Burwood Council v Visy Paper Pty Ltd atf Southern Paper Converters Trust

Visy's application to plead new defence

1. By its proposed new defence to Burwood Council's Commodity Rate payment claim (proposed Further Amended Points of Defence at [23A]-[23F]), Visy seeks to plead that: 1. sometime between February and July 2019, Burwood Council undertook an audit for contamination (2019 Audit); 2. the 2019 Audit reported a contamination rate of 32% for Burwood Council's recyclable material; 3. on the proper construction of the Recycling Contract, or as a matter of implication by reference to changes in state regulatory requirements, the 2019 Audit was an audit that had the automatic effect under cl 7.1.5 of adjusting the Commodity Rate from the date of the audit to $0; 4. Burwood Council failed to notify Visy of the 2019 Audit and the change to the Commodity Rate; and 5. consequently, Burwood Council is not entitled to be paid anything by way of a Commodity Rate from the date of the audit.
2. In support of its application, Visy relies on the affidavit of Michael Neil Thomas, affirmed 14 May 2021. Mr Thomas is Visy's General Counsel, Litigation, and the person responsible within Visy for the conduct of the proceedings and for giving instructions to Visy's external solicitors.
3. Mr Thomas gives evidence to the effect that the amendments arise out of information he became aware of on 3 May 2021 and enquiries he made following receipt of that information which identified that a contamination audit of Burwood Council in 2019 revealed a rate of contamination by weight of 32% for its recyclable materials.
4. Mr Thomas deposes that, on 3 May 2012, he was informed by a Visy employee, Belinda Barnard, that she had received an email from the director of Anne Prince Consulting (APC) on 9 February 2021 and that Ms Barnard forwarded that email to him on his request. The 9 February email refers to a 2019 "SSROC" audit. SSROC is the South Sydney Regional Organisation of Councils of which Burwood Council is a member. The email contains several graphs and charts, one of which identifies that Burwood Council had a contamination rate for recyclables for multi-unit dwellings in excess of 30%, and includes a link to the SSROC 2019 Regional Audit report which is dated December 2019. Mr Thomas deposes that, on the same day after receiving the email, he conducted an online search and located a copy of the SSROC 2019 Regional Audit report which did not identify Burwood Council or any other council by name when reporting the contamination data but, based on the information from Ms Prince's email, indicated that Burwood Council's contamination rate was recorded as 32% for all dwellings.
5. Mr Thomas' evidence is that Ms Barnard, who is responsible for contracts management, did not bring the 9 February email to Mr Thomas' attention earlier because she does not give matters relating to Burwood Council, including the Recycling Contract, much attention due to the interim arrangement being in place and because she is not directly involved in the litigation on a day to day basis.
6. He also deposes that the other Visy employee who received the 9 February email, Anthony Johnston, General Manager of Local Government Contacts and Services, did not appreciate the relevance of the email to the issues in dispute. Mr Johnston has sworn two affidavits in these proceedings and was responsible for managing the Recycling Contract while it was on foot.
7. Mr Thomas also gives evidence that Burwood Council has not disclosed the outcome of the audit to Visy during the course of these proceedings and that Burwood Council's Commodity Rate claim appears to be calculated on the baseline contamination audit carried out by APC in 2011 that set the initial Commodity Rate under the Recycling Contract at $41 based on a contamination rate of 13%, as adjusted for CPI.
8. On 11 May 2021, Visy notified Burwood Council of the proposed amendments. On 13 May 2021, Burwood Council indicated that it would not consent to the new Commodity Rate defence. As noted above, the notice of motion seeking leave to amend was filed on 14 May 2021.
9. Visy submits that leave to amend to plead the new Commodity Rate defence should be granted because Mr Thomas has adequately explained the reasons for it being raised at this point in the proceedings. It submits that any prejudice to Burwood Council is of its own making by failing to disclose the existence of the 2019 Audit and that, if Visy's defence is proved to be correct, Burwood Council has breached its contractual obligations by failing to notify while simultaneously prosecuting these proceedings seeking an amount to which it is not entitled.
10. Visy submits that the Court should exercise its discretion and grant Visy leave to amend because the interests of justice tend against a result which, if the amendments are not allowed, may enable Burwood Council to obtain a judgment in excess of its legal entitlement. Visy also submits that leave should be granted because it acted with expedition upon Mr Thomas becoming aware of the issue, its case is documentary, and the concessions it has made by withdrawing defences will shorten the overall hearing time.
11. Further, Visy contends that part of the allocated hearing time next week could be used to determine, by way of a separate question, the issue of whether the Recycling Contract had been validly extended, with the dispute about the Commodity Rate claim determined at a later hearing without excess delay. It was submitted that this was an appropriate way to proceed as the two issues are discrete.
12. At the end of submissions, Visy accepted that, if leave is granted, it would have to pay the costs thrown away by reason of the amendments as well as any costs thrown away by reason of the hearing being vacated.
13. Burwood Council relies on the affidavit of Gavin Shapiro, the solicitor on record for Burwood Council, sworn 17 May 2020. Four reasons were advanced by Burwood Council for why leave should be refused.
14. First, it submits that the new defence has no reasonable prospects of success and consequently fails the test stated by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69 (General Steel).
15. Second, Burwood Council takes issue with the contention that Visy's delay in bringing the amendment application has been satisfactorily explained. Apart from the SSROC 2019 Regional Audit report being publicly available, it points to Mr Johnston, Visy's representative under the Recycling Contract, having received the email with a link to that audit three months prior. Burwood Council also points to evidence that, since December 2019, Visy was aware of potentially high contamination levels in the recyclable materials that Burwood Council had supplied to Visy and the fact that Visy had considered that there was a significant risk it had overpaid such that it may be appropriate for it to bring a cross-claim to recover any overpayment.
16. Third, Burwood Council says that granting leave would necessitate vacating the hearing next week. Mr Schapiro's evidence is that there is no reasonable prospect that Burwood Council would be in a position to prepare the evidence needed to defend the claim by that time. On a preliminary view, he deposes that a number of steps would need to be undertaken in order to address the matters raised by the new defence, including: obtaining access to relevant documents to show that the SSROC 2019 Regional Audit was not an audit provided for in the Recycling Contract; issuing subpoenas to third parties, such as to the New South Wales Environment Protection Authority (EPA), SSROC and APC; preparing lay evidence relating to the SSROC 2019 Audit and matters arising from material obtained from the above subpoenas; and potentially briefing a waste or waste contamination expert to obtain expert evidence including in relation to the current and previous waste funding programs, EPA rules and requirements for funding, EPA auditing requirements and the audit methodology of the SSROC 2019 Audit.
17. Burwood Council also takes issue with Visy's proposal for a separate question on the exercise of the option issue, contending that bifurcating the case would simply lead to more costs and the potential for further delay because of the risk associated with interlocutory appeals on the determination of a separate question.
18. Fourth, Burwood Council submits that there is no reason why Visy could not bring any claim against Burwood Council for restitution of amounts allegedly overpaid by reason of the alleged 2019 Audit in separate District Court or Local Court proceedings after this Court determines the issues in these proceedings.

Applicable legal principles

1. The amendment application is made pursuant to s 64 of the Civil Procedure Act 2005 (NSW) (CPA).
2. The Court's power to grant leave to amend is discretionary. The power must be exercised in accordance with s 64(2) of the CPA, which provides that all necessary amendments are to be made for the purposes of determining the real questions raised by, or otherwise depending on, the proceedings, amongst other reasons.
3. In considering whether to make an order granting leave to amend to raise the new Commodity Rate defence, the Court must seek to act in accordance with the dictates of justice: CPA, s 58(1).
4. For the purposes of determining the dictates of justice in a particular case, s 58(2) of the CPA provides that the Court must have regard to the overriding purpose of the CPA and rules of court as stated in s 56, which is to facilitate the just, quick and cheap resolution of the real issues in the proceedings.
5. The Court must also have regard to the objects stated in s 57 of the CPA. Those objects are the just determination of the proceedings, the efficient disposal of the business of the Court, the efficient use of available judicial and administrative resources, and the timely disposal of the proceedings, and all other proceedings in the Court, at a cost affordable to the respective parties.
6. Both parties referred me to the well-known statements of the plurality in Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27 (Aon Risk Services), including at [102]-[103] where it was stated: … It is the extent of the delay and the costs associated with it, together with the prejudice which might reasonably be assumed to follow and that which is shown, which are to be weighed against the grant of permission to a party to alter its case. Much may depend upon the point the litigation has reached relative to a trial when the application to amend is made. There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates. Rule 21 [of the Court Procedure Rules 2006 (ACT)] makes it plain that the extent and the effect of delay and costs are to be regarded as important considerations in the exercise of the court's discretion. Invariably the exercise of that discretion will require an explanation to be given where there is delay in applying for amendment. ... Generally speaking, where a discretion is sought to be exercised in favour of one party, and to the disadvantage of another, an explanation will be called for. The importance attached by r 21 to the factor of delay will require that, in most cases where it is present, a party should explain it. Not only will they need to show that their application is brought in good faith, but they will also need to bring the circumstances giving rise to the amendment to the court's attention, so that they may be weighed against the effects of any delay and the objectives of the Rules. There can be no doubt that an explanation was required in this case.

Consideration and determination

1. As pleaded, Visy's new defence relies on the 2019 Audit, which is defined as the contamination audit carried out by Burwood Council between February and July 2019, being: 1. a scheduled audit within the meaning of cl 7.1.2 of the Services Specification to the Recycling Contract (Specification); or 2. alternatively, a non-scheduled audit initiated by Burwood Council within the meaning of cl 7.1.3 of the Specification.
2. Clause 7.1.2 deals with "Scheduled follow-up audits" and provides: The next scheduled audit will be undertaken by the Council, being the next EPA required audit.
3. Clause 7.1.3 deals with "Non-scheduled audits initiated by the Council" and provides that audits may be initiated by Burwood Council and where it does so, the audit must be undertaken by an independent auditor, appointed by the Council and approved by Visy, from the list of pre-qualified auditors from the New South Wales Government pre-approved panel.
4. Relevantly, cl 6.1 of the Specification deals with "Contamination Pricing" and provides that: … The initial Commodity Rates for receiving Collected Recyclable Materials from the Council will be based upon the most recent audit reports as required by the EPA and supplied by the Council (the "Baseline Audit"). Commodity Rates reflect the average levels of Contamination in the loads which Councils deliver to the Receiving Facility. Clause 7.3 sets out an audit methodology for measuring future Contamination in incoming loads of Collected Recyclable Materials. The Baseline Audit for the Council indicates a Contamination level of: 13% The initial Commodity Rates will apply until either: (i) a subsequent audit for contamination is performed, which is expected to occur in accordance with the EPA scheduled audit timeframe; or (ii) the Council or the Contractor requires a Non-Scheduled Audit. If Council consistently delivers loads of Recyclables which have high levels of contamination these will be reflected in the Audit. This may move the Commodity Rate to a higher contamination band… … Only the audited contamination rate influences the price. Audits occur only in accordance with clause 7.1.
5. Burwood Council submits that the SSROC 2019 Audit was neither a scheduled audit nor a non-scheduled audit within the meaning of cls 7.1.2 and 7.1.3 as the evidence makes clear that it was undertaken voluntarily and initiated by SSROC, not Burwood Council. It says there is no evidence to indicate that the SSROC audit was an EPA required audit (cl 7.1.2), that APC was a pre-qualified auditor that had been approved by Burwood Council or Visy (cl 7.1.3) or that the audit procedure for the 2019 audit was jointly developed by the Council and Visy, as required by cl 7.3 of the Specification. Thus, it submits that the SSROC 2019 Audit was not an audit carried out in accordance with cl 7 of the Specification and so could not influence the Commodity Rate such that Visy's defence has no reasonable prospects of success.
6. Visy takes issue with these contentions and submits that the Court would not conclude on a summary basis on this application that the defence was not reasonably arguable, untenable or hopeless or in the General Steel sense. I accept that submission.
7. Based on the terms of the Recycling Contract and the materials before the Court, in my view, the new defence is not "manifestly groundless" or "so obviously untenable that it cannot possibly succeed". Nor is it "manifest that to allow it to stand would involve useless expense": General Steel at 129 (Barwick CJ).
8. The evidence indicates that a contamination audit was carried out by SSROC for Burwood Council in early to mid-2019. The SSROC 2019 Regional Audit report refers to "separate audits" conducted between February and July 2019 and identifies Burwood Council as one of those councils. Although cl 7.1.2 refers to an audit "undertaken by the Council", in my view, there is a question of construction as to whether "undertaken" is to be limited to an audit physically conducted by Burwood Council or whether it would extend to an audit undertaken by APC for and on behalf of Burwood Council. The latter construction seems to me to be reasonably open in the context where cl 7.1.1 refers to the "2011 audits undertaken by the Council" and the evidence suggests that the 2011 audit was undertaken by APC and commissioned by SSROC: Ex A at Tab 2.
9. There will be a debate about the proper construction of cl 7.1.2, particularly the meaning of "the next EPA required audit", and whether the 2019 Audit falls within that clause. However, I do not accept Burwood Council's submission that the absence of evidence indicating that what APC was required to do was a "EPA required audit" means that the claim that the SSROC 2019 Audit was a scheduled audit under that cl 7.1.2 has no reasonable prospects of success.
10. The evidence about what APC was required to do as part of the audit is presumably a matter within the knowledge of Burwood Council and not evidence that is currently available to Visy. Although there is no definition in the Recycling Contract of "EPA required audit", it seems that guidance might be gained from the "Baseline Audit" undertaken by SSROC in 2011 indicating a contamination level of 13%, given the reference to it as being "required by the EPA": Specification, cl 6.1. As Burwood Council's Senior Counsel candidly accepted at the hearing, evidence regarding the circumstances of the Baseline Audit in 2011 will also be relevant to the Court's consideration of whether the 2019 Audit has contractual force under the Recycling Contract. In that context, I do consider it to be reasonably arguable that a scheduled four-yearly contamination audit undertaken in 2019 by the same entity that undertook the 2011 Baseline Audit required by the EPA, for the same council, and which appears to have adopted the same methodology as the Baseline Audit, is a "scheduled follow-up audit" as required by the EPA within the meaning of cl 7.1.2.
11. I accept there is an absence of evidence to support the alternative claim that the 2019 Audit was a non-scheduled audit within the meaning of cl 7.1.3. However, as Visy's Counsel submitted, whether APC was appointed by Burwood Council and on the list of pre-qualified auditors are evidential matters within Burwood Council's knowledge. I also accept Visy's submission that it is arguable that an absence of approval by Visy may not have the effect contended for by Burwood Council given the requirement of approval is a contractual obligation in Visy's favour.
12. Visy's defence that the 2019 Audit should be construed as an EPA required audit under cl 7.1.2, or alternatively, a non-scheduled audit under cl 7.1.3, is based on the proper construction of the Recycling Contract or implication in the context of the regulatory framework at the time. It is also based on what reasonable business persons in the position of the parties would have understood the clauses (and the 2019 Audit) to mean in circumstances where the regulatory framework underwent change and subsequently required, as a condition of funding, details of a contamination audit to be provided to the EPA: Better Waste and Recycling Fund Program, Ex A at Tabs 11 and 12.
13. The proper construction of the clauses will, of course, be determined by having regard to the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[49]; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]-[17]. As a matter of commercial purpose and objective intention, I accept Visy's submission that it is arguable that the terms of cls 6.1 and 7.1 of the Specification reflect that the parties were seeking to put in place a system where regular audits by Burwood Council would be taken into account to determine the contamination rate and, thus, the Commodity Rate under the Recycling Contract. In my view, the question of the proper construction of the Recycling Contract, and any ambiguity from the clauses in question, can also only be resolved at a final hearing with the benefit of further evidence of the surrounding circumstances objectively known to the parties: see Lawrence v Ciantar [2020] NSWCA 89 at [101].
14. Accordingly, while there may be some evidentiary difficulties with Visy's new defence, I am not persuaded that it has no prospects of success, is unarguable or is as weak as Burwood Council contends.
15. I am persuaded that the amendments are important to Visy and are raised for the purposes of determining the real issues in dispute even though the quantum in dispute may not be significant for a large corporation. One of the fundamental issues to be determined in this proceeding is whether Burwood Council is entitled to payment of the Commodity Rate of $46 per tonne for the period from August 2018. It is on that issue that the new defence responds. If successful, the new defence will answer a large part of Burwood Council's Commodity Rate claim as it would have the effect of reducing Visy's liability from August 2018 to whatever date the Recycling Contract is held to expire.
16. As the moving party seeking leave to amend, Visy must bring the circumstances giving rise to its amendment to the Court's attention to explain the delay in its application. Those circumstances may demonstrate that the delay is justified in the sense that the reasons for delay are not inconsistent with any failure on the part of Visy or its legal advisers to act diligently and expeditiously in raising the new defence to Burwood Council's claim. If the circumstances provide some justification for the delay, they may be weighed against the effects of the delay on the other parties: Karl Suleman Enterprizes Pty Ltd (in liq) v Pham [2013] NSWCA 93 at [22].
17. Visy has proffered an explanation for the delay in raising the new defence. Based on Mr Thomas' evidence, I accept that Visy acted expeditiously in bringing the proposed amendments to the attention of Burwood Council very soon after Mr Thomas became aware of the 9 February 2021 email and its contents.
18. It is surprising that Mr Johnston and Ms Barnard did not bring the 9 February 2021 email to Mr Thomas' attention earlier. Given their roles and responsibilities within Visy and their knowledge of this litigation, it might be expected they would have done so. If they had acted in February, the impact of the late amendment application may have been avoided. That said, Mr Johnston and Ms Barnard are not lawyers and the evidence on this application indicates that they did not appreciate the significance of the SSROC 2019 Regional Audit and the contamination rate of 32% referred to in the 9 February email.
19. It might also be said that Visy and its legal representatives should have discovered the existence of the SSROC 2019 Regional Audit report earlier in circumstances where it was publicly available, a similar audit was carried out by APC in 2015 and Visy had concerns about high contamination levels and was considering bringing a cross-claim on that issue as early as December 2019. Visy could have conducted its own investigation about whether any audits of the type contemplated by cl 7.1 existed and may have been in a position to bring forward the new defence earlier if it had done so, although I accept that the anonymised format of the public report would not have brought the additional facts revealed by the 9 February email to Visy's attention.
20. Nevertheless, the evidence does not suggest that Visy's application for leave to amend was delayed because of some deliberate tactical decision made in the proceedings either before, at or after receipt of the 9 February email not to seek the amendments. Nor has there been a failure to explain the circumstances as to why leave is being sought so late in the proceedings: cf Aon Risk Services at [106]-[109]. To my mind, Visy's reasons for delay could be characterised as a failure on the part of Visy's internal management to communicate and act with the utmost diligence upon receiving the 9 February email. In that context, I do not consider that the delay since that time is entirely justified although, overall, I am satisfied that the explanation proffered is sufficient in this case.
21. As noted above, based on Mr Shapiro's evidence, Visy accepts that permitting the amendments raising the new defence will necessitate an adjournment of the hearing for that part of the case. In my view, the consequence of granting leave to amend is that the hearing that is listed for next week to determine the substantive issues should be vacated. The course proposed by Visy of undertaking a hearing on a separate question and then allocating further dates for the Commodity Rate part of the case is, in my view, an inefficient use of the Court's resources and likely to be more costly from the point of view of the parties, in addition to the issue of complications that could arise in relation to appeals: see Tepko Pty Ltd v Water Board (2001) 206 CLR 1; [2001] HCA 19 (Tepko) at [170].
22. As a general rule, the discretionary power to order separate determination of a question is to be approached with caution: Tepko [168]-[170] (Kirby and Callinan JJ); Mehmet v Carter (2018) 98 NSWLR 977; [2018] NSWCA 305 at [8]. Determination of the proposed separate question would not finally determine the proceedings. Nor will it obviate the need for a further hearing because of a strong prospect that the parties will agree upon the result after determination of the separate question.
23. I also do not accept Burwood Council's submission that leave to amend should be refused as Visy can commence separate proceedings in the District or Local Court seeking restitution. Even if I were to accept that an Anshun or issue estoppel or res judicata would not arise and prevent further action by Visy, in my view, it would be inconsistent with case management principles and the mandate in s 64(2) of the Civil Procedure Act of avoiding multiplicity of proceedings to refuse leave on the premise that other proceedings would be commenced involving a dispute about the very same Recycling Contract and applicable Commodity Rate that will be the subject of judgment in these proceedings.
24. Notwithstanding the prejudice of delay to Burwood Council, and while the matter is very finely balanced, I have come to the view that it would be unjust and not consistent with the quick and cheap resolution of all issues in dispute to refuse leave to amend and shut out Visy from running the new defence in these proceedings. That is not to say that I consider that the new defence will ultimately succeed but, rather, that I am persuaded that the defence is sufficiently arguable such that it should be allowed to progress and that an adequate explanation has been given for the delay in bringing the application to amend. While this means the hearing date will be vacated and court time will potentially be wasted to the detriment of other parties, in my view, these proceedings are the most appropriate forum for the defence to be pursued. I also accept that vacating the hearing date will cause some prejudice to Burwood Council but I am not persuaded that the prejudice, some of which may be cured by an appropriate costs order, outweighs the interests of justice in the real issues in dispute between the parties being ventilated together in these proceedings.
25. For these reasons, I have concluded that that it would be consistent with the dictates of justice and the provisions of ss 56 and 57 of the Civil Procedure Act to grant leave to Visy to amend to plead the new defence to Burwood Council's Commodity Rate claim as set out in [23A]-[23F] of the proposed Further Amended Points of Defence.

Orders and costs

1. As noted above, Visy accepts that it is appropriate for an order to be made for it to pay Burwood Council's costs thrown away by reason of the amendments and the vacated hearing. I have deferred making any costs order in relation to those costs at this stage as Senior Counsel for Burwood Council foreshadowed an application for indemnity costs in relation to the withdrawal of Visy's Change of Law and Education Contribution defences.
2. The parties are agreed that any such application and the issue of costs of this application can be dealt with on the papers. I have made directions that provide for short written submissions (of no more than three pages) and any evidence on the issue of costs to be served, which should also be copied by email to my chambers. If the parties reach agreement on the costs orders to be made, they are at liberty to approach my associate with agreed short minutes of order so that the orders may be made in chambers.
3. For these reasons, I make the following orders: 1. Pursuant to s 64 of the Civil Procedure Act 2005 (NSW), grant leave to the Defendant to file a Further Amended Points of Defence in the form annexed to its Notice of Motion filed on 14 May 2012. 2. Dismiss the defendant's Cross-Claim. 3. Vacate the hearing which is listed for four days commencing 24 May 2021. 4. List the matter for directions before the Equity Registrar at 9:30 am on 25 May 2021. 5. Direct the plaintiff to serve on the defendant by 5 pm on 26 May 2021 short written submissions and any affidavit material on the issue of costs. 6. Direct the defendant to serve on the plaintiff by 5 pm on 2 June 2021 short written submissions and any affidavit material in reply on the issue of costs.

Amendments 20 May 2021 - Title amended to remove 'ABN 84362114428' DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 May 2021