New South Wales Supreme Court CITATION : Metcash Limited & Anor v Joao Louis Jardim (aka Louis Jardin) & Anor (No. 2) [2010] NSWSC 1042 HEARING DATE(S) : 10 September 2010 JUDGMENT OF : Ball J EX TEMPORE JUDGMENT DATE : 10 September 2010 DECISION : 1. Applicant's motion dismissed. 2. Applicant to pay the plaintiffs' costs of the motion. CATCHWORDS : PRACTICE AND PROCEDURE - joinder of parties - whether applicant a necessary party - whether applicant has a reasonably arguable case that its legal rights will be directly affected LEGISLATION CITED : Uniform Civil Procedure Rules, r 6.24(1) (NSW) CATEGORY : Procedural and other rulings CASES CITED : John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19 United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177 SPAR Australia Limited (Applicant) Metcash Limited ACN 112 073 480 (First Plaintiff) PARTIES : Metcash Trading Limited ACN 000 031 569 (Second Plaintiff) Jaoa Louis Jardim (First Defendant) Jardim Investments Pty Limited ACN 145 255 894 (Second Defendant) FILE NUMBER(S) : SC 2010/242993 FM Douglas QC (Applicant) G Underwood (Applicant) COUNSEL : J J Fernon SC (Plaintiffs) M White (Plaintiffs) R Gration (First Defendant) A Zahra (Second Defendant) Bradfield Scott (Applicant) SOLICITORS : Freehills (Plaintiffs) Harmers (First Defendant) Clamenz Corporate Lawyers (Second Defendant) - 4 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BALL J 10 SEPTEMBER 2010 2010/242993 METCASH LIMITED ACN 112 073 480 & ANOR v JOAO LOUIS JARDIM (AKA LOUIS JARDIN) & ANOR (No. 2) EX TEMPORE JUDGMENT 1 Prior to 16 July 2010 Mr Jardim, who is the first defendant, was employed by one or other of the plaintiffs, who I will refer to as Metcash. On 16 July 2010 SPAR Australia Ltd, which is a competitor of Metcash, announced that it had entered into a heads of agreement with Mr Jardim under which it was proposed, subject to a number of conditions, that Mr Jardim would take a majority shareholding in SPAR Australia. On the same day, Mr Jardim purported to give 90 days' notice terminating his employment deed with Metcash. 2 On 21 July Metcash commenced proceedings against Mr Jardim and Jardim Investments Pty Ltd, a company said to be associated with Mr Jardim, alleging that Mr Jardim's notice of termination was invalid and that the arrangements he appeared to have entered into with SPAR Australia breached his employment deed. 3 Metcash seeks a number of orders which would have the effect of preventing Mr Jardim and Jardim Investments from acquiring an interest in excess of 5 per cent in SPAR Australia before 2 March 2011. 4 The final hearing of this matter commences on Monday. SPAR Australia now seeks to be joined in the proceedings as a defendant on the basis that it will be affected by the orders sought by Metcash. 5 Mr Douglas, who appeared for SPAR Australia, told me that SPAR Australia did not propose to file any evidence but that it would want to make submissions and possibly cross-examine witnesses. In those circumstances, he indicated that there was no reason why the hearing could not proceed on Monday. 6 UCPR r 6.24(1) provides: "If the court considers that a person ought to have been joined as a party, or is a person whose joinder as a party is necessary to the determination of all matters in dispute in any proceedings, the court may order that the person be joined as a party. 7 I was taken to a number of cases concerning the application of this rule or similar provisions in other jurisdictions. However, there was no serious dispute between the parties about the relevant principles. In essence, it is accepted that SPAR Australia ought to be joined as a party if its legal rights are directly affected by the orders sought but not otherwise: see John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19 at 131-32. 8 SPAR Australia's legal rights are said to arise under binding heads of agreement made between it and Jardim investments. Clause 4 of the binding heads of agreement provides: "The parties agree to negotiate in good faith and to the exclusion of negotiations with all others to enter into a subscription agreement and a pro forma call option agreement by Friday August 13, 2010 or such later date agreed between the parties." Clause 1 of the agreement sets out in broad terms the terms of the proposed subscription agreement. Clause 2 sets out a number of conditions of the agreement. Those conditions include consent of the shareholders of SPAR and also consent of SPAR's bankers. 9 Mr Douglas essentially made two points about this agreement. First, he said that the recent decision of the Court of Appeal in United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177 makes it clear that an agreement to negotiate in good faith may be enforceable. Second, Mr Douglas said that in any event the court should not reach a conclusion on that matter now. The fact that SPAR Australia has a reasonably arguable case that it had a legal right is sufficient to permit it to be joined. 10 In my opinion, United Group Rail Services is distinguishable from the present case. In that case, the court was concerned with an obligation to negotiate in good faith to resolve disputes arising from the performance of a fixed body of contractual rights and obligations. Here the obligation is an obligation to negotiate to create the relevant rights and obligations. I very much doubt that an obligation of that type is enforceable. In those circumstances, I do not think that SPAR Australia has a reasonably arguable case that its legal rights will be directly affected. 11 In addition, I do not think this is an appropriate case for the court to exercise its discretion to permit joinder. 12 There are two broad reasons. First, SPAR Australia has been aware of these proceedings since July and has only just now made an application to be joined. Secondly, SPAR Australia does not propose to lead any evidence. Its interests relevantly are no different from those of the existing defendants and it is clear that those defendants are in a position to defend and intend to defend the case brought by the plaintiffs. 13 In those circumstances, I do not think that SPAR Australia's interests would be seriously prejudiced if it were not joined. 14 For those reasons the motion should be dismissed. SPAR Australia should pay the plaintiffs' costs of the motion. ********** 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.