Donkin, C.J. v A.G.C. (Advances) Ltd
[1991] FCA 409
•18 Jul 1991
LI M\W D\STRI A c l ~ l n d 4~01 9
JUDGMENT No. . ....... .l . ......
IN THE FEDERAL COURT OF AUSTRALIA ) -, )
QUEENSLAND DISTRICT REGISTRY ) No. ~ l d 7 of 1989 ) GENERAL DIVISION 1
BETWEEN: COLIN JOHN DONKIN and
HEATHER KAY DONKINApplicants
AND : A.G.C. f ADVANCES l LIMITED
Respondent
REASONS FOR JUDGMENT
(9n findinas with respect to the re~resentations
alleaed bv the a~~licantsl
BEAUMONT J. In this matter, an order has been made that there be determined, as a separate and preliminary question, whether certain representations alleged by the applicants, Mr. and Mrs. Donkin, were made and, if so, the terms of those representations. In order to understand the context in which the representations were alleged to have been made, it is necessary to refer to the pleadings.
The backaround matter8 alleaed in the leadi in as
Mrs. Donkin with an "off-shore" loan and/or invited Mr. and requested Mr. Donkin that AGC be allowed to provide Mr. and Mrs. Donkin to obtain such a loan from AGC; that the borrowing needs of Mr. and Mrs. Donkin with respect to certain nightclub and licensed premises in Rockhampton were SA1.15 million and that they 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. The reureeentatione alleaed in para.4 of the statement of claim In para.4, it is alleged that between February and April 1986, Mr. Donkin negotiated with Mr. Stagg for an off- shore loan of $A2 million for use in the hotel business conducted by Mr. and Mrs. Donkin. It is alleged that during these negotiations, Mr. Stagg made the following oral representations: (a) that Mr. Stagg and AGC were capable of offering skilled advice and management in respect of such loan; (b) that the amount of the loan would be $A2 million as requested by Mr. and Mrs. Donkin for a term of five years with 12 month rollover period, with interest to be paid in arrears;
be reduced to SA1.5 million, with a further SA0.5 million (c) (on a subsequent occasion) that the off-shore loan was to standby facility available on-shore, to be drawn upon by Mr. and Mrs. Donkin at their option, if required, such loans to be for a five year term with 'a six month rollover period; (d) that, provided Mr. and Mrs. Donkin paid interest punctually, the five year term and the six month rollover period "was certain on the part of [AGC]"; (e) that the effective interest rate to be charged to Mr. and
In paras. 2, 3 and 3A of their second further amended statement of claim, ("the statement of claim") the applicants, Mr. and Mrs. Donkin, make the following allegations: (1) that Mr. Roy Stagg was the manager of the Rockhampton branch of the respondent, A.G.C. (Advances) Limited ("AGC"); (2) that in February 1986, Mr. Stagg
Mrs. Donkin in respect of the foreign currency borrowing throughout the five year term would be "around 8% per annum (i.e. from 7.5% to 8.5%)"; (f) that AGC had an affiliation with Westpac Banking Corporation ("Westpac") which had great expertise in matters of off-shore borrowing; (g) that AGC would arrange for Mr. and Mrs. Donkin to get the best possible interest rate; (h) that the Australian dollar was likely to rise as against the Swiss franc and that, in this event, the effective borrowing rate would be less than 8% per annum; (i) that hedging was unnecessary, firstly because it would result in an interest rate approximately equal to on-shore borrowings and, secondly, because of AGCPs expertise in managing such off-shore loans, in that AGC would bring the off-shore loan back on-ehore or swap to another currency, if adverse movements occurred in the exchange rate, and that Mr. and Mrs. Donkin were being charged a margin of 4% by AGC for such expertise; (j) that AGC would do all things necessary and that, by implication, there were no risks that could not be
avoided; (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.
The re~resentations alleaed in Daras. 5, 6 and 7A of the statement of claim
In para.5 it is alleged that, in the course of these negotiations, Mr. Stagg made certain written representations to Mr. Donkin by producing to him the following documents:
first, "International Financial Trends" (a document prepared by Westpac, and dealing with movements in currency exchange rates, dated 30 April 1985); and secondly, "Euro Market Borrowings - General Guidelines" (a document also prepared by Westpac) .
In para.6 it is alleged that, by the first Westpac document, Mr. Stagg represented to Mr. and Mrs. Donkin: (i) that the CHF/AUD monthly average exchange rate in March 1985 was approximately 1.7; (ii) that the monthly average interest rates for six months Swiss franc borrowings between March 1984 and March 1985 were between 4.8% per annum and 5 % per annum; (iii) (in conjunction with the oral representations alleged in para.4) that there was unlikely to be any adverse movement in exchange rates or interest rates.
In para.7A it is alleged that, by the second Westpac
document, Mr. Stagg represented to Mr. and Mrs. Donkin: (i)
only through their own bankers, who had the necessary standing that prospective borrowers could gain access to the market to be able to attract such deposits; (ii) that Westpac, by reason of its prestige and standing as an international bank, had complete access to the London and Singapore foreign currency markets: (iii) that a typical Swiss franc interest rate, excluding the bank's margin, was 5.3% per annum; (iv) that, when the bank's margin and withholding tax were taken into account, the effective interest rate was 9.01% per annum; (v) that borrowers of foreign currency had interest risk factors, namely exchange risk and interest risk; (vi) that an off-shore borrowing could utilise the foreign currency hedge market, or the official forward market, to minimise such risk factors, but that the cost of such hedgings or forward contract would increase the interest rate, excluding the bank's margin, to 14.38% per annum; (vii) (in conjunction with the oral representations alleged in para.4) that there was unlikely to be any adverse movement in the interest rate.
The version of events given bv Mr. Donkin
The principal witnesses called by the parties were
Mr. Donkin and Hr. Stagg. Their respective versions of the
events were different in many significant respects. In part, the differences may be explained by reference to their different interests in the proceedings. The resolution of the questions of credit which arise has proved to be extremely difficult. In part, this is due to the fact that the
which, they say, were made more than five years ago. From the applicants allege oral representations on complex matters applicants' point of view, their case has not been advanced by three considerations: first, the absence of any contemporary notes on the part of themselves or their advisers: secondly, the absence of any relevant complaint or protest; and thirdly, the fundamental changes in direction which have occurred from time to time Fn the case pleaded by the applicants. On the other hand, the respondent acknowledges
that Mr. Stagg has no independent recollection of the material events. In due course, it will be necessary to decide what were the primary facts, for present purposes, by reference to the whole of the evidence, including the documentary material. But, in the first instance, it will be convenient to refer to the version of events of Mr. Donkin and then to turn to Mr. Stagg's evidence.
Mr. Donkin explained the background to his dealings with AGC as follows. In 1976, Mr. and Mrs. Donkin acquired a one-third interest, in partnership with two other partners, in a freehold hotel in Rockhampton known as the "Heritage Tavern". In 1985, Mr. and Mrs. Donkin purchased the interests of their partners in the "Heritage" and, for this purpose, borrowed $750,000 from AGC, which took a mortgage over the premises to secure its debt. At about this time, Mr. and Mrs. Donkin also acquired an adjoining freehold property on which was conducted a nightclub known as the "Flamingo". For this
purpose, Mr. and Mrs. Donkin borrowed $400,000 on the security of the property from another financier, AMEV-UDC, which had previously held security. Also at about this time, Mr. and Mrs. Donkin acquired another freehold property in Rockhampton known as the "Thomas Brown" building. AMEV-UDC held a mortgage on this property to secure the sum of $300,000. Late in 1985, Mr. and Mrs. Donkin granted an option to purchase the Thomas Brown building to a member of the PMR group of companies. The option, which provided for a price of $513,000, was varied in February 1986 so that it could be exercised, on certain conditions, up to 1 April 1986, on terms that completion of the purchase take place by 31 May 1986. On 7 February 1986, Mr. and Mrs. Donkin entered into a contract to purchase the "Crown" hotel in Rockhampton for $500,000. The contract was to be completed on 30 April 1986.
In January 1986, Mr. and Mrs. Donkin were informed by AGC that the rate of interest on the "Heritage" loan had been increased to 17.5% per annum. For this reason, and no doubt because the term of the loan was due to expire on 13 March 1986, Mr. Donkin inquired as to possible sources of re- financing.
On the recommendation of his solicitor, Mr. Paul Watts, Mr. Donkin arranged a meeting in Brisbane with Mr. George Gow, a finance broker on 28 February 1986. At the meeting, which was also attended by Mr. Alan Johnson, Mr.
Donkin's accountant, Mr. Gow suggested that an approach for finance be made to Lloyds Bank. An application was made to Lloyds but that matter did not proceed. At about thia time, Mr. Donkin was telephoned by Mr. Stagg. Mr. Donkin mentioned that AGC's interest rates were high. Mr. Stagg suggested that Mr. Donkin might wish to
consider taking an off-shore loan, where the interest rate was "around 7 to 8 per cent." A meeting in Mr. Stagg's office was arranged. At the meeting, Mr. Stagg said that the only way to take an off-shore loan was through a large Australian bank. He produced a folder with Westpac's name on it entitled "International information service" and some documents which dealt with international financial trends, guidelines for Euromarket borrowings and off-shore loan facilities. Mr. Skagg also produced some graphs indicating movements in several foreign currencies, including the Swiss franc, which,
Mr. Stagg said, was the most "stable" and therefore the most "favourable" currency and the obvious one to deal in. He said that this currency had been "more or less stable at four per cent". He further explained that Westpac charged a further four per cent as its "margin", thus making a total cost of eight per cent; and that the charge was made by Westpac (which was a large, prestigious bank with offices in Singapore, where the loans were effected, and London, with
expertise in managing the loan. Mr. Stagg went on to point facilities to monitor currencies around the world) for its out that there was a "margin" of 20 per cent to cater for "fluctuations" which could be "either way, up or down". He explained that "hedging" was possible but that it would cost 14 per cent and with the margin on top of this, it would cost overall as much as borrowing on-shore. Mr. Donkin then informed Mr. Stagg that he could offer securities worth a little more than four million dollars. Mr. Stagg instanced a recent loan at 8.445 per cent and said that Mr. Donkin would get a better rate than that. Mr. Stagg said that the amount that could be lent was about 50 per cent of valuation of the securities, which had to be "in prime areas". Mr. Donkin said that if the interest rate was at 8 per cent, he would take a loan of two million dollars. It was then arranged that Mr. Stagg would contact Mr. Johnson with a view to collecting the financial information required to process the transaction.
A few days later, there was a second meeting with W. Donkin in Mr. Stagg's office at which Mr. Johnson was also present. Mr. Stagg said that Swiss francs were the only currency available and that it was his "considered opinion that the Australian dollar will rise and...it will cost...less money to purchase the Swiss franc, and therefore your interest rate will be down". Hedging was mentioned and Mr. Stagg replied that, given the stability of the Swiss franc and the cost of hedging, it was not worthwhile. When the problem of
that, if there was a fall, AGC would bring the loan back on- the fluctuation of exchange rates was raised, Mr. Stagg said shore and that would protect the Donkins. Mr. Donkin then indicated that he wished to proceed with the loan. Mr. Stagg
said that there were a "few more details" to be "sorted out".
Towards the end of March 1986, Mr. Stagg telephoned
W. Donkin, and informed Mr. Donkin that he could not arrange a loan of $2 million off -shore, but had "managed to get.. .
l. 5
million off-shore and .5 [million] on-shore at 18 per cent". Mr. Donkin said: "I am not interested in the .5 [million] at 18 per cent. You can keep that." Mr. Stagg said: "No, you don't have to do it that way, that can be there as a stand-by. You don't have to draw the money, it can be there as a stand- by if you should need it." Mr. Donkin agreed to this. It was arranged that Mr. and Mrs. Donkin would attend on the next day to sign letters of approval prepared by AGC.
On 27 March 1986, Mr. and Mrs. Donkin attended at Mt. Stagg's office and signed two documents signed by Mr. Stagg addressed by AGC to Mr. and Mrs. Donkin as follows.
The first document provided, relevantly, as follows:
"AGC is pleased to confirm its approval to provide you with a foreign currency loan facility on the following terms and conditions:
. . .
LENDER: AGC (ADVANCES) LIMITED
TYPE OF FACILITY: Foreign currency loan facility. FACILITY LIMIT:
A$1.5M or such other amount as is from time to time agreed between the Lender and the Borrower.
PURPOSE : To payout existing
AGC Loan $ .750M
To payout existing
loan to UDC $ .400M To assist with purchase
of the Crown Hotel $ .350M
. . .
TERM:
Five years with six monthly roll overs. A.G.C. reserves the right to vary fees after two years.
RATE : SIBOR/LIBOR plus a margin of 4% per
annum .FEES : (a) Establishment fee - NIL
(b) Non-utilisation fee - NIL
(c) Early repayment fee - 0.5%
(d)
Service fee - a fee equal to 11% of each interest payment payable simultaneously with each interest payment. AGC reserves the right however at any time to forego the service fee and to require payment of moneys on account of withholding tax in accordance with clauses 24(b) and 29 on the Finance Facility Deed.
CURRENCY FLUCTUATIONS:
If at any time the amount outstanding under the Facility exceeds the facility limit by 20% as a result of adverse currency fluctuations, AGC may require cash cover or additional security or may require that the amount outstanding be reduced.
SECURITY VALUE RATIO:
The Facility Limit must not at any time be more than 52% of the value of the Securities as determined by AGC.
DOCUMENTATION:
The securities are to be drawn by our solicitors, Messrs. Clayton Utz, and are to be in a form satisfactory to AGC .
You will responsible for all AGC's legal costs and disbursements, valuation fee6 and other expenses, whether or not the Facility proceeds to drawdown.
REVIEW:
AGC reserves the right to review the margin in accordance with the terms of the Finance Facility Deed.
. . . SETTLEMENT:
If the Facility is not drawn down within four months of the date of this letter, this approval will lapse unless arrangements are made for its extension.
SPECIAL CONDITIONS:
(d)
In view of offshore facility not being available by 30/4/86 loan to be settled as an onshore loan at 18.5%.
(e)
Subject to Reserve Bank of Australia approval - To be obtained by Borrower.
(f)
Withholding tax to be payable by Borrower.
(g)
Either the Borrower or A.G.C. to have the right to retire the facility at will on roll over date.
(h)
Documentation to provide by Mutual Agreement between the
current terms and conditions or parties to retire the facility and for A.G.C. to make a loan on to arrange a $A Bill Facility or to re-establish an of fshore loan.
ACCEPTANCE:
Kindly signify your acceptance of these terms and conditions by endorsing your acceptance on the enclosed copy of this letter and returning it to A.G.C. Upon receipt of your acceptance we will instruct our solicitors to proceed with the documentation.
The other document was, relevantly, in the following
terms :
"We are pleased to confirm our willingness to consider the making of a loan on the following basis:-
. . .
2. AMOUNT OF LOAN : $500,000.00
3. PURPOSE OF LOAN : Assist with purchase of Crown Hotel and refurbishing and extensions to Crown Hotel.
5 . INTEREST RATES: The Specified Rate is $20.5% per annum. Provided monthly interest payments are made on time and there is no other default, the Prescribed Rate of $18.5% per annum will apply. [But see item 13(d)].
6. TERM OF LOAN: Twenty-four (24) months.
7. INTEREST PAYMENTS : Interest is payable calendar monthly commencing one calendar month from the date of the- first advance.
8. PRINCIPAL REPAYMENT: Principal will be due for repayment on or before the expiry of the term of loan.
12. AGC's SOLICITORS: Our solicitors will be Clayton utz
Our solicitors will prepare the documents required (such documents if including a Bill of Mortgage to be entered into and executed by the Borrower and Guarantors (if any) in the form of mortgage used by AGC together with all other documents as may be required by our solicitors) to secure the loan upon receipt of an acknowledgement of your acceptance as set out in this letter. Normally the loan can be made when all documents have been executed and all other requirements listed herein and searches have been completed to our solicitor's satisfaction together with any requirements of our solicitors as they may in their discretion determine or require. (This Letter of Willingness does not in itself
constitute an approval for loan or a contract for loan and it is to be distinctly understood that we are not bound to either approve of or make the proposed loan).
To avoid unnecessary delays please ensure that your Solicitors know about this letter of willingness and that you agree to the terms hereof. Please let your solicitor(s) know who is acting for AGC.
13. SPECIAL CONDITIONS OF APPROVAL:
(a)
Approval for Loan shall be deemed to have been given contemporaneously with the making of the loan.
(c) Responsibility for legal costs: If the loan is not settled within two months of
the date of this letter, any approval to be given will lapse unless arrangements are made for extension.
Please note that in the event of the loan not proceeding due to cancellation of our willingness or due to your withdrawal, or for any reason whatsoever, you will be responsible for payment of any legal costs and disbursements which our solicitors may have incurred up to that point.
(d) Variation of interest rate and repayments before settlement -
control we reserve the right to vary the In view of changes which may occur beyond our interest rate, and monthly repayments at any time before settlement of the loan. Once settlement has taken place, no alteration will be made except as permitted by the loan documents.
(e) Acknowledgement Please indicate ... acceptance of our proceeding with our consideration of the making of the loan on the terms and conditions of this letter of willingness by signing and returning one copy of this letter within seven (7) days
(i) Loan to be advanced progressively at Borrowers
request ..."
m. Staaa's version
Mr. Stagg said that, early in 1986, having heard through BAC, a subsidiary of AGC at that stage, that Mr. Donkin had approached it seeking to arrange refinancing, he telephoned Mr. Donkin and said that he would like to have the opportunity of further financing and refinancing for the Donkins and briefly discussed offshore funding. Mr. Donkin said that, although he did not know a lot about offshore funding, he would be interested. A meeting in Mr. Stagg's office was arranged.
Mr. and Mrs. Donkin both attended at the meeting, which took place on 12 March 1986. Before the meeting, Mr. Stagg refreshed his recollection of AGC's relevant procedures by reading a company document entitled "Standard Practice Instructions". Relevantly, this document, which was dated November 1984, provided as follows:
"QFFSHORE LOAN FACILITIES
PURPOSETo detail our policy where we provide guarantees in support of loans to a borrower made in foreign currency (offshore loans) and we receive a fee for giving this guarantee.
Unusual risk factors arise with this type of facility requiring our standard policies and terms and conditions to be modified accordingly.
POLICY
Offshore borrowings supported by our guarantee are not intended to replace normal lending. They are an additional method of obtaining income - without exposure - on transactions which we would not otherwise have been able to obtain on our normal conditions, or from exposure which we would lose to alternative cheaper financiers upon completion of a project.
By offering this facility we are able to retain the customer's business and our present facility agreement documentation allows us to convert loans to an offshore facility without any further expensive documentation being required. Provided margins are satisfactory borrowers have the opportunity of obtaining additional funds which may include paying out existing mortgages and/or providing further funds for use on the projects or for other purposes.
1. BORROWER
Must be substantial to the point that he can, if called upon:
Provide additional security or cash to cover
adverse currency fluctuations orBe able to demonstrate ability to service the debt in the event that we need to discharge our guarantee and set up a normal loan at current interest rates.
2. AMOUNT
As a guideline a minimum facility of $.5m is appropriate, anything less would not be adequately profitable. Facilities less than $.5m. also attract higher charges and interest, are difficult to negotiate and as such are unattractive to borrowers.
3. PURPOSE
Any reasonable purpose is acceptable egRepay existing loans
Provide funds for other property acquisitionsProvide funds for equity in construction
projects .
4. LOCATION
Because of additional risk factors involved it is preferable that our security be located in primary lending areas. There may be exceptions, however the important factor is that the security must be prime in all respects.
6. SECURITY - LENDING RATIO
Allowance must be made for the possibility of adverse current fluctuations during the term of the facility. Accordingly, we must obtain a better than normal lending margin and as a guide the offshore loan should not exceed 65% of security value.
8. CURRENCY FLUCTUATIONS
Obviously fluctuations, both favourable and adverse, will occur during the five year term and it is essential that we monitor these fluctuations. Each loan submission will allow for the possibility of a
20% currency fluctuation. If any fluctuation
exceeds 20% (adverse) then we will have the right to call for additional security or cash deposits to restore our lending ratio. This right must be included in the facility documentation. On this basis our lending ratio should never exceed 78% ie
65% plus 20% of 65% (13%) total 78%. The margin to
be stated in the facility documentation must not exceed 80%. We must ensure that our ratio is restored promptly and prior to any rollover.
9 . GUARANTEE FEES
Generally, we require a guarantee fee of 2% per annum payable 12 monthly in advance or on rollover. In some circumstances this rate could be negotiable if there are special reasons for us to provide a concessional rate eg retention of a valued client or to obtain an unusually strong transaction. Westpac will require an establishment fee (generally .l%) and a margin (generally .75%). The banks margin may vary during the currency of the agreement. Withholding tax will be payable by the borrower.
10. INTEREST RATE (IF APPLICABLE)
Offshore funds should be taken by the borrowers in
currencies with the lowest interest rate ie our
customers should not be looking to speculate upon
currency movements. Interest rates in the various
overseas currencies vary from time to time and it is
necessary for quotes to be obtained from Westpac at
the time the facility is negotiated and immediately
prior to settlement of the transaction. The
interest rate is payable at each rollover date ie
normally six monthly in arrears and is fixed for the
term of each rollover. Interest rate may of course
vary at each six monthly rollover date.11. OTHER CONDITIONS
In addition to the normal conditions applicable to the type of security offered we will require:
Facility to be arranged through Westpac.
Documentation to include AGC's right to call for additional security or cash deposits in the event of adverse currency fluctuations or a deterioration in the value of our security.
Either the borrower or AGC to have the right to retire the facility at will on rollover date.
13. WESTPAC FACILITY PROCEDURE
When the facility is to be arranged through Westpac,
AGC arranges the facility, not the borrower. The offshore loan will be through Westpac, Singapore. It must be made clear to the borrower at the outset that the loan is through Westpac Singapore guaranteed by AGC and that information will be interchanged between AGC and the Bank. Ultimate approval for the offshore loan is vested in Chief Manager, Westpac, Singapore. Note that Westpac will enter into correspondence directly with our borrower
14. MONITORING EXCHANGE RATES
Because of the impact that currency fluctuations can have on our security position it is essential that we monitor the exchange rates applicable to the currency(s) in use. ...
19. HEDGING
We do not insist upon this because the cost of hedging would make it unattractive to borrow offshore. We do however make provision for up to 20% adverse currency fluctuations..."
At the meeting, Mr. Donkin signed two written applications for loan, being, in each case, standard form of printed document entitled "Real Estate Application - 1st and 2nd Mortgage". The document appeared to be intended for use in the case of a domestic loan. The first document provided for information to be filled in with respect to the financial affairs of the applicant for finance. Part of the document was completed by Mr. Stagg and part by his assistant. The document bore the date "12/3/86" on the front cover in Mr. Stagg 'S hand. Under the heading "Statement of Financial position", there appeared in Mr. Stagg's writing "See A & L statement" (see below). In the section "Notes for office use", Mr. Stagg noted: "Cost of tavern. Cost of night club. Cost of Crown hotel - $500,000." Under "Details of loan", the
assistant wrote that $2m was required payable over 5 years. In the epace provided for a statement of interest rate, he wrote "offshore". The second application for loan, also dated 12 March
1986, was completed in Mr. Staggps hand but was not signed byMr. or Mrs. Donkin. Under some headings, Mr. Stagg wrote: "See file for offshore loan". In respect of the details of the loan, Mr. Stagg wrote "[$]500,000 [repayable over] 24
[months @ $ 1 18.5%."At the meeting, Mr. Stagg briefly explained AGC's guidelines for off-shore borrowings by summarising certain of the provisions set out above. He referred to the four major currencies available for this purpose. He also mentioned that Swiss Francs was a currency "that [he] had been - or had dealings with, or had known of within AGC..." However, he said that AGC "were not suggesting that the Donkins...take the Swiss Franc, but to have a look and make their decision, if they decided they wanted to take an off-shore loan, as to what currency to take." Mr. Donkin said that he was looking for $2 million: he needed to refinance his current borrowings and also to fund the purchase and refurbishment of the Crown hotel.
of assets and liabilities in respect of Mr. and Mrs. Donkin, There was tendered in evidence (Ex. V) a statement apparently a copy of the "A & L" statement mentioned previously. The document is not signed and has typed on it: "Signed copy on file". The date "28/2/86" is typed on it. It shows assets of $4,104,500 and borrowings of $750,000 from AGC and $700,000 from AMEV/UDC.
On 14 March 1986, Mr. Stagg wrote a memorandum to his head office seeking approval of a loan to Mr. and Mrs. Donkin relevantly as follows:
"AMOUNT : $Z.OM plus provision for currency
fluctuation of $.400M Total $2.4M
PURPOSE : TO payout existing loan
to A.G.C. PF $. 750M To payout existing loan
to U.D.C. $. 400M
To purchase the Crown
Hotel $. 500M To refurbish and extend
the Crown Hotel $. 350M Plus provision for
currency fluctuation $. 400M
COST 1) Heritage Tavern purchased 1978
Flamingo Night Club purchased
March, 1985
Adopt current value $3.OM
2) Purchase price $0.5M 1 + 2 = $3.5M
Our loan 57%.
FINANCIALS: Joint Statement of personal position of C J & H K Donkin as at 28/2/86
reveals r Assets
Liabilities
Surplus
SERVICING : Income
Tavern and Night Club $355207 Crown Hotel $ 72056 Bottle Department $ 25000 VALUATION : 1) Herron Todd 25/2/86.
2) Herron Todd 17/2/86. $. 480M
Our loan 57% or 69% with provision.
TERM
:
Five years with six monthly roll overs. A.G.C. reserves the right to vary fees after two years.
ROLL OVER : Six monthly review of the facility with OF LOAN regard to reduction of facility and
conduct of loan.
FEES : a) Establishment fee payable at
commencement of facility. .5% b) Guarantee fee payable to A.G.C.
six monthly in advance subject
to review after two years. 3% P.A. c) with-holding tax payable at
roll overs. .65%
INTEREST RATE: Interest rate to apply will be that
at date of draw-down for currency
selected.
CONDITIONS : 1) In view of offshore facility not being available by 30/4/86 loan to be settled
at current rates so as to enableBorrower to purchase Crown Hotel.
As an onshore loan at 18.5%
lThe Dassaae underlined is in
2) Subject to Reserve Bank of Australia approval - To be obtained by Borrower. 3)
Withholding tax to be payable by Borrower.
4) Either the Borrower or A.G.C. to have
the right to retire the facility at
will on rollover date.5) Documentation to provide by Mutual
Agreement between the parties to retire
the facility and for A.G.C. to make a
loan on current terms and conditions or
to arrange a $A Bill Facility or to
re-establish an offshore loan.
GENERAL : . . . Borrower intends to refurbish the Crown Hotel as well as make extensions. Borrower is currently negotiating with the City Council to purchase an adjoining block to the Crown and it appears purchase price will be in the vicinity of $120,000 with these funds coming from part of our loan.
B.A.C. are currently looking at a Bill Facility for Borrower and as Borrowers are current clients of ours with good credit and sound business experience, offshore funding was discussed which has led to this application.
In the event of adverse currency
fluctuations Borrowers have additional
security . . ."
At the meeting, Mr. Donkin said that he needed $350,000 to refurbish and extend the Crown Hotel. Mr. Donkin did not then make a final decision whether or not he was going to take an offshore loan. With respect to choice of currency, Mr. Stagg informed Mr. Donkin that he "should not look at being speculative with regards to overseas borrowings". Mr. Stagg also informed Mr. Donkin that AGC would not be in a
position to settle the loan offshore by 30 April, being the date fixed for the settlement of the "Crown" purchase. Mr. Donkin then requested that the matter proceed on-shore and then go off-shore later. Mr. Stagg said that if the Donkins did go off-shore and the loan were brought onshore within two years, there would be a penalty of half per cent. Mr. Stagg informed Mr. Donkin that he was monitoring fluctuations in Swiss francs through reading the "Financial Review" for the purposes of a current off-shore loan to another customer. Mr. Stagg explained that the funding for AGCps off-shore loans came "via Singapore through Westpac". Mr. Stagg said that AGC "didn't talk to clients about hedging ...[ because] ...[ AGC] utilise[s] the 20 per cent fluctuation within [its] loan. However if the client...or the Donkins...wanted to look at hedging, at the end of the day, the rate they were going to be paying was very close to borrowing money on-shore, anyway." Mr. Stagg explained that Westpac was "continually involved with Euromarket funding" and that Aestpac had branches
overseas, including Singapore. He denied saying that the Swiss franc had been stable. Mr. Stagg denied that he handed over (1) the Westpac folder entitled "International Information Service"; (2) the "Euromarket borrowings - general guidelines" document. He could not recall whether he gave Mr. Donkin any other documents. He could not recall producing any graphs. He was unable to recall whether the sum of $2 million was arrived at by reference to the amount of security offered by Mr. Donkin.
After the meeting, Mr. Stagg contacted Mr. Johnson and obtained further financial information as previously discussed.
On about 21 March 1986, Mr. Stagg telephoned Mr. Donkin and informed him that head office would "be interested if we looked at the loan by splitting it, putting $1-1/2 million off-shore and keeping 1/2 million dollars of the loan on-shore". Mr. Stagg could not remember the detail of Mr. Donkin's response but said that "at the end of the day he agreed ..."
Mr. Stagg could not recall the circumstances of the signing by Mr. and Mrs. Donkin of the letter of approval dated 27 March 1986 and the letter of willingness of that date.
Watts dated 23 April 1986, confirming "previous telephonic
On 28 April 1986, Mr. Stagg received a letter from
advices that the offshore loan facility ... is to be drawn on
our instructions in the currency of Swiss francs".
Findinas
In respect of some of the findings of primary fact I
am now asked to make with respect to the representations
alleged, there is common ground. In other significant areas,
there is, as has been said, a serious dispute between the parties. I propose now to proceed to make findings on the material matters now in question in chronological order, and to give reasons in respect of each finding.
1.
from several sources, in the amount of $2 million. at an
interest rate less than 17.5% p.a.. beina AGC's current rate.
These facts are no longer seriously in dispute.
2. Durina this Deriod. Mr. Staaa telephoned Mr. Donkin and enquired whether Mr. Donkin had considered an off-shore loan. Mr. Staaa said that he would like the o~vortunitv of vroviding finance for Mr. Donkin, includina refinancina his existinq borrowinas from AGC. Mr. Staaa mentioned the ~ossibilitv of an off-shore loan. Mr. Donkin said that he was not familiar with such transactions. Mr. Staaa said that, at this time,
arranaed to meet. the interest rate on such a loan was around 7% to 8%. They Except as to its precise date, this conversation is not disputed. I am unable to find its precise date but I am satisfied that it took place in the February-March period.
3. Mr. Donkin and Mr. Staaa met in Mr. Staaa's office in March 1986. The amount reauired, S2 million, was discussed.
The vurvoses for which the amount was required were also discussed, that is to sav, to refinance current borrowinas, to purchase the "Crown" Hotel, to purchase the adloinina land, and to refurbish and extend the "Crown". Mr. Staaa offered some explanation of the operation of the foreian currencv facilities offered by AGC. Mr. Staaa exvlained that AGC was associated with Westvac and that West~ac arranaed for the off- shore loan throuah its Sinaa~ore office. For this purvose. there was a 4% marain charaed bv Westvac for its expertise in actina in the transaction. Mr. Staaa went on to point out that Westpac was continuouslv involved with Euromarket fundina. Mr. Staaa also said that his onlv exverience in off- shore lendina was in Swiss francs and that the apvroximate CHF current interest rate. includina the marain, was about 8%.
Mr. Staaa said that AGC did not lend off-shore in speculative
currencies and that. in this context. Swiss francs were acceptable to AGC. Mr. Staaa also exvlained that hedaina was possible but that because of its cost, hedaina was not a
worthwhile exercise. The parties also discussed other matters but I am unable to make any findina as to the detail of this further discussion. I am also unable to make any findina as to the documents, if any. handed over bv Mr. Staaq to Mr. Donkin on this occasion.
Most of this finding is common ground. There is a dispute with respect to what was said as to the scope of the purposes for which Mr. Donkin sought accommodation. The contemporary document prepared by Mr. Stagg, Ex.10, refers (p.6) to the refurbishing of the "Crown" and its extensions. Mention is there also made of the purchase of the adjoining block. This supports M r . Stagg's version which, to this extent, I accept. In some matters of alleged detail, I am anable to accept either Mr. Donkin or Mr. Stagg. As has been said, each is, or represents, an interested party. There were no notes kept of these particular matters by anybody. At this stage, both Mr. Donkin and Mr. Stagg knew very little about these types of transactions which were complicated in many respects. Given the lapse of time since the discussion, I am unable to be satisfied as to what was said in these other areas.
4. shortlv thereafter, a further meetina took place between Mr. Staaa and Mr. Donkin in Mr. Staaa's office at which Mr. Johnson was also present. Mr. Staaa aaain mentioned his experience with off-shore borrowina in Swiss francs. Mr.
Staaa further ex~lained whv the cost of hedain~ meant that it should not be considered. Other matters were discussed but I am unable to make anv findina with respect to the detail of the discussion. Although there is a dispute as to the timing and sequence of this meeting, I accept the evidence of Mr. Donkin and Mr. Johnson on this aspect in preference to that of Mr. Stagg who, as has been said, has little independent
recollection of the events. As to the findings with respect to the content of the meeting, most of this is now not seriously disputed.
5. Qn about 21 March 1986. Mr. Staaa telephoned Mr. Donkin and informed him that AGC head office had approved an off- shore loan of $1.5 million and an on-shore loan of $1/2 million. The matter was discussed but I am unable to make any finding as to the detail of the discussion.
The finding is supported by Ex.27, a memorandum from
AGCrs State manager. AB to the other matters discussed, I am
not satisfied as to the detail of such discussion.
6. Dn about 27 March 1986, Mr. and Mrs. Donkin attended at Mr. Staaa's office and sianed the letter of approval and the letter of willinaness.
Mr. Stagg cannot recall this, but I accept the evidence of Mr. Donkin and of Mrs. Donkin to the effect of the finding made but I am not able to make any finding as to what, if anything, was then discussed.
I hereby certify that this and the twenty- eight preceding pages are a true copy of the Reasons for Judgment of his Honour Mr. Justice Beaumont.
Dated: 19 July 1991
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