Royco Shipping Services Ltd v Matson South Pacific Ltd [2021] TOCA 17; AC 8 of 2021 (1 October 2021)

IN THE COURT OF APPEAL
CIVIL JURISDICTION
NUKU’ALOFA REGISTRY

AC 8 of 2021
[CV 22 of 2020]

BETWEEN:

ROYCO SHIPPING SERVICES LIMITED Appellant

AND

MATSON SOUTH PACIFIC LIMITED Respondent

Coram: Hansen J Randerson J White J

Counsel: Mr S J Stanton with Mr W C Edwards for the Appellant Mr R Stephenson for the Respondent

Hearing: 22 September 2021 Judgment: 1 October 2021

JUDGMENT OF THE COURT

1. This is an appeal from an order of the Lord Chief Justice dismissing the appellant’s claim (Royco Shipping Services Limited v Matson South Pacific Limited 10 February 2021).
   
2. The appellant, Royco Shipping Services Company Limited (“Royco”), carries on business in Nuku’alofa as a stevedore. The respondent, Matson South Pacific Limited (“Matson”), describes itself as a vessel-operating ocean carrier of cargo.
   
3. As explained in more detail below, on 28 April 2017 the parties entered into an agreement for a term of five years (subject to provisions for earlier termination) for the provision by Royco of stevedoring services to Matson.
   
4. On 31 January 2020 Matson advised Royco that it intended to reallocate parts of its stevedoring work at the port of Nuku’alofa. Royco’s response was that the parties’ agreement was that Royco would provide stevedoring services to all of Matson’s vessels. Matson denied that it was required to use Royco’s services exclusively.
   
5. The agreement could be terminated by either party on three months’ notice (cl 13.4 quoted below at [19]). On 5 March 2020 Matson gave notice of termination to take effect on 8 June 2020.
   
6. Royco alleges that Matson breached the agreement by using the services of another stevedore during the three month termination period. The judge recorded that Royco claimed damages of TOP$26,616.47 (“subject to adjustment”).
   
7. As well as denying that the agreement required it to use Royco’s services exclusively, Matson pleaded that if the agreement contained a term to that effect, Royco was not entitled to damages because such a term would place Royco in breach of s 24 of the Consumer Protection Act. Section 24 provides in substance that a trader (which includes a person who provides services)

engages in the practice of exclusive dealing if the trader supplies services on the condition, or subject to a contract, arrangement or understanding, that the person to whom such trader supplies services shall not acquire services from a competitor of the trader (s 24(2)). Such conduct is unlawful in Tonga unless the written approval of the Director of the Consumer Affairs Division is obtained. Section 24 is not subject to a test that the exclusive dealing have the purpose or effect of lessening competition.

8. Matson says that this is a reason for not implying a term or construing the agreement as providing for exclusivity.
   

Order for Determination of Separate Issue

9. On 10 September 2020 the Lord Chief Justice ordered that there be a separate trial of the following question:
   

“Whether on its proper construction, the agreement between the parties dated 28 April 2017, including any implied term as alleged in paragraph 11 of the Amended Statement of Claim, conferred on the plaintiff an exclusive right to provide stevedoring services for all of the defendant’s vessels at the port of Nuku’alofa during the term of the agreement, including the three month termination period ending on 5 March 2020.”

10. Although counsel for Royco had initially opposed such a separate trial, the representative of Royco who appeared on 10 September 2020 consented to the order, as did counsel for Matson. The proceeding was heard on 11 December 2020 and adjourned for further hearing on 22 January 2021 to allow counsel for Royco to consider what arguments he wished to make in relation to the operation of s 24 of the Consumer Protection Act in its application to the separate issue. Judgment was given on 10 February 2021. The Lord Chief Justice determined the separate question favourably to Matson. That is, his Honour found that the agreement did not require Matson to use Royco’s services for all its vessels entering the port of Nuku’alofa. Accordingly, Royco’s claim was dismissed.
    
11. Notwithstanding that Royco had ultimately consented to the order for the trial of a separate question, Mr S Stanton, who appeared with Mr W Edwards for

Royco, submitted that the judge erred in making the order for the determination of the separate issue. He submitted that the effect of the order was to preclude the calling of evidence as to industry practice in Tonga.

12. There was nothing in the order for the determination of the separate issue that precluded either party from adducing admissible evidence on the issue. As an obvious example, any evidence as to the objective matrix of facts known to the parties relevant to the construction of the contract could have been adduced.
    
13. Royco was not prejudiced by the order. In any event it consented to it. Royco required leave to appeal from the order. Leave was not sought in its notice of appeal nor in its written submissions. Leave was belatedly sought by Mr Stanton in his oral submissions. Leave should be refused.
    

The Agreement

14. The agreement was expressed to have been made between Royco Shipping Services Pty Ltd and Matson. Royco initially commenced proceedings in the name Royco Shipping Services Pty Ltd. That was a misnomer. The statement of claim was amended to correct the plaintiff’s name to Royco Shipping Services Company Limited. Matson admitted that that company was the party to the agreement.
    
15. In the agreement Royco is called the “Contractor”. Matson is called the “Company”.
    
16. The agreement included the following recitals:
    

“A. The Contractor is a company incorporated in the Kingdom of Tonga which carries on the business of providing (inter alia) stevedoring services in the Kingdom of Tonga as necessary to load and unload the cargo onto and from the Company’s vessels at the Port of Nuku’alofa.

B. The Company is a company incorporated in New Zealand and wishes to engage the Contractor to provide the stevedoring services set out in Schedule One to this Agreement (“Stevedoring Services”) at the Port of Nuku’alofa in the Kingdom of Tonga.”

17. The primary judge recorded that it was an agreed fact that from 2013 to 2016 and prior to the commencement of the agreement, “by mutual agreement”, Royco provided stevedoring services for all of Matson’s vessels in Nuku’alofa ([36(a)]).
    
18. Schedule One provided:
    

“STEVEDORING SERVICES TO BE PROVIDED BY CONTRACTOR

Stevedoring services comprising the following:

1. Unloading and loading of containers, either full or empty, from or to the vessel and to or from the wharf apron.
2. Unloading and loading of breakbulk or loose cargo from or to the vessel and to or from the wharf apron.
3. Lashing and unlashing of containers prior to discharging such containers.
4. Opening and closing of pontoons (the ship’s hatches).
5. Operation of ship’s cranes to unload and load cargo.”
   
19. The agreement included the following terms:
    

“...

1.2 The Contractor agrees to provide to the Company the Stevedoring Services.

1.3 The Company agrees to remunerate the Contractor for the Stevedoring Services in accordance with the rates, costs, interest and charges set out in Schedule Two of this Agreement and any other charges provided for (expressly and impliedly) under this Agreement (“Stevedoring Charges”).

...

2.0 This Agreement shall be in force and effect as from the date stipulated and expressed as the “Commencement Date” set out in clause 13 of this Agreement and shall terminate without any further notice required, on the fifth anniversary date of the Commencement Date unless sooner terminated pursuant to the provisions herein.

3.0 The Contractor will provide sufficient labour for the performance of the Stevedoring Services, but always contingent upon labour being available to the Contractor hereunder. The Contractor shall not be responsible for any loss, damage, delay or non-performance hereunder whatsoever arising from labour shortage, strikes, lockouts, deliberate work slow-down or stoppage or other labour difficulties, including any delays arising from the performance by Port Authority of any of its functions, supervisory or otherwise carried out on or at the

wharf, including, cartage from wharf apron to storage and vice versa

whether pursuant to statute or otherwise.

...

4.1 The company agrees to pay the Stevedoring Charges and other charges provided for in this Agreement for the Stevedoring Services provided or to be provided by the Contractor under the terms of this Agreement at the rates set out in the Schedule Two or elsewhere provided for and forming part of this Agreement.

4.2 All Stevedoring Charges and other charges are based on and are subject to the employment of present labour at the present wage scale and working conditions in the port or ports where stevedoring services are performed.

4.3 Every two years from commencement of this Agreement, a review of Stevedoring Charges shall be carried out and in the vent of an increase or decrease in the scale of wages, fringe benefit payments or changes in working conditions whatsoever, the Parties may resonate the Stevedoring Charges and may agree that the Stevedoring charges will as a consequence be increased or decreased accordingly; retroactively if applicable.

...

5.0 The Contractor will provide all normal gear and equipment for the efficient performance of the Stevedoring Services unless otherwise agreed or stipulated herein or otherwise provided by the carrier located on the ship, including crane-age.

...

13.1 In the event of the failure of Company to pay for services rendered by the Contractor at any time or if Company materially fails to perform its obligations hereunder and in the manner herein specified (a “Company Default”), the Contractor may elect to terminate this Agreement with or without process of law, provided, however, the Company and or Kingdom shall be given thirty (30) calendar days' notice in writing stating the nature of the default in order to permit such default to be remedied by the Company within the said thirty (30) calendar day period (“Cure Period”).

13.2 In the event of the material failure of the Contractor to perform its obligations hereunder and in the manner herein specified, (a "Contractor Default"), the Company may elect to terminate this Agreement at with or without process of the law, provided, however, Contractor shall be given thirty (30) calendar days’ notice in writing stating the nature of the default in order to permit such default to be remedied by Contractor within the said thirty (30) calendar day period ("Cure period").

13.3 During a Cure Period or at any time while a default is continuing, the Party not in default shall be relieved of Its obligations under this Agreement until such time as the default has been remedied by the

other Party. If the Company is in default of its obligations to pay Stevedoring Charges, the Contractor shall not be required to provide further services to the Company unless the. Company pays in advance to the Contractor an amount satisfactory to the Contractor necessary to pay for the charges for such services, which payment may be applied by the Contractor in its sole discretion to reduce outstanding indebtedness incurred under this Agreement or otherwise cure such Company or Kingdoms' Default. Payment by the Company to the Contractor of interest on any charges due and owing under this Agreement shall not cure or excuse the Company's Default in connection with such amounts due and payable. If the Contractor is in default, the Company shall not be obliged to utilise the Contractor to provide Stevedoring Services until the default is remedied. Interest, default and all other remedies of either Party hereunder are cumulative and not in the alternative, and both Parties further reserve any other remedies in the event of a Default whether arising under law, equity, statute or otherwise.

13.4 In addition to the rights of termination set out in sub-clauses 13.1 and

13.2 either Party may at any time terminate this Agreement for any reason or for no reason given upon giving three (3) calendar months' notice in writing to the other.

...

22.0 This Agreement constitutes the entire Agreement between the Parties. This Agreement may only be amended or modified by an instrument in writing signed by an officer of the Company and an officer of the Contractor.

...

24.0 The Commencement date of this Agreement is 13 January 2017 (being the date on which MV Islander, the first of the Company’s ships to do so, arrived at Nuku’alofa and was stevedored by the Contractor during 2017).”

20. Clause 15.1 provided that the agreement was governed by the laws of the Kingdom of Tonga. Clauses 4.4 to 4.7 provided that if the parties could not agree upon a review of Stevedoring Charges after the negotiations contemplated by clause 4.3, those charges would be determined by arbitration and provision was made for the appointment of an arbitrator.
    
21. The stevedoring rates set out in Schedule 2 were stipulated as per container, or ton, or lift of cargo.

Consideration

22. The agreement is to be construed not according to the parties’ assertions as to their subjective intentions, but according to what a reasonable person would understand the terms used to mean. This requires consideration of the whole text of the agreement, assessed having regard to the surrounding circumstances, and the commercial purpose or objects to be secured by the agreement. A construction that is unbusinesslike or works commercial inconvenience should be avoided. The Court must adopt a construction that makes commercial sense.¹
    
23. Little if any assistance is to be gained from other cases to which reference was made,² where the interpretation of differently worded contracts, entered into in different circumstances, yielded different implications as to whether, objectively considered, an exclusive arrangement was intended.
    
24. The agreement was to be for five years with biannual pricing reviews. It was evidently intended to be for the mutual benefit of the parties. Royco was bound to provide stevedoring services at the stipulated prices. On Matson’s interpretation it had the benefit of a standing and irrevocable offer from Royco to provide the services at the stipulated prices, but was itself free to use the services of another stevedore at a lower price. That is not a businesslike construction.
    
25. It is true that there is no term that expressly requires that Matson use Royco’s stevedoring services for all of its vessels entering the Port of Nuku’alofa. The question is whether such a term should be inferred from the express language of the agreement construed having regard to its apparent commercial purpose of providing the parties with mutual benefits. Recital B records that Matson wished to engage Royco to provide the stevedoring services set out in
    

¹ Re Golden Key Ltd [2009] EWCA 636 at [28]; Mt Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd

(2015) 256 CLR 104; [2015] HCA 37 at [51]; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees

Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]- [17].

² Colonial Ammunition Co v Reid (1900) NSWR 338; Synergy Protection Agency Pty Ltd v North Sydney Leagues Club Ltd [2009] NSWCA 140; Rehau Pte Ltd v AAP Industries Pty Ltd [2018] NSWCA 96.

Schedule One and cl 1.2 provided that Royco agreed to provide those services. It was common ground that Royco was obliged to provide the stevedoring services when required by Matson. Prima facie the obligations were to be mutual. That is, Matson, having stated that it wished to engage Royco to provide those services, agreed that it would do so.

26. It is true that there is no term that expressly so provides. But such a term is implicit in cl 13.3. The fourth sentence of that clause provides that if Royco is in default, Matson is not obliged to use Royco to provide stevedoring services until the default is remedied. The implication is that if Royco is not in default, Matson is obliged to use its services. If Matson has the discretion whether or not to use Royco’s services there would, at least prima facie, be no need for that provision.
    
27. The Lord Chief Justice recognised this. Indeed, somewhat remarkably, he had to draw it to the attention of counsel appearing for Royco at trial (J [47]).
    
28. The Lord Chief Justice considered, however, that the significance of the fourth sentence of cl 13.3 was diminished by the opening sentence. His Honour said:
    

“[49] Rather than asking whether excerpt 3 in clause 13.3 may be construed to produce a converse obligation on Matson to use Royco’s services (and on Mr Edwards’ submission, only Royco’s services) whenever Royco was not in default, the starting point in clause 13.3 is in fact the passage in excerpt 1. There, the general statement provides that at any time while a default is continuing, the non-defaulting party shall be relieved of its obligations under the agreement until the default is remedied by the other party.

[50] That calls into sharp focus what were Matson’s obligations under the agreement. As previously identified, the only relevant obligation imposed on Matson by the express terms of the agreement (clauses 1.3 and 4) was to pay Royco for its services in accordance with the schedule of rates annexed to the agreement. As none of the express terms of the agreement required Matson to use Royco’s services exclusively for all of Matson’s vessels berthing at Nuku’alofa, the obligation on Matson stated above must be construed as one in which it was required to pay Royco for such of Royco’s services as matson requested and received.”

29. With respect, that reasoning assumes its own conclusion. The question is whether it should be inferred from the fourth sentence of cl 13.3 that, absent

default by Royco, Matson was obliged to use Royco’s services. That inference is clearly available and is not rebutted by the absence of any express obligation on Matson to do so, and hence is not qualified by the first sentence of the clause.

30. One of the bases upon which a term may be implied is where the implication arises from the express words of the contract. This is a class of implied term distinct from a term implied by law having regard to the nature of a contract (eg a contract for sale of goods or a contract for lease) or a term implied by custom, or a term implied as a matter of fact for a particular contract in order to give it business efficacy.³
    
31. There are two suggested substantial arguments against such an implication. The first is that cl 3.0 provides that Royco’s obligation to provide sufficient labour to perform its stevedoring services was always contingent upon labour being available to it.
    
32. The Lord Chief Justice said (at [100]) that:
    

“...if a Matson vessel arrived at Nuku’alofa which Royco had agreed to service, but for whatever reason, Royco did not have sufficient labour to service the vessel, Royco would not be in breach of clause 3. As such, excerpt 3 of clause 13.3 (by which Matson would not be obliged to utilize Royco until the default was remedied) would not be engaged. The practical result, on Royco’s hypothesis, would be that Matson would not be able to engage another stevedore, and pursuant to clause 13.2, would have to wait 30 days to be able to terminate the agreement if Royco failed to remedy the default. Further, by the second limb of clause 3, Royco would not be liable to Matson for damages or compensation where a labour shortage was due to any of the causes specified therein. In those circumstances, the only sensible commercial construction of clause 3 would be to permit Matson to engage another stevedore. However, the proposed implied term, in combination with Royco’s interpretation of excerpt 3 in clause 13.3, would prevent Matson from doing so without being in breach. Accordingly, an implied term of exclusivity would conflict with the proper construction and operation of clause 3.”

33. Clause 3 is a force majeure type clause whereby Royco would not be in default if it were unable to provide stevedoring services due to the unavailability of labour. It may well be that it should also be inferred from the
    

³ Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [28];

Heydon on Contract, Thomson Reuters, 2019 at [10.10].

express terms that Matson would not be obliged to use Royco’s stevedoring services if Royco were unable to provide them. We do not accept that the possibility of Royco’s being unable to provide stevedoring services due to the insufficiency of available labour displaces the inference that Matson agreed to use Royco’s services for all its vessels.

34. The second reason that tells against a construction of the agreement that would require Matson to use Royco’s services for all its vessels is s 24 of the Consumer Protection Act, referred to at [7] above. Matson relied upon that section both as a defence to the claim and as a reason for not implying a term (whether as a term implied from the express terms of the contract or to give business efficacy to the contract).
    
35. This argument is not without substance. Before the Lord Chief Justice, counsel for Royco submitted that s 24 was inapplicable by reason of s 40(5) of the Ports Authority Act or s 12(4) of the Ports Management Act. That argument was hopeless and rightly rejected. It was not maintained on appeal.
    
36. On appeal Mr Stanton accepted that, on Royco’s interpretation of the contract, s 24 of the Consumer Protection Act applied to it. He submitted that nonetheless that did not require a different construction to be adopted because it was open to the parties to seek and obtain the approval of the Director to the agreement.
    
37. It might be expected in a carefully drawn agreement that provision would have been made for the seeking of the Director’s approval. There was no evidence as to whether the parties turned their minds to the operation of s 24 of the Consumer Protection Act in entering into the contract. It does not appear that the contract was professionally drawn. The fact that the Contractor was misnamed suggests that it was not. We would not find it surprising that a stevedoring company and a New Zealand carrier did not appreciate that there was included in an Act called a Consumer Protection Act a provision that prohibited exclusive contracts between commercial parties, unless approved by the Director. In any event, as Mr Stanton submitted, the fact that the

Director’s approval could be obtained significantly diminishes the weight of this consideration.

38. Matson relied upon the entire agreement clause (cl 22.0) quoted above. Depending upon its terms, an entire agreement clause might exclude the implication of a term, such as a term implied by law that goods are fit for purpose (as in L’Estrange v F Graucob Ltd [1934] 2 KB 394). In Hart v McDonald [1910] HCA 13; (1910) 10 CLR 417, the High Court of Australia held that an entire agreement clause did not preclude an implication “embodied in the contract just as effectively as if it were written therein” (at 427). In this case, the implication arises from the express terms of the contract and accordingly is not excluded by cl 22.
    
39. For these reasons, we conclude that on the proper interpretation of the agreement, Matson was obliged to use the services of Royco for all of its vessels to be unloaded in the Port of Nuku’alofa until Matson’s notice of termination came into effect.
    
40. It is unnecessary to consider Matson’s argument that such a term should be implied to give business efficacy to the agreement.
    

Costs

41. Although Royco has succeeded on appeal, it failed on what appeared from its written submissions to be its principal argument, namely, that there should have been no order for the determination of a separate question. It has been unnecessary to consider its other principal submission which was pitched at a high level of generality and invited analysis of Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 11; [2009] 1 WLR 1988 and Marks and Spencer v BNP Paribas Securities Services [2015] UKSC 72; [2016] AC 742.
    
42. It is not yet known whether Royco will succeed in recovering any damages. Matson’s defence based on s 24 of the Consumer Protection Act has not been determined. Moreover, Royco has succeeded on appeal for reasons that were not advanced below.

43. In these circumstances, the entirety of the costs of the proceedings below, including the costs of the hearing of the separate issue, should be remitted for consideration of the judge hearing the balance of the proceeding.
    
44. We consider that the costs of the appeal should be Royco’s costs in the proceedings. That is, if Royco obtains a costs order in its favour those costs will include its costs of the appeal. If not, it will not be obliged to pay Matson’s costs of the appeal.
    
45. For these reasons, we make the following orders:
    
    • (1) Refuse the appellant leave to appeal from the order of 10 September 2020 directing a separate trial of the question:
      

“Whether, on its proper construction, the agreement between the parties dated 28 April 2017, including any implied term as alleged in paragraph 11 of the Amended Statement of Claim, conferred on the plaintiff an exclusive right to provide stevedoring services for all of the defendant’s vessels at the Port of Nuku’alofa during the term of the agreement including the three-month termination period ending on 5 March 2020?”

(2) Appeal allowed.

(3) Set aside the orders of 10 February 2021 that the appellant’s claim be dismissed and that the appellant pay the respondent’s costs of the proceedings.

(4) In lieu thereof, order that the separate question be answered, yes.

(5) Remit the proceedings for determination by the Supreme Court in accordance with these reasons.

(6) Order that the costs of the appeal be the appellant’s costs in the proceedings.

(7) Order that costs of the proceedings at first instance, including the costs of the hearing at first instance on the separate question, be reserved for the consideration of the judge who determines the appellant’s claim.

Hansen J

Randerson J

White J