Western Export Services Inc v Jireh International Pty Ltd

[2010] NSWSC 622

CITATION:	Western Export Services Inc v Jireh International Pty Limited [2010] NSWSC 622
HEARING DATE(S):	19,20,21,22,27,28,29 April and 3,4,5,6,10,11 May 2010
JUDGMENT DATE :	11 June 2010
JUDGMENT OF:	Hammerschlag J
DECISION:	Verdict for the plaintiff. Defendant's cross-claims dismissed.
CATCHWORDS:	CONTRACTS – intention to create legally binding relations – written instrument entitled Letter of Agreement (“the agreement”) signed by the plaintiff and the defendant included a clause providing for review after six months of commissions payable under the agreement – whether agreement was legally binding from date of execution or only after review and further agreement on commissions had taken place – MISTAKE – whether the defendant was labouring under a serious and fundamental mistake that the contract was not to be immediately binding and whether the plaintiff induced this mistake by failing to correct it – FRUSTRATION – whether the agreement was discharged by supervening impossibility when this state of circumstances was induced by the defendant – RECTIFICATION – whether the omission of the words “or an associated entity” in the agreement was a mutual mistake and whether its inclusion would give effect to the parties’ common intention – CONSTRUCTION – construction of commercial contracts – agreement provides for commission payable on “sales by” the defendant but on 11 March 2004 the defendant executed a Supply Agreement with an associated entity appointing it as the defendant’s preferred supplier – whether “sales by” the defendant should be construed to include sales by the defendant or an associated entity of the defendant – whether sales to the defendant’s Franchisees through the medium of the associated entity are “sales by” the defendant – IMPLIED TERM – whether a term should be implied into the agreement under which the defendant is obliged to refrain by its own voluntary act from depriving the plaintiff of the benefits it would be entitled to, but for that voluntary act, under the agreement – whether the defendant has breached this term by interposing a third party to supply products to its Franchisees - TRADE PRACTICES – MISLEADING AND DECEPTIVE CONDUCT – Trade Practices Act 1974 (Cth) s 52 – whether the plaintiff engaged in conduct which was misleading or deceptive, or likely to mislead or deceive by inducing the defendant to believe that the contract was to be non-binding until further agreement on commissions had taken place - EQUITY – ESTOPPEL – general principles – whether the plaintiff held out and the defendant relied upon the assumption that the agreement was to be non-binding until further agreement on commissions had taken place – FIDUCIARY DUTY – whether the plaintiff was acting as legal advisor to the defendant and thus owed a fiduciary duty to act in the defendant’s best interests – whether the plaintiff breached this duty by failing to disclose that the agreement between them was legally binding
LEGISLATION CITED:	Trade Practices Act 1974 (Cth)
CATEGORY:	Principal judgment
CASES CITED:	Ermogenous v Greek Orthodox Community (2002) 209 CLR 95 Australian Broadcasting Corporation v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540 Sagacious Procurement Pty Limited v Symbion Health Limited [2008] NSWCA 149 Air Great Lakes Pty Limited v K S Easter (Holdings) Pty Limited (1985) 2 NSWLR 309 United Group Rail Services v Rail Corporation New South Wales [2009] NSWCA 177 Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 Trawl Industries of Australia Pty Ltd v Effem Food Pty Ltd trading as “Uncle Bens of Australia” (1992) 27 NSWLR 326 Commonwealth v Verwayen (1990) 170 CLR 394 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) 46-054 Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Kelly v CA & L Bell Commodities Corporation Pty Ltd (1989) 18 NSWLR 248 Chan v Zacharia (1984) 154 CLR 178 Muriti v Prendergast [2005] NSWSC 281 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 International Air Transport Association v Ansett Australia Holdings Ltd (Subject to Deed of Company Arrangement) (2008) 242 ALR 47 McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Franklins Pty Limited v Metcash Trading Ltd [2009] NSWCA 407 Wilkie v Gordian Runoff Limited (2005) 221 CLR 522 Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 Chartbrook Limited v Persimmon Homes [2009] 1 AC 1101 BP Refinery (Westernport) Pty Limited v Shire of Hastings (1977) 180 CLR 266 Secured Income Real Estate (Australia) Limited v St Martins Investments Pty Limited (1979) 144 CLR 596 Elders IXL Limited v National Employer’s Mutual General Insurance Association Limited (1988) 5 ANZ Ins Case 60-847 Australis Media Holdings Pty Limited v Telstra Corporation Limited (1998) 43 NSWLR 104 RDJ International v Preformed Line Products (Australia) Pty Limited (1996) 39 NSWLR 417 Reigate v Union Manufacturing Co (Ramsbottom) [1918] 1 KB 592 Lazarus v Cairn Line of Steamships Ltd [1918] 106 TLR 378 Rhodes v Forwood [1876] 1 App Cas 256 Roadshow Entertainment Pty Limited v (ACN 053 006 269) Pty Ltd Receiver & Manager Appointed (1997) 42 NSLWR 462
TEXTS CITED:	Michael Furmston and GJ Tolhurst Contract Formation Law and Practice, 2010, Oxford University Press JW Carter, Elisabeth Peden and Greg Tollhurst, Contract Law in Australia, 5th ed (2007) Meagher, Gummow and Lehane’s Equity Doctrines & Remedies, 4th ed (2002), Butterworths LexisNexis Halsbury’s Laws of England, 5th ed, vol 1 Fridman, The Law of Agency, 7th ed (1996) Butterworths
PARTIES:	Western Export Services Inc - Plaintiff Jireh International Pty Limited - Defendant
FILE NUMBER(S):	SC 2004/175257
COUNSEL:	F.C. Corsaro SC with F.G. Kalyk [Plaintiff] D.J. Higgs SC with T. Maltz [Defendant]
SOLICITORS:	Koffels [Plaintiff] Meerkin & Apel [Defendant]

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

HAMMERSCHLAG J

11 JUNE 2010

2004/175257 WESTERN EXPORT SERVICES INC -V- JIREH INTERNATIONAL PTY LIMITED

JUDGMENT

INTRODUCTION

1 HIS HONOUR: The plaintiff (“WES”) sues the defendant (“Jireh”) for breach of what it contends is a written contract with Jireh, embodied in a document styled Letter of Agreement signed by the parties on 19 March 1996. I shall refer to the document as “the Letter Agreement” (the parties sometimes referred to it as the WES agreement).

2 WES claims damages equivalent to payments which it says that Jireh should have, but has not, made under the Letter Agreement.

3 The Letter Agreement is in the following terms:

WHEREAS, Nabi Saleh and Peter Irvine (collectively “JIREH INTERNATIONAL PTY LTD.”), desire to obtain the right from Gloria Jean’s Gourmet Coffees Franchising Corp, (“GJGC CORP.”); to become the Gloria Jean’s Gourmet Coffees Master Franchisee for Australia, including the right to operate and franchise Gloria Jean’s Gourmet Coffees Stores (“GJGC STORES”); to import and supply products to those stores, and; to establish Australia as a regional supplier of Gloria Jeans’ coffees, tea and accessories (“Products”), and

WHEREAS, David Cisneros and Steven Meier (collectively “WES”) have provided and will provide contract negotiation assistance, logistical support and export services to JIREH INTERNATIONAL PTY LTD.

THE PARTIES agree to the following terms and conditions:

1. WES shall, on behalf of, and in conjunction with, JIREH INTERNATIONAL PTY LTD., negotiate and otherwise assist JIREH INTERNATIONAL PTY LTD. to enter into an Agreement with GJGC CORP, and with the establishment of GJGC STORES in Australia.

2. Except as the parties may otherwise agree, WES shall be the sole and exclusive supplier and exporter of Gloria Jean’s products from the United States to JIREH INTERNATIONAL PTY LTD. For this service, WES shall receive a commission (or margin) of 5% of the ex-factory price.

3. One of the primary goals of negotiation with GJGC CORP is to establish JIREH INTERNATIONAL PTY LTD, or an associated entity, as a roaster/supplier of Gloria Jean’s, or other branded coffees, teas and other products for sale in GJGC STORES in Australia and to GJGC Master Franchisees or GJGC STORES in other countries. For sales by JIREH INTERNATIONAL PTY LTD to GJGC STORES in Australia and to other countries, WES shall receive a commission of 5% of the ex-factory price of the coffees, teas and other products.

4. It is mutually understood that WES and JIREH INTERNATIONAL PTY LTD. (or its principals) will pursue all opportunities to supply coffees, teas and other products to GJGC CORP, or its related companies. The parties shall agree to mutually acceptable compensation for such supply as opportunities arise.

5. In consideration for the above services and in furtherance of the relationship between the parties, upon the sale or transfer of any interest of JIREH INTERNATIONAL PTY LTD., JIREH INTERNATIONAL PTY LTD. shall upon the closing of the sale or transfer, pay to WES a total of four percent (4%) of the sales price of that interest.

6. Payment of any compensation due under the terms of this Agreement shall be made on a quarterly basis and each party shall provide to the other, at the time payment is due, an accounting of all sales which come within the scope of this Agreement.

7. JIREH INTERNATIONAL PTY LTD. and WES agree to meet within six (6) months after the effective date of this Agreement and review the business of the parties under the terms of this Agreement to determine if the compensation established herein is fair and reasonable based on mutually agreeable factors for the venture.

Effective the 19 day of March 1996

JIREH INTERNATIONAL PTY LTD WES

By: …[Signature]……………… By: …[Signature]……………
Nabi Saleh David Cisneros

By: …[Signature]……………… By:…[Signature]…………… Peter Irvine Steven P. Meier

4 During the hearing the parties referred to the commission provided for in cl 3 as the clause 3 or roasting commission. I will use the same terms.

FACTUAL BACKGROUND

5 The events which give rise to this dispute span something in the order of ten years. Well over 2000 pages of documents were tendered in evidence and the court was taken to many of them. The affidavit material runs to hundreds of pages. The principal witnesses were extensively cross-examined. Whilst it would be neither practical nor productive to refer to every conceivably relevant event and document, it has proved necessary to recount many events and contents of many documents to enable a proper understanding of why I have reached the conclusions to which I have come.

The parties

6 WES is a corporation established under the laws of Colorado, USA. It is owned by Messrs David Cisneros and Steven Meier. It was incorporated in about 1991 and carries on business as a manufacturers’ and buyers’ representative. It is based in Denver, Colorado.

7 Messrs Cisneros and Meier have legal qualifications. At the times material to these proceedings Mr Meier (but not Mr Cisneros) was qualified to practise as an attorney in Colorado.

8 Jireh was incorporated on 2 November 1995. It is owned in equal shares by Messrs Peter Irvine and Nabi Saleh or interests associated with them. They are the sole directors.

9 Before his involvement with Jireh, Mr Irvine held a senior position with an advertising agency. He relinquished that position in order to devote his efforts to Jireh’s business.

10 Mr Saleh is a businessman who for many years has been involved in the import-export business.

Other relevant persons

11 Maranatha Imports Exports Pty Ltd (“Maranatha”) is a company of which Mr Saleh is the sole director.

12 Columbia Coffee and Tea Pty Ltd (“Columbia”) was a company established by Mr Saleh. Amongst others, it was a roaster and wholesaler of roasted coffee. Columbia went into liquidation in about 1992 after which its business was sold to a company in which Mr Saleh has no interest. The new owner continued to trade as Columbia Coffee and Tea. Columbia has since been deregistered.

13 Jireh International Warehouse and Distribution Pty Ltd (“JIWD”) was incorporated on 21 May 2003. Messrs Irvine and Saleh are its sole directors. One half of its shares is owned by a company associated with Mr Irvine. The other half is owned by Jireh Group Pty Ltd, of which Messrs Irvine and Saleh are the sole directors. It is owned in equal shares by interests associated with Messrs Irvine and Saleh respectively.

14 Gloria Jeans Coffees International Pty Ltd (“GJCI”) was incorporated on 19 November 2004. Messrs Irvine and Saleh are its sole directors. Its shares are held equally by interests associated with Messrs Irvine and Saleh.

15 Mr Robert McCullough has been Mr Saleh’s personal accountant since 1975. He has at all times material to these proceedings been Jireh’s and Maranatha’s external accountant.

Events leading up to the execution of the Letter Agreement on 19 March 1996

16 Brothers’ Gourmet Coffees Inc (“Brothers’”), a US corporation, operated coffee lounges in that country. It marketed coffee under the Brothers’ brand.

17 In about 1993, Brothers’ purchased Gloria Jean’s Gourmet Coffees Corp, an Illinois corporation which then managed a chain of about 250 mall-based coffee shops, predominantly in the US, under the name Gloria Jean’s. Where it is not necessary to distinguish between specific corporations and, unless the context indicates otherwise, I shall refer to the US operation of Gloria Jean’s (including as franchisor for Australia), as “Gloria Jean’s”.

18 WES represented Brothers’ in selling wholesale packaged gourmet coffee products into international markets.

19 In 1993 Maranatha was carrying on business as an importer of gourmet products. Mr Saleh was looking to place Brothers’ products into retail and institutional outlets in Australia. He contacted Mr Cisneros, expressing an interest in importing and distributing Brothers’ products. He says that Messrs Cisneros and Meier told him that they had become frustrated with the legal profession and had started their export business.

20 In April 1994 Mr Cisneros visited Australia to review the Australian market and to discuss the appointment of Maranatha as an importer of Brothers’ products. Maranatha was appointed, and placed its first order for Brothers’ products in the middle of 1994. Maranatha, as wholesaler, on-sold these products to retail outlets such as the well-known Australian stores David Jones and Woolworths. WES received commission on these sales from Brothers’ at five per cent of the sale price. Maranatha itself paid no commission to WES on these sales.

21 In about June 1994, Mr Saleh discussed with Mr Cisneros the possibility of obtaining a Brothers’ franchise for Australia. Mr Cisneros suggested that he consider the Gloria Jean’s coffee concept because it was mall-based, more proven and more established.

22 Correspondence passed between WES and Mr Saleh over the remainder of 1994, amongst others about the possibility of a franchise. In December 1994 Mr Cisneros wrote that WES was pushing hard for international expansion of Brothers’ franchises and that he thought there would be good opportunity to move forward in several countries, including Australia. In December 1994 Mr Cisneros wrote optimistically about the prospects of a franchise of the Gloria Jean’s coffee concept from Brothers’.

23 By the middle of 1995 Mr Saleh had been provided with a draft Master Franchise Agreement from Gloria Jean’s. He consulted Mr Garry Best, a solicitor and partner in the law firm Mallesons Stephen Jacques about the document. He met with Mr Best on 26 June 1995. Mr Best gave him comprehensive written advice on 3 July 1995. One of the things on which Mr Best advised was a provision in the draft that provided it was to be governed by the laws of Illinois. Mr Best thought that there may be aspects of the law of that State which would affect interpretation of the document and in respect of which Mr Best was not qualified to advise. He told Mr Saleh to let him know if he would like such advice.

24 At around this time (probably on or about 9 July 1995) WES proffered to Maranatha a proposed Letter of Intent intended to record arrangements between it and Maranatha under which WES would be compensated for the introduction of Maranatha to Gloria Jean’s and for ongoing liaison, representative and export management services. The Letter of Intent provided for payment to WES of “not less than 5% of the ex factory price for supply of Gloria Jeans’ products from USA” and “10% ownership in the entity established by Maranatha designated for the purposes of this Letter of Intent”.

25 A file note of Mr Best reflects that he had a discussion with Mr Saleh on the 12 July 1995 about the draft Master Franchise Agreement. The note reflects further that Mr Best recommended in relation to tax matters that advice from accountants be obtained before signing. Mr Saleh told him that he did not want to involve US lawyers but may consider that later on prior to signing.

26 In a letter dated 13 July 1995, Mr Best gave Mr Saleh further written advice in relation to the draft Master Franchise Agreement. On 24 July 1995, Gloria Jean’s provided to both Mr Cisneros and Mr Saleh a document described as an “Offering Circular Offering a Franchise”. The circular explains certain obligations upon a proposed franchisor offering a franchise, apparently in conformity with obligations under US law.

27 In addition to the prospects of a franchise, Mr Saleh wished to roast coffee beans within Australia. He raised this with Mr Best. Mr Best told him that this should be raised expressly with Gloria Jean’s and that an amendment would be needed to the draft Master Franchise Agreement to confirm the arrangement.

28 On 4 August 1995, Messrs Cisneros, Meier, Irvine and Saleh met at WES’ offices in Denver, Colorado. They discussed the proposed negotiation of a deal with Gloria Jean’s, with whom they were later to meet. They also engaged in negotiations concerning the terms of a proposed arrangement between their respective interests. By all accounts the discussions took most of the day.

29 Mr Cisneros says that at the 4 August 1995 meeting he suggested that the WES side have a ten per cent interest in the equity of the proposed enterprise and receive five per cent compensation on products from the US. He says that Mr Saleh said that he had no problem with five per cent, except that they (the Jireh side) needed to ensure competitive pricing for what was purchased from the US. He says that Mr Saleh stated that as to the ten per cent ownership proposal, Mr Saleh had been advised by his solicitor that it was very difficult to have foreign ownership in an Australian entity and that Mr Saleh suggested that their side be the sole signatory to the proposed Master Franchise Agreement. At some point during the discussion, Mr Cisneros says Messrs Saleh and Irvine left the room for a private discussion and that on their return, a discussion to the following effect occurred:

SALEH: Peter thinks 10% is too much. We are willing to offer you 4%.

CISNEROS: There is a significant difference between 10% and 4% and I don’t think that 4% is fair for the amount of work we are going to have to do.

SALEH: Well here’s an idea. We’ll do 4% at the time of sale and give you the balance of your equity interest as a 5% commission on products supplied from the US. In addition, if we get this roasting licence, we will give you 5% of the roasted coffee sales until the end of the day. As we go along we are also going to want to switch to local supply for some products, so we will also agree to pay you 5% on those products even though they are sourced from countries other than the US. So David, instead of getting a 10% equity interest and 5% on US sales, your partnership interest will be 4% of the value of the franchise on sale and you are going to get 5% of all sales until the end of the day.

CISNEROS: This is significantly different to what Steve and I proposed. So what we will do is to talk about it and then draft an agreement setting out what we will accept.

30 Mr Meier’s version of this part of the conversation is as follows:

CISNEROS: WES should have a 5% fee on products from the US and a 10% ownership of the venture as originally proposed by our Letter of Intent of 5 July 1995.
SALEH: Peter and I need to talk about that privately.
After which Saleh and Irvine left Cisneros and Meier for private discussions. After their discussions, they returned.
SALEH: The WES interest should be 4% of the value of the franchise on sale and 5% of all sales.
CISNEROS: Steve and I need time to consider this proposal. We will let you know.

31 Mr Irvine says that they were provided with the Letter of Intent at the meeting. According to him, Messrs Cisneros and Meier said that the ten per cent share of the proceeds of sale which they wanted was for bringing the opportunity and because of their relationship with Gloria Jean’s. He says that his and Mr Saleh’s reaction was that ten per cent was a lot. He says that at some time during the meeting, Messrs Cisneros and Meier went to another office and when they returned, the number was reduced to four per cent. He recalls that at one meeting (in Denver or later in Chicago), a conversation to the following effect took place:

SALEH: 5% of any number, we don’t know if the business will sustain that, all we can do is agree to go forward and then have a review after six months to see how it is going.
I don’t know whether the product will sustain the 5% when we start operating.
CISNEROS and/or MEIER:
Well, we will talk about it when that event occurs.

32 In his principal affidavit sworn 9 September 2009 Mr Saleh does not recount the contents of any discussion about the Letter of Intent or its terms at the Denver meeting.

33 After meeting in Denver, the group travelled to Chicago to meet Gloria Jean’s and then went on to the head office of Brothers’ and Gloria Jean’s at Boca Raton, Florida. Messrs Irvine and Saleh returned to Australia on or about 12 August 1995.

34 On 21 August 1995, Mr Meier sent a facsimile to Mr Saleh referring to discussions he had had concerning the proposed Master Franchise with Gloria Jean’s and providing a reformulation of certain provisions of the proposed franchise. As well, Mr Meier attached a proposed Letter of Agreement between the plaintiff and Messrs Saleh and Irvine (collectively defined as GJGC Australia) containing proposed terms of an arrangement between them. The document had already been signed by Messrs Cisneros and Meier and contained provisions for the payment of five per cent commission on products from the US and five per cent commission on coffees, teas and other products sold by GJGC Australia to Gloria Jean’s stores in Australia, as well as for payment to WES of four per cent of the sale price upon the sale or transfer of any interest of GJGC Australia. The covering facsimile stated as follows:

Also, following is a “Letter of Agreement.” Kindly review and let us know if it accurate reflects the understanding we reached. Please note, paragraph 4, which we have previously discussed; additional language to paragraph 5 to provide an option for David and me to receive our interest prior to a “sale” of Peter’s and your interest; and paragraph 6 regarding providing a payment and accounting schedule. If you have any questions or comments, I would like to discuss with you by telephone.

The proposed cl 6 provided for payment of any compensation to be made on a quarterly basis and for each party to provide the other at the time payment was due, an accounting of all sales which came within the scope of the proposed agreement.

35 As at 8 September 1995 there were still aspects of the proposed Master Franchise Agreement from Gloria Jean’s which needed to be resolved, and Mr Meier was in contact with Mr Cecil Johnson (Gloria Jean’s director Franchise Development) about them. Mr Meier wrote to Mr Johnson and Mr Saleh on 8 September 1995 suggesting solutions for various unresolved matters. On 11 September 1995, Mr Cisneros wrote to Mr Saleh advising that they were working on all legal matters identified in Mr Meier’s 8 September 1995 letter and that once they had Mr Saleh’s solicitor’s final comments and the final name chosen for the holding company, a final agreement could be sent to them. He mentioned that other legal matters were being attended to as “as we speak”.

36 On 28 September 1995, Mr Best wrote to Mr Meier with comments on the terms of the proposed Master Franchise Agreement, with a view to finalising them. Mr Meier responded to Mr Best’s suggestions on the same day. He also mentioned that repeated requests had been made for a draft roasting agreement which would allow Mr Saleh to roast Gloria Jean’s Coffees in Australia for sale in Australia as well as other regional markets. On 4 October 1995, Mr Meier wrote to Mr Saleh referring to a request by Mr Saleh to review his file in respect of matters which Mr Saleh or Mr Best needed to address. In his facsimile, Mr Meier said:

Lastly, the only other pending matter from your side is confirming acceptance of the letter of understanding we sent regarding our relationship, or if you have any suggested changes. Our goal is to have this as a foundation upon which to build our relationship and would like to also have this finalized by the time the Master Franchise Agreement is executed.

37 In late September 1995, Gloria Jean’s Gourmet Coffees Corp was purchased from Brothers’ by Second Cup Ltd, Canada’s largest specialty coffee retailer.

38 On 27 October 1995, Mr Meier provided Mr Saleh with a draft roasting agreement prepared by Mr Meier. On 31 October 1995, Mr Best wrote to Mr Meier with suggested amendments to the Master Franchise Agreement. On 28 November 1995, Mr Cisneros wrote to Mr Saleh amongst others about the registration of the trade name Gloria Jean’s (which had apparently been previously registered in Australia by people called Illoski), and the language of the Master Franchise Agreement. He noted that comments were awaited from Mr Saleh’s solicitor in relation to the roasting agreement.

39 On 15 December 1995, Mr Cisneros wrote to Mr Saleh indicating that the proposed arrangements with Gloria Jean’s were full speed ahead. He wrote, amongst others:

Based on your lack of comments regarding the tendered WES agreement with you, we understand this is acceptable also and will be signed prior to or contemporaneously to the main and roasting agreement.

40 On 20 December 1995, Mr Best provided Mr Meier with comments on the draft roasting agreement. He informed Mr Meier that the Master Franchisee was to be “Jireh International Pty Ltd” (that is, Jireh).

41 On 4 January 1996, Mr Cisneros wrote to Mr Saleh, referring to having talked extensively the previous day, and confirming several matters which had been discussed in relation to trade name registration, the main agreement and the roasting agreement. He also wrote:

WES agreement – We understand that this agreement is basically acceptable to you, subject to Peter’s review. We understand that this agreement will be signed at the same time as the main agreement.

42 On 9 January 1996, on a Maranatha letterhead, Mr Saleh wrote to WES for the attention of Mr Cisneros, relevantly the following:

Many thanks for your fax of 4 January 1996 and all your earlier faxes. My secretary is back from vacation and life is back to normal.
It was a great pleasure talking to you and Steve and resolving several matters on the phone and I also thank you for your confirmation fax. Our responses to the various matters raised in your fax are as follows:-
1. Gloria Jean’s.

I have noted that the Illoskis have in fact released the name and we are now awaiting response from the firm carrying out the registrations in other states on our behalf. Will pass the information on to you as soon as it comes to hand.

2. Main Agreement.

As indicated to you, our solicitors are due back on 10th January at which time they shall get the Main Agreement and revert to us. We believe there should not be any problems and should it be acceptable to them, we would be happy to sign should all other matters not be resolved by Friday, January 12, and have a letter of intent attached regarding the contingencies as recommended by Steve and yourself.

3. Roasting Agreement.

Yes, we would need to have this confirmed and signed off at the same time which would be the ideal way to go and what we intend to roast would be all the coffees that Gloria Jean’s would be ranging in Australia and all the coffees that need to be roasted for export to Asia. I would appreciate your comments regarding future reference for Brothers and the other companies in respect of roasting to their specification out in Australia.

4. W.E.S. Agreement.

Other than a few points of clarification on my part, I am awaiting Peter’s comments and he mentioned he has a few concerns which do not concur to our discussions while in Denver. Once these come to hand I will pass them on to you. Here again, should it be possible to sign with the Main Agreement, we would be only too happy to do so, otherwise will be done as soon as physically possible.

43 On 12 January 1996, Mr Best made further comments on the terms of the proposed Master Franchise Agreement. On the same day, Mr Cisneros wrote to Mr Saleh amongst others, repeating a request that the agreement between them be signed prior to, or contemporaneously with the other agreements. He said:

WES agreement – If you have any concerns, we need to know immediately. All the points in the agreement are based on our discussions, taken from written notes. We have requested from the beginning that our agreement be signed prior to, or contemporaneously with the other agreements. Please respect and honor this request.
We recommend a target date of January 19 to sign all 3 agreements.

44 On 15 January 1996, Mr Saleh wrote to Mr Cisneros, relevantly as follows:

Many thanks for your fax of 12 January 1996 and I must say, in this fax we seem to have good news in every area. I am happy to note the response to Gary Best’s fax and I believe that we have now come to the end of the agreement. This should be ready for signing off once Gary has got all the last bits and pieces together.

I am also happy to note that the roasting agreement has now been returned to you and that you will finish this side in the course of this week.

With regards to W.E.S. agreement, you can rest assured that I will see that I pull this together to our mutual advantage and that both parties are happy. I am awaiting response from Peter Irvine and shall fax you as soon as this comes to hand. This should not be any later than the next two days.

With regard to signing off, once all these agreements are in place I believe we need to be looking at towards the end of January as that is when Peter returns from his vacation. I will be away this week and shall call you on your Friday to update you with all things at this end.

With regard to the report on Brothers and also our requirements, these will be with you in the next two days.

45 On 18 January 1996, Mr Saleh wrote to Mr Cisneros on Maranatha letterhead with the following comments on the proposed WES agreement:

re: W.E.S. AGREEMENT

My sincere apologies for the delay in responding to this agreement. As mentioned to you several times during the course of our telephone conversations and by fax, we have the spirit between your organisation and ours to put this agreement into practice to our mutual advantage, however, you need to keep in mind that we do not want to constantly chop and change the agreement but would like it resolved in a manner that we believe would be to our mutual benefit.

I have been waiting on suggested changes from Peter as he had taken down notes of our last meeting in Denver. I also made notes and we needed to have these confirmed as being exactly what was agreed upon in your office. The following changes are suggested:-

Point 2 of your Agreement:

W.E.S. shall be sole and exclusive supplier for products from the United States. Europe was not to be included. The 5% was very clearly mentioned and it was agreed that we should be in a position to still be competitive in our pricing for items obtained on our behalf and should the item not be able to wear this additional percentage we would need to look at a lower percentage depending on each item category.

Point 3.

With regard to coffee, there was no percentage that was agreed upon as we were waiting to see the outcome of our meeting with G.J. and as you no doubt are aware, Jim Wayman gave the roasting agreement to me up front. We can tell you right now that there will be no way that a 5% commission on coffee is sustainable as Gloria Jean's themselves are only getting 25 cents a pound. We believe that once we have costed out the product to the selling price, we would be in a far better position to tell you what the product can bear but as an indication feel that this would be in the vicinity of 20-25 Australian cents per kilo.

Point 4.

We believe for any exports that 1% would be the likely figure that we could give in way of commission to W.E.S.

Point 5.

We agree to the 4% and this is on the sale of company and not equity and not limited to a period of six years.

Should the above be acceptable to you, we are happy to have this agreement signed and sent over to you even prior to the main agreement being signed.

46 On 18 January 1996, Mr Cisneros wrote to Mr Saleh:

Thank you for your several faxes. In preparation for our telephone conference tomorrow, please let me advise as follows:
1. Gloria jeans
a. Main agreement. We recommend immediate completion of the agreement per our January 12 fax and then signature. Since the roasting agreement is still being finalized, we have drafted a Letter of Intent which you can sign in conjunction with the Main Agreement, a copy of which we can send to you tomorrow during our telephone conversation. We need immediate confirmation of trade name status.
b. Roasting agreement – This is being finalized, and we are confident we can sign at least within close proximity of main agreement.
c. WES agreement – Please let me review the points in your letter.
Point 2 – We are glad to take Europe out, but we would still like to handle export from Europe also. As to commission, 5% is our minimum standard charge to all our customers for export service, and does not make any product uncompetitive because it is a necessary cost to get products effectively from here to there. I assure you it is reasonable based upon the organization and efforts it takes to supply products from this end. We would like to keep this figure in the agreement, and if and when we agree that based on total volume or other factors a reasonable compromise is necessary, we will discuss. I don’t think we should leave this open on an item by item basis.
Point 3 – The basic reality is that the main business of Gloria Jean’s will be coffee sales. The bulk of this coffee will be roasted at your facilities, not only for Australia, but also for Asia, a deal that we helped put together, despite the fact that we won’t make nearly as much money on licensed product, than if we sold from the U.S. The fact that Gloria Jean’s is licensing this opportunity for 25 cents a pound, does not bear on our relationship. We are willing to compromise, but your offer is only approximately 1.7% of sales. Let’s finalize something during our conversation tomorrow.
Point 4 – The amount of commission in this paragraph will depend on the efforts necessary for WES to assist with development of supply opportunities for Jireh with Gloria Jeans, and assistance with import facilitation. This is why we left the amount open for now. However, if we are to be motivated to actively and aggressively develop supply for Jireh in the U.S., then we are partners no less than other aspects of our business, and the margin should be more reasonable than 1%.
Point 5 – If you review the agreement, the 4% is only upon the sale of the franchise, but allows WES principals to take their share after six years, only based upon your reasonable approval. Frankly, in six years you may want to purchase our share and not wait until your final sale.
2. Brothers – We appreciate your efforts, but I think we need to talk about a more specific report, similar to your original proposal to Brothers, though of course shorter and simpler. I talked with Steve Kintz yesterday, the VP in charge of international, and advised the outline would be forthcoming, with projections and order schedule. Let’s review tomorrow.
3. Other projects – We can discuss tomorrow further to our last telephone conversation, particularly the Kroger opportunity.

Thank you and best regards.

47 On 22 January 1996, Mr Cisneros wrote to Mr Saleh as follows:

Thank you for talking with Steve and me on Friday regarding various matters. Sorry for tiring you out a bit, but I hope it didn’t effect the enjoyment of your weekend.

Gloria Jeans-
a. Main agreement – We are awaiting confirmation of signature date from you, but our advice is to sign within this week if possible. GJ is concerned and their mother company, Second Cup, has been approached by another qualified Australian company. Since we negotiated a strong deal, and another company might be willing to pay more for the franchise, we should take the deal quickly.

b. Roasting agreement – Steve is negotiating with GJ concerning exclusivity as to roasting standards and not by various buyers. If your solicitor has any other concerns, we need to know them immediately, so we can finalize the agreement.

c. WES agreement – Please find attached revised agreement, which should meet your concerns. Please feel free to sign the fax copy and fax back to us to sign.

d. Planning schedule – Assuming prompt signatures on above agreements, we need to get your planning schedule asap, so we can start organizing.

2. Brothers – We have advised Brothers that we will provide your outline on Wednesday (with suggested revisions), along with your order plan and next order.

3. Kroger – We are ordering your coffee bag samples post haste, and we will start negotiations for Kroger representation for Australia. As we discussed, if we want the agency, we will have to outline a basic marketing plan. I think we can focus on a limited number of items that have good potential in the Australian market, but it must be on a growing basis if we are to maintain the agency.

4. Other projects – As per our last conversation, we await your further advice.

We look forward to hearing from you tomorrow. Thank you again.

48 The revised proposed WES agreement inserted Jireh’s name as a contracting party and contained the following cl 7:

JIREH INTERNATIONAL PTY LTD and WES agree to meet within six (6) months after the effective date of this Agreement and review the business of the parties under the terms of this Agreement to determine if the compensation established herein is fair and reasonable based on mutually agreeable factors for the venture.

49 On 30 January 1996, Mr Saleh made further comments on the proposed WES agreement. He wrote as follows to Mr Cisneros:

Many thanks for your revised agreement. Our comments are as follows:-
Point 2:
You do need to include that the 5% is subject to the product being able to sustain the on-selling price.
Point 3:
This will be 25 Aust. cents per kilo on the coffee and not 5% and also that a figure to be determined for the teas and other products.
I believe that once this is altered we should be in a position to sign your agreement and send it even before the main agreement has been signed.

50 On 31 January 1996, Mr Cisneros wrote to Mr Saleh, relevantly as follows:

Thank you for your fax of 23/01 and 30/01. Please be advised as follows:
Gloria Jeans-
1. Main agreement – All your solicitor’s final points/revisions have been passed on to Gloria Jeans. However, I believe we should assume that the agreement is now in its final form, and Gloria Jeans is awaiting receipt of final agreement and remittance no later than the business week of February 5.
2. Roasting agreement – Suggested final revisions sent to Gloria Jeans, we are requesting final confirmation of agreement by end of this week and will advise so this can also be sent out next week.
3. WES agreement – If you review Point 7 of the agreement, we changed it to reflect a final negotiation of the numbers as you requested, and hence, we don’t see the need to change Points 2 and 3, since these will be subject to a final discussion anyway. We believe that a full discussion of the nature of our relationship should be discussed when Steve or I visit for the Gloria Jean’s first store opening, and the numbers will naturally follow from that discussion.

51 On 6 February 1996, Mr Saleh wrote to Mr Cisneros, relevantly as follows:

Gloria Jean’s - Have noted Steve will be faxing to me to pass on to Gary Best his confirmation that matters mentioned in Gary Best’s last fax to him are all in order.
Roasting Agreement - Have noted that the final version should be made available to us in the course of this week.
W.E.S. Agreement - Have noted that the inclusion of Point 7 to this agreement makes this matter quite clear that none of the above becomes operational until we have negotiated the numbers together and worked out what in fact is the right mix and what each product can bear for an on charge by W.E.S. Happy to go through this in total detail when you or Steve visit Australia.

The letter went on to deal with various other matters including other proposed projects not presently relevant. I will refer to this letter as the “6 February letter”.

52 On 13 February 1996, Mr Cisneros wrote to Mr Saleh, relevantly as follows:

Please be advised of the following matters:

1. Gloria Jeans – We talked to GJ today, and they approve the roasting agreement as we faxed to you yesterday. As advised, we recommend signature on this and the main agreement before the end of this week. Please send both documents via express mail to the following address:

Stephen Cleary
Gloria Jeans Gourmet Coffee
3703 West Lake Ave.
Glenview, Illinois 60025
Tel: [phone]
As advised previously, we will send you an original roasting agreement for your records. Please also make appropriate remittance to the previously advised bank. Finally, please send us a signed, fax copy of the WES agreement at the same time. Starting next week, let’s get our planning in synch!

53 On 20 February 1996, Mr Saleh wrote to Mr Cisneros, relevantly as follows:

It was indeed a great pleasure talking to you on the phone on your Friday, our Saturday.
As mentioned to you our attorney has been away and when speaking with him on the telephone on his return last Friday he mentioned various points as raised with you.
I will meet with him early this coming week and will do our best to have all matters resolved and the documents signed. These will then be sent to you or if you require, to Steven Cleary. The funds will also be transferred.
We would request that signed copies be sent back to us from Gloria Jean’s and all the changes to be implemented within the contracts. We have based our entire costings on the figures of sales given to us by Gloria Jean’s through Cecil Johnson via yourself. It is important that these figures do stand when put to the test in Australia in way of profitability.
All other contracts including yours will be signed off and sent to you during the course of this week.
We would also request you to inform us of the whereabouts of the airfreight shipment as this is most urgently required. Your help in this regard would be very much appreciated.
Furthermore, we would like an air shipment of 200 cartons of Irish Cream Trial Packs to be sent as soon as possible. For one reason or the other we have had a run on the product and stock are down to five cartons. Please find attached the order duly completed.
We look forward to working with you on the Gloria Jean's project and will have details of all our requirements sent to you within the next week.

54 At about this time, Messrs Irvine and Saleh were taking advice from Mr Best about a Gloria Jean’s requirement that they personally guarantee the obligations of their master franchisee entity as well as about the fact that they were relying on financial information provided by Gloria Jean’s. On 23 February 1996 and again on 26 February 1996, Mr Best wrote to Mr Meier about these issues. Mr Best wrote to Messers Irvine and Saleh about them on 23 February 1996. Gloria Jean’s agreed to limited modifications of the proposed Master Franchise Agreement to alleviate certain concerns of Messrs Irvine and Saleh.

55 On 5 March 1996, Mr Saleh wrote to Mr Meier, relevantly as follows:

Re: GLORIA JEAN’S
It was a pleasure talking to you on the phone on 1st March and confirming to you that we believe that you have achieved all that was needed to proceed with the signing of the contracts.
Do please accept my sincere thanks for all your efforts and commitment to see this contract come through.
We will be meeting with Gary and Athena on Monday, 4th March, or at the very latest on the 5th of March, depending on their availability, to have the contract signed and couriered out to Gloria Jean’s Corporate Counsel. We would have made all the necessary changes and would be waiting to receive their count-signed copy at which time funds would be transferred to Gloria Jean’s account.
We now look forward to giving you a new address for this venture, telephone numbers, etc. etc. Also, details of items that we would need faxed to us together with details of visits by Gloria Jean’s executives.
Once again, please accept my sincere thanks to you and David for all of your help and assistance.
The W.E.S. contract will be couriered to you directly as well.

We look forward with interest to the growth in our relationships and that of our organisations.

Best personal regards

I will refer to this letter as the “5 March letter”.

56 The 5 March letter refers to a telephone conversation between Mr Saleh and Mr Meier on 1 March 1996.

57 In his affidavit sworn on 14 December 2009 in the proceedings, Mr Meier says that this conversation was to the following effect:

MEIER: Nabi, I am surprised with your letter of February 6. We have already talked about your concerns with our commissions and you agreed with the language of clause 7 when we spoke on January 19. That was why we changed the agreement to add clause 7 and sent it to you on January 22.
SALEH: Steve, we just need to be certain that all of the items can bear the 5% commissions on products supplied from the U.S. under clause 2 and 3, especially the roasted coffee.
MEIER: We are willing to meet after the first stores are opened to review the commissions. Unless Jireh shows the 5% commission causes each product line to have gross profit margins that aren’t workable for the stores, then the 5% commission will continue for that product line. However, it is important that you understand we need to have an agreement in place with Jireh until we review the commissions and before we move forward with this business.
SALEH: Steve, thank you for talking with me. I believe you have achieved what I needed to proceed with the signing of the agreement. I look forward to proceeding with you and David with this venture and to seeing you or David in Australia.

58 Mr Saleh’s response by way of an affidavit sworn on 8 April 2010 is that he does not recall this conversation. He says however, that at various times such as the parties’ initial meeting in Denver Colorado on 3-5 August 1995, in his facsimile to Mr Cisneros dated 18 January 1996 and in his letter to Mr Cisneros dated 6 February 1996, he informed Messrs Meier and Cisneros that before any commission was agreed between the parties and became operational, the parties had to be certain that the items on which commission was charged could bear the rate of commission of five per cent. He says that he said words to the effect of: “we need to ensure the 5% for the items from the US and coffee will be competitive”.

The Master Franchise Agreement, the Roasting Agreement and the Letter Agreement

59 On 6 March 1996, Jireh signed the following agreements with Gloria Jean’s Gourmet Coffees Corp:

a a Roasting Licence Agreement under which the defendant was granted the exclusive right to roast, blend, flavour and package products marketed and sold under various names and packages with the distinctive Gloria Jean’s Gourmet Coffees trademarks owned by Gloria Jean’s Gourmet Coffees Corp (“the Roasting Agreement”); and

b a Master Franchise Agreement under which the defendant was granted the right to grant franchises for the development and operation of Gloria Jean’s Gourmet Coffees stores in Australia (“the Master Franchise Agreement”).

60 On 8 March 1996, Mr Best sent those instruments to Gloria Jean’s Gourmet Coffees Corp for execution.

61 On 19 March 1996, Messrs Irvine and Saleh signed the Letter Agreement and on the same day, under cover of a Maranatha letterhead, Mr Saleh wrote to Mr Meier as follows:

Dear Steve,

re: AGREEMENT


Please find enclosed three copies of our agreement duly signed by Peter and myself.

Would you and David kindly sign these and have two original copies sent out to us at your convenience.

Please also find enclosed an original copy of Roasting Licence Agreement for your records as requested. We have sent the originals to Steve Clearly directly.

We look forward with interest to the continuing growth of the business relationship between our organisations and we thank you and David for all the help and assistance in this regard.

Best personal regards.

Yours sincerely,
MARANATHA IMPORTS EXPORTS PTY LTD

NABI SALEH

62 Before Gloria Jean’s executed the agreements, an issue arose about the fact that the Master Franchise Agreement had been delayed whilst the Roasting Agreement was being negotiated. This had the consequence that the payment by Jireh of the Master Franchise Fee provided for would be delayed beyond what was said to be Gloria Jean’s’ expectations. Mr Cisneros described this as a serious dispute between Jireh and Gloria Jean’s which endangered the whole deal. With the assistance and intervention of Messrs Cisneros and Meier, this issue was resolved and on or about 5 April 1996, Gloria Jean’s executed the Master Franchise Agreement and the Roasting Agreement.

63 Messrs Cisneros and Meier signed the Letter Agreement on the same day, that is 19 March 1996.

The course of the parties’ relationship until the denial by Jireh of a binding agreement with WES

64 Once the Master Franchise Agreement and Roasting Agreement had been signed, Jireh proceeded with WES’ assistance to plan for the commencement of a franchise operation in this country. Mr Meier was in contact with Gloria Jean’s executives and legal counsel in the US. The Gloria Jean’s Illinois operation was apparently moved from Illinois to Castroville in California, where Mr Meier travelled to meet Gloria Jean’s general counsel. Plans were made for the opening of initial stores, for the supply of products and for the roasting of coffee in Australia, beginning in September 1996.

65 On 5 August 1996, Mr Meier sent Mr Irvine invoices for Ghiradelli (a well-known brand of sweet ground cocoa), which had been ordered for Jireh. The invoices were sent under cover of a fax which referred to the invoiced amounts as including “our 5% commission”. On 16 August 1996, Jireh made payment to WES for all amounts due in August (apparently including in respect of the Ghiradelli invoices).

66 WES assisted in what Mr Cisneros described as the “mammoth task” of sourcing, negotiating the supply terms for and the export to Australia of a large number of different product lines for the new stores.

67 The first Australian Gloria Jean’s coffee store opened on 4 November 1996 in Miranda, a southern suburb of greater Sydney and the second on 27 November 1996 in a shopping centre known as Eastgardens, which is in an eastern suburb of greater Sydney.

68 Unprocessed (or unroasted) coffee was commonly referred to by the parties as green coffee, bulk coffee or GJ bulk. Clause 3 of the Letter Agreement contemplated Jireh or an associated entity roasting such coffee and then supplying it as Gloria Jean’s or other branded coffee for sale in Gloria Jean’s stores in Australia. The Roasting Agreement licensed Jireh to roast.

69 Initially, Jireh bought green coffee and had Columbia roast it on its behalf. By arrangement with Columbia, Mr Saleh placed orders for green coffee on behalf of Columbia for Jireh’s exclusive use. The green coffee was delivered to Columbia for roasting and Columbia invoiced Jireh for a roasting fee and packaging costs. WES routinely invoiced Columbia for green coffee delivered. Later (in about 1999) Maranatha installed its own roasting facilities and obtained green coffee which it roasted for on sale by Jireh. Maranatha remains the prime roaster. As will appear below, however, coffee is now roasted for GJCI, which in turn supplies it to JIWD for sale to Jireh’s Franchisees in Australia and to other Master Franchisees around the world.

70 Mr Cisneros came to Australia on 8 January 1997 and met with Messrs Irvine and Saleh. Mr Cisneros says that a conversation with Messrs Irvine and Saleh to the following effect took place:

CISNEROS: Let’s talk about pricing and payments according to our agreement. How is the pricing working for the first store, including our margins?

SALEH: We don’t know yet. We have just opened up the first store.

CISNEROS: Well keep us advised if there are any problems with pricing, including our margins. We’ll continue to work on additional discounts, GJ trade show specials or other incentives from the suppliers.

71 On 15 January 1997, Mr Cisneros wrote to Mr Saleh, referring to matters discussed at their meeting. He wrote, relevantly:

GJ roasting – Since we travel to Japan and Korea, it is important that we establish a relationship with buyers. We need to organize a supply plan promptly, so Steve or I can meet with these buyers when we visit Japan in March. We also need to develop a reporting system on royalties for GJ and WES.

72 Mr Saleh does not recall this conversation. He says that there was no direct discussion or review of the commissions at this meeting because only two stores had opened over two months and they were dealing with issues relating to the store model. He says that there was discussion about the high cost of goods and ways this could be reduced. Mr Irvine’s recollection is that he said that the price of goods was uncompetitive and that they had to get the cost down. He says that the cost of goods included WES’ margin under cl 2. Each party prepared notes in anticipation of the discussions. They make no direct reference to roasting commission.

73 Also on 15 January 1997, Mr Cisneros wrote to Mr Irvine asking for information from Jireh including sales figures by category.

74 To facilitate the obtaining of products from US suppliers, WES pledged its own credit. Suppliers invoiced WES, and it in turn invoiced Jireh. From as early as January 1997, Jireh was late in making payments to WES. On 31 January 1997, Jireh put a payment plan to WES in respect of then outstanding invoices. On 12 March 1997, Mr Meier wrote to Mr Saleh:

In the near term, you will need to pay the agreed royalties to GJ and to W.E.S. per the agreements. We do not add any commission on our invoices to Columbia for green coffee.

75 From this time on and over substantially the whole period of the working relationship of the parties, Jireh was regularly late in paying invoices due to WES and WES regularly pressed Jireh to meet its obligations. WES showed remarkable patience. In relation to the payment of the roasting commission, its frustration is revealed by the following, which Mr Cisneros wrote to Mr Saleh on 6 July 1999:

Bulk royalties- We await your promised outline by no later than July 15. We are very frustrated that Maranatha evokes a team spirit, in which we have supported without question, and then shorts or delays payment to its partners of agreed-to commissions.

76 On 26 March 1997, WES invoiced Jireh for an amount of US$ 3657.44 for product plus “commissions earned” of US$ 182.87 at a stated rate of five per cent.

77 As I have said before, to begin with, Jireh selected Columbia as the entity which would carry out the physical work of roasting. Green coffee for roasting was regularly shipped directly via WES to Columbia and WES invoiced Columbia. Columbia roasted coffee under this arrangement until Maranatha installed its own roasting facilities in about late 1999. From approximately late 1999, Maranatha started roasting and supplying to Jireh, ordering green coffee directly from Gloria Jean’s in the US and later directly from growers.

78 During the period March to June 1997, WES invoiced Jireh on at least five occasions, claiming, in addition to the price of the goods delivered, five per cent for “Commissions Earned”. Jireh paid these commission amounts, according to Mr Saleh, because they were referable to export services and he was prepared to make payment on some charges in respect of these export services.

79 Up to this time WES had not invoiced Jireh in respect of the roasting commission, it seems, because it understood that Jireh was financially stretched. On 28 April 1997, Mr Meier wrote to Mr Saleh: “[w]e can discuss the royalty to W.E.S. later – perhaps when you come over for the Gloria Jean’s convention”.

80 On 26 November 1997, Mr Meier wrote to Mr Irvine, relevantly as follows:

We have not included any handling commission with the previous shipments from Gloria Jean’s to Columbia Coffee and Tea. Next week, we will submit our invoice for 5% of the value of prior shipments of product. Beginning with the pending flavouring shipment, we include a 5% handling commission on all future invoices.

81 On 16 December 1997, Mr Meier wrote to Mr Irvine, relevantly as follows:

DEAR PETER,
FOLLOWING IS AN INVOICE FOR COMMISSIONS FOR SALES OF GREEN BEANS AND FLAVORS FOR COFFEE ROASTED IN AUSTRALIA. OUR AGREEMENT PROVIDES THAT WE RECEIVE 5% OF THE AUSTRALIA EX-FACTORY PRICE FOR COFFEE ROASTED AND SOLD IN AUSTRALIA AND TO OTHER COUNTRIES. RATHER THAN REQUIRE AN ACCOUNTING BY JIREH FOR ALL COFFEE ROASTED, WE BELIEVE 7% IS A FAIR ALTERNATIVE. DAVID HAS ALSO DISCUSSED WITH NABI.
BEST REGARDS, STEVE.

82 On 16 December 1997, Mr Cisneros wrote to Mr Saleh, relevantly as follows:

Thanks for talking with me yesterday. Several quick points today:

1. …
2. Commission on GJ bulk – An invoice will be faxed to Jireh per your advice

83 On 9 January 1998, Mr Irvine wrote the following to Mr Meier:

Invoice for commissions for sale of green beans and flavours.

Nabi has spoken with me regarding the commission charge. There are several issues we would like to raise for discussion. These issues are to put Jireh’s view on the table regarding Gloria Jean’s Gourmet Coffees current profitability and ongoing profitability.

1. The original agreement with W.E.S. stated a 5% commission of the ex-factory price of the coffees, teas and other products. Nabi discussed this issue with David at the time of the agreement in 1996 and it was to be reviewed after six months. This hasn’t happened as we were still in set-up phase and basically putting together a Gloria Jean’s head office in Australia.

2. Profitability of stores and Jireh

c it is neither obliged to continue to sell, nor to bring about something that the contract does not require;

d it follows that WES’ implied terms are not necessary to give business efficacy to the Letter Agreement.

306 Whether a term is to be implied in fact (as is the case here), depends primarily on an assessment, derived from the express terms of the particular contract in the light of the circumstances against which it was made, of how the parties intended it to operate and how it will (if at all) operate without the implication. Because the assessment is contract specific, other cases are likely to be of limited assistance: Elders IXL Ltd v National Employer’s Mutual General Insurance Association Ltd (1988) 5 ANZ Ins Case 60-847 at 75,297 per Samuels JA.

307 In the present case this entails a determination of what benefits Jireh promised WES and whether the term for which WES contends is necessary to give business efficacy to the Letter Agreement so that WES receives the benefit of Jireh’s promise. As the Court of Appeal pointed out in Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 at 125 “a contract may ‘contemplate’ many benefits for the respective parties, but each can only call on the other to provide, or co-operate in the providing of, benefits promised by that party”.

308 There are examples in the authorities of claimants succeeding because of an implied term that the circumstance from which the claimant is entitled to get their remuneration will not by the voluntary act of the other party be terminated. In RDJ International v Preformed Line Products (Australia) Pty Ltd (1996) 39 NSWLR 417, Young J (as his Honour then was) surveyed such authorities. At 422 his Honour expressed the view that the principle applies in a wider class of cases. In that case the plaintiff sold to the defendant a business that manufactured jars and pales with lids. The contract provided for the payment of a fixed sum plus an amount equivalent to five per cent of the amount of revenue received by the defendant from sales of jars and pales during three years. His Honour found that there should be implied into that contract a term that the defendant would not do any voluntary act which would make it materially more difficult for the royalty stream to continue for the three year period.

309 There are instances where a term requiring a party to go on conducting its business has been implied, particularly where the provision specified the circumstances under which the contract could be terminated: see for example Reigate v Union Manufacturing Co (Ramsbottom) [1918] 1 KB 592. Likewise, there are instances where no such term has been implied. A well-known example is Lazarus v Cairn Line of Steamships Ltd [1918] 106 TLR 378. In Rhodes v Forwood [1876] 1 App Cas 256 the House of Lords considered that a contract required payment to be made in the event of a business being carried on, but did not oblige the principal to carry on business.

310 In Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd Receiver & Manager Appointed (1997) 42 NSWLR 462, the Court of Appeal considered a contract which did not directly oblige one side to continue their business, but contained provisions which obliged that side to take certain steps which depended upon such continuance and also gave the other side a right to a continuing benefit.

311 Each case however, depends on its own circumstances. A more exhaustive review of cases which turn on their own facts would be of little value.

312 Under the Letter Agreement Jireh promised to reward WES for its contribution (past and ongoing), amongst others, by paying WES a commission on sales to GJGC stores. The basal premise underlying this is a contemplation that the sales to GJGC stores would be by Jireh. For the promise to WES to be efficacious, Jireh cannot be free by its voluntary act to except from the operation of cl 3 sales made to its Franchisees (which it itself otherwise would have made) by interposing a third party to be the seller, whether or not Jireh has other genuine commercial reasons for doing so. A breach remains a breach, irrespective of whether the breaching party has genuine commercial reasons for its behaviour. The position may have been different if the breach depended on an absence of good faith.

313 The term which is to be implied does not entail any obligation upon Jireh to continue in business. It entails the obligation to pay a commission on business done. It recognises WES’ continuing economic interest in the enterprise which the Letter Agreement envisages.

314 It is to be remembered that the Letter Agreement is still on foot and Jireh is entitled to WES’ performance under it, even if it does not require or insist upon it.

315 Without the implication, the result would be that Jireh retains the benefits of the Letter Agreement and its performance, but is able to exonerate itself by voluntary step from an important corresponding obligation to remunerate WES.

316 There is a respectable argument (having regard to WES having an entitlement to share in the proceeds on sale of an interest by Jireh) that the parties contemplated that Jireh would continue the business, unless and until it sold an interest which caused a cessation. There is also a respectable argument that the agreement obliged Jireh to ensure that if sales to GJGC stores took place whilst it was the Master Franchisor, it would be the seller. But it is not necessary to decide those questions.

317 I should say that there is no suggestion that Jireh’s business is not profitable. To the contrary, its financial statements for the year ended 30 June 2003 reflect a gross profit of $7,671,575 and a net profit of $792,716 (after salaries and wages of $2,357,242) and for the year ended 30 June 2004 a gross profit of $11,306,101 and a net profit of $946,442 (after salaries and wages of $3,456,213). It may be assumed that its position in later years became even stronger, given its acquisition at the end of 2004 of the international franchise operation (excluding the US and Puerto Rico) for US$16 million. Later financial figures were not in evidence.

318 I find that there should be implied into the Letter Agreement a term (which Jireh has breached) that Jireh not voluntarily do anything which causes WES to be deprived of the circumstances under which it is to get its cl 3 commission. Those circumstances are that sales have taken place which Jireh would, but for its voluntary act, itself have made and on which it would have been obliged to pay cl 3 commission to WES.

319 Jireh did not put that the consequence of the finding of breach was anything other than damages equivalent to the commission on the sales in question.

EX-FACTORY PRICE

320 In my view, the term “ex-factory price” means the price charged by the physical roaster without the imposition of any further charges or mark-up by entities that have been interposed in the supply chain. Ex-factory price on its plain meaning is the price payable to the manufacturer or factory.

321 In my view, the construction contended for by Jireh is the correct one.

CONCLUSION

322 Subject to adjustments required to bring the figures up to date, including with respect to interest, there will be a verdict for WES against Jireh for $8,387,656 representing damages for the period to 30 June 2009.

323 Jireh’s cross-claims against Messrs Cisneros and Meier personally are dismissed.

324 I will stand the matter over to a date convenient to the parties to enable short minutes to be brought in reflecting this outcome, to draw to my attention any further issues which require to be dealt with and to give an opportunity to the parties to address on costs if orders are not agreed.

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