Kalena Timber Co. Ltd v Bolopoe Corporation [2013] SBHC 4; HCSI-CC 362 of 2012 (29 January 2013)

IN THE HIGH COURT OF SOLOMON ISLANDS.
(Faukona J).

Civil Case No. 362 of 2012.

BETWEEN:

KALENA TIMBER COMPANY LTD
First Claimant.

AND:

RERESARE DEVELOPMENT COMPANY LTD
Second Claimant.

AND:

BOLOPOE CORPORATION
First Defendant.

AND:

BOLOPOE CORPORATION COMMUNITY
COMPANY LTD
Second Defendant.

AND:

MIDDLE ISLAND INVESTMENT PTY LTD
Third Defendant.

AND:

COMMISSIONER OF FOREST RESOURCES
Fourth Defendant.

Date of Hearing: 14th December, 2012
Date of Ruling: 29th January, 2013

Mr. M. Tagini for the First and Second Claimants.
Mr. P. Afeau for the First and Second Defendants.
Mr W. Rano for the Third Defendants.
Mr. Firigeni for the Fourth Defendants.

RULING

Faukona J: This application is for the discharge of the operational costs of the 3rd Defendant incurred in the logging operation prior to the ex-parte injunctive orders of 3rd October, 2012.

2. The orders of 3rd October, 2012 was appealed, and the Court of Appeal is of the view that the appropriate course to follow is to permit the export of logs in question and the proceeds of sale be held in a joint trust account in the names of the Solicitors and to remain until further order.

3. It appears to me that the rationale behind grant of the injunctive orders was because the logs were felled and extracted from a disputed area where two logging licences overlapped. In any event, that does not deter the Court of Appeal exercising its unlimited authoritative discretionary power allowing exports of those logs.

4. Whilst proceeds of those exports are lying in a trust bank account, the 3rd Defendant felt its operational cost should be discharged or be deducted, hence this application.

5. I agree with Mr Rano that the issue of restraining proceeds was never an issue before the Court of Appeal. Rather, the appeal was premised on whether the Judge erred in failure to consider established practices allowing logs to be exported. Nevertheless, on record the Court of Appeal has made an order for 25% custom duty be deducted.

Establish Practices:

6. Mr Rano submits that it has been a practice in this jurisdiction that contractors are given leave to deduct from proceeds of log exported, operational costs, pending resolution of dispute. Mr Rano refers to a number of case authorities. In this case there can be no doubt that the 3rd Defendant felled and extracted those logs, so by right to export them, and in exporting logs involve costs[1]. And those expenses must be in connection to the operation and to the sale of logs[2]. From submissions it is apparent there is no dispute that expenses incurred directly in the course of operations prior to the ex-parte orders. As such the Court should not ignore such well-established practice.

7. The rationale for such practice is amplified in a number of cases. In Lagobe v Lezutuni [3] Palmer J at that time said,

"To certain extend 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 logging machinery and equipment. But for those, no sale proceeds would have been obtained. It is only proper in the circumstances therefore for reasonable expenses to be deducted and paid".

8. In Masa v Kololeana Development Company Ltd,[4] his Lordship Chief Justice Muria said,

"There are practical business senses and realities which cannot be ignored in cases such as the present one where the second defendant has an existing contract under the Technology and Management Service Agreement".

He further stated at Page 10,

"But it does not follow that because of that challenges the first defendant should be precluded from meeting its debt under the Agreement incurred before the injunction as occurred in this case. The first defendant is expected to pay its debts under this particular agreement for services rendered to it by the second defendant in assisting it to carry out its operations, part of which was the export of logs even if the licence is eventually found to be invalid. The injunction should not be used to prevent its genuine debts. The Plaintiffs remedy, if the licence is found to be invalid can be adequately addressed in damages at the trial of the main action".

9. In Topical Resources Development Company Ltd V Tropical Forest Ltd[5], his Lordship Kabui J held,

"The 2nd Defendant is the contractor and is entitled under the Technology and Transfer agreement refers to above to be paid its due under the Agreement. I think it is not right for the court to cause a breach of that Agreement by taking so cognizance of the certified operational expenses and hold back the release of the 2nd Defendant's share".

Special circumstance:

10. One of the major issues of contention is that application to deduct or discharge operational costs incurred should not be granted and where necessary can only be granted in special circumstances. In the case authorities sited above what are the special circumstances upon which each case was premised which warranted a grant of order for deduction of the proceeds. In Lagobe's case His Lordship Palmer J at that time said that proceeds were obtained from toil, labour and used of machineries and equipment. In Mesa's case the Court identified an obligation under the agreement that the first Defendant should not be precluded from meeting its debt. The reason in Mesa's case is similar to that of Tropical Resources Development Company Ltd case. That a contractor is under an obligation under the Agreement to be paid its dues and that should be given cognisance by the Courts and not to breach the Agreement.

11. There is argument that the Agreement was invalid because it was not signed by the licence Holder, the Second Defendant. The approach applied in Mesa's case is correspondingly similar to this case. If the Technology Agreement is invalid that can be addressed in damages at the trial proper.

12. If invalid Technology Agreement is one of reasons not to grant the variation order for deduction of proceeds, then in my humble view, it has no effect. The overriding reason expounded in Lagobe's case take precedent that toil done and use of machineries and equipment makes it reasonable to deduct the proceeds.

13. Another argument against granting of any variation order for deduction as unreasonable is because logs were extracted from disputed area covered by two overlapping logging licences. The Forestry Act was enacted to guide against anomaly circumstances and avoid entertaining issuant of licences that overlapped into one customary land. The Commissioner of Forest in this case, has failed to administer the timber rights processes in accordance with requirement of the Act. As a result, it caused conflict and dispute between licence holders, customary landowners and contractors. Yet the Commissioner of Forests sits at the centre, as a referee not knowing when to blow the whistle. Far from being satisfied the legal Counsel for the Commissioner submits that parties should go out happy if this application is refused; there has been nothing seriously wrong with them. That is a total bluff, a Counsel with shortcoming not knowing his client the Commissioner of Forest has caused the entire episode by granting overlapping licences creating a buffer zone for dispute. It should be directly responsible for the entire mess and the current problems encounter by the parties.

14. I find the case authorities provide special circumstances for granting an order for deduction of proceeds. There is nothing more well to search for. This is a case where the real issue apart from who has the better licence but about damages. Mura CJ in Masa's case succinctly outline that the Plaintiff's remedy be addressed in damages whether there be an invalid licence or invalid Technology Agreement, it appears correspondingly the same.

Operational Cost itemized:

15. This case is where the Court of Appeal ordered by permitting export of logs after an unsuccessful attempt in the High Court. The rational is one of public policy to preserve the quality and economic value of the logs. To allow the logs to lay in ruin will not benefit anyone, in particular the resource owners.

16. Counsel for the First Defendant submits objecting to documents related to operational cost as being too general and lacks itemization. Whilst I agree with the Counsel that does not deter any order in terms of conventional percentages agreed upon. In practice operational cost share amount to 60%. That has not being amended unless parties otherwise decide. The Court of Appeal has elected to use 25% custom duty in its ruling. To maintain universally recognised practice, I feel using percentage is more in line with harmony. I therefore opted to grant the application that 60% operational cost be deducted from proceeds of log sold.

Order:

1. That 60% being operational costs of the sale proceeds be deducted or discharged and payable to the Third Defendant.

2. Cost of this application is paid to Third Defendant.

The Court.

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^[1] Poa V Attorney-General [2011] SBHC 110; HCSI-CC 223 of 2011 [27 June 2011].
^[2] Eagon Resources Development Company [SI] Ltd V Marebatu [1999] SBGC 148. HC CC 220 of 1997 [4 October 1999].
^[3] [1995] SBHC 77; HC – CC 102 of 1994 [26 April 1995].
^[4] [1996] SBHC 16; HC – CC 361 of 1995 [29 March 1996].
^[5] [2004] SBHC 106; HC – CC 366 of 2004 [22 November, 2004].