Aola Timber Export Agency v Sino Capital (SI) Ltd [2010] SBHC 87; HCSI-CC 145 of 2008 (13 December 2010)

IN THE HIGH COURT
OF SOLOMON ISLANDS

Civil Jurisdiction

BETWEEN:

AOLA TIMBER EXPORT AGENCY

AND:

SINO CAPITAL (SI) LTD

Date of Hearing: 14 October and 20 November 2009, 21 April,
21 June and 26 November 2010
Date of Decision: 13 December 2010

Mr. M. Tagini for claimant
Mr. W. Rano for defendant

DECISION AFTER TRIAL

Cameron PJ:

1. This dispute relates to a logging and milling agreement dated 17 December 2004 between the parties. The claimant contends that it is owed various sums by the defendant under the provisions of the contract.

2. The claimant in effect represented customary landowners in certain wards of Paripao and Aola districts of Guadalcanal, which lands contained forests. Under the agreement, the defendant contracted to log the lands and export for sale the logs and timber. In return, the defendant was to retain 80 percent of the sale proceeds. A further 15 per cent of the proceeds were to be paid to the claimant, which was responsible under the contract for paying royalties to the landowners at a rate of SBD$60 per cubic metres for round logs. The balance of 5% was to be put into a trust account by the defendant and used exclusively for plantation wood and reafforestation.

3. Despite being signed in December 2004, logging did not commence until 2006. The first shipment of logs by export was on 23 April 2006. There were 7 shipments in all, the last one taking place on 17 December 2007.

4. The total value of the shipments being $9,145,797.33, but the defendant failed to pay the claimant the 15 per cent it was due under the contract. The defendant says that it did not do so for two main reasons. First, that notwithstanding that the contract provided that the claimant was responsible for paying the landowners their royalties (effectively from the 15 per cent), the parties in fact agreed in 2006 that the defendant would pay those royalties directly from the proceeds. It is accepted by the parties that in fact the defendant did pay the landowners their royalties directly from the proceeds. Secondly, the defendant contends that it paid advances to the claimant or made payments on its behalf in an amount in excess of the 15 per cent payable under the contract, and that accordingly the indebtedness is extinguished by way of set-off.

5. I am quite satisfied from the evidence that the parties did vary the original contract by agreeing that the defendant would pay the royalties to landowners direct. The bundle of documents contains written examples of the claimant agreeing to this in relation to certain identified lands – see pages 120 and 121 of the bundle. Also, if this variation to the original terms was not agreed, why did the claimant not protest at the time and insist on it being paid the 15 per cent from which it would pay the landowners royalties?

6. According to the calculations at page 52 of the bundle of documents, the total royalties paid to landowners was SBD$943,099.32. Mr. Tino for the claimant agreed in cross examination that the defendant had paid all the royalties direct, and did not contest the amount as shown in that schedule. It is also common ground that 15 per cent of the total proceeds of sale of the logs amounted to $1,204,676.55. Given the variation to the contract, I am satisfied that the amount of the royalties paid by the defendant to landowners ought properly to be deducted from the 15 per cent otherwise payable to the claimant. After that deduction, the amount payable by the defendant to the claimant under the contract is SBD$261,577.20.

7. The defendant contends that the SBD$261,577.20 is not now due to the plaintiff because it made advances to and payments on behalf of the claimant pertaining to the contract in a total sum of SBD$389,498 between 7/1/2005 and 7/2/2006, before logging even commenced. The payment said to have been made on behalf of the claimant were for various items such as the claimant's logging licence fee, fees payable for access agreements and for a logging pond, and similar set-up items.

8. In cross examination Mr. Tino and Mr. Thao, being representatives of the claimant, both agreed that the defendant had paid money to and on behalf of the claimant, but challenged the figure of $389,498. The breakdown of that figure is itemised in a 'Summary of Advances and Funds Expended' by the defendant for and on behalf of the claimant (pages 72, 73 of the bundle). Mr. Cheah in his evidence for the defendant confirmed the accuracy of that schedule. By contrast, Mr. Tino for the claimant gave no evidence challenging any individual item or figure which went to make up that schedule and its total of SBD$389,498. Indeed, he acknowledged its correctness by signing it. In light of this, on the available evidence I am satisfied on the balance of probabilities that the defendant made advances to or payments on behalf of the claimant in the sum of SBD$389,498 before the logging started but in relation to the project, and that such figure can be set-off against the sum of SBD$261,577.20 otherwise owed to the claimant. The result is that the amount otherwise owed to the claimant is fully extinguished by this set-off.

9. The claimant also complained that the defendant, rather than paying the 5 per cent into a trust account for plantation wood and reafforestation, simply retained the money, and that those moneys ought now to be paid to the claimant. Mr. Cheah for the defendant gave evidence that the reason no plantation wood was planted following the logging was that the claimant was obliged to identify suitable land for such plantings, and did not do so. Mr. Cheah also gave evidence of there being customary land disputes in relation to all the lands that were logged. I note that under clause 2(c) of the agreement the claimant was responsible for "all dealings with landowners pertaining to negotiations and solving problems". I accept that this responsibility would extend to identifying logged land suitable for replanting and obtaining the consent of the landowners to do so. I find that it did not do this, and so accept that there was no obligation on the defendant to expend money in reafforestation.

10. The defendant has counterclaimed for amounts said to have been advanced to the claimant after taking into account the set-off to which I have referred. To this end, it tendered to the Court on the last day of the evidence a bundle of receipts said to represent advances to or payments made on behalf of the claimant, by the defendant. These receipts were not available when Mr. Tino gave his evidence, so he did not get an opportunity to investigate them or indeed comment on them at all.

11. I am not at this point prepared to enter judgment against the claimant for the sum of SBD$127,920.80, being the difference between the amount in the schedule of $389,498 and the contractual amount of $261,577.20, as for the purposes of a counterclaim further particulars will be required.

12. I determine that if the defendant wishes to pursue its counterclaim, then it will need to file an amended counterclaim particularising precisely the nature of each and every payment, when it was made, and how it is said to constitute a debt owed to the defendant.

12. I make the following orders:

(a). The claimant's claims are dismissed in their entirety, with judgment being entered for the defendant on those claims.

(b). The defendant has leave to file and serve an amended counterclaim by 31 January 2011.

(c). Each party will bear its own legal costs, as the actions of both parties contributed to the confused legal situation has arisen.

BY THE COURT

Justice IDR Cameron
Puisne Judge