Eagon Resources Development Company (SI) Ltd v Marabatu [1999] SBHC 148; HCSI-CC 220 of 1997 (4 October 1999)

IN THE HIGH COURT OF SOLOMON ISLANDS

Civil Case No. 220 of 1997

EAGON RESOURCES DEVELOPMENT COMPANY (SI) LIMITED
and LESLIE VAPULAKANA (Representative of the Trustees and
Landowners of Bakobako Customary Land)

-v-

JOHN MARABATU
(As representative of his Matupoqe Line)

High Court of Solomon Islands
(Muria, CJ.)
Civil Case No. 220 of 1997

Hearing: 23 September, 1999
Judgment: 4 October 1999

Thomas Kama for Plaintiffs
Steve Watt for Defendant

MURIA CJ: By its application, the first plaintiff seeks approval from this Court for expenses it incurred in the logging operations from the total proceeds of the logs extracted, sold and milled from the land namely, Bakobakolo Land. Mr. Watt who acted for the defendant opposed the application on the basis that there would be nothing left for the defendant if he succeeds at the trial.

The first plaintiff carries out a timber operation in Solomon Islands and has been for sometime carrying out logging operations in Choiseul Province. Following the usual procedure under the Forest Resources & Timber Utilisation Act, it was granted timber rights by the second plaintiff and Timber Licence issued to it by the Government to operate in the land, now under dispute, and situated in North-West Choiseul. It commenced logging in December 1996. In May 1997, the first plaintiff’s operation was halted due to land disputes with the landowners of Moli Camp. Logging Operation re-started in August 1997 following which disputes had started again. The first plaintiff’s employees were threatened with violence by the members of the defendant’s group. Threats were also issued by the defendant’s group to burn the machineries and destroy the plaintiff’s logging operations in Bakobakolo. A restraining order against the defendant and his group was sought by the plaintiffs and was granted by this Court on 2 December 1997.

On 26 February 1998, the defendant and his line undertook not to interfere with the first plaintiff’s activities. In return the first plaintiff undertook not to enter the land pursuant to the Logging Agreement signed on 11 October 1995 save for the purpose of extraction and sale of logs already felled before 26 February 1998. The Court also ordered the first plaintiff to pay into Court all proceeds of the sale of the logs extracted and to account for all logs extracted by volume and species and account for all royalties paid to landowners. The logs were extracted and sold and the sum of $577,683.82 was obtained and paid into the first plaintiff’s solicitors trust account. The accounting for the logs and royalties have now also been done.

Those were briefly the circumstances leading up to this application by the first plaintiff seeking an order approving its production costs to be paid out of the $577,683.82 held in its solicitor’s trust account. Mr. Kama suggested that the Court should allow the cost of the company’s operation to be paid out from the fund and retain only 10% based on FOB to meet damages payable to the defendant if it wins at the end of the trial. References were made to the cases of Rolland Masa -v- Kololeana Development Co. Ltd, Civil Case No. 361 of 1995; John Manui Iwane -v- Dai Island Sawmilling Ltd, Civil Case No. 372 of 1995 and Jack Lagobe and Dulcie Tozaka -v- Frank Lezutuni, VR & Js Lumber Co. Associations, Mega Corporation Ltd and Attorney General, Civil Case no. 102 of 1994. Although the circumstances in those vary from each other, I think there is a common position recognised and maintained in those cases. Firstly, there was in each case an identifiable amount sought to be released. Secondly, there was the nexus between the amount expenses sought to be released and the extraction and sale of the logs from the land in question.

In Rolland Masa, the amount of $69,125.68 for administration costs, charges, salaries, wages and other operation related expenses were held to be reasonable expenses incurred in connection with the sale of logs and were therefore deductible from the proceeds of the sale. The amount of $295,351.29 was for technology and management services rendered by the second defendant company which under the management agreement included entering the land in question, extracting the logs already felled and ensuring that they were sold. Those amounts clearly had to be incurred in process of extraction and sale of the logs. They were therefore “reasonable expenses incurred in connection with the extraction and sale of the logs” ordered by the Court to be so extracted and sold.

In John Manui Iwane, the amount involved was easily identifiable. The plaintiff landowner sought the whole of FOB proceeds of the logs sold to be deposited in Court as security for costs and damages. The amount was USD545,831.00. The defendant company at the sametime requested the payment of reasonable expenses out from the same fund. His Lordship Palmer J, following Mega Corporation Ltd -v- Nelson Kile Civ. App. 1 of 1997 (CA) ensured that there was fund left from the proceeds for any damages should the plaintiff won at the end of the day by ordering 10% of the FOB proceeds of the logs excluding duties and levies be deposited into Court. His Lordship clearly also recognised in that case that the defendant company did not have the means to pay damages in the event the plaintiff succeeded.

In Jack Lagobe, the total amount ordered to be paid into Court was SBD795, 609-83. The amount sought to be released to the Government was $254,635.35 being for customs duty payable on logs exported. His Lordship Palmer J ordered that amount to be released despite the contention by counsel for the plaintiff that all the funds held by the Court were proceeds of the sale of logs and should be treated as a whole where damages could be readily available should the plaintiff succeeded. His Lordship stated:

“To a certain extent that is correct, but the fact must not be lost sight of that the sale proceeds did not arise in vacuo. It arose from the toil and sweat of persons and from the use of expensive heavy logging machinery and equipment. But for these, no sale proceeds would have been obtained. It is only proper in the circumstances therefore for reasonable expenses to be deducted and paid out.”

The Court clearly recognised that the work involved in the process of extraction and sale of the logs was directly connected to the proceeds of the sale and therefore reasonable expenses so incurred in the process were proper and should be deducted.

In the present case, Mr. Kama urged the Court to release “production costs” to the first plaintiff company from the proceeds of the sale of logs. We are not told how much is that but I assume that on the basis of Mr. Austin Yam’s evidence, it should be calculated at the average rate of $397.57 per cubic metre of log. Mr. William Pita’s affidavit deposed that Exhibit “WP3” shows the record of volume and species of logs extracted and shipped after the Order of 26 February 1998 and Exhibit “WP4” shows the record of volume of timber extracted and milled from the land in question and which timber included those milled between August 1997 and August 1998, a total of 223.25 cubic metres.

I have considered Mr. Yam’s evidence, and accept that the average production cost of SBD397.57 per cubic metre of log is fair and reasonable. Although Mr. Yam’s evidence shows production cost for the period of six months, it demonstrates the type of costs (variable and fixed) expected to be met by the plaintiff logging company in its operation. Of course, it would not be realistic to simply accept that the production cost estimate for one six month period as necessarily applicable to all other periods of operation. Hence in the present case, taking the average production cost of SBD397.57 one still has to go to “WP3” and “WP4” in order to see how much in real term would SBD397.57 produce.

Although Mr. Kama did not specify how much in terms of dollars and cents he sought to be released, paragraphs 6(b) and (c) of William Pita’s evidence are helpful. The volume of logs extracted and shipped after the Order of 26 February 1998 could be ascertained from “WP3” showing the date of shipments and volume of logs shipped. From the record, there were three shipments, all in the month of March 1998, shipping a total volume of 356.85 cubic metres. As to the milled timber, the total volume of timber milled between August 1997 and August 1998 was 223.25 cubic metres. However, in respect of the timber with which we are concerned here, the volume of those timber would be much less than 223.25 cubic metres. Having considered the evidence, in particular “WP4”, I conclude that the volume of timber milled in respect of the period with which we are concerned here would only be 107.27 cubic metres. I am mindful of the possibility that there might be some logs extracted before the Order and which might well be also milled between the months of March to August 1998. But on average, I am satisfied that 107.27 cubic metres would be reasonable. The total volume of logs exported and milled in respect of logs extracted after the order of 26 February 1998 from the land in question comes to 464.12 cubic metres. On the average production cost of $397.57 per cubic metre, the costs of producing 464.12 cubic metres of logs and timber would be $184,520.19. According to Mr. Pita’s evidence duties and levies for each shipment had been paid, the first plaintiff would therefore be entitled to the amount of $184,520.19 as the amount of expenses incurred in connection with the extraction and sale of logs pursuant to the Order of this Court made on 26 February 1998. General operational expenses of the company unrelated to the extraction and sale of the logs referred to are not claimable in such a case as this.

The contention by Mr. Kama which was strongly resisted by Mr. Watt was that only 10% of FOB proceeds should be retained in the trust account to await the outcome of the trial. If that were to be so, it would mean that only $57,768.38 would be kept to await the outcome of the action and $519,915.44 would have to be released to meet the production cost sought by the first plaintiff. One would clearly conclude that the amount sought by the first plaintiff to be released as production cost would no doubt cover much more than the reasonable production expenses incurred in connection with the extraction and sale of the logs covered by the Order of the Court. Counsel for the defendant in this case can hardly be blamed for strong resistence to such a suggestion.

Having said that, clearly the first plaintiff must be allowed reasonable expenses incurred in connection with the extraction and sale of those logs which were the subject of the Order of 26 February 1998. That amount, as I said, is $184,520.19 and I order it to be released to the first plaintiff.

There will be no order for costs in this application.

(GJB Muria)
CHIEF JUSTICE