Court told Gloria Jean’s parent company is in “financial dire straits” as small coffee exporter awarded $12m in damages from cafe giant

The lawyer representing a small US coffee supplier that has been awarded more than $12 million in damages from the parent company of Gloria Jean’s says it is still unclear when his client will get paid, after the NSW Supreme Court was told the parent company is in “financial dire straits”.

As revealed first by SmartCompany in June, the Court awarded Colorado-based coffee supplier Western Export Services millions of damages from the parent company of Gloria Jeans – Jireh – over unpaid commissions.

Jireh is owned by Gloria Jean’s founder Nabi Saleh and another Gloria Jean’s executive, Peter Irvine. The legal battle involves a joint venture agreement established in 1995, when Gloria Jean’s was just getting started in Australia, and WES was supplying coffee beans to the new chain.

Under that agreement, Gloria Jean’s promised to pay on-going commissions to WES on coffee sold to franchisee, regardless of whether or not that coffee was actually sourced from WES.

The bitter six year legal battle between the two companies returned to Court yesterday, where Judge Justice David Hammerschlag revised his original damages amount of $8.4 million to $9.7 million, plus $2.6 million in costs.

The judgment also requires that Jireh honour the original joint venture agreement and pay ongoing commissions on sales of Gloria Jean’s coffee and products to franchisees, worth $1.865 million in the year to June 2010.

But Jim Johnson, counsel for Western Export Services, claimed one of Gloria Jean’s parent companies, Jireh International “is hopelessly insolvent”.

”There are public policy issues as to whether this company should be allowed to keep trading.”

Hammerschlag said on the evidence before him, Jireh International appeared to be in “financial dire straits” without the support of its ultimate parent company, Jireh Group (also owned by Saleh and Irvine).

Hammerschlag also granted Jireh International a stay against the damages judgement to allow it time to file an appeal, although Jireh International and Jireh Group will be prevented from selling assets other than in the ordinary course of business.

Lawyer Ross Koffel, who is representing WES, says the Gloria Jean’s empire, which includes thousands of franchises across more than 40 countries, involves a complex web of companies that is proving difficult to unravel.

“It’s a complete web and it’s enormous. We just don’t know quite what is going to happen,” Koffel told SmartCompany this morning.

He says that while WES a judgement has been entered, his clients are keen to see the case finally resolved.

“It’s been six years so far, so my clients are getting fairly anxious.”

The effect of the legal action on the operations of Gloria Jeans and its global franchise empire remains unclear.

While Jireh operates Gloria Jean’s in Australia, the master franchise agreement in 48 countries around the world is held by another company, called Gloria Jean’s Coffees International.

Gloria Jean’s said it was “pleased that yesterday the Supreme Court of NSW has ordered that WES is not entitled to enforce the judgment pending the outcome of any appeal.”

“It is business as usual for all our coffee houses in Australia and the continued operations of the Gloria Jean’s Coffees brand internationally.”.

Hammerschlag has told Jireh to file its appeal “expeditiously”.