Western Export Services Inc. and Ors v Jireh International Pty Ltd

22 November 2011

The High Court brings an end to recent uncertainty surrounding the construction of contracts - Lessons from Western Export Services Inc. and Ors v Jireh International Pty Ltd

Meerkin & Apel lawyers have recently acted in a case for Jireh International Pty Ltd trading as Gloria Jean’s Coffees, which made its way to a Special Leave Application being brought in the High Court.  The case concerned, amongst other things, the meaning and effect of a Letter of Agreement (“LOA”).

On 28 October 2011 Justices Gummow, Heydon and Bell handed down a short judgment in the special leave application, settling once and for all recent confusion concerning the construction of contracts; Western Export Services Inc. and Ors v Jireh International Pty Ltd trading as Gloria Jean’s Coffees [2011] HCA 45[1].


In March 1996 a LOA was entered into by Western Export Services Inc (“WES”) and Jireh International Pty Ltd (“Jireh”), which was later the subject of dispute between the parties. The LOA concerned the role WES was to play in the franchising of Gloria Jean’s coffee stores in Australia.  WES claimed that pursuant to the LOA it was to receive a commission of 5% on all products sold by Jireh and/or its associated entities to Gloria Jean’s stores, with damages sought in the amount of $56 million, plus interest. Jireh, at all times throughout the litigation, maintained that commission was payable only on sales made by Jireh to the franchise stores based on a literal interpretation of the words of the contract.  

Justice Hammerschlag in the Supreme Court of NSW found that the relevant clause of the LOA extended to sales made not only by Jireh, but also to sales made by its associated entities, and awarded WES damages in the amount of $9.7 million, plus interest.  Jireh appealed, and the Court of Appeal, consisting of Justices Macfarlan, Young and Tobias, overturned this decision.  In a unanimous judgment they held that commission was payable on sales made by Jireh only based on the literal and unambiguous words of the LOA, and the damages award was reduced to $1.19 million, plus interest[2].

WES subsequently applied to the High Court for special leave.  The High Court dismissed the special leave application, and additionally took the unusual step of publishing a judgment, rather than merely accepting or rejecting the application. By taking this additional step, a binding precedent has been established for lower Courts to follow.

The High Court’s decision

This application required the High Court to consider the rules of contractual interpretation, and in particular, whether the rule in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 still applies.

The key messages coming out of the High Court’s decision are:

  1. The case of Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 continues to be binding authority which must be followed by the Courts below.  This case stands for the proposition that if the language of a contract is not ambiguous, and is capable of a clear meaning, then the Court cannot have regard to the surrounding circumstances of entering into the contract to interpret the contract and/or contradict the language of the contract.  The High Court stated (footnotes omitted):

“Acceptance of the applicant's submission, clearly would require reconsideration by this Court of what was said in Codelfa Construction Pty Ltd v State Rail Authority of NSW by Mason J, with the concurrence of Stephen J and Wilson J, to be the "true rule" as to the admission of evidence of surrounding circumstances. Until this Court embarks upon that exercise and disapproves or revises what was said in Codelfa, intermediate appellate courts are bound to follow that precedent. The same is true of primary judges, notwithstanding what may appear to have been said by intermediate appellate courts.

The position of Codelfa, as a binding authority, was made clear in the joint reasons of five Justices in Royal Botanic Gardens and Domain Trust v South Sydney City Council and it should not have been necessary to reiterate the point here.”

2.   Unless there is a case of mistake, or the language used is capable of more than one meaning, the Court is constrained by  the language used by the parties and must give effect to it. Put simply:

A Court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted”. 

This statement of Justice Macfarlan in the Court of Appeal decision, and subsequently applied by the New South Wales Court of Appeal in the case of Miwa Pty Ltd v Siantan Properties Pty Ltd [2011] NSWCA 297 at [18], was endorsed by the High Court.


[1] For a copy of the High Court’s judgment see: http://www.austlii.edu.au/au/cases/cth/HCA/2011/45.html

[2] For a copy of the full judgment of the Court of Appeal see: http://www.austlii.edu.au/au/cases/nsw/NSWCA/2011/137.html