The applicants relied on the evidence of their witnesses to rely on the application of the principle of legitimate expectation. AW1 Mr. Martin Graham testified that: “Tax reliefs or exemptions are part of ensuring that the entering into a PSA is economically viable. …. It is common for governments to provide certain incentives to encourage oil production. …” They concluded that Article 23.5 gave them the “confidence to proceed on the basis that there would be no tax.”  AW3, Mr. Richard Inch, stated that in relation to EA2, there was “no concern as to the taxation position because of the exemption for capital gains tax in respect of a farmdown in Article 23.5…”

The applicants also argued that the use of “estopped” by them is not the use of the technical term “estoppel”. They argued that the term “estopped” has a wider meaning. Black’s Law Dictionary defines “estopped” to mean “to prevent, stop or bar something from happening.” The use of legitimate expectation is covered by estopped. The applicants cited the case of R v IRC, ex p MFK Underwriting Agencies Ltd. [1989] STC 873 where Bingham LJ linked the concept of legitimate expectation and estoppel in saying: “If in private law a body would be … estopped from so acting a public authority should generally be in no better position. The doctrine of legitimate expectation is rooted in fairness.” Therefore the respondent as an agent of the GOU, which had agreed that there would be no tax to be charged, should be estopped from acting unfairly by charging tax.

The applicants argued that while estoppel is a private law remedy, legitimate expectation is a public law remedy. While the doctrine of estoppel may not apply to the GOU or the respondent, this does not mean that public bodies have a “free rein” to behave in a manner which is unfair and prejudicial to the rights of the individual. The applicants contended that the doctrine of legitimate expectation was also confirmed in the decision of the House of Lords in East Sussex County Council; ex parte Reprotech (Pebsham) Ltd. [2002] 4 All ER 58, where Lord Hoffman stated at paragraph 35: “… It seems to me that in this area, public law has already absorbed whatever is useful from the moral values which underlie the private law concept of estoppel and the time has come for it to stand upon its own feet.” The applicants submitted that legitimate expectation can apply to restrict the activities of an agency of a state, including the discharge of its functions under a statute.

The applicants cited the case of Preston v IRC [1985] AC 835 where the Court saw no reason why it should not review: “….. a decision taken by the commissioners [of Inland Revenue] if that decision is unfair to the tax payer because the conduct of the commissioners is equivalent to a breach of contract…” In R v IRC, ex p MFK Underwriting Agencies Ltd [1989] STC 873 the court noted: “…If a public authority so conducts itself as to create a legitimate expectation that a certain course will be followed it would often be unfair if the authority were permitted to follow a different course to the detriment of the one who entertained the expectation…” The applicants therefore argued that where the revenue authority so conducted itself to create a legitimate expectation that the state will not charge tax in particular circumstances, tax shall not be charged.

If the taxpayer has a legitimate expectation the state must keep its word. Hence if a party were to show that the representations were made to it by a state or an agency of the state and it has legitimate expectation then the state would be bound by those representations.   The applicants argued that the development of legitimate expectation can be seen in a decision of the High Court of Kenya in Republic and Others v Attorney General [2006] 2 EA 265 where the court stated that: “The principle which justifies the importance of procedural protection has come to be known as legitimate expectation. Such an expectation arises where a person responsible for taking a decision has induced in someone who may be affected by the decision a reasonable expectation that he will receive or retain a benefit….” The applicants argued that the doctrine of legitimate expectation has also been applied in a number of other cases in Kenya. These include: Republic v Minister for Local Government and another ex parte Paul Mugeithi Joel [2008] KLR Miscellaneous Civil Application 480 of 2008, Republic and others v Attorney General and another [2006] 2 EA 265. The applicants, therefore, argued the Tribunal should accept that the doctrine of legitimate expectation forms part of the law of Uganda. They contended that the principle was applied in the High Court of Uganda in the case of Kato v Njuki [2009] UGHC 23.

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