Tullow Oil Uganda v Silverdale Farm,Tanzania.

In 2012 Tullow Oil became engaged in a commercial dispute in Uganda regarding capital gains tax. Following the 2012 completion of the farm-down of 66 per cent of its’ exploration interests it was issued with a capital gains tax assessment of $472m. Tullow disputed the assessment.

There is no intention here to comment on the details of the dispute save to say there was/is one, it involving considerable sums of money and direct lobbying to President Museveni on the company’s behalf by the British government.

In  2004 British investors Sarah Hermitage and Stewart Middleton invested in the agricultural sector in Tanzania purchasing the lease to Silverdale and Mbono Farms just outside the town of Moshi in the Kilimanjaro area of Tanzania. They purchased the lease from Benjamin Mengi brother to IPP Media owner Reginald Mengi.

Stewart Middleton was born and raised in Zambia and he is an agronomist of note and an expert in small holder farming. His plans for the farms were to obtain EurepGAP certification as a matter of priority. EurepGAP certification improves market access to the European Union. Obtaining such certification is a rigorous and complex process, and is crucial for exporting internationally, particularly to the European Union. Achieving certification involves meeting rigid requirements regarding food safety (i.e., traceability of food source, limited use of fertilizers, and product handling), environmental standards (i.e., waste management, pollution management, and site management), and social responsibility (i.e., appropriate facilities for employees, health and safety standards, and grievance procedures). No farm in Tanzania had obtained EurepGAP certification at the time.

Middleton’s investments in infrastructure and his farm management skills immediately began to transform unproductive land into a revenue-generating, productive commercial farm. Within one year Silverdale was employing approximately 150 local employees and was realizing significant net monthly revenues from crop exports alone. Silverdale and Mbono Farms under Middleton’s  management were indeed the first farms in Tanzania to receive EurepGAP accreditation. Whilst the investors did not have the economic clout of Tullow Oil, they provided sustainable development in a manner encouraged and promoted by British foreign policy.

Shortly after purchasing the lease and making improvements to the farms Benjamin Mengi began to make demands for more money stating he had not been paid in full for the lease. This despite the fact that he had signed a receipt for full payment in 2004. Mengi threatened Middleton with violence and the revocation of his residence permit if such extra sums were not paid to him and told him he would drive him from Tanzania by any means possible if necessary, cut to pieces in a coffin. The police here Mengi stated “are in my hands”.

Middleton refused to abandon his investment and Mengi began a violent and destructive campaign to force Mr. Middleton from the farms and Tanzania. Mengi made it clear he intended to take the farms back, drive Middleton from the country and keep the money he had been paid for the assignment. His campaign of violence and harassment was facilitated by the government of Tanzania.

The British couple and their Tanzanian staff faced a four year campaign  of escalating violence and harassment, brutal attacks and death threats together with constant unlawful arrest and imprisonment of Middleton and his key Tanzanian staff.  During the same period the farms were systematically vandalised and crops damaged, destroyed and stolen to a point where the farming unit and the couple’s investment were completely destroyed.

Having faced almost five years of violet abuse of law, the couple fled Tanzania in 2009. As they left through the back door for fear of further arrest and imprisonment they were on the telephone to the the deputy British High Commission in Dar es Salaam who stated “so he [Benjamin Mengi] has finally done it has he”.

Reginald Mengi is one of the most powerful and influential men in Tanzania.  Both he and  his brother Benjamin have strong influence in the Kilimanjaro region surrounding their hometown of Machame, including Moshi town. Their influence is national as reflected by the funeral for Benjamin Mengi’s wife, Millie Mengi, in 2010, which was attended by national and regional political figures, including the President of Tanzania, President Jakaya Kikwete.

In 2012 Reginald Mengi sued Sarah Hermitage in the London High Court for libel in a case described by the judge as oppressive and thought to have cost him in excess of £3 mil. He sued in respect of five postings on this blog (set up to highlight what had happened in Tanzania) and two emails she had sent, which Mr Mengi claimed to be false and defamatory of him.

During the trial the Court heard unchallenged evidence from Hermitage and her husband as to how they were by threats, intimidation and corruption driven from Tanzania and forced to abandon the investment they had made in Silverdale Farm, of which Benjamin Mengi then took possession.

The Court was told that a major factor in the ordeal they suffered was the hostile and defamatory coverage their case received from  IPP-owned English language Guardian and the Swahili Nipashe newspapers. Reginald Mengi, in the course of his evidence, repeatedly stated that he “was not responsible, not accountable and
not answerable” for the editorial content of IPP publications.

In giving Judgment, Mr Justice Bean ruled:

“I find that the campaign in the Guardian and Nipashe facilitated Benjamin’s corruption of local officials and intimidation of the Middletons and thus helped Benjamin to destroy their investments and grab their properties; and that Mr [Reginald] Mengi, since he either encouraged or knowingly permitted the campaign, was in that sense complicit in Benjamin’s corruption and intimidation.

After handing down judgment Mr Justice Bean ordered that Reginald Mengi should pay the defence costs at the  Higher “indemnity” rate. In reaching this decision, the factors cited by the Judge included that Counsel for Sarah Hermitage had “rightly described the litigation as “oppressive”, that “enormous costs had been thrown at the case from the beginning, indeed before the issue
of proceedings” and that the evidence of the Claimant and his witnesses had in a number of respects been “misleading and untrue.”

Hermitage referred to Mengi’s defamatory media campaign as journalistic terrorism. The judge did not agree stating her response had been proportionate, justified and without malice.

Shockingly, as Reginald Mengi sued Hermitage in the London High Court DFID (i.e. the British tax payer) had donated UK aid to IPP’s the Guardian newspaper to improve investigative journalism.

Disregarding the personalities involved in the Silverdale Farm case (which the issues transcend), the case illuminates a fragile and corrupt business environment in Tanzania manipulated by powerful individuals close to the government and President Kikwete which brought about the total destruction of bona fide British investment in a country the British government is promoting as a destination for  investment and with whom it has signed multi million pound energy contracts.

The British government will not lobby President Kikwete on behalf of the investors stating the issue is a commercial dispute and HMG cannot intervene in commercial disputes. Further, it represents the couple have legal proceedings pending in Tanzania which again prevents it from intervening.

Conversely, Her Majesty’s Government takes a different view on the Tullow Oil case: Also a dispute and one where the company did initiate legal proceedings with the government of Uganda. Despite this and mid legal proceedings, the British government intervened at ministerial level and lobbied President Museveni on Tullow’s behalf in order to resolve their dispute.

In fact HMG could not wait to involve themselves in Tullow’s dispute despite their legal proceedings and Whitehall’s diplomatic army  swooped to Tullow’s aid with the following  weaponry:-

“there is a major UK commercial interest at stake here, which is not limited to Tullow. Their success has also been bringing other major UK firms, to the market”.

 “Tullow Oil have hit serious problems which threaten their investment in Uganda.  Recommendation that we intervene urgently at Ministerial level with President”

Of course the British investor’s issues in Tanzania cannot be described appropriately as a dispute. They are issues of abuse of law, denial of access to law, the abuse of human rights, criminality and the failure of state institutions to protect them as foreign investors. Further, the British couple have never issued any legal proceedings against anyone either inside or outside of Tanzania.

That said both of the above inaccuracies continue to be used and trumpeted as reasons for non-intervention in the Silverdale affair by HMG throughout the corridors of Whitehall power. Letters containing the same inaccurate statements (with text containing the same spelling mistakes) rebound from all written requests to the British government from those seeking to support the couple’s attempts to obtain justice.

There is no doubt that the legally inaccurate position articulated by the British government in the face of clear evidence of criminality and abuse of law in the Silverdale case has caused the couple great harm and supports a culture of corruption and impunity in Tanzania.

In the face of the British government’s continuous rhetorical commitment to human rights, good governance ad the protection of its overseas nationals, its refusal to come to the aid of the British couple in Tanzania is objectively indefensible and in the face of the overwhelming assistance it gave to Tullow Oil in Uganda, it is dishonest.

At a meeting at the Foreign and Commonwealth Office in 2013, Sarah Hermitage asked her government to support her in two respects. Firstly, to represent the facts of the Silverdale case in accordance with the law and secondly, to open up senior lines of negotiation with the Tanzanian government in respect of compensation for the theft of their investment in Tanzania to avoid the need to resort to international arbitration.

The British government refused the first request stating  “we cannot interfere with investor disputes” and the second on the grounds that the British High Commissioner in Dar es Salaam Dianna Melrose, did not have the experience to enter into said negotiations on behalf of the couple. In fact HMG placed so little importance on this issue that she was sent to Tanzania un-briefed on the case.

Such indifference is in vivid contrast to the assistance given by the British government in to Tullow Oil in their dispute in Uganda.The CEO of Tullow Oil is Aidan Heavey, a man who has donated more than £50,000 to the Conservative Party. Neither of the British Investors is a Conservative Party donor.

(http://www.thesundaytimes.co.uk/sto/news/Politics/article1230960.ece)

Unlike the Tullow Oil case, the Whitehall corridors of power did not swoop to the battle lines to assist the British investors in Tanzania and five tortuous  years have passed for them without assistance from their government.

Information received under the Freedom of Information Act shows that until Mark Simmonds became Minister of Africa in 2012, not one British minister had raised the Silverdale case  with the Tanzanian government and that it is now raised simply to suggest it harms Tanzania’s reputation as a safe country for foreign investors.

The Tanzanian government continues to ignore the British government and the later, in turn, does nothing more. Instead, it has sat back and watched the couple lose their life savings, dragged  through a London High Court libel case and defamed and abused by senior Tanzanian officials and personalities. 

Information received under the Freedom of Information Act on the overwhelming assistance the British government gave Tullow Oil in the resolution of their dispute in Uganda is contained below this article but the following gives a glimpse of how HMG gave overwhelming assistance to the company and directly lobbied President  Museveni in order to resolve their “dispute” :-

The British government’s stand in respect of the Tullow Oil’s dispute was as follows: 1.    Tax disputes could potentially undermine or at least delay  Tullow's interests in Uganda

The criminality in the Silverdale issue destroyed British investment in Tanzania and undermined the British government’s policy and Kikwete's assertions that Tanzania is a safe destination for British FDI. 2.    Henry Bellingham. “It is worth drawing on the important role British business (e.g. Tullow Oil) is currently playing in developing Uganda’s oil and gas sector.

Bellingham dismissed the role the British investors through their company Silverdale TZ played in the reduction of poverty and promotion of sustainable development in Tanzania. 3.    HMG position on the Tullow Oil dispute “to assure Tullow that we want to help them to continue their success in Uganda” HMG position on Silverdale Farm dispute “we cannot involve ourselves with commercial disputes” 4.    Henry Bellingham met and personally lobbied Museveni on Tullow Oil’s behalf. “Very positive visit. Warm welcome too from British business, and useful work done in support of Tullow Oil's investment in Uganda”. Also met with Tullow Oil and appraised them of the efforts MG was making to resolve their “dispute” Not one government minister has ever spoken to either British investor in the Silverdale case in the last five years and HMG refuses to even represent their case in accordance with the laws of Tanzania stating “we cannot involve ourselves in "disputes”. 5.    Henry Bellingham, “My meeting with President Museveni allowed me to raise a specific trade issue, again regarding Tullow Oil. Though better than in DRC, the situation is stuck due to the question of taxes paid by [name withheld], from whom Tullow have bought the rights to the blocks on Lake Albert.” The British investors have never been told of any meeting that has taken place with any member off the British government and president Kikwete.   ____________________________________________________________ Information obtained under the Freedom of Information Act in the UK in respect of the British government’s intervention in a dispute between Tullow and Heritage Oil in Uganda. Read:- Tax disputes could potentially undermine or at least delay Tullow's interests in Uganda. From: eGrams AD(EAGLS) Sent: 02 July 2010 10:25 To: [names withheld] Subject: FW: UGANDA: OIL ISSUES ------------------------------------------- An update on developments in Uganda’s nascent oil sector. On the commercial front progress has temporarily stalled because of a tax dispute between the government and [name withheld] over the sale of [name withheld] Ugandan assets to Tullow Oil. [information withheld] From KAMPALA Despatched 02/07/2010 08:17:00 GMT Detail 1. [information withheld] Business 2. [name withheld] agreed in December 2009 to sell its stake in Uganda for [information withheld] to [name withheld]. In January 2010 Tullow (50% co-owner of [name withheld]’s two blocks) exercised pre-emption rights to buy [name withheld]’s stake on terms that matched the [name withheld] offer [information withheld]Tullow announced in February a proposed “farm-out” partnership with the [name withheld] [name withheld], which would give all three partners an equal, one-third share in the blocks. 3. [information withheld] Impasse? 4. The government claims that [name withheld] should pay around [information withheld] in capital gains tax on its deal with Tullow. [name withheld] argues that CGT is not applicable to this transaction, based on their interpretation of Uganda’s Income Tax Act and historical precedent (no capital gains tax was paid when Tullow acquired Hardman Oil’s interests in 2007, which were then much less valuable). [information withheld] Regulation 5. [information withheld] Shearman {[name withheld]} [information withheld] RELEVANT EXTRACTS FROM MR BELLINGHAM’S VISIT BRIEF, July 2010 Steering Brief [It is worth drawing on the important role British business (e.g. Tullow Oil) is currently playing in developing Uganda’s oil and gas sector, highlighting in particular the industry specific experience and expertise we have to offer across the spectrum (upstream, downstream and ancillary support services). [information withheld] Meeting with President Yoweri Museveni OUR OBJECTIVES  [information withheld] [information withheld] POINTS TO MAKE [information withheld]  [information withheld]  Britain has world class companies with expertise in the oil and gas sector, including supporting engineering and professional services. Tullow oil a good example [placeholder for specific ask following your meeting with Tullow that will take place earlier in the day]  [information withheld] [information withheld] Meeting at Tullow Oil HQ, Kampala Our Objective  To assure Tullow that we want to help them to continue their success in Uganda. Points To Make  We're delighted with Tullow's impressive success in Uganda. [information withheld] Oil Oil Companies 1. Uganda’s oil is located in the Albertine Rift Valley (North East DRC/West Uganda/South Sudan border areas). [name withheld] agreed in December 2009 to sell its stake in Uganda for [information withheld] to [[name withheld]] of Italy, but Tullow (50% co-owner of [[name withheld]]’s two blocks) exercised pre-emption rights in January to buy out [[name withheld]]’s stake on terms that matched the [name withheld] offer. Soon after that they announced a “farm-out” partnership with the [name withheld] and [name withheld], which gives all three partners an equal, one-third share in the blocks. Oil Capacity Tullow Oil has enjoyed a near 100% success rate (only 1 out of 29 wells drilled were abandoned during the period 2006-10). ______________________________________________ From: eGram Gateway Sent: 12 August 2010 18:53 To: [name withheld] Subject: UGANDA: TULLOW OIL UK listed Tullow Oil buys [name withheld]’s Ugandan assets [information withheld] From KAMPALA Despatched 12/08/2010 15:42:00 GMT Detail 1. We reported last month on Uganda’s tax dispute with [name withheld] and on Tullow Oil’s proposed partnership deal with [name withheld] and [name withheld]. At his meeting with Museveni on 23 July, Mr Bellingham made clear the UK’s strong support for Tullow’s engagement in Uganda. [information withheld] 2. On 6 July, Onek (Energy Minister) wrote to Tullow formally approving their acquisition of [name withheld]’s Ugandan assets. [information withheld] 3. [information withheld] 4. [information withheld] 5. [information withheld] 6. [information withheld] Comment 7. [information withheld] 8. A letter from Mr Bellingham following up his recent visit to Uganda would be timely. The letter could cover the Tullow angle, the forthcoming UKTI oil and gas mission to Uganda and other key bilateral issues [information withheld] {[name withheld]} ____________________________________________ From: [name withheld] Sent: 13 August 2010 09:53 To: [names withheld] Cc: Martin Shearman (Restricted); [names withheld] Subject: RE: UGANDA: VISIT OF MINISTER FOR AFRICA - Urgent - Tullow/[name withheld] progress? [name withheld] The attached e-gram (which hasn't yet been distributed throughout the office) has the latest developments on Tullow and the [name withheld] tax situation. [information withheld] A follow-up letter from the Minister could go some way towards achieving that. When will the next opportunity to get a letter sent out from the Minster be? Regards [name withheld] ____________________________________________ From: [name withheld] Sent: 12 August 2010 17:25 To: [names withheld] Cc: Martin Shearman, [name withheld] Subject: RE: UGANDA: VISIT OF MINISTER FOR AFRICA - Urgent - Tullow/[name withheld] progress? Importance: High Thanks - could you provide an update on the Tullow situation by tomorrow 3pm please? [information withheld] If nothing has changed since the Minister's visit, please let us know asap as he wanted to tell the FS that progress was being made after the Museveni meeting and he clearly can't if this is not true! Thanks. [name withheld] ____________________________________________ From: [name withheld] Sent: 12 August 2010 17:13 To: [name withheld] Cc: [name withheld] Subject: FW: UGANDA: VISIT OF MINISTER FOR AFRICA, 21-25 JULY Importance: High [name withheld] We'd like the minister to send a follow-up letter to Sam Kutesa (Uganda's FM). Will there be any opportunity to get a letter signed off before August 27th? [information withheld] The 27th wouldn't necessarily be too late, but from our perspective the sooner that action is taken on this tax dispute the better. Please let me know what you think. Regards [name withheld] ______________________________________________ From: [name withheld] Sent: 03 August 2010 08:32 To: [name withheld] Cc: Martin Shearman (Restricted); [names withheld] Subject: RE: UGANDA: VISIT OF MINISTER FOR AFRICA, 21-25 JULY Importance: High [name withheld] We would recommend a follow up letter from the Minister to Kutesa, with the following elements: [information withheld] Trade [name withheld] Comment: [information withheld] - On Trade, a separate letter from the Minister to the CEO of Tullow (UK) would certainly be appreciated. [information withheld] _____________________________________________ {[name withheld]}Cc: Martin Shearman (Restricted); {[name withheld]} Subject: RE: UGANDA: VISIT OF MINISTER FOR AFRICA, 21-25 JULY:Id=5028598 {[name withheld]} [information withheld] {[name withheld]} ______________________________________________ From: eGrams AD(EAGLS) Sent: 27 July 2010 10:22 To: [names withheld] Subject: FW: UGANDA: VISIT OF MINISTER FOR AFRICA, 21-25 JULY Importance: Low ------------------------------------------- From: eGram Gateway Sent: Tuesday, July 27, 2010 10:21:50 AM To: eGrams eD AD(EAGLS) Subject: UGANDA: VISIT OF MINISTER FOR AFRICA, 21-25 JULY Importance: Low Very positive visit. Warm welcome too from British business, and useful work done in support of Tullow Oil's investment in Uganda. [information withheld] From KAMPALA Despatched 27/07/2010 09:20:00 GMT 1. [information withheld] 2. [information withheld] 3. [information withheld] TRADE 4. [information withheld] Mr Bellingham said that we were strongly supportive of Tullow Oil's involvement in Uganda and hoped that Museveni would take the decisions needed to allow them to get on with their deal with [information withheld] and bring in further investment, [information withheld] 5. Tullow gave Mr Bellingham a full brief on their business, and its potential to transform the Ugandan economy as well as generate significant return to the UK. An interesting roundtable with Tullow and other British business representatives threw up a number of ideas for promoting British business, which we will pursue. [information withheld] SHEARMAN ____________________________________________________ From: Henry Bellingham 10 August 2010 Dear Foreign Secretary 1. [information withheld] DRC would benefit from a deal with Tullow as they intend to build a pipeline to the east coast for oil from the Uganda side of Lake Albert, due to begin flowing in around 18 months time[information withheld] [information withheld] Uganda 2. My meeting with President Museveni allowed me to raise a specific trade issue, again regarding Tullow Oil. Though better than in DRC, the situation is stuck due to the question of taxes paid by [name withheld], from whom Tullow have bought the rights to the blocks on Lake Albert. [information withheld] Consequently, Tullow have concluded the deal with [name withheld], allowing both companies’ share prices to rise by approximately 50p and £1, respectively. [information withheld] Henry Bellingham ______________________________________________________________________ From: eGram Gateway Sent: Tuesday, August 24, 2010 11:19:44 AM To: eGrams eD AD(EAGLS) Subject: UGANDA: TRADE: TULLOW OIL Tullow Oil have hit serious problems [information withheld] which threaten their [information withheld] investment in Uganda. [information withheld] Recommendation that we intervene urgently at Ministerial level with President Museveni. From KAMPALA Despatched 24/08/2010 10:19:00 GMT 1. I have just seen Aidan Heavey, CEO and founder of Tullow Oil. He came from a meeting last night with President Museveni, the aim of which was to settle the next stage of Tullow's investment in Uganda with [name withheld] and [name withheld] following Tullow's [information withheld] acquisition of [name withheld]’s Ugandan assets on 26 July 2. [information withheld] 3. [information withheld] The [information withheld] deal and Tullow's spend on exploration in Uganda total around [information withheld] Comment 4. [information withheld] 5. Their success has also been bringing other major UK firms, such as [name withheld] and the [name withheld], to the market. [information withheld] 6 [information withheld] SHEARMAN [Personal information]

From: {[name withheld]} Date: 03/09/2010