Par Recycling Services Pty Ltd v United Resource Management Pty Ltd

The orders sought

1. The orders Par seeks are: "1. In these orders, the parties will be referred to as follows: (a) PAR, being the plaintiff on the Statement of Claim, Cross-Defendant on the First Cross-Claim, and Cross-Claimant on the Second Cross-Claim; (b) URM, being the First Defendant on the Statement of Claim, First Cross-Claimant on the First Cross-Claim, and First Cross-Defendant on the Second Cross-Claim; (c) URME, being the Second Cross-Claimant on the First Cross-Claim, and Third Cross-Defendant on the Second Cross-Claim; and (d) Johnston, being the Second Defendant on the Statement of Claim, and Second Cross-Defendant on the Second Cross-Claim 2. Judgment for PAR on the statement of claim and the second cross-claim for: (a) $796,852.49, including interest of $109,499.89 to 20 September 2022, as against URM and Johnston; and (b)$605,277.06, including interest of $101,611.26 to 20 September 2022, as against the URM and Johnston. 3. The Court declares that the agreement between the PAR and URM entered into on or about 9 January 2018 for the sharing of Container Deposit Scheme revenue is void ab initio pursuant to section 237(1) of the Australian Consumer Law. 4. The First Cross-Claim is dismissed. 5. URM, Johnston, and URME pay PAR's costs on the Statement of Claim, First Cross-Claim and Second Cross-Claim: (a) on the ordinary basis to and including 19 August 2022; (b) on an indemnity basis from and including 20 August 2022."
2. There is no issue as to the money orders, but the United Resource Management Pty Ltd parties contend that the orders which should be made are: "1. Judgment for PAR on the Statement of Claim as against URM and Johnston for $796,852.49, including interest of $109,499.89 to 20 September 2022. 2. Judgment for PAR on the Second Cross-claim as against URM for $605,277.06, including interest of $101,611.26 to 20 September 2022. 3. The First Cross-claim is dismissed. 4. (a) URM and Johnston and pay PAR's costs of the Statement of Claim on the ordinary basis, as agreed or assessed. (b) URM and URME pay PAR's costs of the First Cross-Claim on the ordinary basis, as agreed or assessed. 5. There be no order as to costs in relation to the Second Cross-Claim (to the intent that each party bear its own costs of that cross-claim)."

The proposed declaration

1. I am not satisfied that the disputed declaration should be made.
2. It relates to the Container Deposit Scheme sharing arrangement proposed by Par's 9 January 2018 letter to URM, which was accepted. The letter is quoted at [192] of the September judgment. I concluded that as a result of the letter the CDS agreement between Par and URM came into existence, "in the context of an agreement that the existing gate fee by which Par and URM were contractually bound, would also be increased": at [198].
3. The URM parties contended that there was but one agreement, so that if the declaration was made, the orders Par proposed would be inconsistent. Par's case was that the 9 January offer had two aspects, entry into the new CDS agreement and variation of the implied agreement and so there would be no inconsistency if the CDS agreement was declared to have been void ab initio.
4. The nature of what was offered and accepted by the 9 January letter was not part of what the parties had joined issue over at trial. There were plainly two aspects of the 9 January agreement, with the result that the CDS agreement came into existence and the gate fees payable under the implied agreement were increased. There was no issue at trial that both agreements were terminated by URM, which in 2019 ceased providing materials to be processed by Par at Somersby. These proceedings were later brought.
5. The parties' common position was that the payments made by Par under the CDS agreement must be ordered to be repaid by way of damages, the misleading and deceptive conduct on which it relied having been established at trial as it was. In the result all that lay in issue between the parties over that agreement will be resolved by the other orders which are agreed.
6. In the circumstances it is not apparent that any practical consequence could flow from refusing to make the declaration. It was rather sought by Par for more abundant caution.
7. That there was power to make the declaration was also disputed. The URM parties' case being that the power to grant declaratory relief under the Competition and Consumer Act 2010 (Cth), Sch 2-Australian Consumer Law is subject to limitations concerned with compensation for loss or damage, which in this case is achieved by the money orders which it is agreed must be made, not by the proposed declaration: ss 237, 242 and 243.
8. Section 237 empowers the Court to make orders it considers appropriate to compensate Par in whole or in part for its loss or damage, or to prevent or reduce the loss or damage it suffered: s 237(2). Section 243 provides that such orders include orders declaring a contract void in whole or in part.
9. In this case however, Par has not established that the proposed declaration would result in any further compensation or damages than is otherwise to be ordered. Further, the declaration seems inappropriate, given that entry into the CDS agreement was but one part of what the parties agreed on 9 January 2018 and there being no suggestion by either party that the agreed increased gate fees should be disturbed.
10. I have thus concluded that the disputed declaration should not be made. It is not necessary to give effect to what was resolved by the September judgment in relation to the matters which the parties finally then put in issue and does not appear to be an order contemplated by the Australian Consumer Law in the circumstances of this case.

To whom should the orders be directed?

1. The URM parties resist the money order in respect of the CDS agreement being directed to Mr Johnston, as well as to URM.
2. There is no issue as to the Court's power to make such an order against a director like Mr Johnston, given the case advanced by Par. But it was contended that it would not be made, given that I concluded that it was URM, not he, who had engaged in the misleading and deceptive conduct found. Further, it was that conduct on which Par's case on mistake and unjust enrichment was also established.
3. That was disputed, the parties relying on differing parts of the September judgment to advance their arguments.
4. I am satisfied that the order must be directed both to URM and Mr Johnston, the case which Par advanced against both of them having been made out as it was on the evidence. Contrary to the case the URM parties advanced, I did not only conclude in the September judgment that it was URM which had engaged in misleading and deceptive conduct.
5. Mr Johnston was URM's controlling mind and represented it in the parties' ongoing dealings over the years, which are dealt with in the judgment, including after receipt of the 9 January 2018 letter.
6. I found that the agreement which resulted from what was so offered was made "in circumstances where Par had been considerably misled by URM and Mr Johnston as to matters which necessarily affected its decision making": at [198].
7. After discussing how Par had been misled, including in relation to the 2011 agreement, by the failure to disclose that it had terminated in 2014, with the unknown result that the implied agreement came into existence, I concluded that "even if it be accepted that URM and Mr Johnston did not intend so to mislead, in the circumstances in which they were dealing with Par, they did not act reasonably in not giving it notice of the termination of the KES agreement, or the resulting termination of the 2011 agreement. The result was that URM's ongoing conduct until the relationship was terminated, was misleading and deceptive.": at [304].
8. Further, that "the steps which were and were not taken in 2014 and subsequently, were entirely within the control of URM and Mr Johnston and pursued for their benefit": at [306].
9. In the result I am satisfied that the disputed order should be made against both URM and Mr Johnston.

Costs

1. The usual order under r. 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) is that costs follow the event, which would be an order in Par's favour, in respect of costs agreed or assessed.
2. Par seeks an order that its costs be payable by the URM parties on the ordinary basis up to and including 19 August 2022 and from 20 August on an indemnity basis, in circumstances explained in the affidavit sworn by its solicitor, Mr Hocking.
3. URM seeks that there should be no order as to costs as to Par's cross-claim.

The applicable principles

1. There was no issue as to the Court's broad discretion under s 98 of the Civil Procedure Act 2005 (NSW) to make the orders sought, or the applicable principles. They require that the discretion be exercised judicially, the purpose of a costs order being compensatory, not punitive: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11. The requirements of s 56 of the Civil Procedure Act must also be taken into consideration, that imposing a duty on the parties to assist the Court to facilitate the overriding purpose there specified, the just, quick and cheap resolution of the real issues in the proceedings.
2. Rejection of a valid Calderbank offer such as that here made does not automatically result in an indemnity costs order if the offering party obtains a more favourable judgment after trial. Consideration must be given to whether the offer involved a genuine compromise, with the offering party bearing the onus of establishing that its rejection was unreasonable in all the surrounding circumstances.
3. There was no issue that Par's offer did involve a genuine compromise, or that it had done considerably better at trial.
4. Account must also be taken of the underlying public policy of encouraging the settlement of litigation and discouraging litigant's unreasonable behaviour, recently discussed by Ward P in Abdi v Abdi (No 2) [2022] NSWSC 582 at [21]-[30], on which the URM parties relied.
5. The factors necessary to take into account which her Honour there explained by reference to various binding authority, include: "the stage of the proceeding at which the offer was received; the time allowed to the offeree to consider the offer; the extent of the compromise offered; the offeree's prospects of success assessed as at the date of the offer; the clarity with which the terms of the offer were expressed; and whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it": Abdi at [29].
6. Factors which will help establish that rejection was not unreasonable include: "all relevant evidence not having been served at the time of the offer", "the full parameters of the dispute remaining uncertain at the time of the offer", "the offeror's case changing after the making of the offer", and "the inclusion of conditions in the offer; and the issues in dispute in the proceedings being complex": Abdi at [30].

The parties' cases

1. Par's case was that it had been overwhelmingly successful in the proceedings, even though its claim that it should be compensated for the difference between what it charged URM and what it would have charged, but for its misleading conduct, was not accepted. Further, that this aspect of its claims had involved but little additional time at the trial, either in evidence or submissions, given the other matters remaining in issue.
2. Its Calderbank offer was for $660,000, inclusive of costs and made at a time when the case it was advancing had long been fully pleaded, the evidence served, after a mediation and after URM had itself made a settlement offer. The reasons advanced in its offer for why it should be accepted also accorded with Court's later findings. The result was that it had been considerably more successful at trial, with justice thus requiring the departure sought from the usual order.
3. That was because: 1. after the pleadings closed and evidence had been served the parties engaged in a mediation in November 2021, which failed to produce an agreement; 2. on 9 May 2022 Par received a Calderbank offer, which was open for acceptance for 14 days; 3. an extension of time, because of the absence of Par's director overseas was refused on 25 May, it then being advised that the offer was deemed to have been rejected; 4. on 18 August Par made a Calderbank offer open for 7 days, which was rejected the following day; and 5. Par succeeded at trial which commenced shortly afterwards and will thus receive damages which considerably bettered its offer.
4. The URM parties' case was that it was not unreasonable for the August offer to have been refused and that because a substantial part of Par's second cross-claim failed, given the time taken to deal with it, each party should bear their own costs of that claim. It was contended that: 1. the explanation given for the August offer was brief and did not recognise that Mr Johnston's affidavit had put in issue that certain unpaid invoices had been compromised, or that the defence and cross claim the URM parties advanced exceeded what was owing in respect of the invoices; 2. Par's offer was only open for 7 days, even though there was then a further 10 days before the trial was due to start. The approach of McColl JA in Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [117] was relied on, her Honour observing "Prima facie, I see no reason why litigants who choose not to avail themselves of the rules as to Offers of Compromise should be in a better position than those who do, if they radically foreshorten the period in which an offer is open for consideration"; and 3. Par failed at trial on its claim for $8,666,138.77 advanced by its cross claim, and thus it was not unreasonable for the URM Parties to reject Par's offer, which continued to press the validity of that claim.
5. In the result the departure from the usual order should be that each party bear their own costs of that cross-claim, a large part of the content of the affidavits of Mr Gallagher and Mr Knowles, the cross-examination of Mr Gallagher and Mr Waddington and the submissions having been directed to that failed claim.

The costs order Par seeks must be made

1. I am satisfied that Par has established that rejection of its offer was unreasonable in all of the circumstances.
2. The 18 August 2022 offer was settlement on the basis of payment of what was a considerable reduction of the amount owing under the disputed invoices which Par established at trial URM was obliged to pay. Par also sought no contribution to its then, by no doubt, considerable costs. There is thus no question that Par did considerably better at trial than what it had offered to accept. In the circumstances, that the offer was made on the basis that Par would bear its own costs was an attractive aspect of what it offered.
3. It follows that what was offered could also not have posed difficulties for URM, given either what was offered or the time it had to consider the offer. Par was offering to abandon pursuit of its claim in respect of the CDS agreement, its cross-claim and costs. Still the offer was rejected the following day.
4. In Elite Protective Personnel, it was not concluded that a Calderbank offer inclusive of costs could not attract the exercise of the cost's discretion given by s 98 of the Civil Procedure Act. As Beazley JA explained, necessarily "the proper approach to any such offer of compromise is to consider it according to its terms and determine whether, in all the circumstances, the court should exercise its discretion to award indemnity costs": at [7]. Basten JA also considered that such an offer of settlement in unequivocal terms could, in appropriate circumstances, form the basis of a special costs order if it were not accepted: at [136]. Further, that "if a plaintiff made an offer in a particular amount, inclusive of costs, and received damages in excess of that amount the plaintiff has on any view bettered his or her offer and should have it considered in relation to the question of costs": at [141].
5. This case explains that approach.
6. The policy underpinning an indemnity costs order flowing from rejection of a Calderbank offer or an offer of compromise made under the Uniform Civil Procedure Rules is to encourage settlement of disputes, even when a trial is impending. At the time that Par's offer was made there was no longer sufficient time for an offer of compromise to have been made. But that does not preclude offers of settlement, including on a Calderbank basis, nor an indemnity costs order if such an offer is unreasonably refused. To the contrary, settlements even at that stage are to be encouraged, consistent with the requirements of s 56 of the Civil Procedure Act.
7. Given the respective cases which the parties had advanced by their pleadings, not only a claim, defence and reply but also cross-claims which also advanced the cases already otherwise pleaded, there is no question that what lay between them was complex. But by then the respective cases were well understood, given the course they had each pursued.
8. The offer which Par made cut through that complexity and was plainly not difficult for the URM parties to assess. Indeed, it was rejected out of hand the following day.
9. This has to be appreciated in a context where the parties had not only engaged in an unsuccessful mediation in November 2021, after the pleadings had been finalised, but also both the offer which URM had made beforehand and how its case altered significantly, shortly after the rejection of Par's offer.
10. The May 2022 letter which conveyed URM's offer explained: "PAR claims a total of $1,191,018.40 against URM, comprised of $687,352.60 in outstanding fees due under the supply agreement and $503,665.80 in revenue allegedly received by URM and payable to PAR in connection with the CDS scheme. The misleading and deceptive conduct claim by PAR ($8,164,472.97) is hopeless, and ignored for the purposes of calculating the respective positions of the parties in this settlement offer. URM URM's claim is for $2,095,356.13 comprised of the three components enumerated in our client's position paper served for the purposes of the recent mediation. Of this sum, we say that $1,302,650.53 will plainly be awarded by the Court based on the evidence served to date. There is little doubt about that outcome. However, for the purposes of this settlement offer our client (purely for the sake of an attempted resolution of the matter) is willing to concede that one possible outcome in the proceedings (perhaps the most likely) is that the $1,302,650.53 payable to URM is offset by the sum of $687,352.60 allegedly payable to PAR. This would result in a sum of $615,297.93 plus interest being payable to URM. Either each party would be awarded costs on its primary claim, or each party would be ordered to bear their own, with the exception that costs would likely be ordered against PAR in respect of its failed misleading and deceptive conduct case. In any case, the URM parties are willing to ignore potential cost outcomes (although more favourable to our client than yours) for the purposes of this settlement offer. As such, URM's offer to accept the sum of $500,000 represents a discount of more than 20% of the most likely outcome in the proceedings. It would be unreasonable for your client to refuse the settlement offer, and we shall therefore seek to rely on this letter in support of an indemnity costs application in respect of costs incurred after 14 days from the date of this letter, including the expensive stages of discovery and trial. We expect that the costs of this firm and senior and junior counsel from expiration of this settlement offer until the conclusion of the trial will be in the order of $250,000."
11. Par's 18 August offer that URM pay it $660,000 in full and final settlement, including interest and each party bear its own costs, was also explained in its letter: "On the current pleadings, other than questioning which party is liable to pay, neither the invoices nor the work the subject of those invoices is disputed. The above offer is a reduction of the amount owing under those outstanding invoices (as particularised in the statement of claim. While your clients have, both in your email of 9 May 2022 and at the mediation, refused to engage with our client's cross-claim in any way, it has never provided any basis for doing so. Your client's evidence concerning its alleged communication of the fact of termination of the Somersby Supply Agreement (as defined in the statement of claim), and the asserted 'new contract' on the same terms (except, apparently, for removing the guarantee) with URM Environmental Services Pty Ltd, is all but non-existent. At the very least, our client entered into the "First CDL Agreement" (as defined in the statement of claim) on the basis of your clients' misleading and deceptive conduct such that any agreement with your clients is voidable, regardless of their views on any other damages. The above offer, therefore, is less than the undisputed amount with no interest and no costs, and with all other claims effectively being released."
12. Despite this offer being rejected on 19 August, on 29 August Mr Johnston swore an affidavit deposing that the first time that he had realised that the Somersby Agreement had come to an end was in 2020 when he was assisting with the preparation of the defence. Before that, his belief had been that it remained on foot.
13. That confirmed the absence of evidence of communication of termination of the Somersby agreement in 2014 and led to the resolution of various issues at trial, where it became common ground that unbeknownst to Par, the Somersby Supply Agreement had terminated in 2014 and that as a result, the implied agreement had come into existence. Further, that it contained the same terms as the Somersby agreement, including Mr Johnston's guarantee: September judgment at [89].
14. It follows that when Par's offer was rejected on 19 August, the URM parties were in the position where they had not only had a reasonable opportunity to assess questions of liability and their likely exposure to damages, but they had also been given a reasonable opportunity, seven days, to consider the offer Par had made, an offer which explained problems with the URM case, which were soon acknowledged. Unlike with the offer which had earlier been made to Par, further time to consider the offer was not sought. Instead it was rejected the day after it was received, despite the alteration in the URM parties' case which soon followed, which accorded with what Par had explained in its offer.
15. Par did considerably better at trial than it had offered to accept. The parties each undoubtedly incurred very considerable costs after Par's genuine offer of a considerable compromise was rejected, in preparation for and during the hearing, including in relation to Par's cross-claim. That would all have been saved if the offer had been accepted.
16. It was the unreasonable rejection of Par's offer which had the result that the trial proceeded, with the unnecessary cost to the parties which resulted, as well as the avoidable adverse consequences for Court time and the public interest.
17. In the result, given the purpose of costs orders, which include compensating a successful party, encouraging the settlement of litigation by acceptance of genuine offers of compromise and discouraging litigant's unreasonable behaviour, consistent with the duty imposed by s 56 of the Civil Procedure Act, I am satisfied that justice requires the departure from the usual costs order which Par seeks.
18. Par has established that the rejection of its offer was unreasonable in all the circumstances. Accordingly, the costs orders it seeks must be made and that which the URM parties sought refused.

Orders

1. For these reasons I order that: 1. In these orders the parties will be referred to as follows: 1. PAR, being the plaintiff on the Statement of Claim, Cross-Defendant on the First Cross-Claim, and Cross-Claimant on the Second Cross-Claim; 2. URM, being the First Defendant on the Statement of Claim, First Cross-Claimant on the First Cross-Claim, and First Cross-Defendant on the Second Cross-Claim; 3. URME, being the Second Cross-Claimant on the First Cross-Claim, and Third Cross-Defendant on the Second Cross-Claim; and 4. Johnston, being the Second Defendant on the Statement of Claim, and Second Cross-Defendant on the Second Cross-Claim. 1. Judgment for PAR on the statement of claim and the second cross-claim for: 1. $796,852.49, including interest of $109,499.89 to 20 September 2022, as against URM and Johnston; and 2. $605,277.06, including interest of $101,611.26 to 20 September 2022, as against URM and Johnston. 1. The First Cross-Claim is dismissed. 2. URM, Johnston, and URME pay PAR's costs on the Statement of Claim, First Cross-Claim and Second Cross-Claim: 1. on the ordinary basis to and including 19 August 2022; 2. on an indemnity basis from and including 20 August 2022.

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: 17 October 2022