The case centres on over $400 million (268.4 million pounds) worth of capital gains tax demands made by the Ugandan government after Heritage Oil (>> Heritage Oil PLC) sold assets there to larger Tullow Oil (>> Tullow Oil plc) in a $1.45 billion deal in 2010.

Heritage is embroiled in a separate legal dispute with the Ugandan government, arguing that no tax is due on the transaction, which brought an end to its operations there. Tullow, which has big ambitions in Uganda, has paid the country most of the money asked for, and has brought the case to win reimbursement from Heritage.

When the original asset sale was concluded, with Heritage's agreement, Tullow paid the Ugandan Revenue Authority (URA) $121.5 million - a third of the original tax demand of $405 million - and put the remaining $283.5 million into an escrow account, leaving a reduced $1.045 billion payment that went directly to Heritage in exchange for the assets.

Then, in 2011, Tullow complied with another URA demand for a further $313.5 million payment, an amount which included the balance of the original tax demand, plus an extra $30 million which the URA had added to the bill.

The second payment was made a fortnight before the signing of a deal that brought top international oil companies Total (>> TOTAL) and CNOOC into partnership with Tullow in Uganda in a $2.9 billion farm-down arrangement sanctioned by the government.

Tullow says it had no choice but to pay the sum, and with a total of $1.718 billion now paid out for an asset that was initially priced at $1.45 billion, the company is suing Heritage for breach of contract for not paying back the difference.

Loss-making Heritage, for which the tax demand is equivalent to almost half its stock market value, argues that Tullow should not have made the second payment, and says it did so in order to facilitate government approval of its farm-down.

It has filed a countersuit demanding that the $283.5 million sum still held in escrow be released to it.

(Reporting by Andrew Callus, editing by William Hardy)

Stocks treated in this article : Heritage Oil PLC, Tullow Oil plc, TOTAL