Cheungs Construction Ltd v KCM Properties Ltd [2024] SBCA 4; SICOA-CAC 12 of 2023 (31 May 2024)

IN THE SOLOMON ISLANDS COURT OF APPEAL

Case name:	Cheungs Construction Ltd v KCM Properties Ltd
Citation:
Decision date:	31 May 2024
Nature of Jurisdiction	Appeal from Judgment of The High Court Solomon Islands (Keniapisia J)
Court File Number(s):	12 of 2023
Parties:	Cheungs Construction Limited v KCM Properties Limited, Guadalcanal Provincial Assembly, Attorney General
Hearing date(s):	23 May 2024
Place of delivery:
Judge(s):	Muria P Gavara-Nanu JA Lawry JA
Representation:	F Waeta’a for Appellant/Cross Respondent J Apaniai for Respondent/Cross Appellant
Catchwords:
Words and phrases:
Legislation cited:
Cases cited:	Attorney General of the Virgin Islands v Global Water Associates Ltd (British Virgin Islands) [2020] UKPC 18
ExTempore/Reserved:	Reserved
Allowed/Dismissed:	Dismissed Cross Appeal Allowed
Pages:	1-12

JUDGMENT OF THE COURT

1. On 15 March 2003, the Appellant filed a claim against the Respondents, seeking rectification of title for the fixed term estate PN 191-023-136. The Appellants obtained an interim injunction, restraining the First Respondent from undertaking construction on the land.
2. The First Respondent filed a defence and a cross-claim. The matter proceeded to trial in 2010. On 14 December 2010 the court dismissed the claim and found in favour of the First Respondent on the counterclaim. The perfected order shows that the claim was dismissed, that judgment was awarded to the First Respondent on the counterclaim and damages were ordered to be assessed. Costs were ordered against the Appellant in the sum of $53,200.00. This Court understands those costs remain outstanding.
3. In 2015, the First Respondent filed an application for the assessment of damages. That application was not heard until 3 February 2023. The court assessed damages at $10 million in favour of the First Respondent and ordered that costs were awarded to the First Respondent to be assessed, if not agreed.
4. The Appellant has filed four grounds of appeal:
   • Ground 1 – “the trial judge in the court below erred in law/fact to hold that justice Goldsborough had announced orally in court the reasons for the orders, perfected on the 23 December 2010, whereas, in fact, no, such reasons were announced in court by his Lordship, hence making it difficult for the Appellant to file an appeal against such decision, a denial of the right to appeal. Unless a written judgement is produced, the Appellant would not be in a position to file any proper appeal.”
   • Ground 2 – “The trial judge in the court below erred in law/fact to hold that a written application should have been filed in Court, requesting delivery of a written judgment by Justice Goldsbrough; whereas the letter dated 12 April 2010 is sufficient to request a written judgement from the Court, not necessarily by way of a formal application as held by Justice Keniapisia.”
   • Ground 3 – “the trial judge in the court below erred in law/fact to award of damages in the sum of SBD $10,000,000.00 (Ten million Solomon Islands dollars) against the Appellant without proper assessment on the remoteness of the damages claimed thus very excessive in the final quantum of SBD $10 million ($10 million)”.
   • Ground 4 – “the trial judge in the court below and in law/fact to finally award the sum of SPD $10,000,000.00 (Ten million Solomon Islands dollars) without putting real or actual weight or proper consideration on his lordship own, finding or evaluation in which he held that the two accounting reports produced and relied upon during the assessment hearing have uncertainties, assumptions, reservation, or errors in them”.
5. The First Respondent has filed a cross appeal against the assessment and set out six detailed appeal grounds under the following headings:
   1. Misinterpretation of Evidence: Incorrect Assessment Period.
   2. Neglect of Construction Period Consideration
   3. Misapplication of Principles of Causation and Remoteness in Assessment of damages – Overemphasis on hypothetical Damage Scenarios
   4. Failure to provide adequate reasons and excessive reduction due to uncertainties or assumptions/reservations/errors.
   5. Incorrect weight given to expert testimony.
   6. Lack of Counter Evidence and Failure to Respect the Adversarial Process.

Appeal

6. While counsel for the Appellant addressed both grounds one and two, those grounds in reality were an appeal against the ruling of Justice Goldsbrough perfected in 2010. No appeal was filed against that ruling and any appeal is now well out of time. Grounds 1 and 2 are irrelevant to the assessment of damages which is the subject of this appeal. While the Appellant could have filed an appeal against the ruling of Justice Goldsbrough on the basis of that no reasons were provided, the Appellant did not do so.
7. The material before the Court below in assessing the damages was provided by the First Respondent. It included a detailed rental valuation assessment report by Gregory Wate of Musa Real Estate Elites. In addition, the Respondent produced reports from two independent accountants which assessed that valuation. The First of those accountants was Baoro Laxton Koraua, the Managing Director of Baoro and Associates, and the second was Gideon Zoleveke of CBL Certified Practising Accountants.
8. The Appellants provided no report to the court below to assist in the assessment of damages. Of greater significance, there was no request to cross-examine the authors of any of the three reports. That left the judge in the court below with the unchallenged evidence set out in those reports.
9. The basis of the damages claimed relates principally to the effect of the interim injunction in place from 2003, until that interim injunction came to an end at the end of 2010 with the perfecting of the judgment. That is a period of seven and a half years.
10. The Respondent has based the claim for damages on the inability to construct a proposed commercial centre on the property. The estimate of time for building the commercial centre was said to be 18 months. The construction could not commence until the injunction was removed. The claim for damages included rent forgone from the period the construction could have been completed until 18 months after the injunction was removed. That 18 month period was to allow for the construction of the centre once the injunction was removed.
11. The total damages claimed by the First Respondent is $52,060,000.00. That figure is made up of rent income foregone, interest on the rent foregone, the increase in building costs between 2003 and 2010, a building cost reassessment fee, legal fees (which appear to be those ordered in 2010).
12. When the matter came before the Court in 2023, the judge had misunderstood the calculations set out in the MUSA report. He said:
    • “The Musa report cover the period from 2003 – 2016 (13 years) and puts the loss at $57,060,000.00. That means for one year the loss will be around $4,389,230.77) (just $4 million dollars in terms of estimates). For 7 years (2003 – 2010) you multiply by 7 and that should be around $28,000,000.00 (in terms of estimates). So I will award $28,000,000.00 in damages to the 1^st defendant for 7 years. Due to uncertainties or assumptions/reservations/errors observed by Musa and the two accountants mentioned in the preceding paragraph 4, I will deduct $18 million dollars and only award the final quantum of $10 million dollars.”
13. The problem with this approach was that the calculation for rent foregone in the Musa report was for the period 1 January 2005 (a little over 18 months from when the injunction was obtained) to 16 June 2012 (18 months after the injunction was lifted – to allow for the commercial centre to be built). The increase of building costs was a fixed cost, not one to be apportioned. The same is true of the building cost assessment fee and the legal fees. The report from MUSA is clear, it only covers the period of 7 and a half years because of the injunction, not 13 years as understood by the judge.
14. The judge reduced the damages, initially to $28,000,000.00. The reasoning for doing this was based on an incorrect understanding of the Musa report. He then deducted a further $18,000,000.00 because of the uncertainties referred to in the reports. If counsel for the Appellant wished to challenge the findings in the reports it was incumbent on it to provide much greater assistance to the Court than the judge received from the Appellant. The result is that there is no indication as to how the amount of $18,000,000.00 was arrived at to reduce the damages to $10,000,000.00.
15. It follows that the judge was in error in his reasoning when he calculated the damages that should be paid. Included under Ground 3 was the submission that the award of damages was too remote. The Appellant has put no authorities before this Court concerning the allegation of remoteness of damages. The submissions received are as follows:
    • “It is respectfully submitted that the trial judge has failed to properly assess the remoteness of damages claimed and award damages in the sum of SBD 10,000,000.00 to the First Respondent, the property was vacant for almost 13 years, there was no development done by the First Respondent on the property to claim the large amount of damages. Even as we speak some 13 to 14 years after the Respondent won the High Court matter, the Respondent failed, or still have not carried out any development on the land. The land remains vacant until today.
    • So to claim damages, based merely [on] reports produced by accounting firms without suffering any actual loss is far too remote. This court is urged not to be convinced on the reports produced by the Respondent on its claim for damages. The injunction granted by the Court is discretionary upon the Court. Once the quarters satisfied based on evidence produce before it, it will grant the orders sought.
    • In the Court below, the Court was satisfied based on evidence at that time to grant the restraining orders. The orders are made by the court, after being satisfied of the evidence before it. Hence it would be illogical to claim damages against the Appellant that are too remote.”
16. The submission has been set out in full. There is nothing put forward to assist the Court with the test that the Appellant submits should be applied. We will return to the issue of remoteness later in this judgment.
17. Finally the Appellant submitted that as the High Court had granted restraining orders when the High Court litigation commenced it would be illogical to claim damages against the Appellant that are too remote. This submission ignores that there was a trial and a ruling against the Appellant. It ignores that there was an undertaken giving in respect of damages that may result from an injunction being granted. It ignores the fact that construction on the building had commenced, making losses arising from being unable to proceed with the building not only foreseeable but a likely outcome in the event that the Appellant was ultimately unsuccessful in the High Court.
18. Regarding Ground 4 the Appellant submits that because there were assumptions, reservations and errors observed by Musa and the two accountants, then the award of damages was inconsistent with such a finding. The judge, without the assistance he ought to have been able to expect from the Appellants identified areas where there were areas of concern. The lack of satisfactory alternative evidence or cross examination left the judge having to make calculations based on the material before him. The judge correctly identified that the figure of $250 per square metre was a figure based on 2014 to 2016 rentals not rentals at the time of the injunction. The judge correctly identified the assumptions about the room occupancy and the completion date. The second accountant challenged the figure of 1% allowed for non-occupancy of the rooms and suggested it should be between 10% and 24%. The judge was correct to make a reduction that would take such matters into account.
19. Turning to the issue of remoteness of damages, the Privy Council in Attorney General of the Virgin Islands v Global Water Associates Ltd (British Virgin Islands) [2020] UKPC 18, updated and clarified the law regarding remoteness of damages in cases of breach of contract. Those principles are equally applicable in the circumstances of the case before this Court. Beginning at paragraph 31, Lord Hodge in the Privy Council said:
    • “31. First, in principle, the purpose of damages for breach of contract is to put the party, whose rights have been breached in the same position, so far as money can do, as if his or her rights had been observed.
    • 32, But secondly, the party in a breach of contract is entitled to recover, only such part of the loss, actually resulting as was, at the time the contract was made, reasonably contemplated as liable to results from the breach. To be recoverable, the type of loss must have been reasonably contemplated as a serious possibility...
    • 33. Thirdly, what was reasonably contemplated, depends on the knowledge, which the parties possessed at that time, or in any event which the party who later commits the bridge, then possessed.
    • 34 Fourthly the test to be applied is an objective, one. One asks what the defendant must be taken to have had in his or her contemplation, rather than only what he or she actually contemplated. In other words, one assumes that the defendant at the time the contract was made, had thought about the consequences of its breach.
    • 35, Fifthly, the criterion for deciding what the defendant must be taken to have had in his or her contemplation, as the result of a breach of their contract is a factual one.”
20. These principles can be applied to the present case even though it was not an action for breach of contract. The construction on the site had begun when the Appellant caused building work to come to a stop by obtaining the interim injunction. The purpose of the injunction was to prevent the construction from proceeding. Objectively, it must have been within the contemplation of the parties that if the building work was stopped or delayed there would be consequential loss incurred by the First Respondent. There would also be a loss of future profits. If the complex was not build the First Respondent would be unable to recover the rents that would otherwise be paid. The Privy Council found that the inability to earn future profits was in the contemplation of the parties in the breach of contract. So here the loss of ability to earn rental as the complex could not be build was within the contemplation of the parties.
21. It is apparent that the errors made in the Court below partly resulting from the misunderstanding of the facts requires this Court to reassess the damages. The submission on behalf of the Appellant, that the damages claimed were too remote is rejected.

Cross appeal

22. Turning now to the cross appeal. As set out in the judgment the Respondent is correct that the judge misinterpreted the evidence and overlooked the period required for construction. The First Respondent could not construct the complex until the injunction was lifted. The claim delayed the start of the period of loss by 18 months to allow for the complex to be constructed. However the judge did not delay the start of the period to allow for the original proposed construction so this ground has not affected the calculations. We have dealt with the lack of detailed reasons for the reduction however on the evidence before him there was a basis to reduce the figure put forward by the First Respondent. This is necessary because of the figure used to calculate the rent which is said to increase by 10% each year. We also need to make an adjustment to reflect the evidence of the second accountant regarding vacancy in occupation, which we accept as realistic. In addition if the figure put forward reflects the rent less the expenses from the venture had it proceeded then that rent would be income. Such income would be liable to taxation. A judgment is not subject to taxation. To require the payment of what would have been spent on tax would be to unjustly enrich the First Respondent as that would not be a loss of profit. This also affects the interest that may accrue.
23. In the course of this judgment we have dealt with the issues raised in the cross appeal. The figure arrived at by the judge is set aside. We accept that the First Respondent is entitled to damages for the future loss of profit notwithstanding when the injunction was lifted he did not proceed with the project.
24. The First Respondent is entitled to the loss of rent that would otherwise have accrued had the project not been stopped. For rent forgone the figure of $250.00 a square metre is too high as, on the evidence provided the rent would increase by $10% each year. By 2012 the rent would have to be less than the figure for 2014 through to 2016. If rent was $180.00 per square metre in 2005 and increased by 10% each year by 2012 the rent would be around $340.00 a square metre. If rent was $220.00 a square metre and increased by $10% per year then by 2012 it would be $262.00 per square metre. It follows that the figure claimed is unable to be justified. We are satisfied that the future profits would be adequately covered if we allowed a flat figure of $150.00 per square metre for the 7 year period to take account of the evidence concerning increases in rent each year.
25. From the figure arrived at there needs to be a reduction of a further 9% to 23% to allow for lack of occupancy. This is taking the 10% to 24% suggested by Gideon Zoleveke and reducing it by the 1% already taken into account by the Musa report. There would need to be a further 30% reduction from the rent anticipated to reflect what would be paid in company tax for a resident company. It would be 35% if the company was non-resident.
26. We therefore reduce the $44,564,730.13 to $26,738,838.00 to take account of the over statement of rent. We take the midpoint between the 9% and 23% likely vacancy rate and allow a reduction of 15%. That reduces the rent forgone by $4,010,825.70, leaving $22,728,012.60. If that was the gross amount received, the income tax would be 30%, (not 10% withholding tax) as that would be income earned by the First Appellant. The tax would be $6,818,403.78 leaving $15,909,608.80. That is the figure allowed for rent foregone. That figure is about one third of what is claimed. It is therefore necessary to reduce the interest on rental foregone by a similar proportion. That leaves interest on rent foregone as $2,222,057.23. The increase in the building cost is claimed at $4,943,182.40. The First Respondent has chosen not to proceed with the building so they have not suffered this as a loss. Had they proceeded in the 14 years since the injunction was lifted then it would have been a loss. The First Respondent is not entitled to recover an amount that is not future profits and is not an expense incurred. That is too remote. It does appear however that the First Respondent has paid the building cost reassessment fee of $89,431.40. As a result it is entitled to recover that loss. The legal fees are not part of the damages if they were awarded in 2010. They would potentially remain payable under that judgment. The First Respondent then is entitled to:
    • Rent income foregone: $15,909,608.80
    • Interest on the rent foregone 2,222,057.23
    • Building cost reassessment fee 89,431.40
    • Total $18,221,097.40

Orders

1. The appeal is dismissed.
2. The cross appeal is allowed.
3. The assessment in the Court below is set aside.
4. The Appellant is to pay damages assessed at $18,221,097.40
5. The Appellant is to pay the costs of the First, Second and Third Respondent, if not agreed to be taxed.

Muria P
Gavara-Nanu JA
Lawry JA