Supreme Court New South Wales Medium Neutral Citation: Western Export Services Inc v Jireh International Pty Ltd [2014] NSWSC 1033 Hearing dates: On the papers Decision date: 31 July 2014 Jurisdiction: Equity Division - Commercial List Before: Stevenson J Decision: Grant leave to the plaintiff to discontinue the proceedings. Direct the plaintiff to file a notice of discontinuance. Order that the plaintiff pay the defendants' costs of the proceedings. Catchwords: PRACTICE AND PROCEDURE - costs - discontinuance of proceedings - whether plaintiff should pay costs on the ordinary basis Legislation Cited: Uniform Civil Procedure Rules Cases Cited: Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 Jireh International Pty Ltd (t/as Gloria Jean's Coffees) v Western Export Services Inc [2011] NSWCA 137 Category: Costs Parties: Western Export Services Inc (Plaintiff) Jireh International Pty Limited (First Defendant) Nabi Saleh (Second Defendant) Peter Irvine (Third Defendant) Representation: Counsel: L Shipway (Plaintiff) T Maltz (Defendants) Solicitors: Koffels Pty Ltd (Plaintiff) Meerkin & Apel Lawyers (Defendants) File Number(s): SC 2014/187050 Judgment Introduction 1On 24 June 2014 the plaintiff ("WES") commenced proceedings against the defendant ("Jireh") for preliminary discovery pursuant to Uniform Civil Procedure Rules, r 5.3(1)(a). 2In the circumstances that I discuss below, WES now wishes to discontinue the proceedings. 3The matter for consideration is what costs order should be made in the proceedings. 4By reason of UCPR r 42.19(2), WES must pay Jireh's costs "unless the court orders otherwise". WES must show good reason why the usual order should not be made; that is it must demonstrate some "sound positive ground" for the Court to "order otherwise" (for example, per Hodgson JA, with whom Tobias JA agreed, in Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [54]). 5WES relies on two grounds to support its submission that the Court should "order otherwise". First WES submits that Jireh precipitated the proceedings by unreasonably failing to respond to WES's "reasonable request" for documents. Second, WES submits that, once the proceedings were on foot, Jireh failed to inform WES that the transactions the subject of WES's enquiry were not going ahead and unreasonably caused WES to incur costs. 6On 18 July 2014, McDougall J, with consent of the parties, ordered that the matter be decided on the papers. The matter has been referred to me for decision. 7In my opinion, WES has failed to make out either of the grounds upon which it relies to support its submission that the Court should "order otherwise". 8The result is that WES should pay Jireh's costs of the proceedings. Discussion and background 9On 19 March 1996, Messrs Nabi Saleh, Peter Irvine, David Cisneros and Steven Meier executed a document entitled "Letter of Agreement by and between [those four men]" ("the Agreement"). In the Agreement, Messrs Saleh and Irvine were defined as "collectively 'Jireh International Pty Limited'" and Messrs Cisneros and Meier were defined as "collectively 'WES'". Messrs Saleh and Irvine executed the Agreement as "Jireh International Pty Limited" and Messrs Cisneros and Meier executed the Agreement as "WES". 10Pursuant to the Agreement "WES" agreed to "negotiate and otherwise assist" Jireh to enter into an agreement with Gloria Jean's Gourmet Coffees Franchising Corp to become "Gloria Jean's Gourmet Coffees Master Franchisee for Australia". 11It was a term of the Agreement that "upon the sale or transfer of any interest" of Jireh (presumably in the Gloria Jean's Australian franchise), Jireh would pay "WES" four per cent of the "sales price of that interest". 12In earlier proceedings between these parties, the Court of Appeal has construed the Agreement as being between WES and Jireh (rather than the individuals that I have named), or at least proceeded on the basis that this was how the Agreement should be construed: Jireh International Pty Ltd (t/as Gloria Jean's Coffees) v Western Export Services Inc [2011] NSWCA 137 per Macfarlan JA, with whom Young JA and Tobias AJA agreed, at [2], [17] and [52]. 13On 19 December 2013, a Singapore company, Global Yellow Pages Ltd ("Global"), announced that it had entered into a conditional agreement with a company known as Tea and Coffee Traders Pty Ltd ("the Vendor") to acquire "100% of the Gloria Jean's Coffees business" worldwide. 14The announcement listed 14 conditions precedent that, if not fulfilled or waived by the "Long Stop Date" (30 June 2014), would cause the conditional agreement to "cease". 15Evidently that announcement came to the attention of WES and on 5 June 2014 its solicitors wrote to Mr Saleh, Mr Irvine and Jireh: (a)asserting that on the proper construction of the Agreement, WES's entitlement to be paid four per cent of the sales price "applies to the proceeds of the sale of any business in which either of you hold a legal or beneficial interest"; (b)drawing attention to the 19 December 2013 "conditional share purchase agreement"; (c)stating that WES understood that in or about December 2013 another Singapore company, Maranatha GJC Holdings Pty Ltd, had "entered into agreements in relation to the acquisition of equity stakes in the companies that own those parts of the Gloria Jean's business" not being acquired by Global; (d)stating that "it appears to us that our client may be entitled to be paid four per cent of the consideration for the transactions contemplated by and associated with" the conditional share price agreement announced on 19 December 2013; and (e)requesting, "to enable our client to understand the extent of its entitlement (if any) [that Mr Saleh, Mr Irvine or Jireh] supply to us all the documents in your possession...relating to the sale or transfer by either of you or your respective rights or interest" in the Gloria Jean's business. 16On 19 June 2014, Jireh's solicitors responded by: (a)pointing out that, in the decision to which I have referred at [12], the Court of Appeal had construed the Agreement as being between WES and Jireh and stating that, accordingly, the relevant clause of the Letter of Agreement "can only ever be enlivened if there is a sale or transfer of an interest in which Jireh International itself holds"; (b)denying that Jireh had sold any "asset it owns"; (c)stating that Jireh "still remains as the Master Franchisee of Australia and that there has not been a sale or transfer of the Master Franchise Agreement"; (d)refusing to provide the documents sought; (e)stating that "if your client wishes to narrow its request in someway which comes within the defined meaning of [the relevant provision in] the Letter of Agreement, we would consent to any reasonable proposal". 17Without further ado, WES commenced these proceedings on 24 June 2014, notwithstanding the fact that the announcement of 19 December 2013 made clear that the relevant transaction was conditional upon the various "conditions precedent" being met by 30 June 2014. Thus, WES did not wait to see whether the conditional agreement announced on 19 December 2013, became unconditional, before commencing proceedings. 18As it happened, on 3 July 2014, Global announced that it had received a letter dated 2 July 2014 from the Vendor stating that certain conditions precedent had not been fulfilled or waived and that the conditional agreement "has ceased and determined" and that, since the Vendor "has taken the position stated above, the Board accepts that the Agreement has ceased and determined". 19There is no evidence before me as to when Jireh, Mr Saleh or Mr Irvine became aware that the sale between the Vendor and Global was not proceeding. Mr Saleh told Jireh's solicitors of this on 4 July 2014. 20In any event, WES's solicitor received a copy of Global's announcement on 5 July 2014. 21Thereafter, WES informed Jireh it wished to discontinue these proceedings and endeavoured to negotiate an agreement as to costs. Conclusions 22In those circumstances I have reached the following conclusions. 23First, the request made in WES's solicitors' letter of 5 June 2014 was based on a most ambitious construction of the Agreement that had been rejected, or at least not accepted, by the Court of Appeal and was drawn in unreasonably wide terms. 24Further, WES acted unreasonably in not accepting the invitation offered by Jireh's solicitors on 19 June 2014 to "narrow its request" for documentation. 25In any event, in circumstances where WES must have known, or alternatively ought reasonably to have known, that the transaction announced on 19 December 2013 was conditional on a large number of events occurring by 30 June 2014, WES commenced these proceedings prematurely as, to adopt the language used in the submissions of Mr Maltz (for Jireh), it was always "on the cards" that the potential, but conditional transactions upon which WES believed its case depended might not be completed. 26It turns out that the transactions were not completed and that the basis for WES's application for preliminary discovery has disappeared. To the extent that WES has incurred costs, and a liability to pay Jireh's costs of the proceedings, it is, in my opinion, the author of its own misfortune. Orders 27I make the following orders: (1)I grant leave to the plaintiff to discontinue the proceedings. (2)Direct the plaintiff to file a notice of discontinuance. (3)I order that the plaintiff pay the defendants' costs of the proceedings. ********** 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: 31 July 2014