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The issue of misleading and deceptive conduct in a commercial context has recently been considered by the NSW Supreme Court of Appeal in United Resource Management v Par Recycling Services Pty Ltd.
This case is a reminder that, where there is reasonable expectation that a disclosure should be made, silence can amount to misleading or deceptive conduct, even where a party may not consider that the other party would have a reasonable expectation for the disclosure as it would not have a material effect on the commercial transaction.
Background
Between 2011 and June 2019, United Resource Management (URM) collected ‘commingled’ container waste (including glass, aluminium and plastic containers) from the Northern Beaches and delivered the waste to a material recovery facility in the Central Coast operated by Par Recycling Services Pty Ltd (Par) for separation and processing. URM paid gate fees to Par on a tonnage basis. The terms of the relationship between Par and URM were governed by a contract dated 23 March 2011 known as the ‘Somersby Agreement’.
Before delivering the waste to Par, URM would make a pit stop at the Kimbriki Resource Recovery Centre operated by Kimbriki Environmental Enterprises Pty Ltd at Terrey Hills for aggregation or ‘bulking up’. The terms of this relationship were governed by an agreement known as the ‘KES’ Agreement.
It was a term of the Somersby Agreement that it would come to an end if the KES Agreement ended.
On 13 October 2014, the KES Agreement was terminated and replaced with another agreement in which URM’s subsidiary was a party in place of URM (the KES Termination). URM did not tell Par about the KES Termination, as it allegedly did not consider that the Somersby Agreement had in fact been terminated.
URM and Par did enter into another agreement in early 2018 (the CDS Agreement) to take advantage of the NSW Government ‘container deposit scheme’ to enable recovery facility operators to receive refunds for depositing beverage containers. The fee structure between URM and Par was altered to take into account the refunds due from Par to URM.
Disputes arose between the parties in respect of the calculations of the refunds paid by Par. URM refused to pay seven gate fee invoices. Par commenced court proceedings. The KES Termination came to light in the proceeding. As a result, Par amended its claim to include (among other things) damages for misleading and deceptive conduct, arguing that it would have negotiated a different remuneration structure had the KES Termination been known to it.
Key findings
The primary judge found that URM had misled PAR and granted relief on the basis that Par kept certain revenue under the CDS Agreement (the Revenue Share Finding). However, Her Honour did not uphold the misleading and deceptive conduct damages claim, citing a lack of evidence from Par that it would have required URM to pay higher rates (the Damages Finding). Her Honour also found that Par was entitled to the unpaid invoices.
URM appealed and Par cross-appealed (though Par’s cross-appeal was in respect of the timing of the refund payments, not the Damages Finding).
The Court of Appeal:
- Found that URM had engaged in misleading and deceptive conduct because it did not inform Par of the KES Termination, and represented in later negotiations (in 2015 and 2016) that the Somersby Agreement remained in force. In making these findings, the Court of Appeal dismissed URM’s arguments that the conduct was not misleading and deceptive due to (a) Par’s failures to make inquiries about the KES agreement, (b) it was URM’s ‘reasonably held view’ that the Somersby Agreement continued to be in force, and (c) in light of the ‘robust’ commercial relationship between the parties.
- Reversed the Revenue Share Finding because it found that Par would have entered into the CDS Agreement in any event to take advantage of the container deposit scheme.
Ultimately, however, the court did not find that URM’s failure to disclose the KES Termination caused Par to enter into the CDS Agreement on the terms it did.
Comment
Although the question of whether silence will amount to misleading or deceptive conduct will depend on the facts of the case, this case highlights that silence in a commercial context could lead a finding of misleading or deceptive conduct and a damages award, regardless as to the complicit party’s reasonable beliefs at the time.
A party can of course use silence to their advantage in commercial negotiations, assuming there is no reasonable expectation that the information should be disclosed. Whilst in this case URM was not ultimately found liable for damages (due to Par’s lack of evidence that it would have sought higher rates if the KES Termination had been made known to it), the KES Termination was clearly something Par expected to be told about. URM’s ongoing representations that the Somersby Agreement was in force was the determinative factor.
This judgment is, therefore, a reminder to commercial parties that they need to consider carefully what information should be disclosed and when. If a party is likely to have an expectation of disclosure, a court is likely to treat silence as misleading or deceptive conduct.
Read other items in Australian Insurance Brief – November 2023
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