Case Note: Cheungs Construction Ltd v KCM Properties Ltd & Ors (Court of Appeal, Solomon Islands, 31 May 2024)

1. Citation:

Cheungs Construction Ltd v KCM Properties Ltd, Guadalcanal Provincial Assembly, Attorney General (Solomon Islands Court of Appeal, 12 of 2023, Decision Date: 31 May 2024).

• Court:

Solomon Islands Court of Appeal.

• Judges:

Muria P (President), Gavara-Nanu JA, Lawry JA.

• Counsel:

Appellant/Cross-Respondent (Cheungs Construction Ltd): F. Waeta’a

Respondent/Cross-Appellant (KCM Properties Ltd): J. Apaniai

• Nature of Case:

Appeal against a High Court assessment of damages awarded to KCM (First Respondent) following a successful counterclaim in 2010. KCM cross-appealed the quantum.

• Material Facts:
• 2003: Cheungs (Appellant) sued KCM, obtained an interim injunction stopping construction on land (PN 191-023-136).

• 2010: High Court (Goldsbrough J) dismissed Cheungs’ claim, upheld KCM’s counterclaim, ordered damages to be assessed, and awarded costs ($53,200) against Cheungs (unpaid).

• 2015: KCM applied for damages assessment.

• 2023: High Court (Keniapisia J) assessed damages at SBD $10 million for KCM (plus costs).

• Appellant’s Grounds: (1) Denial of right to appeal 2010 judgment due to lack of reasons; (2) Erred requiring formal application for written judgment; (3) Damages excessive/remote; (4) Award inconsistent with report uncertainties.

• Respondent’s Cross-Appeal: Challenged the reduction from claimed $52.06m to $10m, citing errors in evidence interpretation, construction period neglect, remoteness misapplication, inadequate reasons, expert testimony weight, and adversarial process failure.

7. Legal Principles Applied:

1. Remoteness of Damages: Applied Attorney General of the Virgin Islands v Global Water Associates Ltd [2020] UKPC 18 (Privy Council):
   1. Damages aim to put the injured party in the position they would have been in had the wrong not occurred (compensatory principle).

• Recoverable loss must be a type reasonably contemplated as a serious possibility at the time of the breach/wrong.

• Contemplation is objective – what the defendant must be taken to have contemplated, based on knowledge at the relevant time.

• Test is factual.

• Assessment of Damages:

• Unchallenged expert evidence (where no cross-examination or counter-evidence is offered) is generally accepted.

• Courts must provide reasoned calculations for significant reductions.

• Future loss of profit (e.g., lost rent) is recoverable if foreseeable, even if the project is ultimately not undertaken post-injunction.

• Damages for lost gross income must account for taxation – awarding untaxed gross profit would unjustly enrich the claimant.

• Expenses not actually incurred (like increased building costs if building doesn’t proceed) are too remote.

8. Ratio Decidendi (Reason for Decision):

1. Appeal Dismissed:

• Grounds 1 & 2: Were challenges to the 2010 judgment, not the 2023 damages assessment. No appeal filed in 2010; now out of time. Irrelevant to the current appeal.

• Ground 3 (Remoteness): The loss of future profits (rent) due to the injunction preventing construction was reasonably foreseeable as a serious possibility when the injunction was obtained (construction had started). Privy Council principles applied.

• Ground 4 (Report Uncertainties): While reports contained uncertainties, the Appellant failed to challenge them via cross-examination or provide counter-evidence. The Judge was entitled to make some reduction based on identified issues, but the method of reduction was flawed (see Cross-Appeal).

• Cross-Appeal Allowed:
  • The High Court fundamentally miscalculated damages due to a misunderstanding of the evidence:
    • Mistakenly believed the MUSA report covered 13 years (2003-2016) instead of the correct 7.5-year loss period (Jan 2005 – Jun 2012).
    • Reduced claimed $57.06m to $28m based on this error.
    • Further reduced to $10m without a reasoned basis for the $18m deduction.

• The Court of Appeal reassessed damages at SBD $18,221,097.40, applying:

• Reduced rental rate ($150/sq m flat) to account for overstated rent and annual increases.
  • 15% reduction for vacancy (midpoint of expert range).
  • 30% deduction for income tax (on net rent forgone).
  • Disallowed claimed building cost increases ($4.94m) as KCM didn’t build and thus didn’t incur the loss.
  • Allowed building reassessment fee ($89,431.40) as actually incurred.
  • Disallowed legal fees (covered by 2010 costs order).

9. Obiter Dicta (Other Remarks):

1. The Appellant’s procedural failures (not appealing the 2010 judgment promptly, not cross-examining experts, not providing counter-evidence during assessment) severely hampered its case and left the lower court with unchallenged evidence.

• The undertaking in damages given when obtaining the injunction inherently acknowledged the foreseeable risk of loss if the injunction was later found wrongful.

• The mere passage of time without the claimant developing the land post-injunction does not automatically make lost profit claims remote if the loss during the injunction period was foreseeable.

• Detailed reasons are required when a court makes substantial reductions from claimed damages, especially when based on perceived weaknesses in evidence.

10. Key Takeaways:

• Foreseeability is Key for Remoteness: Loss of future profits from prevented development is recoverable if it was a reasonably foreseeable consequence of the wrongful act (e.g., an ultimately unjustified injunction) at the time it was obtained.

• Active Participation in Assessment is Crucial: A party challenging damages evidence must cross-examine experts and/or provide credible counter-evidence. Failure to do so risks the evidence being accepted largely unchallenged.

• Damages Calculations Require Rigor & Transparency: Courts must base calculations on a correct understanding of evidence and provide clear reasoning for significant adjustments, especially large reductions.

• Taxation Matters in Profit Loss Claims: Damages for lost net profit must account for the tax that would have been payable on the income; awarding gross profit unjustly enriches the claimant.

• Unincurred Costs are Not Recoverable: Damages cannot be claimed for increased costs (e.g., building costs) if the claimant never actually incurred them by proceeding with the project.

• Procedural Deadlines are Binding: Challenges to a judgment’s substance (like lack of reasons) must be pursued promptly via appeal; raising them years later in a separate proceeding (like damages assessment) will likely fail.

Orders:

1. Appeal dismissed.
2. Cross-appeal allowed.
3. High Court assessment ($10m) set aside.
4. Appellant (Cheungs) to pay Respondent (KCM) damages of SBD $18,221,097.40.
5. Appellant to pay Respondents’ costs.