Donkin, C.J. v AGC (Advances) Ltd

[1991] FCA 784

Re: COLIN JOHN DONKIN and HEATHER KAYE DONKIN
And: A.G.C. (ADVANCES) LIMITED
No. Q G115 of 1991
FED No. 784
Negligence

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Morling(1), Gummow(1) and Heerey(1) JJ.

CATCHWORDS

Negligence - foreign currency loan - risks - means of minimizing - failure by lender to advise - no evidence of loss - appeal - appeal dismissed

HEARING

SYDNEY

#DATE 5:12:1991

Appellants appeared in person

Counsel for the respondent : Mr P.H. Morrison QC with

Mr J Sheahan

Instructed by : Feez Ruthning

ORDER

Appeal dismissed.

Appellants to pay respondent's costs.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

The appellants instituted proceedings against the respondent claiming damages and other relief by reason of their entry into a foreign currency borrowing transaction in 1986. They relied upon several causes of action. They asserted that the respondent had engaged in conduct which was misleading or deceptive and that they entered into the borrowing transaction in consequence of fraudulent misrepresentations made to them by the respondent. Claims in negligence were also made.

1. After a lengthy hearing Beaumont J held that all but one of the appellants' claims had not been made out. But he found that the respondent was in breach of a duty of care it owed the appellants to advise them of the steps which were available to minimise the risks associated with the foreign currency transaction into which they entered. Nevertheless, he was of the opinion that the appellants had failed to show that they suffered any actual loss by reason of the respondent's negligence. Accordingly, he dismissed the proceedings.

2. The appellants, who were represented by counsel at the trial but who conducted their appeal without the benefit of legal representation, claim that his Honour was in error in finding that they did not suffer any damage as a result of the respondent's negligence. In their notice of appeal they also claim that his Honour erred in dismissing the other causes of action upon which they relied at the trial. However, upon the hearing of the appeal no real argument was presented that the appellants' other claims were wrongly dismissed. As the respondent does not challenge his Honour's finding on negligence, the only issue which falls to be determined on the hearing of the appeal is whether his Honour's finding that the appellants failed to prove they had suffered damage by reason of the respondent's negligence was correct.

3. Beaumont J found that the respondent owed a duty to the appellants to disclose and explain the risks of loss by entering into a foreign currency loan and a further duty to advise them of the steps available to minimise those risks. It was the second of those duties that his Honour found to have been breached by the respondent. He held that it should have, but did not, inform the appellants that it was possible for them to hedge "selectively" or to use a stop-loss mechanism so as to minimise the risks associated with borrowing in a foreign currency. However, his Honour found that the respondent did not have any obligation to manage the loan which the appellants obtained, or to monitor it during its currency.

4. His Honour rejected an argument that, if properly advised by the respondent of the possibility of hedging selectively or using a stop-loss mechanism, the appellants would have abandoned entirely the idea of borrowing off-shore. He said: "In my view, given the potential saving in interest costs it offered, provided also the (appellants) 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 appellants and that they probably would have opted for it." However, he rejected an argument put on behalf of the respondent that even if the appellants had been properly advised as to the possibility of utilising selected hedging or stop-loss mechanisms, they would not have availed themselves of them. That is to say, he rejected an argument that even if properly advised by the respondent, the appellants would have borrowed off-shore without the benefit of a stop-loss arrangement. He found that it was more likely that the appellants would have put in place a stop-loss arrangement operating at a level of about 10%, i.e. when an unfavourable foreign currency movement of about 10% occurred.

5. It is important to note that the appellants themselves did not give any evidence as to what they would have done had they been properly advised by the respondent. In that state of the evidence, his Honour might have concluded that there was no evidence upon which he could make a finding as to what was the likely consequence of the respondent's negligence. However, his Honour felt able to draw the inference that the appellants would have put in place a stop-loss order operating at a level of about 10% at the time of entering into the borrowing. We think he was entitled to draw this inference. There was evidence that Mr Donkin was a man of considerable business experience and it was open to his Honour to infer that he would have acted with reasonable prudence when borrowing in a foreign currency. It would have been reasonably prudent for him to have put in place a stop-loss mechanism at the level of 10%.

6. The circumstances in which an inference can properly be drawn are discussed in Luxton v Vines (1952) 85 CLR 352 at 358 per Dixon, Fullagar and Kitto JJ. and Girlock (Sales) Pty Ltd v Hurrell (1982) 149 CLR 155 per Stephen J at 161. In our opinion, consistently with what is said in those cases, the facts proved at the trial justified his Honour in drawing the inference which he did. We should add that if they had not justified the drawing of the inference, there was no basis upon which his Honour could have made any positive finding as to what the appellants would have done had they not been negligently advised.

7. The appellants did not hedge or put in place any stop-loss mechanism during the currency of the loan. Evidence was given at the trial by a highly qualified expert called by the respondent that the appellants would have been worse off had they put in place a stop-loss mechanism at the level of 10%. This evidence went without challenge. Indeed, there is some indication in the evidence of an expert called in the appellants' case at the trial that he did not dissent from the view expressed by the respondent's expert.

8. His Honour's reasons for judgment on the issue of damages were delivered after the delivery of his reasons on the issue of liability. The reasons given by his Honour for finding that the appellants did not demonstrate any loss were succinct. They were as follows:
   

"In my Reasons for Judgment ..., I found that in March 1986, when the applicants signed the letter of approval and the letter of willingness (27 March 1986), they would probably have proceeded off-shore but with the benefit of a 'stop-loss' operating at approximately 10%. The exchange rate AUD/CHF as at 1 April 1986 was 1.3960. The rate at 29 April 1986, the day after the execution of the Finance Facility Deed, was 1.3379. The drawn-down was on 2 June 1986 at the rate of 1.3715. However, by 1 July 1986, the rate was only 1.1954, i.e. a downwards movement in excess of 10%. In the result, on the assumptions to be made in the light of my finding in Reasons ..., the 'stop-loss' mechanism would have been triggered by about that time, with the consequence that the off-shore loan would have been 'brought back' on-shore.

Acting on that assumption, there is evidence from Mr R.S. Jones, chartered accountant, (the respondent's expert( which is not challenged, to the following effect: (1) The effect of the 'stop-loss order being triggered approximately one month after drawn-down would have been to crystallise a capital loss of AUD 166,000; (2) There should be added to this interest for 29 days (including withholding tax) of AUD 11,900 resulting in the total debt owed by the applicants being AUD 1,678,000 as at 1 July 1986.

(3) Next, calculate what the applicants would have owed on a domestic facility with a starting principal of AUD 1,678,000 as follows: (a) allow the applicants credit for the amounts paid on the off-shore loan (including interest and withholding tax) against the interest charged on the domestic facility; (b) assume that the applicants would have borrowed by a bank bill method of accommodation, allowing also a margin of 2.15% on the borrowing. The result of these calculations is that there would have been owed on the domestic facility as at 5 June 1990 the sum of AUD 2,243,000, compared with the sum of AUD 1,876,000 owed on the off-shore loan. That is to say, the applicants were better off in the amount of AUD 367,000 by remaining off-shore. These calculations, given the assumptions made, were not challenged by the applicants. In the result, in my opinion, the applicants have failed to show that they suffered any actual loss by reason of the negligence of AGC."

1. In our opinion the reasons given by his Honour are sound. An important part of Mr Donkin's argument was that his Honour was in error in thinking that the triggering of a stop-loss order was effectively to bring an off-shore loan on-shore. We do not agree. Indeed, Mr Butler, who was called in the appellants' case at the trial, said in his evidence in chief that the effect of a stop-loss order was to "effectively bring the loan on-shore". Mr Jones, the respondent's expert, gave evidence to the same effect. As we understood Mr Donkin's argument, it was to the effect that evidence could have been, but was not, called at the trial to demonstrate that the triggering of a stop-loss order does not have the effect of bringing an off-shore loan on-shore. He therefore sought an order that there be a new trial to allow such evidence to be given.

2. We do not think any case was made out on the hearing of the appeal for a new trial. Mr Donkin was quite unable to persuade us that his case was not properly presented at the trial or that the type of evidence which he says could have been called is, in fact, available. The evidence would be inconsistent with the evidence called at the trial from the appellants' own expert.

3. Mr Donkin also submitted that his Honour should have found on the evidence that the appellants sought from the respondent a loan of only $1.15 million, and not $1.5 million. We do not think his Honour's decision would have been any different even if he had found that the loan which the appellants sought was for the smaller sum. But, in any event, his Honour's finding that it was the larger sum which was sought was well supported by the evidence.

4. His Honour's conclusion that the appellants failed to show that they suffered any actual loss by reason of the respondent's negligence is well supported by the evidence. Accordingly, the appeal must be dismissed with costs.