European Bank Limited v Robb Evans of Robb Evans & Associates

[2010] HCATrans 3

[2010] HCATrans 003

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S272 of 2009

B e t w e e n -

EUROPEAN BANK LIMITED

Applicant

and

ROBB EVANS OF ROBB EVANS & ASSOCIATES

Respondent

FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 3 FEBRUARY 2010, AT 10.22 AM

Copyright in the High Court of Australia

MR R.J. WEBB, SC:   If it please the Court, I appear with my learned friend, MR D.T. KELL, for the appellant.  (instructed by Baker & McKenzie)

MR A.S. MARTIN, SC:   May it please the Court, I appear with my learned friend, MR G.M. DREW, for the respondent.  (instructed by Norton Rose Australia)

FRENCH CJ:   Yes, Mr Webb.

MR WEBB:   Your Honours, the inquiry before the trial judge in this matter was an assessment of the amount of compensation which was payable by the respondent to the appellant pursuant to an undertaking he had given to the Court in May 2004.  The reasons for judgment of Justice Gyles in the Court of Appeal set out those orders conveniently at paragraph 83 on page 1002 in volume 2 of the appeal book.  By “those orders” I mean the orders which were made in May 2004 to which the undertaking related.

Your Honours will see that the usual undertaking is referred to in those terms in paragraph 1 of the orders and that the undertaking is given to enable a judgment debt, which had been ordered in favour of European Bank, the appellant, due by Citibank, be paid into court pending an application that the respondent wished to make for special leave to this Court.  The usual undertaking as to damages referred to there is in the terms which are set out again by Justice Gyles on page 1007 of the book at paragraph 93.  The undertaking provides that it is:

an undertaking to the Court to submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person, whether or not a party, affected by the operation of the interlocutory order or undertaking or of any interlocutory continuation, with or without variation, of the order or undertaking.

That form of undertaking was first provided for in the Supreme Court Rules of rule 7(2) in 1984.  One matter that received attention in the Court of Appeal was as to the phrase, “as the Court may consider to be just for the payment of compensation”.  Particular attention was focused on the word “just” there, and we, for our part, urge on the Court the view that in the context of this undertaking what the word “just” there recognises is that the compensation which is to be paid is a recognition of the invasion of the defendant’s substantive right achieved by the order in support of which the undertaking was given.  We also say that “just” where it is used there is a term which suggests assessment of compensation according to principle, rather than an assessment according to discretionary considerations which are at large. 

Justice Gzell, the trial judge, in reaching his decision that there ought be an award of compensation in favour of the appellant, did so on the basis that if the judgment debt owed to it by Citibank had not been paid into court pursuant to the order made in May 2004 it would have been converted sometime shortly thereafter by European Bank in ‑ ‑ ‑

GUMMOW J:   What page in Justice Gzell?

MR WEBB:   Justice Gzell’s reasons for judgment commence at page 920, and at page 938 he makes a finding at paragraph 59 in these terms:

I find it probable that European Bank would have converted the funds invested by the Prothonotary from US dollars to euros but for the order of 18 May 2004.  In my view this conversion was likely to have occurred in early July 2004 ‑ ‑ ‑

GUMMOW J:   Was this finding overthrown in the Court of Appeal?

MR WEBB:   No, it was not, your Honour.  There was a challenge to it but it was not overturned.  His Honour, while the Court has that page of the book ‑ ‑ ‑

FRENCH CJ:   He accepted the evidence of Ms Ihrig, I think, in relation to their practice.

MR WEBB:   Yes, and following upon that finding, his Honour, as the Court will see at paragraphs 60 and then at 68 and following, considered whether the loss that had been suffered by the Bank’s inability to convert to euros was recoverable, having regard to questions of remoteness.  There his Honour was giving consideration to that question guided by the decision of the Court in Air Express.  Shortly put, his Honour took the approach that Hadley v Baxendale provided the appropriate test for remoteness, having regard to the decision in Air Express.  He took the view that it may be in regard to the decisions of Aickin J at first instance in Air Express, in particular, that both limbs of that test had to be satisfied and proceeded to find that they were.

FRENCH CJ:   Compensation was refused in Air Express because a loss was a consequence of the litigation.

MR WEBB:   Yes, it was a causation question in that case so that the reasoning of the Court in Air Express was not part of the ratio and for that reason the judges on appeal gave relatively brief consideration to that matter, although Justice Aickin gave it some more attention.

FRENCH CJ:   You do not contend that Hadley v Baxendale is exhaustive of the approach to be taken in applying the usual undertaking?

MR WEBB:   No.  We say consistently with what Justice Aickin said, it provides the appropriate test in most, perhaps the vast majority, of cases and when the Court in that case referred to the Hadley v Baxendale test or the contract test providing the outer limit the Court was enunciating the principle that that was the principle as to remoteness which applied rather than that in some limited class of case it might be the appropriate test.

GUMMOW J:   Do you therefore accept what Justice Cussen said in 1922 and referred to at paragraph 94 at page 1007?

MR WEBB:   Your Honour, Justice Cussen was influenced by the thinking that where the undertaking was given the real harm would be compensated without regard to that principle.  His Honour’s reasoning in that case does not reflect the trend of authority over time.  As the Court sees in Air Express the view that the contract test for remoteness, if I can use the shorthand ‑ ‑ ‑

GUMMOW J:   In Air Express was there any consideration to the Onion and Potato Case?

MR WEBB:   Justice Gibbs gave some consideration to it.

HAYNE J:   And Justice Aickin, I think, did he not?  I thought Justice Aickin referred to the fact that it was a decision of Justice Cussen and therefore worthy of particular attention.

MR WEBB:   Yes.

HAYNE J:   I may be mistaken.

HEYDON J:   It is at 146 CLR 266. There is a long quotation from Mr Justice Cussen.

MR WEBB:   Yes.  One would infer from Justice Aickin’s reasons that – and in particular his finding that the contract measure was the outer limit, that that was something that confined the way that Justice Cussen’s expression “real harm” should be read.  Justice Gibbs mentioned it.

GUMMOW J:   Yes, but just looking more closely at what Justice Aickin is saying, he says, well, insofar as Justice Cussen is saying “real harm” I am not sure that is right, but then in the next sentence he says:

In a proceeding of an equitable nature –

et cetera, look at -

all the circumstances rather than to apply a rigid rule.  However, the view that the damages should be those which flow directly from the injunction . . . is one which will be just and equitable in the circumstances of most cases –

Do you bring your case within that statement by Justice Aickin?

MR WEBB:   Yes we do, your Honour.  What we respectfully submit is that his Honour there is picking up the fact that - when he says “just and equitable in this case” or “fair and reasonable in this case” he is having regard to the context which is the undertaking as given in support of an order sought by ‑ ‑ ‑

GUMMOW J:   At 312 Justice Gibbs seems to have been swayed by what Lord Diplock said on the matter.  I would not, myself, be necessarily swayed by that – we are not in not the realm of contract.

MR WEBB:   No.  We say Lord Diplock’s statement in Hoffmann‑La Roche is important for another reason – that is to say that there are two stages in the enforcement of any undertaking as to damages.  The first is the question as to whether or not the undertaking ought be enforced at all, which enlivens equitable considerations of the traditional sort.  If it is to be enforced then the second phase is enlivened, that is, there is to be a determination of the damages on fixed principle.

GUMMOW J:   Did anyone else in the Full Court refer to Hoffmann‑La Roche?

MR WEBB:   It is mentioned by Justice Basten.

GUMMOW J:   No, no, in this Court.

MR WEBB:   In this Court – no, your Honour.

FRENCH CJ:   The reference by Justice Aickin to a just and equitable approach is explained in terms of his enunciation of its equitable history and its history as a remedy of an equitable nature at 261.

MR WEBB:   Yes.  It is, of course, to be recalled that the undertaking in this case was less worthy than the undertaking we are confronted with in this case.  It is set out by Justice Aickin at page 251 of the report as being to:

“abide by any order which the Court or a Justice may make as to damage in case the Court or a Justice shall hereafter be of the opinion that the defendants shall have sustained any, by reason of this Order, which the point ought to pay”.

So that when his Honour used the expressions “just and equitable” and “fair and reasonable” he was not taking that from the wording of the undertaking before him, but as your Honour says ‑ ‑ ‑

HAYNE J:   It is giving content to the word “ought”, is it not?

MR WEBB:   Yes.  It is giving content to the word “ought” we say in relation to the discretionary consideration as to whether or not there should be enforcement, but it is also recognising that questions of justice and reasonableness are relevant to the determination of what loss is recoverable as damage.

FRENCH CJ:   It is necessary for us to have regard both to the language of the undertaking as well as to the history of this class of undertaking.

MR WEBB:   Yes, that is so, your Honour, but it seemed to be that in the court below there was a focus on the use of the word “just” in combination with the word “compensation”, particularly in the reasoning of Justice Campbell to the effect that the expression freed the court from any application of principle in relation to the assessment of the damages recoverable and achieved by that means a merger of the discretionary enforcement question and the assessment question.

I had taken the Court to the decision of Justice Gzell at paragraphs 59 and following, and I was indicating that at paragraph 60 and following, his Honour was considering whether or not the loss suffered by the bank was recoverable on the test in Hadley v Baxendale ‑ ‑ ‑

HEYDON J:   Your question about Justice Gzell’s reasons for judgment.  According to Justice Gyles – this is paragraph 94 on 1007:

Gzell J primarily directed himself by reference to the judgments in Air Express Ltd . . . but noted a difference between –

Mr Justice Cussen and Lord Diplock.  Where did, if anywhere, Justice Gzell mention Mr Justice Cussen or Lord Diplock?  It does not appear to have been mentioned in the paragraphs that you are just going through ‑ ‑ ‑

MR WEBB:   Your Honour, in his judgment at page 922 ‑ ‑ ‑

HEYDON J:   I see, yes.

MR WEBB:   He was surveying some authorities, if I could put it that way and really ‑ ‑ ‑

GUMMOW J:   The real point that Justice Cussen is making appears at page 823 of (1922) VLR, where he quotes from Lord Justice Farwell.  He says:

“The undertaking was . . . given to the Court.  It is not a contract between the parties, which either party can sue upon or be sued upon.  It is an undertaking given to the Court, and to be enforced by the Court and the Court only.”

MR WEBB:   Yes.

GUMMOW J:   No doubt Lord Diplock did not have that referred to.

MR WEBB:   Lord Diplock, as was the case in Air Express, was not concerned with that.

GUMMOW J:   It is a serious matter, really, because you have very distinguished Australian judges who turn their mind to these matters a long while ago.  Then you get some English judge not refer to the Australian decisions who comes to some view, and then it is said “I am afraid in this court that somehow one yields what is said by the English judge”.  I just do not accept that, never have.

MR WEBB:   As I have indicated to the Court already, we utilise Hoffman‑La Roche for one particular purpose, which is to draw the clear distinction between the two phases which arise on any question of enforcement:  firstly, whether there will be an enforcement and secondly, whether there will be assessment if there is to be enforcement.  Your Honours, we say that overwhelmingly the effect of Air Express is as stated by Justice Aickin in the passage which his Honour the trial judge set out in paragraph 9 on page 922 of the judgment, and which the Chief Justice has already referred to.

The trial judge proceeded to apply the contract measure, having regard to that passage, on the basis that this was a case where it was inappropriate to do so.  At the end of the day, after an assessment of the evidence, his Honour made some important findings.  The first was that, at paragraph 66:

Once it is accepted that European Bank could have converted US ‑ ‑ ‑

GUMMOW J:   Paragraph 66?

MR WEBB:   Paragraph 66 on page 939, your Honour.

HAYNE J:   I would  have thought that can be understood only in light of 64, the starting point is 64, which in turn is informed by 14.

MR WEBB:   And indeed paragraph 62 where his Honour identifies a position where the defendant is a bank dealing exclusively in foreign currency transactions as a particular circumstance of relevance.  So that he there makes that finding that the losses flow naturally once those matters are recognised.  Then in paragraph 68 he turns to what he calls “the second limb” of Hadley v Baxendale, and by that he means ‑ ‑ ‑

FRENCH CJ:   When the term “flows naturally” is used, does that simply exclude some intervening or extrinsic factor?

MR WEBB:   Yes.  It must be recognisable as a loss which will be the consequence of breach or, in the case of contract having regard to ‑ ‑ ‑

FRENCH CJ:   It is a statement about causal connections without extrinsic contributing causes, I suppose, in this particular setting.

MR WEBB:   Yes.  Then moving to the next phase of his Honour’s reasoning in paragraph 68, he refers to the second limb identifying an argument made by the respondent, which is that the “losses were not foreseeable” having regard to “the circumstances known to Mr Evans”.  He then asked the question, if you like, as to whether or not it is appropriate to go onto the second limb, that matter of reasonable contemplation given known circumstances, and considers that he should do so because, as I have submitted already, in paragraph 70 he regards statements by Justice Aickin and Justice Gibbs as apparently requiring both limbs to be satisfied.  Paragraph 74 records the argument that was made:

that it was not within the contemplation of Mr Evans when the order was made that the US dollar would fall in value against the euro.  That, in my view, is too narrow an identification of the relevant contemplation.  If it was in the contemplation of Mr Evans that European Bank as a trader in foreign currency, would convert funds from one currency to another in the expectation that the value of one currency would strengthen as against the other, it did not matter that he did not contemplate the particular currency fluctuation of which European Bank would have taken advantage if it was free to convert to a currency of its choice.

FRENCH CJ:   How does the requirement of contemplation or foreseeability fit into the general equitable character of this remedy?  I know it comes out of an application of Hadley v Baxendale, but I am just going back to an anterior question really.

MR WEBB:   Well, it is not sourced particularly in the equitable origins of the requirement for the undertaking, we would suggest, but rather it comes from a recognition by the courts over time that this kind of requirement, or this imposition had been imposed on all‑comers, if you like, requires certainty and clearness and principle.

KIEFEL J:   The party offering the undertaking, would the courts not recognise that that party has to assess their risk in giving the undertaking?  It is often called the price that is paid, but the reference to the price really is to their assessment of the risk that they are going to run by proffering an undertaking.

MR WEBB:   Yes, it is an undertaking voluntarily given, and the courts do from time to time say that ‑ ‑ ‑

KIEFEL J:   Yes, because of the voluntary nature of it?

MR WEBB:   Yes, it is something that they can choose ‑ ‑ ‑

KIEFEL J:   That is something like notice.  The question in this case might be to what extent notice was required.

MR WEBB:   We would say to be a risk assessable the Court must require that the principle of recovery, or quantification, causation and remoteness in turn must be clear.  That is the matter of which the plaintiff must have an understanding so that it can choose to assume the risk, because the risk is inevitably given in a circumstance where there is an invasion of the substantive right of the defendant in this case.

KIEFEL J:   But on the other hand, at the time of giving the voluntary undertaking, if that party could have had no possible opportunity or understanding of the steps that are later said could have been taken, how would that fit into the notion of it being just to order compensation?

MR WEBB:   Well, that is accommodated within the requirement that the test in Hadley v Baxendale be satisfied in the vast majority of cases.

KIEFEL J:   If you take it outside the contractual test and bring it back to the terms of the undertaking and perhaps some underlying equitable principles which inform it, how do you accommodate a circumstance like that?  Do you say that it is only the consequences which flow to the party whose money has been frozen, or do you say the court must – even putting the contractual rule aside, nevertheless the court must nevertheless take account of something that may not have been within the foresight?  I do not say actual knowledge, but perhaps some degree of knowledge.

MR WEBB:   We say that, of course, it is not a situation where the risk can be known because the outcome is not ultimately known but an assessment can be made and the court must require that there be an assessment be made as to what is too remote and that triggers questions of ‑ ‑ ‑

KIEFEL J:   Is that confusing remoteness of damages with remoteness of what was in a person’s mind?

MR WEBB:   I think not, your Honour.  When one is talking about the reasonable contemplation of a party one is taking about a reasonableness test imposed externally.  Yes.

KIEFEL J:   I suppose drawing it more closely to the facts of this case Justice Gzell found that it was sufficient that Mr Evans with his background in commerce knew that the European Bank was a trader in foreign currency whereas the members of the Court of Appeal appear to have required that there be knowledge of the actual transaction to be undertaken.  I might be rather shortening it, but is that right?

MR WEBB:   In different ways they say something like that, your Honour, but the findings that his Honour Justice Gzell made are important in the terms that he makes them.  In paragraph 76 on page 942 he says:

It can be inferred that Mr Evans knew that a bank earns its income on the difference between the interest that it pays its customers and the interest it can earn on their deposits and it can be inferred that he understood that the earnings of European Bank, that dealt exclusively in foreign currencies, came not only from interest rates but also from currency differentials.

KIEFEL J:   That may be not without its importance.  That was challenged in the grounds of appeal to the Court of Appeal.

MR WEBB:   Unsuccessfully.

KIEFEL J:   Did their Honours actually deal with that finding, or the approach they took made it unnecessary to deal with it?

MR WEBB:   No.  They dealt with it in a way which I will take your Honour to in a moment, if I might, because I would also draw attention then to paragraph 77 where he goes on to say:

I infer that it was within the contemplation of Mr Evans when the order for the payment into court was made, that it would have the effect of denying European Bank the opportunity to convert those funds from US dollars to other currencies to take advantage of market fluctuations in the value of those currencies.

KIEFEL J:   Yes.  I am sorry for having interrupted you.  It was in fact paragraph 77 that is the important one.

HAYNE J:   That finding of fact may go further than I suspect your argument would say is necessary.  We go back to what Justice Aickin said in Air Express, particularly at 266 to 267.  First, the question is to be asked at the time of the inquiry for damages, is it not?  It is not to be asked as at the time of the giving of the undertaking.  The relevant question at the time of the inquiry is, what is the loss claimed?  Step two is, was that loss caused by, did it flow directly from, the grant?

MR WEBB:   Yes.

HAYNE J:   The other question which Justice Aickin adverts to is is that loss one which could have been foreseen when granted?

MR WEBB:   Yes.

HAYNE J:   In most cases, not all cases, that will conclude the inquiry.  There may be other cases where even though it could not have been foreseen it may nonetheless remain just, but you say this is a case where it could have been foreseen, in particular, a bank, more particularly, a trader in foreign currencies could be foreseen not to leave its money on deposit in one currency during the period in question.

MR WEBB:   Yes.

FRENCH CJ:   That would not require – that is the criterion of foreseeability – actual notice.

MR WEBB:   No.

FRENCH CJ:   I note that at 78 Justice Gzell speaks of circumstances of which Mr Evans had notice.  But you would say that foreseeability is an objective test by reference to the circumstances which perhaps could have been known.

MR WEBB:   Yes.  His Honour there, as we read his judgment, was using the expression “foreseen” to call up that second aspect of Hadley v Baxendale; that is to say in contemplation having regard to circumstances known.  If I could come back to the inquiry from Justice Kiefel, if I may, and point to the provisions in the reasons for each of the judges on appeal in relation to those factual findings.  Justice Basten’s reasons for judgment commence at page 967.  His Honour at page 974 in paragraph 18 sets out those three paragraphs we were just looking at from Justice Gzell.

GUMMOW J:   The formulation of the question in paragraph 2 at page 967 is at too high a pitch of abstraction, is it not:

the question is whether a successful party can recover . . . an amount beyond the interest . . . The answer turns upon ‑

That is right.  It turns upon “the proper application”, et cetera, in the circumstances of the particular case.  It is not some abstract question.  Then to go into contract and tort on pages 968 to 969 is to follow the path that Justice Mason was criticising in Ansett 146 CLR, page 324 – the last two paragraphs on 324:

We are better advised to look to the purpose which the undertaking as to damages is designed to serve and to identify that causal connexion . . . most appropriate to that purpose.

MR WEBB:   His Honour makes that observation, of course, in the context of the causation argument which was before the Court, but your Honour is right.  The difficulty is, as we have said in our written submissions, that commencing with the Court of Appeal in the 19th century, as picked up by Justice Aickin and through to the relatively recent past, the courts have taken the approach that, as we say in the majority of cases, the remoteness test in Hadley v Baxendale provides the appropriate guidance as to recoverability.  We recognise that that is the introduction of reasoning by an analogy to another area of law, and we recognise, as Justice Aickin points out, that in particular cases the ‑ ‑ ‑

GUMMOW J:   Anyhow, I took you off your treatment of Justice Basten.

MR WEBB:   I am sorry – then to return to Justice Basten’s reasons at page 974, his Honour says that they are findings at a “high level of generality”, and then in paragraph 19 says the “reasoning is flawed in its own terms” and then goes on to make a finding or an observation that there was no proof of any actual knowledge on the part of Mr Evans of a present intention at the time the undertaking was given by European Bank to convert from US dollars to euros, and we say that that is, firstly, a departure from the approach the courts have taken in the past where determination of reasonable contemplation does not depend on actual knowledge or intention on matters of that sort.  It is a departure from the guidance that was given by Justice Aickin as to the level of contemplation as required. 

HEYDON J:   This is the position.  He criticises the reasoning, does not actually set aside the findings, but he says the findings simply do not measure, as it were, with what he regarded as the correct principle of law.

MR WEBB:   Yes.

HEYDON J:   You contend that the principle of law on which Justice Basten relied is not the correct principle of law.

MR WEBB:   Yes.  The principle his Honour seems to adopt is that in paragraph 20 of his reasons that the loss has to be other than extrinsic.  If it is extrinsic it is too remote, but we say that his Honour is just not enlivening a recognisable principle there.

GUMMOW J:   This notion of extrinsic comes from the valuation cases, does it - paragraph 21?

MR WEBB:   Yes.  It comes from the valuation cases, but if one goes back to paragraph 20, his Honour says at about line 24:

There was nothing in this case equivalent to an agreement to lend funds for a specified purpose.  Nor was the deprivation of the use of the funds to be compared with the consequences of negligent advice, the supply of faulty goods or other forms of wrongful activity.  Nor is it helpful to construct a contractual relationship in order to analyse the terms of the hypothetical contract -

So his Honour is there effectively doing no more than identifying the fact that the undertaking is given, and the damages are being assessed in light of the undertaking, and leaves that hanging.  Then he refers in paragraph 21 to the relevant principle being distilled from the valuation cases, which are really to do with the content of the duty rather than any other matter, and we say that there is no synthesis of the principle in those two paragraphs of his Honour’s reasons.  Justice Campbell deals with these findings commencing at paragraph 69 on page 996.  He says:

I agree with Gyles AJA that there is no basis for setting aside the finding that Mr Evans would have understood that the order staying the judgment would have the effect of denying European Bank the opportunity to convert the funds . . . But the significance of that finding is not great.  Any interlocutory order that freezes a sum of money pending the determination of litigation . . . will always have the consequence of depriving that person of the opportunity to use the sum of money to speculate in currencies.

We say that in that passage, his Honour is really understating the finding which was a finding as to contemplation on the part of Mr Evans at the time that he gave the undertaking.  He then goes on to state some reasons which suggest the sort of reasoning that Justice Kiefel mentioned to me earlier, that is to say that there has to be a – I am sorry, I withdraw that.  He goes on to refer to Hungerfords v Walker in paragraph 70 and simply say that the ordinary consequence of a person being either kept out of their money, or paying it away unnecessarily, it triggers a risk of a liability for interest one way or the other on the part of the wrongdoer, and then says:

there is no reason to construe the risk that B is undertaking as being any wider than to pay a commercial rate of interest on the money, during the time that A is out of it.

FRENCH CJ:   Does that effectively exclude consideration of a loss of a commercial opportunity?  I think Justice Gzell referred to that and mentioned Sellars v Adelaide Petroleum.

MR WEBB:   Yes.

FRENCH CJ:   Is there any authority in which loss of a commercial opportunity has been compensated?

MR WEBB:   In relation to the non‑use of money, your Honour?

FRENCH CJ:   Yes.

MR WEBB:   Well, that was the position in Hungerfords v Walker, in fact, although in that case what the Court was concerned with was an award of damages in the form of interest, equivalent to interest, either foregone or given away.  Could I ask the Court perhaps to go Hungerfords v Walker 171 CLR 125? In that decision the Court was concerned with a claim by a client of an accounting firm which had wrongly calculated its tax liability so that it had paid away money that it ultimately was found it did not have to, to the revenue.

If one goes to the joint judgment of the Chief Justice and Justice Wilson commencing at page 135, commencing at about point six on the page, their Honours record that the respondents, that is, the accountants, had challenged an award of damages which had been given at first instance and calculated in the way set out in the foregoing paragraph.  They say there:

King C.J., with whom Millhouse and Jacobs JJ. agreed, thought that damage resulting from the loss of the use of the money was “within the reasonable contemplation of the parties within the meaning of the rule in Hadley v. Baxendale” and should be included in the damages award.  His Honour accepted Bollen J.’s finding that the money would have been used to pay off the loans –

first use –

and that some of the money might have been used in the business in other ways.  Given the fact that the business was profitable, King C.J. concluded that, to the extent that the respondents would have devoted the additional funds to the business –

that is, employed it in their business activities –

“their loss could not be less than the rate of interest which they were paying on the [highest interest] loans”, this rate being 20 per cent –

and the Court of Appeal increased the award of the trial judge which had been fixed on a 10 per cent figure.  So that there the Court was recording that the Court of Appeal had recognised that there could be compensation for loss of the opportunity to employ the money in the business.  The Court agreed as a matter of principle with the fact that such damages were recoverable.  In the joint judgment at page 143 in the last grammatic paragraph their Honours say:

The requirement of foreseeability is no obstacle to the award of damages, calculated by reference to the appropriate interest rates, for loss of the use of money.  Opportunity cost, more so than incurred expense, is a plainly foreseeable loss because, according to common understanding, it represents the market price of obtaining money.

He goes on to talk about incurred expenses.

FRENCH CJ:   There is no case apposite to loss of opportunity outside the framework of lost interest in the context of recovery under the usual undertaking.

MR WEBB:   But in this case we say the court was giving guidance that it is recoverable other than by way of an accord of interest, it was just the devised mean adopted ‑ ‑ ‑

FRENCH CJ:   Yes, I understand that.

HAYNE J:   Well, is there not an analogy to be drawn with Air Express and the calculation of damages which Justice Aickin undertook against the possibility that it was wrong on the conclusion about causation?  The damages were calculated by reference in part to loss of profit.  Loss of profit from use of the asset which the two operators did not have access to by reason, they said, of the injunction.  The Bank is denied the use of money, money which it would put to profitable use in its banking operations.  Is not the analogy there?

MR WEBB:   We would say there is.  In this context of the test for remoteness to, we do place considerable reliance on the decision of the House of Lords in Czarnikow, which was factually a case which provides a strong analogy, we would say if one can accept and we say the findings of the trial judge which were not disturbed dictate the finding that for this Bank currencies or money was a commodity which it used for the purpose of generating its income in the two ways that are identified, interest and currency differentials, on currency differentials.

In that case, which was a case of carriage of goods, the ship owner was required to carry a cargo of sugar to Basrah for the charterer by a certain date.  The ship owner knew that the charterer was a sugar trader and knew that there was a sugar market in Basrah but had no knowledge about market movements in sugar there or anywhere else, and had no knowledge of the charterer’s intentions in relation to the sale of the sugar which comprised the cargo, and in those circumstances the House of Lords found that the requirement for remoteness was comfortably satisfied.

The question was from the facts which were known, the sugar was going to a sugar market and that the owner was a trader in sugar were sufficient to create - give rise to the necessary contemplation.  There was no requirement for any knowledge of movements in sugar prices, and we say it is analogous to this case.  Returning again to how the judges in the Court of Appeal dealt with those findings by the trial judge there remains the reasoning of Justice Gyles at paragraph ‑ ‑ ‑

GUMMOW J:   Justice Campbell.

MR WEBB:   I am sorry.

GUMMOW J:   In particular, Justice Campbell at page 992 after careful analysis which distinguishes the contract situation.  At 992 at about line 30:

But I cannot at present think . . . outside the scope of the risk that the plaintiff ought reasonably be understood to have been undertaking by proffering the undertaking.  In this way, the rationale –

is brought together.  Do you accept that statement of the principle but dispute its factual application?

MR WEBB:   We do dispute the statement of the principle because it is built upon the view that the undertaking is to be construed and there must be a voluntary assumption of risk discernable in the giving of the undertaking by the plaintiff.

GUMMOW J:   That goes back to line 18, I suppose:

The scope of the power . . . needs to be exercised bearing in mind the extent of the risk that the giver of the undertaking is reasonably to be understood as agreeing to bear.

MR WEBB:   Yes.

FRENCH CJ:   That is informed by the preferred “analogy to contract” which is referred to at paragraph 59 on the earlier page, “the undertaking” “involves”, yes.

MR WEBB:   It is.  What his Honour Justice Campbell does is say there are differences between them – the two areas – but the analogy is a useful one.  There are similarities.  What we say about paragraphs 58 and 59 is that one can see in paragraph 58 his Honour is treating the giving of the undertaking as a situation akin to a contract making and that you look at the whole of the circumstances of the contract making – the giving of the undertaking – to discern some intention of assumption of risk or acknowledge of assumption of risk in the giving of the undertaking.

FRENCH CJ:   Sometimes the application of these analogies keeps us within a comfort zone.  It is a bit like section 82 of the Trade Practices Act, tort or nothing at one stage was the view.

HEYDON J:   But this is unrealistic, even in terms of – it is radically unrealistic but it is also erroneous, even in terms of contract law.

MR WEBB:   We would say so, your Honour.

HEYDON J:   You do not inquire what people actually understood in contracts, you look at the words they employed.

MR WEBB:   Yes.  Reasonable contemplation is an imposed external rule which was determined by the court on facts.  It is not a question of determining what damages the party intended to pay having regard to the circumstances when the contract was made.  In a particular contract if there are limitation clauses and so on ‑ ‑ ‑

GUMMOW J:   You look at the actual words of the contract, then when you come to breach and damage you look at this notion of reasonable contemplation.

MR WEBB:   Yes.  We have given your Honours reference to an article by Professor Robertson which makes the point that ‑ ‑ ‑

GUMMOW J:   Where is that?

MR WEBB:   ‑ ‑ ‑ because at the time a contract is made the question of damage is counterfactual; that is to say in a practical sense at the contract‑making phrase the parties are not contemplating damage or contemplating breach giving rise to a right of damage

HEYDON J:   The fact is that it is a very sad state of affairs.  Far too little actual thought is given to the offering of undertakings as to damages.  Justice Healy used to say that the virtue of the undertaking as to damages was that it caused plaintiffs to pause and reflect before they began disrupting other people’s lives by getting interlocutory injunctions which might be very hard to get rid of.  That is a powerful thought, but they do not reflect enough about the consequences of the undertaking.  Sometimes they seem to come to court almost unaware that you have to give one and when the judge inquires about it there is a kind of flurry of grunts and communications which cause it to be given.

MR WEBB:   Your Honour has to assume that advice is given despite the flurry – give appropriate advice at that moment in time.  That really underscores what we say is important; that when one gets to assessment, recognising the earlier phase, it is important that it has a fixed content, if I could put it that way, as a principle of assessment.

To finish what I was saying, following on from Professor Robertson’s comment - Justice Campbell gets the statements he makes in paragraph 55 from what he says is a reiteration in the House of Lords in Transfield Shipping.  But when one looks at Transfield Shipping it really does not support that outcome and certainly does not represent the law in Australia which is as stated in Czarnikow adopting Hadley v Baxendale.  In Transfield Shipping, which was another shipping case as one can see, there were different approaches taken by different judges.

GUMMOW J:   Is this not a highly controversial case in Britain?

MR WEBB:   It is, your Honour.  Lord Hoffmann and Lord Hope took the view that the rule in Hadley v Baxendale was not an external rule but was rather a prima facie approach and it could be displaced having regard to what the intentions about assumption of risk must have been between the parties.

GUMMOW J:   There would be a real question at some stage as to whether we follow or ‑ ‑ ‑

MR WEBB:   That is so, your Honour, and this is not the case to perhaps talk about it.

GUMMOW J:   “Give weight to”, I suppose, would be a better way to put it, to Transfield Shipping.

MR WEBB:   Yes.

GUMMOW J:   I do not think that is today.

MR WEBB:   It is not today, your Honour, but for today’s purpose it suffices to say, as your Honour has observed, it is not clear just from the divergence of views in the House of Lords that it has affirmed that there has to be an assumption of responsibility at all, and certainly the position in Australia at the moment is as stated in Czarnikow.  That is the source ‑ ‑ ‑

HAYNE J:   The tension is perhaps most neatly encapsulated in paragraph 12 of the opinion of Lord Hoffman, because you go from intention “(objectively) ascertained” to voluntarism, “voluntarily undertaken”, to people “would not reasonably be considered to have undertaken”.  Now, how much objectivity, how much subjectivity is in play in those various statements is, I suspect, part of the area for debate.

MR WEBB:   His Honour, as Justice Gummow says, not for today, we would suggest.  But that is the source, we say, of the reasoning of Justice Campbell that the question of remoteness is to be informed by what it can be said is the risk assumed by the person giving the undertaking at the time of its giving.

There are, of course, practical problems and this is a practical procedure employed by the courts routinely.  The practical problem is that on each occasion an undertaking is given and an assessment is made of the compensation involved.  This sort of approach would open up the bounds of the inquiry remarkably to a different task entirely to the assessment on inquiry that can be undertaken with regard to objective factors and so on.  Could I then ask the Court to go to ‑ ‑ ‑

HEYDON J:   I think you were going to Justice Gyles at one stage, when we went back into Justice Campbell.

MR WEBB:   I was, and I do want to get there.  Within Justice Gyles’ judgment at page 1019 of the book in paragraph 122, after considering some of the authorities that deal with the undertaking, including Air Express, he says:

The usual undertaking provides a flexible formula which should not be unduly restricted.  The appropriate analogy can be adopted.

FRENCH CJ:   That should be read in the light also of the first sentence in 121, I think.

MR WEBB:   Yes.  So that his Honour was there in paragraph 121 freeing himself from the practice, having regard to the terms of Air Express.  His Honour then goes to the question of whether or not the loss of the opportunity on the currency exchange was too remote, and again he adopts some reasoning which is based on the nature of the commodity, if we can put it that way.  So at paragraph 129 he says:

Properly analysed, European Bank did not need this particular parcel of money to speculate in currencies . . .  There is no principled basis upon which the European Bank should be underwritten in placing a hypothetical bet on a hazardous enterprise because it can show in retrospect that the bet would have been successful.  There is no reason for earmarking this particular money for making that particular bet.

In paragraph 130, it:

is not the natural consequence of the order and is too remote to be classed as “just” compensation.

GUMMOW J:   Sorry, where are you reading from, Mr Webb?

MR WEBB:   That was on the top of page 1023:

In my opinion the loss of profit upon a business speculation . . . is not the natural consequence of the order and is too remote to be classed as “just” compensation.

Then he really moves into a causation discussion.

FRENCH CJ:   Incidentally, nothing turns upon – for the purposes of your argument – the correspondence from the Bank to Mr Evans.

MR WEBB:   No, no.  We say his Honour the trial judge took the correct approach saying, well, the time for determining what was in contemplation is the time of the giving of the undertaking.  I set that matter to one side.  We recognise that after that time there will be in particular cases circumstances which might warrant the refusal to enforce the undertaking, but this was not one of those cases, it was just not argued.  Similarly, there was no exploration in the case of whether or not European Bank could go into the market and borrow money.  There was just no investigation of that sort of activity because it was not an issue in the case.  When his Honour says in the last sentence of paragraph 130:

The Court order was not the “sine qua non” of the loss complained of in the fashion described by Stephen J in Air Express Ltd (146 CLR at 320)-

he is talking about his Honour’s reasoning in relation to the causation argument in Air Express, making clear that he is in the realm of causation.

KIEFEL J:   In paragraph 130 is his Honour really talking about some form of mitigation against its own loss?

MR WEBB:   He may be, your Honour, but again that was not a case that was run.

KIEFEL J:   If that is so, that would be almost to recognise that the loss it suffered is not too remote.

MR WEBB:   That is so, your Honour, yes.  But, of course, his Honour does recognise that a bank is entitled to “just compensation” – he adopts that phrase – and recognises that loss of the use of the money will have consequences in damages but is saying as a matter of causation - this is in paragraph 130 – that it would not be recoverable in this case.  That was a case that just was not argued and put.  Then could I move forward in Justice Gyles’ judgment to page 1026, and this is the last port of call in this question of how the judges on appeal dealt with the findings of fact.  At paragraph 139 he says, like Justice Basten:

The finding concerning the facts that were in the contemplation of the appellant was at a very general level.  It was inferred that Mr Evans would know that the European Bank would utilise monies deposited with it to earn income including by dealing in foreign currencies –

Then he in paragraph 141 records passages in some evidence adduced by the respondent which supported the finding, quite apart from the evidence otherwise relied on by the trial judge.  Then he says:

The precise finding was that the appellant would have understood that the order staying the judgment would have the effect of denying European Bank the opportunity to convert the funds from US dollars to other currencies . . .  No basis has been shown for setting aside that finding.

So he leaves it as an isolated matter, but having regard to what he says about causation and his view on that topic earlier in his judgment.  But here like Justice Campbell, we say with respect, he does not give full credit or recognise the finding of fact actually made at paragraph 77 in the trial judge’s reasons, which was that the respondent had in contemplation that matter at the relevant time.  Again, that was a finding - because of the use of that expression contemplation was a recognition of the nature of the objective inquiry in this realm of remoteness.

Your Honours, on the separate realms of discretion to enforce an assessment of damage we have noted in our written submissions that Justice Campbell runs those things together.  When he uses the expression “Special Circumstances” in his judgment at page 985 of the appeal book he is recognising or picking up the expression that has been used by the courts in Smith v Day as an identifier of the sorts of considerations – the usual discretionary considerations – that might lead the court to refuse enforcement.  Thereafter in paragraphs 43 through to 55 he considers a number of decisions in which the court was concerned, with one exception, with the question of enforcement.

The one exception is in paragraph 46 – the decision of Hunt v Hunt 54 LJ Ch 289 at about line 40 of the page. Although I do not propose to take your Honours to that judgment, it is clear when one reads that that his Lordship having decided to allow enforcement, that is to allow assessment, just issued a warning to the defendant that he would need to adduce proper evidence of the heads of loss that he had identified in his application to enforce. He was not saying that there would be a denial of damage if there was improper conduct but rather that no damage not proved on conventional principles would be awarded.

HEYDON J:   Do paragraphs 43 to 55 reflect any controversy between the parties?  What are they here for?

MR WEBB:   There is no real controversy within any of that matter although the case referred to in paragraph 53, a decision of then Chief Justice in Equity, Churnin v Pilot Developments – it is not a fully developed judgment but his Honour does talk about the assessment as though he may be thinking that it is a question of restitution, drawing an analogy between circumstances pertaining on an undertaking with those where there is a final judgment overturned on appeal and restitution in relation to the intervening period.

Save for that there is no real controversy.  If I can be allowed to say it at this level of generality, Air Express is a touchstone for the judges at first instance without exception, and in the Court of Appeal in Cheltenham the court there too gave some notice to the decision of this Court in Air Express.

HEYDON J:   This case is in no way concerned with delay or lack of good faith or any other discretionary ‑ ‑ ‑

MR WEBB:   No.  As I opened, your Honour, the matter was sent to an inquiry in front of the trial judge for assessment of the quantum, and there was no case made on any discretionary disentitling conduct.  His Honour the trial judge acknowledges in the way he sets out his judgment each of the arguments put, and it is quite clear, we say, as it is, indeed, having regard to the order which was made.

KIEFEL J:   Would you mind clarifying for me just what you say is the approach that should be taken to the question of the undertaking party’s - knowledge is going too far but their understanding about what might happen and how that is assessed, and in particular is it assessed as part of whether or not after one can see what has flowed from – the losses that have flowed from the injunction, whether or not in the circumstances an order should be made?

MR WEBB:   In this case we say the question of whether or not loss is too remote to be recovered on the undertaking is an objective test, as set out in Hadley v Baxendale, that is to say, one considers whether the loss is a natural consequence or these are now merged, these separate streams, as the court has recognised, or would have been in the reasonable contemplation of the giver of the undertaking at the time it was given having regard to the circumstances that were known to it.

KIEFEL J:   So you maintain the approach, applying them by analogy to this situation?

MR WEBB:   Yes.

KIEFEL J:   You do not make submissions based upon an approach as to what damages flow and then considering whether or not it was just and equitable to make the order or whether or not it was reasonably foreseeable – that damage was reasonably foreseeable on the part of the undertaking party?

MR WEBB:   It is an analogy that we support because we say that it was an analogy properly adopted by the trial judge in this case, consistent with – and this is important in the case that we urge – the requirement that there be assessment according to fixed principle.  But we recognise within the statement of Justice Aickin in Air Express and in the equitable origins of the undertaking, and in the fact that it is an undertaking given to the court, to cause it in a moment when there can be no real certainty on the final question, to invade the substantive right of a defendant.

We recognise from all of those things the court still has, in appropriate cases, a right to – or ought regard itself as determining the appropriate compensation having regard to the loss sustained.  But we do urge that that cannot depend upon subjective considerations that might be found within the mind of the plaintiff, in terms of what he was or was not assuming a risk for.  It must depend upon – because of the fact that it a standard form undertaking used as a practical measure by the courts, that it be of a fixed content and not something which depends upon subjective evaluations by plaintiffs when they give them.

This case does not test the outer limits of that approach because this one is an undertaking given by a plaintiff to a defendant and called upon, or claimed on by the defendant, so they are in a close relationship, if you like, of the sort that makes the contract analogy a comfortable one, we say.  As to the larger variety of circumstances that may arise, including where non‑parties claim on the undertaking, one can speculate as to many possible losses, compensable or not, but this is not a case where we say one can articulate a principle that covers all of those.  The core approach of the Court, which has applied since the 19th century, is the appropriate one in this case and we say the trial judge was correct in applying it.

At the beginning of my submissions, I did not make it clear, but in Ansett v Air Express, the undertaking which I read out to the Court was an undertaking that extended to loss suffered by a party only.  This undertaking, of course, in its terms is an undertaking to pay such compensation to parties and non-parties, and so it offers a great escape for a wider variety of scenarios, which would test the limit.

That change from parties to parties and others occurred in Australia about 1984 when this current undertaking was introduced.  Subject to

anything else, can I say I adopt and adhere to the written submissions but would not want to say anything further orally in-chief.

FRENCH CJ:   Thank you, Mr Webb.  Yes, Mr Martin.

MR MARTIN:   May it please the Court.  Your Honours, the commercial rate of interest on the money for the period of time European Bank was deprived of its use by the interlocutory order was the appropriate compensation payable pursuant to the usual undertaking as to damages.  This commercial rate of interest represented the loss which was the natural consequence of the interlocutory order because the earning of interest on the deposit was what European Bank did in the usual course of things. 

It would not have been in the usual course of things for European Bank to have converted the deposit from US dollars into euros to make a profit on the movements in the foreign currency exchange rate.  Such a conversion on the evidence would have been a speculation and not the natural consequence of the interlocutory order.  It would not have been in the usual course of things for European Bank to have entered into such a speculative transaction. 

GUMMOW J:   You keep using this word “speculation”.

MR MARTIN:   Yes, your Honour.

GUMMOW J:   It is what bankers do.

MR MARTIN:   Your Honour, we will come to the evidence, but it is specifically referred to that in the circumstance of this case this Bank would not have speculated to this extent.

KIEFEL J:   May I ask you at this point, are you challenging the findings made by the trial judge which have not been overturned by the Court of Appeal?

MR MARTIN:   No, your Honour, we are not challenging those findings, but the findings of the trial judge were at a very general level of abstraction and they did not ‑ ‑ ‑

HAYNE J:   I do not think paragraph 59 is very general level of abstraction at all, page 938.  “I find it probable”, et cetera.

MR MARTIN:   Yes, your Honour.  Can I come back to that particular finding?  Can I say this, your Honour, that ‑ ‑ ‑

GUMMOW J:   This word “speculation”, it is one of the engines of commerce in all sorts of areas.

MR MARTIN:   Your Honour, there was specific evidence ‑ ‑ ‑

GUMMOW J:   What is property development in this country other than speculation?

MR MARTIN:   Well, that is so, your Honour, and the activities they engage upon are hazardous and speculative.

GUMMOW J:   But it is used in some places in the Court of Appeal as a pejorative expression, I think.

MR MARTIN:   Your Honour, there was specific evidence on this which I will take the Court to, if I may.  But can I just say this, your Honours, that at the time of giving of the undertaking as to damages, Mr Evans neither knew, nor did he have reason to believe that European Bank intended to convert the deposit from US dollars into euros.  It is going to be necessary to take your Honours precisely to the evidence on that.

GUMMOW J:   That may not be determinative matter.

MR MARTIN:   Yes, your Honour.

KIEFEL J:   But you do not dispute the fact that with his commercial background of being a receiver he would have understood that European Bank deals in interest, different interest rates, and does not always deal in one currency?

MR MARTIN:   Yes, we accept that, your Honour, but one has to look precisely at the evidence of what European Bank did and that is what I am coming to.

KIEFEL J:   I am sorry, is this to show some sort of likelihood that Mr Evans was to have in his mind about what they would do?  Is that what you really say that this is all about?

MR MARTIN:   Yes, your Honour.

KIEFEL J:   He has to appreciate, as the majority suggested, that there was an existing intention on the part of the Bank at the time the undertaking was given?

MR MARTIN:   Yes, your Honour, from the circumstances that he had notice of or knew at the time.  Your Honours, if I could deal with the ordinary course of things, what was the ordinary course or what was the ordinary practice of this particular bank in Vanuatu.  It was the usual ordinary course of things for the European Bank to take deposits from customers and then deposit those funds in the same currency with counterparty banks to earn income by the difference between the interest it received from the deposits with counterparty banks and the interest that it paid its depositing customers.

FRENCH CJ:   But not necessarily in the same currency?

MR MARTIN:   In the same currency.

FRENCH CJ:   Not necessarily in the same currency.  I am looking at the finding at paragraph 64 of the ‑ ‑ ‑

MR MARTIN:   Yes, your Honour.  Can I take your Honour to the evidence of Ms Ihrig who was the only ‑ ‑ ‑

GUMMOW J:   Do you challenge the finding?

MR MARTIN:   Your Honour, no, we have not challenged the finding.  That finding did not address the question as to what was the ordinary course of things or the ordinary practice of the Bank.

HAYNE J:   We are in notice of contention territory, are we not, here?  Are you not seeking to undo findings of fact upon which the Court of Appeal acted?  It is said against you acted on wrong principle but are you not in notice of contention territory?

MR MARTIN:   There was no finding made by the trial judge as to what was the ordinary or usual thing or practice adopted by European Bank in relation to its deposits.  The only evidence that was led was that of Ms Ihrig where she stated that it was the principal business of the Bank to simply take deposits and then in the same currency place those deposits with counterparty banks for the purposes of earning interest.

HAYNE J:   Are you not seeking to challenge what is said, for example, at paragraph 141 at page 1026, and if you are seeking to challenge that is that notice of contention territory?  Do you require a notice of contention to do so?  You may not, but ‑ ‑ ‑

MR MARTIN:   We would submit no, your Honour.  It is not a matter that we are seeking to – it is not a finding of fact of the trial judge that we are seeking to contend was wrong.  We are simply saying that the judgment of the trial judge was at a very general level which the Court of Appeal has indicated and that it is necessary to look at the evidence of the only bank officer that was called on behalf of the appellant to determine what was the ordinary practice or the ordinary course of things that the Bank would engage upon.

KIEFEL J:   From this you would want us to draw a conclusion that what it is said that the Bank wished to do was not usual, within its own practice?

MR MARTIN:   Yes, your Honour, precisely.

KIEFEL J:   Is that by way of establishing that it would not have done what it said it would have done, or is it by way of saying that according to its own practice it was highly speculative?  It really has to be the former, I suspect.

MR MARTIN:   It is the second, your Honour.  What was done, we are left with the finding that the Bank would have engaged in this transaction after the undertaking had been given.  There was a challenge, unsuccessful, in the Court of Appeal and we accept that finding, but what we say is that the transaction that would have been embarked upon was an unusual transaction.  It was a transaction that was not in the ordinary course or usual course of things for this Bank.

KIEFEL J:   But what does that matter?  If it does not amount to a challenge as to whether the Bank would have in all likelihood undertaken that course, what does that matter?  This is by way of saying that you do not doubt that it may have taken that course, but it is an unusual course.

MR MARTIN:   Yes, your Honour, and if it was an unusual course, then on the authorities it could not have naturally flowed from the interlocutory order.

FRENCH CJ:   know you are desperately trying to get to Ms Ihrig’s evidence, but just before you do, just to clear away a definitional issue, you have been asked once or twice about the use of the words “speculative” and “speculation”.  Just to avoid the pejorative overlay, do you mean anything more when you speak of speculation than entering into a transaction characterised by risk on the basis of incomplete knowledge about what is going to happen in the future?

MR MARTIN:   It is more than that, your Honour.

FRENCH CJ:   Yes.

MR MARTIN:   If I could come to it now, your Honour.  The evidence is contained in the foreign exchange expert’s evidence called on behalf of my client, Mr Russo.  It is appeal book volume 2, page 721, at line 22 to line 33.  Paragraph 8.1 is where it begins, your Honours.  There he says:

Exchange rates of the major world currencies are constantly moving and while good liquidity for trading exists they are regularly volatile.  They often alternate between vibrating in bands or trading ranges and trading strongly in one direction for extended periods.  They can also move substantially over reasonably short periods of time.

I am aware of no proven basis upon which accurate forecasts or predictions can be made of movements in foreign currency.  Although some operators in the market are better equipped to give advice than others, ultimately, it is a speculation.  It is a speculation because unpredictable factors may have immediate and violent repercussions on the market.  A rumour of the death of the United States President, a terrorist attack on a major world financial centre or the dismissal of an oil minister cannot be predicted or adequately guarded against.  Yet they may have immense impact on the international foreign exchange market and the interrelationship between any two currencies.

FRENCH CJ:   That sounds pretty close to what I just put to you.

MR MARTIN:   Yes.  Then over the page, your Honours, at 722, paragraph 8.6, Mr Russo says this:

It is often considered that a higher interest rate will favour one currency in its relative appreciation to a currency with a lower interest rate.  However, there is no long term evidence that a favourable interest rate differential will assure capital gain when holding one currency relative to another.  Whilst it might be true for certain periods, there are often periods where the relative movements between currencies can generate substantially greater exchange rate losses relative to the interest rate differential than might be gained over the same period.  That is to say, the exchange rate loss between the time of conversion to a second higher yielding currency and the time of converting back to the original currency may be greater than the benefit gained by earning a higher rate of interest on the second currency over that same time period.

Your Honours, Mr Russo was neither cross-examined, nor was his ‑ ‑ ‑

KIEFEL J:   Forgive me, but did not his Honour take into account the various contentions for each parties and on your client’s part it would have been Mr Russo’s report against Ms Ihrig’s?

MR MARTIN:   The trial judge made no findings as to whether ‑ ‑ ‑

KIEFEL J:   No specific findings, but did not the trial judge accept Ms Ihrig’s evidence about the use of stop loss orders and regard the risk as only a temporary exposure in if not expressly implicitly finding that this would not have been out of the Bank’s own usual practice?  Has this not been deal with?

MR MARTIN:   Your Honour, if I may come to that.  Ms Ihrig did give evidence specifically about whether the proposed transaction was speculative, and she agreed with Mr Russo’s evidence.  Her evidence, your Honours, is contained at volume 1, page 16, line 36, through to page 17, line 38.  She was asked these questions at line 36 on page 16:

Q.Do you agree with me that exchange rates of major world currencies are constantly moving?

A.Yes.

Q.And are regularly volatile?

A.Some are.

Q.These movements can be involved in moving in one direction for extended periods?

A.That is correct.

Q.There can also be movements in value of anything up to 5% of the value of the currency in a matter of days?

A.Yes.

Q.The reasons for such movements can be many?

A.Yes.

Q.There are many unpredictable things which would have immediate and adverse impacts on the exchange rates of major currencies?

A.Yes.

Q.For example the death of a United States president could have immediate and adverse impact on major currencies?

A.Yes.

Q.And these matters cannot be accurately predicted, can they?

A.No.

Q.Not to guard against them?

A.You cannot guard against them.

Q.Not fully?

A.No.

Q.As far as you are aware there is no proven basis for accurately predicting these matters?

A.No.

Q.Any prediction of a future movement in a foreign currency would be speculation?

A.Yes.

HEYDON J:   If Justice Healy were here he would say that this should be shown to new entrants to the bar as an example of a successful cross‑examination of an expert.

MR MARTIN:   Just to finish it, your Honours, at line 30:

Q.And it is because of these unpredictable factors which would have an immediate impact or a possible impact on currency?

A.       Yes.

Q.You agree with me that a high interest rate that may be on one currency cannot ensure that there will be capital gain against another currency?

A.       That is correct.

Q.There are often periods when the movement of currencies can generate losses much greater than the interest rate?

A.       Yes.

Your Honours, that is the evidence dealing with speculation.

HAYNE J:   Let it be assumed that it is well accepted that currency trading is risky.  What is the next proposition that you develop from that?  Currency trading is risky.  Step two?

MR MARTIN:   That the hypothetical transaction being the conversion of an amount the magnitude of US$8.7 million into euros was an unusual transaction for this particular Bank.  Step three, that it could not have been a natural consequence of the order for the Bank to have entered into a transaction which was an unusual and speculative transaction.

On the evidence the ordinary ‑ ‑ ‑

FRENCH CJ:   They had been prevented from.

MR MARTIN:   Yes, been prevented by that order.  The ordinary course that would have taken place here would be that this Bank would have simply deposited the US dollars into an interest‑bearing deposit and earned money -interest on that in the ordinary course of things.

GUMMOW J:   Was that put to the witness?

MR MARTIN:   Yes, your Honour.  On page 16 at line 10 there are two references.  Firstly the question:

Q.       Just pausing there do you agree with me that the principal business of European bank at the time of this document ‑

that is February 2005 -

was to make deposits from clients and then deposit those funds with other banks?
A.       Yes.

Q.       The bank’s income would be earned by the difference between the interest it received from the deposits with other banks and the interest it paid out to its clients?
A.       Part of its income, yes.

If your Honours could then go to page 36, volume 1 at line 16:

What I want to suggest to you there was no prior transaction in which the bank had exposed itself to the currency risk of a mismatch between U.S. Dollars and Euros in the magnitude of $8.7 million U.S. had it?
A.       8.7 million U.S., no I don’t think so.

Then if your Honours could go on to page 52 of volume 1 - at the top of the page, line 9:

Q.       Had you ever prior to 27 May 2004 entered into a forward exchange contract for European Bank involving an amount anything in the vicinity like $8.7 million US?
A.       No, I don’t think so.

Q.       Indeed, I want to suggest to you that you had never on behalf of the bank prior to 27 May 2004 entered into entered into a foreign exchange contract anything near the vicinity of $8.7 million?
A.       Perhaps because we didn’t have the available funds.

Q.       Such a transaction would have been highly unusual for the bank as far as you are aware?
A.       Unusual, yes.

KIEFEL J:   The Bank subsequently did, however, undertake a similar transaction at quite a large figure, did it not?

MR MARTIN:   In 2006 and 2007.

KIEFEL J:   Yes, and his Honour dealt with the question of whether or not that was part of the Bank’s litigation strategy rather than showing that that is a risk the Bank makes from time to time.

MR MARTIN:   Yes.

KIEFEL J:   And he found in favour of the Bank.

MR MARTIN:   Yes, he did, your Honour.

HAYNE J:   The argument you advance does not go so far as to challenge the finding at paragraph 59 that it was more probable than not that Eurobank would have engaged in this transaction.

MR MARTIN:   No, your Honour, we do not challenge that finding.

HAYNE J:   Let me just understand the argument.  I may not have understood it properly.  Step one:  currency trading is risky.  Step two:  the various pieces of evidence to which you point show that a conversion to euros was unusual, unprecedented, outside ordinary course of activities of Eurobank but you stop short of challenging the finding by the trial judge that they would have done it.

MR MARTIN:   Yes, your Honour, because if they had on the basis that doing an unusual speculative action is too remote it does not fall within the first limb of Hadley v Baxendale because it is not the natural consequence of the interlocutory order because it was an unusual speculative transaction that fell outside the ordinary course of what the European Bank would have done at the time the undertaking was given.  Now, your Honours, could I just indicate that what ‑ ‑ ‑

GUMMOW J:   So it comes down to this phrase “natural consequence”, does it, in Hadley v Baxendale?

MR MARTIN:   Yes, in relation to the first limb, yes, your Honour.

KIEFEL J:   If the Bank had its money available and it is found it would have done what it said it would have done, why is that not a natural consequence of it not having its money?

MR MARTIN:   On the evidence, your Honour, it was not in the ordinary course of its business that it would have entered into that transaction.

KIEFEL J:   You mean it has to act semi‑reasonably at the same time?

MR MARTIN:   Well, your Honour, it acted outside what it ordinarily would have done on the evidence, and that is what I need to take your Honours to.  What actually happened with the moneys that were deposited in this Benford account is set out in the facts of a related judgment of the Court of Appeal and specifically the judgment of Chief Justice Spigelman in Robb Evans v Citibank (2004) 61 NSWLR 75. If I could take your Honours to that. The relevant passages, your Honours, begin at page 80, paragraph 11, where the fraud itself from which the moneys originated, described in paragraph 11 of Chief Justice Spigelman’s judgment, committed by a Mr Taves, and your Honours will see at the bottom of paragraph 11 there was an amount debited from:

912,125 credit card accounts amounts totalling “US$47,512,530, supposedly for access to web sites.  Most of this activity was fraudulent.

Then in paragraph 12:

The proceeds of the fraud were deposited in US bank accounts held by various Taves companies -

penultimately through the Cayman Islands and then ultimately your Honours will see it was deposited in the account in the name of Benford with the European Bank in Vanuatu.  In paragraph 15 on page 81 his Honour sets out the finding by Justice Palmer that:

Mr Taves transferred some of the proceeds of the fraud from his Cayman Islands account with Eurobank into an account in the name of Benford, commencing on 26 February 1999.

Then paragraph 16 noted that:

The respondent took no steps to ascertain the identity of Benford’s controllers or the source of the funds.  Nor were procedures for the prevention of money laundering applied.

Paragraph 17:

The respondent opened an interest bearing deposit account in Benford’s name . . . totalling US$7,527,900, were made into the account . . .  All of this money was the proceeds of Mr Taves’ fraud.

Then paragraph 20 on page 81:

The deposits by Benford with the respondent can be transactionally linked with the placement by European Bank of funds on deposit with other banks, which deposits were made in its own name and at a marginally higher rate of interest.

Your Honours will see that ultimately the funds were deposited by European Bank with Citibank in Sydney in European Bank’s name in a US dollar account earning a marginally higher rate of interest than the interest that European Bank agreed to pay to Benford.  This was consistent entirely with the Bank’s policy and practice of simply taking the deposit which it received in US dollars and then putting it on placement out with the counterparty bank in the same currency to earn interest in that currency.

Your Honours will then see what happened in paragraph 20 that Citibank Limited then transferred the funds in that account with European Bank in US dollars to an account with its holding company in Citibank, NA in New York.  Then in paragraph 21, pursuant to a seizure warrant served on Citibank, NA in New York by the FBI, the US Marshals Service seized the deposit in US dollars together with accrued interest.  Ultimately, the European Bank was successful in obtaining judgment on appeal against Citibank Limited for the amount of its deposit in US dollars together with interest.

That judgment is contained in a decision of the European Bank Ltd v Citibank (2004) 60 NSWLR 153, in the Court of Appeal. At the time of the interlocutory order that was made European Bank’s resulting position was this – that it had an asset in the judgment debt in the amount of $US8.7 million and it had a corresponding liability in US dollars of approximately the same amount in the Benford account. That was the evidence of Ms Ihrig. I will just give your Honours the reference to it. It is at page 42, volume 1, line 45 through to 43, point 14. There is no issue between the parties. That liability still exists, your Honours, that amount being owed by Benford by European Bank in Vanuatu.

Now, your Honours, the evidence, we submit, established that the hypothetical conversion from US dollars to euros was not in the ordinary course of things of European Bank.  Your Honours, we have given you the two earlier references to Ms Ihrig’s evidence that no prior transaction had been entered into by European Bank which exposed itself to a mismatch of US Dollars with euros in the magnitude of $8.7 million, and that is at volume 1, page 36, line 16 to line 20.  Furthermore, Ms Ihrig admitted in cross‑examination that it was unusual for European Bank to have entered into such a transaction involving anything in the vicinity of $US8.7 million.  That is at transcript page 52 of the appeal book, line 9 through to 18.

Ms Ihrig, in her evidence, stated that European Bank’s executive had power under what was called a liquidity management policy to authorise and carry out open positions from time to time, provided the liquidity risk levels were not breached.  Her evidence in that regard is found firstly at page 120 in her first affidavit at line 37 through to line 42, paragraph 8 of her affidavit, she says:

The EUB executive has the power under EUB’s Liquidity Management Policy to authorise and carry open positions from time to time provided that the liquidity risk levels are not breached.  An “open position” is the difference, by currency, between the assets and liabilities of that currency.

She explains what she means by that later and then says:

This difference is compared to the limit set by the EUB executive (and contained in the Liquidity Management Policy) and any other authorised positions as per EUB’s policy guidelines.

If I could then take your Honours to the liquidity management policy of European Bank ‑ ‑ ‑

KIEFEL J:   In this regard we have findings by his Honour, do we not, from paragraphs 33 onwards about Ms Ihrig’s evidence about the liquidity management policy and ‑ ‑ ‑

MR MARTIN:   Your Honours, that seems to be the submission that was set out by European Bank.  It does not seem to ‑ ‑ ‑

KIEFEL J:   Yes, but it appears in the way in which his Honour has written it, it appears to have been adopted in the resolution, both in relation to the questions of credit raised against Ms Ihrig as follows and the resolution of the question in issue between the parties.

MR MARTIN:   Yes, I think your Honour is correct there.  It still does not make it usual.  Our submission is that the proposed hypothetical transaction was in breach of the liquidity management policy and, indeed, the particular authorisation limits that the bank itself set.

KIEFEL J:   I mean this, you have said, goes towards the question of whether or not it was a speculative transaction.  Was this in issue before his Honour, or are you putting this forward by way of supporting the majority in the Court of Appeal?

MR MARTIN:   We put it both ways.  It was before his Honour ‑ ‑ ‑

KIEFEL J:   The issue that it was speculative?

MR MARTIN:   Yes, your Honour.

KIEFEL J:   And, therefore, remote.  I think that is how you put it.

MR MARTIN:   Yes, your Honour, we put that before his Honour.  Also, it was clearly taken up by their Honours in the Court of Appeal and, indeed, resulting in findings that the activity was speculative and that such a transaction was too remote, because it fell outside ‑ ‑ ‑

KIEFEL J:   I do not think it appears in the notice of appeal to the Court of Appeal at appeal book page 954.

MR MARTIN:   Of course, ground 2 was the ground that we succeeded on at 954 and that, one would ordinarily say, fell within the first limb of Hadley v Baxendale being the natural consequence.  There was a challenge in relation to ‑ ‑ ‑

GUMMOW J:   You lost appeal ground 1 on 954, did you not?

MR MARTIN:   Yes, your Honour, and we do not seek to challenge obviously that finding.  We simply say that transaction was unusual or out of the ordinary course of things for this Bank on the evidence, and ‑ ‑ ‑

HAYNE J:   Can you just then carry that forward a bit.  Assume that those epithets are properly applied to the transaction, “unusual”, “out of the ordinary course”.  What follows from that?

MR MARTIN:   It follows then, your Honour, on the authorities we will take your Honour to it was not the natural consequence of the order, that this was a matter even though the transaction would have been entered into, was a transaction that was speculative, unusual and out of the ordinary or usual course of things for this Bank.  That is the case then.  We submit it supports the finding by the Court of Appeal that the hypothetical transaction and the profits supposedly to be made from that hypothetical transaction were not the natural consequence of the interlocutory order.

HAYNE J:   Is that a proposition about causation, that the transaction that would have happened was not prevented by the injunction?  Is that the proposition?

MR MARTIN:   Your Honour, that is a finding that I cannot challenge.

HAYNE J:   Just so.  So what is the content of the proposition that you are advancing if it is not a proposition of causation?

MR MARTIN:   It is on the first limb of Hadley v Baxendale ‑ ‑ ‑

HAYNE J:   A proposition of foreseeability?

MR MARTIN:   Yes, your Honour.

HAYNE J:   A proposition that the person having the obligation of the undertaking ‑ ‑ ‑

MR MARTIN:   Yes.

HAYNE J:   What, could not have foreseen, did not foresee?

MR MARTIN:   Yes, your Honour.  He could not have had imputed knowledge of something that was going to take place outside the ordinary course, or outside the usual course of things for this particular Bank.

KIEFEL J:   He would not have expected this to occur, is that it?

MR MARTIN:   Yes, your Honour.

KIEFEL J:   He knew that they were a bank and that they swap currencies occasionally, or from time to time – I should not say “occasionally”, but from time to time, but had he been asked about it he would have said “I would not have expected them to do this”.

MR MARTIN:   Precisely, your Honour, that he would have expected them simply to have deposited the deposit in US dollars with a counterparty bank in US dollars to earn interest.  That was what he would have expected to happen in the ordinary, usual course of things for this Bank ‑ ‑ ‑

KIEFEL J:   Did he give evidence?

MR MARTIN:   No, your Honour.

KIEFEL J:   Mr Evans did not give evidence?

MR MARTIN:   No.  Your Honours, could I then come to the liquidity management policy which is the internal policy of the bank determining what transactions it could or could not enter into?

GUMMOW J:   Why is not all this in your written submissions at paragraph 63 and following?  …..through perception that it might put you in notice of contention territory.

MR MARTIN:   Your Honour, the difficulty we have been confronted with is that the trial judge made very few findings of fact.  He certainly did not make findings of fact as to what was in the ordinary course of the bank’s business what the bank ‑ ‑ ‑

GUMMOW J:   Your problem is you failed on ground 1, 954, of your grounds in the Court of Appeal.

MR MARTIN:   Yes, we do not challenge that.  What we are simply saying that if the transaction had been entered into, yet again it was not in the usual course or the ordinary course of things for this bank, having regard to its own internal policies which indicated that it would not have entered into such a transaction.

FRENCH CJ:   Now, you put that submission consistently with, do you, the finding at paragraph 57 by his Honour that he accepts the evidence of Ms Ihrig and in particular the evidence of Ms Ihrig at paragraph 33 which must be taken to be accepted by that finding, that is, the guideline status of the liquidity management policy and the flexibility of the executive discretions?

MR MARTIN:   Yes.  Your Honours, can I take your Honours to the liquidity management policy which is found at 249?  Your Honours will see that at 250, line 12, it sets out:

The purpose of this policy is to ensure that the Board and management of European Bank Limited (EUB) has adequate policies, practices and procedural strategies in place to ensure the Bank is complying with statutory, regulatory and prudential guideline obligations –

Then if your Honours could go over to page 251 at about point 15 it deals with:

The services and activities currently provided are:–

·   Deposit Services:

Foreign currency non-resident customer deposits are accepted from clients and placed with other financial institutions with the aim of earning points spread for the Bank and at the same time maintaining a closely matched maturity profile.

That is, they accept a deposit on a short‑term basis and they place a deposit with a counterparty bank, that will also be on a short‑term basis and the maturity profiles will match.  Then importantly, if your Honours could go to 252, the last sentence of the first paragraph there at line 13:

The Bank’s policy irrespective of whether the currency is locally domiciled or foreign, therefore, is to retain a liquid matching currency and term book.

That means, as explained by Ms Ihrig in her evidence at page 18, line 25 – she was asked the question:

Did you understand that the term liquid matching currency to mean that the policy of the bank was for the currency in terms of deposits taken by the bank from its clients should match the currency in the terms of the deposits placed by the bank?
A.       Where possible, yes.

That meant that, in accordance with this policy, that if they received a dollar deposit they would then place it on deposit with a counterparty bank in the same currency.  Your Honours, at page 20 Ms Ihrig also gave evidence concerning what was meant by “open position”.  At line 14:

Q.       Ultimately resulting in an accumulated authorised limit of $US90,000.  An open position could be described as the difference between the liabilities, that is deposits from customers, and the assets, that is deposits with other banks of that currency?

An open position creates a currency risk.  I will come to that later.  The currency risk associated with an open position may be minimised by hedging that exposure.  That was the evidence of Mr Russo and he gave that evidence at page 719, volume 2.

KIEFEL J:   Forgive me for interrupting you once again, but is this not again dealt with in paragraphs 33 and following set out in his Honour’s reasons about the use of stop loss orders?  If it was such a live issue, do we not infer that his Honour accepted that this was not an unusual practice; that it was something that could have been undertaken and would have been undertaken and required no further comment?  His Honour has accepted her explanation about the open position and whether or not there was an inconsistency with the liquidity management policy.

MR MARTIN:   Yes, your Honour, but his Honour did not make any finding as to whether this hypothetical transaction was in the ordinary course of things of this particular Bank.  His Honour did not address that issue.  This evidence goes precisely to that point.  Now, your Honours, if I could just deal quickly with what Mr Russo said about hedging and that is at page ‑ ‑ ‑

FRENCH CJ:   I am sorry, what you are asking us to do, is it not, is to look at the liquidity management policy and to infer from that, and presumably other evidence, a matter which was not the subject of a finding by his Honour, namely, that this transaction was unusual?

MR MARTIN:   Yes, your Honour.

FRENCH CJ:   And that against the background of Ms Ihrig’s evidence, accepted by his Honour, that the liquidity management policy was just a guideline and that the executives could exceed open position limits and go for more than three days?

MR MARTIN:   Yes, your Honour.  I need to take your Honour to them.

FRENCH CJ:   Yes.

MR MARTIN:   Your Honour, the sliding point is that a currency risk associated with an open position may be minimised by hedging that exposure and that is recognised by Mr Russo at page 719, volume 2 at line 16 through to line 21 of paragraph 5.6.  Mr Russo deals with:

Forwards and futures contracts are two of the most common instruments used for “hedging” financial market exposures often where the underlying assets or exposures are not readily tradeable.  Hedging is an action or strategy designed to minimise risk.  A hedge often takes the form of a transaction in one market or asset which protects against losses in another.  Forward and futures contracts can also be used by speculators who are trying to anticipate price changes with a view to making profits.

The position of European Bank in 2004 was that it did not hedge ‑ ‑ ‑

GUMMOW J:   Part of the framework of Justice Gzell’s reasons is that there had been an attack on Ms Ihrig’s evidence, had there not?

MR MARTIN:   Yes, and Justice Gzell accepted her evidence.

KIEFEL J:   Implicitly, his Honour was saying that he found it not to be outside the Bank’s own guidelines to take action such as stop loss orders and forward contracts to minimise the exposure.

MR MARTIN:   Yes, his Honour did find that. 

KIEFEL J:   So what finding do you say is open, given his Honour’s acceptance of her evidence about those matters?

MR MARTIN:   The finding that is open is that the hypothetical conversion of $US8.7 million to euros, even though on his finding would have been done in June 2004, was outside the ordinary course of things for the Bank, that it was an unusual transaction because it breached, amongst other things, the guidelines of the Bank as contained in the authorised limits, which I need to take your Honours to.  The important thing we wish to make is this, that on the Bank’s own evidence the Bank itself did not hedge ‑ ‑ ‑

HAYNE J:   Well, before we come into this detail, do you contend, do you submit that it should have been found as a fact that the transaction which the trial judge found would have been undertaken was an unusual transaction?

MR MARTIN:   Yes, we do, your Honour.

HAYNE J:   Did the Court of Appeal make that finding of fact?

MR MARTIN:   The Court of Appeal held that the transaction was not the natural consequence.

HAYNE J:   I understand that, but did the Court of Appeal make the finding of fact that the transaction which would have been undertaken was for European Bank an unusual transaction or a transaction outside the ordinary course of its business?

MR MARTIN:   No, your Honours, not in that term.

HAYNE J:   Do you, therefore, not have to give notice of contention within rule 42.08.5 on the footing that you are contending that the judgment ought to be upheld on the ground that the court below failed to decide a matter of fact, namely that the transaction was unusual?

MR MARTIN:   Your Honours, if I could answer it this way?  We succeeded in the ground of appeal in overturning his Honour’s finding that the transaction was the natural consequence of the interlocutory order.  The Court of Appeal held that it was not.  Implicit in that, we would submit, was

that the Court of Appeal regarded the transaction as not something that ordinarily would have been entered into by this particular bank.  Now, your Honours, in support of the finding ‑ ‑ ‑

GUMMOW J:   Part of your problem then is, Mr Martin, that you did not have among the grounds of appeal to the Court of Appeal a complaint in the terms now that would be found in the postulated notice of contention because all you had was this natural consequence, ground two, which is a proposition of law.

MR MARTIN:   It was incorporated into.  Your Honours, can I just make this point, that the evidence established that European Bank did not hedge its exposure to exchange fluctuations in foreign currencies.  That was contained in its financial statements in 2004.  Now, if I could take your Honours to that?  It is page 777.

GUMMOW J:   Just before we get to that, rule 42.08.5 talks about the Court of Appeal failing to decide some matter of fact.  That assumes that they were ‑ ‑ ‑

HAYNE J:   Required to decide.

GUMMOW J:   It was before them.

MR MARTIN:   Yes.  Could I take your Honours to page 777?

FRENCH CJ:   Now, this absence of – forging on, as it were – of a hedging strategy, does that again go to support the proffered inference that this was an unusual transaction, because if you are dealing in currencies you normally hedge?

MR MARTIN:   Yes, your Honour, this was not the natural consequence of the interlocutory order.

FRENCH CJ:   Well, but underlying that is the proposition we have just been taxing you with as one that requires a notice of contention, is it not?

MR MARTIN:   Yes.

FRENCH CJ:   Well, just bear with me.  I will just hear from Mr Webb for a moment about this, Mr Martin.  Mr Webb, if a notice of contention is offered, does that place you in any difficulty?

MR WEBB:   Your Honour, it does not.  The evidence is there and I can deal with it, perhaps not immediately but at some little time.

HEYDON J:   You were in the Court of Appeal, were you?

MR WEBB:   Yes.

HEYDON J:   Were these arguments, these factual ‑ ‑ ‑

MR WEBB:   No.

HEYDON J:   They were not put to the Court of Appeal?

MR WEBB:   No.

GUMMOW J:   The question then is, would it be a competent notice of contention?

HAYNE J:   Is it open and the answer seems ‑ ‑ ‑

GUMMOW J:   It seems on that answer, the question would be, I think, no.  You have to think about these things.  You know what Justice Heydon said about undertakings.

MR WEBB:   That would have been the argument at the end of the day, but the matter was not argued.  The whole controversy was whether or not it was in the business of mismatching currencies as a normal course of its business, without regard to quantum or particular transactions.

FRENCH CJ:   Thank you, Mr Webb.  Mr Martin, what we think we might do is adjourn now until 2.15 and you can consider your position over lunchtime, but I think you can take at least this much from the exchange, that this line of argument really is not sustainable without a notice of contention and then there is the other issue, whether a notice of contention is in fact open to you as an option, having regard to what passed in the Court of Appeal below.

MR MARTIN:   Yes, your Honour.

FRENCH CJ:   We will adjourn then until 2.15.

AT 12.40 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.18 PM:

FRENCH CJ:   Mr Martin, we have seen a copy of your proposed notice of contention.  I suppose the critical question in terms of leave is whether or not the point you now wish to agitate was in fact agitated before the Court of Appeal.

MR MARTIN:   Yes, your Honour.  Your Honour, your Honours should also have with the notice of contention the outline of appellant’s – that is Mr Evans’ submissions in the Court of Appeal dated 16 May 2008.  If I could take your Honours to the relevant paragraphs in the outline, firstly at page 8, paragraph 44, it is submitted that:

The usual practice of European Bank was to take deposits from customers and place them out on investment with other banks in the same currency.  To convert the US$8.7 million deposit from US dollars to euros would involve European Bank in departing from its usual practice.  Ms Ihrig gave evidence that if US$8.7 million deposit had not been subject to the 18 May 2004 order, she would have retained the funds in US dollars until any decision was made to convert the funds –

Then if I could take your Honours to paragraph 46 ‑ ‑ ‑

HAYNE J:   Just before you do that, is all of this encompassed under the rubric at page 4, “Causation - loss of an opportunity” and in amplification of the submission in paragraph 20 that there was error at trial in finding “it was probable that the European Bank would have converted”?

MR MARTIN:   It is under that rubric, your Honour, but it is seeking a specific finding of fact in relation to those matters contended for in paragraph 44.  It goes on, your Honour, in paragraph 46:

Any decision as to where, and which currency, the funds of European Bank were to be invested was made in accordance with the bank’s formal policy, practices and procedural strategies –

Then if your Honours could go to paragraph 51 at page 9:

To convert the US$8.7 million deposit from US dollars to euros would have breached the bank’s own policies, practices, prudential strategies and foreign currency open position limits 

references to Russo’s report –

In particular, it would create a foreign exchange open position “mis‑match” between US dollars and euros in an amount exceeding US$8.7 million in breach of European Bank’s Liquidity Management Policy.

Then if your Honours could go to paragraph 55 on page 10:

Any such authorisation would have been entirely inconsistent with the usual banking practices in the foreign exchange market, and in direct conflict with the bank’s policy to retain a liquid matching currency and term book –

reference to Mr Russo’s evidence and the transcript.  In paragraph 57, page 11:

Under cross-examination, Ms Ihrig admitted that a foreign exchange contract for anything in the vicinity of US$8.7 million would be highly unusual, and that she had never entered into any such transaction of that magnitude for the bank –

Then paragraph 62 on page 12:

Consistently with this, Mr Russo gave uncontested evidence that the revised limits were larger than the bank was comfortable with or would have maintained in normal circumstances, and having regard to its capital and modest levels of profitability, unusually high . . . Further, Mr Russo gave uncontested evidence that such a position would be a very high level of risk relative to the bank’s limited capital and profitability and contrary to usual banking practice . . . 

At page 13, paragraph 68:

It would also be quite contrary to the usual banking practice for European Bank with its limited capital and profitability to concentrate its currency risk in one currency, namely, euros in the magnitude of US$8.7 million –

Then, if your Honours could go over to page 18, paragraph 91:

There is no evidence that the European Bank “dealt exclusively in foreign currency transactions” and even if it did, there is no evidence that Mr Evans did or should be taken to have known that.  Rather, the evidence shows that while European Bank engaged in foreign currency transactions, these were a relatively minor aspect of its business and did not involve significant amounts or open positions of any significant duration.

Your Honours, we submit that it was fairly and squarely before the Court of Appeal that on the evidence that had been adduced at first instance that we were contending for a finding that to convert the $US8.7 million deposit from US dollars to euros would have involved European Bank in departing from its usual practice.

FRENCH CJ:   Mr Martin, you are not in these proceedings, as I understand it, taking issue with the finding at paragraph 59 on page 938 in Justice Gzell’s judgment?

MR MARTIN:   That is so, your Honour.

FRENCH CJ:   Yet, that is the very finding which in paragraph 20 of the appellant’s submissions was being challenged and in respect of which the usualness or otherwise of the transaction was deployed as an argument, is that right?

MR MARTIN:   We are under remoteness as well under paragraph 91, your Honour, in the submissions.

FRENCH CJ:   That is circumstances of which Mr Evans had notice, I think?

MR MARTIN:   Yes.

KIEFEL J:   But you have to show that the submissions were made in the context which was identified before lunch, namely, that it goes to the question of whether or not Mr Evans could reasonably have had any contemplation or expected this practice on the part of the Bank.  It is not the same thing to say that, “In passing in relation to another issue we made these ‑ ‑ ‑

MR MARTIN:   Yes.  Undoubtedly the issue of causation overlaps with the question as to what is the natural consequence of the order.  In other words, what loss flows from, has been caused by, the interlocutory order.

KIEFEL J:   It would not fudge this too much because the question that we are being asked to consider is whether or not these matters were squarely before the Court of Appeal.  You should bear that in mind when you answer questions to the Court, I think.

MR MARTIN:   Your Honour, all I can say is what is contained in the written submissions.  We accept that it was put under the rubric of

causation, but, your Honour, causation very much overlapped with the question under the first limb of natural consequence.  It does involve a causal connection as well.  We would submit, though, your Honours, that we were specifically contending for a finding that what was done was contrary to the usual practices of this bank in accordance with the evidence of it being led at first instance.

Clearly we were looking at the test envisaged by this Court in Air Express, being what we would describe as the conjunctive test involving both limbs of Hadley v Baxendale, that is, natural consequence and foreseeability from circumstances known to, in this case, Mr Evans.  We would submit it was fairly and squarely before the Court of Appeal, as it was before the trial judge on the evidence.

FRENCH CJ:   Yes, thank you, Mr Martin.  We will adjourn briefly just to consider the course that we take.

AT 2.28 PM SHORT ADJOURNMENT

UPON RESUMING AT 2.33 PM:

FRENCH CJ:   We will not need to call on you, Mr Webb.  The respondent seeks leave to file a notice of contention out of time.  The ground which the respondent seeks to urge is that:

The Court below failed to find that to convert the US$8.7 million deposit from US dollars to euros would involve European Bank in departing from its usual practice.

That submission was not made in the Court of Appeal.  Rather, the alleged departure from normal practice was advanced in the courts below as a basis for not finding, as the trial judge did, in terms of paragraph 59 of his judgment that it was probable that European Bank would have converted the funds invested by the prothonotary from US dollars to euros but for the order of 18 May 2004.

The respondents submitted in paragraph 20 of their submission in the Court of Appeal “that the trial judge erred” in making that finding.  The Court of Appeal rejected the attack on the trial judge’s finding and the respondent does not maintain that attack in this Court.  In the circumstances

leave to file a notice of contention out of time will be refused.  Yes, Mr Martin.

MR MARTIN:   Your Honour, if I could move on to the submission that no one, including Mr Evans, could have foreseen that European Bank would have entered into a transaction in breach of their own policies and guidelines.  In order to develop that submission it is necessary to take your Honours to what those guidelines were.  They are firstly contained in appeal book 1 at page 255.

HEYDON J:   Is this a submission in your written submissions to this Court?

MR MARTIN:   I am sorry, your Honour.

HEYDON J:   This submission you have just foreshadowed - is this in your written submissions to this Court?

MR MARTIN:   Yes.  It is touched upon, your Honour, in relation to ‑ ‑ ‑

HEYDON J:   Paragraph 91 onwards ‑ ‑ ‑

MR MARTIN:   Yes.

HEYDON J:   Thank you.

MR MARTIN:   Your Honours, if I could go to volume 1, page 255, this was the European Bank’s foreign currency open position limits and authorisation which your Honours will see was dated 14 January 2000 and was the authorisation and open limits position that applied in May 2004.

Your Honours, you will see that it lists the particular currencies at point one, and the amounts which it has authorised to go to either overbought or oversold, that is an open position and I will come to the document that demonstrates how this operates, your Honour, in relation to ‑ ‑ ‑

HAYNE J:   Is the hypothesis that Mr Evans knows or ought to have known that this internal policy of the Bank existed and that he knew or ought to have known of its content.  What is the hypothesis?

MR MARTIN:   The hypothesis is, your Honour, that Mr Evans neither knew or ought to have known, or could have foreseen that the Bank would have entered into a transaction which was in breach of its own limits or authorisations, those limits being in accordance with usual banking practices.  Now, the limit in relation to euros is incorporated under the amount “all other currencies” about line 28:

(9) USD 3,000 ea.

It represented the cumulated authorised limit of $US90,000, which represented 12 per cent of the capital of the Bank.  Then at line 35:

Temporary excesses (and may be for more than 3 days) over the Cumulated Total of USD 150,000 to be authorized, prior the excess, by at least two members of the Executive Committee ‑ ‑ ‑

FRENCH CJ:   Is that what is reflected in the finding at paragraph 33 on pages 929 and 930?

MR MARTIN:   Yes, your Honour.  Now if your Honours could go to page 256, there is a new ‑ ‑ ‑

HEYDON J:   Can I just interrupt, Mr Martin.  This is the same complaint as was made in ground of appeal No 3 to the Court of Appeal, I think, which is on page 954 of volume 2:

The trial judge erred in holding that the damages claimed by European Bank Limited were foreseeable from the circumstances known to Mr Robb Evans ‑ ‑ ‑

MR MARTIN:   Yes, it formed part of it, your Honour.

HEYDON J:   Now, ground 3 was rejected by Justice Gyles and Justice Campbell agreed with him?

MR MARTIN:   Yes.

HEYDON J:   Is not this a notice of contention point again?

MR MARTIN:   I am hoping not, your Honour.

GUMMOW J:   No doubt.

This, your Honour, relates to the specific question of knowledge or foreseeability that Mr Evans could have had.  What we are submitting is that he could not have foreseen that the Bank would have breached these particular limits and guidelines.

HEYDON J:   Is that not a specific version of appeal ground 3 to the Court of Appeal?

MR MARTIN:   Your Honour, we acknowledge it is incorporated in part of ground 3 but with the qualification that natural consequence is qualified under appeal ground number 2.  The test that we are dealing with here is that contained in Air Express which is the natural consequences which was foreseeable from the circumstances known to Mr Evans.  It is an inclusive test involving both limbs of Hadley v Baxendale read in a conjunctive way rather a disjunctive way.  It was referred to in the trial judge’s findings.  In order to understand his Honour’s findings your Honours need to understand what operation these authorisation limits had and how they worked.  All we are seeking to do is to establish, so your Honours can understand, what effect these authorisation limits had.  If your Honours go to 256 your Honours will ‑ ‑ ‑

KIEFEL J:   Before we get into this evidence again, there are findings made by his Honour the trial judge and there are conclusions and findings made by the Court of Appeal.  You are obviously departing from the Court of Appeal’s conclusions in relation to foreseeability.

MR MARTIN:   With respect, no, your Honour.  We say what the Court of Appeal found, as far as foreseeability is concerned, is that Mr Evans had no knowledge nor any reason to know at the time of the giving of the undertaking that European Bank intended to convert.

KIEFEL J:   But not for the reasons you are putting forward.  If you seek to support a conclusion reached by the Court of Appeal by a different route it is a notice of contention, is it not?

MR MARTIN:   We are not seeking to challenge in any way the Court of Appeal’s finding, we are seeking to embrace it.  This is an additional ground.

KIEFEL J:   If you say that what you are now putting forward is perfectly consistent with findings of the Court of Appeal you should take us to those particular passages and if that is so I would not have thought it was necessary for us to go to the original evidence because it would be encapsulated in their Honours’ conclusions.

MR MARTIN:   Yes, your Honour.  The relevant – just pardon me.  Your Honours, could I take your Honours to the ‑ ‑ ‑

GUMMOW J:   Before you do that, Mr Martin, we really have to know what do you say about paragraph 141 on page 1026 in the judgment of Justice Gyles when he is dealing with ground of appeal 3?

HAYNE J:   Which was agreed in at paragraph 69 in Justice Campbell and paragraph 1 in Justice Basten.

MR MARTIN:   Your Honour, paragraph 141 of Justice Gyles’ judgment is to be looked at in the context that the precise finding that was made by Justice Gzell, with respect, was not to the point, as detailed by Justice Campbell.  I could take your Honours to what Justice Campbell has said in relation to the effect of that finding.  That is at page 996, paragraph 69.  His Honour described that finding - the significance of it has not been great.  He said that:

Any interlocutory order that freezes a sum of money pending the determination of litigation, where that sum of money would otherwise have been paid to some particular person, will always have the consequence of depriving that person of the opportunity to use the sum of money to speculate in currencies during the time that the interlocutory order is on foot.  Anyone who knows that currencies can be converted (which, these days would include the bulk of members of the community) would understand that obtaining an interlocutory order freezing a sum of money would have that effect.  I would not accept that that shows that, every time such an interlocutory order is made, some who gives an undertaking as to damages concerning it is thereby undertaking the risk that the person who would have received the money absent the order might have used it ‑ ‑ ‑

GUMMOW J:   Well, so what?  You are seeking to focus our attention upon your client’s position.

MR MARTIN:   Yes, your Honour. 

GUMMOW J:   There is a finding about your client’s position.

MR MARTIN:   Yes.

GUMMOW J:   That may or may not apply generally to other people.

MR MARTIN:   Yes.

GUMMOW J:  But the focus of your submission, it seems to me, on your specific situation and your difficulty with that and what Justice Campbell said as to generalities does not, I think, help you.

MR MARTIN:   Yes, that does not help the finding that was made by Justice Gzell, that is what his Honour is saying, that the finding made by Justice Gzell about depriving one party of the opportunity of using the money to speculate in currencies was not a matter that related specifically to that order.  That would flow from any order depriving a party of the use of funds.  They would be deprived of the opportunity of speculating by using that money.  That by itself is not sufficient.  The finding made by Justice Gzell, we submit, was not to the point to support what was in contemplation or what could be foreseeable, having regard to the circumstances known to Mr Evans, that the order would operate any other way.

FRENCH CJ:   The finding referred to, incidentally, is at paragraph 77 on page 942, I think, of Justice Gzell’s judgment.

MR MARTIN:   Yes.  We specifically rely on what Justice Campbell has said in paragraph 71 on page 997.  Your Honours have not been referred to this passage.  There his Honour says:

So far as Mr Evans knew or had reason to believe at the time he gave the undertaking as to damages, there was no actual intention, desire, or even passing thought on the part of European Bank that if it were to have been repaid the deposit it might have made a conversion of the US dollars into euros.  The fact that the European Bank agreed to the sum in dispute being invested by the Prothonotary in an account denominated in US dollars shows its assent to the sum remaining denominated in US dollars until the High Court litigation had run its course.

KIEFEL J:   But that is just saying that in his Honour’s view the Bank had to have an intention current at the time of the order and Mr Evans had to know about that intention for it to take the risk.

MR MARTIN:   Yes.

KIEFEL J:   That is not what you are putting to us in terms of the argument you seek to run about foresight and this question about whether or not a notice of contention is necessary.  That is not it.

GUMMOW J:   Another notice of contention.

MR MARTIN:   Your Honour, I seek to move on from that.  What I am seeking to put is at the time of giving the undertaking European Bank did not intend to convert the deposit from US dollars into euros.  At the time of the giving of the undertaking European Bank intended to retain the deposit in US dollars.  Ms Ihrig gave evidence that if the prothonotary funds, the deposit, had not been subject to an interlocutory order European Bank would have retained the funds in US dollar deposits until any decision was made to convert the funds to another currency.  Her evidence is found in two places; firstly, at page 124 at point 37.  She says in paragraph 35 of this her second affidavit:

If the Prothonotary Funds had not been the subject of a court order in May 2004, I expect that I would have retained the funds in a USD deposit or deposits until any decision was made to convert funds to another currency.  I would likely have deposited the funds with either Westpac or ANZ banks in Port Vila or with PCGF, depending upon which of these institutions were offering the highest return on the funds.

She reiterated that evidence in her oral evidence at page 44, lines 35 to 48.  She is asked:

Q.  Now, can I take you back please Ms Ihrig to your first affidavit of 2 September, paragraph 35.  Now, you say there that if the Prothonotary funds had not been subject of the order in May 2004 you expect you would have retained the funds in US dollar deposits until any decision was made to convert the funds to another currency.  That is your evidence, isn’t it?
A.  Yes.

Skipping over the next question and answer at line 45:

Q.  When you talk about the highest return, you are talking about interest rate return?
A.  Yes.  It would have initially remained in US dollars.

Now, Mr Evans could not have known about an intention which did not exist at the time to enter into such a transaction.  It was not the intention of the Bank to do so.  The effect of the interlocutory order was to require the prothonotary to invest the funds as they had been dealt with since origination by depositing with a bank in their natural currency in US dollars.  That was in accordance with the precise terms of the orders made by the Court of Appeal.  This was precisely what the European Bank would have done at the time if it had the funds, in accordance with its own policies and practices.  From the terms of the order, Mr Evans knew that the money was being put to the same use as European Bank would have put it to.  An identical result would have followed if the interim injunction required European Bank itself not to deal with the prothonotary funds other than in the ordinary course of its business.

There is no evidence to suggest at the time the interlocutory order was made on 18 May 2004, European Bank had any intention to convert all or any of the prothonotary funds from US dollars to another currency.  The only evidence given by European Bank is that the prothonotary funds would have remained on deposit in US dollars.  It was only subsequently in mid‑June 2004 that European Bank decided to approach its lawyers to see if it could use the funds for something else, and that evidence is contained in Ms Ihrig’s oral evidence, firstly at page 11, beginning at line 25, where ‑ ‑ ‑

FRENCH CJ:   There is no finding nor submission adverse to you that European Bank had such an intention at the time of the making of the interlocutory order, is there?

MR MARTIN:   No.

FRENCH CJ:   Is there any need to get into that?

HAYNE J:   But does the submission show that the principle for which you are contending is that a party giving an undertaking is liable if, and only if, at the time of the giving of the undertaking, that party did foresee or could reasonably have foreseen that the loss actually incurred would be incurred.

MR MARTIN:   Yes, your Honour, and that would be so ‑ ‑ ‑

HAYNE J:   That is a proposition, is it not, which would depart, I think, from any statement found in any of the cases?

MR MARTIN:   No your Honour.  We would submit that ‑ ‑ ‑

HAYNE J:   What is the best case that would support that formulation of the principle that is to be use A engaged?

MR MARTIN:   The best case would be, we would submit, it falls within Air Express, and what the test by Justice Aickin – sorry, your Honours ‑ ‑ ‑

HAYNE J:   Yes.  The additional element, I think, in the formulation I put to you, which I suspect may not be at least expressly stated in that passage at 266 to 267, is the tailpiece in the proposition I put, which was that the party giving the undertaking must at that time foresee that the loss actually incurred would be incurred.  It is the “would be incurred” which I think is the additional element.

MR MARTIN:   Yes.  The “would be incurred” in this case would require, we would submit, for Mr Evans to have either known or to have reasonably foreseen that European Bank would have converted.

HAYNE J:   Yes, and that European Bank intended to switch.

MR MARTIN:   Yes, intended to switch.

HAYNE J:   But by the nature of things, banks do not know whether they are going to switch currencies until the market moves.  They invest in one currency on the footing that that is the most favourable use of money and it is only when markets move that banks decide, well, get out of the Polish zloty and into whatever other currency seems desirable.

MR MARTIN:   Precisely, your Honour, and it highlights the speculative nature of this particular market and any switching of currencies would have upon the value of the initial currency in which the funds were kept.

FRENCH CJ:   Why do you use that word “speculative”?  Is that saying anything more than risk taking?

MR MARTIN:   Your Honour, there are various degrees of risk taking.

FRENCH CJ:   I am not sure what it adds to your argument to call it “speculative”.

HAYNE J:   I suggest they should have invested only in government bonds on the basis that government bonds are risk free, everything else is risky.

MR MARTIN:   Quite, your Honour.  There are investments where they have historically a proven track record based on their income producing ability which would not be regarded as speculative or at the higher end of risk, they would be regarded as more prudent or conservative investments.  That is not what we are talking about here.  We are not talking about an investment that gave sort of guaranteed interest or had a business behind it generating revenue.  That is not what the foreign currency market was about.  It was, as the evidence had indicated, subject to unforeseen events which cannot be adequately guarded against and which will result in very substantial and large movements in the market against a particular party.  That is demonstrated in Mr Russo’s evidence, quite admirable ‑ ‑ ‑

HAYNE J:   But the temporal standpoint is important.

MR MARTIN:   Yes, your Honour, it is ‑ ‑ ‑

HAYNE J:   At least a reading of what Sir Keith Aickin says, and we are not here to interpret that as some statute, but a reading of what he is saying is, look at the loss that has been sustained.  Here is what is claimed.  The question is is it just and equitable that that loss should be paid by the party giving the undertaking.  That is a larger question that is to be answered only by reference to Hadley v Baxendale, but if it is loss of a kind that could have been foreseen, not was, not should have been, but could have been foreseen, then, ordinarily, it will be just and equitable that that is to be paid by the party giving the undertaking.

MR MARTIN:   Yes, or to use other language, the likely result that could have been foreseen.  In this case Mr Evans could not have foreseen the loss of profits that would have been derived from such a transaction as this when Mr Evans at the time of giving the undertaking neither knew nor could he have known anything about it, at the time of the giving of the undertaking.

KIEFEL J:    Viewed in another way though, what that does is it highlights the extent of the risk taken by a party giving an undertaking where a bank is involved.

MR MARTIN:   Yes, except the bank is always able to put the party giving the undertaking on notice. 

KIEFEL J:    Well, as far as they can.  They can say we deal in currency.  But the person giving the undertaking properly advised would, of course, be warned about these sorts of risks.  But does it not also throw up the question that the Bank is not a defendant who might owe certain obligations in relation to losses which it might recover against a plaintiff, and perhaps this is one of the things that the analogy with Hadley v Baxendale brings into focus.  Here the Bank is an entity being kept from its money which, as it is later confirmed, was always its money to deal with as it wished, and that is the way in which you have to view the equitable question.

MR MARTIN:   Yes, but at the time of the giving of the undertaking, what could have been foreseen by Mr Evans was that if the Bank was deprived of the use of the money, then the loss that the Bank would suffer would simply be the interest that would have been earned on those funds and nothing more.  That is what he would ordinarily be expected to have known.  That is what he could have foreseen at the time of the undertaking.  He could not have foreseen anything more than that.

So the test, we submit, is that contained in Air Express, the decision of Justice Aickin at pages 266 to 267, and in which Chief Justice Barwick agreed and similar to a test adopted by Justice Gibbs at 312.  If I could take your Honours – at about point two on the page:

However, it is perfectly clear, and it appears from the words of the undertaking themselves, that the only damages to which a defendant is entitled are those which he has sustained by reason of the grant of the injunction.  The generally accepted view is that the damages must be confined to loss which is the natural consequence of the injunction under the circumstances of which the party obtaining the injunction has notice -

and referred to Lord Justice Cotton’s decision in Smith v Day, and that is entirely consistent with the texts on the subject Kerr on Injunctions and Halsbury.  Now, that is what we describe as the conjunctive test involving the first limb, what is the natural consequence of, in this case, the interlocutory order, together with the requirement that it has to be foreseeable from the circumstances of which Mr Evans had notice at the time of the giving of the undertaking. 

European Bank’s claimed loss on the hypothetical conversion could only have been foreseeable if Mr Evans had knowledge at the time of the giving of the undertaking that European Bank intended to convert the US dollar deposit into euros.  Mr Evans had no such knowledge, and in the absence of such knowledge, the tests set down in Air Express by their Honours Justice Aickin, Chief Justice Barwick and Gibbs has not been satisfied here.

FRENCH CJ:   You are speaking of actual knowledge?

MR MARTIN:   It can be actual or imputed knowledge.  Imputed knowledge will ‑ ‑ ‑

FRENCH CJ:   In what circumstances is knowledge imputed, because to the extent you speak of actual knowledge, the less Mr Evans knows, the better off he is.

MR MARTIN:   Yes, Mr Evans being a resident of the United States is not likely to have knowledge.

FRENCH CJ:   We are not worried about a particular circumstance.  We are looking at the operation of the principle you are enunciating.

MR MARTIN:   Yes.

FRENCH CJ:   So what is sufficient to support an imputation?

MR MARTIN:   What is sufficient to support an imputation is if a matter occurs in the usual course or the natural consequence of a matter, then a party is to be imputed with what is that natural consequence, as opposed to being put on notice in relation to circumstances beyond what is an ordinary or natural consequence.  That would be, in this case, Mr Evans being informed of the intention that such a transaction would be entered into.  Foreseeability raises the question of imputed knowledge and actual knowledge.  Actual knowledge is incorporated in the first leg of the test, that is natural consequence – that is imputed knowledge – then actual knowledge exists in relation to the second leg, what is foreseeable from circumstances known or of which the particular party giving the undertaking had notice.

So it was necessary for Mr Evans to have actual knowledge of the usual conduct of European Bank.  In this case, he had no knowledge or notice that the Bank was proposing or intending or had any concept of entering into this particular foreign currency transaction.

GUMMOW J:   Have you looked at the English cases referred to in footnote 10 of your opponent’s submissions?

MR MARTIN:   Yes we have, your Honour.

GUMMOW J:   One of them is the decision of Justice Norris in the Apotex Case [2009] FSR 3 at page 7. Have you looked at that?

MR MARTIN:   Yes we have, your Honour, but we did not find the cases of any great assistance.  They seemed to adopt the rule in Hadley v Baxendale.

GUMMOW J:   Not quite.  In the Apotex Case at page 232 of [2009] FSR, about three‑quarters of the way down, his Lordship says:

Although a party who is granted interim relief but fails to establish it at trial is not strictly a “wrongdoer”, but rather one who has obtained an advantage upon consideration of a necessarily incomplete picture, he is to be treated as if he had made a promise not to prevent that which the injunction in fact prevents.  There should as a matter of principle be a degree of symmetry between the process by which he obtained his relief (an approximate answer involving a limited consideration of the detailed merits) and that by which he compensates the subject of the injunction for having done so without legal right -

et cetera.  Now, that way of looking at it rather suggests that the finding as to your client’s position by Justice Gyles at paragraph 141 would be enough for your opponent.

MR MARTIN:   That may be, your Honours, but not, we would submit, in relation to the proper test ‑ ‑ ‑

GUMMOW J:   What was unknowable of course in this case is the fate of the special leave application.

MR MARTIN:   Yes.  Just dealing with 141, your Honour, there is a clear distinction – the question is what is precisely meant by foreign currency dealing.  Foreign currency dealing incorporates the notion of receiving a deposit of a foreign currency and then placing that foreign currency on deposit with a third party bank.  That would be a dealing in foreign currency.  It does not necessarily – it would also incorporate switching currencies.  When one looks at the evidence of Mr Russo, Mr Russo’s evidence does not support the fact that it was a normal feature of a bank to switch or convert currencies, certainly not in the context of a breach of the bank’s guidelines or its authorisation limits and not certainly in the context to put the whole capital of the bank at risk or its profitability.

Mr Russo makes the point that the profitability of this Bank was particularly small.  In the relevant year, 2004, it was only $407,000.  In the preceding year, 2003, the Bank had suffered a loss of $20,000 and the shareholder equity was of a very small amount, amounting to $2 million.  The point is that it would not be, and Mr Russo’s evidence did not go so far as to say that it was a normal feature of banks to convert currencies where that put the bank’s capital and profitability at risk and breached the guidelines of the bank.  He has made that point abundantly clear.  If I can just briefly take your Honours to what he said in that regard?  It is at page 732 at about point 14 on the page, paragraph 11.10:

In my opinion, the various statements within the LMP ‑

the liquidity management policy –

and the structure of European Bank FX‑OP ‑

limits –

. . . very clearly set out a framework under which European Bank was to manage its risk in relation to foreign exchange open position mismatches.  The nature of European Bank’s primary business as a deposit taker and the statement that its policy was to retain “a liquid matching currency and term book” . . . are wholly consistent with a business that would be constantly earning small amounts of income in the various currencies it held on deposit for its clients.  Those earnings being the difference between the interest European Bank paid its clients and the interest it earned on‑lending those funds to other banks.  As such, European Bank would need small foreign exchange limits for each of the currencies in which it took deposits to manage the orderly and cost effective conversion of those earnings to its reporting currency, namely, the US dollar ‑

Then if your Honours could go over to page 733, about line 24, Mr Russo refers to Ms Ihrig’s evidence about the power to “authorise and carry open positions ‑ ‑ ‑

HEYDON J:   I must say, this evidence seems to be totally inadmissible to me, but I just protest and say no more.  “I can find no such authority” – it is not for him to find authorities, it is for Justice Gzell to find authorities.

FRENCH CJ:   Justice Gzell accepted Ms Ihrig’s evidence and that was not overturned.

MR MARTIN:   No, your Honour.

FRENCH CJ:   So why are we into this?

MR MARTIN:   But then if your Honours could go down to line 35, Mr Russo says:

In my experience it would be highly unusual to make a deliberate decision to take a position that was an order of magnitude higher than existing authorised limits and carry that position for several months as a temporary excess.  In the absence of an offsetting client request, the open position contemplated by the conversion of the Prothonotary account was a foreign currency open position mismatch between US dollars and Euros of over US$8.7 million.

Then just lastly, could I take your Honours to 737 at line 30.  Mr Russo says at line 29:

In my opinion, the suggestion that the approved prudential risk management framework of a bank with the stated aims of European Bank as set out in its LMP, with capital of US$2.7 million and annual profitability in the range observed above in paragraph 12.3 as set out in the 2004 Financials, would allow the authorisation, at any level, of open positions in currencies in the order of US$8.7 million is entirely inconsistent with the usual banking practices to which I have been exposed in the foreign exchange market.

Then 739, your Honour, at the top, line 10:

It is again quite contrary to usual banking practice for European Bank with its limited capital and profitability to concentrate its currency risk in US dollars ‑ ‑ ‑

FRENCH CJ:   Now, which findings of fact is this recited in support of?

MR MARTIN:   Your Honour, it is put in the context of what Justice Gyles said in response to Justice Gummow at paragraph 141 of Justice Gyles’ findings at page 1026 where Justice Gyles said:

The evidence of Mr Russo supports the fact that foreign currency dealing is a normal feature of the business of banks. 

That evidence of Mr Russo that I have taken your Honours to indicates, we would submit, that the foreign currency dealing that is referred to there is not the conversion or switching of currencies in the magnitudes that we are talking about here.  What his Honour was referring to was dealings in respect of accepting deposits in foreign currencies and then placing those deposits with counterparty banks in the same currencies.

FRENCH CJ:   Is this a complaint that the Court of Appeal finding is not expressed with adequate precision?

MR MARTIN:   Yes, your Honour.  What is meant by foreign currency dealing, your Honour, needs to be looked at in the context of the evidence of Mr Russo from which it was based.

FRENCH CJ:   I am afraid it seems to me the word “context” is being used here as a surrogate for “contention”.

MR MARTIN:   Yes, that may be so, your Honour.  Justice Basten also dealt with the specific findings concerning Mr Evans’ knowledge and that is found at page 974, line 11 where he described the finding concerning Mr Evans’ knowledge “of likely” not “losses” that would flow as being made “at a high level of generality” and indicated then at line 35 on the page – explained how the trial judge’s reasoning in relation to that finding was flawed in its own terms.  His Honour specifically found at line 35 on that page, 974, that:

when the money was paid into court, the appellant had no reason to believe that European Bank wished to convert it from US dollars into any other currency; specifically, he had no notice that European Bank wished to convert the money into euros.

We submit that in order for it to be foreseeable Mr Evans needed to have notice or knowledge or those two matters.  Then Justice Basten at the bottom of that page at 974:

Nor, given the essentially speculative nature of currency transactions, was there any actual or imputed knowledge possessed by [Mr Evans] that a significant profit would be made by transferring the currency into euros for the anticipated period of the High Court litigation.

We submit that that finding was entirely open to his Honour and that the finding made by Justice Gzell was not to the point and that the approach taken by Justice Basten in respect of actual imputed knowledge is entirely consistent with that contained in Air Express.  Justice Gyles also concluded at page 1026, line 15, that the trial judge’s finding on contemplation “was at a very general level”.  As far as imputed knowledge is concerned what would be imputed would be the usual conduct of a bank.  What needs to be actual knowledge is some conduct which is unusual or not the ordinary course of things for a particular bank.

In this case neither imputed knowledge nor actual knowledge existed in Mr Evans at the relevant time, being at the time of the giving of the undertaking.  On any view it cannot be just, we submit, for Mr Evans to be held liable for a loss of profits that would have been derived from a speculative transaction about which Mr Evans, when he gave the undertaking, could not and did not know anything about.  What he did know was that if a person, in this case a bank, is deprived of the use of money, that the loss that that bank would suffer would be the interest that would have been earned on those funds.

It was impossible that Mr Evans could have foreseen any loss of profits from such a speculative transaction as this that at the time European Bank had no intention of entering into at the time of the giving of the undertaking.  European Bank’s principal business was to take and make deposits of money in various currencies.  The effect of the interlocutory order was simply to deprive it of the use of those moneys.  The price of money is the applicable commercial rate of interest.  That is, we submit, the proper measure of compensation to which European Bank is justly entitled pursuant to the usual undertaking as to damages.  May it please the Court.

FRENCH CJ:   Thank you, Mr Martin.  Yes, Mr Webb.

MR WEBB:   Nothing arises, your Honour.

FRENCH CJ:   The Court will reserve its decision.  The Court adjourns until 10.15 tomorrow morning.

AT 3.26 PM THE MATTER WAS ADJOURNED