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Malanga v Omex Ltd [2001] SBCA 4; CA-CAC 2 of 2001 (25 October 2001)

IN THE COURT OF APPEAL OF SOLOMON ISLANDS

Civil Appeal No. 2 of 2001

BETWEEN:

JOSEPH ALEVE MALANGA & OTHERS
(Appellants)

AND:

OMEX LTD
(Respondents)

CORAM: Lord Slynn P., Ward JA., Los JA

HEARING: Monday 5^th February 2001

JUDGMENT: Thursday 25^th October 2001

JUDGMENT OF THE COURT

The defendants in this case are four individuals. They are sued firstly as persons trading under the name or style of Valahoana Co. Integrated Development and in their capacities as trustees or as representatives of the trustees of certain lands. These lands were the subject of a standard Logging Agreement dated the 7^th of September 1998 under which the first defendants was given rights to fell and harvest certain timbers. It is not necessary to set out the terms of the agreement except to refer to the fact that under clause 30, the Company was to harvest, fell and extract 80 cubic meters per annum subject to the possibility of that part of the quota not used being carried forward to a subsequent year. Articles 31 provided as follows:

"31. ROYALTY

For maximum mutual benefits for both parties following market fluctuation, the royalties payable by the COMPANY to the LANDOWNERS in respect to exported logs shall be 10% based on FOB selling price approved by Forestry for each log shipment.

The Company will reserve 2.5 % that will go towards developing purposes.

For export of sawn Timber, the royalty rate shall be 10% of the FOB value."

The first defendants were granted a statutory licence No. TIM/2/117 on the 21^st September 1998 to fell trees and remove timber from those lands and on the 22^nd September 1998, the first defendants entered into a Logging and Marketing Agreement with the plaintiff, a limited company incorporated in Solomon Islands. Under that agreement, the plaintiff was granted the right to fell and harvest logs from the lands described on the map annexed to the agreement. The agreement provided -

“13. The COMPANY shall pay the LICENCEE royalty based on 12.5% FOB Value seven days after each shipment.

14. Where the LICENCEE has obtain a remission of export duties from the Minister of Finance, the actual amount of duty remission shall be paid to the LICENCEE after each log shipments."

By clause 20 (4) (d), the Company, Omex Limited undertook to pay all taxes.

Subsequently, Omex made nine or so shipments of such felled logs and no complaints are made about those. But in March 2000 a dispute arose between the parties in connection with a shipment of one thousand cubic metres on the M/V Princess Hope to Hong Kong. The plaintiff alleges that although some logs were loaded the defendants refused to allow the greater part of those logs to be loaded and detained the vessel for nearly four days.

Accordingly, the plaintiff issued a writ claiming damages and an injunction against the first defendants and second defendants. They sought an injunction restraining the defendants “from in any way whatsoever delaying, interfering with, or hindering (whether directly or indirectly the Plaintiff in the conduct and due completion of its logging operations on the said land the subject of the logging and marketing agreement dated the 22^nd September 1998 between the defendants as licencee and the Plaintiff as operator. " The defendants first denied liability and the second defendants claimed by counterclaim damages for fraudulent misrepresentation by the plaintiff as to the rights under and for the failure in due performances of the logging and marketing agreement.

On the 12^th April 2000, the learned Chief Justice granted an injunction upon the plaintiff by its Chief Executive Officer giving a cross undertaking as to damages in the terms of the application to which I have referred. The Chief Justice further ordered that Plaintiff pay into Court within 14 days any royalties due to the Defendants pursuant to the said logging and marketing agreement to abide the decision of the Court in these proceedings. The Plaintiff paid certain sums in respect of those royalties into Court.

The second defendants then applied on behalf of first and second defendants for the following orders: -

″1. The Plaintiff puts up security up to 50% of the total proceeds of the logs exported from the first and second defendants concessions/ lands to date or in the alternative the Plaintiff pay into Court 50% of the total proceeds of logs exported on the first and second defendants undertaking as to damages.

2. That royalties due to the second defendants including royalties paid into Court be released forthwith to the second defendants."

In an affidavit dated 14`" August 2000, the Chief Executive Officer of the Plaintiff depose as follows:- ″I have examined the records of the Omex Limited and say that I am satisfied that the Plaintiff has the capacity to meet any damages claim for which it may be found liable in these proceedings. It certainly has the ability to meet 50% of the sale proceeds of logs exported to date at 50% being approximately SBD5,000,000.00."

The matter came before the learned Chief justice on 16^th August. He rejected the application for security and for payment out of royalties. On the application for security they were really two different matters. The first was whether the plaintiff would have to provide security for costs and the second was whether security should be provided for the loss which the defendants would suffer if they were restrained from pursuing what they say are their rights if the plaintiff failed in the action.

The Chief justice dismissed the application under Order 64 of the High Court (Civil Procedure) Rules for security for costs on the basis that it was not appropriate to make such an order and on this appeal Mr Ashley, in argument, does not challenge that.

Mr Ashley says, however, that the Chief justice was wrong not to order security for compensation to which the second defendants would be entitled if the plaintiff fails in the action which the plaintiff could not meet. In essence his argument is that the company is only a paper company with no assets so that to bring some of the proceeds of the logs exported into Court would provide the necessary protection for the defendants. Mr Ashley's argument is that the Chief Justice did not deal with the question whether there were triable issues but concentrated on the Order 64 proceedings. If he had done so, the Chief justice, he contends, would have ordered security and he relies on the decision of the Court of Appeal in Allardyce Lumber Company Limited and Another against Nelson Anjo, in Civil Appeal No, 8/96, the judgment being given on 15^th April 1997. In that case the Court of Appeal considered the questions which have to be answered when the Court is being asked to grant an interlocutory injunction. One of those was the question whether the damages would provide an adequate remedy and if so the Court should consider whether "if the respondent fails, the appellants would be adequately compensated under the respondent's undertaking in damages." If the answer to this enquiry is affirmative there will be no reason on this ground to refuse an interlocutory injunction.

It is clear, that the Chief Justice was proceeding on the basis that there were triable issues and that the only question was whether the defendants had shown that the plaintiff could not satisfy the defendants' claim for compensation. The Chief justice clearly accepted that the defendants had not established that. He said:

"The fear by the second defendants, as submitted by the Counsel, is that the plaintiff has no capacity to meet its obligations under its logging operation."

No satisfactory evidence had been shown by the second defendants to support that contention. On the contrary, there is evidence from the Chief Executive Officer of the plaintiff company that it has the ability to meet its obligations under its logging operations, including meeting 50% of the sale proceeds of the logs exported. Not only has the plaintiff company the ability to meet its financial obligations, it is also a Solomon Islands incorporated company with Solomon Islanders who are directors of the company and who reside and operate in this country. He concluded it would not be appropriate to make an order for payment of security of costs "or whatever" against the plaintiff. In the opinion of this Court, the Chief Justice was fully entitled so to conclude this as to security for costs and as to security against possible loss. It is to be noted that the paragraph from the affidavit of the Chief Executive Officer to which the Court has referred was not challenged and no application was made for him to be cross-examined. There was no evidence before the Chief Justice or before this Court to support the claim that the plaintiffs would not be able to meet the liability if they failed in the action.

The second claim made is that royalties paid into Court in satisfaction of the order of the 12^th April 2000 as subsequently amended should be paid to the second defendants. The second defendants argument is that they signed the Timber Rights Agreement as trustees of the landowners who were entitled by law to receive royalties from all logs felled and sold from the land. "Whilst there may be triable issues as between the Respondent and the Licencee as to the terms of LMA, there can be no doubt that royalties are entitlements due to the landowners and not the Licencee. It therefore follows that the Licencee cannot request from a contractor cash advances against royalties." They also contend in their outline submissions that "Even if the factor of preserving the status quo would be considered, it is clear that royalty monies are entitlements due to the landowners and until such time the Respondent proves otherwise at trial, royalties should be released to the Appellants. On the evidence before the Chief Justice, it was clear that the Appellants had a relatively stronger case than the Respondent and as such the balancing exercise would be in their favour." Mr Ashley has said everything that can be said in support of these contentions but the Court is not able to accept them. There is a dispute between the plaintiffs and first defendants. Although it is clear that the plaintiffs are obliged to pay royalties as per the agreement, the damages claimed against the first defendants by the plaintiff are greater in amount. It was to protect the position that the Chief Justice ordered the monies to be paid into Court pending the trial. The fact the first defendants may not have paid the second defendants does not mean that the royalties due from the plaintiff to the first defendants cannot be preserved pending the determination of the issues between the parties.

The Court accordingly agrees with the conclusions of the Chief Justice on both issues. Although leave to appeal is granted, the appeal must be dismissed with costs.

President, Court of Appeal
Judge of Appeal
Judge of Appeal