Air Transport Ltd v Island Construction Management Ltd [1999] SBCA 2; CA-CAC 001 of 1999 (4 June 1999)

IN THE COURT OF APPEAL OF SOLOMON ISLANDS
Civil Appeal No. 1 of 1999
(On Appeal from Civil Case No. 144 of 1996)

BETWEEN:

AIR TRANSPORT LTD
Appellant

AND:

ISLAND CONSTRUCTION MANAGEMENT LTD
Respondent

CORAM: Mason P., Kapi JA., Awich JA.
HEARING: 2nd June 1999
JUDGMENT: 4 June 1999

JUDGMENT OF THE COURT

This is an appeal against the decision of Palmer J handed down on the 3rd February 1999.

The facts giving rise to this appeal may be summarised as follows. Island Construction Management Ltd (Respondent) is a company engaged in saw-milling and logging in the Solomon Islands. It did not have a Milling License but entered into a sub-contract to fell and extract logs with Mubu Saw-Milling (Mubu) who held a valid Milling License No. Tim 3/173. The Milling License which was originally granted to Mubu on the 9^th February 1994 was renewed for another year commencing on the 9^th February 1995. The license had a footnote authorising Mubu to export a quota of 20,000 m³ of round logs per year.

Air Transport Ltd (appellant) runs a helicopter service which include hiring of heavy helicopters for haulage of logs in the logging industry. The respondent relying on the Milling License granted to Mubu entered into an agreement dated 16th May 1995 with the appellant whereby the appellant agreed to provide one Ka 32 helicopter for haulage of logs on Mono Island in accordance with the terms set out in the agreement.

Clause 12(b) stipulated that the agreement was conditional upon the payment of $US 37,000.00 within 7 days of the signing of the contract. The respondent did not pay this amount within the time stipulated. The payment was made on 7th July 1995.

The appellant did not repudiate the agreement for failure to pay the money within the stipulated time but proceeded to have the helicopter ready for shipment and delivery to Honiara. The helicopter to be made available at the time was understood to be in Singapore. By the 18^th July 1995, the helicopter was positioned in Papua New Guinea ready to be shipped to Solomon Islands.

On the same date, the Chief Justice granted an ex parte interim injunction restraining amongst others, Mubu and Mr Lennea, the managing director of the respondent from entering Mono or Sterling Islands to carry on felling, extraction or saw-milling of any timber in a separate proceedings, Civil Case No. 178 of 1995 brought by representatives of persons who claim to have a right over the land on Mono Island.

The interim injunction granted on 18th July 1995 came to the knowledge of Mr Grouse, a representative of the appellant in Papua New Guinea shortly after it was made. Mr Grouse was not prepared to bring the helicopter to Solomon Islands in view of the injunction. The appellant with the knowledge and agreement of the representatives of the respondent subsequently re-deployed the helicopter in Papua New Guinea apparently to minimise any loss to the parties.

The parties in the Civil Case Co. 178 of 1995 came back before Commissioner Awich (as he then was) to consider the ex parte injunction granted on 18th July 1995. In a published ruling dated 12th September 1995, Commissioner made reference to the case of Forest & Another v Mahlon Ali & Attorney General, Civil Case No. 1 of 1994 which decided that the holder of a Milling License is still required to comply with procedures under s 5 of Forest and Timber Act requiring the grant of timber rights and approval by the Minister. This appears to be the basis for the injunction. This decision is consistent with later decisions of this Court (see Allardyce Lumber Company Ltd & Dovele Development Company Ltd v Nelson Anjo dated 25th April 1996, Civil Appeal No. 8 of 1996; Mega Corporation Ltd v Nelson Kile dated 21st April 1997, Civil Appeal No. 1 of 1997; Gandly Simbe v East Choiseul Area Council & Others dated 9th February 1999, Civil Appeal No. 8 of 1997). The Commissioner, however, varied the order to enable the trees already felled to be removed.

On 23rd November 1995, Mr Lennea asked Mr Grouse to re-mobilise the use of the helicopter with a view to commence loading on 14^th December 1995 in respect of logs already felled. At this stage, the helicopter was still committed to contracts in Papua New Guinea and was not available.

The respondent subsequently received a purchase order from Pacific Ocean Timber Co Ltd for kwila logs on 21st November 1995. In view of the commitment of the helicopter in Papua New Guinea, the parties agreed to negotiate with Erickson for a larger Skycrane helicopter for the purpose of extracting the kwila logs. Erickson required certain payments up front before it could consider the possibility of hiring the Skycrane helicopter. Consequently, the respondent paid to the appellant US$80,000.00 and US$250,000.00 on the 27th December 1995 for helicopter fuel and transportation costs and for the first shipment of logs. This agreement was made subject to approval by Erickson. The approval was subsequently not given by Erickson and the arrangement was abandoned.

The record shows that an application was filed on 7th November 1995 to lift the injunction in Civil Case No. 178 of 1995 on the basis that the plaintiffs, did not have any locus standi. The application was brought before Commissioner Awich on 27th November 1995. The Commissioner noted that the parties had appeared before a committee of local chiefs who had determined the ownership of the disputed land. At the hearing, counsel for the defendants (including Mubu and Mr Lennea) produced an English translation of the determination of the chiefs. Counsel for the plaintiffs sought an adjournment to obtain affidavits in opposition to the application. The application was adjourned to 19th January 1996.

According to the evidence of Mr Lennea, the respondents had decided to cease all operations on Mono Island on 15 January 1996 on the basis that it was all too hard. This decision led to the subsequent decision to consent to the re-imposition of the injunction.

On the 19th January 1996, the blanket restraining order against Mubu and Mr Lennea and others was re-imposed by consent by the Commissioner.

The respondent sued the appellant for damages for failing to deliver a helicopter in accordance with the agreement and for reimbursement of the various amounts of money paid to the appellant.

By way of defence, the appellant pleaded fraudulent misrepresentation by the respondent in various matters which induced it to enter into the agreement.

Alternatively, the appellant pleaded that the respondent breached the agreement when it terminated the operations on Mono Island.

Further and alternatively, the appellant pleaded that the agreement was terminated by frustration on or about 15th July 1996 when it became apparent to all parties that it could not be performed.

By way of counter-claim, the appellant claimed damages for fraudulent misrepresentation or, alternatively, damages for breach of contract.

The trial judge concluded that the failure on the part of the appellant to provide a helicopter in the circumstances was not a breach of the agreement.

He concluded that the agreement was frustrated by the re-imposition of the blanket restraining order as a result of dispute over land ownership by competing customary land owners. He further held that in view of the confused belief about the decision of the High Court and footnote para. (iii) on Mubu's license that the respondent did not conceal from the appellant the matters which subsequently developed so as to bring about a frustration of the agreement and consequently the principles in Walton Ltd v Walker and Homfrays Ltd [1931] 1 Ch 274 did not apply.

Having come to this conclusion, he applied The Law Reform (Frustrated Contracts) Act 1943 (UK) to the agreement and gave judgment in favour of the respondent for the sum of US$37,000.00 plus SBD211,520.00 together with interest from 22nd May 1996 at 5%.

The trial judge dismissed appellant's counter-claim for damages for fraudulent misrepresentation.

The appellant has appealed against this decision on a number of grounds. It is not necessary to address all of them. The threshold issue raised by this appeal is whether the provisions of the Law Reform (Frustrated Contracts) Act 1943 (UK) (The Act) apply in the circumstances of this case?

We accept the submission by counsel for the appellant and which is not contested by counsel for the respondent that the provisions of the Act do not apply if there is no frustration at common law. The question in this case is whether there was frustration in the circumstances of this case.

Counsel for the appellant submitted in the Court below that the respondent had special knowledge and could have foreseen the frustrating event and that he concealed this knowledge from the appellant. He submitted that in the circumstances, the doctrine of frustration would not discharge the respondent from its obligations under the agreement. He relied on Walton Harvey Ltd v Walker & Homfrays Ltd (supra).

The trial judge rejected this submission in the following passage:

"The principle in Walton Harvey's Case was that where one party has special knowledge and so could have forseen the frustrating event and conceals that knowledge from the other, the party with the special knowledge is not discharged. The argument of the Defendant in light of this case [para 29(2)] was that Lennea who must be taken to have known that ICM's legal position was in doubt, concealed the fact that ICM was relying on Mubu's Milling Licence when he knew that the export foot note had been invalidated by the High Court.

In the evidence adduced before this Court however, I am not satisfied it had been proven on the balance of probabilities that Lennea concealed the fact that he knew that the export footnote had been invalidated by the High Court. He conceded in evidence it was common knowledge among logging circles that the footnote had been struck out in a particular case (Mahlon Ali's Case – ibid). However, he also pointed out in evidence when the matter was ecpressly [sic] raised with the Office of the Commissioner of Forests, the advice given appeared to be conflicting and confusing. I had found this to be so on the evidence before me, that it caused more confusion than clarity. I had also noted this consistent with the fact that no notice, circular, or letter, was issued to all licence holders advising them of the same. Also when the licence came up for the renewal some eight months after that court decision, the footnote was not deleted. My conclusion, that Lennea did hold genuine albeit mistaken belief regarding Mubu's Milling License to export a certain quota of logs per year also apply to this submission. His subsequent actions too were consistent with this belief. When these are put together, I am not satisfied the submission on concealment can be allowed to succeed."

Counsel for the appellant submits before us that the trial judge erred in taking into account principles relating to fraudulent conduct when applying the principles in Walton Harvey Case. He submits that is sufficient to prove that the respondent had some special knowledge and failed to inform the appellant of the true facts.

Counsel for the respondent before us simply supports the conclusion reached by the trial judge.

We agree with counsel for the appellant that the trial judge erred in taking into account the principles of fraudulent conduct in applying the principles stated in Walton Harvey Ltd v Walker and Homfrays Ltd (supra). We conclude that the respondent had special knowledge of the decision in Forest v Mahlon Ali (supra) which struck out a similar footnote as in this case and failed to inform the appellant of the same. In entering into the agreement, the respondent consciously took the risk that it might transpire that the felling, extraction and export of logs would be impossible or impracticable by reason of the absence of a permit or licence or litigation arising from disputes over title to land. Consequently, the doctrine of frustration is not applicable in this case. It follows from this finding that the provisions of the Act are not applicable.

The true position between the parties is that the appellant waived the right to repudiate the agreement when the time stipulated for payment of the US$37,000.00 was delayed under clause 12(b).

The commencement of the hire of the helicopter under the agreement was varied when the parties agreed to re-deploy the helicopter in Papua New Guinea. The commencement of the hire of the helicopter was made subject to the availability of the helicopter from Papua New Guinea which was expected to be towards the end of January 1996. The appellant did everything within its power to provide the helicopter or some other helicopter to fulfil its obligations. The respondent on the other hand on 15 January 1996 abandoned the operations on Mono Island, thereby repudiating the agreement four days before the re-imposition of the blanket injunction when, according to the trial judge, frustration occurred.

Whether or not any damages flow from this breach and the extent of the damages are issues which were not the subject of the trial judge's ruling in view of the findings he came to. In the circumstances, the matter should be remitted back to the High Court to assess the damages in accordance with our finding.

We would allow the appeal, quash the decision of the trial judge and remit back to the High Court to assess the damages. We further order that the respondent pays the appellant's costs of the appeal.

President, Court of Appeal
Judge of Appeal
Judge of Appeal