Donkin, C.J. & H.K. v A.G.C. (Advances) Ltd

[1991] FCA 553

JUDGMENT No. . .. ........ .....,,. 553r!: Or(

IN THE FEDERAL COURT OF AUSTRALIA	)
)
QUEENSLAND DISTRICT REGISTRY	) No. G107 of 1989 )
GENERAL DIVISION	)

BETWEEN:  COLIN JOHN DONKIN and
HEATHER KAYE DONKIN

BEAUMONT J.
Introduction

By their application and second further amended statement of claim ("the statement of claim"), the applicants, Mr. and Mrs. Donkin, instituted proceedings against A.G.C. (Advances) Limited ("AGC"), claiming damages and other relief by reason of the entry by Mr. and Mrs. Donkin into a foreign currency borrowing transaction with AGC in 1986. Mr. and Mrs. Donkin sued on several causes of action. They claimed that AGC engaged in conduct that was misleading or deceptive and thus contrary to the provisions of s.52 of the Trade Practices

parties. I have already made findings, with reasons, with	respect to certain aspects of the factual contest between the
respect to certain of the representations alleged. Since publishing those findings, I have received the remaining evidence in the action, including expert evidence. I have also had submissions on behalf of the parties with respect to the matters of primary fact which remain to be decided. I propose now to find those facts and give reasons for those findings. I will then proceed to the final stage of the action and hear the parties on the secondary facts or inferences, on the expert evidence, on any other factual questions that arise, on any matters of law, and on any calculations that need to be made.
me case pleaded bv the statement of claim
In essence, the case pleaded by the statement of claim is as follows: Mr. and Mrs. Donkin had no previous experience with, and were ignorant of, the risks inherent in borrowing in a foreign currency; they were not able to monitor effectively movements in rates of exchange; and they
relied on AGC for advice and assistance in relation to any foreign borrowings made with AGC (para.2A). In February
1986, Mr. Roy Stagg, Manager, Property Finance, of the Rockhampton branch of AGC, made a request of Mr. Donkin that AGC be allowed to provide Mr. and Mrs. Donkin with an "off- shore" loan and/or invited Mr. and Mrs. Donkin to obtain such a loan (para. 3) . The borrowing needs of Mr. and Mrs. Donkin with respect to the "Flamingo" Night Club, Rockhampton, and the "Heritage" Tavern, Rockhampton, were AS1.15 million and Mr. and Mrs. Donkin "wished" to borrow no more than that sum unless it could be borrowed at "much lower" rates of interest than the rates prevailing in respect of borrowings in Australian dollars (para.3A). Between February and April 1986, Mr. Donkin negotiated with Mr. Stagg for an off-shore loan of A$2 million to Mr. and Mrs. Donkin for use in Mr. and Mrs. Donkin's business of hoteliers (para.4). During the course of such negotiations, Mr. Stagg made certain representations and gave certain advice to Mr. Donkin with respect to the terms of such loan and several other matters (paras. 4, 5, 6 and 7A) . (Details of these allegations, which are central to the claims of Mr. and Mrs. Donkin, are set out in the reasons for findings I have made with respect to, inter alia, the matters alleged in paras. 4, 5, 6 and 7A.) Mr. and Mr. Donkin relied on these representations to the effect, inter alia, that Westpac would assist them in managing the off-shore loan (para.7B). These representations were misleading in relation to the interest rate applicable to the
loan and negligently made (paras.7C1 7F).
On 27 March 1986, Mr. and Mrs. Donkin, relying on these representations, signed (i) a letter dealing with a foreign currency facility in the sum of AS1.5 million; (ii) a letter dealing with an on-shore loan facility in the sum of $0.5 million ("the facility letters") (para.8). On 16 April 1986, AGCrs solicitors wrote to the solicitors for Mr. and Mrs. Donkin to the effect that the on-shore loan of $0.5 million must be utilised and was not available merely at the option of Mr. and Mrs. Donkin (para. 9) . By reason of their financial commitments, Mr. and Mrs. Donkin were obliged to take the loan on the fresh terms now offered (i.e. AS1.5 million off-shore and AS0.5 million on-shore) (para.10).
On 25 April 1986, Mr. and Mrs. Donkin and AGC executed a finance facility deed ("the deed") and collateral security documents (para.11). In pursuance of the facility letter and the deed, AGC lent Mr. and Mrs. Donkin: (i) on 30 April 1986, $494,100 at on-shore interest rates; (ii) on 14 May 1986, $1.5 million at on-shore interest rates. On 2 June 1986, the said sum of $1.5 million was substituted by an amount in Swiss francs equivalent to $1,499,817.70 and was lent by AGC to Mr. and Mrs. Donkin at off-shore interest rates (para.12).
On 8 August 1988, Mr. and Mrs. Donkin and AGC executed a deed of variation whereby the on-shore loan was increased by a further advance of A$76,897.04 to a total on-
shore loan of A$570,997.04 and the rate of interest was also varied (para.13). Mr. Stagg gave the advices and made the representations alleged in paras. 4, 5, 6 and 7 in circumstances giving rise to a duty of care (paras. 14 and 15). AGC breached that duty (paras. 16 and 16B). Alternatively, there was misleading conduct (paras. 16A, 16B). Mr. and Mrs. Donkin relied on the representations and advice until May 1989 (para. 18). The representations in paras. 4(c)
and (f) were made fraudulently (para. 19). By letter dated 30
April 1991, Mr. and Mrs. Donkin rescinded the deed and the collateral security documents for fraud (para. 19A). The representations in para. 4 were made to induce, and did induce, Mr. and Mrs. Donkin to enter into the said loans (paras. 20, 21).
In August 1988, Mr Donkin requested AGC to give consideration to the off-shore loan being brought back on- shore upon the exchange rate between the Swiss franc and the Australian dollar firming above 1.3; Mr. Donkin requested expert advice in that regard; and AGC had a duty to advise and to monitor exchange movements (paras. 22, 23). On 31 January 1989, the exchange rate reached 1.3666 but, in breach of its duty, AGC failed to advise and to manage the loan properly (para. 24). As at 5 June 1990, Mr. and Mrs. Donkin suffered loss in the amount of $616,829.78 and continuing loss is
claimed (para. 25). Certain other allegations were made with respect to interest periods and to withholding tax (paras. 26,

1974. They also alleged several causes of action under the general law. Their claims were complex, in fact, and in law. For this reason, it was thought desirable to divide the trial into several stages so that findings could be made with

tA.F N O c.ow.L\- l b f ,J,M

27, 28 and 29) but P these matters 4 Mr. and t

Mrs. Donkin also alleged (para. 29A), but they now no longer press, that AGC was continually obliged to provide loan funds at an interest rate between 7.5% and 8.5% p.a. Finally, Mr. and Mrs. Donkin alleged breach of an oral warranty by AGC to bring the foreign currency loan back on-shore if there were adverse movements in the exchange rate (para. 32).

Further findinas

As has been said, it is proposed at this stage to make further findings of primary facts where this is appropriate. As the trial has proceeded, it has emerged that many facts, primary and other facts, were not seriously in dispute. It will be convenient to deal with each material paragraph of the statement in turn.

"1. At all material times [AGC]:-

(a)	was and is a company incorporated according to law;
(b)	was and is a corporation within the meaning of the Trade Practices Act...

(c) was engaged in trade or commerce."

This is not seriously disputed.

"2. At all material times Mr.... Stagg ... :-

(a) was the manager of the Rockhampton branch of [AGC];

(b) was the servant or agent of [AGC];

(c)	acted within the scope of his actual or apparent authority in respect of all representations statements or advice referred to herein;
(d)	acted at the direction of or with the consent or agreement of [AGC] and on behalf of [AGC];
(e)	had actual or ostensible authority to make and give the representations, statements and advice subsequently referred to;
(f)	was held out by [AGC] as a person capable of giving expert advice to [Mr. and Mrs. Donkin] in respect of borrowings in foreign currency."

findinas

It is common ground that Mr. Stagg was the manager of the property Finance Division of the Rockhampton branch of AGC. The ostensible authority of Mr. Stagg to make the statements I have already found cannot be seriously disputed. As to para.2(£), the findings I have already made indicate that an inference should be drawn that Mr. Stagg approached Mr. Donkin, and discussed financial matters with him, and acted in the transactions, on the footing that Mr. Stagg was himself knowledgeable and also had access to others who were knowledgeable in, the field of borrowing in a foreign currency.

"2.A At all times material	. . . [	AGC] knew or ought to
have known that:-

(a) [Mr. and Mrs. Donkin] had no previous

experience in and were ignorant of the risks inherent in borrowing in foreign currencies;

(b)	[Mr. and Mrs. Donkin] were not in a position to effectively monitor and respond appropriately to movements in currency rates of exchange;
(c)	[Mr. and Mrs. Donkin] were relying on [AGC] for advice, guidance and assistance in relation to any foreign currency borrowings effected or to be effected with
[AGC] . "

Findinq

It cannot seriously be disputed that, at the time of entry into the subject transactions, Mr. and Mrs. Donkin had little knowledge of these matters; and that, although Mr. Stagg attempted some explanation of their complexities, he had little knowledge also, as did Mr. Johnson. It is common ground that Mr. Donkin had had significant business experience in other areas such as rural activities, hotel businesses, and property dealings. In the initial discussions (see the earlier findings 1, 2, 3 and 4 ) , Mr. Donkin conveyed to Mr. Stagg the message that he was seeking from Mr. Stagg an explanation of the merits and the mechanism of an off-shore borrowing.

"3. During the month of February, 1986 [Mr.] Stagg requested [Mr.] Donkin that [AGC] be allowed to

provide [Mr. and Mrs. Donkin] with an 'off-shore loan' and/or invited [Mr. and Mrs. Donkin] to obtain such a loan from [AGC].

Findinq

In the light of my earlier findings 1, 2, 3 and 4, this cannot be seriously disputed.

Para .3A

"3.A At all material times the ... borrowing needs [of Mr. and Mrs. Donkin] with respect of the Flamingo Night Club, Rockhampton and the Heritage Tavern, Rockhampton were AS1.15 million and [Mr. and Mrs. Donkin] wished to borrow no more than that sum unless it could be borrowed at much lower rates of interest than the rates prevailing on borrowings in Australian dollars."

This allegation is, in some respects, inconsistent

with findings 1, 2 and 3 from which it may be concluded that

Mr. and Mrs. Donkin were initially seeking finance in the sum

of $2 million at an interest rate lower than 17.5% p.a. In other respects, it is appropriate that I defer making further findings until the next stage of the litigation.

para.4, - &&roductorv alleaations

"4. During the period of February, 1986 to April,

1986 [Mr.] Donkin ... negotiated with [Mr.] Stagg in his capacity as Rockhampton manager of [AGC], for an off shore loan to [Mr. and Mrs. Donkin] of A$2 million for use in [their] business of hoteliers. During the course of such negotiations, [Mr.] Stagg orally represented to and advised [Mr.] Donkin as follows:-"

Findinq

In the light of the previous findings 1, 2 and 3, it cannot be seriously disputed that Mr. Donkin and Mr. Stagg	initially negotiated for an off-shore loan of AS2 million for
the purposes stated in finding 3.

"(a) that both himself and [AGC] were capable of offering skilled advice and management in respect of such an off-shore loan;"

Findinq

In the light of my previous findings, this cannot

now be seriously disputed.

"(b) that the amount of the off-shore loan would be AS2 million as requested by [Mr. and Mrs. Donkin] for a term of 5 years with a 12 month rollover period with interest to be paid in arrears;"

Findinq

In the initial stages, $A2 million was discussed. AS to the other matters, i.e. term, roll-over period and payment of interest in arrears, I was unable to make findings in respect of the initial discussions. Passing beyond the initial period, on 27 March, Mr. and Mrs. Donkin signed the letter of approval and letter of willingness, each dealing with these matters. On 28 April, they signed the finance facility deed which also dealt with these matters. This allegation (i.e. para.l(b)) appears to be directed to the

earlier findings. initial period only. As such, it is not consistent with my "(c) on a subsequent occasion to that referred to in (b) hereof, that the off-shore loan was to be the reduced sum of AS1.5 million with a further AS.5 million standby facility available on-shore, to be drawn upon by [Mr. and Mrs. Donkin] at their option, if required, the said representation is to be implied from the

following ..."

(Reference is then made to a statement by Mr. Stagg to Mr. Donkin on 21 March that head office had approved an off-shore loan of $1.5 million and an on-shore loan of $0.5 million. Reference is also made to the letter of approval and the letter of willingess.)

Eindinq

Subject to later argument, if any, as to the legal effect of the letter of approval, the letter of willingness, and the finance facility deed, this matter is the subject of my earlier finding 5.

"(d) that the 5 year term of the loan and the 6 month rollover period was certain on the part of [AGC], provided [Mr. and Mrs. Donkin] paid interest punctually;"

Findinq

See the finding in respect of para.4(b) and (c). "(e) that the effective interest rate to be

charged to [Mr. and Mrs. Donkin] in respect of the foreign currency borrowing throughout the 5 year term of the loan would be around 8% per annum (i.e. from 7.5% to 8.5%;"

Finding

In respect of the initial discussions, this matter

has been dealt with by previous findings 1, 2 and 3.
"(f) that [AGC] is associated with Westpac
Banking Corporation ('the Bank') which had
expertise in matters of off-shore

borrowing;"

Findinq

This is not now seriously disputed.

"(g) that [AGC] would arrange for [Mr. and Mrs.

Donkin] to get the best possible interest

rate; "

Finding

This allegation is inconsistent with my earlier

findings	.
Para.	4 (h1
"(h) that the Australian dollar was likely to rise as against the Swiss franc and that in that event the effective borrowing rate would be less than the 8% per annum as quoted in (e)

hereof; "

Findinq

The first part of this allegation is inconsistent

with my earlier findings. The second part is the subject of

f indings 2 and 3.

"(i) that hedging was unnecessary, firstly because it would result in an interest rate approximately equal to on-shore borrowings and secondly because of [AGC's] expertise in managing such off-shore loans, in that [AGC] would bring the off- shore loan back on shore or swap to another currency, if adverse movements occurred in the exchange rate, and that [Mr. and Mrs. Donkin] were being charged

4% margin by [AGC] for such expertise;"

Finding

This is the subject of finding 3.

Para. 4 l 1 1

"(j) That [AGC] would do all things necessary

and that, by implication, there were no
risks that could not be avoided;"

Findinq

It is plain that the parties contemplated, and agreed, that AGC would attend to the mechanics of the making of the loans whether on-shore or off-shore. The legal implications of this, including the question whether AGC understood any implied obligation to monitor, will need to be explored at the next stage of the proceedings.

"(k) by inference from the foregoing that such risks as were present in a borrowing in a foreign currency were of a minor nature and would not lead to any capital or other loss on the.. .part [of Mr. and Mrs. Donkin]. "

Findinq

So far as the discussions may have addressed these matters, they are the subject of my earlier findings. I will hear further argument on the question whether any inference or implication of the kind suggested should be made.

Paras. 5. 6ffal. 7fAL

In these paragraphs, it is alleged that certain documents were handed over to Mr. Donkin by Mr. Stagg in the course of the negotiations.

Findinas

These allegations are inconsistent with my previous

findings .

Paras.7lBl. 8

In these paragraphs, it is alleged that, in executing the letter of approval and the letter of willingness, Mr. and Mrs. Donkin relied on the written representations alleged in paras. 5 , 6 and 7(A), in conjunction with the oral representations alleged in para.4.

The reliance issue is contentious and depends upon inferences.

I will defer dealing with this until the next stage.

Para. 9

This refers to a letter from AGC's Sydney solicitors

dated 16 April.

Findinq

The solicitor's letter restated the terms of the letter of approval and the letter of willingness. No documentation was enclosed. The further allegation in para.9 that the Sydney solicitors then stated, orally, that failure to accept the terms of the loan would have certain consequences has not been sustained by Mr. Watts in his evidence. I accept the denial given in the evidence of Mr. Brand of Clayton Utz.

Para. lQ

This alleges that, due to their financial commitments, then described, Mr. and Mrs. Donkin were "obliged" to take the loan on certain terms.

Findinq

Some of the detail of the financial commitments

alleged is set out in the respondent's submissions M.F.I. "11"

and "11A". The facts there stated do not now appear to be	seriously disputed. The suggestion that there was an
"obligation" to take the loan suggests economic duress but the evidence does not sustain this. I have already found that Mr. and Mrs. Donkin were seeking to raise $2 million at a rate of interest less than 17.5% p.a.
Para. l1

This refers to, inter alia, the execution of the

deed, which is admitted.

Paraa. 12 and 12

These refer to some of the detail of the borrowing. The material in M.F.I. "11" provides further detail and is, apparently, no longer contentious.

Paras. 14. 15. 16. 16A. 16B and 17

These allegations are relevant for the purpose of establishing a duty of care and breach and a contravention of 8.52. It is preferable that they be dealt with later. Para.l7(a) is not pressed.

Paras. 18. 19. 20. 21. 22 and 23

I will defer dealing with these allegations as they depend, in the main, upon inferences which are contentious.

5-

These paragraphs deal with a number of matters. The
appropriate rate of exchange will, I expect, be admitted in

matter depending in part upon inferences which are contentious due course. The "management" of the loan is a contentious and which will therefore be deferred.

I hereby certify that this and the preceding sixteen (16) pages are a true copy of the Reasons for Judgment of his Honour Mr. Justice

Beaumont .

Associate
Dated: 31 July 1991

H THE FEDERAL COURT OF AUSTRALIA	)	l
1

QUEENSLAND DISTRICT REGISTRY	)	No. ~ 1 0 7	of 1989
1
B N E W DIVISION	)

BETWEEN:	COLIN JOHN DONKIN and HEATHER KAYE DONKIN
Applicants

AND:  A.G.C. fADVANCESI LIMITED
Respondent

Reasons for Judgment (No. 2) on further findings of fact dated 31 July 1991 of his Honour Mr. Justice Beaurnont be amended as follows :

Page 5, line 20 to read:

"27, 28 and 29) but these matters are no longer in

issue. Mr. and"

(k$sociate to Beaumont J.)

7 August 1991