Chiarabaglio, D. & I. v Westpac Banking Corporation

Re: DOMENICO CHIARABAGLIO AND ILDE CHIARABAGLIO
And: WESTPAC BANKING CORPORATION
No. QG159 of 1987
FED No. 381
Trade Practices - Negligence
(1989) ATPR para 40-971

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Foster J.(1)

CATCHWORDS

Trade Practices - Foreign currency loan - loss incurred due to exchange rate fluctuations - whether lending bank's conduct misleading or deceptive.

Negligence - Foreign currency loan - content of duty of care owed by lending bank to borrower - whether such duty breached - scope of lending bank's duty to explain to borrower the extent of the risk involved in such borrowing and how such risk can be managed - question of reliance - question of causation.

Trade Practices Act 1974 - s 52

Burns v. M.A.N. Automotive (Aust.) Pty Limited (1986) 161 CLR 653

Cornish v. Midland Bank (1985) 3 All ER 513

Davcot Pty Limited & Ors v. Custom Credit Corporation Limited and Ors (unreported, NSW Supreme Court, 27 May 1988, Wood J.)

Gould v. Vaggelas (1985) 157 CLR 215

Henjo Investments Pty. Limited v. Collins Marrickville Pty. Limited (1988) 79 ALR 83

Keehn v. Medical Benefits Fund of Australia Limited (1977) 14 ALR 77

Lloyd v. Citicorp Australia Limited and Anor (1986) 11 NSWLR 286

M.L.C. v. Evatt (1968) 122 CLR 556

McEvoy v. ANZ Banking Group Limited (unreported, NSW Supreme Court, Commercial Division, 1st October 1987, Brownie J.)

San Sebastian Pty. Limited v. The Minister Administering The Environmental Planning and Assessment Act and Another (1986) 162 CLR 340

Shaddock and Associates Pty. Limited v. The Council of the City of Parramatta (1981) 150 CLR 225

HEARING

SYDNEY

#DATE 21:7:1989

Counsel for the Applicants: J. Muir Q.C. with D. Mullens
instructed by Anderssen and Co.

Counsel for the Respondents: P. Keane Q.C. with J. Sheehan
instructed by Feez Rutning

ORDER

Liability is found in favour of the applicants against the respondents.

His Honour proposes to award damages to the applicants against the respondent based upon a calculation which assumes that the applicants would have had an ongoing indebtedness to the respondent of $100,000.00.

The respondent pay the applicants' costs of the proceedings.

That the proceedings be listed before His Honour for the purpose of further submissions and/or the bringing in of short minutes of order to be made for the disposal of the proceedings including the cross-claim. The re-listing should take place at the earliest convenient date.

JUDGE1

In these proceedings the applicants Domenico Chiarabaglio and Ilde Chiarabaglio who are husband and wife sue Westpac Banking Corporation ("Westpac") to recover damages on the causes of action set out in their amended amended statement of claim. I shall refer in detail to these causes of action later in these reasons. It is sufficient at this point to indicate that they consist of allegations of negligence on the part of relevant officers of Westpac in the giving of information and advice and of breaches of s 52 of the Trade Practices Act (1974) relating to the same subject matter. The information and advice related to their entering into a loan agreement with Westpac in mid 1982 under which they borrowed the equivalent of $500,000 Australian in Japanese yen. The loan was for a period of six years with no repayment of principal in the first four years, there being thereafter a requirement that 50% of the principal sum be repaid at the end of the fifth and sixth years respectively. The loan was converted into a loan in Swiss francs in April 1985 and as at the date of termination of the loan it was repayable in that currency. Although the interest rates in respect of this borrowing in foreign currencies were, throughout the period of the loan, considerably less than the interest rates chargeable in Australia on an equivalent loan in Australian dollars, depreciation of the value of the Australian dollar against both the Japanese yen and the Swiss franc over the period has produced a very adverse result for the applicants in that the amount, in Australian dollars, required to repay the loan has more than doubled. Consequently, as a result of their entering into the loan, the applicant's have suffered very considerable financial loss. They seek to recover the amount of this loss as damages against Westpac in these proceedings.

The applicants claim that the relevant negligent, misleading and deceptive advice and information was given to Mr Chiarabaglio early in April 1982 in the course of discussions with Westpac preceding the loan. It is asserted that a bank officer Mr Imhoff, was the representative of Westpac who actually committed these breaches. It is further asserted that another bank officer Mr Look, early in 1985, gave further negligent advice, in that he failed to advise the applicants to pay out the foreign currency loan and bring the loan back "on-shore" thus avoiding the very severe depreciation of the Australian dollar which took place later that year and persisted thereafter. It is claimed that, on the contrary, he gave advice that the Australian dollar would recover in value. Although separate causes of action are founded upon the alleged breaches of Mr Look, it became apparent, as the case unfolded, that the most significant questions arise in relation to the 1982 discussions. The applicants' case, in the ultimate, really amounts to an assertion that had it not been for their reliance on advice given to them at the time, they would not have entered into the loan at all and that, in the circumstances that occurred thereafter, including the further breaches of Mr Look, the whole of the damage suffered by them is properly attributable to their having been improperly induced to enter into the foreign currency borrowing in the first place.
The case occupied seventeen hearing days. I have been much assisted by the careful arguments of Counsel and by their written submissions on the difficult questions of fact that arose. It is not my intention to refer to all of the many submissions of fact and arguments on the credibility of the various witnesses that have been put to me orally and in writing. I have taken them all into consideration in reaching my decision. Indeed, at the conclusion of the hearing I had reached a fairly strong provisional view on the facts, based upon my impression of the evidence and the witnesses as the case proceeded. It was a case where the demeanour of witnesses and the manner of their giving of their evidence was of not inconsiderable significance. Since the completion of evidence and addresses I have re-read and considered the whole of the evidence and also the extensive written submissions of Counsel together with their references to transcript and exhibits. I find that at the end of this process my provisional views are confirmed.
Before dealing with the significant discussions of April 1982, it is necessary to refer briefly to something of Mr Chiarabaglio's personal history and his prior association, over a number of years, with Westpac. Mr Chiarabaglio was born in Italy in 1924. His early schooling finished at age ten. Thereafter he worked in a factory and acquired the trade qualifications of fitter and turner through work experience and also through attending night classes. Any further education to which he might have aspired was interrupted by the war. He spent a significant part of the war years in hiding on a farm in a successful endeavour to avoid military service against the Allies. He migrated to Australia in 1949, arriving penniless and without any ability to speak English. He learnt English whilst working in an engineering works at Ingham. His grasp of the language is still very far from perfect. In the course of his evidence it became very plain to me that he has genuine difficulties in oral comprehension, expression and also in reading. This is not to say that he is unable to understand and express himself in the English language. He is clearly able to do both. He would, however, equally clearly, be at a disadvantage in following any involved explanation of matters of which he had no prior knowledge or experience. Notwithstanding this impediment, Mr Chiarabaglio was and is, quite clearly, a person of drive, initiative, and intelligence. From being a penniless illiterate immigrant in 1949 he had, by 1982 established himself in Australia as the proprietor of a successful business conducting repairs to agricultural machinery and as a successful property investor and developer. His ventures in this regard are set out in the evidence. I shall not repeat them here. Although relatively small they were well planned and successful. I am satisfied that his approach was conservative and cautious, that he took no business risk of an unacceptable kind and that he would not, by nature, indulge in any business venture which could be described as involving speculation or gambling.
I am satisfied that once he was introduced to Westpac by his father-in-law Mr Ferraris in 1954, he quickly became a loyal customer of that bank and developed an attitude of trust towards each of a long line of branch managers with whom he dealt over the period in which he built up his business interests and family assets. A lot of evidence in the case was devoted to these earlier relationships with bank managers and the various transactions which occurred between Mr Chiarabaglio and the bank over the years. I do not need to set these out in any detail. Mr Chiarabaglio's evidence together with the evidence of the managers who were called, mostly from retirement, and the bank diary notes relating to the various transactions provide, when viewed objectively, a tolerably clear picture. Mr Chiarabaglio, like his father-in-law, Mr Ferraris, who clearly had a high opinion of the bank, regarded Westpac as a friendly and conservative guide as well as a provider of necessary financial assistance for his business and domestic requirements as the years went by. He did not, of course, rely upon the bank to make his business decisions for him. He did, however, discuss proposed purchases of property with the bank managers for the time being. He regarded their views as important. I accept that there were occasions when he would discuss business matters with his local Westpac bank manager otherwise than in the context of his seeking to obtain finance. It is quite clear, however, that most of the discussions would have taken place in circumstances where he was seeking financial assistance from the bank to accomplish a business or major domestic purpose. He obviously was of the view that Westpac's attitude to him and his business dealings was helpful, considered, cautious and conservative. The impression that I clearly gained was that, at least, if the Westpac bank manager had declined finance in respect of any projected business venture, Mr Chiarabaglio would have regarded this as an indication that the venture had an unacceptable risk about it and that he would have thereupon abandoned it rather than seeking financial assistance in some other and less conservative quarter. It is quite clear to me that he would have trusted the bank not to lead him into financial error but, on the contrary, to steer him away from it.
From the bank's point of view, it is equally clear that Mr Chiarabaglio was regarded as a valued and loyal customer and as an honest hard-working businessman, a good family man, an upright citizen, conservative and cautious in matters of finance and worthy of the bank's support. He enjoyed friendly personal relations with each bank manager with whom he dealt including Mr Story, the manager of the Fortitude Valley branch of Westpac in 1982. It is abundantly clear from Mr Story's evidence that he held Mr Chiarabaglio in high regard and was well aware that Mr Chiarabaglio had an equal regard for him and for the bank. It was a local banker-customer relationship of the best possible kind.
Mr Chiarabaglio's abilities as an investor lay in the field of real estate. Over the years he had acquired some expertise in the selection of appropriate sites upon which to place relatively small developments of a residential or commercial nature. I am satisfied that he had no sophisticated knowledge of matters of finance. He had a long standing professional association with Mr Hackett his accountant. Mr Hackett's practice was almost entirely in the field of the preparation of income tax returns for small businesses, of which Mr Chiarabaglio's business was one. Over the years the professional association had flowered into one of personal friendship. I am satisfied that Mr Hackett did not offer anything in the nature of general business advice to Mr Chiarabaglio. It appears that he provided assistance only in relation to his ordinary accounting and tax requirements. Mr Hackett was also associated with Mr Chiarabaglio's brother-in-law, Mr Ferraris who was also a modest investor. Mr Hackett had an interest in a company which conducted a night club business in premises in Fortitude Valley. The night club was named "Whispers". It appears that the company owned the premises which were situated in an area where real estate values were likely to rise. Through Mr Ferraris and Mr Hackett it became possible for Mr Chiarabaglio to acquire a quarter of the shares of this company, Northern Metals Pty Ltd ("Northern Metals"). I am satisfied that Mr Chiarabaglio regarded the acquisition of the shares as primarily an investment in real estate. It appears from the relevant bank diary note that, characteristically, Mr Chiarabaglio sought to discuss, in general terms with the bank manager of the day his proposed purchase. It would appear that the bank manager felt some embarrassment in discussing the matter as Mr Hackett and the company were also customers of the bank. Again, this cannot be regarded as an instance of Mr Chiarabaglio's seeking that the bank make a business decision for him. It is simply an example of his practice of discussing projects with the bank manager, using the bank, as it were, as a kind of conservative sounding board.
Mr Chiarabaglio went ahead with the purchase of the shares with the result that he, Mr Ferraris, Mr Hackett, and a Mr Hofstee, a friend of Mr Hackett, became the four directors of Northern Metals Pty Limited and of the "Whispers" night club business. The extent to which Mr Chiarabaglio played a role in the management of the business is not clear. It appears that his twenty three year old son was employed in the business and that, in 1982, Mr Chiarabaglio was hoping to bring him into the wider world of business and to enter into some development projects in partnership with him.
At the beginning of 1982 Mr Chiarabaglio, in his own and his wife's name or per medium of family companies, was the owner of assets to the value of approximately $2,000,000.00, a number of which were income producing. He was indebted to Westpac in an amount of slightly over $100,000.00. He was under no pressure to repay this loan. Quite clearly the bank was prepared to roll it over when it became due. Equally clearly he was able to service the interest from his income. He was in a perfectly sound position. On the other hand, Northern Metals was in a slightly difficult position. It owed Westpac $125,000.00 on a commercial bill facility. The facility provided for the rolling over of only $75,000.00 of this amount. There was a requirement to repay $50,000.00 of the debt. It is clear that Mr Hackett was of the view that having regard to the financial position of the company and the "Whispers" night club business that it would not be possible to repay this sum of $50,000.00 without having recourse to additional finance. It also appears that the company was experiencing some difficulty in relation to meeting the current high interest rates on the loan. Although it appears from Mr Story's evidence that had things occurred differently, a request from Mr Hackett on behalf of Northern Metals that the bill be rolled over once again for the full amount would probably have, in the ultimate, been accommodated, Mr Hackett was clearly of the view that the company was under a necessity of repaying to Westpac the "hard core" debt of $50,000.00. I accept that, in some way, presumably not through Mr Story directly, Mr Hackett had come to believe that the bank would insist upon this repayment when the loan fell due early in 1982.
Mr Hackett had seen an advertisement in a Sydney newspaper offering finance at cheap interest rates. When in Sydney he took the opportunity of making contact with the organisation that had placed the advertisement. This turned out to be the European-Asian Bank. He had an interview with an officer of the bank and quickly ascertained that the minimum amount that the bank was prepared to lend was the equivalent in foreign currency of $1,000,000.00 Australian. The interest rates offered were very attractive in relation to prevailing onshore interest rates in Australia. However the amount offered was considerably more than Northern Metals needed or desired to borrow. Mr Hackett terminated the enquiry when this was made known to him. Either during the course of the interview or from the body of the advertisement he had obtained information as to the interest rates and terms of repayment that were being offered. He does not recollect this but it is apparent that he must have done so as he was able to acquaint Mr Story with these details when he contacted him on the 5th April. Mr Hackett told Mr Story in a telephone conversation on that day that Northern Metals would not be able to provide the $50,000.00 when the bill was rolled over. He also acquainted him with the information that he had been given by the European-Asian Bank. Mr Story has a bank diary note of this conversation. It refers to Mr Hackett having indicated that an offer had been made by the European-Asian Bank to provide offshore finance. It is clear that matters had not progressed to this point so far as discussions between Mr Hackett and that bank were concerned.
I am of the view that the diary note containing a suggestion that Mr Hackett had indicated that he had received a firm offer does not, in the ultimate, reflect upon Mr Hackett's credit. He is quite clear in his recollection both as to what had transpired with the European-Asian Bank and also over the telephone in conversation with Mr Story. The diary note is no more than a cryptic account of what occurred. There could easily have been a misunderstanding as to the nature of what had occurred between Mr Hackett and the other bank. I find myself unable to attribute any great significance to it. The most significant thing that came out of the conversation between Mr Hackett and Mr Story was that Mr Story, on being acquainted with what had occurred between Mr Hackett and the other bank, was prompted to tell Mr Hackett that Westpac was, itself, able to provide foreign currency loans. Mr Story had no personal knowledge of the loans, or of their characteristics. He knew, however, that the bank had a department in Brisbane which dealt in such matters and he also knew that Mr Imhoff, a young bank officer for whom he had some regard, was in charge of that department. Accordingly he told Mr Hackett that he would arrange a meeting at which the question of such a loan could be discussed. Mr Story, accordingly, organised a meeting between Mr Imhoff and Mr Hackett and the other directors of Northern Metals to take place at twelve noon on Wednesday the 7th April at Mr Story's office in the Fortitude Valley branch of Westpac.
The meeting duly took place. Although one of the bank's witnesses, Mr Gow, was of the opinion that it commenced early in the morning of the 7th April and continued into the lunch hour, occupying some three or four hours, I think that the evidence establishes clearly enough on the balance of probabilities that it commenced at the appointed time and lasted a little more than one hour. It was attended by Mr Imhoff, Mr Story and Mr Gow, who was assistant manager to Mr Story, on behalf of Westpac. Northern Metals was represented by its directors namely Mr Hackett, Mr Chiarabaglio, Mr Ferraris and Mr Hofstee.

All those present, with the exception of Mr Hofstee, have given evidence in this case by affidavit and orally in the witness box. Mr Hofstee was not called. The explanation for his not being present was given by Mr Hackett who, speaking as a close personal friend of Mr Hofstee, swore that Mr Hofstee tended to behave irrationally and became easily disturbed and upset when spoken to concerning financial matters. It seems that Mr Hofstee suffered considerable financial embarrassment as a result of foreign currency borrowings and, it was said by Mr Hackett, that he could not assist. Mr Hofstee's absence from the witness box has been criticised in the usual way by counsel for Westpac. He is certainly a witness who, in ordinary terms, might have been thought as available to support the evidence of the other Northern Metals directors as to what occurred in this vital discussion. There is, certainly, no medical evidence to support an inability on Mr Hofstee's part to play a role in this litigation. However it is clear that his whereabouts could have been readily ascertained and his attendance sought on subpoena had the respondent wished to test Mr Hackett's assertion. In all the circumstances I have come to the conclusion that I should treat Mr Hofstee's absence as merely a neutral matter in my determination as to the probabilities of what occurred and what was said in Mr Story's office on 7th April 1982.
I have already said that at the conclusion of the hearing of this matter I had a strong provisional view. That view was that I preferred the evidence of Messrs Chiarabaglio, Hackett and Ferraris as to what transpired at this meeting to the evidence of the bank officers. That is still my view. I was more impressed with the demeanour of the Northern Metals directors than I was with the demeanour of Messrs Imhoff and Gow who provided the more detailed aspects of the bank's evidence. I felt that these two gentlemen, who currently hold responsible positions in the bank, tended to slip, albeit unconsciously, rather readily into the role of advocate for their employer. I felt quite frequently absence of real recollection was readily supplemented by resort to reconstruction based upon a current conception of what must have been said at the time in order to bring home fully and completely the extent of the risk involved in taking a loan in a foreign currency. In truth, it was quite apparent that these gentlemen were very dependent indeed in giving their evidence upon the bank diary notes that they had brought into existence shortly after the discussion. The notes did not, and would not in the nature of things, purport to be a verbatim record of the discussion. My strong impression was that these bank officers had no recollection of the conversation over and above what appeared in the diary notes and that their evidence, in those circumstances, was little more than an attempt to flesh out the bare bones of the notes with material that could never amount to more than an educated guess at what must have been said. I do not mean by this that they were in any way seeking to mislead the court. I am merely indicating that in assessing the weight of their evidence, it is not possible to accord to it significance that one can give to evidence which, although vague and imperfect, nevertheless amounts to an actual recollection rather than an attempt to arrive by deduction at what must have occurred.
Messrs Chiarabaglio, Hackett and Ferraris did not make any notes of the discussion on the 7th April 1982. Their affidavits are clearly based upon attempts to recollect what was said at the discussion. Their oral evidence, similarly, was an attempt so to recall. It is not surprising, in those circumstances, that there should be discrepancies and areas of conflict as to matters of detail between their respective recollections. Indeed such inconsistencies can provide, in circumstances such as these, an indication of truthfulness. Had their versions closely corresponded or dove-tailed, the suspicion would have immediately arisen that an agreed and favourable version had been arrived at and then committed to memory by each of them. Their evidence gave no appearance of any such blemish.
It must also be borne in mind that this discussion would have had considerable significance for the three men from Northern Metals. I am satisfied that, with the probable exception of Mr Hofstee, none of the Northern Metal directors had any knowledge of foreign currency loans. I accept Mr Hackett's evidence that he had had no knowledge of these matters before his brief discussion with the officer of the European-Asian Bank. I also accept that Messrs Chiarabaglio and Ferraris knew no more about such borrowings than Mr Hackett may have been able to impart to them as a result of that discussion. In such circumstances Mr Imhoff's presentation at the discussion would necessarily have made a not inconsiderable impact upon them and thereby provided a secure basis for recollection. On the other hand, Mr Imhoff as part of his ordinary work, was called upon quite regularly to make explanations in relation to off-shore loans with the result that specific recollection of individual occasions would be most difficult to achieve. Indeed he makes no such claim, basing his evidence upon his diary note coupled with evidence as to what his practice was when conveying information as to these loans to intending borrowers. Mr Gow, it must be noted, asserted some recollection of the proceedings independent of the note that he made. However from a close observation of the giving of his evidence, I am quite confident that recollection tended to merge with reconstruction to an extent that made it impossible to attribute any real weight to what was said to be recollected.
I was more impressed with the evidence of Mr Story. He had very little prior knowledge of the nature and ramifications of offshore currency borrowing before he listened to Mr Imhoff's presentation at this meeting. Accordingly his recollection of what was said by Mr Imhoff in his presentation and of his reaction to it, provides a helpful indication of what might well have been the impression received by an intelligent interested but inexperienced audience from Mr Imhoff's presentation of the respective advantages and disadvantages of "offshore" borrowings in 1982.
Before turning to a more detailed consideration of the evidence relating to this meeting, it is convenient to set out, from the amended amended statement of claim the representations alleged to have been made by Mr Imhoff both negligently and in breach of s 52 of the Trade Practices Act (1974). They are as follows:-

"(a) It was good business for the applicants to borrow offshore in the sum of $500,000.00;

(b) There was no risk whatsoever in an offshore loan;

(c) The worst situation for the applicants would be if the Australian dollar devalued 10% to 15% over the period of an offshore loan of six years and even then the applicants would still be better off with an offshore loan because of the difference between the low offshore interest rate and the high domestic interest rate; and

(d) Hedging an offshore loan was not worth the cost of doing so and was not necessary;

(e) (By reference to charts recording movements in the yen, the Australian dollar and other currencies in previous years), the Australian dollar would stay strong as against the Japanese yen."

During the course of the hearing it became accepted that the representation set out in (b) was one asserting that there was "no significant risk" rather than one asserting a total absence of risk. I should also indicate, at the outset, that in my view the representation asserted in (c) has not been established. I am quite satisfied that reference to devaluation of the Australian dollar in the area 10% to 15% was mentioned by Mr Imhoff and was used to illustrate situations that could occur in relation to offshore borrowing when contrasted with advantages that could flow from differences in interest rates. However, the evidence does not satisfy me that a 10% to 15% devaluation of the Australian dollar over the six year period was ever portrayed as being the worst possible situation that could occur. It may well be that Mr Chiarabaglio, because of the language difficulties to which I have adverted, understood Mr Imhoff to be saying this. However, it does not appear that any other person present was of the view that Mr Imhoff positively asserted that devaluation could never exceed 10% to 15% over the six year period, as would be required to establish the representation relied upon. I am, however, satisfied that no attempt was made in the presentation to bring the minds of the audience to bear upon the realities of risk involved in the situation where the Australian dollar might devalue vis-a-vis the yen in significantly higher percentages than those referred to.
It will be readily observed that the thrust of the remaining representations is that there was no substantial risk in borrowing 500,000.00 Australian dollars in Japanese yen. The claim in relation to "hedging" did not, as the case unfolded, lead to a consequential claim that had hedging been properly explained it would have been availed of to reduce losses resulting from devaluation of the Australian dollar: rather the claim was that if hedging, particularly partial or short term hedging, had been fully explained this would have served to underline the inherent risks and difficulties involved in an offshore borrowing with the result that Mr Chiarabaglio, who had no need to engage in such a transaction, would have refrained from entering into it at all.
The same may be said of the further allegations of negligence set out it paragraph 12 of the statement of claim namely that there was a negligent failure to advise as to:-

"(a) the responsibility of managing an offshore loan and the advantages of such management; and

(b) fluctuations in currency exchange rates should be carefully and constantly monitored by or on behalf of offshore borrowers;

(c) the fact that a decline in the rate of exchange between the Australian dollar and the Japanese yen would result in an effective increase in the rate of interest being paid by the applicants on the moneys borrowed by them."

It is not asserted in the applicants' case that had these matters been fully and satisfactorily explained by Mr Imhoff, Mr Chiarabaglio would have taken steps at an early and advantageous stage to monitor exchange rate variations and arrange for "management" of the loan with a consequent diminution of loss through exchange rate fluctuation. The Applicant's case is, simply, that if the substantial complexity and difficulty involved in monitoring and management had been brought to his attention in the discussions prior to the taking of the loan, he would have been apprised of the risks and difficulties involved and would simply have refrained from the offshore borrowing.
It is typical of the conflict in the evidence as to what occurred in relation to Mr Imhoff's discussion of offshore borrowing with the Northern Metals directors that there should be an assertion on the part of the applicants that there were in fact two meetings with Mr Imhoff in which offshore borrowing was discussed and advice and information given, whilst on behalf of the respondent it is asserted that there was only one. Indeed it is the respondent's case that Mr Imhoff only discussed a borrowing by Northern Metals and did not discuss with Mr Chiarabaglio any personal borrowing by him of an amount equivalent to $500,000.00 Australian. Both Mr Chiarabaglio and Mr Hackett are quite confident that there were two meetings involving Mr Imhoff. Mr Ferraris remembers only one but, in light of the general state of his recollection I do not consider that his failure to recollect a second meeting with Mr Imhoff provides substantial support for the proposition that there was no such meeting. I feel that the assertion by the respondent's witnesses that there was no second meeting is, in the ultimate, really founded upon the absence of any bank diary note recording any such meeting.
As previously indicated, I am firmly of the view that the evidence of these witnesses is for practical purposes confined to their diary notes. Although it was clearly practice for a bank diary note to be made of all significant meetings, this practice was equally clearly departed from on occasions. For instance, Mr Look, who succeeded Mr Imhoff as Queensland Manager International Business of Westpac did not record a meeting at which a decision was made to switch currencies from Japanese yen to Swiss francs in respect of the loans of Northern Metals and also of the Applicants, a decision which surely must have been a significant one. Again, Mr Imhoff indicated that it was not unusual for there to be more than one discussion between intending borrowers and himself preceding the actual taking of a loan in foreign currency. I gained the strong impression that, where a meeting was really a follow-up of a previous meeting, a diary note would not necessarily be made of the second meeting.
In general, having regard to the fact that the branches of the bank were responsible for the actual making of loan applications on behalf of the bank's customers, after the international business officers had performed their role of explanation, information and advice, it might be expected that the branch diary notes would be the more significant records and more likely to be complete. Mr Story's diary notes clearly record a meeting of the 7th of April 1982, which is obviously the meeting arranged by him with Mr Hackett at which Mr Imhoff was to be present. He then records meetings with Mr Chiarabaglio on the 14th and 19th of April. His note of he 7th of April indicates that there was discussion about the directors taking out loans on a personal basis but by way of the amounts of such loans being first advanced to Northern Metals. It is clear that the making of loans in this fashion was not regarded very favourably by the bank but no firm decision one way or the other was taken on the 7th of April. It is quite clear that at that meeting it had been indicated by Mr Imhoff that borrowings could only be in amounts of $500,000.00 Australian or more. This had promoted the discussion as to whether amounts, less than $500,000.00, could be borrowed by individual directors by way of those amounts being tacked onto the loan to Northern Metals. I am satisfied that, in this context, Mr Chiarabaglio on the 7th of April at least raised the question of converting his existing indebtedness with the bank of the order of $100,000.00 Australian to an equivalent yen indebtedness at the much lower prevailing interest rates appropriate to that currency.
It is clear, from Mr Story's diary note of the 14th of April that, by that time, Mr Chiarabaglio was contemplating two loans in Japanese yen, one to be obtained via a Northern Metals borrowing in an amount sufficient to discharge his then indebtedness and a second loan of $500,000.00 in yen for the purpose of building home units in Brisbane in partnership with his son. It is clear that by the 19th of April, he had decided to borrow $500,000.00 through the company to be formed for the purpose of carrying on the proposed building work, with a portion of that loan to be used for the purpose of discharging his current indebtedness to the bank. Clearly at some point between the termination of the discussion of the 7th of April and his meeting with Mr Story on the 19th of April Mr Chiarabaglio had given consideration to his taking of a loan of $500,000.00, the minimum available, for use in a building venture rather than restrict borrowing in yen to the much smaller amount required to discharge his current loan from the bank. It is quite inconsistent with the view that I have firmly formed as to Mr Chiarabaglio's nature and his approach to matters of finance that he would have reached a decision to seek a loan of $500,000.00 in yen without having had some discussion about it with an appropriate bank officer. Such a discussion could have occurred on the 7th of April. Both Mr Chiarabaglio and Mr Hackett however have a firm recollection that it occurred at a subsequent meeting with Mr Imhoff held very shortly after the meeting of the 7th of April. I am of the view that in this, as in other matters, Mr Hackett and Mr Chiarabaglio evince a hard core of reliable recollection. It would not have mattered, from their point of view, whether the representations relied upon were made at one meeting or in the course of two meetings. I accept their recollection of the occurrence of two meetings as against the absence of any bank diary note recording the second meeting. I am satisfied that it was of the nature of a second follow up meeting of the type not infrequently had with Mr Imhoff at that time and that, as such, it was not recorded by him. I am satisfied that a lot of the previous ground was traversed again and that Mr Imhoff would, not unreasonably, have seen it, at the time, though not now recollected, as a retracing by him of ground already covered in the first more formal meeting. I am satisfied, however, that at a second meeting with Mr Imhoff, prior to his speaking with Mr Story on the 14th of April, Mr Chiarabaglio discussed the taking of a $500,000.00 loan himself with some reference to the utilisation of the money once borrowed.
I turn then to the first meeting which clearly took place on the 7th of April 1982. This meeting is the subject of a branch diary note prepared by Mr Gow and accepted as a record by Mr Story, and also of an independent diary note by Mr Imhoff. As already indicated I am of the view that neither Mr Gow nor Mr Imhoff have any reliable recollection of the events of the meeting other than what appears in these notes. It is desirable that I set them out in full.
Mr Gow's diary note reads as follows:-

"Subject: Proposed Euro Currency Loan. General: Directors of Northern Metals Pty. Ltd., Messrs. Chiarabaglio, Ferraris, Hackett & Hofstey

(sic) called for discussions regarding refinance of existing facilities. Mr Hackett and Mr Hofstey

(sic) have been having discussions with an agent for European Asian Bank in respect of a $1 million loan at 8.9% (reducing rate - variable). Repayable interest only for first 2 years then 6 monthly reductions of Principal & Interest with overall clearance within maximum term 5/6 years. Mr Nev Imhoff, Manager International Business, was present and outlined in some detail to the Directors the advantages and pitfalls concurrent with this type of finance. Bank could offer minimum of $1/2 million at an interest rate presently estimated to be under 10%, including Bank's margin. Terms could be arranged with some flexibility and those discussed were - - provision of interest only for first 2 years, payable 6 monthly in arrears at variable interest rate adjusted at 6 monthly rests. - then, repayments of Principal & Interest to clear borrowing within overall maximum term 5/7 years.

Also discussed repayment in full on sale of Whispers and advised that this could be done at any 6 monthly rollover, provided 30 days notice was given, and if repayment was effected in 1st or 2nd year, penalty clause of .5% flat would be applied. We would need to set up some type of security realisation account if Whispers security was sold pending clearance in full. Additional charges quoted:

- establishment fee .35% flat. - interest rate was based on present SIBOR rate + margin of 3% per annum. (fixed full term).

Also discussed possibility of hedging from the outset but this is not on with present rates being 13% p.a. based on interest rate differential. Japanese prime rate is presently 6.8125% and a loan of 135,000,000 yen would be required. Risks involved with currency fluctuations were clearly explained to all Directors by Mr. Imhoff in the presence of Mr Story and Mr. Gow. There was some talk between the Directors that they would take the opportunity to include some personal borrowings in the deal, but we would wish to discourage this and they are to get back to us after their private discussions. Mr. Hackett has been requested to provide up to date Balance Sheets and Accounts and projected cashflow (sic) figures. Hand out of average euro currency rates and Australian bank bill rates history since 1979 and average exchange rates against Australian dollars, along with percentage movements from average rates in various currencies were given to each of the Directors. ACTION:

M.A."A": You could start piecing together application pending advice to proceed and provision of up to date figures from Mr. Hackett."

Mr Imhoff's diary note reads as follows:-

"7 April, 1982

NORTHERN METAL PTY. LTD. Fortitude Valley By arrangement visited Fortitude Valley Branch and together with Manager Mr. Story and Mr. Bob Gow met with:-

Mr. John Hackett - Managing Director Mr. Dante Ferraris - Director Mr. Dominico (sic) Chiarabaglio - Director Mr. John Hofstay - Director Company owns and operates "Whispers" Night Club and they wish to refinance. Recent discussions have been held with European Asian Bank Ltd. Sydney Representative who have offered Japanese Yen denomenatial Euroloan for equivalent of $1M. min. at 8.9 % p.a for 6 years. However they really only require $0.5 M. Today's meeting was to discuss how the Bank maybe able to help. While there is an interested buyer for "Whispers" they are not confident that a sale will result (should know by April 14) and if not they wish to refinance to relieve some of the burden of high local interest rates and a capital repayment soon due.

The subject of Euro-currency financing was discussed in detail and it was left for the Directors to consider and get back to Mr. Story to advise him what they wanted to do. The following points were discussed:- . How the Eurocurrency Market operates . The Bank's involvement in the market . Currencies available . Amounts - Our minimum equivalent of %0.5 m. . Term

. Documentation

. Security

. Fees - establishment fee 0.35% flat Exchange control

. Interest rates

-How set ie. S.I.B.O.R. plus set margin -Rollover - 6 months -Interest period - payable 6 monthly in arrears. -Historical data on movement studied -Current rates

-Risk

-exchange Risk

-On interest payment -On capital

-Historical movements -Hedging

. Prepayment before maturity (available at any rollover -date) . Withholding tax - The company appears to be eligible for exemption. Funds are required late May and I expect that we will be asked to proceed to provide a loan for say 5 years.

Interest only for first 2."

I shall consider hereunder the evidence of Messrs Chiarabaglio, Hackett and Ferraris as to what occurred in meetings with Mr Imhoff. In considering the evidence of Messrs Imhoff and Gow in relation to the above diary notes, it is convenient to bear in mind that the dominant assertions of the Northern Metals directors are that Mr Imhoff in referring to currency exchange risks described them in terms which portrayed them as insubstantial or minimal, consisting, in effect, of fluctuations in which drops would be countered by corresponding rises; and that "hedging" was discussed only in relation to the whole period of the loan, in which case it, through its costs, would negate the interest rate benefits of borrowing offshore. "Monitoring", consisting of watching exchange rate fluctuations in the newspapers or enquiring about them from the bank, was mentioned fleetingly if at all, and "management" of the loan was not referred to.
Mr Gow, in evidence, professed to some independent recollection of the discussion of the 7th of April because it was the first occasion on which he had been present when a dissertation was given on offshore currency borrowings. As previously indicated I am not satisfied as to the reliability of what he now considers to be independent recollection. It is reasonable to assume that, given his particular interest in the subject matter at the time, he would have sought to make as full a note as possible of the contents of Mr Imhoff's presentation. The note, however, is very general, especially when compared with the detail given by Mr Gow in his oral testimony. The note refers to Mr Imhoff's outlining "in some detail .. the advantages and pitfalls concurrent with this type of finance". It also says that "risks involved with currency fluctuations were clearly explained". In this regard there is no indication as to what was explained as to the extent as opposed to the mere existence of risk, or the depth of the possible pitfalls. Furthermore there is no mention in the note of the use of "hedging" as a short term device for reducing or limiting exposure to risk. Nor is there any indication of what would be required of the customer himself in relation to exercising judgment as to when to put in place a short term hedge or, indeed, what would be involved in so doing, including the possibility that a "hedge" could operate adversely to the customer if it prevented his being able to take advantage of a beneficial movement in the exchange rates. It is significant, in my view, that the only reference to hedging in the note despite Mr Gow's professed interest in the subject and despite the detailed evidence that he gave orally in relation to this matter, relates to hedging for the full term of the loan from the outset and states that "this is not on with present rates being 13% pa. based on interest rate differential."
In his oral evidence Mr Gow spoke of there having been considerable discussion by Mr Imhoff of the risk involved in offshore borrowing particularly in relation to adverse movements in exchange rates and interest rates. He said that he stressed that the bank required additional security on offshore borrowings because of the additional risks and indicated that hedging should be utilised in the event of adverse movements in the currencies. He said it was explained by Mr Imhoff that there were inherent risks and that anyone listening to Mr Imhoff's presentation at the meeting would have been aware that those risks were considerable. He had, however, no specific recall of what was said about the extent of such risk. He also gathered from Mr Imhoff's dissertation that the exchange risks remain great unless there was proper management of the loan, which consisted of "the monitoring of exchange rates and the using of the hedge facility as a controlling device to protect the borrower's exposure". In this regard, Mr Gow was in conflict with Mr Imhoff's own evidence which was to the effect that he did not mention management techniques. This was in the context, moreover, that the bank itself offered no management facility and, indeed, such facilities did not become readily available until 1985. Moreover, Mr Story did not recall what if anything was said about hedging in the short term, an essential aspect of management. I feel quite confident that if Mr Imhoff had embarked upon an exposition of the existence of substantial inherent risk which could be dealt with by careful monitoring and management involving the use of short term hedging arrangements, that Mr Story would have recalled it and would, in all probability, have required its inclusion in the diary note which was to be, in effect, his note although prepared by his assistant. I am satisfied that, at the very least, Mr Gow is mistaken in this aspect of his evidence.
Again, this diary note refers to a "hand out" of various documents to the directors. The note is somewhat ambiguous as to the time period to which these documents related. It is not clear whether they all had a commencing point of 1979. Such a time span would accord with Mr Imhoff's evidence as to the documents that he brought to the meeting. On the other hand the evidence of the directors tends towards a provision of documentary material covering a period of ten years into the past. The evidence does not enable me to establish with any clarity what the documents were. It is possible that one of them was the document, exhibit 13, which in fact covered a time span of ten years but I am unable to find on the probabilities that it was in fact handed out at this meeting. Mr Gow speaks of the documents having been handed to the directors so that they could be taken away and analysed by them. The note, again, does not support this nor, in my view, does any other evidence in the case. The most likely situation is that certain documentary material was used by Mr Imhoff in his presentation and it was handed around amongst those present to be considered by them to the extent that unfamiliar material containing comparative figures over a period of time can be considered and absorbed in such circumstances.
In the upshot I find myself unable to accept the evidence of Mr Gow where it is in conflict with the evidence of the applicant and his witnesses.
I turn to the diary note of Mr Imhoff. It is to be observed that Mr Imhoff records the fact that he discussed "in detail" the subject of euro-currency financing. The diary note then lists the various aspects that were the subject of discussion. Although Mr Imhoff did not take with him to the meeting any check list of points to be discussed (it was not his practice to do so), there is no reason to suppose that he did not deal with the various topics listed in the note. He acknowledges in his oral evidence that he did not see it as being any part of his role to estimate the level of sophistication of his audience. I am satisfied that any explanation of the operation of the euro-currency market and the bank's involvement in it would have gone over Mr Chiarabaglio's head at that time. It is clear that the terms of the loan, establishment fee, interest rates, roll-over period and the like were discussed and would have been within the apparent range of Mr Chiarabaglio's understanding. Also it is clear that the minimum available loan of the equivalent of $500,000.00 Australian was explained.
It is also clear that the question of exchange risk was discussed. According to the note this risk was discussed in relation to interest payment and capital payments. In relation to risk, historical movements of exchange rates were discussed as was also the question of hedging. The note was made, obviously, shortly after the discussion took place and in contemplation, as the note suggests, that there would be an application for a foreign currency loan. Although the note records that the directors were to consider the matter and "get back to Mr Story to advise him what they wanted to do", it is quite clear that Mr Imhoff's impression, as recorded, was that, at the end of his presentation, the directors evinced an intention to go ahead. It is worth noting that the term of the loan (five years) and the interest only period (first two years) differ from the corresponding periods actually provided for in the applicants' subsequent loan agreement. This, in itself, provides some support for the applicant's contention that there was a second meeting.
What the note does not indicate is, of course, what was actually said by Mr Imhoff in relation to exchange risks and also the manner in which it was said. As to this, Mr Imhoff can speak only as to his practice. It is clear, however, that he did not describe the risk as being an open ended one; nor did he describe the transaction as being of its nature a gamble. He makes no mention of the use of written or graph material in the presentation nor of there being a "hand out" of the material to the directors for their further study, an event which I am satisfied did not occur. It is clear that, although reference was made to withholding tax, there was no discussion of the deductibility or otherwise of exchange rate losses on the capital of the loan.
There is a fundamental conflict between the assertion by Messrs Chiarabaglio, Hackett, and Ferraris, and Messrs Gow and Imhoff as to the manner of presentation of the material by Mr Imhoff. The former assert that the style of presentation was enthusiastic and encouraging in relation to offshore borrowing with emphasis on the advantages and but scant reference to the risks involved. Hedging was mentioned briefly and only for the purpose of indicating that it was not worthwhile. It is the contention of the latter that the presentation was measured and balanced with firm emphasis on the risks involved, with reference to historical detail and a full exposition of hedging, total and partial, involving references to "monitoring". As already indicated, Mr Gow gave a recollection of the mentioning of substantial inherent risks requiring careful "management".
I have gained considerable assistance in resolving this conflict from the evidence of Mr Story. He was quite clear that at the completion of Mr Imhoff's presentation he personally did not have any impression that the contemplated transaction was one involving much risk. From his knowledge of Mr Chiarabaglio he was satisfied that he would not have contemplated entering into the transaction if there was any significant risk attached to it. In his diary note of the meeting with Mr Chiarabaglio on the 14th of April 1982 he says of him that "carried away by the attraction of 'offshore borrowing' he has in mind a borrowing in his own right half a million against his own security." He was satisfied that the applicant was "carried away" as a result of what Mr Imhoff had said on the 7th of April 1982. Mr Story also says that this was not a perverse reaction on the applicant's part having regard to what he was then told by Mr Imhoff.
Mr Story also indicates that he regarded both Mr Hackett and Mr Ferraris as cautious men of business. Nevertheless he recorded in his diary note of the 14th of April 1982 in relation to Mr Chiarabaglio's suggestion that he might borrow $130,000.00 by way of its being included in a loan made to Northern Metals and then on-lent to him, that if all Directors want to "get on the band wagon" the whole arrangement could easily fall through. He was clearly of the view that Mr Imhoff's presentation had also made Messrs Hackett and Ferraris enthusiastic about the prospect of offshore borrowing.
It was also Mr Story's view that Mr Imhoff's presentation although a good qualified one was "not discouraging". From a careful consideration of his evidence and the giving of it I am of the opinion that his view of the manner of Mr Imhoff's presentation of his advice and information on the 7th of April 1982 is best summed up where he says that Imhoff "spoke quite positively about the prospects of an offshore loan."
I am also satisfied, on the evidence, that as at April 1982, Westpac had for some time been actively promoting, especially in Queensland, offshore lending facilities, particularly through its Singapore branch. Mr Imhoff, himself, testified that there was competition between the banks in relation to these loans and that they were regarded as a means of attracting new business. Indeed more such loans had been arranged through Mr Imhoff's efforts in Queensland in the years 1980, 1981 & 1982 than had been arranged through the effort of corresponding bank officers in Sydney and Melbourne. I gained the strong impression that Mr Imhoff had distinct selling abilities and that, as Manager of International Business for the State, would have had an interest in increasing this aspect of Westpac's business. It is, of course, not a source of criticism of Mr Imhoff that he should have been enthusiastic in promoting his employer's interests. The question in the case is whether that enthusiasm led him to commit the breaches of which the applicants complain.
I come, then, to consider the evidence of the male applicant and his witnesses. I do not propose to review the whole of it. I am quite satisfied by it that Mr Imhoff was introduced to them as the Manager of International Business of Westpac in Queensland. He was put forward as having expertise in the matter of offshore borrowings and as the appropriate officer of the Bank to provide advice and information in relation to such borrowings from the Bank. I am satisfied that Mr Imhoff was enthusiastic about the subject of offshore loans and that whilst referring to the risks involved in exchange rate movements he nevertheless encouraged the Northern Metals directors including the male applicant to treat them as of little significance. I am satisfied that reference was made to fluctuations in the exchange rate. It is difficult to determine the period of time that was discussed in relation to these fluctuations. Mr Imhoff appears to favour the view that the period was from 1979 onwards, that being the period over which he had himself kept records. The evidence of the Northern Metals Directors and, perhaps, that of Mr Gow suggests that a longer period, perhaps of ten years was referred to. The evidence is confused, but on balance, I have come to the view that there was specific discussion of only a period of about three years. This period related to fluctuation between the Australian dollar and the Japanese yen, although other currencies were discussed. Mr Imhoff indicated that the yen was stable as against the Australian dollar, Japan being a major trading partner, and that, by reference to the collected figures, rises and falls in the exchange rate tended to even out with the result that no significant exchange risk existed. This was especially so when the very advantageous interest rate, about half of the onshore interest rate, was taken into account.
I am satisfied by their evidence that hedging was referred to but only in relation to the whole period of the loan. It was mentioned but only in the context that to utilise it would be to negate the interest rate benefits of borrowing offshore. I am satisfied that no mention of short term hedging was made, although some reference to "monitoring" was made in the context that it was possible to follow exchange rate fluctuations in the newspapers. I am fortified in this by the fact that Mr Story was of the view that management and monitoring were not mentioned and does not recall what if anything was said about hedging in the short term. Significantly, he recollected that the reference to exchange rate fluctuations was that they tended to be of a fairly even nature, "up-down-up".

In relation to paragraph (b) he agreed in cross-examination that although there were no realistic means of predicting where the Australian dollar might end up against the Japanese yen six years after April 1982 he did not use any such term as "gamble" to describe the risk involved in taking out such a long term currency loan.
With respect to (c), I am satisfied that Mr Imhoff did mention the availability of exchange rates in the daily newspapers, but I am equally satisfied that he did not link this information with advice as to the use to which such information could be put particularly by including it in any discussion of short term hedging or management.
As to (d) I am quite satisfied that Mr Imhoff made no suggestions as to the taking of outside professional advice; nor did he mention that there could be problems in the deductibility of exchange losses if they occurred against a borrower's assessable income. Such a discussion would, of course, have served to underline forcefully the element of risk involved in the loan.
In regard to (e) I am satisfied that Mr Imhoff's explanation was seriously deficient. Westpac contemplated, at that time, that the borrower, once having entered into the offshore loan, would be entirely left to his own devices to take protective measures against adverse currency exchange movements. It was not until much later that any form of management advice or facility was to be offered. It was, in my view, on the evidence, highly dangerous to leave a potential borrower in a state of mind either that hedging because of its cost was pointless or unnecessary or, even if short term hedging were referred to, that it was a simple and efficient device for the avoiding of exchange risk. The evidence, in fact, demonstrates that Mr O'Brien's statement that "it was necessary to know when to hedge and when not to and this was and is very difficult to be sure of" is entirely correct.
This difficulty is best illustrated by a quotation from Mr O'Brien's evidence on this subject. In relation to questions on selective hedging he gave evidence as follows:-

"For the client to understand hedging, what they would have to understand is that having decided to - that an exchange risk that they have at the current time is not something that they wish to continue with, their option to hedge would be to eliminate that risk by converting the currency via a paper transaction, the risk back to Australian dollars. That is the normal terminology for it. So they would then have to understand that the difference between what the market refers to as a spot exchange rate and a forward exchange rate?---Yes.

The forward exchange rate is an exchange rate that is adjusted - the spot rate is adjusted by the interest differential that applies between the two currencies, or countries of the currencies involved. It can either be a benefit or a cost. If it is a cost, which it would have been in the case of somebody that had borrowed in Japanese Yen or Swiss Francs or in most currencies at that particular time because of the situation of the Australian interest rate, the spot exchange rate would be adjusted down to reflect difference in interest rate, so that the forward exchange rate if you took the Australian dollar value of the loan today compared to its value in three or six months time, whenever the forward is, a dollar difference between the two would roughly represent the interest differential between what they would have paid if they had physically borrowed in Australian dollars compared to the currency that they did. So they would certainly have to understand that. It would then depend on individual banks what would happen then, whether the customer would have to physically meet that adjustment of Australian dollars, the difference, whilst they had hedged. The banks would allow that to be capitalized onto the loan; others would require the customer to meet that differential if the customer decided to then go back into the currency that they were in. That obviously has an impact on cash flow, so they would certainly have to appreciate that. They would have to appreciate that if the exchange rate - if their view was wrong, they have locked themselves into an exchange rate that prevents them from getting the benefit if the Australian dollar had appreciated. Yes?---Again that would depend from bank to bank whether they would make them adjust that differential. I would have said that - and most of the people would have been aware through this period by press or media of some form that the exchange rate was volatile - you know, it was in newspapers at various times - but I would have thought that the customer should have been at least monitoring it weekly. Lots of newspapers - every newspaper, basically, or most newspapers have some form of an exchange rate in it, so it would not have been very hard for them to monitor where the exchange rate was, and they would have to take views depending on where the market - and they could only be guided by what they read or what they heard from various people. They would have to take a view, would not they, if they were to make a decision about hedging, they would need to take a view as to where the market was going?---Yes. And a person could not necessarily take the view that there was a downward trend just because the dollar had moved downwards on three successive days?---No, so they were taking longer term views, most of them, and I think most people in the market were in that sort of market - would have been taking a view of a month, two months, three months, perhaps.

And as we have seen, you can have very severe drops in the space of a few days, cannot you?---Yes.

In foreign currency?---Yes.

Mr Imhoff in relation to questioning about what was involved in selective or short term hedging gave similar evidence illustrative of the difficulties involved in making relevant decisions.
I am firmly of the view that to fail to apprise an inexperienced potential borrower of the fact that future movements in the exchange rate could produce situations where he might reasonably be called upon to make decisions of the kind referred to would be to leave him without any adequate explanation of the true nature of the risks and problems associated with a foreign exchange borrowing. This information was in every way germane, in my view, to an informed decision as to whether to enter into the loan or not. Mr Imhoff provided no such information and his failure to do so in the circumstances of this case, was, in my opinion, a breach of his duty of care as an advisor.
As to (g) I am satisfied that Mr Imhoff's presentation failed to lay due and proper emphasis on the unpredictability of exchange rates. On the contrary, I am satisfied that the presentation led to a reasonable perception on the part of the audience that whereas fluctuations would occur they would basically be of an even nature along a horizontal axis. No picture was given of the type of sharp decline, without recovery, to a lower level of valuation of the Australian dollar against the yen such as had occurred in the not distant past. A reasonably competent advisor would and should have pointed these matters out. Again, in my view, the introduction of serious risk into the picture would have turned Mr Chiarabaglio away from any interest in the suggested offshore borrowing. Indeed the contrary occurred. Mr Imhoff, as I have found, informed Mr Chiarabaglio that there was no significant risk.
In all the circumstances, I am quite satisfied that the applicant has established a breach of the duty of care owed him by the respondent.
I find it unnecessary to enter upon any detailed consideration of the applicants' claims under s 52 of the Trade Practices Act 1974. I am quite satisfied, on the facts found above, that there was misleading or deceptive conduct by the respondent within the meaning of the section (Gould v. Vaggelas (1985) 157 CLR 215; Keehn v. Medical Benefits Fund of Australia Limited (1977) 14 ALR 77; Henjo Investments Pty Limited v. Collins Marrickville Pty Limited (1988) 79 ALR 83.). Even allowing that Mr Imhoff's statement as to absence of significant risk was a statement of opinion rather than of fact, being, as I have found, an opinion that he in fact held, there was, in the circumstances, no reasonable basis for that opinion.
I have already found that the representations and omissions were legally causative of the pecuniary losses claimed by the applicant. There is no need, in these circumstances, to enter into any consideration of whether the alleged breaches by Mr Look have been established.
I turn then to the question of damages. My task in this regard has been to a large degree simplified by agreements reached between the parties. These are based upon calculations which have been presented by expert witnesses on both sides. Three positions are contemplated, leading to agreed arithmetical results in each case. The applicant contends for a calculation based upon the assumption that had he not been induced to enter into the loan, he would have continued in the situation of owing the respondent the amount of his April 1982 indebtedness, vis $100,000.00. I should indicate that the correct figure of indebtedness appears to be $102,676.00. The parties are, however, prepared to accept the round figure. It assumes against the applicant that he would have maintained this indebtedness to date.
The respondent puts forward calculations based upon two countervailing assumptions. The first is that the applicant would have borrowed $500,000.00 Australian in any event so that a calculation of his losses must include an appropriate allowance for the Australian rate of interest applicable from time to time on this amount from July 1982 to date. In my view the evidence does not support this assumption. I am satisfied that Mr Chiarabaglio borrowed the $500,000.00 in Japanese Yen at the time that he did because this was the minimum amount that he could borrow. As already indicated he had in mind utilising it reasonably promptly for a building project. The immediate borrowing had the advantage of enabling him to pay off his existing indebtedness which was incurring the high Australian rate of interest. He had no immediate need for the balance but was satisfied that it was "good business" to invest it at the Australian rate of interest until he could utilise it. I am satisfied that, if these considerations had not been involved, he would not have contemplated any large borrowing in Australian currency until such time as he needed it. In the circumstances, the probabilities quite clearly are that, having regard to the continuing down-turn in the real estate market, he would not have made the borrowing at all.
The other position propounded by the respondent and made the basis for a further calculation, is that the applicants would have, in any event, borrowed the amount of $130,000.00 Australian. This is the figure discussed by Mr Chiarabaglio with Mr Story on the 14th of April. Mr Chiarabaglio was considering borrowing such a sum by means of it being tacked on to a loan to Northern Metals. It was to be used, apparently, to discharge the indebtedness to the Bank, with apparently something left over. In my view this plan, which was never put into practice, was all tied up in the general decision to borrow offshore in yen. There is nothing in the case that indicates, to my satisfaction, that, had that decision not been made, Mr Chiarabaglio would have borrowed $130,000.00 Australian onshore from the respondent or anyone else.
I am satisfied that the applicants' damages should be approached on the first assumption, namely of a continuing indebtedness at Australian rates of interest of $100,000.00. The resulting calculation produces a figure of $556,275.09 as at the 19th of April 1989. This figure takes into account a management fee of $6,250.00 paid to the Partnership Pacific organisation. I am satisfied that this is correctly included. It also makes allowance for an amount of $67,521.33 profit made for the applicants by that organisation through its management of the loan in 1986. I should add that I am satisfied for the reasons given by Mr Chiarabaglio that it was not reasonable to seek any further management of the loan, on the basis that he did not, on acceptable grounds, feel any confidence that it could be properly managed after Partnership Pacific was unable to continue management.
I am faced with the problem that the amount referred to is now out of date. As its calculation includes a substantial sub-calculation of exchange loss on repayment of principal, I do not think it appropriate that I should attempt the calculation when it can be done with accuracy by those who produced the earlier one.
Also, it is likely that further orders are necessary to dispose of these proceedings other than the mere awarding of damages to the applicants in the recalculated sum. It may be that the parties can agree on all these matters. If not, I must receive submissions orally or in writing.
At this stage, therefore, I make the following pronouncements:-

1. I find liability in favour of the applicants against the respondent.

2. I indicate that I propose to award damages to the applicants against the respondent based upon a calculation which assumes that the applicants would have had an ongoing indebtedness to the respondent of $100,000.00.

3. I order the respondent to pay the applicants' costs of the proceedings.

4. I direct that the proceedings be listed before me for the purpose of further submissions and/or the bringing in of short minutes of order to be made for the disposition of the proceedings, including the cross-claim. This re-listing should take place at the earliest convenient date.

[1989] FCA 381

21 JULY 1989