HIGH COURT OF SOLOMON ISLANDS

Civil Case No: 109 of 2000

OMEX LIMITED

-v-

JOSEPH ALEVE MALANGA, ALOWIN PITU SAMUEL ALOTINI HAPE,
AND KIMO LILIAVE SALEMAN
(Trading under the firm, name or style of "Valahoana Company Integrated Development) AND OTHERS
(In their capacities as trustees or as Representatives of the trustees of the lands the subject of timber license no. TIM/2/117)

HIGH COURT OF SOLOMON ISLANDS
(FRANK O. KABUI, J)

Hearing: 17th August 2001
Ruling: 21st August 2001

Mr D. McQuire for the Plaintiff
Mr C. Ashley for the Defendants

RULING

(Kabui, J): By Summons filed on 26th July 2001, the 2nd Defendants seek the determination of the following issue-

1.	Whether or not, to the extent that the LMA permitted the Plaintiff to pay 10% of the FOB of logs to the Licencee, that the said payment is inconsistent with the FRTU Act;

and the following Orders-

2.	Consequential upon the Court ruling in the affirmative to question 1, the Plaintiff be ordered to pay 10% of the total FOB of logs exported from the Licensee's concession to the 2nd Defendant solicitor Trust Account in trust for the persons who signed the TRA and members of their respective tribes.

3.	The Plaintiff pays the Costs of the 2nd Defendants application.

4.	Any further Order the Court deems fit and just to make.

At the hearing of this Summons, Counsel for the Plaintiff, Mr McQuire, objected it on the ground that the application was an abuse of the Court process and should be dismissed with costs. I proceeded to hear the application on the basis that if I found in favour of the Plaintiff on this ground the application is then defeated. If, on the other hand, I found in favour of the 2nd Defendants, the application succeeds and they would obtain the order sought in paragraph 2 of the Summons. But first of all, the background to the case.

The Background

The Plaintiff by Writ of Summons filed on 7th April 2000, claimed against the 1st and 2nd Defendants an injunction, damages for breach of contract, specific performance, interest and costs. By Notice of Motion filed on 7th April 2000, the Plaintiff sought a number of Orders and obtained them on 14th April 2000, pending the filing of the Plaintiff's Statement of Claim. The Statement of Claim was filed on 16th May 2000. Further orders were made by the Court for the payment of funds by the Plaintiff into Court pending the resolution of the dispute between the parties. The first payment was $73,367.60 made on 25th April 2000. The second payment was $81,654.65 made on 19th May 2000. The third payment was $238,014.99 made on 2nd August 2000. The fourth payment was $617.62 made on 7th September 2000. These payments were made by the Plaintiff for the benefit of the 1st and 2nd Defendants together as parties to Civil Case No: 109 of 2000 being this case. By Court order dated 6th March 2001, judgment in default of defence was entered against the 1st Defendant for, amongst other things, breach of contract. The terms of the default judgment in monetary terms were that the 1st Defendants pay to the Plaintiff US$61,726.96, $SBD 24,682.50 and $SBD 985.00 plus unliquidated damages, interest at 5% per annum from 23rd March 2000 until payment and costs. In addition, any monies held in Court in this action be utilized in payment or part payment of any damages and costs awarded to the Plaintiff in this action and that any surplus after payment of damages and costs be paid to the 1st Defendants. Also, the 1st Defendants are to indemnify the Plaintiff against any claims against the Plaintiff challenging the authority of the Plaintiff to conduct its operation in the concession area.

The Effect of the Court Order dated 6th March 2001

The effect of the default judgment entered against the 1st Defendants was the withdrawal of the sum of $350,678.79 from the High Court No: 2 Account on 8th March 2001 by Sol-Law. By Summons filed on 8th March 2001, the 1st Defendants sought orders to set aside the default judgment, pay the sum of $350,678.79 back into Court and extend time to file defence. The Summons was heard by the Mura C.J. on 21st May 2001 and delivered his judgment on 25th May 2001 dismissing the application by the 1st Defendants. The default judgment therefore stands.

The 2nd Defendants' Position

On the second hearing date of the Plaintiff's application for default judgment to be entered against the 1st Defendants, the 2nd Defendants were represented by their Counsel, Mr Ashley. Counsel then told the Court that the funds in Court belonged to the 2nd Defendants and that any ruling by the Court would not bind the 2nd Defendants. At the hearing of the application to set aside the default judgment, Counsel for the 2nd Defendants, Mr Ashley, also appeared in Court and supported the 1st Defendants' application. The payment of monies by the Plaintiff under Court Orders was in accordance with its obligations under the terms of the Logging and Marketing Agreement signed between the parties on 22nd September 1998. The parties to the Logging and Marketing Agreement were the Plaintiff on the one hand, and the Licensee represented by Messrs Pitu, Hape, Lilivae, Aleve and Kimitora, on the other hand. By clause 13 of the Logging and Marketing Agreement, the Plaintiff was obliged to pay he Licensee royalty based upon 12.5% of the free on board (f.o.b) value 7 days after each shipment of logs. For the 1st, 2nd, 3rd and 4th shipments of logs, royalty in the sum of $25,204.94 was paid by cheque No. WBC 885120 dated 25th November 1999. For the 5th and 6th shipment of logs, royalty in the sum of $143,527.80 was paid by cheque No. WBC 885139 dated 2nd December 1999 . For the 7th shipment of logs, royalty in the sum of $176,322.42 was paid by cheque No. WBC 912255 dated 18th February 2000. For the 8th shipment of logs, royalty in the sum of $148,973.22 was paid by cheque No. WBC 912349 dated 23rd March 2000. For the 9th shipment of logs, royalty in the sum of $6,796.66 was paid by cheque No. 912349 dated 11th February 2000. These royalties were calculated and paid based upon 12.5% rate agreed in clause 13 of the Logging and Marketing Agreement. Up to this point, the total payments to the 1st Defendants were in the sum of $1,096,728.55. This amount however included payment of advances to the 1st Defendants and withholding tax. The payment of further royalties were the subject of a number of Court Orders made by the Court. The receipt of royalty payments prior to the Court orders was by Valahoana Company Integrated Development being the Licensee. The four persons who were trading as Valahoana Company Integrated Development are Messrs Malanga, Pitu, Hape and Liliave. These same persons are also the trustees being the 2nd Defendants. The dilemma the 2nd Defendants are in is that if the 1st Defendants had already received royalties on their behalf under the Logging and Marketing Agreement, can they continue to claim the same under the Standard Logging Agreement signed between the Plaintiff and the Licensee on 7th September 1998? Is there any legal ground then upon which the 2nd Defendants can force the Plaintiff to pay to the 1st Defendants royalties twice?

The Standard Logging Agreement

By clause 31 of this Agreement, the Licensee is obliged to pay 10% royalty to the landowners. The Licensee however will reserve 2.5% for development purposes. The persons who signed on behalf of Valahoana Company Integrated Development were Timothy Level and Samuel Hape as landowner/trustees for Patukai Land, Isaac Nogha as landowner/trustee for Tavadai Land, France Koni as landowner/trustee for Gahu Land and Alowin Pitu as landowner/trustee for Valahoana Land. The Plaintiff is not a party to this Agreement. This Agreement is between Valahoana Company Integrated Development (the Licensee) and the trustees for the landowners. To fulfill its obligation under clause 31 of this Agreement, the Licensee had to enter into the Logging and Marketing Agreement with the Plaintiff under which contractual terms and obligations were created for the parties to that Agreement. By clause 13 of that Agreement, the Plaintiff must pay to the Licensee 12.5% free on board (f.o.b) value to the Licensee within 7 days after each shipment of logs. This is why the Plaintiff paid royalties to the Licensee, (the 1st Defendants) to accord with the Licensee's obligation under clause 31 of the Standard Logging Agreement. There is no conflict between the Standard Logging Agreement and the Logging and Marketing Agreement in this regard. The distribution of royalties is a matter between the Licensee and the landowners. Once the Plaintiff paid over royalties to the Licensee, its obligation to do so ceased subject to further shipments of logs if any and payment of further royalties.

Is there a case for the 2nd Defendants?

Their case is that they have not received any royalties since the commencement of the logging operation by the Plaintiff. They say the reason for this omission is that the Plaintiff had withheld payment of royalties to off-set advances made to the Licensee. Exhibit "WW 13" attached to Mr Yew's affidavit filed on 19th April 2000 clearly shows that the total amount of royalties paid for 9 shipments of logs including advances and tax was $1,096,728.55. In addition to this, the sum of $453,654.86 was paid into Court to cover royalties that would be due to the 1st Defendants for further shipments of logs. Of this sum, $350,678.79 was withdrawn from the High Court Account No. 2 resulting from the Court Order of 6th March 2001. The balance is currently standing at $102,976.07 retained by the High Court. There is clearly no case against the Plaintiff for recovery of royalties. The application by the 2nd Defendants is misconceived and I therefore dismiss it with costs. It is an abuse of the Court process. I say this because even a quick glance at the Standard Logging Agreement and the Logging and Marketing Agreement would show clearly that the obligation to pay royalties to the landowners lies squarely upon the shoulders of the Licensee whilst payment of royalties to the Licensee is the responsibility of the Plaintiff. On this basis there can be no doubt that the 2nd Defendants cannot recover royalties from the Plaintiff because royalties had been paid by the Plaintiff under the Logging and Marketing Agreement between the Licensee and the Plaintiff. The Plaintiff pays royalties to the Licensee so that the Licensee can fulfil its obligation to the landowners under the Standard Logging Agreement as prescribed under the Forest Resources and Timber Utilization Act (Cap. 40). If the 1st Defendants had failed to pay royalties to the landowners then they were in breach of clause 31 of the Standard Logging Agreement. It is for the 2nd Defendants to find out why the 1st Defendants did not pay them royalties. The fact however is that the 1st and the 2nd Defendants are the same persons. I think the beneficiaries who have missed out on royalties have put pressure on the 1st and 2nd Defendants to account and conveniently the blame is shifted on to the Plaintiff being the foreign investor who have come to exploit the landowners' timber resource. There is evidence showing that the full 12.5% rate royalties had been paid by the Plaintiff to the 1st Defendants and the Plaintiff no longer holds anything for the 1st Defendants. It is for the 1st Defendants to reserve 2.5% of the royalties for development purposes in accordance with clause 31 of the Standard Logging Agreement. The 1st and 2nd Defendants being the same persons must account to the landowners for the 12.5% royalties. They are the trustees for the beneficiaries who are members of their respective tribes. They are responsible for ensuring that the royalties paid do reach the ultimate beneficiaries who are the landowners who appointed them in the first place as their trustees. Pointing fingers at the Plaintiff would do them no good this time. As I have said, this application is dismissed with costs.

Frank O. Kabui
Judge