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Container Deposit Schemes - a shotgun wedding between Councils and MRFs?

How will the NSW Container Deposit Scheme effect Councils collection contracts? HDY's Gavin Shapiro digs into the details.

On 23 August 2016, the NSW Government released the outline of its draft Container Deposit Scheme (CDS).

This consisted of the draft Waste Avoidance and Resource Recovery Amendment (Container Deposit Scheme) Bill 2016 (the Bill) and the Regulatory Framework (which discusses broadly what will be in the regulations and guidelines).

One of the biggest impacts of the CDS will be on existing kerbside recycling. If people collect containers and claim the refund, as the scheme is designed, then there will be significantly less containers in kerbside recycling.

This has the potential to impact on Council kerbside collection contracts, and Council recycling contracts. On the other hand, the CDS proposes to allow MRFs will claim a refund on containers collected for kerbside recycling, delivering them a significant windfall gain.

So what does the CDS propose to do in respect of existing Council collection and recycling contracts?

The short answer is nothing. While the NSW legislature has the power to change the terms of existing contracts by legislation (such as the heavily regulated areas of mortgages and loan agreements), in this case, it has chosen not to do so.

The longer answer is more complicated.

Firstly, the CDS may trigger clauses in existing contracts. Most commonly, 'change in law' clauses in the majority of contracts will be triggered. In other cases, some pricing clauses, such as rise and fall pricing, may be impacted. Waste service providers, and Councils, should review contracts to consider if either of these will be impacted by the CDS.

Secondly, the Regulatory Framework states that the regulations will encourage Councils and MRFs to negotiate. The regulations will do this by applying a stick and carrot approach to MRFs.

The carrot is that MRFs will be able to claim the refunds from containers collected from kerbside recycling. The stick is that, after 18 months, unless the Council and MRF notify the EPA that they have reached a satisfactory arrangement, the MRF will no longer be able to claim the refund.

In practice, this means that whether 'change in law' or pricing clauses are impacted by the CDS, MRFs will be encouraged to negotiate an arrangement for sharing the windfall gains from the refunds of containers collected from kerbside recycling.

Negotiating a variation to existing contracts between Councils and MRFs will produce the most practical outcome, and means that the parties won't need to debate the finer points of change in law and pricing clauses.

The CDS has been designed to encourage this. And, based on our experience in the past, such as with the widely-adopted Voluntary Waste Industry Protocol in the wind-down of the carbon tax, we are confident that in most cases Councils and MRFs will be able to reach a commercial agreement which works for all parties.

The questions in the meantime will be how much blood sweat and tears (and legal fees) will be needed to get there, and how many individual contracts and circumstances will spoil the fun for the rest.   

Gavin Shapiro is a Senior Associate with firm Henry Davis York known for his expertise in the legal aspects of the NSW waste industry.