Treasury Timber Ltd v Asia Pacific Investment Development Ltd [2014] SBHC 111; HCSI-CC 318 of 2013 (13 October 2014)

IN THE HIGH COURT OF SOLOMON ISLANDS
(Faukona J)

Civil Case No. 318 of 2013

BETWEEN:

TREASURY TIMBER LIMITED
First Claimant

AND:

WILLIAM HIL BUO HOOK
Second Claimant

AND:

ASIA PACIFIC INVESTMENT DEVELOPMENT LIMITED
First Defendant

AND:

RAY CHU
Second Defendant

Date of Hearing: 18th September 2014
Date of Ruling: 13th October 2014.

Mr J. Zama for the First and Second Defendants
No one for the Claimants

RULING ON APPLICATION TO SET ASIDE FREEZING ORDERS

Faukona J: The Claimants had obtained freezing orders against the Defendants on 31st July 2013 and were perfected on 6th September 2013. The orders were granted following an ex-parted application.

2. Subsequently the freezing orders were served upon the Defendants sometimes in October 2013, actual date not disclosed. The first and second Defendants then filed this application on 21st November 2013 to set aside those orders.

3. Counsel for the Claimants did not appear at the hearing on 18th September 2014. Prior to hearing, on 15th September 2014 Mr. Pitakaka email the Registrar of the High Court and suggested if the date could be vacated. The listing coordinator then alerted the Counsel for the Defendants of this change which the Counsel had objected in the strongest term. Eventually the Court finally decided that the case will proceed as previously set.

4.
A claim in category B was filed on 23rd August 2013. The claim comprises of monetary dues alleged to have arisen from certain agreements and MOU between the parties.

Background facts:

5. The first Defendant was a company incorporated on 15th July 2008 under the Companies Act of Solomon Islands. The second Defendant owns ninety-nine percentage (99%) shares in the first Defendant.

6. The first Defendant is the holder of Felling Licence No. 101001 issued by the Commissioner of Forests on 27th January 2010, covering rikiki land being Perpetual Estate PN.019-001-14 situated at Gaomai, Shortland Islands, Western Province.

7. The first Claimant is an incorporated company and is carrying on the business of logging in Solomon Islands. The second Claimant is one of the shareholders and Director of the first Claimant.

8. Having in possession of Felling Licence, the first Defendant commenced logging operations in or about June or July 2012 engaging the machineries owned by Benlux Machinery and Marine supply (SI) Limited. The machineries were part and parcels of a business owned by the second Defendant.

The Claimant's Case:
9. The case for the Claimants is that there was an oral agreement made on 12th August 2012 between the second Claimant and the second Defendant. The terms of the oral agreement are twofold. One that the first Claimant to be a logging contractor for the first Defendant under his felling licence. Secondly that in consideration of condition one the first Defendant to pay to the first Claimant the export proceeds of every shipment of logs after deduction of Export Duty (25%), royalty (15%) and Licence fee (us$8.00 per cubic meter of logs exported).

10. Under the oral agreement, there were five (5) shipments already been made? Out of the five shipments, the second Defendant on behalf of the first Defendant made four payments to the first Claimant. Out of the four payments, the third and fourth payments the cheques given were dishonoured upon presentation to the bank. Actually, the second Defendant only paid $863, 927. 30 (SI dollar) to the second Claimant. On the fifth shipment the second Defendant was expected to pay the second Claimant the sum of $2, 789,045.04 but failed and refused to do.

Quite apart from that there was also an MOU executed by the second Claimant and the second Defendant on 10th August 2012. It was agreed that the second Defendant to take over the debt in USD197,181.23 of Company, Soon Lee (SI) Limited owed to the second Claimant.

11. As one of the terms of the MOU the second Defendant was to pay the second Claimant USD10,000.00 per month for eleven (11) subsequent months until 8th August 2013. The second Defendant has breached the MOU.

12. The second Defendant also accepted and sign a debt to the second Claimant in respect of various charges and cash advances to the sum of $USD236,509.37.

The Defendants Case:
13. The first and second Defendants deny any oral agreement made to engage the first Claimant as a subcontractor of the first Defendant. What seem to agree upon is an undertaking by the concern parties to a profit sharing arrangement as an equitable consideration for the use of the machineries belonging to Benlux Machinery and Marine Supply (SI) Limited by the first Defendant.

14. The understanding is that after all the deductions, what remain as net sum be shared equally between second Claimant and second Defendant on (50/50%) basis. Such an arrangement had never been intended to form a binding contract/agreement between the parties. Should there be a subcontract in existence it would be in breach of Foreign Investment Board (FIB) approval and approval by the Commissioner of Forests under Clause 27 of the Felling Licence.

15. In relation to Memorandum of Understanding (MOU) there is no denial that was signed between second Claimant and second Defendant and does not concern other parties. Hence, whether that creates a binding contract or not is something that the parties concern needs to sort out.

Issues:
16. There are number of contentious issues. One and foremost is whether there is in existence an oral agreement, or is it a mere understanding between the parties which do not create a legal relationship. In association is the issue in respect of subcontracting, whether it really did exist and if so whether such was in compliance with Clause 27 of the felling Licence. The third issue is in relation to shareholding in certain companies and whether change of shares was done legally.

17. The issues as identified are legal issues, which ought to be tried and have it judicially adjudicated and have a final determination. Since the orders were made ex-parte this Court has jurisdiction under R.17.55 to set aside at any time at any stage of the proceedings.

18. Whilst there are grounds that attract arguments, one thing for certain which cannot be denied, is that there are certain amount of money paid to the second Claimant. The question whether those payment transactions were made under an oral agreement, or an undertaking, or sub-contraction, or were done under a Memorandum of understanding. In any event, that is the thrust of this case which ought to be heard and parties must be given full opportunity to address its case before Court.

19. The amounts of money paid must be crucially assessed to ascertain which binding relationship that provide obligation for such transactions, if any, and where possible achieved from the shareholding arrangement as one of a possible consideration to determine the obligations. It may not be the best mode favourable because developments reflected that the original shareholding arrangement agreed to have been tampered with. Again that is an issue which must be assessed by the jurisdiction of the Court.

20. The orders obtained in this case are interlocutory orders, which were granted ex-parte having satisfied that the Claimants have serious question to be tried and the balance of convenience favours the grant of the orders. The submissions on behalf of the Defendants confirmed that there are triable issues but slightly in a different perception. Whatever positions the case is perceived to be the fact is that there must be determination of the issues.

21. I have assessed the situation required under R7.15 for granting of a freezing order. I am able to conclude that all the parties participated are foreigners and Companies that were foreign owned. The question whether restraining of the Defendants by imposing a freezing order is necessary in the circumstances, so that any judgment or order or enforcement order involving the monies must be remain intact from being removed from Solomon Islands.

22. The claim as it appears is a money claim. It arises out of allegations of breaches of relationship. The nature of relationship cannot be ascertain and determined at this stage but when the substantive case is heard.

23. In any event breaching a term of a contract or legal relationship with a binding intention give rise to the ridicule party entitle to sue for damages. Any loss suffered by the innocent party can be remedied by the claim for damages. In that instance I do not think it is necessary to allow the freezing orders to continue to stand and be effective.

Orders:

1. That paragraphs 1 and 2 of the ex-parte orders of 6th September 2013, be set aside.

2. The first and second Claimants to pay the cost of this application.

The Court