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Discrimination against Goods of a Partner State Contravenes the Treaty and the Protocols Made Thereunder

British American Tobacco (U) LTD v the Attorney General of the Republic of Uganda

The East African Court of Justice, Arusha

First Instance Division

Application No.13 of 2017

Monica K. Mugenyi, PJ; Faustine Ntezilyayo, and Fakihi A. Jundu, J

January 25, 2018

by Linda Awuor and Wanjiru Njihia

Download the Decision

Tax Law- excise duty-locally manufactured vis-a-vis imported goods-duty on imported goods of a partner state-whether the Republic of Uganda, vide sections 2(a) and (b)of the Excise Duty (Amendment) Act discriminated against goods of partner states in contravention of the Treaty and the Protocols made thereunder due to the different duty imposed- Excise Duty (Amendment) Act, section 2 (a) and (b)

International Law- law of treaties-treaty for the establishment of the East African Community-interim orders- whether the Court could issue interim orders as provided for in the Treaty to the Establishment of East African Community and the Rules made thereunder – Treaty for the Establishment of the East African Community, article 39

Brief Facts:

In 2014 Uganda enacted the Excise Duty Act No. 11 of 2014, which inter alia made provision for an excise duty on cigarettes that uniformly applied to all such goods originating from any of the EAC Partner States. However, in 2017 the said Act was amended to create a distinction between locally manufactured goods and imported goods. Under the Amended Act, whereas the Applicant’s goods were initially treated as locally manufactured goods, they were subsequently reclassified by the Uganda Revenue Authority (URA) to be goods from a foreign country on account of their originating from Kenya, and subjected to the applicable excise duty.

It was the Applicant’s contention that URA’s erroneous application of the Excise Duty Act (as amended) amounted to discrimination between goods originating from Uganda and those from Kenya in so far as a different duty was imposed on goods from Kenya as opposed to like goods from Uganda in contravention of the Treaty and the Protocols thereunder.

The Applicant filed Reference No. 7 of 2017 challenging the legality of sections 2(a) and (b) of Uganda’s Excise Duty (Amendment) Act No. 11 of 2017 and relatedly filed the present Application seeking to stay the operation of the said law pending the determination of that Reference at the hearing of the Application.

Issues:

  1. Whether the Court could issue interim orders as provided under article 39 of the Treaty to the Establishment of East African Community (the Treaty) and the rules 21 and 73 of the East African Court of Justice and Procedure.
  2. Whether there was a prima facie case with serious triable issues as advanced in the case of Giella vs Cassman Brown and American Cyanamid Company cases.
  3. Whether the Republic of Uganda, vide sections 2(a) and (b)of the Excise Duty (Amendment) Act discriminated against goods of partner states in contravention of the Treaty and the Protocols made thereunder due to the different duty imposed.
  4. Whether the Applicant would suffer irreparable injury and whether damages in the measure recoverable at common law would be an adequate remedy, and the Respondent would be in a position to pay them.
  5. Where did the balance of convenience lie and what was the status quo that sought to be preserved before the Court

Relevant provisions of the Law

The Treaty for the establishment of the east African community

Article 39-Interim Orders

The Court may, in a case referred to it, make any interim orders or issue any directions which it considers necessary or desirable. Interim orders and other directions issued by the Court shall have the same effect ad interim as decisions of the Court.

The East African Court of Justice Rules of Procedure

Rule 21(1)-Interlocutory applications

Subject to sub-rule (4) of this Rule, all applications to the First Instance Division shall be by motion, which shall state the grounds of the application.

Rule 73 (1) -interim orders and directions

Pursuant to the provisions of Article 39 of the Treaty, the Court may in any case before it upon application supported by affidavit issue interim orders or directions which it considers necessary and desirable upon such as it deems fit.

Held:

  1. Both parties misrepresented a prima facie case as being synonymous with the pre-requisite of a serious triable case. The Court was constrained to observe that a prima facie case as extolled in Giella vs Cassman Brown and a serious triable issue as underscored in American Cynamid Company were not necessarily one and the same thing, and therefore, would not be used interchangeably.
  2. The Reference did in fact challenge both the Excise Duty (Amendment) Act, as well as its enforcement. To that extent, the Court’s interpretative mandate did come to bear in examining the impugned law’s compliance with the Community’s legal regime on trade and investment. Notwithstanding the generality of some of the legal provisions the Applicant sought to rely on, the issues presented in the Reference did at face value raise formidable questions for interrogation by the Court. In the result, it was satisfied that the present matter raised serious triable issues.
  3. If damages in the measure recoverable at common law would be an adequate remedy and a respondent would be in a position to pay them, no interim injunction could normally be granted.
  4. The Applicant was liable to suffer business disruption, as well as reputational injury. The question was whether such injury could be adequately compensated by an award of damages.The difficulty in assessment of damages arising from loss of goodwill, reputation or disruption of business would pose the very real possibility of an inadequate award of damages. In the result, the Court was satisfied that the Applicant was liable to suffer business disruption, as well as reputational injury and loss of goodwill that could not be adequately compensate by damages.
  5. Where an application for an interlocutory injunction could not be determined on the existence of a serious triable issue or the adequacy of damages to atone for possible injury to an applicant, the Court would decide the matter on a balance of convenience.
  6. The Court was constrained to observe that for purposes of the grant of an interim injunction the distinction between subsidiary and principal legislation was fairly redundant. It was quite commonplace for courts to declare a principal legislation illegal or indeed strike it off the law books. It defied logic for the argument to be advanced that they could not grant interim injunctions in respect of impugned principal legislation if the justice of the matter so dictated.
  7. The balance of convenience in applications such as the one before the Court was largely determined on a case by case basis. The court weighed the harm that the Respondent company Was likely to suffer in the event that the injunction was granted against the harm that the Applicant stood to suffer if it was not granted, and attached particular importance to the fact that the harm suffered by the Applicant could be adequately compensated by damages, to uphold the refusal of the injunction by the lower Court.
  8. American Cyanamid re-echoed the emphasis on adequacy of damages to atone for harm in the following terms: Could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the Plaintiff’s need for such protection must be weighed against the corresponding need of the Respondent to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the Plaintiff’s undertaking in damages if the uncertainty were resolved in the Defendant’s favour at trial. The Court had to weigh one need against another and determine where ‘the balance of convenience lay.
  9. In the present case the Court understood the Respondent to have argued the balance of convenience of the matter concurrently with ‘the question of the status quo sought to be preserved. For parity, it proposed to adopt the same approach. In the American Cyanamid case the court linked the determination of the balance of convenience to the status quo sought to be preserved as follows: where other factors appeared to be evenly balanced it was a counsel of prudence to take such measures as were calculated to preserve the status quo.
  10. The status quo was the existing state of affairs; but since states of affairs did not remain static that raised the query of existence. The relevant status quo to which reference was made in the American Cyanamid case was the state of affairs existing during the period immediately preceding the issue of the writ claiming the permanent injunction or, if there was unreasonable delay between the issue of the writ and the motion for an interlocutory injunction, the period immediately preceding the motion.
  11. The applicable status quo ante was the state of affairs before a respondent commenced the conduct complained of by the Applicant, unless there had been unreasonable delay in filing the application for interim orders, in which case it would be the state of affairs immediately before the Application. Therefore, it behooved an applicant for interim orders to act quickly. However, an apparently unreasonable delay could be negated if sufficiently explained by the Applicant.
  12. The Court determined that the Applicant in the present case was likely to suffer irreparable harm that could not be compensated by damages. On the other hand, the Court was not addressed on the injury the Respondent stood to suffer beyond the assertion that the balance of convenience tilted heavily in favour of the Respondent given that the process entailed in the enactment of the impugned law, had been lengthy and costly to Uganda, not to mention the fact that the law was already being enforced; and staying the application of such a law by a grant of the interim orders sought, before a determination of the main suit, would have the effect of reverting to a repealed status quo. It was submitted for the Respondent that the status quo in place presently was the enforcement of the impugned law by URA and, therefore, the Applicant’s pursuit of a status quo that prevailed under a repealed law was untenable.
  13. The Applicant’s contestation of the misconstruction of the impugned law was indeed borne out by its pleadings. The Court did not belabour that point further. The Court was hard pressed to appreciate how a lengthy, costly enactment process could negate the obligation upon lawmakers to enact national laws that were in compliance with Partner States’ obligations under the Treaty and its attendant Protocols, or how the fact of costliness of an enactment process could be used to mitigate against a party’s right to proper application of a law. Even in the interim, it was unable to fathom how the lengthiness or costliness of a law enactment process could amount to irreparable injury to a party that enacted it in the event that the application of such law was stayed temporarily until the disposal of the Reference.
  14. The justice of the matter that the Respondent would suffer less injury from being temporarily prevented from exercising its right to collect the extra excise duty billed to the Applicant if the interim orders sought in the present Application were granted, than the injury the Applicant stood to suffer as a consequence of paying the additional duty.
  15. The factors informing the balance of convenience in the matter were not evenly balanced so as to warrant recourse to the preservation of the status quo as a matter of prudence, as was opined in the American Cyanamid case.Nonetheless, had it considered a preservation of the status quo the status quo ante that was held in to be applicable in an Application for interlocutory injunctions was the state of affairs before a Respondent commenced the conduct complained of by the Applicant. In the case, that would be the state of affairs that prevailed prior to the service of a notice of additional taxes by the URA upon the Applicant. Stated differently, a grant of the interim orders sought in the case would in effect forestall the payment by the Applicant of the extra excise duties billed for by URA until the determination of the Reference. That did not amount to a reversal of the application of the impugned law, but a stay of its application to the Applicant company pending the determination of the Reference.

Application upheld

Orders

  1. Interim orders sought granted
  2. Cost to abide the outcome of the reference
  3. Reference be fixed for hearing forthwith

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