now consent or Government would consent to the
3 transaction.
4 Q. We are on the same page, Mr Atherton. Indeed, the page
5 I was going to take you to was I think the page you are
6 talking about which is 1643, core 205.01. It is
7 a letter from your lawyers McCarthy Tetrault, and if you
8 look through the first page and a half or so there is
9 a meeting on 16 June where you make a proposal, and
10 I hope I summarise it fairly, you are going to deposit
11 108 million, you see this on the second page, and
12 resolve the rest in arbitration. Where is the reference
13 here to securing the balance in some way?
14 A. That must have followed. There was a follow-up
15 correspondence shortly thereafter.
16 Q. This was an iterative process?
17 A. I accept that.
18 Q. So I think it is fair to say that on 16 June we have the
19 108 and the arbitration but we don't yet have the
20 security.
21 A. That's correct.
22 Q. If you could now turn through to page 1736, which
23 I think now is core 2 -- your Lordship may have put it
24 in the core as 210.001. I am not sure it is in my core
25 at the moment.
121
1 MR JUSTICE BURTON: It isn't in my core.
2 MR WOLFSON: It is 1736.
3 MR JUSTICE BURTON: It may be somewhere.
4 MR WOLFSON: It is in E7/1736, but it may not have gone into
5 the core. We weren't sure whether your Lordship had
6 actually put this in. It is the letter from the
7 Ministry of Energy to McCarthy Tetrault. E7/1736.
8 We saw you had made the offer of 108 and
9 arbitration. This is the Minister's response. I think
10 we can summarise it by just looking at the point 7 on
11 the second page, 1737. His response is:
12 "If the GOU is to go for arbitration it will be on
13 terms that 30 per cent is deposited and then the balance
14 is secured by an on demand bank guarantee."
15 So this, I think, is where we have the security. It
16 is not your proposal to the Government; it is the
17 Government's demand in response to your initial
18 proposal.
19 We haven't seen in either your proposal or the
20 Government's response any scope or position for Tullow
21 to be acting as withholding agent, have we?
22 A. Correct, no.
23 Q. Could you now turn, please, to page 1742. I am not sure
24 this is in the core. This is in B. Your Lordship
25 may -- you keep that one, Mr Atherton. Your Lordship
122
1 will have this in B1/4. We think it might be core
2 210.003. But it may be my bundle hasn't been updated
3 for the last core updates yet.
4 This is the formal letter giving conditional
5 consent, 6 July, do you have it?
6 A. Yes.
7 MR JUSTICE BURTON: Is that in B?
8 MR WOLFSON: Yes, it is B, tab 4, my Lord.
9 You will see at paragraph 2:
10 "For the avoidance of doubt this approval shall not
11 become effective unless Heritage Oil & Gas Limited has
12 paid the taxes or demonstrated to the satisfaction of
13 the Government of Uganda that taxes shall be paid
14 immediately upon demand."
15 Again, there is no scope there for Heritage to be
16 acting as a withholding agent, is there?
17 A. Tullow to be acting.
18 Q. Sorry, you are absolutely right -- Tullow to be acting
19 as a withholding agent?
20 A. Not based on this letter.
21 Q. No. 1841, back in E7, just following this through.
22 This is an email from Mr Martin to Mr Buckingham copied
23 to you. You will see from the first paragraph that
24 Mr Buckingham has been talking to Mr Heavey and
25 Mr Martin is sending Tullow's proposal for removing the
123
1 conditionality of the Government's demand. If you cast
2 your eyes down the numbered paragraphs --
3 MR JUSTICE BURTON: Sorry, which page is this?
4 MR WOLFSON: 1841, my Lord.
5 MR JUSTICE BURTON: Just before we go on, I have been
6 struggling a little, that is why I have been a little
7 behind, with something you said about core 223.001,
8 which is E/1614 and you were quoting -- in your question
9 you said this:
10 "This is an email from you, Mr Atherton, to
11 Mr Martin. You will see that in the email it starts off
12 with the email at the bottom from him to you and then
13 reply and he replies.
14 "You will see from the top email that there had been
15 discussions between Mr Heavey and Mr Buckingham and
16 Mr Buckingham's position was that they would cancel the
17 SPA transaction and do an alternative transaction where
18 they would sell shares, is that correct? That was
19 Heritage's position at time?"
20 Are you simply deriving that from the use of the
21 words "none of these corporate ideas"?
22 MR WOLFSON: Yes, my Lord, in conjunction with the other
23 documents I put to the witness which showed what the
24 corporate ideas were and discussed.
25 MR JUSTICE BURTON: That was the Middle Eastern buyer?
124
1 MR WOLFSON: That was why we had the slight detour in E5.
2 MR JUSTICE BURTON: That was your interpretation?
3 MR WOLFSON: Yes, based on that other document, my Lord.
4 MR JUSTICE BURTON: Yes.
5 MR WOLFSON: We were looking at 1841 in E7. If you just
6 glance down those numbered paragraphs, can I summarise
7 it: in commercial terms, Heritage is agreeing to pay
8 a deposit, arbitrate the tax issue and put up a bank
9 guarantee for the rest? Is that a fair summary?
10 A. And point 5. That's correct, and point 5 says that we
11 would run the tax dispute, which was in connection with
12 a point earlier in the correspondence whereby there was
13 an email that set out that Tullow would act as agent and
14 would be the sole responsibility for the tax resolution.
15 Q. Let me just turn then back because we are going, so to
16 speak forward in time but back in the bundle the way
17 these emails printout. If you go back to 1840 you will
18 see that Mr Buckingham says yes, that he'd like to --
19 the bottom of the page. It is actually you on
20 instructions:
21 "Dear Aidan and Graham, Tony has asked me to send
22 the following. Thanks very much, greatly appreciated,
23 it is acceptable. We would like a further $25 million
24 in settlement of the contingent amount."
25 And as we follow that up, Tullow basically say no
125
1 and I don't think that proposal then goes any further.
2 That is where the parties end up on that issue?
3 A. Correct, events have moved ahead.
4 Q. So at this stage everybody is clear about the basic
5 structure: there is a deposit, an arbitration and a bank
6 guarantee, but it is no part of this structure that
7 Tullow will be acting as a statutory or withholding
8 agent for Heritage, is it?
9 A. Correct because that idea had been mooted and we had
10 rejected it.
11 MR JUSTICE BURTON: Where was it mooted?
12 MR WOLFSON: We'll come to this.
13 MR JUSTICE BURTON: 1840 and 1841, are they in the core?
14 MR WOLFSON: Not at the moment but would your Lordship wish
15 to put them in?
16 MR JUSTICE BURTON: Yes, I will do. Don't worry, if they
17 are not already in, I'll put them in. 223.002,
18 I suppose, and 003.
19 MR WOLFSON: I am being told they are the same emails as at
20 211 and 212. They are. They are in at 211. I have
21 missed that reference, forgive me. They are in already
22 at 211 and 212.
23 MR JUSTICE BURTON: Thank you very much.
24 MR WOLFSON: In E7, can we just turn back to 1749. This is
25 not in this core, my Lord. 1749. It is one of these
126
1 very small typographical. You will see the bottom email
2 is from Tony Buckingham to Aidan Heavey:
3 "We both agree our attempt to encourage Government
4 to consent has become a drawn out process. We need to
5 concentrate our minds. The best way is for us to
6 jointly pay the tax demand the Government wish to place
7 on our transaction ...(Reading to the words)... stand
8 by. If Tullow puts up 100, then Heritage will put up
9 the remaining 260. If between us we can close out the
10 tax demand then surely the Government has no possible
11 reason to withhold consent."
12 So this is a different structure that is being put
13 forward by Mr Buckingham, isn't it? This is a structure
14 which is saying: "Look, let's just put up the whole
15 shebang and we will argue about it later. You put in
16 100, we'll put up 260", correct?
17 A. This is on 2 July so it is slightly earlier.
18 Q. Absolutely.
19 A. And it is a case of: it is a commercial transaction, let
20 us see if we can get consent, how can we get consent?
21 Q. I am not criticising it. I'm just making sure we are on
22 the same page as to what it is and I think we are.
23 Then Mr Heavey, there has obviously been a call,
24 says --
25 MR JUSTICE BURTON: Is it 360 or 380?
127
1 A. 360.
2 MR WOLFSON: 360.
3 MR JUSTICE BURTON: Was it not 380?
4 A. It became 404.
5 MR WOLFSON: It moved up. It was originally 360. They are
6 talking about putting the whole lot up.
7 MR JUSTICE BURTON: Yes.
8 MR WOLFSON: "What about the following?"
9 Says Mr Heavey.
10 "You agree with arbitration for the 360. [That is
11 the whole amount] You pay 108 deposit. You agree with
12 the URA that 260 goes in escrow."
13 That is where that appears to start from:
14 "We'll put in 100,000 of the 260,000 in escrow ..."
15 A. 100 million.
16 MR WOLFSON: Sorry, 100 million:
17 "... 100 million of the 260 million in escrow. We
18 will act as your agent to sort out tax and any reduction
19 will first come out of our 100 million in escrow. The
20 clause in the SPA will be seen as the reason we did
21 this. We can then pay you $1.09 billion."
22 The point I am putting to you, which I think you
23 said earlier, is that when in this email Mr Heavey is
24 talking about "We'll act as your agent" that is so to
25 speak to negotiate with the Government on the underlying
128
1 tax position of Heritage which is something you didn't
2 want because you wanted to negotiate your underlying tax
3 position, correct?
4 A. Commercially, correct.
5 Q. So in a later answer just now, you indicated that at
6 some earlier stage there was discussion that Heritage
7 was acting as what you might call a statutory agent,
8 a 106 or a 108 agent -- sorry, Tullow would be acting as
9 a 106 or a 108 agent?
10 A. No, I just said they would be acting as an agent and
11 I referred to this, I didn't refer to any statutory --
12 MR JUSTICE BURTON: When you say it was mooted and rejected,
13 you were referring to them acting as your negotiating
14 agent?
15 A. Correct.
16 MR JUSTICE BURTON: You were not referring to the statutory
17 agent?
18 A. No.
19 MR JUSTICE BURTON: Good, thank you.
20 MR WOLFSON: Could you have a look at paragraph 143 of your
21 witness statement, please, just to be absolutely clear.
22 When you say in this paragraph, "Although it didn't
23 stand out to me at the time, Mr Heavey's 6 July 2010
24 email in fact also contained the first suggestion that
25 Tullow had intentions to act as some sort of agent on
129
1 behalf of HOGL", that is not intended to cause any
2 confusion with statutory 106 or 108 agents, is it?
3 A. No.
4 Q. Good.
5 A. I was trying to say here that they wanted to get
6 involved in our tax and negotiating or resolving our
7 tax.
8 Q. Going back to the chronology, we can pick it up, please,
9 Mr Atherton, at 1861.
10 MR JUSTICE BURTON: Sorry, it was the first suggestion but
11 it was also the last suggestion. It was never raised
12 again, was it?
13 A. By Tullow to us?
14 MR JUSTICE BURTON: Yes.
15 A. I don't believe it did, no, my Lord.
16 MR WOLFSON: It is --
17 MR JUSTICE BURTON: That I think is where counsel must have
18 got this from. There is an implication there that this
19 is the first suggestion that TUL had intentions to act
20 as something along the lines of a statutory agent, but
21 in fact it was a different thing, you said no and that
22 was the end of it.
23 MR WOLFSON: It is a negotiating.
24 MR JUSTICE BURTON: I am going to cross out the word "first"
25 in your witness statement. Yes?
130
1 MR WOLFSON: Can we have a look at 1861, please. Just
2 picking up the chronology, you are now coming back
3 through your lawyers. This is core, my Lord, 212.005.
4 It is a letter from McCarthy Tetrault, 12 July. Your
5 solicitors are coming back offering to put up a bank
6 guarantee to cover the balance of the disputed tax,
7 correct?
8 A. Correct.
9 Q. And if you turn through, please, to 1878, by 13 July
10 Heritage had sent a draft bank guarantee from a tier one
11 international bank.
12 You see that from the last sentence of the first
13 paragraph of Mr Buckingham's email, yes?
14 A. Correct. We provided two. I think on this day we
15 provided I think a guarantee from Barclays in draft and
16 I think we followed that up within a day or so with
17 Standard Bank as well so I think we provided two.
18 Q. And they are, or at least were -- I should perhaps say
19 are, in case we start a run -- they are tier one
20 international banks.
21 Can we go to E8, please, 1901, core 213.
22 MR JUSTICE BURTON: 1878, to which you referred, is that in
23 the core?
24 MR WOLFSON: No, it isn't at the moment, my Lord.
25 MR JUSTICE BURTON: You didn't take me to it. Do you want
131
1 to go to it or ...?
2 MR WOLFSON: The witness agreed that -- I was really just
3 getting the chronology that by this stage the draft bank
4 guarantees had been produced.
5 MR JUSTICE BURTON: We don't need to look at it?
6 MR WOLFSON: No, I just wanted to make sure that my
7 understanding of what was going on from the documents
8 was correct and Mr Atherton has confirmed that it is.
9 We are now, my Lord, looking at E8 at 1901, which is
10 core 213. This letter responds to the letter we have
11 just seen. I think it is fair to say, isn't it,
12 Mr Atherton, this essentially accepts Heritage's letter
13 and sets out the formal conditions required to satisfy
14 the Government which we can see numbered? So it is
15 absolutely clear, isn't it, that by this stage, 16 July
16 2010, we have seen no suggestion in any of this so far
17 that the Government is going to appoint Tullow as
18 a statutory agent for Heritage in respect of its tax
19 liability?
20 A. Correct.
21 Q. So presumably you would agree with me that Tullow,
22 therefore, did not procure the 27 July 2010 notice which
23 was served on it?
24 A. I am unable to comment for certain because I don't know
25 what discussions had been taking place between Tullow
132
1 and the Government.
2 Q. That is fine. Let us leave that there. And you can't
3 give any direct evidence about the second agency notice
4 either, I presume?
5 A. We received the second notice.
6 Q. Sorry, about whether Tullow procured it. That is
7 something beyond your knowledge, whether it did or it
8 didn't?
9 A. Correct.
10 Q. Mr Atherton, could you turn, please, to paragraph 151 of
11 your witness statement. You there quote an internal
12 Tullow email. As I said at the outset, I'm not
13 generally going to go to these documents, but you make
14 the point here that there is an internal email of the
15 same date painting a rather different picture and you
16 have underlined the words: "We must help the GOU get the
17 final piece of the jigsaw completed."
18 Before making this witness statement, I presume you
19 read the document referred to in its entirety?
20 A. Which document?
21 Q. The one you refer to in paragraph 151.
22 A. I will have done but if I can look at it now, I think
23 that's only fair.
24 Q. Did you look at it in its entirety before you made the
25 statement?
133
1 A. Yes.
2 Q. Good. It is at E9/2264.
3 MR JUSTICE BURTON: These ideas that you have incorporated
4 in your statement by reference to the documents, they
5 are all your ideas?
6 A. Yes.
7 MR WOLFSON: Can I understand how that works, Mr Atherton.
8 You were provided with a full set of the disclosure from
9 Tullow, were you, and you went through it and said to
10 yourself: just a minute, if you read this and then look
11 at that and put 2 and 2 together, then you make 4 or 5,
12 as the case may be? Is that the process?
13 A. I was provided with considerable files of data. Whether
14 it was the complete disclosure I have --
15 MR JUSTICE BURTON: They probably gave you a selection of
16 documents.
17 A. I don't know if it was a selection or a full set. It
18 was an inordinate number of documents.
19 MR JUSTICE BURTON: You wouldn't have had all this lot.
20 A. I had a lot of files to go through. It probably was
21 a selection. I guess it was.
22 MR WOLFSON: This may or may not be an attractive
23 suggestion, Mr Atherton, but maybe you have a career at
24 the Commercial Bar yet ahead of you.
25 At 2264 is a document I think you are referring to
134
1 and could you just have a look at that document. You
2 obviously read it carefully before you made your witness
3 statement. (Pause).
4 A. Carry on.
5 Q. Would you agree that what actually is going on in this
6 email is Mr Heavey is actively encouraging his team to
7 ensure that Heritage are happy with the way the
8 transaction is closed?
9 A. What had happened, if we go back to actually what was
10 happening on the ground --
11 Q. Would you answer my question first and then feel free to
12 put it into context.
13 A. Would you repeat your question, please?
14 Q. Yes. Do you agree in this email that Mr Heavey is
15 actively encouraging his team to ensure that Heritage
16 are happy with the way the transaction is closed?
17 A. Mr Heavey is actively encouraging completion of the
18 transaction so he can farmdown to Total and CNOOC.
19 Q. There is no suggestion in this that there is any sort of
20 conspiracy, not least because he says in terms: "We
21 should try to make sure GOU and Heritage part company on
22 at least civil terms"?
23 A. Correct. What was happening at this stage was, if you
24 go back to the previous documents which were looking at
25 the situation here would evolve through to place money
135
1 on deposit, an arbitration agreement and a bank
2 guarantee from a tier 1 bank for the remainder, and that
3 was around about -- between the 12th and around about
4 the 16th and 17th July.
5 We never received any comments, even though we
6 tried, and we asked Government. We had a team on the
7 ground, not me, at that time meeting with Government and
8 they provided no comments on the guarantee. We provided
9 an arbitration agreement to them on the 12th. They
10 provided one back to us on the 16th, which was the
11 letter we have just been through which was initialled
12 but they were not prepared to sign it. Having sent it,
13 then they determined they would not sign the arbitration
14 agreement. Then we heard in this week now, because we
15 are now following into the next week, from Tullow that
16 actually the way forward is not a bank guarantee, the
17 way forward is through an escrow arrangement. And
18 that's the situation we had on the ground. And that
19 resulted in I think a change to the escrow arrangement
20 shortly in this week.
21 Q. Would you accept as a summary -- we can trudge through
22 the documents if necessary, but would you accept as
23 a summary that Tullow's position at this time was that
24 it wanted Heritage's tax position determined by the
25 Government/URA, but that any such determination had to
136
1 happen in accordance with Ugandan law and respecting
2 Heritage's rights?
3 A. That was our intention without question, and in terms of
4 looking at Tullow, it was a case of: how can we now
5 complete this transaction? We know there is a question
6 mark over the tax. What is a mechanism that we can put
7 together which will be acceptable in order that the
8 transaction can be completed, the funds placed to one
9 side and then we can carry on, so they can then complete
10 their farmdown to CNOOC and Total?
11 Q. That is your understanding of what Tullow's position was
12 at the time?
13 A. That is my understanding of Heritage's position. I
14 can't say --
15 MR JUSTICE BURTON: I thought you said that was your
16 position of Tullow. "And in terms of looking at
17 Tullow", I thought that was what you were describing.
18 A. In terms of Tullow it is difficult for me to speak of
19 Tullow because I'm not Tullow, of course.
20 MR JUSTICE BURTON: But that's what you thought their
21 position was?
22 A. But they wanted to get to a completion situation, yes.
23 MR WOLFSON: In which case, Mr Atherton, I think we can move
24 on to the next topic. Can I ask you some questions
25 about article 7.5(b) and clause 3.1A but don't worry, we
137
1 are not going to have a legal disposition about what the
2 clauses mean.
3 Let us stick to facts. Your position is you didn't
4 receive a copy of the first agency notice, is that
5 right?
6 A. The one of the 27th, no, we never received it.
7 Q. I'm calling that one -- 27 July is the first one and
8 2 December is the second one.
9 A. We received it in March 2011 from Tullow. That is the
10 only time we received it.
11 Q. The only time you received it was March 2011, right. So
12 actually, the way it worked out was that you got them
13 backwards then, didn't you, because you got the second
14 one first?
15 A. Correct.
16 Q. Although I mean, as you have seen, on its face it says
17 it was copied to but your evidence is you didn't get it
18 and in fact more than that, you actually got the second
19 one first, you got the first one in March 2011, yes?
20 A. Correct. And we received the second one on the day or
21 the following day in December.
22 Q. Yes. When you had received the second one it must have
23 been obvious to you that Tullow had been previously
24 served with an agency notice for 283 million, no?
25 A. No.
138
1 Q. Well, the second one referred to the 30 million of the
2 extra 100 million paid, correct?
3 A. Correct, can we go to a reference for it?
4 Q. I don't think we need one for the moment. It is fairly
5 simple I think. There is a potential extra
6 consideration of up to 150 million, isn't it, there on
7 the deal?
8 A. Correct.
9 Q. And that was resolved between you, that you'd fix it
10 at 100 million, correct?
11 A. And that was part of the supplemental agreement, yes.
12 Q. And you get the second agency notice asking you for
13 30 million, being 30 per cent of that 100, correct?
14 A. Correct.
15 Q. Wasn't it blindingly obvious to you that if the URA were
16 sending out notices for 30 million, they must have sent
17 out a notice for 30 per cent of the larger sum. That
18 didn't occur to you, did it?
19 A. No, we didn't receive it. They directly sent -- they
20 sent the agency notices direct to Heritage, so one would
21 assume if they set up that mechanism, they would have
22 sent any other agency notices direct to Heritage. It
23 was not part of the evidence.
24 Q. You had objected to the second assessment, the
25 assessment for the 100 million is 19 August. You had
139
1 objected to that on 1 October. I will take you to the
2 documents if we need to.
3 A. If that's the date. If it was the 1 October, fine.
4 I'll take that as read.
5 Q. And that objection had been rejected on 1 December and
6 the notice is issued on the 2nd?
7 A. Okay.
8 Q. You had actually objected to the first assessment as
9 well, hadn't you? You had objected to that on
10 12 November?
11 A. We had objected. We objected on 18 August, I thought,
12 to the July 6th assessment. That is when we objected,
13 I think, was 18 August.
14 Q. Yes. There is a document which -- unbelievably there
15 are actually some documents which have been disclosed by
16 my learned friend's clients which have not found their
17 way into the trial bundles. As I said on the first day,
18 all of mine were asked to be put in. This is
19 a disclosed document and let me just hand you a copy.
20 (Handed)
21 MR QURESHI: My Lord, I am not sure if my learned friend is
22 making a complaint about deficiency of disclosure.
23 MR WOLFSON: No, no, on the contrary. Any complaint is mine
24 for missing the document and not putting it in the trial
25 bundle. It was a properly disclosed document.
140
1 It is an email. Your Lordship may wish to mark this
2 as something like E16/4497A, for reasons which I will
3 explain. It is an email dated 1 November 2010 from
4 Brian Smith of Heritage to Tony Buckingham and it is
5 copied to you.
6 Subject: "Tullow on the rack." Attachment: "URA
7 serves agency notice on Tullow over tax.ea.1/71110.pdf.
8
9 The text of the email:
10 "Everyone, this article in East African this morning
11 confirms what I have been hearing out of Kampala."
12 When we look at the attachment -- do you have it?
13 A. No.
14 Q. It still hasn't been provided. I think you are probably
15 the most important person in court to have it and you
16 haven't got one yet. Sorry, my Lord, the second most
17 important person in court. Some things, my Lord, go
18 without saying but I should have said it.
19 Let us start again. You will see it is an email
20 from Mr Smith. He works for Heritage, yes?
21 A. Correct.
22 Q. To Mr Buckingham and yourself and somebody called
23 Tania Clark. "Tullow on the rack", he attaches a pdf.
24 Let us look at what he says:
25 "Everyone, this article in East African ..."
141
1 And that is a newspaper, isn't it?
2 A. Yes.
3 Q. "... this morning [1 November] confirms what I have been
4 hearing out of Kampala."
5 When we look at the attachment:
6 "URA serves agency notice on Tullow over tax.
7 283 million dispute. All firm's sources refute reports
8 they have agreed to pay."
9 And let us have a look at the news article. The
10 news article which is attached to the body of this
11 email, I think it is actually in the bundles already, it
12 is at E16.
13 MR JUSTICE BURTON: Never mind whether it is in already.
14 The significance is it that it has been read by
15 Mr Smith.
16 A. Yes. Passed on by Mr Smith to Heritage.
17 MR WOLFSON: It is clear from this article that Tullow is
18 stating publicly that it has been served with an agency
19 notice for $283 million, isn't it?
20 A. Tullow stating it publicly wouldn't be an RNS
21 announcement to the market. I don't think this is
22 a public statement by Tullow, personally.
23 MR JUSTICE BURTON: The fact is that it is sent by Mr Smith
24 to you.
25 A. And with hindsight, we would have followed it up. I
142
1 don't believe -- I don't remember any follow-up. I
2 don't remember we asked our lawyers to establish what is
3 an agency notice and to look at the Taxes Act. With
4 hindsight, now I would say this is fairly accurate, but
5 at the time the penny did not drop.
6 MR WOLFSON: Come off it, Mr Atherton. I mean, come off it.
7 You gave evidence a moment ago the first you knew about
8 a $283 million agency notice was March 2011 and that is
9 just wrong, isn't it, and you knew it was wrong?
10 A. Absolutely I object to that. No, it's not.
11 Q. Not only is it inconceivable that the URA would serve
12 you with a notice for a paltry 30 million and ignore the
13 elephant in the corner of 283 but you were first told on
14 1 November that there had been an agency notice, and
15 secondly, it is clear that Mr Smith had actually been
16 hearing this for some time in Kampala?
17 A. I think the rumours -- rumours, we don't act on rumours.
18 We did not act on this.
19 Q. What sources is Mr Smith referring to then?
20 A. I don't know. He was not in Kampala. I don't know
21 where his information was from. We did not rely on it.
22 We did not follow it up.
23 Q. You didn't sort of think: "Just a minute, that's a bit
24 interesting that our partner has been served with an
25 agency notice for $283 million", it didn't trigger any
143
1 bells or ...?
2 A. No.
3 MR JUSTICE BURTON: The 283 million is plainly your tax,
4 isn't it?
5 A. It is the figure, correct.
6 MR JUSTICE BURTON: I mean, but the figure is obvious. So
7 this says they have been served an agency notice in
8 respect of your tax requiring them to pay.
9 A. Correct, that is what he says. We did not follow it up.
10 MR JUSTICE BURTON: You didn't follow it up.
11 A. No, we didn't. The penny did not -- now looking back,
12 of course. But no, at that time ...
13 MR WOLFSON: Do you mean now looking back or now that I have
14 shown you this document?
15 A. I had seen this document before in the disclosure
16 documents.
17 Q. You had seen --
18 A. In the bundles.
19 Q. When you say "the document", you mean the newspaper
20 report, don't you?
21 A. Yes.
22 Q. Do you want to have a look at paragraph 198 of your
23 witness statement, please. Just picking it up from the
24 second sentence:
25 "A subsequent newspaper article on 1 December 2010
144
1 in the East African ..."
2 A. Yes, which is this one.
3 Q. Yes, absolutely. That is the point I am putting to you:
4 "... reported that Tullow had said that Minister
5 D'Ujanga's comment related to an agency notice which had
6 been served on Tullow by the URA. Although we didn't
7 appreciate this at the time I now assume this was
8 a reference to the first agency notice."
9 What you don't say is that you actually specifically
10 email this report and told by Mr Smith emailing you that
11 it coincided with what he had been hearing in Kampala as
12 well. You don't say that in your witness statement, do
13 you?
14 A. I stand by my witness statement. It was the first we
15 had heard of it and we didn't rely on it, we didn't act
16 on it and with hindsight, looking back on it, of course
17 we'd have done more but we did not.
18 Q. So there is no misunderstanding I am putting the case to
19 you that you and Heritage knew full well about the first
20 agency notice from your sources in Kampala and by the
21 latest you knew about it, at the latest you knew about
22 it by 1 November 2010. You understand that is the case
23 I'm putting to you?
24 A. I understand that is the case and it's incorrect.
25 Q. As I understand it, you say that clause 3.1A of the
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1 supplemental agreement gave Heritage an unconditional
2 right to dictate Tullow's response to the second notice.
3 Have I understood your case correctly?
4 A. 3.1A of the supplemental agreement, which is what we are
5 referring to, gave us the sole rights to negotiate our
6 tax position and tax dispute with the Government and
7 I haven't got the document and I'm not a lawyer, of
8 course.
9 Q. I just want to make sure that what I am dealing with is
10 what you say should have happened from your commercial
11 perspective.
12 Let us just have a look at it -- well, the quickest
13 way might actually be to go to A. Don't worry, I'm not
14 going to go through legal points with you, Mr Atherton.
15 A. Good.
16 MR JUSTICE BURTON: Bundle A.
17 MR WOLFSON: Bundle A, my Lord, just so we understand the
18 point. It is tab 3. This is a formal legal document,
19 Mr Atherton, which is called the Re-amended Defence and
20 Counterclaim. There is a statement of truth by your
21 solicitors but obviously they will have checked with
22 somebody at Heritage. Just pick it up at
23 paragraph 53.1.
24 What I am looking at is the answer you have just
25 given my Lord is that your understanding is that 31.A
146
1 meant you could negotiate about your, Heritage's, tax
2 liability to the Government. What I am putting to you
3 is whether you are complaining that Tullow negotiated
4 about the notices served on it with the Government and
5 whether you are saying that that was also a breach of
6 3.1A so far as you understood the deal that had been
7 done between the parties. You understand the
8 distinction I'm drawing?
9 A. If I'm right, so my understanding, I'd like to go to
10 clause 3.1A, but does clause 3.1A allow Tullow to be
11 involved in our tax dispute? One question. The second
12 question: does it allow Tullow to be involved in an
13 agency notice? Is that correct?
14 Q. What I am trying to get at is whether your position is
15 that Tullow acted wrongfully in some way by dealing with
16 the Government about the agency notice as distinct from
17 dealing with the Government about Heritage's own tax
18 position. That is the distinction I am drawing.
19 A. Are they not linked?
20 Q. You don't see any difference between the two?
21 A. I see that if there is a tax dispute then clause 3.1A
22 gave us the sole rights to negotiate and act in that
23 dispute.
24 Q. And that dispute, you are referring to the question
25 whether you actually owe the Ugandan Government any tax
147
1 at all; is that right?
2 A. That's correct.
3 Q. So let us look at the facts as to what actually happened
4 because, as I say, I am not going to debate legal points
5 with you. If you could turn to bundle E19/5277, it is
6 in core bundle 3 at 846. This is a letter from the law
7 firm I think you mentioned in an earlier answer,
8 Mr Atherton, Kiwanuka & Karugire?
9 A. Yes.
10 Q. It is dated 29 December 2010. We can read the letter.
11 My question is: am I right in assuming that you did not
12 give them instructions as to -- I will rephrase the
13 question.
14 Can I take it that this letter fairly reflects their
15 view as to the position under Ugandan law so far as you
16 are concerned?
17 MR QURESHI: Again, is the witness supposed to answer
18 a question about Ugandan law?
19 MR WOLFSON: No.
20 MR JUSTICE BURTON: He was being asked about his belief at
21 that stage, but can you reformulate the question,
22 please, Mr Wolfson?
23 MR WOLFSON: Yes, my Lord. I am just wondering whether
24 I can take it even quicker than that. Let us approach
25 it this way, Mr Atherton. Can we agree that this letter
148
1 does not require or even ask Tullow to do anything about
2 the notice which has been served on it, the second
3 agency notice?
4 A. This was a letter written in connection with the second
5 agency notice, correct.
6 Q. Do you want to answer the first bit? This letter does
7 not require or even ask Tullow to do anything about the
8 notice which has been served on it?
9 A. It goes through the facts as they saw it.
10 Q. Yes. It doesn't require Tullow to challenge the notice,
11 does it?
12 A. No, but it says that:
13 "Our client shall not recognise any amounts remitted
14 to the URA pursuant to the invalid third party agency
15 notice."
16 Q. It doesn't require Tullow to refuse to pay under it?
17 A. This letter does not specific -- it says it's invalid
18 and it states that it does not recognise any amounts
19 which would be remitted.
20 MR QURESHI: Do you want to look at the paragraph above?
21 MR WOLFSON: Yes. That is precisely the paragraph I am
22 coming to, thank you.
23 What it does, in the paragraph that your counsel has
24 helpfully drawn your attention to on the second page,
25 what it does it says:
149
1 "Look, Tullow, there's clause 3.7 of the sale and
2 purchase agreement where there's no set-off."
3 What this letter is saying to Tullow is: "You have
4 to pay us in full under the SPA and how you deal with
5 the agency notice is frankly up to you."
6 That is what this letter is saying, isn't it?
7 A. It is saying the third party agency notice is invalid.
8 Q. You were perfectly happy for Tullow to pay under the
9 notice provided you got your money under the SPA that is
10 the case, isn't it?
11 A. No, we are calling the third party agency notice
12 invalid.
13 Q. You didn't think that whether Tullow paid or didn't pay
14 under the notice would have any prejudicial impact on
15 whether your dispute with the Government on your tax
16 liability proceeded or not?
17 A. That is not the case. It is not the case. We saw this
18 as an agency notice, it was invalid. We sent it to
19 them. We sent it to the URA and we were saying that we
20 don't believe it is valid.
21 MR JUSTICE BURTON: That I think is what counsel is putting
22 to you.
23 MR WOLFSON: Yes.
24 MR JUSTICE BURTON: You thought it was invalid and therefore
25 it had no effect on your dispute?
150
1 A. But by them being involved they have got involved in our
2 dispute. It is clear on the supplemental.
3 MR JUSTICE BURTON: "Involved" is a bit of a broad use of
4 wording.
5 A. I'm sorry.
6 MR JUSTICE BURTON: I think it is sufficient really, and
7 a matter of argument now, you did not instruct your
8 lawyers to tell them that they must take any step in
9 relation to this notice, and if they didn't take any
10 such step or if they took contrary steps they would be
11 acting in breach of clause 3.7.
12 A. I think we -- their answer was -- this is getting in
13 into a legal debate, I am afraid, which I am afraid I'm
14 not a qualified lawyer. I'm not a lawyer at all. We
15 just asked our lawyers to send back a lawyer disputing
16 the agency notice and they classified it as invalid.
17 MR WOLFSON: Your position was that if Tullow didn't pay you
18 the sums due under the SPA then you wouldn't release the
19 Standard Bank guarantee, correct?
20 A. The Standard Chartered Bank guarantee.
21 Q. Yes, the Standard Chartered Bank guarantee. That was
22 your position?
23 A. That was later on. There was no discussion about the
24 Standard Chartered Bank guarantee at this time at all.
25 Q. I'm not saying at this time. That became your position,
151
1 didn't it, that: if you don't pay up under the SPA you
2 are not going to get the guarantee released, correct?
3 A. Well, there was a settlement agreement on 14 March 2011,
4 or there or thereabouts, where the working capital was
5 agreed and Tullow said: "If we are going to pay off
6 the -- if we are going to make the supplemental working
7 capital we need the bank guarantee to drop away", and we
8 accepted that.
9 Q. Were you in court when I showed my Lord the document,
10 the letter from you, where you refused to release the
11 bank guarantee unless Tullow pays up both under the SPA
12 and also under the other agreement?
13 A. We had in the agreement it was --
14 Q. The question so far was: were you in court?
15 A. I was in court.
16 Q. Good. Can we agree that the guarantee was a guarantee
17 for obligations under the SPA and not for the other
18 agreement; is that correct?
19 A. I believe that to be correct.
20 Q. And your position was that you were again playing hard
21 ball and saying that we won't release the guarantee
22 unless you pay both under the SPA and under the other
23 agreement, correct?
24 A. No, the situation was they owe us some money, TSAs
25 monies were outstanding for a few months and we will
152
1 agree everything in a settlement agreement and part of
2 that settlement agreement is to pay off the working
3 capital, pay off around $300,000 which was owed on the
4 transitional services, I think it was $13.6 million
5 owing on the working capital. We bundled them together,
6 so they'd pay them on the same date and also on that
7 same date we would terminate the guarantee or hand the
8 guarantee back. I'm not sure of the correct legalese.
9 MR JUSTICE BURTON: Perhaps you should show him the letter.
10 MR WOLFSON: Yes.
11 MR JUSTICE BURTON: Bundling them together is I think what
12 Mr Wolfson is actually putting to you.
13 A. We put them together.
14 MR JUSTICE BURTON: Even though the guarantee did not cover
15 the transitional services or whatever they were
16 called --
17 A. Correct.
18 MR JUSTICE BURTON: -- unless you were paid both for
19 transitional services and the working capital you would
20 not release the guarantee.
21 A. It wasn't a long debate. It was agreed between the two
22 parties we would put the two amounts together which were
23 outstanding at that date.
24 MR JUSTICE BURTON: And unless you paid them both even
25 though the transitional services were not covered by the
153
1 guarantee you would not release the guarantee: answer
2 yes.
3 A. Yes, and it was commercial. It wasn't a hard line
4 negotiation which seems to be alluded to.
5 MR JUSTICE BURTON: It was a hard line position.
6 A. It was just a case of what's owed at that time under the
7 TSA and under the working capital and we'll put those in
8 a letter and then we'll cancel the guarantee.
9 MR WOLFSON: It is just another example, is it not,
10 Mr Atherton, of Heritage playing hard ball in
11 a negotiation?
12 A. It was no hard ball negotiations. It was a case of
13 commercially what's outstanding at the time and we'll
14 put it in an agreement.
15 Q. Because the one thing you know when you deal with
16 Heritage is if Heritage has any way of exercising
17 leverage over you they will take that and more. That is
18 what we have seen throughout this story so far, isn't
19 it, the way you dealt with the URA, the way you dealt
20 with the Ugandan Government, the way you dealt with
21 Tullow?
22 A. We have a transitional services agreement which is still
23 ongoing today. So by taking what you are saying we
24 wouldn't have done anything under it. We carried on.
25 We're good for our word. We carried on providing, as we
154
1 do today, providing services to Tullow in Uganda under
2 the transitional services agreement. I take that back.
3 I object.
4 Q. Your objection I am sure is noted.
5 Can we go to another topic, Mr Atherton, and for
6 these few questions let us ignore for the moment whether
7 or not the liability is payable. Can we agree that
8 Heritage at the moment has a liability to tax in Uganda,
9 putting aside the question whether that liability is
10 actually payable. Do you accept that?
11 A. There is an assessment, a dispute ongoing, yes.
12 Q. Because the current position is that two assessments
13 have been served on Heritage. They haven't been set
14 aside and in fact they have been confirmed by the Tax
15 Appeal Tribunal. That is the current state of play?
16 A. And we have appealed.
17 Q. Absolutely.
18 A. And we are going through arbitration. That is the
19 current state of play.
20 Q. Exactly and to be absolutely fair to you that is right:
21 you have appealed in Uganda and there is the
22 international UNCITRAL arbitration going on as well that
23 we have heard about?
24 A. Correct.
25 Q. Let us factor now Tullow's payment back in. Let us
155
1 factor in Tullow's payment. We were discussing earlier
2 what the position was. Are you suggesting that Tullow's
3 payment has discharged Heritage's tax liability in
4 Uganda?
5 A. No, the disputes, assessments are still ongoing.
6 Q. If Heritage is found to have a substantive tax liability
7 in Uganda, so your appeal to the Ugandan tribunal fails,
8 the Ugandan appeal court fails?
9 A. The High Court. I think it is the High Court.
10 Q. In those circumstances Tullow would have discharged your
11 liability by its payment. That is your position, isn't
12 it?
13 A. My -- we have the arbitration agreement that we have got
14 that if the arbitration panel proceeds and determines it
15 is taxable or not taxable then the monies would be paid
16 or not paid and they would be paid if we lose, they'll
17 be paid to the Ugandan Government and if we win then
18 monies will come to Heritage.
19 MR JUSTICE BURTON: The appeal to the Tax Tribunal, has that
20 been stayed pending the arbitration decision or could
21 you be faced with both of them?
22 A. It has gone to the High Court in Uganda. It was not
23 stayed. We tried to --
24 MR JUSTICE BURTON: It takes ages.
25 MR QURESHI: My Lord, I can explain why.
156
1 MR JUSTICE BURTON: Yes.
2 MR QURESHI: There was an application made for a stay and
3 the Tax Appeal Tribunal said it didn't have the
4 jurisdiction to stay its own proceedings and the High
5 Court judge determined that the jurisdiction to stay
6 relating to arbitration proceedings didn't extend to
7 a tribunal, so the High Court judge in Uganda concluded
8 that there was no jurisdiction to stay the Tax Appeal
9 Tribunal proceedings in favour of an arbitration.
10 MR JUSTICE BURTON: What about the appeal to the High Court,
11 that is regarded as a tribunal hearing then is it?
12 MR QURESHI: My Lord, there is a statutory mechanism for the
13 decision of the -- because the Tax Appeal Tribunal
14 decision couldn't be suspended they carried on. The
15 High Court wouldn't grant a stay. They reached the
16 decision that your Lordship has seen and that now has to
17 go through a statutory mechanism.
18 MR JUSTICE BURTON: I understand that, but the High Court
19 could be asked for a stay of the appeal. They refused
20 a stay of the Tribunal hearing.
21 MR QURESHI: Yes.
22 MR JUSTICE BURTON: That went through and your side lost.
23 MR QURESHI: Yes.
24 MR JUSTICE BURTON: They are appealing. Is there or is
25 there not a stay of the High Court appeal pending the
157
1 arbitration decision?
2 MR QURESHI: No, my Lord, it's --
3 MR JUSTICE BURTON: Just a slow business. You could find
4 yourself, assuming that the arbitration decision comes
5 out quite soon and accepts jurisdiction, of course if it
6 doesn't accept jurisdiction the only place you have is
7 the Ugandan court, but if it does, then you could find
8 that you are fighting on both fronts, and possibly with
9 inconsistent decisions.
10 MR QURESHI: Yes.
11 MR WOLFSON: That would be another nice element.
12 MR QURESHI: We have the New York Convention.
13 MR WOLFSON: Good luck.
14 So I think I have understood, your position at the
15 moment is that because all this is going on in Uganda
16 and the arbitration no payment by Tullow has discharged
17 any liability as yet?
18 A. Correct.
19 Q. Can we have a look at bundle E22/6217. This is not in
20 the core, my Lord.
21 MR JUSTICE BURTON: Right.
22 MR WOLFSON: E22/6217. This is a letter written by your
23 solicitors McCarthy Tetrault. In paragraph 4 they say
24 this:
25 "The purpose for which the escrow amount was
158
1 retained rather than immediately paid to Heritage,
2 namely potential payment to the Government in discharge
3 of alleged tax liability, has now come to an end. As
4 noted above, you stated you have made payment to the URA
5 and that such payment has discharged Heritage's alleged
6 tax liabilities. Consequently, [in other words, on that
7 basis] please execute the enclosed transfer instruction
8 directing the escrow agent to pay $283 million to us."
9 So what you or your solicitors were doing in that
10 letter was first of all, saying that Tullow had
11 discharged your tax liability and more than that,
12 actually relying on that discharge as the basis on which
13 the escrow amount shall be paid out to you?
14 A. The escrow was set up for the Government to ensure that
15 there was sufficient funds. I think this letter states
16 that the Government now has its money, it can carry on
17 and it will carry on the dispute with Heritage but the
18 fact that it needs the money to be held and locked up in
19 escrow there is no longer a requirement from the
20 Government's side to do that because the Government has
21 received the $283 million. But we have still got the
22 dispute. We have still got the assessments outstanding,
23 correct, absolutely.
24 Q. Isn't your position in this letter that Tullow's payment
25 has in fact discharged the liability and you are relying
159
1 on that as the reason to pay out the 283?
2 A. The reason to pay out the 283 is the Government has
3 received the funds so its comfortable which is why.
4 Q. It doesn't say that, does it?
5 A. -- Government demanded the escrow arrangement. I'm
6 saying this is my understanding of it.
7 Q. Was this letter written on your instructions?
8 A. I'm sure McCarthys would have written a letter on behalf
9 of Heritage's instructions, yes. What I believe is that
10 the money's in escrow, what the letter is trying to say,
11 the money's in escrow, there is no longer a requirement
12 to remain and retain them in escrow. They can come to
13 the company. The company will carry on the disputes and
14 if it loses it will pay the funds.
15 Q. So if you lost, then you'd pay up to the Ugandan
16 Government?
17 A. We have always maintained we'd pay any.
18 Q. And the fact that you have taken the $283 million out of
19 escrow in the meantime was just sort of machinery, was
20 it?
21 A. It would mean we would have access to it but we've
22 always said we would pay any taxable fee legally
23 imposed.
24 Q. Come off it, Mr Atherton. What this letter is doing is
25 saying: you have paid out the tax liability, pay out the
160
1 $283 million to us and as sure as eggs is eggs,
2 Mr Atherton, if the Ugandan Government won, then they
3 would have to chase Heritage round the world to try and
4 find $283 million, wouldn't they?
5 A. No.
6 Q. This was nothing more than an attempt to try and get the
7 money out of escrow on the basis, which you were
8 asserting but which is contrary to your position, that
9 Tullow's payment had in fact discharged Heritage's tax
10 liability?
11 A. It is a letter saying there is no longer a requirement
12 for the escrow account.
13 MR JUSTICE BURTON: But as long as your dispute was going on
14 there needed to be security in case you lost, didn't
15 there?
16 A. From the Government of Ugandan's side security, they had
17 money so the requirement for security which was the
18 escrow funds has gone. The question -- so I would say
19 on that basis, no. We have always maintained we'd pay
20 the funds. We've always paid our debts.
21 MR JUSTICE BURTON: But you don't say Tullow paid it on your
22 behalf, do you?
23 A. No.
24 MR JUSTICE BURTON: So it wasn't security that you'd
25 provided.
161
1 A. It was -- we provided the security, the 283. It's our
2 funds.
3 MR JUSTICE BURTON: What?
4 A. The 283 originally was our funding.
5 MR JUSTICE BURTON: Yes, but not if you got it out of the
6 escrow account. You would now have it and the 313 that
7 the Government would be retaining would have been
8 Tullow's money. Hardly security for your liability.
9 A. True.
10 MR JUSTICE BURTON: Anyway, that is what you thought you
11 were entitled to. It is suggested that it is
12 inconsistent. I think this is probably a legal argument
13 rather than anything else.
14 MR WOLFSON: Yes. Certainly there is a legal element to it,
15 my Lord. Let me move on to another point. I think we
16 have probably dealt with that.
17 MR JUSTICE BURTON: Anyway you have helped my question
18 earlier. This is where we get the 7 April claim.
19 MR WOLFSON: Precisely. That is the point we were
20 ventilating earlier this morning, my Lord.
21 MR JUSTICE BURTON: It was. Thank you very much.
22 MR QURESHI: Just for the sake of completeness, my Lord, if
23 it be said that it is McCarthys who came up with
24 the discharged liability language your Lordship will
25 find Tullow stating that position in their claim letter
162
1 of 17 March 2011, paragraph 4, bundle E20.
2 MR JUSTICE BURTON: Do I have this in the core bundle?
3 MR QURESHI: I don't believe, so, my Lord.
4 MR JUSTICE BURTON: Where?
5 MR QURESHI: E20/5652. It is probably just as well to see
6 it.
7 MR WOLFSON: Core 973, my Lord.
8 MR QURESHI: It is paragraph 4, my Lord of the Tullow
9 letter. Does your Lordship see it?
10 MR JUSTICE BURTON: Yes.
11 MR QURESHI: That is where the language comes from.
12 MR JUSTICE BURTON: Yes.
13 MR WOLFSON: No doubt we will have an interesting debate
14 about this next week, something to look forward to, with
15 the Ugandan law experts.
16 Mr Atherton, and, my Lord, I was going to turn to
17 a few questions on Heritage's counterclaim which I am
18 going to take fairly briefly.
19 MR JUSTICE BURTON: This is all dependent upon this letter;
20 is that right?
21 MR WOLFSON: I am not sure all the counterclaim is dependent
22 on that letter. Insofar as the counterclaim is that
23 they have lost the use of the escrow asset then it must
24 be dependent on that. There are the other bits and
25 pieces of -- the breach of clause 3.1A is a complete
163
1 defence. I will take the counterclaim points fairly
2 briefly but I think that might be a moment for the
3 shorthand writers.
4 MR JUSTICE BURTON: That sounds a very good idea. How much
5 longer do you think you have?
6 MR WOLFSON: I would try to get through in about 10 or 15
7 minutes I would hope.
8 MR JUSTICE BURTON: Yes, we will take a break. Where should
9 I put the 15 April letter?
10 MR WOLFSON: The 15 April 2011, is your letter talking about
11 where in the core bundles?
12 MR JUSTICE BURTON: Yes.
13 MR WOLFSON: Can we have a look at that over the short break
14 and we'll give you your Lordship a suggested page
15 reference.
16 MR JUSTICE BURTON: Yes, thank you very much.
17 (3.20 pm)
18 (A short break)
19 (3.30 pm)
20 MR WOLFSON: Your Lordship may wish to insert the 15 April
21 letter in the core to be 984.06A and B we suggest that
22 is where it is best put. 984.006A and B. It would come
23 before a document headed "Chief executive's review"
24 which is 984.007.
25 MR JUSTICE BURTON: I see, lots of 984s.
164
1 MR WOLFSON: Yes, there are a lot of 984s, there are a whole
2 load of additions, at .007 is the start of a new
3 document.
4 MR JUSTICE BURTON: I can see that you, Mr Wolfson share my
5 preferences for As and Bs whereas the solicitors prefer
6 the 00006. Yes, thank you.
7 MR WOLFSON: My Lord, yes.
8 MR JUSTICE BURTON: So 984.006A and B.
9 MR WOLFSON: Yes, my Lord. Mr Buckingham is 007.
10 MR JUSTICE BURTON: So it seems, yes.
11 MR WOLFSON: There are some things you just can't resist,
12 my Lord.
13 MR JUSTICE BURTON: Yes.
14 MR WOLFSON: Mr Atherton, I am going to try and take this
15 fairly briefly because there are a number of legal
16 points which I am not going to debate with you. Just so
17 I understand, the gist of the counterclaim so far as the
18 escrow monies are concerned, can I try and summarise it
19 this way, is that if Tullow had paid out the
20 $283 million in escrow to you in April 2011, then
21 Heritage would have had all of this money sitting in
22 a bank account in November 2012 and so when you took out
23 your bridging loan you could have taken out a bridging
24 loan £283 million less than the loan you actually took
25 out?
165
1 A. The bridging loan was taken out on 29 June rather
2 than November.
3 Q. Was it, right.
4 A. Correct.
5 Q. Is that right? Let me have a look.
6 A. There was -- the funds -- the finance of the loan -- the
7 loan was actually drawn in November but all the finance
8 was put in place on 29 June 2012 and there were fees
9 payable at a discounted rate and then it was drawndown.
10 Q. I see, so drawndown wasn't until November but the banks
11 had made a commitment to fund in June?
12 A. Correct.
13 Q. But presumably if somebody had gifted you another
14 $283 million between June and November, you wouldn't
15 have drawn down that 283 million, would you?
16 A. We had already entered into the arrangements at that
17 time.
18 Q. You would have paid the commitment fee for it but you
19 wouldn't pay interest because you wouldn't have drawn it
20 down?
21 A. There was a reduced rate of interest because they had
22 locked up the cash. So we were paying interest on the
23 facility which was undrawn for the period from 29 June
24 until beginning of November.
25 Q. Yes, but if before November you had been gifted
166
1 $283 million by the Heritage fairy grandmother --
2 MR JUSTICE BURTON: November 11 or November 12.
3 MR WOLFSON: November 12, my Lord.
4 MR JUSTICE BURTON: The money would have come through
5 in April 11.
6 MR WOLFSON: So the counterclaim is put on the hypothesis
7 that for a year and a half the money is going to be
8 sitting around earning interest, and what I think the
9 witness is saying is: "Oh no, it is not a year and
10 a half, it is a year and a couple of months."
11 A. Correct.
12 Q. My Lord, it is not just earning interest, it is that
13 then they would have had, as I understand it --
14 Mr Atherton, I think we are agreeing on this point --
15 the way the counterclaim is put is not just the interest
16 differential between what you can earn on the money and
17 what you get on the escrow account, it is also the fact
18 that you would have had to borrow $283 million less by
19 way of the bridging loan.
20 MR JUSTICE BURTON: Yes, but to start off with there's the
21 differential of interest until June 2012?
22 A. Correct.
23 MR JUSTICE BURTON: Then in June 2012, is that when it is or
24 is it November?
25 A. The facility was put in place, we had to pay fees with
167
1 effect from June and we had a reduced rate of interest
2 but we did have interest on the facility, correct, from
3 29 June.
4 MR JUSTICE BURTON: So from June 2012, instead of borrowing
5 this money, you would have saved the --
6 A. Commitment fee.
7 MR JUSTICE BURTON: -- the cost of borrowing?
8 A. And the cost of borrowing, correct.
9 MR JUSTICE BURTON: Where does that get you? I don't mean
10 in terms of actual physical quantification, I just want
11 to understand the principle of it.
12 So June let us say there is a difference, you
13 establish -- I don't know whether Mr Wolfson is going to
14 contest this or not -- that you could have got a better
15 rate than you got in the escrow account. Let us assume
16 it is an extra 1 per cent from April to June 2012. As
17 from June 2012, just help me what would have happened.
18 A. So from June we are saying that we would have not had to
19 borrow. We borrowed $715 million. We would have
20 reduced that amount of borrowing or facility by
21 $283 million, which would have saved a commitment fee on
22 the 283 of 2.65 per cent, which is what we paid as
23 a commitment fee to the banks. There were two banks
24 involved. And we were paying an interest rate to the
25 banks which we would have saved by not borrowing
168
1 $283 million.
2 MR JUSTICE BURTON: Then of course you wouldn't have
3 received the interest that you did receive on the escrow
4 accounts, so that has to be subtracted?
5 A. Correct, yes. That's absolutely right.
6 MR WOLFSON: And to be fair, that is the way the calculation
7 is put. It is a differential.
8 MR JUSTICE BURTON: Yes, thank you.
9 MR WOLFSON: In paragraph 262 of your witness statement you
10 say that from about September 2010, Heritage began
11 actively to consider the acquisition of a major interest
12 in OML30, a significant producing oil field in Nigeria.
13 The point I am going to put to you, Mr Atherton, is
14 that that is nothing more than a backdating of your
15 interest in this particular acquisition to explain why,
16 if you had got the money in April 2011, you wouldn't
17 have used it for anything else but you would have had it
18 hanging around in your bank account for at least a year
19 and two months.
20 A. And that's not correct. If I can just step back. The
21 acquisition we referred to is a licence called OML30, it
22 is a 45 per cent interest and it was sold by Shell,
23 Total and ENI, who ran a process which commenced
24 in September 2010. It is public. There are a number of
25 parties that attended a data room and the process
169
1 dragged on and on and did not complete. We signed
2 a sale and purchase agreement on 29 June 2012, some
3 considerable time after the process had commenced, and
4 then we completed the transaction in November 2012,
5 which is two years after the process had commenced.
6 Q. Would there have been any documents within Heritage,
7 therefore, in September 2010 to evidence Heritage's
8 interest in this proposed oil field transaction?
9 A. Without question there would.
10 Q. Sorry.
11 A. Yes.
12 Q. Without question? I am only asking because we haven't
13 received a single document.
14 MR JUSTICE BURTON: This is a very substantial counterclaim
15 to put forward without any documents if that is right.
16 A. It is a public process. If you were to look at OML30,
17 Shell's disposal of four assets in Nigeria, it will have
18 been discussed in some --
19 MR JUSTICE BURTON: You did go in it for it, did you, in
20 November 2012?
21 A. Absolutely.
22 MR JUSTICE BURTON: What counsel is asking about is any
23 documents which show that as from September 2010 you
24 were internally discussing taking part.
25 A. Yes, there will be.
170
1 MR WOLFSON: Mr Atherton, please don't get me wrong. If
2 documents are produced, then we will obviously read them
3 and look at them, but at the moment we are faced with
4 a counterclaim for tens of millions of dollars, frankly
5 on the strength of a say-so. There is not a single
6 document produced in support of the assertion that it
7 was under active consideration from September 2010.
8 MR JUSTICE BURTON: And I suppose also that you were
9 thinking about how you were going to finance it, what
10 the possible sources of funds were and that you didn't
11 have enough funds without borrowing.
12 A. Quite.
13 MR WOLFSON: Because what we do know is that in August 2010,
14 less than a month after you received the sale
15 consideration on 26 July 2010, that money wasn't held
16 for future projects, but in fact it was divvied out to
17 shareholders, wasn't it? There was a special dividend
18 of 100p?
19 A. Correct.
20 Q. Mr Buckingham said in a document, and I don't think we
21 need to go to it, that from investor feedback the
22 dividend was well received. It was a popular thing to
23 do, wasn't it?
24 A. We had announced to the market when we entered into the
25 ENI transaction, there was a circular we had to issue to
171
1 the market which is in December 2009 and that's when we
2 discussed this one-off special dividend of up to 100
3 pence.
4 MR JUSTICE BURTON: How much did that cost you?
5 A. $490 million.
6 MR JUSTICE BURTON: That is more, of course, than the
7 308 million that we are talking about.
8 A. 313 million, my Lord.
9 MR JUSTICE BURTON: 313 million that we are talking about,
10 and what counsel is asking you is whether that couldn't
11 have been used for the holdback for the Nigerian
12 project.
13 A. The decision in terms of the dividend was December 2009
14 when we did two things. We issued a circular to our
15 shareholders where we referred to a special one-off
16 dividend, and also we had to enter into a change to
17 a bond. We had a bond outstanding at that time and that
18 had what's classified as a dividend stopper covenant so
19 we couldn't pay a dividend and we had to amend the bond
20 rights in December 2009 which we did.
21 MR WOLFSON: Mr Atherton, can we just be a bit realistic
22 about this. The way Heritage works, which is a company
23 owned 30 per cent by one individual, is that when you
24 have a huge amount of cash lying around you divvy it out
25 to the shareholders. That's what you did. That is the
172
1 point I am putting to you. That is what you did with
2 the sale consideration. The point I am putting to you
3 is that if you had received another large cash receipt,
4 such as the 283 million in April 2011, you would have at
5 least used part if not all of it to pay a larger
6 dividend for that year, correct?
7 A. Not correct. We had made one dividend payment in
8 20 years, my Lord, and we called it a one-off special
9 dividend.
10 Q. So your case is that you would have left 283 million
11 lying around in a bank account, untouched,
12 between April 2011 and at best June 2012?
13 A. We would have maintained it within corporate resources,
14 correct.
15 Q. The final short point I want to take you to, and let us
16 see if we can just really shortcut this because I'm not
17 sure there is actually very much between us, it is this
18 business about the sum for withholding tax and can I
19 just put it to you this way. Let us do it by reference
20 to one document, E16/4301. It is not in the core,
21 my Lord.
22 MR JUSTICE BURTON: Just while you are looking for this,
23 there were two matters you said you were going to come
24 back to. I know you have come back to one of them, the
25 question of agency.
173
1 MR WOLFSON: Yes.
2 MR JUSTICE BURTON: But there was another one. Your junior
3 has probably picked it up. You said you would be coming
4 to this later. I can't remember whether you have or
5 haven't done.
6 MR WOLFSON: I certainly hope I have.
7 MR JUSTICE BURTON: I am sure you have but you said to me,
8 it was earlier this morning, just some time this morning
9 when I asked a question, you said you would come to it.
10 MR WOLFSON: We will do a search on the transcript, my Lord,
11 yes.
12 MR JUSTICE BURTON: Yes, thank you very much.
13 MR WOLFSON: If we look at E16/4301 --
14 MR JUSTICE BURTON: It was before the agency point. You
15 said you'd deal with that later and you did. So it was
16 another point before that. So probably "come back to"
17 or something like that might pick it up on the search.
18 Yes?
19 MR WOLFSON: Mr Atherton, let us just have a look at this
20 chain from Reshma Shah's email at the bottom of the
21 page:
22 "Hi Richard, two payments really, [talking about the
23 withholding here]. Transition service agreement, 719
24 ... closing statements ..."
25 And then:
174
1 "On the WHT [withholding tax] assessments, the URA
2 position on 2003 to 2009 is that $20.5 million is still
3 due. Heritage's position is that $8 million is due."
4 And the point I was putting to you is that on the
5 assumption that the URA was right -- on the assumption
6 that the URA was right -- Tullow's share is half, isn't
7 it?
8 A. Correct.
9 Q. And therefore would be, what, $10.25 million dollars?
10 We can do the maths.
11 A. Correct.
12 MR JUSTICE BURTON: You are losing me really. Half of what?
13 MR WOLFSON: $20.5 million, my Lord.
14 MR JUSTICE BURTON: Where does the 20.5 arise?
15 MR WOLFSON: The very last line of the page, my Lord, 4381.
16 MR JUSTICE BURTON: I see.
17 MR WOLFSON: My Lord, this may seem a bit cryptic but it
18 goes to there is a small issue between the parties on
19 some tables and I'm not sure there is any real dispute
20 between us on the maths actually.
21 MR JUSTICE BURTON: Right.
22 MR WOLFSON: My Lord, there was only one other document
23 although we are looking at that reference. Mr Atherton,
24 you recall earlier today we were having a debate as to
25 his Lordship asked you whether Heritage ... (Documents
175
1 handed).
2 We were talking about the 30 million and whether you
3 had actually ever paid up the 30 million and I was
4 putting to you that Heritage's position had been that
5 the Government had had the 30 million as being part of
6 the monies which Tullow had paid the Government and you
7 were saying that so far as you were aware that was not
8 a point which Heritage had ever advanced. Do you recall
9 that debate this morning?
10 A. Carry on. No, not yet. I am not disputing we didn't
11 have the conversation but I can't remember it precisely
12 word for word.
13 MR JUSTICE BURTON: You said that this morning. You said
14 that wasn't a case that Heritage had ever advanced,
15 namely that you didn't need to produce the 30 per cent
16 of the --
17 A. The 30, yes, sorry, that's correct, we had already
18 objected.
19 MR JUSTICE BURTON: -- because it had been paid by Tullow.
20 A. No, and the objection was before and everything was
21 resolved with the TAT to my knowledge before, correct.
22 MR JUSTICE BURTON: We are ad idem about it. Something is
23 going to be put to you in that context.
24 A. Okay.
25 MR WOLFSON: Have you been provided with this document?
176
1 A. This one here, yes, the TAT.
2 Q. We saw earlier a record of the proceedings and my
3 learned friend explained what it was and this is the one
4 of the -- this is the sort of supplemental hearing, the
5 procedural hearing.
6 MR QURESHI: My Lord, I also explained that these were
7 confidential proceedings.
8 MR WOLFSON: Having put in one, I think I'll put in the
9 other. If we look at the first page, Mr Atherton, you
10 see it says "Proceedings", Mr Kiwanuka -- he's your
11 advocate, attorney, isn't he?
12 A. One of them, yes.
13 Q. "This matter is coming up to respond on the preliminary
14 objection raised by the respondent ..."
15 And if we just turn through, on the second page you
16 see in the first paragraph what the objection is,
17 halfway through that first paragraph:
18 "At the start of the hearing an objection was raised
19 on the ground that the applicant [that is Heritage] had
20 not paid 30 per cent of the taxes in dispute, whichever
21 was greater."
22 This was a point your Lordship was raising.
23 MR JUSTICE BURTON: It is.
24 MR WOLFSON: Which is why I'm putting it in, my Lord.
25 MR JUSTICE BURTON: Thank you.
177
1 MR WOLFSON: This is his submissions. At the bottom of
2 page 1, the Tribunal says you can proceed. He's not
3 recorded so to speak as starting again, but obviously
4 is. And then he says at the bottom of page 2:
5 "There are four points we are going to traverse in
6 our submission."
7 Look at number 2:
8 "As a question of fact that URA has received
9 $30 million and as such it cannot demand payment of
10 30 per cent."
11 Mr Atherton, that's why I was putting to you that
12 indeed Heritage has been taking the position that
13 although it didn't put its own hand in its pocket for
14 the 30, as it didn't put its own hand in its pocket for
15 the 283, it is relying now on Tullow's payment to the
16 Government to satisfy its requirement to put up the
17 30 per cent. Do you see that now?
18 A. I'm just reading the document.
19 MR JUSTICE BURTON: Well, there it is. Did you remember
20 that?
21 A. I did not remember it, my Lord. No, I did not. I was
22 aware of the date, I was not aware of this. I had
23 forgotten this, I think is --
24 MR JUSTICE BURTON: I don't know whether you were in court.
25 You weren't there on that day?
178
1 A. No, I wasn't there, I did not attend.
2 MR JUSTICE BURTON: There you are. Those representing you
3 made that point.
4 A. Yes.
5 MR JUSTICE BURTON: Of course they also made the point that
6 you made, namely that there had been a preliminary
7 objection. The point that was being made against you,
8 it seems, was it is not enough to make a preliminary
9 objection, you have to pay the 30 per cent, and it seems
10 that your people were saying what Mr Wolfson suggested
11 they were saying. Yes.
12 MR WOLFSON: Mr Atherton, thank you very much.
13 MR JUSTICE BURTON: Sorry, can I go back to E/4301. You
14 said it doesn't look as though you are in issue, but I
15 am not sure what the issue was.
16 MR WOLFSON: This is the withholding tax point, my Lord.
17 There is a statement in Mr Atherton's witness statement
18 at 248.
19 MR JUSTICE BURTON: Can we get that?
20 MR WOLFSON: Yes.
21 MR JUSTICE BURTON: Yes.
22 MR WOLFSON: This is the withholding tax and he notes in his
23 review of the documents, he picks up what we have said
24 in our response to requests for further information and
25 your Lordship sees that that in italics is a quote:
179
1 "As at 2 December 2010, the obligation in respect of
2 withholding tax was ..." about $10.25 million, and he
3 says:
4 "As at 2 December 2010, Tullow had already paid
5 various sums in settlement and the liability was
6 identified as being [and that is a Ugandan shillings
7 amount] and this was paid out."
8 And the only point of the cross-examination was to
9 explain where that 10.25 comes from. Whether that was
10 the sum which was subsequently paid or subsequently due
11 is something we can debate if necessary in closing, but
12 I wanted to make it clear, and I think we have agreed at
13 least where that figure of 10.25 comes from, albeit that
14 there may be a later process by which that figure was
15 revised. I don't think on that point there is anything
16 between us.
17 A. If I can add a little bit of colour, not a huge amount.
18 There is a spreadsheet which is scheduled at 2180 but
19 the withholding tax, all of the oil companies, if I can
20 summarise that, in Uganda were having a debate with the
21 Ugandan Government about the level of withholding tax.
22 It had been going on for many, many, many years and we
23 recognised $8 million. This is "we" being Heritage and
24 Tullow 50/50. We are all in agreement, and the Ugandan
25 Government was at a much larger, much higher figure,
180
1 principally because of interest. They hadn't responded.
2 The Government hadn't responded over a number of years
3 and then they started accruing interest.
4 We had already cash calls, se we already had in the
5 bank account a significant portion of the withholding
6 tax monies, and I think it resulted in a payment towards
7 the end of 2010 from Tullow to Heritage which was then
8 remitted to the Ugandan Government of I think it was
9 US$4.43 million.
10 MR WOLFSON: It is a lower figure. My Lord, it is not in
11 dispute that the figure actually paid was a lower figure
12 and actually on this point, it is nice to end on a point
13 of agreement, I don't think on this point there is
14 actually anything between us.
15 MR JUSTICE BURTON: It is not going to arise.
16 A. I think it was an accounting debate which went on in the
17 last quarter of 2010. We all agreed on it.
18 MR JUSTICE BURTON: I can't really grasp the relevance of it
19 to any issues in this case.
20 MR WOLFSON: It may not be and I hope after that exchange
21 actually this point will go away.
22 MR JUSTICE BURTON: Yes, is there any relevance in the
23 losses point, in deductible expenses?
24 MR WOLFSON: My Lord, I think the way we are dealing with
25 that is -- this is a point where --
181
1 MR JUSTICE BURTON: This is where we may be discussing the
2 --
3 MR WOLFSON: We had the learned juniors discussing this as
4 to how we are doing the --
5 MR JUSTICE BURTON: -- substantive tax point.
6 MR WOLFSON: There is a substantive tax point. I think
7 there is also a point where Heritage say, "We have
8 various losses" and I think at the moment the position
9 has been that: tell us what they are. And it is not
10 something I think which either side is asking your
11 Lordship to rule on.
12 MR JUSTICE BURTON: It is only if I have to decide what the
13 tax is that this becomes relevant, is that right?
14 MR WOLFSON: Exactly.
15 MR JUSTICE BURTON: And I'm hoping not to have to decide
16 that.
17 MR WOLFSON: And this point may not be relevant even if your
18 Lordship ends up having to decide the tax point so it is
19 a double --
20 MR JUSTICE BURTON: Where are we? Do you want to
21 re-examine?
22 MR QURESHI: No, my Lord.
23 MR JUSTICE BURTON: Thank you very much. Thank you for
24 coming.
25 MR WOLFSON: Thank you for attending to my questions. (the.
182
1 MR JUSTICE BURTON: You are released.
2 (The witness withdrew)
3 MR JUSTICE BURTON: Where are we on the magic formula, if
4 anything? Did you discover whether there was anything
5 else that I --
6 MR WOLFSON: I did ask my learned junior.
7 My Lord, it was that point. It was that point of
8 the 30 million and I said we would be coming to it.
9 MR JUSTICE BURTON: Good, thank you.
10 MR WOLFSON: My Lord, we had provided to some of the counsel
11 team a two-page document which -- would it assist if
12 I took your Lordship briefly through it?
13 MR JUSTICE BURTON: Yes.
14 MR WOLFSON: As I say, this is intended to be a constructive
15 and hopefully helpful approach.
16 What we have done is to set out as neutrally as we
17 can the position and I hope all of this will not be
18 controversial.
19 Paragraph 2, it doesn't arise in the context of the
20 primary claim. We think that is agreed.
21 MR JUSTICE BURTON: That is the contractual claim.
22 MR WOLFSON: That is the contractual claim. It only arises
23 in the alternative claim in unjust enrichment, and we
24 have a primary and secondary claim in unjust enrichment.
25 The primary claim is that Heritage has been enriched
183
1 because the liability under the assessments was
2 discharged, based on the argument that the effect of the
3 assessments was without more sufficient to impose
4 a liability on Heritage.
5 Just pausing there. Of course when I said all this
6 was agreed, I just mean the way the argument is put. Of
7 course my learned friend disagrees with a large part of
8 the argument.
9 The argument is that the assessments were
10 subsisting, continue to subsist, and the way we put the
11 case on the primary basis is that there is no need for
12 the court therefore to consider the underlying question
13 as a matter of Ugandan substantive tax law.
14 If we are wrong on that, then the secondary case on
15 unjust enrichment is that we effectively discharge their
16 substantive tax liability.
17 So it is the secondary case on our alternative
18 unjust enrichment argument.
19 MR JUSTICE BURTON: Yes, I expect so far that is common
20 ground. Yes, paragraph 6.
21 MR WOLFSON: Paragraph 6. What we say in those
22 circumstances is that the primary submission will be the
23 TAT has ruled and, with great respect, this court should
24 not go behind that ruling. That will be the submission.
25 If that primary case and the secondary case in that
184
1 etiolated form in 6 were not accepted then we would
2 submit that the court should make findings on all other
3 aspects of the unjust enrichment claim but postpone any
4 ruling on the issue of whether Heritage has in fact been
5 enriched and therefore would stay the entire unjust
6 enrichment claim --
7 MR JUSTICE BURTON: Pending what you call the final and
8 conclusive determination --
9 MR WOLFSON: In the Ugandan courts.
10 MR JUSTICE BURTON: It says "in the Ugandan courts". Of
11 course Mr Qureshi would no doubt want to say "or in
12 arbitration".
13 MR WOLFSON: Let us see if he does say that and of course if
14 he does say that then of course --
15 MR JUSTICE BURTON: I don't need to decide.
16 MR WOLFSON: You don't need to decide that now, exactly,
17 because of course if Heritage win in Uganda then that
18 point falls away.
19 MR JUSTICE BURTON: Yes, certainly, but I think Heritage
20 would want to say, not least in the light of
21 Mr Kabatsi's evidence, that they may not have as good
22 a chance in the Ugandan courts as they would in the
23 arbitration which is no doubt why they are wanting to
24 fight the arbitration.
25 But if the arbitration panel decide they have not
185
1 got jurisdiction, either because the clause doesn't bite
2 or because this is a matter of tax law which can only be
3 decided by the Ugandan courts, that is the end of
4 arbitration.
5 MR WOLFSON: Precisely.
6 MR JUSTICE BURTON: Subject to any appeal to this court.
7 MR WOLFSON: Exactly.
8 MR JUSTICE BURTON: Which is rare and far between or
9 whatever it is -- far and far between. Then it would be
10 the Ugandan courts. All I am pointing out is that
11 Mr Qureshi may want to put in or take out, "conclusive
12 determination of the issue of Heritage's substantive tax
13 liability", just take out the words "in Uganda".
14 MR WOLFSON: Yes, we weren't actually intending that
15 paragraph 7 would be agreed to.
16 MR JUSTICE BURTON: I understand. "Following such
17 determination ...", so if it turns out that --
18 MR WOLFSON: Any of this is necessary, and of course, as
19 your Lordship said, there are a number of permutations,
20 then, so to speak, the unjust enrichment case will be
21 live, we will advance the primary and secondary case as
22 set out in paragraphs 4 and 5 --
23 MR JUSTICE BURTON: The primary and secondary case on your
24 alternative case.
25 MR WOLFSON: Exactly. The whole thing is the alternative
186
1 case. Exactly.
2 MR JUSTICE BURTON: Because you can't even run your
3 alternative case at the moment because the Tax Appeal
4 Tribunal is under appeal.
5 MR WOLFSON: I am sorry to split hairs. We can't run the
6 secondary argument on the alternative case. The primary
7 one we can run, based on the assessments.
8 MR JUSTICE BURTON: Yes, of course.
9 MR WOLFSON: The secondary one we would run on the basis
10 that this court should not go behind the TAT and make
11 that submission.
12 MR JUSTICE BURTON: Yes, what I'm saying is it is still
13 subject to appeal.
14 MR WOLFSON: We would still make the submission but I see
15 the point your Lordship puts to me. If it's subject to
16 appeal, it is a less attractive suggestion.
17 MR JUSTICE BURTON: As of today, I wouldn't have thought it
18 was a final judgment if it is under appeal.
19 MR WOLFSON: Again, we wouldn't be making the submission on
20 the basis that it is a final judgment in a res judicata
21 sense but more in the comity sense that this court ought
22 not to go behind it.
23 MR JUSTICE BURTON: They may have made a complete pig's ear
24 of it and no comity applies.
25 MR WOLFSON: I see, with respect, the force of the point
187
1 your Lordship is making.
2 So what we propose is that Heritage would make
3 submissions in response to the cases.
4 MR JUSTICE BURTON: There may not need to be a further
5 hearing because if I were to be against you on the
6 contractual claim but still -- and of course Mr Qureshi
7 says if you lose on the contractual claim, that's it.
8 MR WOLFSON: Yes.
9 MR JUSTICE BURTON: Because of his submission that the terms
10 of the contract override any contractual claim. But on
11 the assumption that you lose on contract and you are
12 still allowed to run your alternative case, then you
13 would come back, but you'd only come back if there was
14 something to dispute and if the position were that in
15 fact there was no tax liability, or indeed whichever way
16 it is I am not going to reopen that question. I would
17 simply be dealing with consequences, I suppose.
18 MR WOLFSON: Yes, I suppose the parties could make these
19 submissions. I suppose, just thinking about the
20 permutations, let us assume that Heritage win in the
21 Appeal Court.
22 MR JUSTICE BURTON: Or wherever.
23 MR WOLFSON: Or wherever. I could still make the submission
24 that as a matter of law at the time of payment
25 I discharged based on the assessment.
188
1 MR JUSTICE BURTON: That is your primary case.
2 MR WOLFSON: Your Lordship may think that is good, bad or
3 indifferent knowing now that there is no tax, but we
4 could debate that. I suppose theoretically Heritage
5 could say: even though the Appeal Court has found there
6 is tax due they also got it wrong or whatever and
7 therefore we want to litigate the point. Theoretically
8 there could be points.
9 MR JUSTICE BURTON: It is probably going to be
10 consequential, including, if the arbitration hasn't
11 resolved it, what should happen to the escrow account.
12 MR WOLFSON: Yes. So far as the arbitration, the reason why
13 we are focusing on the Ugandan court is this: that of
14 course in Uganda, the issue is plainly before the
15 Ugandan court, point one, and two, we can see what's
16 going on.
17 MR JUSTICE BURTON: Yes.
18 MR WOLFSON: Of course the arbitration award we'd have to
19 find a way, I am sure it is not beyond the wit of man,
20 to get it before the court given that it is
21 confidential, and we are not a party to it.
22 Secondly, of course, it is not absolutely clear to
23 us, because we are not a party, it isn't a criticism,
24 whether the issue of Heritage's substantive tax
25 liability as opposed to, for example, stabilisation
189
1 clauses, double tax treaty, is actually before the
2 arbitrators.
3 MR JUSTICE BURTON: Yes, we don't know.
4 MR WOLFSON: We just don't know.
5 MR JUSTICE BURTON: And we won't know anyway whether the
6 arbitrators are going to hear it until we have had
7 jurisdiction.
8 MR WOLFSON: Exactly.
9 MR QURESHI: Perhaps my learned friend --
10 MR WOLFSON: Let me just finish one point, though, just to
11 make it absolutely clear. Having said all of that,
12 my Lord, let me just finish where I started. This is
13 meant to be a constructive proposal to deal with the
14 issue and if my learned friend has constructive
15 amendments to it, this is not set in stone.
16 MR JUSTICE BURTON: No.
17 MR QURESHI: My Lord, we are all appreciative of
18 constructive proposals that are not set in stone and
19 what I propose to do is to provide a considered
20 response, not now.
21 MR JUSTICE BURTON: Certainly so, but I would like it to be
22 done sooner rather than later. You have tomorrow when
23 you are not sitting. I need to know whether I have to
24 read those parts of the experts' reports which deal with
25 the underlying tax question, so that I won't read
190
1 tomorrow anything and we are ploughing on with Mr Inch
2 on Monday, but I mean the probability is I'm going to
3 have to spend some time over the weekend reading the
4 experts' reports, even if I don't spend the whole
5 weekend or read all the experts' reports. What I would
6 like is an answer by tomorrow evening --
7 MR WOLFSON: I was going to suggest to my learned friend
8 that we put our heads together.
9 MR JUSTICE BURTON: -- of what I am to read.
10 MR WOLFSON: Of the expert material.
11 MR QURESHI: My Lord, one way or another, we would propose
12 to provide your Lordship, through your Lordship's clerk,
13 with an indication by 2 o'clock tomorrow.
14 MR JUSTICE BURTON: Right.
15 MR WOLFSON: And if there are any points between us we will
16 try and have those resolved as well.
17 MR JUSTICE BURTON: Let us say 3 o'clock to enable inter
18 partes discussions to go on. That would be helpful.
19 I then would then would like to know -- I don't need to
20 know what's been agreed, in the sense that we can talk
21 about that next week. All I need is a reading list and
22 I very much hope and expect that the reading list will
23 not include the substantive tax position. Because not
24 only do I think that this has the makings of a sensible
25 way forward but I think it is completely ridiculous for
191
1 me to be deciding questions of substantive tax law which
2 are already before other tribunals and, more important,
3 in which the Government, who has the real interest in
4 whether tax is due or not, have an opportunity to be
5 heard. The prospect of my deciding as between two
6 civilians what tax is due to a third party is
7 offputting.
8 MR WOLFSON: Also having crashed one of your Lordship's
9 weekends, we are suitably chastised before overly
10 crashing another.
11 MR JUSTICE BURTON: It sounds good to me.
12 All right, so by 3 o'clock tomorrow you will let my
13 clerk know what I have to read and I am hoping that that
14 will be relevant paragraphs of the experts' reports not
15 including the substantive tax. Obviously I can't do
16 that without some idea between the two of you of the
17 basis of going forward but I suppose your agreement
18 doesn't need to be set in stone.
19 MR WOLFSON: Can I, for the record, record my thanks to your
20 Lordship for allowing me not to be present on Monday,
21 Tuesday and part of Wednesday.
22 MR JUSTICE BURTON: Yes, of course. So Monday, Tuesday and
23 Wednesday morning we shall plough on with Mr Inch, or
24 start with Mr Inch on Monday and I would have thought
25 that we'd finish him comfortably by Wednesday lunchtime.
192
1 MR QURESHI: My Lord, yes.
2 MR JUSTICE BURTON: But you will need some possibility of
3 re-examination time.
4 MR WOLFSON: My Lord, we'll see how that goes. It may be my
5 learned junior will do it. We will keep that under
6 review.
7 MR JUSTICE BURTON: Yes, that is certainly helpful.
8 One final matter which I hope won't cause a problem.
9 Supposedly the Commercial Court judges are being
10 addressed on Monday morning on the new costs budgeting
11 and management and suchlike proposals. I have said that
12 I can't be there because I promised myself to you.
13 I have said if there was any point at all in my coming
14 for the first three-quarters of an hour then I would be
15 willing to do so. I am going to find out more about
16 that. If there really is some point in that, but
17 I don't think there will be, then I will let you know
18 and we'll start at 11 o'clock or 11.15 on Monday but
19 I just can't see the sense of that. I think I shall
20 expect to be supplied literature instead and hope that
21 it doesn't make me too ignorant when it comes to the
22 horrific prospect of dealing with all this, although the
23 good news, of course, is that the Commercial Court is to
24 a large extent exempt.
25 MR WOLFSON: Yes.
193
1 MR JUSTICE BURTON: So unless you hear otherwise, 10.30 on
2 Monday. Thank you very much.
3 (4.05 pm)
4 (The court adjourned until Monday, 25 March at 10.30 am)
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
194
1 INDEX
2 Housekeeping .........................................1
3 MR PAUL RICHARD ATHERTON (sworn) ....................13
4 Examination-in-chief by MR QURESHI ..............13
5 Cross-examination by MR WOLFSON .................16
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
195
