Kalena Timber Co. Ltd v Bilopoe Co. Ltd [2013] SBCA 12; SICA CAC 03 of 2013 (8 November 2013)

IN THE SOLOMON ISLANDS COURT OF APPEAL

COURT FILE NUMBER:	Civil Appeal Case No. 3 of 2013
DATE OF HEARING:	6 November 2013
DATE OF JUDGMENT:	8 November 2013
THE COURT:	Williams JA, Acting President Sir Gordon Ward JA Sir John Hansen JA
PARTIES:	Kalena Timber Company Limited (First Appellant) Reresare Development Company Limited (Second Appellant) -V- Bolopoe Corporation (First Respondent) Bolopoe Corporation Company Limited (Second Respondent) Middle Island Investment Pty Limited (Third Respondent) Attorney General (Fourth Respondent)
ADVOCATES: First Appellant: Second Appellant: First to Third Respondents: Fourth Respondent:	G Suri R Kingmele W Rano R Firigeni
KEY WORDS	Forest Resources and Timber Utilisation Act [Cap 40]. Injunction. Partial Release of Funds.
RESERVED ALLOWED
PAGES	1-6

JUDGMENT OF THE COURT

[1] This is an appeal, with leave, from the decision of Faukona J dated 29 January 2013, releasing 60% of the trust account funds referred to in Para 9 hereof, representing the operational costs of the third respondent.[1]

[2] Mr Kingmele abided the decision of the court and was granted leave to withdraw.

Background

[3] The second appellant holds a log-felling licence over the area at the centre of the dispute in this litigation. The first appellant is subcontracted to carry out the logging. The first respondent also holds a log-felling licence over the area in dispute. On 5 May 2012 the second and third respondents entered into a technical operations and marketing services agreement.

[4] It is alleged that neither the second or third respondents held a log-felling licence over the area in dispute.

[5] The proceedings alleging the lack of any licence entitling the second and third respondents to log the land was filed on 8 February 2013. On 26 February 2013 the first respondent issued a third party notice seeking a permanent injunction restraining the second and third respondents from entering and carrying out logging on the first respondent's land on the basis that the operation is unlawful as it is carried out without the authority of a valid licence. It can be seen that the first respondent supports the position taken in these proceedings by the appellants. The file does not indicate any withdrawal of the third party notice, and we are somewhat confused as to how Mr Rano can continue to represent all three respondents given the clear conflict of interest.

[6] The matter goes further, because Symeon Hong, one of the proprietors of the first respondent, in his sworn statement of 13 December 2012 stated:

8. I confirm that the second and third defendant's operation in the concession area covered by the First Defendant's Timber Licence has never been permitted and authorised by the first defendant, and therefore unlawful. On 1 December 2012, the members of the first defendant held a meeting and made various resolutions...

...

11. The first defendant totally objects to the second and third defendant operating under its felling licence number A10237. It has not given permission or authority to the second and third defendants to undertake the operation. My solicitor has written to the Commissioner of Forests urging him to totally suspend the second and third defendants' operation in the first concession area...

[7] It can be seen that the proceedings place squarely in issue whether or not the second and third respondents hold any licence at all to allow them to enter and log on the first respondent's land.

[8] On 3 October 2012 Mwanesalua J granted an ex parte injunction restraining the first to third respondents from carrying out logging activity on the relevant land, requiring the third respondent to remove its equipment and machineries, and restraining the first, second and third defendants from exporting the logs already felled.

[9] On 23 October 2012 the Judge refused an application on behalf of the first to third respondents to vary the order to allow the logs to be exported. The evidence was that the logs were on the beach ready for export and a ship was present.

[10] An urgent appeal against that order was brought on before this Court on 26 October 2012. On that date this Court granted leave to appeal and ruled that the first to third respondents were entitled to export the logs felled by them within the disputed area. There was a further order that the proceeds of the exported logs should be paid into a joint trust account to be opened in the names of the solicitors for the parties, provided that the 25 per cent statutory customs duty payable on the exported logs could be deducted and paid to the Solomon Islands Government. Other consequential orders were made, but they are not relevant for present purposes.

[11] On 29 January 2013 Faukona J ruled on an application that the third respondent's operational costs be discharged from this Court's order.

The judgment

[12] While accepting that the documents filed on behalf of the second and third respondents were too general and lacked itemisation of the operational costs, the Judge considered that did not deter him from making an order in what he described as conventional percentages agreed upon, and set the operational cost at 60 per cent of the sale proceeds. He suggested Para 2 of this court's judgment was not clear. He determined that because this court used a percentage figure for Customs Duty it was appropriate for him to deal with operational costs by way of a percentage.

Submissions

[13] Mr Suri accepted there were a number of cases in this jurisdiction where operational costs of 60 per cent were allowed to be discharged from existing injunctions. However, he submitted that this case was different, because the allegation is that the second and third respondents were logging without any licence at all. He said given the operation of s 4 of the Forest Resources and Timber Utilisation Act Cap 40, the logging was unlawful. He referred to authorities such as In re An Arbitration between Mahmoud v Ispahani and George v Greater Adelaide Land Development Co Ltd, [2] to the effect that the Court will not lend its aid in order to enforce something that is unlawful and contrary to public policy. He stressed that there is a need to ensure that illegal logging operators cannot act with impunity.

[14] Finally, he submitted that the so-called custom of allowing a 60 per cent operational expense in this jurisdiction failed to apply a robust analysis of the actual costs simply relying on estimates from accountants. He pointed out that with the 25 per cent statutory customs duty, the 15 per cent royalty and the 60 per cent operational costs, all of the funds secured by injunction in the cases he referred to were dissipated before trial.

[15] His submissions were supported by the fourth respondent, who also submitted that this was a case where the second and third respondents operated without a licence. Mr Firigeni said this was contrary to s 4 and a matter of grave concern to the Commissioner.

[16] On behalf of the first to third respondents, Mr Rano submitted that because of [2] of our decision, referred to above, the matter had been conclusively dealt with by this Court, and a res judicata operated. He submitted that the proprietary rights to the logs remained in issue and there was a triable issue that should not be disposed of until trial. He further submitted that the long-standing and established practice of allowing 60 per cent operational logging costs should be followed.

Decision

[17] Mr Rano's res judicata submission can be quickly dealt with. While counsel may have raised issues relating to whether or not there was any licence or any valid licence, this Court made no finding in relation to that. It is a submission that ought not to have been properly made. Para 2 of our judgment is perfectly clear.

[18] Section 4 of the Forest Resources and Timber Utilisation Act makes it a criminal offence for any person to fell trees or remove timber from land for the purpose of sale other than in the specific exceptions in the section. None of the exceptions apply here. Therefore, if the second and third respondents were logging the land in dispute without a licence, it would appear they were committing a criminal offence and were acting unlawfully. If such was found at trial, the second and third respondents would not be able to recover their operational costs. That point, in a hypothetical sense, was properly conceded by Mr Rano. The reason for that is clearly set out in the decisions cited by Mr Suri and referred to above at Para 13, which require no further comment.

[19] The purpose of an injunction securing funds in circumstances such as these is to ensure that there is some money available to meet damages.

[20] This case can be clearly distinguished from those relied on by Mr Rano, where the High Court in this jurisdiction has routinely allowed operational costs of 60 per cent where questions of the validity of competing licences is called into question. In the circumstances of allegations of unlawfulness, such as here, it is appropriate that the fund stay intact except for the proper deduction of the money due to the revenue which would be payable in any event at the statutory rate.

[21] Mr Suri submitted that the 60 per cent adopted is not a robust figure. It has been adopted in a number of cases, and we have no way of knowing upon what evidential basis it has been arrived at. We were advised from the bar by Mr Suri that operational costs vary significantly depending on the type of terrain where logging is being carried out. He stated that on a flat island, for example, 60 per cent would be far too high.

[22] This courts use of 25% for Customs Duty can be clearly distinguished from the 60% figure. The 25% is a statutory figure. The 60% is an assumed figure for operational costs.

[23] This is not the case to consider the 60 per cent rule applied in cases of alleged invalidity of licence or of competing licences. However, we would make two comments. First, operational costs, when claimed, should be properly proved not from an accountant's estimation, but by the adducing of appropriate evidence. In some cases that may well require expert evidence. The second comment, although we make it clear we are making no finding in this case, is that if the customs duty, operational costs and royalty completely remove a fund, there seems little point in granting an injunction securing funds from the sale of logs except to the extent it secures the revenue and the land owners. Generally, there needs to be a recognition that the purpose of the injunction is to reserve the funds so they are available to meet any award of damages made at the full hearing.

[24] Accordingly, the order of Faukona J releasing 60 per cent of the trust fund for operational expenses is set aside. There will be costs to the first appellant and the fourth respondent in this Court, and for the two appearances, in the court below, in front of Faukona J dealing with the application and the leave application.

Williams JA,
Acting President

Sir Gordon Ward JA
Sir John Hansen JA

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^[1] Kalena Timber Company Ltd v Bolopoe Corporation [2013] SBCA 1.

^[2] Re An Arbitration between Mahmoud v Ispahani [1921] 2KB 716; George v Greater Adelaide Land Development Co Ltd [1929] HCA 40; (1929) 43 CLR 91 at 101.