Court Nullifies Sea Protection Levy

Court Nullifies Sea Protection Levy and Exempts Nigeria LNG Limited from Charges, Fees/Taxes Payable under The Nigerian Maritime Administration and Safety Agency Act and The Coastal and Inland

Introduction

Recently, the Federal High Court (Honourable Justice M.B. Idris) delivered judgment in the dispute between Nigeria LNG Limited (NLNG) and the Nigeria Maritime Administration and Safety Agency (NIMASA) on whether NLNG is under statutory obligation to pay taxes/charges/fees set out in the Nigerian Maritime Administration and Safety Agency Act (NIMASA Act) and the Coastal and Inland Shipping (Cabotage) Act (Cabotage Act). NLNG commenced this suit (FHC/L/CS/847/2013) by way of originating summons against the Attorney General of the Federation, Global West Vessel Specialists Nigeria Limited and NIMASA.

In the determination of the originating summons, the Court declared the Marine Environment (Sea Protection) Regulations 2012 and levies imposed pursuant to the Regulations void. The Court held that NLNG is exempted from all levies set out under the NIMASA Act and the Cabotage Act.

Issues for Determination

NLNG submitted fourteen issues for determination in this suit. The issues relate primarily to tax exemptions granted to NLNG under the Nigeria LNG (Fiscal Incentives, Guarantees and Assurances) Act (NLNG Act). Section 6(8) of the NLNG Act exempts all shipping companies owned directly or indirectly by NLNG or its shareholders which transport liquefied natural gas produced by NLNG from all Nigerian taxes. Section 6(9) of the NLNG Act exempts NLNG from the obligation to withhold tax on any payment made to ships referred to in Section 6(8) of NLNG Act. Section 6(10) of the NLNG Act exempts NLNG, its contractors, sub-contractors, customers and all ships referred to by Section 6(8) from the National Shipping Policy (now incorporated in the NIMASA Act). Section 7(7) of the NLNG Act excludes the export of liquefied natural gas produced by NLNG from all duties, taxes, levies, charges, and imposts. Paragraph 3 of Schedule II to the NLNG Act exempts NLNG from any new laws, regulations, taxes, duties, imposts, or charges, unless such new laws, regulations, etc. apply generally to all companies in Nigeria.

The issues for determination can be summed up as follows:

  1. Whether in view of the provisions of Sections 6(8), 6(9), 6(10), 7(7), Paragraph 3 of Schedule II and other provisions of the NLNG Act, NLNG, its agents, subsidiaries or shareholders are liable to pay 3% of gross freight earnings on international in bound and out bound cargo in accordance with Section 15(a) of NIMASA Act.
  2. Whether in view of the provisions of Sections 6(8), 6(9), 6(10), 7(7), Paragraph 3 of Schedule II and other provisions of the NLNG Act, NLNG is liable to pay a 2% surcharge as prescribed in Section 43(a) of the Cabotage Act.
  3. Whether ships owned, chartered, contracted or subcontracted by NLNG or by its agents, subsidiaries or shareholders which are not engaged coastal trade in Nigeria, but transport cargo internationally to and from other countries are liable to pay a 2% surcharge as prescribed in Section 43(a) of the Cabotage Act.
  4. Whether the Marine Environment (Sea Protection) Regulations 2012 and levies imposed by the Regulations are not invalid for non – compliance with Section 26 of the NIMASA Act 2007.

Decision

The Court resolved all the issues in favour of NLNG and held as follows:

(i) Relationship between NIMASA Act and NLNG Act.

The Court held that the NIMASA Act and all its subsidiary legislations do not apply to NLNG. The Court also held that the NLNG Act is an existing law within the context of Section 315 of the Constitution, and is a specific, special and private law which must be construed as overriding the NIMASA Act which is a general legislation though latter in time. According to the Court, the NIMASA Act would override the NLNG Act only if the provisions of both laws are so inconsistent and repugnant to each other that both cannot be given effect to at the same time. The Court held that this was not the case.

(ii) Liability of NLNG to Pay Levies, Duties, Charges and Fees Imposed by the NIMASA Act.

The Court held that based on Sections 6(8)(9)(10), 7(7) and paragraph 3 of Schedule II to the NLNG Act, all levies, duties, charges and any other fees imposed by the NIMASA Act and its subsidiary legislations do not apply to NLNG. Therefore, NLNG has no obligation to pay the levy of 3% of gross freight earnings on international in-bound and out-bound cargo imposed by NIMASA under Section15(a) of NIMASA Act.

(iii) NLNG not liable to pay 2% Surcharge imposed by Section 43 of Cabotage Act.

The Court held that the Cabotage Act does not apply to the NLNG because Paragraph 3 of Schedule II to the NLNG Act excludes NLNG from any subsequentlegislation which does not have general application in Nigeria. The Cabotage Act falls into this category. Furthermore, the Cabotage Act expressly sets outs the laws repealed by its enactment and these do not include the NLNG Act.

The Court also held that the 2% surcharge imposed by Section 43(a) of the Cabotage Act applies only to vessels engaged in coastal trade. Section 2 of the Cabotage Act defines “coastal trade” as carriage over Nigeria waters by a vessel from one place in Nigeria to another place in Nigeria. This does not apply where the carriage goes beyond Nigeria.

(iv) Validity of Marine Environment (Sea Protection) Levy Regulations 2012 and Sea Protection Levy

The Court held that the Marine Environment (Sea Protection) Levy Regulations 2012 and the Sea Protection Levy are invalid because they contravene the principal legislation – NIMASA Act. Section 26 NIMASA Act empowers NIMASA to impose levies for services or facilities provided by NIMASA. Since the Sea Protection Levy is not tied to any service or facility provided by NIMASA, the levy and the Regulation upon which it is based are invalid.

(v) Propriety of a Respondent in an action commenced by originating summons filing “Counter Originating Summons” and formulating Issues outside those raised in the originating summons

Before the hearing of this originating summons, the 3rd Respondent (NIMASA) filed a counter affidavit and a Counterclaim to the Originating Summons. The Court was called upon to determine the propriety of filing a counterclaim in originating summons proceedings. The Court held that a Respondent to an originating summons may validly choose to file a “Counter Originating Summons”.

The Court also held that in an action commenced by originating summons, the respondent cannot formulate issues outside those formulated by the applicant. Where the applicant or respondent by their written addresses formulate and argue issues outside those formulated in the originating summons, such issues and arguments will be discountenanced and struck out.

In particular, this ruling led to the striking out of extensive portions of the arguments of the Respondents in this Originating Summons because the arguments were based on issues outside those stated in the Originating Summons. Due to this, the Court did not make a finding on the question of whether the pioneer status granted by the NLNG Act had expired and whether the NLNG Act offends public policy by fettering the legislative powers of the National Assembly.

Implications of the Decision

(i) The Judgment reinforces how a private Act such as the NLNG Act is construed.

The NLNG Act is strictly confined to the objects set out in the Act. A private Act does not confer any right on the public generally and it is to be construed strictly against any person not covered by the Act. This is because a private Act as the NLNG Act is regarded as a contract sanctioned by the Legislature binding between parties. See NDDC v NLNG (2009)1TLRN at 56. In Harper v Hedges 93 LJ.K.B. 116, the Court held as follows:

So far as persons not concerned in the Act are concerned, the Act is read strictly against the promoters; so far as the promoters themselves are concerned, it is read as a contract between them and is to be construed accordingly.

(ii) On a broader note, the decision of the Court that the Marine Environment (Sea Protection) Levy Regulations 2012 and the Sea Protection Levy are invalid, has for now put a halt to the imposition of the levy by NIMASA. NIMASA may have to push for the amendment of Section 26 NIMASA Act to accommodate this levy.

(iii) Counsel engaged in suits commenced by way of originating summons should be very careful to limit their issues and arguments to issues set out in the originating summons so as to ensure that their arguments are not futile.

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