The NSW Court of Appeal recently handed down its decision on United Resource Management Pty Ltd v Par Recycling Services Pty Ltd [2023] NSWCA 236. This case provides an example of how poor contract management can result in liability for a counterparty’s costs and expenses.
Background
United Resource Management (URM), the Appellant in this case, was in the waste management business. URM collected recycled waste kerbside in Sydney’s northern beaches area.
URM had an agreement with Kimbriki Environmental Enterprises (KEE) to operate the Kimbriki Resource Recovery Centre (the First Contract). URM used the Centre for initial processing and aggregation of the recycled waste.
In 2011, URM entered a contract with Par Recycling Services (Par), the Respondent in this case, (the Par Contract). Under the Par Contract:
- Par would process the recycled waste for a ‘gate fee’ per tonne of container waste delivered by URM; and
- the Par Contract would ‘automatically’ terminate if the First Contract terminated.
Unknown to Par, URM and KEE terminated the First Contract in 2014 and replaced it with a new agreement between KEE and a URM group entity, URM Environmental Services (URME) (the Second Contract). URM and Par continued to perform the Par Contract.
On 1 December 2017, the NSW Government’s Container Deposit Scheme (CDS) commenced operating. In 2018, Par and URM entered into an agreement concerning the sharing of container deposit scheme refunds that Par received in respect of the waste it processed (the CDS Contract).
The Dispute
URM claimed Par was not paying URM a sufficient share of the refunds, in breach of the CDS Contract. To offset this, URM stopped paying gate fees under the Par Contract. The parties negotiated about setting off payments owing under the CDS Contract against the gate fees and the Par Contract, but those negotiations eventually broke down and Par sued URM for the unpaid gate fees.
While preparing for these proceedings, Par discovered that the First Contract was terminated in 2014 and that therefore the Par Contract had also automatically terminated. At this point, Par brought a second crossclaim for misleading and deceptive conduct against URM claiming that it would not have entered the CDS Contract if URM had notified Par that the First Contract was terminated.
URM and Par both accepted that they had an implied agreement, since while the Par Contract had ‘automatically’ terminated, they had both continued to perform. However, the terms of this implied agreement were at issue.
URM argued that the implied agreement contained the same terms as to duration and termination as the original Par Contract – in other words, instead of the agreement terminating when the First Contract terminates, it would be upon termination of the Second Contract.
Par submitted that as the implied agreement had no express duration, the duration of the implied agreement would be terminable upon reasonable notice being given by one party to the other.
Separately, Par claimed damages for misleading and deceptive conduct from URM. It contended URM misrepresented that the Par Contract remained binding, despite terminating the First Contract, and that it was misleading when it failed to give Par notice that the First Contract had terminated. Par claimed that if it knew the Par Contract had terminated, it would have taken the opportunity to negotiate higher gate fees for any subsequent engagement and that it would have not entered into the CDS Contract.
URM claimed that, if its contention that the implied agreement would terminate upon termination of the Second Contract was upheld, there would be no relevant difference between the terms of the original Par Contract and those of the implied agreement, therefore any misleading or deceptive conduct would not have been material.
Outcome
The NSW Court of Appeal unanimously agreed that the implied agreement between URM and Par did not maintain the same terms as the original Par Contract, instead it was terminable upon reasonable notice.
Par was never aware of the existence of the Second Contract; therefore, to make the implied agreement terminable upon the termination of that contract would effectively give URM the power to unilaterally amend the agreement.
Regarding the misleading and deceptive conduct issue, the Court found URM engaged in misleading conduct when it stated as a fact something which was not correct – that the Par Contract between URM and Par continued to apply and bind them.
Key takeaways for Contract Managers
It is common for contracts to have a provision that requires a specific event or action to take place in order for a right or obligation to eventuate, sometimes referred to as a ‘contingency clause’. In this case, URM got itself into hot water by failing to notify Par that a specific event affecting their contractual obligations had occurred.
Key takeaways from this case regarding contingency clauses:
- Ensure there is a clear obligation in the contract requiring the party best placed to know about the event to notify the other party that the contingency clause has been triggered:
- if there is no such notice clause in the agreement, it is important to be aware of what events could trigger a change in the contract and to keep track of the status of those events; and
- do not rely on the other party to proactively keep you informed.
- Ensure timely notice is provided if a contingency clause has been triggered. If a counterparty incurs avoidable expenses due to your careless contract management, you might be liable for their costs.
Our team would be pleased to assist you in managing your contracts and avoiding uncertainty.
This article was written by Rachel Bannikoff, Partner, Aneale Banerjee, Senior Associate, and Monica Jones, Law Graduate.
