By Vincent Obia
The recent judgement by the Court of Appeal setting aside an earlier ruling of the Federal High Court, which had exempted the Nigerian Liquefied Natural Gas (NLNG) Limited from levies payable to the Nigerian Maritime Administration and Safety Agency (NIMASA), holds special significance for the country. This is not only because of the huge amount of economic interest associated with it but also due to the statement, it makes about Nigeria’s resolve to harness its potential for the good of its citizens.
Everywhere in the world, tax holiday, a temporary reduction or elimination of the tax, is applied by governments to incentivise business investment. In Nigeria, many new companies commencing a business, especially in previously unexplored areas, get a tax holiday – known as pioneer status – for about five years. During this period, no corporate income tax is payable and any dividend distributed from the pioneer profit is exempted from withholding tax.
The Nigeria LNG (Fiscal Incentives, Guarantees and Assurances) Act confers pioneer status on the company to exempt it from “certain taxes, customs duties, other levies and the provisions of the Pre-Shipment Inspection of Imports Act and to provide for the guarantees and assurances by the Federal Government to the company and its shareholders.”
Section 2 of the Act gives NLNG a tax relief period of 10 years. It states, “Notwithstanding the provisions of section 10 of the Industrial Development (Income Tax Relief) Act, the tax relief period of the company shall commence on the production day of the company and shall continue for a period of 10 years. However, the tax relief period shall terminate at the first anniversary date after the first five years when the cumulative average sales price of liquefied natural gas reaches $3 per Million Metric British Thermal Units as calculated in the First Schedule to this Act in accordance with which such calculation shall only be made annually at each anniversary date.”
The NLNG Act exempted it from paying taxes and levies as an incentive to the company’s shareholders for 10 years or when the cumulative average sales price of the liquefied natural gas reaches $3 per/MMBTU as calculated in the First Schedule to the Act, whichever comes first.
Records in the public domain show that the NLNG has since surpassed the thresholds for the payment of its statutory taxes and levies to the relevant organs of the Federal Government.
By its own admission, NLNG started paying tax to the Federal Inland Revenue Service (FIRS) since 2009 following the expiration of its 10-year exemption.
Similarly, statistics published by the New York Mercantile Exchange (NYMEX) indicate that the price of natural gas reached $9 per MMBTU by 2004, which is 200 per cent above the $3 per/MMBTU mark provided in the NLNG Act. This indicates that the conditions for the expiration of the NLNG’s tax exemption period had been in existence since 2004.
But, strangely, NLNG continued to enjoy relief from some levies, causing the Federal Government huge revenues losses.
Perhaps, most prominent here is the gas firm’s refusal to pay fees accruable to NIMASA. They include the 3% of the gross freight on all international outbound and inbound cargo carried by ships chartered by NLNG and its wholly-owned subsidiary company as contained in the NIMASA Act 2007; and the 2% surcharge on cabotage trade undertaken by its vessels within 200 nautical miles of the baselines and Nigerian coastal and inland waters as contained in the Coastal and Inland Shipping (Cabotage) Act 2003. NLNG also refused to comply with the Marine Environment (Sea Protection Levy) Regulations of 2012 and the Merchant Shipping (Ship Generated Marine Waste Reception Facilities) Regulations 2012.
Section 15 of the NIMASA Act states, in part, “The Agency shall be funded by monies accruing to the Agency from the 3 per cent of gross freight earnings on all international inbound and outbound cargo from ships or shipping companies operating in Nigeria to be collected and paid over to the Agency to meet its operational costs.”
Section 2 says, “This Act shall apply to ships, small ships and crafts registered in Nigeria and extend to ships, small ships and crafts flying a foreign flag in the exclusive economic zone, territorial and inland seas, inland waterways and in the ports of the Federal Republic of Nigeria.
“This Act does not extend to warships and military patrol ships.”
Being the country’s sole maritime administrator, NIMASA has the responsibility to implement both the Merchant Shipping Act and the Cabotage Act.
Following NLNG’s failure to meet its financial obligations to NIMASA, the Agency in 2010 commenced legal action against the gas company. NIMASA sought an interpretation of relevant provisions of the Nigerian LNG (Fiscal Incentives, Guarantees and Assurances) Act, CAP N87, Laws of the Federation of Nigeria 1990, and the NIMASA Act of 2007.
In January 2013, the action by NIMASA was withdrawn in a bid to amicably settle the dispute out of court. But following the continued disregard of the provisions of the NIMASA Act and other relevant laws by the NLNG, in May 2013, NIMASA sought to enforce the provisions of the NIMASA Act and Cabotage Act as empowered under the Act, by demanding payment of the respective 3% and 2% charges due from the NLNG, consequent upon which NLNG vessels were detained for non-compliance.
Upon intervention by the Federal Government, through the office of the National Security Adviser (NSA), an agreement in principle was adopted, with NLNG undertaking to pay up all outstanding levies and comply with the requirements of the NIMASA Act 2007, the Cabotage Act 2003 and other relevant Regulations at the time. NLNG made a payment of $20,000,000.00 (Twenty Million Dollars) and the blockade was lifted.
However, in a surprising twist, the Agency received a pre-action Notice on the 18 June 2013 from Counsel to NLNG, giving 30 days’ notice of their intention to commence legal action in accordance with Sections 53(2) of the NIMASA Act. This resulted in another blockade on 21 June 2013, during which time various issues were canvassed in Court by the parties.
Meanwhile, there was a truce by the parties under which the following were agreed: NLNG to effect payment of all outstanding sums owed to the Agency and henceforth all its vessels, including FOB cargoes, will pay NIMASA levies as and when due as well as other sums as provided under the NIMASA and Cabotage Acts, albeit under protest; NIMASA will lift the detention orders placed on NLNG vessels and for as long as due payments are effected promptly, NLNG vessels will not be detained; NLNG will ensure that all outstanding FOB payments are made within four months from the date of the agreement, failing which NLNG will assume responsibility for the payments.
The outstanding due payments were made by NLNG on July 6, 2013, and the blockade was lifted on Saturday, July 7, 2013.
Hearing of the substantive issues continued, after which the Federal High Court in 2016 entered judgement in favour of NLNG. NIMASA, not satisfied with the judgement, engaged the services of Mr Lateef Fagbemi (SAN) and Mr Mike Igbokwe (SAN) to immediately file an appeal against the said judgement of the Federal High Court.
Among issues brought by the Appellant for resolution are:
- Whether the case of the first Respondent (NLNG) initiated via an Originating Summons can be properly adjudicated without oral evidence, when the facts of the case as presented on affidavit evidence are hostile and whether the resolution of the first Respondent’s case without oral evidence has not vitiated the decision of the trial judge?
- Whether the first Respondent’s case is not incompetent and the learned trial judge was not wrong when he nullified the decision of the National Security Adviser when the issues agitated upon had been determined by an adjudicator to whom parties freely submitted themselves and before whom representations were made without objection which resolution is binding and had been given effect to by the parties as to create estoppel binding on all parties?
- Whether an Originating Summons can be properly used to challenge the decision of the mediator (the National Security Adviser) who has ruled on the disputes of the parties and the trial judge rightly reversed the decision of the National Security Adviser on the payment of $20 million?
- Whether the Appellant’s right to a fair hearing was not breached when the learned trial judge held that the Appellant raised fresh issues in its Counter-claim, discountenanced and struck out the Appellant’s Counter-Claim thereby denying the Appellant any hearing on the Counter-Claim, which is a complete answer to the first Respondent’s claims?
- Whether the Appellant’s right to fair hearing was not breached when the learned trial judge failed to give any consideration to the Counter-Affidavit and the Written Address of the Appellant and issues therein before and in granting the claims of the first Respondent and the breach has not rendered as a nullity the proceedings and the judgement of the trial court?
That appeal gave rise to the March 29 ruling by the Court of Appeal, Lagos Division.
The appeal court set aside the judgement of the Federal High Court, which had exempted the NLNG from levies payable to NIMASA under the NIMASA Act, Cabotage Act, Marine Environment (Sea Protection Levy) Regulations, and other laws of the federation. The court based its ruling on the fact that NIMASA, the country’s Maritime Regulatory Agency, was not given fair hearing at the lower court.
The court ruled, “The appeal is allowed on the ground of the denial or breach of the Appellant’s right to fair hearing in the conduct of the proceedings and judgement of the lower court. As a consequence, the judgement delivered by the lower court on 3rd of October, 2017 is hereby set aside.”
Honourable Justice Mohammed Lawal Garba, who delivered the judgement, ordered the return of the case to the Federal High Court for fresh trial under a different judge.
The ruling restores the status quo, reaffirming NIMASA’s powers to continue to collect the maritime levies from the NLNG. NIMASA’s lead counsel, Fagbemi, said the implication of the ruling was that the Federal High Court was ordered to revert to the fundamental issue of fair hearing while NLNG continues to pay the statutory levies, pending another ruling by the lower court on the matter.
Maintaining the status quo means restoring the Federal Government’s right to collect, through NIMASA, the hundreds of millions of dollars that have been denied it through NLNG’s refusal to meet its statutory financial obligations. But whether the gas firm understands it has to return to reality and figure out a way to deal with the status quo remains to be seen.
Obia writes from Lagos.