Uhi v Kingdom of Tonga [2018] TOLC 10; Land Case 24 of 2016 (30 April 2018)

IN THE LAND COURT OF TONGA
NUKU’ALOFA REGISTRY

LA 24 of 2016

BETWEEN : SIOSIFA MOSA’ATI UHI

Plaintiff

AND : KINGDOM OF TONGA

Defendant

BEFORE PRESIDENT PAULSEN

To: Mrs. F Vaihu for the plaintiff

Mr. S. Sisifa SC for the defendant

Hearing: 29, 30 August 2017, 28 September 2017 and 6 April 2018
Date of Ruling: 30 April 2018

RULING

The issue

[1] The Kingdom took a lease of Mr. Uhi’s tax allotment and entered into an agreement with him to use his land as a quarry (the Quarry Agreement). The Kingdom then contracted with Petani Quarry (Petani) to operate the quarry. Quarrying work began and disputes arose between Mr. Uhi and the Kingdom. The disputes have been resolved in all but one respect.

[2] The Court is asked to determine the damages payable to Mr. Uhi for what the Kingdom accepts was the unlawful removal by Petani of 29,328m³ (49,858 tonnes) of overburden from Mr. Uhi’s tax allotment.

[3] The term ‘overburden’ refers to a 5 metre layer of soil, clay, weathered rock and gravel overlying solid coral rock deposits on Mr. Uhi’s land.

Some context

[4] Mr. Uhi has a tax allotment of 2.104 ha known as Makamaka at Fua’amotu.

[5] The Kingdom operated a quarry on nearby land known as ‘Ahononou Quarry. It wanted to also use Mr. Uhi’s tax allotment as a quarry to extract coral rock for roading purposes.

[6] The then Chief Executive Officer of the Ministry of Infrastructure, Mr. Ringo Fa’oliu, first approached Mr. Uhi in around September 2011. A number of meetings followed. Mr. Fa’oliu proposed either acquiring Mr. Uhi’s land or leasing the land and paying Mr. Uhi royalties on extracted rock. Mr. Uhi was interested in the second of these options.

[7] There is no evidence that Mr. Uhi had any prior intention to quarry his land or that he had the knowledge, experience or financial ability to do so.

[8] In 2012, Cabinet approved a lease by the Kingdom of Mr. Uhi’s tax allotment for a period 20 years. The lease was registered in May 2013.

[9] On 29 June 2012, Mr. Uhi and the Kingdom entered into the Quarry Agreement. The recitals record the Kingdom’s intention to use Mr. Uhi’s tax allotment as a quarry.

[10] The other relevant terms of the Quarry Agreement were:

(a) The Kingdom would take a 20 year lease of Mr. Uhi’s land at an annual rent of TOP$1,000;

(b) The Kingdom would use the land as a quarry;

(c) The Kingdom would pay Mr. Uhi TOP$50,000 from which would be deducted royalty payments;

(d) The Kingdom would pay Mr. Uhi TOP$2 per tonne of ‘extracted rock materials’;

(e) The annual rent was not to be reviewed ‘unless required by law’; and

(f) Payments were to be subject to Government tax and charges.

[11] Mr. Uhi was happy with a royalty of TOP$2 per tonne. He said that his concern in bringing this action was to be paid what had been agreed. By way of example, this exchange (which was one of a number of similar exchanges during Mr. Uhi’s evidence) occurred between Mr. Uhi and me:

Court So if the Government experts and [Mr. Uhi’s expert] were to get together and calculate how much rock was taken from your land and you are paid $2 a tonne for that rock you would be happy?

Mr. Uhi Yes.

[12] Mr. Uhi understood that once his land was quarried he would have no further use for it in the future.

[13] On 6 November 2013, the Ministry of Infrastructure, on behalf of the Kingdom, and Petani entered into the Operating Agreement. Mr. Uhi was not consulted about this and has claimed that the Operating Agreement is illegal. The Kingdom had leased Mr. Uhi’s land and contracted with him to quarry the land. There was nothing to prevent the Kingdom engaging Petani to operate the quarry notwithstanding that Mr. Uhi had not given his consent.

[14] The recitals record that the Kingdom wished to improve and build public roads and had secured leases of land adjacent to the ‘Ahononou Quarry which contained the ‘best possible rock aggregate’ for that purpose.

[15] Other relevant terms of the Operating Agreement were:

(a) Petani was granted the sole operating contract to the ‘quarry site’ for five years to quarry rock for aggregate and to process, transport, market and sell the same;

(b) The quarry site included the ‘Ahononou Quarry and Mr. Uhi’s land;

(c) Petani was to undertake all operations including the ‘removal of overburden and weathered rock’. There was nothing to prevent Petani’s use of the overburden;

(d) Petani was required to submit a Quarry Management Plan which included a proposal to ‘rehabilitate the Quarry at the end of the aggregate extraction’; and

(e) Petani was to pay royalties at rates that were determined by the annual volume of ‘solid rock’ extracted. If the volume was less than 15,000m³ the royalty was TOP$10 per m³. If the volume was more than 15,000m³ the royalty was TOP$25 per m³. The royalty rates were subject to annual review.

[16] Quarrying operations began on the land. Petani excavated the overburden and removed 29,328m³ (49,858 tonnes) of it. There was no evidence about when the overburden was removed, how Petani used it and, if it was sold, how much was obtained for it. Petani paid no royalties to the Kingdom for the overburden.

[17] On the scant evidence before me I am satisfied that Petani acted in the bona fide belief that it was entitled to the overburden. As between the Kingdom and Petani the Operating Agreement imposed no restriction upon the use of the overburden and placed no value upon it for royalty purposes. There was no evidence of any discussions between Mr. Fa’oliu and Mr. Uhi specifically about the overburden or payment for it and the overburden is not mentioned in the Quarry Agreement.

[18] Disputes arose between Mr. Uhi and the Kingdom because Mr. Uhi was not receiving royalty payments. Hon. Penisimani Fifita assisted Mr. Uhi in his unsuccessful attempts to negotiate a resolution with the Ministry of Infrastructure. Mr. Uhi raised the issue of the ‘top soil’ and the payment of compensation for it. In a letter of 5 August 2016, written by Hon Fifita to the Ministry of Infrastructure, a request was made to amend the Quarry Agreement by, amongst other things, requiring Petani to compensate Mr. Uhi for topsoil. When the negotiations were unsuccessful this litigation followed.

[19] In general terms the matters that Mr. Uhi complained of in his statement of claim can be summarised as follows:

(a) That he was misled into believing that the payment of TOP$50,000 under the Quarry Agreement was a gift when it was in fact an advance payment on royalties;

(b) That the Kingdom was not keeping records of extracted rock materials taken from the land;

(c) That he had not received payment under the Quarry Agreement for the extracted rock materials taken from the land;

(d) That the Operating Agreement was entered into without his consent and was illegal;

(e) That Petani was trespassing on his land.

[20] Mr. Uhi sought the cancellation of the Quarry Agreement and the Operating Agreement, the eviction of Petani from his land and damages. However, in opening Mr. Uhi’s case Mrs. Vaihu advised me that Mr. Uhi did not wish to cancel the Quarry Agreement but rather wanted to recover sums he considered were payable under it. On the second day of the hearing Mr. Uhi withdrew his claims against Petani altogether.

[21] After two days of evidence on 29 and 30 August 2018 the trial was adjourned part-heard. Further evidence was given on 28 September 2018. The action was called again on a number of occasions but further adjourned because I was told the parties were likely to settle.

[22] At a conference on 2 March 2018 Counsel advised me that there was just one outstanding issue. The action was called again on 9 March 2018 and set down on 27 March 2018 to hear any further evidence and submissions of Counsel to complete the hearing.

[23] On 27 March 2018, the action was further adjourned at the request of Counsel to 6 April 2018. I issued a minute recording the agreement of the parties as follows:

3 It is agreed between the parties that:

(a) The only issue that remains for determination by the Court is the amount of compensation that should be paid by the [Kingdom] to [Mr. Uhi] for the removal of ‘overburden’ from [Mr. Uhi’s] land.

(b) The total volume of the overburden (from which all coral rock has been extracted) is 29,328m³ with a mass of 49,858 tonnes.

(c) The quarry agreement between the parties did not contemplate the removal of the overburden and does not fix the compensation that is payable to [Mr. Uhi] for its removal.

(d) That the removal of the overburden was a trespass for which the [Kingdom] is liable and the compensation payable to [Mr. Uhi] is to be determined accordingly.

[24] At a hearing on 6 April 2018 Counsel confirmed that my minute of 27 March 2018 accurately recorded the agreements of the parties and the issue I was required to determine.

[25] Both parties then called evidence as to the value of the overburden. I heard evidence from Mr. Semisi Topui for Mr. Uhi and Mr. Tevita Lavemai for the Kingdom. The witnesses disagreed whether market prices for coral rock were on a cubic metre or tonnage basis. I asked Counsel to confer and advise me if they could agree a common position on the matter. No agreement was reached but both parties took the opportunity to file further information to support their respective cases including a further brief of evidence of Mr. Lavemai. Mrs. Vaihu has, quite correctly, objected to the Court reading Mr. Lavemai’s further brief. None of the additional information I was given is in evidence and it does not assist me in any event. I have had no regard to it.

The evidence of the value of the overburden

Semisi Topui

[26] Mr. Topui has an undergraduate degree in information systems and a master’s degree in business administration. He has been involved in the operation of a quarry since 2013.

[27] Mr. Topui’s thesis was that for the purpose of determining Mr. Uhi’s damages the value of the overburden was to be determined by deducting from its market value the reasonable costs of its extraction and processing (extraction costs).

Mr. Topui’s assessment of market value

[28] Mr. Topui relied upon prices presently charged by Malapo Quarry. Malapo Quarry is in close proximity to Mr. Uhi’s land and is a source of high grade rock suitable for road construction. He said the average price for processed rock (of which there are various grades) and unprocessed rock was TOP$68 per m.

Mr. Topui’s assessment of the extraction costs

[29] Mr. Topui rejected a calculation of the operating expenses of the quarry prepared by Mr. Lavemai. Mr. Lavemai calculated the operating expenses on a square metre, cubic metre and tonnage basis. The figures were TOP$572.83 per m², TOP$31.82 per m³ and TOP$54.09 per tonne respectively. Mr. Topui said that Mr. Lavemai had included large amounts that are not typical in Tonga such as costs of explosives and a bank guarantee.

[30] Mr. Topui provided his estimate of extraction costs for both processed and unprocessed rock. His figures were TOP$16.90 per m³ and TOP$11.34 per m³ respectively. The average of these two figures is TOP$14.12 per m³. Mr. Topui considered it appropriate to adopt an average figure because, he said, typically 50% of quarried rock sold commercially is unprocessed.

Mr. Topui’s assessment of value of the overburden

[31] Mr. Topui provided two assessments of the value of the overburden. In both assessments he took as his starting point a market value of TOP$68 per m³.

[32] In his first assessment, he deducted from the market value the extraction costs of TOP$14.12 per m³. This gave a cubic metre value of the overburden of TOP$53.88. He multiplied this figure by 29,328 (the total cubic metres of overburden) to arrive at a total value of TOP$1,580,229 (the figure should be TOP$1,580,192). Mr. Topui identified this as his preferred approach.

[33] In his second assessment, he deducted from the market value Mr. Lavemai’s operating expenses of TOP$31.82 per m³. This gave a cubic metre value of the overburden of TOP$36.18. When this figure was multiplied by 29,323 he arrived at a total value of TOP$1,061,087.

[34] In cross examination it was put to Mr. Topui that Malapo Quarry’s prices are given on a tonnage not cubic metre basis. He disagreed and said that contractors are concerned with the volume not the weight of rock.

[35] In answer to questions from me Mr. Topui said he had not inspected the quarry on Mr. Uhi’s land.

[36] I asked Mr. Topui to what extent overburden was composed of coral rock. He said that overburden was 85-90% soil and clay and 10-15% gravel. I pause at this point to note that this exposes a fundamental flaw in Mr. Topui’s evidence. He has assumed for the purposes of determining the market value of the overburden that it is entirely coral rock when he knows it to be 85-90% soil and clay. Mr. Topui did not provide any market prices for soil or clay.

[37] Similarly, Mr. Topui has calculated the extraction costs on the basis that the overburden was coral rock. He also accepted that to the extent the overburden consisted of soil and clay it would need to be screened and that the cost of screening was not included in his calculation of extraction costs.

Tevita Lavemai

[38] Mr. Lavemai is employed at the Ministry of Infrastructure. He has spent time supervising quarry operations. As noted earlier, Mr. Lavemai calculated the quarry’s operating costs as TOP$572.83 per m², TOP$31.82 per m³ and TOP$54.09 per tonne of excavated material.

[39] Mr. Lavemai did not take issue with Mr. Topui’s basic approach to assessing the value of the overburden except to the extent that he said:

(a) Malapo Quarry’s prices are given on a tonnage not a cubic metre basis;

(b) The operating costs were TOP$31.82 per m³;

(c) As Malapo Quarry’s prices were in tonnes the operating costs had to be converted to a per tonne rate by (he said) using a conversion factor of 1.7. This resulted in a figure of TOP$54.09 per tonne;

(d) Mr. Topui had failed to provide for the operator’s profit margin which was (he said) 25% of the operating costs.

[40] Mr. Lavemai calculated the value of the overburden as follows.

Gross value	TOP$68.00 (per tonne)
Less operating costs	TOP$54.09 (per tonne)
Less operator’s profit	TOP$13.52
Value of overburden	TOP$0.39

[41] Notwithstanding his assessment Mr. Lavemai said that the Kingdom was prepared to pay Mr. Uhi TOP$2 per tonne for the overburden. He acknowledged that the Ministry of Infrastructure intended to charge Petani for the overburden at the end of its contract. He did not know how much of the overburden had been sold.

[42] Mr. Lavemai said that the profit factor was an estimate that he discussed with his team and the quarry operator.

[43] He also said that he had made enquiries himself and confirmed that Malapo Quarry’s prices were on a tonnage and not a cubic metre basis.

Difficulties with the experts’ evidence

[44] Neither the evidence of Mr. Topui nor the evidence of Mr. Lavemai provide a satisfactory basis for assessing the value of the overburden.

[45] In the case of Mr. Topui’s evidence I note the following matters:

(a) It was not proven that Malapo Quarry’s prices were on a cubic metre basis as he contends. Mr. Topui’s evidence as to the prices charged by Malapo Quarry was hearsay. No one from Malapo Quarry was called to give evidence. I have no reason to prefer Mr. Topui’s evidence over the evidence of Mr. Lavemai on this issue;

(b) As noted earlier, Mr. Topui assumed for the purpose of determining the market value of the overburden that it was composed entirely of coral rock yet he said that in fact the overburden was 80-85% soil, clay and gravel;

(c) Mr. Topui did not provide any evidence of the market price of soil, clay or gravel;

(d) Mr. Topui also assumed for the purpose of calculating the extraction costs that the overburden consisted of 50% processed and 50% unprocessed rock yet there is nothing to suggest that in so far as the overburden consisted of coral rock it was processed;

(e) Mr. Topui did not inspect the quarry and did not assess the quality of the overburden. There is no evidence that the overburden was in fact saleable; and

(f) Mr. Topui had no way of knowing to what extent the soil, clay and gravel were mixed and he made no provision for the cost of screening it.

[46] In the case of Mr. Lavemai:

(a) I do not accept that he has the necessary expertise to express an opinion as to the value of the overburden nor is he independent;

(b) His evidence as to the prices charged by Malapo Quarry was also hearsay;

(c) His calculation of the operating costs was unsupported by any documents or evidence from the operator. There is no way of assessing whether his figures are accurate; and

(d) His allowance for operator’s profit was ‘an estimate’ and again totally unsupported.

[47] I note also that both witnesses considered only one approach to assessing the value of the overburden. For the reasons that follow I consider the approach was incorrect.

Damages and the Law

[48] It is trite that the burden of proof is upon Mr. Uhi to establish his loss.

[49] The general rule that the Court applies in deciding whether to grant compensatory damages in a tort claim is that the plaintiff should as nearly as possible be put into the same position he would have been in had he not sustained the wrong for which he is getting compensation (Livingstone v Rawyards Coal Co [1880] UKHL 3; (1880) 5 App Cas 25, 39 per Lord Blackburn)

[50] In Todd, Hawes and Cheer ‘The Law of Torts in New Zealand’ 7^th Ed at page 1308 the authors note:

The basic principle can readily be applied to losses that are capable of reasonably precise calculation in monetary terms. However, some types of intangible loss do not have any precise monetary value......Even in the cases of damage to physical assets, there may be no readily ascertainable market value. In other cases there is no certainty as to how things would have worked out had the tort not been committed. In all such cases the court must estimate the value in money terms of the loss suffered by the plaintiff, and where uncertainty makes it difficult to calculate damages the court must simply do the best it can in the circumstances. In the end, assessment of damages is essentially a question of fact: ‘Any rules or principles constitute guidance only. The object is to be fair to both sides.

[51] Once the overburden was excavated it was severed from the realty and was a chattel. The measure of a plaintiff’s loss who has been deprived of his chattel by misappropriation is usually its market value. In a case involving the wrongful extraction of materials from the earth, an issue may arise whether the plaintiff is entitled to the full market value of the materials or a net value after deducting costs of severance. Whether or not an honest trespasser is in addition to the costs of severance allowed an allowance for profit (as the Kingdom sought in this case) is a question upon which there are conflicting authorities (Todd (supra) at page 512 fn 277 and the cases referred to).

[52] It has been held that in cases where a trespasser is guilty of fraud or conscious wrongdoing a plaintiff may recover the gross value of extracted materials but when a defendant is not a wilful trespasser he is allowed the costs of severing the materials and putting them into a saleable state (Nuku v Luani (Unreported Court of Appeal, AC 6 & 7 of 2017, 6 September 2017) at [25] and Harris, Campbell and Halson ‘Remedies in Contract and Tort’ 2^nd Ed at 544-545)

[53] In Nuku (supra) the defendants had unlawfully mined the plaintiff’s land for coral rock. In the Land Court the plaintiff was awarded the gross value of the rock extracted as damages. The Court of Appeal held that this conclusion could not be supported as the general rule is that the plaintiff is not entitled to the gross value of the minerals extracted by a trespasser, but only the net value after allowance for the cost of extraction because the plaintiff could not have obtained saleable minerals without incurring the cost of extraction (at [24]). The Court noted (at [25]):

The exception which allows the owner to recover the gross value of the severed minerals only applies in cases of fraud or conscious wrongdoing.

[54] However in a case such as this one, where Mr. Uhi was himself not in a position to quarry his land and make use of extracted materials, it would be wholly unrealistic to award damages on this basis. To illustrate the point I refer to the case of Livingstone (supra).

[55] In Livingstone the appellant acquired a small area of land in the mistaken belief that the coal under his land had been reserved to the respondents. The respondents had the right to mine surrounding properties and were under the impression that they also had the right to the coal under the appellant’s land. They did not have any such right but mined the coal and disposed of it. When it was discovered that the coal belonged to the appellant he sued to recover damages for trespass and was successful.

[56] The House of Lords held that the area of the appellant’s land was so small that it would have been impossible for him to have worked and used the coal and earned a profit. The appellant would have had to have gone to some other person, or waited till some other person came to him, who had the power to work the coal from the adjacent workings. It followed that his true loss was the value he could have obtained from persons who were able to work the mine and take the coal in situ. The best evidence of this value was what the respondents were paying as a royalty to other adjoining landowners for the privilege of mining their land.

[57] Earl Cairns LC stated at page 32:

Of course the value of the coal taken must be the value to the person from whom it is taken, because I do not understand that there is any rule in this country...that you have a right to follow the article which is taken away, the coal which is severed from the inheritance, into whatever place it may be carried or under whatever circumstances it may come to be disposed of, and to fasten upon any increment of value which from exceptional circumstances may be found to attach to that coal. The question is, what may fairly be said to have been the value of the coal to the person from whose property it was taken at the time it was taken.

[58] Lord Blackburn stated at page 42:

The....Pursuer could not have made any use of his coal at all as long as he did not let it to the Defenders, who were the only people who could take it. He cannot do more than ask for his damage to the surface. That he is of course entitled to, as the Defenders have taken his coal without his leave and against his will. If they had taken it with full knowledge scienter there would have been very much more damage given; but they have innocently and ignorantly taken away his coal. “And then” (says the Lord Ordinary), “we must see what was the value of the coal in situ as it stood there to the Pursuer at the time when the Defenders by mistake took it away and for that we must give compensation.

[59] Similarly in Montreal Trust Co v Herc Oil Corp 2004 SKCA 116 243 DLR (4^th Ed) 317 it was held that where a trespass consists of the severing and taking away minerals from land and the claimant could not or would not have taken the resource himself the best evidence of loss is the royalty that the claimant would have received had there been an agreement to do what was done.

[60] Where the plaintiff intended to use a resource himself however he may recover on a different basis. An illustration is Mortimer v Shaw and Dredge (1922) 1921 Canlii 180 (SK CA), 66 D.L.R. 311. The defendant had dispossessed the plaintiffs from farmland and had cropped the land the following year. The plaintiffs sued successfully in trespass. The trial judge awarded damages only in the amount of the rental value of the land. On appeal the Court found the proper measure of damages was the actual loss resulting from farming of the land because the plaintiffs’ intended to farm it

[61] Lamont J.A. stated at pages 312-313:

The loss which he has actually sustained is, therefore, the measure of the plaintiffs’ damages. Now in ascertaining the loss sustained the first consideration is the use the plaintiffs intended to make of the land. If they did not intend to crop it themselves, but to let it out to others, the rent they would have received would represent their loss. But where, as here, it is established that they did not intend to rent the land, but to crop it themselves, their damage is the loss sustained by not being permitted to put in that crop. If that loss is ascertainable, the amount thereof is the only damage to which they are entitled.

[62] It will be observed that in Mortimer the use that the plaintiffs intended to put the land was determinative of the amount of damages awarded.

Discussion

[63] As will be clear, I do not accept the evidence of Mr. Topui or Mr. Lavemai as to the value of the overburden. On what is before me I am unable to determine either the market value of the overburden or the cost of severing it and putting it into a salable state. If the matter were to rest there I may have had to find that Mr. Uhi had failed to prove any loss.

[64] I consider the approach Mr. Topui and Mr. Lavemai adopted to the assessment of Mr. Uhi’s loss was incorrect. Mr. Uhi should not be awarded damages on the basis of the value of the overburden ‘at the pits mouth’. That is not the loss he in fact sustained.

[65] Mr. Uhi had neither the intention nor the capacity to mine his land himself. When he granted the lease and entered into the Quarry Agreement he conferred upon the Kingdom the exclusive right to possess and mine his land for coral rock. The overburden was a necessary and natural product of the excavation of coral rock. Mr. Uhi had no right to remove the overburden during the period of the Kingdom’s lease and had Petani not disposed of the overburden it could well have been returned to the earth to remediate the land. Furthermore, Mr. Uhi understood that the land was of no further use to him except as a source of royalty payments.

[66] Consistent with the decisions in Livingstone and Montreal Trust in so far as the overburden had any value to Mr. Uhi it was its value in situ. That value is measured by the amount some person would be willing to pay for the overburden to obtain the privilege to use Mr. Uhi’s land as a quarry. So what was the overburden’s in situ value?

[67] The Quarry Agreement does not mention the overburden and the parties have agreed that it did not fix any compensation payable to Mr. Uhi on its removal. The Operating Agreement mentions the overburden but does not assign any value to it for royalty purposes and Petani has not paid any royalties to the Kingdom for the overburden. This would all suggest that the overburden did not have any in situ value.

[68] But common sense suggests that the overburden did have some value. Clearly Petani had a commercial use for it and one can assume it would have been prepared to pay something for the benefit of its use. In these circumstances the Court must simply do its best to assign a value to the overburden to be fair to both parties.

[69] The Kingdom has said it is willing to pay Mr. Uhi TOP$2 per tonne for the overburden. Mr. Uhi repeatedly said that if the Kingdom paid him TOP$2 per tonne of coral rock removed from his land he would be happy. It is reasonable to infer that Mr. Uhi should likewise be happy to receive the same amount for the overburden, which was after all simply a by-product of the quarry operation.

[70] In the absence of any other evidence I adopt TOP$2 per tonne as the value of the overburden. Standing back and looking at all the circumstances of this case I consider this provides Mr. Uhi with fair and adequate compensation.

Result

[71] I determine that the value of the overburden is TOP$2 per tonne. As 49,858 tonnes of overburden was taken by Petani Mr. Uhi is entitled to payment by the Kingdom of TOP$99,716.

[72] I reserve leave for any party to apply for any consequential orders required to give effect to my ruling.

[73] I also reserve leave for any party to apply for costs (if not agreed) within 21 days.

O.G. Paulsen

NUKU’ALOFA: 30 April 2018 PRESIDENT