Cap Quiros Ltd v Kalmet [2003] VUCA 20; Civil Appeal Case 24 of 2003 (7 November 2003)

IN THE COURT OF APPEAL
OF THE REPUBLIC OF VANUATU
(Civil Appellate Jurisdiction)

Civil Appeal Case No. 24 of 2003.

BETWEEN:

CAP QUIROS LIMITED
First Appellant

AND:

FRANK GALLO
Second Appellant

AND:

MICHAEL KALMET
First Respondent

AND:

CROWN TIMBERS LTD.
Second Respondent

AND:

LEIGH PERIC
Third Respondent

AND:

DIRECTOR OF FORESTRY
Fourth Respondent

Coram: Hon. Chief Justice Vincent Lunabek
Hon. Justice Bruce Robertson
Hon. Justice John W. von Doussa
Hon. Justice Daniel V. Fatiaki
Hon. Justice Patrick I. Treston

Counsel: Mr. Daniel Yawha for the appellants
Mr. Hilary Toa for the 1st, 2nd and 3rd respondents
Mr. Edwards and Mr. Tari for the 4th respondent

Hearing Date: 29th October 2003
Judgment Date: 7th November 2003

JUDGMENT

This appeal concerns part of a reserved judgment of Saksak J. delivered at the Supreme Court, Luganville Santo on 28^th July 2003 in which his Lordship dismissed the appellant's claim and ordered it to pay the fourth respondent the sum of VT1,634,388 being outstanding management charges together with 12% interest on any unpaid sum(s). Payment was to be made within 8 weeks of the judgment. Costs were also ordered against the appellant.

The appellant is a locally registered company concerned in the timber business. On 11^th January 1995 the appellant acquired a Timber Licence for the purpose of cutting logs and producing sawn timber on lands belonging to various native landowners on Santo Island. The licence was to terminate on 11^th January 2000.

Under the Timber Licence the appellant was permitted to cut between 5,000m³ and 10,000m³ of timber to be sawn at its sawmill at Palekula, Santo. The appellant was also required to establish a bankers guarantee in the sum of VT3,510,000 and pay a minimum reforestation charge of VT2,700,000 in its first year and thereafter 30% of royalty on proof of sawing.

In 1997 the appellant began its logging operations on the West Coast of Santo. Almost immediately it encountered problems with different landowning units claiming ownership of the lands over which it was conducting its operations. As a result the appellant requested a reduction in the annual licence fee and this was granted in a letter from the Acting Director of Forest dated 19^th May 1997. The reduced fee of VT500,000 was to paid in 2 installments of VT250,000, the first, on 24^th May 1997 and the second by the end of August. The sums were duly paid.

The letter clearly stated that: "these arrangements will remain until the end of this year 1997. At that time the annual timber licence will be based on the maximum log quota shown on the company's timber licence (i.e. 10,000m³)."

The appellant continued its logging operations throughout 1998 and ceased its operation at the end of 1998 owing to continued ownership disputes between landowners of the trees within the appellant's timber licence area.

It is common ground that the appellant cut a large quantity of logs during 1998 and these were stored at Olpoi village on the West Coast of Santo Island. A large quantity of heavy earth moving machinery and equipment belonging to the appellant and used in its logging operations was also left behind at Olpoi in the charge of Robinson Henry the secretary of the Sanma Provincial Council.

In respect of the logs stored at Olpoi village the appellant paid royalties to the Olpoi landowners on 26^th August 1998 in the total sum of VT1,536,424. This royalty figure translates according to an agreed formula into a volume of 1,024.021m³ of cut logs for which royalties had been paid by the appellant and in which ownership of the cut logs was claimed by the appellants.

The appellant's logging operation during 1997 and 1998 was also the subject of some irregular correspondence with the Department of Forests which expressed its growing concern at the absence of compliance by the appellant with the various conditions of its Timber Licence, the Forestry Act and Forestry Regulations. These included, its failure to lodge monthly returns and reports and the non-payment of reforestation and management charges and culminated in a letter from the Director of Forests dated 5^th July 1999 detailing the outstanding amounts owed by the appellants in the total sum of VT5,597,030 and threatening that further delays would result in 'legal action against the company'.

The appellants responded by letter dated 27^th September 2000 in which they calculated and offered to pay VT732,917 in unpaid royalties and VT724,958 in overdue taxes i.e. a total sum of VT1,457,875. There was no response from the Director of Forests to the appellant's offer, which admittedly was some VT4 million short of the Director's figures. The appellants' timber licence eventually expired on 15^th January 2000. There has not been any application by the appellants for a renewal of their timber licence.

Six months later, by letter dated 25^th July 2000, the Director of Forests wrote to the first respondent authorising him to cut 'the logs cut and left by (the appellant) on West Coast Santo' on condition that the first respondent would be responsible for the appellants' outstanding royalties, fees, and charges. A Timber Licence was duly granted to the first respondent commencing on 15^th September 2000 which indicated that the first respondent's sawmill was to located at 'Olpoi village, West Coast Santo'.

In about April 2001 the second respondent company was incorporated with the first and third respondents as its first directors. At about the same time the 1^st respondent entered into an exclusive rights agreement with the second respondent company 'to collect, mill and sell' the logs which were the subject matter of the first respondent's Timber licence situated at North West and at West coast Santo.

On receiving the Timber licence, agents of the first respondent began cutting the logs into pieces using the appellants' equipment and machinery that had been left at the Olpoi village site. No authority or permission was sought or obtained by the respondents for the use of the appellants' machinery or equipment other than an acknowledgement that Robinson Henry had handed over the keys for the appellants' equipment to the third respondent who would 'take full responsibility for the keys and the operation of the equipment'. The acknowledgement was signed by the third respondent 'on behalf of Michael Kalmet' (the first respondent).

The first respondent's operations began around about October 2000 and continued throughout 2001 despite the keys to the appellants machinery being removed with the help of police officers. During the operations three boatloads of sawn timber were shipped on the "M.V. Roena" from Olpoi to Luganville.

On 20^th August 2001 the appellants issued proceedings against the respondents asserting ownership of the logs stored at Olpoi village and claiming:-

(1) Damages of VT24,576,480 for the loss of its cut logs;
(2) Damages of VT10,000,000 for the unauthorized use of its machinery and equipment; and
(3) Damages of VT12,500,000 being the value of its loader which was lost as a result of the respondents negligence.

The appellants also claimed interest at 12% and costs.

The first, second and third respondents despite being served with the Writ failed to enter appearances or file any defence, and default judgments were accordingly entered against them for damages to be assessed on 18^th October 2001. A year later on 10^th October 2002, the appellants succeeded in obtaining a Mareva type injunction restraining the first, second and third respondents from selling or removing their property comprised of a boat, a loader, a sawmill and 10 pallets of sawn timber from Olpoi village, West Coast Santo. No assessment of the damages awarded to the appellant in the default judgment has been made.

The fourth respondent for its part entered an appearance and filed a defence in which it disputed the appellants' ownership of the logs. It also counterclaimed for the sum of VT5,597,030 being the outstanding licence fees, royalties and charges allegedly owed by the appellants to the Government and landowners when it ceased operations. The appellants did not file a defence to the fourth respondent's counterclaim and on 7^th May 2002, after an inter partes hearing, judgment was entered against the appellants for the sum of VT1,457,875 which the appellants had earlier admitted in its letter to the Director of Forests dated 27^th September 2000 was properly due and owing for outstanding fees, royalty and charges. Interest at 5% on the judgment sum was also ordered against the appellants. All sums were to be paid into Court pending the final resolution of the case. The balance of the fourth respondent's counterclaim being denied was ordered to be tried.

The action was heard over two days in February 2003 in the Supreme Court at Luganville and a reserved judgment was delivered on 28^th July 2003. The trial proceeded by way of affidavit and viva-voce evidence. The appellants called four witnesses including the second appellant and the fourth respondent called the Director of Forests.

The learned trial judge in his judgment dismissed the appellant's claim for the value of the logs (VT24,576,480) and for the unauthorized use of its equipment (VT10,000,000). His Lordship however allowed the claim for the appellants lost loader (VT12,500,000) to be divided equally between the first, second and third respondents together with interest of 12% and costs. As for the balance sum owed on the fourth respondent's counterclaim although his Lordship was not satisfied as to proof of the full amount claimed entered judgment against the appellants in the sum of VT1,634,388 being outstanding management charges. The sum was to be paid, within 8 weeks and failing which interest of 12% per annum would accrue.

The appellants' now appeal against the dismissal orders and the judgment entered in favour of the fourth respondent, the interest award and the costs order. The principal ground of appeal is that the learned trial judge erred in law and in fact in considering irrelevant law and/or facts in dismissing the appellants' claim of VT24,576,480 when there was substantial evidence to support the appellants' claim.

At the hearing of the appeal Mr. Hilary Toa appeared for the first respondent and sought an adjournment of the appeal on the basis that the first three respondents had filed an application to set aside the default judgment entered against them in the Supreme Court and had yet to receive a hearing date for their application. Counsel was unable to assist us with any details as to the status of the application or the nature of the defence sought to be advanced by the respondents against the appellants claims.

The ambit of this appeal, however, is strictly confined to the judgment entered in favour of the fourth respondent and the dismissal of the appellants' claim and therefore did not directly engage the other three respondents who neither appeared at the trial or at the appeal review hearing. Mr. Toa was accordingly released from further participating in the hearing of the appeal and urged to pursue the application in the Supreme Court.

We are grateful to counsel for the written submissions filed, which raises two primary issues for determination as follows:

(1) Ownership of the cut Natora logs stored at Olpoi village;

(2) The extent of the appellants' liability (if any) on the fourth respondent's counterclaim for unpaid licence fees, royalties and management charges for the 1998/1999 years.

As to the first issue appellants' counsel argues that the appellants, having paid royalties calculated by the Forestry Department officials to the Olpoi landowners, were the beneficial owners of all the logs cut and stored at Olpoi village.

This, counsel submits, is the necessary result of the combined effect of the appellants' Timber Licence and the agreement for utilisation-operations entered into with the Olpoi landowners which, although not produced in evidence, is presumed to exist. Certainly no issue or dispute has been raised in this regard either in the fourth respondent's defence, correspondence or evidence and indeed the fourth respondents counterclaim would appear to be inconsistent with the absence of such an agreement between the appellant and the landowners.

The form and terms of an agreement for utilisation operations is to be found set out in Schedule 2 of the Forestry Regulations and is a requirement in terms of Section 11 (1) of the Forestry Act [CAP. 147] to be entered into between a Timber Licence holder and landowners from whose land trees are to be proposed to be cut. Amongst other clauses inter alia detailing the rates of royalties payable to landowners in accordance with the species of trees being cut, Clause 3 (a) provides:-

"The applicant agrees that the logs, and any timber cut from them, remain the property of the owner until royalty has been paid for the said logs pursuant to paragraph 2 (a) and 2 (b)."

In the present case it is undisputed that the appellants paid VT1,536,424 in royalties to the landowners at Olpoi village for the Nagora logs stored at the village and accordingly property in the logs was legally vested in the appellants as from the 26^th August 1998 and were never abandoned.

The learned trial judge in dismissing the appellants claim for the logs as 'ridiculous' said inter alia:

"... when the plaintiffs were given a timber licence on 11^th January 1995 they agreed in return to abide by conditions required by law. One is to submit felling register of the trees felled. These plaintiffs quite clearly failed to abide by those conditions. The fourth defendant always had the option to prosecute the plaintiffs under their power in Section 16 of the Forestry Act. Fortunately the Department did not take that option. They chose however to sue the plaintiffs for the outstanding charges etc hence this case. Under these circumstances these claims for VT24,576,480 must fail and accordingly I dismiss it."

Earlier in his judgment the learned trial judge had stated:-

"The Plaintiffs operated under their licence at Olpoi village, West Coast Santo. They logged only Natora trees. They ceased operations in 1998 and abandoned some logs they had cut on the ground at Olpoi village."

The trial judge's finding that the appellants had 'abandoned' the logs at Olpoi village was wrong and plainly inconsistent with the undisputed evidence led before him at the trial that the appellants' timber licence was extant at the time the logs were purposely 'stacked at Olpoi village' and that the appellants, despite ceasing operations had left machinery and equipment behind in the care of an appointed custodian Robinson Henry. This is hardly the behaviour of someone who was abandoning his property.

The finding that the appellant failed to submit felling registers of the trees felled cannot be sustained. These registers must have been filed to enable the fourth respondent to calculate and verify the royalty payments that were undoubtedly paid.

Furthermore the trial judge's reference to Section 16 (1) of the Forestry Act was misplaced and irrelevant. Section 16 (1) makes it an offence for the holder of a timber licence to fail to comply with the conditions of the licence and subsection (2) empowers a Court upon conviction of a timber licence holder for failing to comply with its conditions, to order forfeiture to the State of any timber cut and any equipment used in the commission of the offence. Neither circumstance existed in the present case and the trial judge's summary conclusion, without reference to the disputed evidence, of the appellant's non-compliance with the conditions of its Timber licence could not, by any stretch of the imagination, amount to a conviction for an offence under Section 16 (1) so as to entitle forfeiture of the appellants logs and equipment under subsection (2). Indeed no such conviction was ever entered against the appellant nor had the Court ordered forfeiture of the logs to the Government of Vanuatu.

The learned trial judge and the Director of Forests appear to have quite improperly assumed that the cut logs at Olpoi village were either 'abandoned' by the appellant or did not legally belong to the appellants and were therefore available to be used to recover the appellants' outstanding arrears of fees, royalties and charges without either the intervention of the Court or the necessity for a conviction for an offence under Section 16 (1).

The dismissal of the appellants' claim must be and is accordingly set aside and judgment is hereby entered on the appellants' claim for damages to be assessed for the loss of its cut logs at Olpoi village.

We turn next to the second issue raised in the appeal concerning the appellants' liability on the fourth respondent's counterclaim.

In this regard counsel for the appellants submits with some justification that the learned trial judge in dismissing the appellants' claim and in impliedly upholding the fourth respondents' grant of a timber licence to the first respondent, had in effect allowed the respondents' counterclaim twice in so far as it was a condition of the first respondent's licence that he would be liable for all outstanding fees, royalties and charges then owing by the appellants.

This submission is reinforced by the Court having earlier granted default judgment on the fourth respondent's counterclaim on the basis of the appellants' admission albeit that the amount was ordered to be paid into Court.

Counsel quite properly conceded however that, in the event that this Court found in favour of the appellants' claim for the logs, then the appellants could not contest that part of the trial judge's judgment relating to the fourth respondent's claim for outstanding management charges which was allowed in the sum of VT1,634,388.

In dealing with this aspect of the fourth respondent's counterclaim the learned trial judge said:-

"I think management charges are the same as reforestation charges. Section 28 of the Forestry Act [CAP 147] provides for and allows the Forestry Department to levy such charges. In the (appellants') timber licence dated 11^th January 1999 the reforestation charge is specified as 30% of the royalty on proof of saving. Refer to Annexure LM1. The plaintiffs have not rebutted this evidence and neither have they denied that this was a condition of their licence. Under those circumstances I am satisfied that this sum of VT1,634,388 are due and owing as management charges for the years 1997 and 1998 and accordingly I allow them in favour of the fourth defendant."

Later in his judgment whilst recognizing that the second condition of the first respondent's timber licence required him to:-

"Pay management charges to the Department of Forests for all logs that has not yet been covered by Cap Quiros."

His Lordship nevertheless said:-

"I am prepared to leave this issue aside since the fourth respondent is not claiming against the first respondent as well the appellants have not raised this as an issue for determination."

In doing so the trial judge appears to have shifted the onus of proof to the appellants but more importantly, ignored the necessary consequences of his later dismissal of the appellants' claim.

That said, this Court, in allowing the appellants' appeal against the dismissal of its claim for the cut logs and in accepting counsels' earlier recorded concession, upholds the trial judges finding and formally dismisses this part of the appellants' appeal dealing with the outstanding management charges.

The formal orders of the Court are:

(1) Appeal allowed in part;

(2) Set aside the dismissal of the appellant's claim and in lieu thereof the appellant to recover damages to be assessed against the fourth respondent;

(3) Appeal against the judgment against the appellant on the counterclaim is dismissed;

(4) Fourth respondent to pay the appellant's costs of this appeal and in the Court below.

Dated at Port Vila, this 7^th day of November 2003.

Hon. V. Lunabek C.J.
Hon. B. Robertson J.
Hon. J. von Doussa J.
Hon. D. Fatiaki J.
Hon. P. I. Treston J.