Karounos v Sabre International Ltd

[2002] FCA 736

FEDERAL COURT OF AUSTRALIA

Karounos v Sabre International Ltd [2002] FCA 736

SETTLEMENT – whether a settlement agreement existed as a matter of fact.

AGENCY – actual or ostensible authority of a solicitor to enter into a settlement agreement.

GEORGE KAROUNOS & ANOR v SABRE INTERNATIONAL LTD & ORS
S 18 OF 2002

O’LOUGHLIN J
13 JUNE 2002
ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	S 18 OF 2002

BETWEEN:

GEORGE KAROUNOS as trustee of the RFC TRUST
FIRST APPLICANT

REAL CORPORATION AUSTRALIA PTY LTD
(ACN 089 326 367)
SECOND APPLICANT

AND:

SABRE INTERNATIONAL LIMITED
FIRST RESPONDENT

STEPHEN GLEN HEINRICH
SECOND RESPONDENT

JOHN LYALL NEWBOLD
THIRD RESPONDENT

NANCY JEAN NEWBOLD
FOURTH RESPONDENT

BRADLEY EDMOND HICKS
FIFTH RESPONDENT

JENNIFER MARY HEINRICH
SIXTH RESPONDENT

JUDGE:

O’LOUGHLIN J

DATE OF ORDER:

13 JUNE 2002

WHERE MADE:

ADELAIDE

THE COURT ORDERS THAT:

1.        The application that was filed by the applicants on 22 January 2002 be dismissed.

2.        Costs in the cause, such costs to be taxed in default of agreement.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

S 18 OF 2002

BETWEEN:

GEORGE KAROUNOS as trustee of the RFC TRUST
FIRST APPLICANT

REAL CORPORATION AUSTRALIA PTY LTD
(ACN 089 326 367)
SECOND APPLICANT

AND:

SABRE INTERNATIONAL LIMITED
FIRST RESPONDENT

STEPHEN GLEN HEINRICH
SECOND RESPONDENT

JOHN LYALL NEWBOLD
THIRD RESPONDENT

NANCY JEAN NEWBOLD
FOURTH RESPONDENT

BRADLEY EDMOND HICKS
FIFTH RESPONDENT

JENNIFER MARY HEINRICH
SIXTH RESPONDENT

JUDGE:

O’LOUGHLIN J

DATE:

13 JUNE 2002

PLACE:

ADELAIDE

REASONS FOR JUDGMENT

1. The parties to this action are presently engaged in other litigation in this Court in Action No S 79 of 2000.  I will refer to that other litigation as “the substantive proceedings” and to the proceedings in respect of which I am now required to give a decision as “the present proceedings”.  Mr Karounos and Real Corporation Australia Pty Ltd are the applicants in both proceedings and Sabre International Ltd, Mr and Mrs Heinrich, Mr and Mrs Newbold and Mr Hicks are the respondents in both actions.  There are references in the papers to Sabre International perhaps acting only as a trustee for a trust known as “The Stevian Investment Trust” but it is not necessary for me to express an opinion on that subject at this stage.

2. It is common ground that the claim and the cross-claim in the substantive proceedings arose as a result of a series of documents that were executed in February 1998.  Under conditions, the details of which are in dispute, one or other of the respondents agreed to lend the applicants amounts of money up to a total of $750,000.  It is common ground that some of those moneys were advanced and that certain accommodation was given by the lender to the borrower (whomsoever they may be) and that the total of those advances and accommodation was $250,000.  Even though the loans were secured by way of charge over the two Trade Marks and the borrower and lender are clearly named in the documents that established the charge, I refrain from making formal findings about the identity of the lender and the borrower.  It is sufficient to say that the lender was one or more of the respondents and the borrower was one or other or both of the applicants.  As a matter of expediency, but without making formal findings, I will refer to the borrowers and the lenders without attempting further identification.

3. The respondents have alleged that the loans that had been advanced and that were still to be advanced were intended to meet the legal costs that the applicants were to incur in protecting the registration of the two Trade Marks.  Those Trade Marks, namely “REAL” and “REAL FISH’n’CHIPS” were under attack in litigation at the suit of Unilever Australia Ltd (“Unilever”) in the New South Wales Registry of this Court.

4. The respondents have further alleged that there was an obligation on the applicants to account for the moneys that had been advanced under the loan arrangements.  According to the respondents, the applicants failed to do that and, because of that failure, the respondents refused and were entitled to refuse to advance the further $500,000.  The respondents attempted to assert their rights as a mortgagee by having the registration of the Trade Marks transferred into the name of the first respondent, Sabre International.  That conduct catapulted the applicants into action; they commenced the substantive proceedings seeking (inter alia) injunctive relief to prevent (or correct) any change in the registration of the ownership of the Trade Marks.

5. The war between the parties about the registration of the Trade Marks ultimately became an exercise in futility, as Unilever was successful in August 2001 in having the registration of both Marks cancelled.  However, that event did not bring about a settlement of the dispute between the parties in the substantive proceedings.  The applicants amended their pleadings to sue for damages for breach of contract and for other relief, whilst it might be said that the respondents cross-claimed for the return of the $250,000 and interest.  [I express myself with this reservation because the respondents did not have legal representation and thus the quality of the defence and cross-claim was poor].

6. That is a very brief outline of the major facts as they affect the parties to both pieces of litigation.  I have not mentioned issues such as the involvement of the Registrar of Trade Marks in the substantive proceedings, Mr Heinrich’s bankruptcy, whether Mr Karounos is involved in the litigation personally or whether he has a limited role as the trustee only, who or what is the respondent Sabre International and so on.  They may well be matters that will or might have to be resolved on a later occasion but they are not presently relevant to the issue in the present proceedings.  The issue here is the claim that has been put forward by the applicants that the matters in dispute in the substantive proceedings have been settled and that the Court should make a declaration to that effect.  The respondents deny that there has been any such settlement.

7. The application that was filed by the applicants in the present proceedings on 22 January 2002 was said to be based on the grounds appearing in the accompanying affidavit of George Karounos.  That affidavit did not, however, contain any grounds.  Instead, Mr Karounos in his affidavit said that he relied upon the contents of two affidavits that had been filed earlier in the substantive proceedings.  Those affidavits were his affidavit of 4 February 2001 (“the February affidavit”) and the affidavit of Ian Leonard Jeffery of 13 November 2001 (“the November affidavit”).

8. In his February affidavit, Mr Karounos deposed to certain events that were said to have occurred in January 2001.  Mr Karounos said that Mr Jeffery had advised him:

   “… that he held written authorisations from all of the Maitland Entities to negotiate a resolution of Federal Court proceedings S79 of 2000 and related matters.”

   The reference to “the Maitland entities” in his affidavit may be taken to be a reference to the respondents, all of whom, apart from Sabre International, lived in the Maitland area.

9. Mr Karounos then related how he had executed certain documents to record the terms of settlement, adding in par 10 of his affidavit:

   “The basis upon which I executed the above mentioned documents was the unequivocal undertaking given to me by Jeffery that the Maitland Entities had agreed to the form of the Further Agreements, that they would execute the said documents upon their arrival in Maitland and that they would return the executed documents by courier to the office of Jeffery by no later than 3.00pm Wednesday 31^st January 2001.”

   Mr Karounos then said that the Maitland entities did not return the documents and that Mr Jeffery told him that “the Maitland entities were withholding the execution of the Further Agreements notwithstanding their oral agreement to execute the documents …”.

10. Mr Karounos exhibited to his February affidavit a document styled “Confidential Heads of Agreement”.  It was expressed to be an agreement between “George Karounos as Trustee for the RFC Trust (“Karounos”) and Ian Leonard Jeffery as Trustee for the Quintal Investment Trust (“Jeffery”)”.  The agreement was dated 24 January 2001 and was signed by Mr Karounos and Mr Jeffery.  Among other matters it contained recitals to the effect that:

    “Jeffery holds written authorisation from Sabre, Heinrich, Jennifer Mary Heinrich, John Lyall Newbold, Nancy Jean Newbold Bradley Edmond Hicks, to negotiate with Karounos the resolution of matters between the various parties.

    Karounos and Jeffery met on 15^th January 2001 and conducted certain negotiations (“the settlement negotiations”) and arrived at certain Agreements which are embodied in this Heads of Agreement.”

    Curiously the Agreement went on to provide that in consideration of Mr Karounos assuming the obligations that were contained in the agreement, Mr Jeffery would pay him $10,000 upon the execution of Heads of Agreement and a further $20,000 upon the execution of “the Further Agreements”.  Perhaps the explanation for this usual provision was a later provision under which Mr Karounos agreed to pay Mr Jeffery 10 per cent of the first $5m that Mr Karounos would receive upon the settlement of, or judgment in the Uniliver proceedings.  I do not know whether Mr Jeffery paid these sums of money but I do know that, because of Unilever’s success in its proceedings, he will not be receiving any money from Mr Karounos as planned.  The balance of the agreement recited that “Further Agreements” would be executed between various parties (including all the respondents) which would constitute “full and final settlement of all claims existing and/or future claims” relating to the Trade Marks. Furthermore the terms of these agreements would include conditions that would cancel the charge over the Trade Marks and ensure that the Registrar of Trade Marks would remove any interest of Sabre International from the Register.

11. The Confidential Heads of Agreement did not contain any reference to the repayment by the applicants of the sum of $250,000 to the respondents.

12. Mr Jeffery’s November affidavit was intended to support Mr Karounos’ claims but, in my opinion, it and its annexures were in stark contrast to the claims that had been made by Mr Karounos.  In the first place, Mr Jeffery acknowledged Mr Karounos’ statement that he (Mr Jeffery) held certain written authorisations from the respondents; he annexed copies of those authorisations to his affidavit.  It is, I think, desirable to set out the terms of these authorisations.  The first of them was jointly signed by Mr and Mrs Newbold, Mrs Heinrich and Mr Hicks and was as follows:

    “We, the undersigned unitholders in the Stevian Investment Trust, being the beneficiaries of that Trust, hereby authorise Ian Jeffery to facilitate the settlement (full and final) of the repayment of a loan of $250,000 to George Karounos as trustee for RFC Trust, plus interest agreed at 10% p.a. to date of settlement, pursuant to terms as set out in the letter of 5^th January, 2001 from Sabre International Ltd (as trustee for Stevian Investment Trust) to Townsends Solicitors (acting for George Karounos).”

    Mr Heinrich’s authority was in different terms but it also referred to the loan to George Karounos and “to the terms set out in the letter of Sabre International to Townsends”.  I take that letter to be the letter of 5 January 2001 to which reference was made in the first mentioned authority.  Mr Heinrich’s authority was in the following terms:

    “I, Stephen Glenn HEINRICH, being the representative of Sabre International Ltd and/or a respondent in the following actions, namely NO 732 of 1998 (Federal Court Sydney), NO 354 of 2000 (District Court of SA) and No 79 of 200 (Federal Court, Adelaide), authorise Ian Jeffery to facilitate the discontinuance of these matters in conjunction with the settlement of the Sabre International Ltd loan to George Karounos (pursuant to the terms set out in the letter of Sabre International Ltd to Townsends, [acting for George Karounos]).”

    Neither Mr Karounos nor Mr Jeffery saw fit to exhibit a copy of the letter of 5 January 2001 to Townsends who were then acting as solicitors for the applicants.  A copy of that letter was, however, exhibited to Mr Heinrich’s affidavit of 12 February 2002.

13. It is important, in my opinion, to set out the terms of that letter in full:

    “Shane Spence

    Townsends
    Barristers & Solicitors
    91 Halifax Street
    Adelaide  SA  5000

    Dear Ms Spence,

    RE: SETTLEMENT OFFER - GEORGE KAROUNOS

    After lengthy discussion with the Unit Holders in the Stevian Investment Trust, in my lawful position as Sub-attorney for Sabre International Ltd, the Trustee for the Stevian Trust, I have been authorized to forward the following proposal in an effort to resolve the matters between Sabre and your client George Karounos.

    Sabre International Ltd will relinquish its charge over the ‘REAL’ and ‘Real Fish’n Chips’ Trade Marks absolutely, subject to the following conditions:

    That the amount of the loan from Sabre (as trustee for the Stevian Investment Trust) to George Karounos being $250,000 – plus the agreed 10% p.a. interest to date, to be paid to Sabre International Limited on the handing over of the REAL Trade Mark securities and execution for removal of Sabre’s Charge, with settlement at your office.

    Further, that Karounos provides a written undertaking that if he accepts this proposal, that all Court actions and claims for loss and/or damages past present and future against Sabre International Ltd, Stevian Investment Trust, Stephen Glenn Heinrich, John Lyall Newbold, Nancy Jean Newbold, Bradley Edmond Hicks, Jennifer Mary Heinrich, and all heirs and successors cease immediately on completion of this transaction, never to be re-agitated.

    I trust that this proposal is acceptable to your client, thus avoiding a protracted court battle.

    Yours faithfully,

    ………………….

    Stephen G Heinrich”

    Mr Jeffery did not say whether or not he had been supplied with a copy of the letter of 5 January but I do not think that this matters.  If he had not been supplied with a copy of that letter, he should not have negotiated with Mr Karounos as he did not know the terms of his authority.  If he had been supplied with a copy of the letter, he clearly exceeded his authority.  Mr Karounos cannot rely upon Mr Jeffery having ostensible authority because Mr Karounos has not stated what (if anything) he knew about the terms of Mr Jeffery’s authority.

14. There may be occasions when an agent, in breach of his authority, can nevertheless bind his principle in terms consistent with such agreement as may have been struck between the agent and the third party.  That however would have no application in this particular case because of the existence of the letter of 5 January 2001 which Mr Heinrich wrote to Messrs Townsends who were then acting as the solicitors for Mr Karounos.  Whether Mr Karounos did or did not receive a copy of that letter from his solicitors is immaterial because he must be treated as having constructive knowledge of the contents of that letter.  He therefore knew the extent of the authority that had been given by the respondents to Mr Jeffery and he therefore knew that Mr Jeffery in negotiating the heads of agreement, had exceeded the terms of his authority.

15. I have come to the conclusion that the parties were never ad idem.  Both sides may have genuinely wished to achieve a settlement of the substantive proceedings but they were significantly apart.  The Maitland entities wanted the return of their $250,000 plus interest.  The applicants were either unable or unwilling to meet that demand.  In January 2001, the applicants wanted the registration of the ownership of the two Trade Marks, but the respondents were unwilling to give up their charge unless they received their money.  Sadly, the parties did not then know that their respective interests in the Trade Marks would turn out to be valueless.  That, of course, does not mean that a settlement might have been possible because on other occasions during this drawn-out litigation, Mr Karounos has given evidence on oath that he did not (and I infer, presently does not) have the resources to raise $250,000.

16. In these circumstances, as I am satisfied that no concluded agreement was reached between the parties about the settlement of the substantive litigation, the application in the present proceedings is dismissed with costs.

I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O’Loughlin.

Associate:

Dated:             13 June 2002

Counsel for the Applicant:	Mr J Royle
Solicitor for the Applicant:	Royle & Co
The Respondents appeared in person
Date of Hearing:	26 April 2002
Date of Judgment:	13 June 2002