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

[1991] FCA 477

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C A T C H W O R D S

Dan\aaee - Measure of damages in negligence - failure by off-

8hore lender to advise of existence of "stop-loss" mechanism.

N	H	O	J	-	V A.G.C.	(ADVANCES) LIMITEQ
No. G107 of 1989
Beaumont J. Brisbane

8 August 1991

.

COURT OF AUSTRALIA )

1

D DISTRICT REGISTRY	) No. G107 of 1989
1
DIV-	1

BETWEEN r JOHN DONKIN and
KAYE WNKIN

Applicants

AND:  A.G.C. IADVANCES) LIMITED
Respondent

!x!Bu:	Beawnont J.
u!l!E:	8 August 1991

W O N S FOR J W M E N T (No. 4 1

1 e 1

In Reasons for Judgment (No. 3) I held that, in one

respect, AGC was liable to the applicants in negligence. I

said (at 12) r

"AGC was in breach of its duty to advise the applicants of the steps available to a borrower to

minimise the risks of an adverse fluctuation in the	rate of exchange. In my view, AGC should have
informed the applicants that it was possible to hedge "selectively" or to use a "stop-loss" mechanism."

I have now heard the submissions of counsel dealing with the questions of principle that arise on the measure of damages. I have deferred dealing with the matter of quantum until a later stage.

The general principles in this area were recently

stated by Mason C.J., Dawson, Toohey and Gaudron JJ. in Hainee

v m (1991) 99 ALR 385 at 386 as follower

"The settled principle governing the assessment of compensatory damages, whether in actions of tort or contract, is that the injured party should receive compensation in a sum which, so far as money can do, will put that party in the same position as he or she would have been in if the contract had been performed or the tort had not been committed... Compensation is the cardianal concept. It is the

'one principle that is absolutely firm, and which must control all else': Skelton v (1966) 115 CLR 94, per Windeyer J at 128. Cognate with this concept is the rule, described by Lord Reid in

m v Gleavef [l9701 AC 1 at 13, as universal,

that a plaintiff cannot recover more than he or she

has lost. "

On behalf of the applicants, counsel argued that they were entitled to be placed in the same position as they were before the tort was committed. Counsel then submitted that it should be inferred that, if AGC had given the information or advice in question, the applicants would not have borrowed off-shore and that their damages should be

measured accordingly. Although the general proposition of law thus put may	be accepted, I do not agree that its application in the
present case leads to the result contended for.
In my opinion, if AGC had given Mr. Donkin an explanation that "selective" hedging or a "atop-loss" mechanism was available, it is probable that Mr. Donkin would have decided to adopt the latter procedure in an appropriate form.
In his evidence cited in Reasons (No. 3), Professor Valentine described the advantages of the "stop-loss" mechanism as follows:

"21. An alternative approach is to use forward foreign exchange contracts in passive management of the loan. The obvious approach here is the stop-loss mechanism which involves covering the loan when a loss of a certain percentage is suffered. A stop-loss rule is simply the putting in place of forward cover at a pre-determined point. Hindsight might show the covering of the exposure to be an error (that is, the exchange rate may go up again) and it is therefore a decision which should be made by a customer rather than his bank."

It will be recalled that in March 1906, the applicants needed substantial funds to refinance their exi~ting borrowings and for other commitments then proposed. For this reason, they were seeking to borrow $2 million. Their assets overall had a value in the order of $4 million.	Clearly, a borrowing of $2 million represented a significant	exposure for them. As well, they knew that domestic interest
rates were high (approximately 17% p.a.) and that an off-shore loan could be achieved at about 7% p.a., but subject to a risk of d currency fluctuation. In those circumstances, it would, I think, have been a logical step for the applicants to take (1) to borrow off-shore and (2) at the same time to protect themselvee to a reasonable degree in terms of their exposure to currency fluctuations by arranging a stop-loss mechanism at
an appropriate level - say 10% - representing the difference
between the off-shore rates and local rates of interest at the time.
I do not accept the applicants' submission that, if advieed of "selective" hedging or a "stop-loss" mechanism, they would have abandoned entirely the idea of an off-shore borrowing. In my view, given the potential saving in interest costa it offered, provided also the applicants could achieve the protection offered by the "stop-loss", it is reasonable to suppose that the merit of such a package would probably have proved attractive to the applicants and that they probably would have opted for it.
On behalf of AGC, it is submitted that it should not be inferred that, if the requisite explanation had been given by AGC, the applicants would have "selectively" hedged or actively managed the off-shore loan. As I followed the argument6 of counsel, this contention is not seriously
challenged by couneel for the applicants. However, counsel for AGC further argued that, because of Mr. Donkin's business-
like approach to these matters, it should be inferred that even if advieed by AGC ae required by law, the applicants would have elected to proceed off-shore without the benefit of any "stop-loss". If the amounts involved had been smaller, there may have been some force in this argument. But, in my view, the magnitude of the borrowing relative to the total aseets of the applicants suggests that it would have been unlikely that they would have taken such a dangerous course. I think that it is more likely that they would have gone off- shore but with the benefit of a "stop-loss" operating at approximately 10%. I so find.

I hereby certify that this and preceding

four (4) pages are a true copy of the Reasons for Judgment herein of his Honour

Mr. Justice Beaumont.

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Bated:	8 August 1991

Counsel and S o l x i t o r s A. Harrison Q.C. wlth T. S m r s

f o r Applicants	instructed by Hempenstall O'Donoghue
Counsel and Sol lc l tors	R. Morrlson Q.C. wlth J.C. Sheahan
fo r Respondent	instructed by Feez Ruthnlng