George Stanley Copping, Faye Joyce Copping, Layton Saxon Copping, Neville George Copping, Wayne Malcolm Copping and Perball Pty Ltd v ANZ McCaughan Ltd, Galliott Pty Ltd, Tillett Nominees Pty Ltd (Third Party 1),
[1995] SASC 5028
•24 April 1995
COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA KING CJ(1) MATHESON(2) and MILLHOUSE(3) JJ
CWDS
Negligence - Negligent misstatement - off-shore contract of loan by bank in Swiss francs - plaintiffs suffering loss as a result of currency fluctuation - finding that plaintiffs did not rely upon mis- statement upheld - no challenge to trial Judge's finding that bank liable in respect of misstatements leading to entry into a separate hedge contract - consideration of claim against third party financial advisers for contribution - whether claim for interest on judgment on hedge contract was a claim for interest upon interest within the meaning of s30C(4) (a) of the Supreme Court Act.
Cross on Evidence, Aust Edn (looseleaf) paras 25020 et seq; Guinness Real Properties Ltd v Fitsroy Robinson Partnership (1987) 2 All ER 716; Key International Drilling Co Ltd v TNT Bulkships Operations P/L (1989) WAR 280; Derby and Co Ltd v Weldon (No 8) (1990) 3 All ER 762; Webster v James Chapman and Co (a firm) and Ors (1989) 3 All ER 939; Ralik P/L v Commonwealth Bank of Australia and Ors Unrep Jt of Cole J NSW Supreme Court delivered 14 August 1990; Devries v Australian National Railways Commission (1993) 177 CLR 472 and Louth v Diprose (1992) 175 CLR 621, considered.
HRNG ADELAIDE, 9-10 February 1995 #DATE 24:4:1995 #ADD 22:5:1995
Counsel for plaintiffs: Mr S W Tilmouth QC
with Mr W Degaris
Solicitors for plaintiffs: Wallace Degaris and
Co
Counsel for Defendant Galliott Pty Ltd: Mr A S Martin
Solicitors for Defendant Galliott Pty Ltd Piper Alderman
Counsel for Defendant Anz McCaugran Ltd Mr W H Nicholas QC
with Mr N G Rochow
Solicitors for Defendant Anz McCaugran Ltd: Knox and Hargrave
Third Party Tillett Nominees Pty Ltd: Mr F Kovaleff in
person
Counsel for third party Kerry Hanel: Mr A S Martin
Solicitors for third party Kerry Hanel: Piper Alderman
Third party Fred Kovaleff In person
ORDER
Appeal allowed.
JUDGE1 KING CJ The facts relating to this appeal are set out in the reasons for judgment of Matheson J and Millhouse J.
2. The issue on the appeal by the plaintiffs is whether the learned trial judge was correct in finding that the plaintiffs had failed to prove reliance upon the misstatement which was found to have been negligently made by the defendant's officer Mr Irvin.
3. Mr Irvin, at the crucial interview on 4th August 1984 made a number of statements to Mr George Copping. Of those statements only one, an important one, was found to have been in breach of the defendant's duty of care to the plaintiffs. That statement was to the effect that the sinking fund which was to form part of the transaction, "would be available to absorb any overrun outside the 10% movement" which was to be covered by the proposed additional buffer loan. Such a provision was never in fact in the contemplation of the defendant and was not included in the contract documents. The contract provided that if there were adverse currency fluctuations, the lender, being AIFC a subsidiary of the defendant, would increase the amount of the loan of $850,000 by up to 10%, to finance the plaintiffs in respect of such fluctuations. Beyond that the plaintiffs would be required to make "clawback" payments to cover the excess fluctuation. The sinking fund had a different purpose. It was to be commenced by an initial contribution by the plaintiffs of $100,000 out of the moneys advanced under the contract and thereafter by annual contributions of not less than $20,000 per annum. The purpose of the sinking fund was to finance the repayment of the loan. It was not available under the terms of the contract to cover currency fluctuations.
4. I should mention in passing that in the event the lender did have recourse to the sinking fund to cover fluctuations, but that is not to the point for present purposes. The question is whether the plaintiffs relied upon the negligent misstatement in entering into the contract which caused them such severe losses. George Copping had the conduct of the negotiations for the plaintiffs. The learned judge found that it "was the impression on his mind left by the various people with whom he dealt before taking out the loan in question which was decisive in terms of Perball's entry into the transaction, and the signing of the collateral security documents by other members of the family."
5. George Copping's evidence was to the plain effect that he relied upon what Irvin told him and that he did not rely solely on his own financial adviser, Mr Hanel. The following passage occurs in his evidence:
"Q. Had you not met face to face with anybody from AIFC
but dealt solely through Mr Hanel, from your point of view,
would you have been prepared to enter into a loan with AIFC.
A. No, we would not.
Q. Why was that.
A. Because we weren't very sure how it actually worked
and, with the exchange rate, the rise and fall, we weren't
very familiar and we wanted more advice from the AIFC." In cross-examination the following question and answer occurred:
"Q. Despite the fact that you had access to advice from
people such as Mr Hanel, your accountant, your solicitor and
so on should you have wished to seek it, correct?
A. I could have, yes, but you see I trusted AIFC the same
as when you get a loan from the bank - whatever the bank
manager says, you think it's okay and that's how I see it
with AIFC. If they said that's it, I believed them."
6. George Copping did not say expressly that he relied upon the precise statement which was found to be negligent. It would be unreasonable to expect him to dissect what Irvin told him and to indicate which parts he relied upon. He said that he relied upon what Irvin told him. If that is so and if a material part of it was a negligent misstatement the reasonable inference is that he relied in part upon that misstatement.
7. The learned judge made findings as to George Copping's credibility as a witness. He said:
"Nevertheless, I am satisfied that he made an honest
endeavour to recollect the salient features of the dealings
between the parties."
8. In making his findings as to the statements which were made on 4th August and rejecting Irvin's version of the interview, the learned judge "relied substantially on the evidence of George Copping."
9. Notwithstanding his favourable impression of George Copping as a witness, the trial judge rejected his evidence as to reliance. He gave his reasons for so doing in the following passage:
"However, the question of reliance takes on a different
colour when looked at from the point of view of the Coppings.
I am satisfied that by the time of the Redbank meeting with Irvin,
they were committed to proceeding with the off-shore loan. Their
evidence is clear that they saw no alternative apart from selling off
some land, a course which they regarded as a last resort. Their
financial position had not improved during the preceding months of
1984, and domestic interest rates were still high. At least one member
of the family, Wayne, was under pressure from creditors.
They had, in fact, lodged their application for an off-shore loan
before Irvin's visit. While I suppose that the application could have
been withdrawn, it is a strong pointer towards a concluded intention to
take up such a loan if it was available.
The failure to complain when in April 1985 the $6,000 clawback was
demanded of them, the failure to refer to the alleged Redbank
representations in George Copping's statement to his solicitor, the
failure to refer to them in the letter before action, and the other
matters to which I have referred in that connection, tell strongly
against any reliance by the plaintiffs on what was said by Irvin on 4
August 1984.
I find, therefore, that there was no reliance in fact by the
Coppings upon the representations in question."
10. It is necessary to analyse and evaluate these reasons for rejecting on this point an otherwise credible witness.
11. The first reason advanced by His Honor is that by the time of the meeting with Irvin on 4th August 1984, the plaintiffs were already committed to proceeding with the offshore loan. This point is largely answered by what His Honor said in relation to Irvin's duty of care.
"In my opinion, the circumstances gave rise to a duty of
care on Irvin's part.
It is true, as the defendant contends, that there had already been
extensive dealings with the plaintiffs' own agent, Hanel, particularly
on the occasion of the meeting in December 1983. This included advice
from Hanel as to the nature of the transaction which they were
entering. The plaintiffs were nonetheless concerned to know what the
representative of the bank had to say about the transaction, and there
is no question but that they put a number of questions to him designed
to elicit more information. The fact that that information was,
generally speaking, confirmatory of what they had been told by Hanel is
not to the point. The plaintiffs were inexperienced in loan
transactions of this kind, as Irvin well knew. Looked at from his
point of view, one would have thought that he would or should have been
aware of the fact that what he had to say about the transaction would,
in a general sense, be likely to be relied upon by the plaintiffs in
coming to a decision as to whether or not to proceed with the loan
application. Irvin produced the graphs, answered questions and
volunteered some remarks with respect to the characteristics of the
off-shore loan, and might properly be taken to have assumed that those
present were relying on what he had to say.
Furthermore, I have no hesitation in finding that what he had to
say was said with the intention of inducing the plaintiffs to proceed
with the loan application."
12. It is true that the plaintiffs wished to avoid selling land and had been advised by Hanel that an offshore loan at lower interest than a domestic loan would be advantageous. They were, however, unfamiliar with offshore transactions although they were aware that there were some risks. On the judge's own findings the plaintiffs were concerned to know what the representative of the bank had to say. It follows that they were not at that time committed to proceeding with the offshore loan. They had lodged their application but they needed further information and reassurance from the bank itself.
13. The second reason advanced is that the plaintiffs made a "clawback" payment of $6,864 in April 1985 without protest. I do not think that this point possesses validity for three reasons. First the evidence is against the payment having been made. It was demanded by AIFC by letter dated 15th April 1985. When asked in Court, George Copping replied: "Yes we did pay $6,800 or something in at one stage." There were other payments for other purposes and the language of his answer suggests an imperfect recollection. The evidence of the accountants, one called by the plaintiffs and another by the defendant, analysed the cost of the loans and hence the payments. Their evidence is totally inconsistent with that payment having been made. Second, even if the payment was made, it was not inconsistent with the allegation that reliance was placed upon the statement that the sinking fund would be available as a buffer against currency fluctuations. At the time, the fluctuation had taken the borrowing to a point at which it exceeded the contractual buffer by $106,864. The letter of demand was for $6,864 only because "part of the excess amount will, for the time being, be applied against the funds held in" the sinking fund. This would have confirmed rather than negated the statement made by Irvin and would not have suggested that the plaintiffs had been misled. Third, it was unfair to the plaintiffs, in my view, to rely on this point when, so far as I can discover and counsel could indicate, George Copping was not cross-examined as to why he did not protest when called upon to make this payment, and was therefore given no opportunity to explain the position.
14. The Answers to Interrogatories cannot be properly used, in my opinion, as a point against reliance. The answers of all plaintiffs were embodied in a single document. The learned judge used answers as to the understanding of the two sons of what was said at the interview as indicative of non-reliance by George Copping. It is plain from their evidence, however, that the sons took little interest in and had little comprehension of the offshore currency transaction. Their understanding is of no importance. No answers were put in evidence which tended in the slightest degree to discredit George Copping's asserted reliance upon Irvin's statements. The trial judge himself said that he had "a great deal of hesitation about this document." There was nothing in the interrogatories tendered which called for a response by George Copping indicating a reliance upon Irvin's statements as a whole or any one of them. In those circumstances it seems to me that the non-appearance of a reference to reliance upon the Irvin statements in the answers tendered possesses no tendency to indicate non-reliance upon those statements.
15. The learned judge also attached weight to a statement supplied by George Copping to his solicitors in which the Irvin interview was not mentioned. The legal professional privilege attaching to this document was waived when it was produced to the solicitors for the defendant in the course of discovery of documents. This was done in the mistaken belief that it had formed part of the material supplied to an expert witness to enable him to furnish an opinion and to give evidence. Whether the supply of the statement to the expert would in the circumstances have amounted to a waver of privilege does not require decision on this appeal; see Dingwall v Commonwealth of Australia (1992) 39 FCR 521; Woollahra Municipal Council v Westpac Banking Corporation (1992) 33 NSWLR 529 at p539. It turned out that it was not that statement but another which had been so supplied. By the time the mistake was discovered and the judge was asked to rule that the statement was protected by privilege, it had already been used in the trial as the basis of cross-examination of George Copping. At that stage it could no longer be the subject of privilege and it would have been unrealistic to attempt to erase its effect from the trial. There was no unfairness to the plaintiffs. On the critical point there was no material difference between the statement which was disclosed in error and that which ought to have been disclosed. Mr Tilmouth QC for the plaintiffs argued that the learned judge was in error in holding that the statement had ceased to be protected, but I agree with the reasons of Matheson J for upholding the trial judge's ruling.
16. The learned judge considered that there was a failure to refer to the Irvin statements in the statement to the solicitor and that that told against reliance. It is true that in outlining the sequence of events the statement omits the 4th August interview. The statement, however, contains this sentence:
"Ken Irvin visited us once but after we had found out many
things for ourselves, but the problem was that we weren't
made aware of the dangers before we had signed all documents
etc"
17. No doubt the focus of the statement was on the negotiations regarding bringing the loan back onshore but the emphasised words are apt to include the fact that Irvin had given the re-assuring indication that the sinking fund would be available as an additional buffer against fluctuations, and I think that they would be understood in that sense. Be that as it may, in considering the statement to the solicitor it is important to remember its origin and purpose. It was prepared by George and Neville Copping, according to Neville's evidence, "to give just a general overview of what our belief - what we believed happened and supplement it with the documentation." It was prepared by two graziers, without professional advice and therefore without having their minds directed to the legal issues which would govern liability. The statement is in the nature of a narrative history of the matter as an introduction to the case for the information of the solicitors, and does not purport to specify the plaintiffs' complaints against those with whom they dealt. I imagine that the question whether they relied upon Irvin's statements had not crossed their minds at that stage except in the general sense that they considered that neither he nor anyone else had made them "aware of the dangers." I do not think that His Honor was justified in making use of the statement as an indicator of non-reliance on Irvin's statements.
18. I cannot think that a relatively succinct letter before action in this type of case can have any significance as to reliance when the Statement of Claim which followed clearly pleaded reliance upon the Irvin statements including that which was held to be negligent.
19. Mr Nicholas QC for the defendant relied heavily upon the inhibitions which restrict the freedom of an appellate court to set aside findings of fact which are based in whole or in part on the trial judge's assessment of the credibility of witnesses; Devries v Australian National Railways Commission (1992-93) 177 CLR 472. The learned judge's finding that George Copping had not relied upon the Irvin statements involved a rejection of George Copping's evidence on that point. This rejection occurred notwithstanding his generally favourable view of George Copping's credibility. It is of course open to a trial judge to accept parts of the evidence of a witness and to reject other parts; Louth v Diprose (1992) 175 CLR 621 per Deane J at p635. There is nothing "as a matter of logic or commonsense" to preclude the trial judge from accepting George Copping's evidence on certain issues but rejecting it as to reliance. It is plain however from an analysis of the reasons for judgment that the learned trial judge did not reject George Copping's evidence as a consequence of his observations of his demeanour. He did so because he thought that the matters to which I have referred rendered reliance upon Irvin's statements implausible. Those matters led him to reject the evidence on this issue of an otherwise credible witness.
20. I have considered above each of the matters relied upon by the learned judge. I have reached the conclusion that as to some of those matters His Honor's use of them was tainted by errors of fact or errors of reasoning and that as to others he afforded to them a weight and significance which they could not reasonably bear. In my opinion these errors vitiated his assessment of George Copping's evidence as to reliance and were not a sound basis for rejecting it. He rejected George Copping's evidence as to reliance on grounds which are not tenable. I consider therefore that this is a case in which "the challenged finding is affected by identified error of principle or demonstrated mistake or apprehension about relevant facts" and the advantage of the trial judge is therefore "of little significance or even irrelevant"; Devries v ANR supra per Deane and Dawson JJ at p480. It is therefore necessary for this Court to examine the evidence in order to determine whether the plaintiffs have proved reliance upon the negligent misstatement.
21. The starting point, to my mind, is that the plaintiffs were graziers and not businessmen. George Copping made the business decisions for the family but there is nothing to suggest that he was other than a grazier who, of necessity, had to make his own and the family's business decisions. The idea of relieving the family of some of the burden of high interest rates by borrowing offshore came initially from an insurance agent Mr Harrap. The plaintiffs then received advice from financial advisers, Messrs Hanel and Kovaleff, who were recommended by Harrap. No doubt the plaintiffs relied to an extent on their advice. The plaintiffs were, however, unfamiliar with foreign currency transactions and were understandably concerned about the risks. George Copping's evidence that he wanted re-assurance from a direct interview with someone from AIFC because he was accustomed to rely on the bank manager, has the ring of truth about it.
22. The negligent misstatement was very material. The atmosphere in which it was made was one in which Mr Irvin was, as the judge found, seeking to induce George Copping to go ahead with the transaction. The cash flow of the plaintiffs was straitened. George Copping had to resist the proposal that the plaintiffs contribute $40,000 per year to the sinking fund because their cash flow could not accommodate more than $20,000 per year. The prospect that they might be called upon to make payments by reason of currency fluctuations would have been alarming. To be given to understand that in addition to the 10% loan buffer there was recourse to a sinking fund initially of $100,000 and increasing each year as an additional buffer, must have been very reassuring indeed. That it was reassuring to George Copping is confirmed by his state of mind following the interview as disclosed by Harrap's evidence that George Copping had said that he felt better about the transaction after talking to Irvin.
23. I can see no valid reason for distinguishing between the principles which govern the Court's consideration of the issue whether a misrepresentation has induced the representee to act to his detriment and those which govern consideration of whether a representee has acted in reliance upon a negligent statement or representation. The principles governing the former issue were restated by Wilson J in Gould v Vaggelas (1983-85) 157 CLR 215 at p236 and should be applied, mutatis mutandis, to the present case of negligent misstatement.
"1. Notwithstanding that a representation is both false
and fraudulent, if the representee does not rely upon it he
has no case.
2. If a material representation is made which is calculated to
induce the representee to enter into a contract and that person
in fact enters into the contract there arises a fair inference
of fact that he was induced to do so by the representation.
3. The inference may be rebutted, for example, by showing that
the representee, before he entered into the contract, either was
possessed of actual knowledge of the true facts and knew them to
be true or alternatively made it plain that whether he knew the
true facts or not he did not rely on the representation.
4. The representation need not be the sole inducement.
It is sufficient so long as it plays some part even if only
a minor part in contributing to the formation of the
contract."
24. The validity of these principles does not depend upon the existence of an intent to mislead; Dominelli v Karmot (1992) 110 ALR 535 esp at p547. They are concerned with inducement or reliance and are applicable irrespective of the nature of the representation.
25. It is clear from those principles that the materiality of the representation itself legitimately gives rise to an inference that it operated on the mind of the representee. It is sufficient if it plays "only a minor part in contributing to the formation fo the contract." There is then a natural inference from the making of Irvin's re-assuring representation that the sinking fund would be available as an additional buffer against currency fluctuations, that it operated in the mind of George Copping so as to produce reliance upon it at least to some extent. The natural inference may of course be rebutted by evidence that he did not rely upon the representation.
26. I have already given my reasons for the view that none of the matters put forward do amount to such evidence. It is true that the plaintiffs strongly desired to avoid selling land and that, before meeting Irvin, they saw an offshore loan as the means by which they might avoid doing so. That course, however, could only be attractive if it would not get them into further difficulty. Their financial position was tight and they could not afford to incur any obligation to make payments. There was no point in the transaction if it might worsen their position. Re-assurance by the bank officer must have been a very significant factor in their decision. I do not think that the pre-existing anxiety to avoid selling land and the development of their interest in an offshore loan to the point of lodging an application with AIFC, can reasonably be regarded as rebutting the inference of reliance which arises naturally from the materiality of the negligent misstatement.
27. The learned judge found that any effect on George Coping's mind of the misstatement as to the availability of the sinking fund could not have survived the receipt of a letter from AIL dated 28th August 1984 which set out an offer of "a foreign currency advance facility to a new corporate entity to be formed by G S Copping and Sons." The letter of offer contained the following paragraph:
"Any foreign exchange risk is to be borne by the Borrower.
The facility will include an exchange rate buffer of A$85,000
within which the A$ equivalent of the amount outstanding can
fluctuate. Any excess above this limit will necessitate
maintenance of a deposit margin account with AIFC, and the
paydown of any excess above the level of the buffer at the
commencement of the next interest period."
28. The learned judge found that George Copping read this letter carefully and understood it. This finding can be accepted, but I am unable to accept the judge's conclusion that this negatived any further reliance upon Irvin's statements. George Copping's understanding was necessarily that of a non-lawyer and non-businessman. He would have understood that he assumed the risk that the plaintiffs could be called upon to make payments if the buffer was exceeded. The letter, however, made no reference to the sinking fund. He had been given to understand that that would be available for any payments required if the fluctuations exceeded the 10% buffer. I do not think that there is anything in the AIL letter which would convey to a layman that what he had been told by the bank's representative was incorrect and that the sinking fund would not be available for that purpose. I do not think that the receipt and understanding of that letter shows that George Copping "was possessed of actual knowledge of the true facts"; Gould v Vaggelas supra at p236.
29. In my opinion the natural inference from the materiality of the negligent misstatement and the circumstances of the case is that the plaintiffs relied to some extent upon the negligent misstatement and that that natural inference is not displaced by any cogent evidence that George Copping "was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation."
30. In my opinion the judgment in favour of the plaintiffs against the defendant should be set aside. There should be a finding that the plaintiffs relied upon the negligent misstatement, and that the defendant is liable to the plaintiffs for damages in respect of the same. The matter be remitted to the trial judge to assess the damages flowing from the negligent misstatement and to enter judgment for those damages together with damages for the amount already awarded in respect of the hedge contract.
31. I agree that the plaintiffs' contention as to interest must fail for the reasons given by Matheson J.
32. It remains to consider the third party proceedings. There is an appeal by the third parties Hanel and Galliott Pty Ltd against the order that they contribute 25% of the judgment against the defendant in respect of the hedge contract.
33. Hanel had no involvement in the hedge transaction until it was sprung on him without warning while he was visiting George Copping in relation to another matter. Quite by chance while he was there Mr Duncan an officer of the defendant rang from Melbourne. Duncan told George Copping that the exchange rate was falling fast and that Copping would have to take out "a non-deliverable hedge contract but that it would not cost him anything." Copping asked Hanel to speak to Duncan. George Copping's evidence was that after speaking to Duncan, Hanel told Copping that "the rate is falling fast and he wants it taken out today." Further evidence of George Copping was as follows:
"Q. You have told us that you asked Hanel for an
explanation of what the hedge was; what did he say exactly.
A. He said he did not really know what a hedge contract
was.
Q. Did he say more.
A. And he wouldn't advise us one way or the other ..."
34. There was discussion between George Copping and his two sons and they decided that they would enter into the contract. George Copping rang Duncan and told him so. There was no evidence, so far as I am aware, that Hanel was a party to that decision. The basis of the learned judge's finding against Hanel, and therefore Galliott Pty Ltd, was that "it was negligent for him not to dissuade the Coppings from going ahead with it in such a state of ignorance." His Honor added:
"At least Hanel should have suggested that they take a
little more time and look more closely into just what it was
that they were entering into."
35. I am not persuaded by this reasoning. Hanel did not have the necessary knowledge of hedge contracts to enable him to advise and he expressly declined to do so. I do not overlook that in his statement to his solicitors referred to above George Copping said that he acted on Hanel's advice. That, however, was a statement made out of court and was not repeated in his evidence on oath in court. It was not evidence against Hanel or Galliott Pty Ltd. Because of his lack of knowledge Hanel expressly declined to advise. Duncan was pressing for a decision that day. If the contract were not entered into that day and the rates were to fall further, the plaintiffs would be exposed to further loss. Hanel was in no position to advise. Advice to delay a decision might prove very costly. The plaintiffs had to make up their own minds whether to act on Duncan's advice. Hanel did not have the information to enable him to assist. He took the only course open to him and declined to advise.
36. I do not think that His Honor's reasoning is a sufficient foundation for the finding of breach of duty against Hanel and Galliott Pty Ltd and in my opinion that finding should not stand. Nevertheless I realize, as counsel for Hanel and Galliott Pty Ltd conceded, that the finding of liability in respect of the negligent misstatement has the consequence that the third party claims will have to be reconsidered. It is conceivable that matters arising out of that reconsideration may have a bearing on liability in respect of the hedge contract. Liability could conceivably arise from considerations other than the reasoning of the trial judge with which I disagree. I would therefore set aside the judgment in the third party proceedings against Hanel and Galliott Pty Ltd and remit those proceedings to the trial judge for further consideration and determination.
37. The third party proceedings against Kovaleff and Tillett Nominees Pty Ltd were dismissed in consequence of the failure at trial of the plaintiffs' claim in respect of the negligent misstatement. Those proceedings must now be remitted for further consideration and determination.
38. I would give judgment on the appeal as follows:
1. Appeal by the plaintiffs against the defendant
allowed.
2. The judgment dismissing the claims of the plaintiffs
George Stanley Copping, Faye Joyce Copping, Layton Saxon
Copping, Neville George Copping and Wayne Malcolm Copping,
be set aside.
3. That there be a finding that the plaintiffs acted in
reliance upon the negligent misstatement found by the trial
judge, in entering into the foreign currency loan
transaction and that the defendant is liable to the
plaintiffs for damages for the loss sustained in consequence
of their entry into that transaction.
4. That the judgment and order for costs in favour of
Perball Pty Ltd be set aside.
5. That the action be remitted to the learned trial judge
for assessment of damages and for entry of judgment for the
plaintiffs against the defendant for the amount of such
damages and costs, and in the case of Perball Pty Ltd for
the additional amount of $183,898.62 already assessed.
6. That the defendant's judgment against the third
parties Hanel and Galliott Pty Ltd be set aside and that the
third party proceedings against them be remitted to the
trial judge for further consideration and determination.
7. That the order for costs in favour of the third
parties Kovaleff and Tillett Nominees Pty Ltd be set aside
and that the third party proceedings against those parties
be remitted to the trial judge for further consideration and
determination.
JUDGE2 MATHESON J The appellant company ("Perball"), one of the plaintiffs in the action, was incorporated on 19 September, 1984 by members of the family of George Stanley Copping (excluding Wayne Malcolm Copping) to receive a loan of A$850,000 in Swiss francs under an off-shore loan agreement between it and Australian International Limited ("AIL"), a wholly owned subsidiary of Australian International Finance Corporation Limited ("AIFC"), the former name of ANZ McCaughan Limited, the respondent to the appeal. Other plaintiffs in the action were George Stanley Copping, his wife Faye Joyce Copping, and their sons Layton Saxon Copping, Neville George Copping and Wayne Malcolm Copping.
2. The plaintiffs sued the respondent and alleged negligent mis-statement, misrepresentation and breach of a collateral contract. They claimed damages for losses suffered in consequence of the foreign currency loan which was drawn down on 31 October, 1984, and in consequence of their entry into a hedge contract in April, 1985. The plaintiffs alleged, inter alia, that an officer of the respondent, namely, its then Manager Corporate Finance, Mr. K.J. Irvin, made negligent mis-statements at a meeting with members of the family at a Copping property known as "Redbank" on 4 August, 1984, that they relied thereon in entering into the agreement with AIL, that a further negligent mis-statement was made in April, 1985 and that they relied thereon in entering into the hedge contract.
3. The learned trial Judge found that a negligent mis-statement was made at the Redbank meeting on 4 August, 1984, but found that the plaintiffs did not rely thereon in entering into the agreement with AIL. His Honour further found that a negligent mis-statement was made in April, 1985, and that the plaintiffs did rely thereon in entering into the hedge contract. His Honour assessed Perball's damages consequent upon the latter negligent mis-statement in the sum of $183,898.62. He dismissed the claims alleging breach of a collateral contract and mis-representation. His Honour rejected the plaintiffs' submission that the defendant had agreed to manage the loan, and that finding has not been challenged. The appellant, inter alia, challenges his Honour's finding that the plaintiffs did not rely on the defendant's negligent mis-statement in entering into the agreement with AIL.
4. The learned trial Judge set out clearly and thoroughly the facts and the reasoning for his decision, and I propose to quote extensively from his judgment.
5. The following summary by his Honour of background facts is not disputed:
" The plaintiff George Stanley Copping, who is now aged 71
years, is the husband of the plaintiff Faye Joyce Copping.
The plaintiffs Layton Saxon Copping, Neville George Copping
and Wayne Malcolm Copping are sons of George and Faye
Copping.
The Copping family, including the ancestors of George
Copping, have owned land in and around Lucindale in the
south-east of South Australia since 1877. The original
family homestead was on a property known as Redbank. At all
times relevant to this case that property was occupied by
George and Faye Copping. The Redbank property comprised
just under 6,000 acres.
In 1972, the family purchased another property situated a
few miles south-east of Lucindale, known as Katani Park. Katani
Park comprised about 1,145 acres. The plaintiff Neville Copping
at all relevant times has lived with his wife and family on that
property.
In about 1983, the plaintiff Wayne Copping, who had been
living and working on the family properties at Lucindale, took
up a holding known as Chetwyn, just over the border in Victoria.
His interest in Katani Park was bought out by Neville and Layton
Copping.
Neville and Layton Copping, with their parents, then worked
the properties at Lucindale as a joint operation in the sense
that the income was pooled, expenses paid and the balance
divided in various proportions. Wayne Copping's farming
operation at Chetwyn was conducted more or less separately,
although he received some assistance from time to time from the
rest of the family. The evidence of George Copping was that
Neville and Layton both handled their finances in consultation
with their father, but 'Wayne was running his own show more so
than the other two boys'. Whatever may have been the legal
position, none of them regarded themselves as in partnership.
They each put in separate income tax returns for the income
which they derived from the properties.
The plaintiff George Copping exercised an overall
co-ordinating role. For example, a single wool cheque would
come in which he would proceed to divide with the sons on
previously agreed percentages. He kept an overall eye on the
finances. There was a single account with Bennetts Farmers,
stock agents, for merchandise and dealing with cattle, produce
and the like.
By late 1983 and for some little time before then, the
family farming operations were beginning to suffer from the
effects of the recession and the decline in the rural economy.
Returns from farm produce were depressed and interest rates for
the family's borrowings, which had supplied working capital,
were high and escalating.
For some five or six years before 1984, George Copping had
dealings with an insurance agent who worked in the area, a Mr
Haydon Harrap. In early December 1983, Harrap mentioned that he
might be able to obtain finance at cheaper rates than the rates
applicable to the bank loans. Shortly afterwards, he introduced
George Copping to Kerry Hanel. Hanel was one of two principals,
the other being the third party Fedorov Kovaleff, who carried on
business as financial advisers in association with each other
through their companies Galliot(sic) Pty Ltd and Tillett
Nominees Pty Ltd.
Hanel and Harrap went to Redbank on 13 December 1983 where
they met George Copping, Layton and Neville."
6. His Honour found that at the meeting on 13 December, 1993, Hanel made the following statements which "registered on the minds of George Copping and his two sons":
"(a) Generally speaking, off-shore rates of interest were
much lower than the domestic interest rates applying at that
time in Australia.
(b) In Hanel's opinion the best currency in which to
contemplate an off-shore loan was the Swiss franc as it had
been stable for the last two years or so.
(c) Future fluctuations in the Swiss franc were unlikely
to exceed 10% either way, that is, 10% above or below its
current level. He illustrated the stability of the Swiss
franc by reference to graphs, similar to, but not
necessarily the same, as the graphs tendered in evidence at
the trial.
(d) A part of the arrangements for any off-shore loan
would be the creation of a 'sinking fund' which would act as
a buffer, and that any fluctuations should be contained
within the limit of the sinking fund.
(e) That if an amount up to $40,000 per annum, being the
approximate saving on interest as between domestic and
off-shore interest rates, was paid into the sinking fund, it
should be sufficient, with accrued interest, to repay the
principal of the loan.
(f) Off-shore interest rates, including the interest rate
applicable to a borrowing in Swiss francs, were of the order
of 7% - 8%.
(g) The initial term of the loan would be three years, but
that there should be 'no problem' in obtaining rollovers or
extensions up to ten years, or even more.
(h) The stability of the foreign currencies, including the
Swiss franc, could not be guaranteed, and there were no
certain predictions to be made as to future movements.
There was a risk that it could move outside the 10% limit,
but although there could be no guarantee about it, the
movement should be contained within the sinking fund.
(i) Movements in the currency could create a situation in
which they made a profit or loss.
(j) The security, evidenced by council valuations of the
real estate, looked 'really good'."
7. His Honour continued:
"I think it likely that Hanel spoke separately of a 'buffer'
as opposed to the 'sinking fund'. The buffer was 10% which on a
loan of $850,000 would be $85,000. This represented an amount
notionally allowed beyond the principal advance of $850,000
within which the currency would be allowed to fluctuate without
any requirement for repayment. The sinking fund would be an
additional advance of $100,000, to be invested in an investment
'on-shore' insurance policy which would earn interest, and which
also would receive capital accretions by reason of periodic
annual payments."
8. His Honour said that he thought it was unlikely that the Coppings had made up their minds to take out the off-shore loan at that stage. However, in about April 1984, they lodged an application for a loan of A$750,000 with AIFC to be drawn down in Swiss francs. It was prepared by Hanel, but the Coppings supplied the financial information, including the facts that they owed between them $663,904, and that Wayne and Neville Copping needed "carry on finance" of $36,200 and $24,900 respectively. The application was considered by Irvin. He treated the application as one for $850,000 as he included a further $100,000 which he described as "initial contribution to 'sinking fund'". In his precis of the application, he said, inter alia:
"An investment policy will be taken out with Aetna Life into
which $100,000 from our loan funds will be invested with a
further $40,000 to be lodged each year. The policy attracts a
minimum 10% compounding interest and AIFC can effectively
control the funds, by way of assignment, in case of need."
9. Under the heading "Conclusion and Recommendations", he said, inter alia:
"The proposed sinking fund provides AIFC with additional
security with the added advantage of establishing a cash pool to
cover any exchange risk in addition to the buffer allowed."
10. Irvin recommended approval.
11. On 4 August, 1984, Irvin went to Redbank and discussed the application at a meeting with George, Faye, Layton and Neville Copping.
12. His Honour said in relation to that meeting:
"Looking at the evidence as a whole, and allowing for all of
the arguments put forward by the parties, I find that what
was said by Irvin by way of representations as to the nature
and effect of the transaction appears in the following
findings of fact:
1) Irvin had much more to say than he was prepared to
accept in the witness box.
2) He said that the Swiss franc had been stable, and
illustrated its stability by referring to the two graphs
which indicated the history of its movement over the
preceding two years at least.
3) He said that given that stability, it was the best
currency for the Coppings to adopt in the context of the
proposed off-shore loan.
4) The Swiss franc against the Australian dollar was
unlikely to move outside 10% either way, but if it did the
'sinking fund' should be sufficient to cover any such
movement.
5) He did not clearly distinguish between the purpose and
operation of the 10% 'excess' and the sinking fund.
6) He emphasised, to use the language of the witnesses,
the upside rather than the downside but did not eliminate
the possibility that the movement in the franc could exceed
the sinking fund. Putting it another way, he did not
eliminate entirely the possibility that the sinking fund
could be exceeded by adverse movements.
7) The impression left in the mind of George Copping was
that although the risk of a movement beyond 10% and beyond
the limit of the sinking fund could not be eliminated, it
was a small risk.
8) He said that the plaintiffs would be at liberty to
bring the loan 'on' and 'off-shore' as they thought fit.
9) He said that there should be no difficulty in
extending the term of the loan to ten years."
13. By letter addressed to G. S. Copping and Sons dated 21 August, 1984, the defendant made an offer which it called a "Medium Term Loan facility of $850,000. It is unnecessary to set out the whole letter but it included the following:
"PURPOSE: The funds shall be used by the Borrower to
consolidate existing mortgages and debts as detailed hereunder,
cover associated borrowing costs and outlays and provide a
$100,000 contribution to a 'sinking fund' insurance investment
policy and not for any other purpose without the Lender's
written consent.
...
DRAWDOWN: Subject to completion of security and
documentation and five (5) days' written notice to the
Lender, drawdown may be effected in full in one amount.
...
SECURITY: The facility is to be secured by:
1) - 8) ...
9) Assignment to the Lender of Aetna Life Investment
Policy to be implemented with part proceeds of our advance
($100,000).
DOCUMENATION: - This offer is conditional upon
completion of a formal Loan Agreement to the
satisfaction of the Lender and its legal advisors setting
out the full terms and conditions of the facility.
...
ESTABLISHMENT FEE- A fee of $4,250 is payable upon
acceptance of this offer.
...
OTHER 1) The Lender requires that the
CONDITIONS: proposed loan be made to a corporate
entity and therefore a company is to be formed for such a
purpose. All members of the partnership are to execute a
Cross Deed of Covenant.
2) ...
3) In addition to the initial deposit of $100,000 the
Borrower is to contribute a minimum of $40,000 per annum
(commencing 12 months from the date of the advance), to the
Aetna Life Investment Policy ('sinking fund') mentioned
under 'Security'. The Lender reserves the right to review
the contribution amount on an annual basis and request an
increase if considered necessary.
4) - 5) ...
ACCEPTANCE OF If the above terms and conditions
FACILITY: are acceptable, would you please forward
your formal acceptance of the facility by signing and
returning the enclosed copy of this letter together with
your cheque for $4,250 representing the establishment fee.
A separate offer of a foreign currency advance will be made
by Australian International Limited, Vila. Australian
International Finance Corporation Limited will guarantee
their arrangement for a fee of 0.25% per annum.
This offer will remain open until 31 August, 1984 and advice
of your acceptance by that date would be appreciated. The
writer will be pleased to discuss any aspects you feel may
need clarification."
14. The Coppings had a meeting with Hanel on 31 August, 1984 and discussed the offer with him. George and Neville Copping signed under the words "Accepted for and on behalf of G. S. Copping and Sons" at that meeting, but George Copping wrote in the margin of the page they signed and opposite the condition numbered (3) (supra) these words:
"Initially $20,000 to be the amount to be lodged. This is
to be reviewed annually with the view of increasing to the
proposed amount over the next few years" and he signed "G. S. Copping" thereunder.
15. On 3 September, 1984, Hanel wrote the following letter to the defendant:
"Attention: Mr. Ken Irvin
Ken,
Enclosed is the letter of offer from G.S. Copping and Sons
with the establishment fee attached.
I had a two-hour discussion with George and it was decided
that we would adjust the sinking fund arrangements to the
following:
(1) $100,000 to establish account.
(2) $20,000 to be lodged around April 1985.
(3) Review the account at that stage with the view to
increasing the contribution.
(4) It was agreed upon by all parties that it was
necessary to get back to the $40,000 annual contribution.
It was also agreed upon that if surplus moneys were
available then they would be deposited in this account.
In all, it was a very amicable discussion with George now
understanding the concept fully. Documentation can commence
as soon as possible."
16. Meanwhile, by letter dated 28 August, 1984, AIL wrote to G. S. Copping and Sons. This letter seems to have been received after 3 September, 1984. It is unnecessary to set out the whole letter, but it included the following:
"Australian International Limited (AIL), the Lender, is
pleased to hereby offer a foreign currency advance facility
to a new corporate entity to be formed for G. S. Copping and
Sons the Borrower, based upon the following terms and
conditions:-
Facility: Multi-currency loan available to be drawn in
major euro currencies as agreed by AIL and the Borrower,
with no more than two currencies outstanding at any one
time.
Amount: A$850,000-00 equivalent in foreign currencies.
Term: Three years.
...
Drawdown: Facility is available to be drawn down on at
least 10 days notice in writing from the Borrower, subject
to satisfactory completion of securities and documentation.
...
Security: Security to be taken in the name of Australian
International Finance Corporation Limited who will in turn
Guarantee AIL.
Foreign Any foreign exchange risk is to be borne
Exchange by the Borrower. The facility will
Risk: include an exchange rate buffer of A$85,000-00 within
which the A$ equivalent of the amount outstanding can
fluctuate. Any excess above this limit will necessitate
maintenance of a deposit margin account with AIFC, and the
paydown of any excess above the level of the buffer at the
commencement of the next interest period.
Documentation: - This offer is conditional upon the
completion of formal documentation to the
satisfaction of the Lender and its legal advisers, together
with formal approval of the Reserve Bank of Australia and
the Australian Taxation Office.
Costs: All legal costs, withholding taxes, and other
costs including stamp duty on security and documentation
will be for the account of the Borrower.
We understand you are also in receipt of an offer from
Australian International Finance Corporation Limited (AIFC)
to provide advances up to A$850,000-00. To the extent the
funds are drawn under the AIFC facility, availability of
funds under this facility will be reduced accordingly.
We trust that the terms and conditions of this offer are
acceptable, and we would ask that you indicate your formal
acceptance by signing and returning the copy of this letter
to this office."
17. George and Faye Copping signed under the words "Accepted for and on behalf of G. S. Copping and Sons" on 17 September, 1984.
18. It is convenient to mention here that his Honour said in relation to the letter from AIL of 28 August:
"I am satisfied, however, that George Copping did read the
document carefully and understood it."
19. The plaintiffs, including Perball, executed the formal documents evidencing the transaction on 28 October, 1984. The documents were all dated 31 October, 1984 which presumably was the date inserted on execution by AIFC and AIL. The loan in Swiss francs was drawn down on 31 October, 1984. I gratefully adopt his Honour's description of the relevant documents:
"A. Loan Agreement between Perball and AIFC
Pursuant to this agreement, ("the AIFC loan agreement"),
AIFC agreed to lend to Perball $850,000. The period of the
loan was three years from first drawdown. The loan was an
interest-only loan, interest being payable quarterly in
arrears at a rate fixed at 2% above the bill rate published
by the Australian Merchant Bankers Association.
Certain provisions in the loan agreement refer to and
interlock with the provisions in the separate loan agreement
taken out with AIL, to which I refer below. In particular, the
recital (paragraph C) to the AIFC loan agreement expressly
acknowledges that AIL has contemporaneously granted a separate
'facility'.
The AIFC loan agreement further provides that in determining
whether the whole of the $850,000 has been advanced regard
should be had to the aggregate of any advances under the AIFC
loan agreement, and advances under the AIL agreement.
Furthermore, default under the AIL agreement operated as a
default under the AIFC loan agreement (clause 11.2).
The AIFC loan agreement provided that what was described as
'collateral security' would be furnished in the form of a
guarantee (described as a cross-deed of covenant) to be executed
by Mr and Mrs Copping and their three sons. It was further
provided that registered first mortgages would be granted over
the various Lucindale properties and that there was to be an
assignment to AIFC of "an Aetna life investment policy to be
implemented with part proceeds of the advance", made under the
AIFC loan agreement (clause 12.1.9) by way of security. Perball
was to contribute a minimum amount of $20,000 per year to Aetna
with respect to that policy (clause 13.3).
B. Multi-Currency Floating Rate Loan Agreement between
Perball and AIL
Pursuant to this agreement, ('the off-shore loan
agreement'), AIL agreed to provide a 'facility' pursuant to
which Perball could drawdown from time to time amounts to a
limit of $850,000, which total was to take into account any
advances made under the AIFC loan agreement. Pursuant to the
off-shore loan agreement, Perball could drawdown in any
'Eurocurrency' as defined, which comprised a basket of foreign
currencies, including Swiss francs. As with the AIFC loan
agreement, the AIL off-shore loan agreement provided for payment
of interest only over a term of three years from the first
drawdown, after which the principal became repayable.
Again, there are interlocking provisions linking the
off-shore loan agreement with the AIFC loan agreement. I have
already referred to the fact that the limit which could be
advanced under the off-shore loan agreement took into account
advances made under the AIFC loan agreement. Default under the
AIFC loan agreement operated as a default under the off-shore
loan agreement (clause 12.2). There was provision for an
election on the part of Perball to repay any advance under the
off-shore loan agreement and withdraw an equivalent dollar
amount under the AIFC loan agreement (clause 5.5).
The so-called 'clawback' provision appears in clause 8.1
which reads, relevantly, as follows (references to A.I. Vila are
by definition to AIL, and the "company" is defined as Perball):
'..... an adjustment payment shall if required by A.I. Vila
be made by the Company at the beginning of each Interest
Period (other than the first) in relation to each Advance to
reflect changes in the applicable rate of exchange by more
than 10% since the time when such rate was ascertained for
the purposes of such previous Interest Period and the need
to maintain any Advance at not greater than the amount it
would have been plus 10% had it been originally provided and
thereafter maintained in dollars provided that if A.I. Vila
determines that such changes in the applicable rate of
exchange have resulted in the aggregate of the dollar
equivalent of all Advances and amounts remaining outstanding
by way of principal under the AIFC Facility at any time
exceeding the Limit Amount by more than 10%, then the
Company shall forthwith if required by A.I. Vila pay such
amounts to A.I. Vila as will reduce the said aggregate to no
more than the Limit Amount and 10%.'
It will be seen that that provision also includes a link
with the AIFC loan agreement.
C. Cross-Deed of Covenant
This deed created obligations on each of the plaintiffs,
including Perball and individual plaintiffs, to repay any
indebtedness due to AIFC on virtually any account whatsoever
held by any one of them.
D. Deed of Indemnity between AIFC and the Plaintiffs
This deed (the "Deed of Indemnity") provided that the
plaintiffs jointly and severally agreed to repay to AIFC any
amounts paid by AIFC to AIL pursuant to AIFC's guarantee to
AIL of the due performance by Perball of its obligations
pursuant to the off-shore loan agreement.
E. Guarantee between AIFC and AIL
This was an agreement in the form of a guarantee pursuant to
which AIFC agreed to guarantee the due and punctual payment
by Perball of all moneys payable by Perball to AIL from time
to time under the off-shore loan agreement."
20. Apropos the execution of the documents at the defendant's branch at Lucindale in the presence of Mr. Smith, the branch Manager, and Harrap, the insurance agent previously referred to, his Honour said:
"The documents were piled up on the bank counter. George
Copping described them as "about a foot high". None of the
Coppings attempted to read the documents before they signed.
They did not ask any questions about them, and no explanation
was volunteered by either Harrap or Smith. They were simply
told where to sign. That process alone took what was described
as a good half an hour. No copies were left with any of the
Coppings. Harrap took the documents away after their execution,
and delivered them back to Adelaide on the Monday morning. It
was some months afterwards before George Copping received a copy
by post."
21. His Honour summarised what occurred after the draw-down of the loan in the following passage:
"From about early January 1985, the Australian dollar as
against the Swiss franc devalued considerably. This had the
effect of increasing the periodic interest obligations of the
defendant, and also had the effect of increasing substantially
the amount of the principal due, if measured in Australian
dollars.
I have previously explained that the off-shore loan was
subject to a so-called 'buffer' of 10%. Ten percent of $850,000
was $85,000. The operation of the buffer was such that foreign
currency fluctuations were permitted within the 10% limit, that
is, the principal of the loan could increase to $935,000 without
any obligation upon the borrower to make any payment. However,
an adjustment was required in the form of a payment in cash of
any excess over the 10% limit, that is, any excess over
$935,000, so that the principal was kept within the 10% limit.
The repayment was described in the documents as a 'clawback'.
By 22 March 1985, the $935,000 limit, after taking into
account the 10% buffer, had been exceeded by $A2,130. On
that date a letter was written by AIFC to Perball which in
part stated:
'We advised you that due to the adverse movement in the
Swiss Franc exchange rate the buffer limit on your Foreign
Currency loan account has been exceeded as follows:
A$ equivalent of CHF 1,799,195
@ 1.9199 = $937,130
Limit (including 10% 'buffer')= $935,000
--------
$ 2,130
--------
In view of the funds held in the Aetna Life and Casualty
Investment Policy, we have noted the excess of $2,130.00
against the policy, over which we hold an assignment.'
The noting of the 'excess of $2,130.00 against the policy'
was a concession by AIFC which they were not contractually
obliged to make. They could have demanded the $2,130 as a
clawback to be paid in cash.
By 3 April 1985 the situation had worsened dramatically. By
a letter to Perball of that date, AIFC advised as follows:
'The current A$ limit amount under the terms of the loan
agreement for your foreign currency borrowings is
$935,000.00. This limit includes the 10% 'buffer' for
exchange fluctuations.
As at today, the exchange rate for Swiss Francs is 1.8062
and the A$ equivalent of your foreign currency borrowings is
therefore calculated as follows-
CHF 1,799,195 @ 1.8062=A$996,122
this amount exceeds the abovementioned limit by A$61,122.00.
In accordance with Clause 8 of the Multi Currency Loan
Agreement and on behalf of Australian International Limited,
Vila, we hereby inform you of the situation which currently
exists and further advise that the excess amount will, for
the time being, be applied against the funds held in Managed
Investment Bonds, over which we have an assignment. Should
the excess amount exceed the amount of the Bonds, it will be
necessary for you to place such excess on deposit with us
pending an improvement in the exchange rate.'
It is not unimportant to note that following receipt of that
letter George Copping on behalf of Perball acknowledged the
propriety of the offset against the bonds.
The device of debiting the excess beyond the 10% buffer
against the sinking fund held good for so long as the excess
did not exceed the combined total of the 10% ($85,000) and
the sinking fund ($100,000). Taking those amounts into
account, in effect AIFC was not looking for payment of the
excess, as it was entitled to, until the total amount due on
the loan had reached $1,035,000.
At this time, however, the fall of the Australian dollar
against the Swiss franc was so sustained and so steep that
it was not long before that limit was exceeded.
By letter of 15 April 1985, AIFC advised Perball as follows:
'(The current A$ limit amount under the terms of the loan
agreement for your foreign currency borrowings is
$935,000-00. This limit includes the 10% 'buffer' for
exchange fluctuations.)
As at today, the exchange rate for Swiss Francs is 1.7269
and the A$ equivalent of your foreign currency borrowings is
therefore calculated as follows:-
CHF 1,799,195 @ 1.7269=A$1,041,864
This amount exceeds the abovementioned limit by A$106,864.
In accordance with Clause 8 of the Multi Currency Loan
Agreement and on behalf of Australian International Limited,
Vila, we hereby inform you of the situation which currently
exists and further advise that part of the excess amount will,
for the time being, be applied against the funds held in Managed
Investment Bonds, over which we have an assignment. The excess
amount however exceeds the amount of the Bonds by $6,864.00 and
it will be necessary for you to place such excess on deposit
with us pending an improvement in the exchange rate. Please
forward $6,864.00 within seven days to AIFC Ltd.'
The $6,864.00 was paid by Perball in answer to that demand.
Payment was not accompanied by any sort of protest. The
significance of the payment was clear. The operation of the
clawback provisions in the off-shore loan agreement which had
before then been cushioned by the willingness of AIFC to off-set
the excess over the 10% buffer by reference to the sinking fund,
now struck home.
The Australian dollar continued to deteriorate as against
the Swiss franc. On 18 April 1985, Duncan" (the respondent's
Manager, South Australia) "was at the Melbourne head office of
AIFC where he was made aware of what seemed to be a dramatic
escalation of the fall in the Australian dollar against the
Swiss franc, with no predictable floor to the fall.
As will be seen when I come to deal with the events of 18
April 1985 under a separate heading, after becoming aware of the
worsening position, Duncan rang George Copping on that day to
ask him to take out a hedge contract, more particularly
described as a 'non-deliverable hedge'. Such a contract, if
successful, would have held the amount repayable on the
off-shore loan at the amount represented by its conversion into
Australian dollars at the exchange rate prevailing on 18 April
up to the rollover date, that is, up to 30 April 1985.
Such a contract would insulate the plaintiff Perball from
the adverse affects of a further fall in the exchange rate of
the Australian dollar against the Swiss franc in the intervening
period before rollover. If successful it would also operate to
protect the position of the lender, AIFC.
The hedge contract was not successful. Perversely, the
Australian dollar moved against the hedge, with the result that
at rollover on 30 April 1985 Perball became liable to pay
$A82,864 more than the amount which it would have been liable to
pay if it had not taken out the hedge contract.
Rollover of the advance duly took place on 30 April 1985 in
the sum of $A1,039,997. The term of the rollover was 92 days,
to mature on 31 July 1985. In the meantime, Perball, lacking
funds with which to pay off the loss on the hedge contract,
entered into a further short term loan facility with AIFC to
borrow, for a term maturing on 31 July 1985, $82,864, being the
loss on the hedge contract.
The foreign currency loan was rolled over on 30 July 1985
for a term of 184 days to 31 January 1986. At that stage, the
two short term loan facilities were merged with the off-shore
loan, that is the $65,000, being the balance of $100,000 lent on
4 January 1985, and the separate short term loan of $82,864.
The next rollover occurred on 31 January 1986 for a term of
181 days, maturing 31 July 1986. At that stage, the amount
repayable expressed in Australian dollars, had risen to
$1,745,117.65. Presumably that figure includes the two short
term loan advances.
Matters came to a head in April 1986. By letter of 23 April
1986, the defendant wrote to George Copping and Perball,
indicating that it was 'unable' to grant any further extensions
on the short term loans. It requested a pay out as at 30 April
1986 of the total amount due on the two loans which was as
follows:
$
Balance of the first short term
loan with accrued interest 68,441.72
Balance of the second short term
loan with respect to the hedge
contract loss, including accrued
interest 86,680.89
-----------
$155,122.61
-----------
In order to repay that amount, Perball raised a loan with
ANZ Bank by commercial bills.
I should say that throughout 1985, in a developing
crescendo, AIFC had pressured the plaintiffs to bring the loan
on-shore. That pressure continued into 1986 and came to a head
in July 1986. By letter of 3 July 1986, the defendant wrote to
Perball confirming advice which had been telephoned by Duncan to
George Copping of what was described in the letter as 'the
current drastic fall in the A$ exchange rate and resultant
adverse effect on your foreign currency loan facility currently
in Swiss francs'. In fact, the Australian dollar equivalent of
the amount repayable at that stage stood at $1,578,241. In the
letter, Duncan urges 'reverting the loan back to A$'. He asked
George Copping to consider the matter as one of urgency.
The advice to revert to Australian dollars was repeated in
a further letter dated 10 July 1986. But the plaintiffs' still
wished to stay off-shore. The rollover was, of course, due on
31 July 1986. Matters came to a head as that date approached.
By letter dated 17 July 1986, the defendant agreed to
rollover the off-shore facility for a period of 180 days
provided, inter alia, that the defendant was given an
irrevocable authority to enter into an official forward
exchange contract when, and in the event, that the exchange
rate fell below CHF 1.09 : $A1 for two consecutive days. A
form of irrevocable authority, unexecuted, was tendered in
evidence. The plaintiffs did not execute it, and continued
to resist the suggestion that they come on-shore.
At this stage, Duncan was in fairly close touch by telephone
with George Copping. He eventually secured instructions to
bring the loan on-shore. That he had received instructions
to that effect was confirmed in a letter dated 24 July 1986
from the defendant to Perball. That letter reads as
follows:
'Following your instructions by telephone today I am pleased
to confirm that on your behalf we have taken out an official
forward contract to convert your Swiss Franc loan into A$ at
a rate of 1.0510 on 31st July.
This contract is for a total of Swiss Francs 1,864,526.88
which covers principal, interest and withholding tax.
Now this rate is known we set out below the interest,
withholding tax and guarantee fee due on 31st July.
SWISS FRANCS A$
Interest and
withholding tax 65,331.88 62,161.64
Guarantee Fee 1,543.60
---------
$63,705.24
FID 25.49
----------
$63,730.73
==========
It would be appreciated if you could ensure that this amount
of $63,730.73 reaches us on the morning of the due date.
The amount of A$ on conversion will be $1,711,888.65. In
accordance with the loan agreement this will be funded by a
Medium Term Loan. It will however be necessary to increase
limits and set a rate and we will forward the necessary
documentation to you shortly. As a matter of interest the rate
at 4.45 pm is 1.0420.' (emphasis added)
It was the defendant's case that the loan was brought
on-shore as of 31 July 1986 by reason of default by Perball. I
have been unable to find confirmation of that in the evidence.
Certainly, the letter to which I have just referred seems to
confirm that the loan was brought on-shore by reason of an
instruction given to that effect by the plaintiffs, or at least
by Perball.
Whichever was the case is of no great consequence. As will
be seen from the letter, what started off in October 1984 as a
loan of $A850,000 had become by the end of July 1986 a debt of
$A1,711,888.65.
The combination of an extended loan amounting to a figure
in excess of $A1.7 million, together with the high interest
rates payable in Australia on that loan once it was brought
on-shore, being in excess of 17%, put the plaintiffs in a
position whereby the returns from the farming operations simply
could not meet the outgoings necessary to service the loan.
In December 1986, the plaintiffs sold their farm properties
to an entity described during the case as WA Property Trust.
They received more than the amount necessary to pay out the
defendant at that stage.
The settlement with the defendant was effected as of 23
December 1986. As of that date, there was further interest
payable for the period since 31 July 1986. That brought the
amount payable to the defendant to $1,828,639.47. At that
stage, funds representing what had been in the Aetna investment
policy but which had by then been deposited with the defendant,
amounted to $124,988.76. From the proceeds of sale of the
various parcels of land to the WA Property Trust, the plaintiffs
paid to the defendant $1,704,050.71 which included $400 FID.
That payment extinguished all liability to the defendant.
However, the commercial bills taken out with ANZ from which
the short term facilities had been repaid earlier in 1986
carried over to their maturity date in early 1987. It is
unnecessary to go into the detail of settlement of those
bills.
The proceeds of sale of the land exceeded the amounts
payable to the defendant and to ANZ Bank on the bills. That
surplus, the amount of which was not given in evidence, was
invested in what were described as shares or units in the WA
Property Trust. The WA Property Trust leased back the
Redbank property on a five year lease which expired towards
the end of 1992.
The plaintiffs continued the farming operation at Redbank
until then. They then used Redbank for agistment for a
period, finally quitting the property some time in 1993."
22. It is not clear precisely when the plaintiffs instructed Wallace and Co. to act as their solicitors, but their letter to the respondent before action is dated 9 November, 1989. Before referring to the terms of that letter, it is necessary to refer to two statements prepared for these solicitors.
23. I refer first to a typewritten statement headed "Copping Statement", which his Honour ultimately admitted as Exhibit D1432 (contrary to the submission of Mr. Tilmouth QC, counsel for the plaintiffs), and which was an engrossment of a longhand statement of George Copping admittedly prepared by him for his solicitors late in 1989.
24. By way of background, the plaintiffs' solicitors instructed (and subsequently called) an expert witness on foreign currency loans, Mr. I. G. Butler. In the course of mutual discovery of documents, the plaintiffs' solicitors discovered his report which was dated January, 1991 on the front of which was an annexure which ultimately became Exhibit D1537, and which read:
"Documents and Assumptions
For the purpose of preparing this report, I have read and
considered the following documents which have been provided
to me:
(a) Statement of Claim by George Stanley Copping and
others
(b) Statement by George Copping and various attached bank
Documents relating to this loan" (My underlining.)
25. When the defendant's solicitors, Knox and Hargrave, inspected the plaintiffs' documents, the statement that subsequently became Exhibit D1432 was annexed to Mr. Butler's report. On 12 May, 1993 Knox and Hargrave wrote the following letter to the solicitors for the plaintiffs, now called Wallace de Garis and Co:
"Annexed to the report of Mr. Butler dated January 1991 is
an engrossed version of a statement from Mr. Copping.
Please make the original (unengrossed) and/or signed version
of that letter(sic) available for inspection. Perhaps
immediately after Friday's hearing would be a convenient
opportunity.
Please confirm before 12.00 p.m., Thursday 13th May 1993."
26. Wallace de Garis and Co. wrote back to Knox and Hargrave on 13 May, 1993 in the following terms:
"We refer to your letter dated the 12th May, 1993 with
respect to the report of Mr. Butler.
We advise that the Copping statement referred to in your
letter is not part of Mr. Butler's report. This document
appears to have been included in the photocopies of the
Plaintiff's discovered documents by mistake.
If you wish to discuss the above please do not hesitate to
contact the writer."
27. At p510 of the Appeal Books, the following is recorded:
"MR NICHOLAS" (senior counsel for the defendant) "APPLIES TO
MARK FOR IDENTIFICATION PART OF REPORT OF MR BUTLER EXCLUDED
FROM P709 AND MFI D1432. MR TILMOUTH OBJECTS ON THE GROUND
OF PRIVILEGE.
MFI D1537 Part of report of Mr Butler excluded from
P709 and MFI D1432.
WITNESS LEAVES COURTROOM 12.30 P.M.
ARGUMENT RE EXHIBIT
EXHIBIT D1538 Bundle of correspondence between the
solicitors for the parties with respect to allegedly
privileged material annexed to Mr Butler's report.
RESUMING 2.15 P.M.
HIS HONOUR: I rule that MFI D1432 is not now within
the protection of legal professional privilege, and is a
document which Mr Nicholas QC may, as he sees fit, make use
of in (the course of) cross-examination of Mr George Copping
and of any other witness. I will give reasons for that
ruling either separately or in the course of the reasons for
final judgment (in the case).
HIS HONOUR: It is still MFI only, there's been no
application to tender it, but that is a separate exercise, I
take it."
28. Immediately thereafter, Mr. Nicholas QC continued his cross-examination of George Copping, which included cross-examination about the statement marked for identification D1432. At the conclusion thereof, his Honour admitted the statement into evidence as Exhibit D1432. Apparently the court then adjourned, and during the adjournment, Messrs Tilmouth and Butler (who was in Sydney) exchanged faxes. When the court resumed, Mr. Tilmouth informed his Honour that he was instructed that a mistake had occurred, and that Butler would say in evidence that the statement annexed to his report was not D1432, but another statement which turned out to be in the handwriting of Neville Copping, which was also prepared late in 1989, and which was headed "Diary of Events of Off-Shore Loan from AIFC". This statement was ultimately tendered by Mr. Tilmouth, and became Exhibit P1539. Neville Copping later said in evidence in relation thereto:
"... it was prepared by my father and myself sitting either
side of the table when we collated all the documentation
that we had from - everything to do with the off-shore loan
to send to the solicitors ... Mr. Westley" (of Wallace de
Garis and Co) "asked us to give just a general over view of
what our belief - what we believed happened and supplement
it with the documentation."
29. He further said it would be fair to say that the statement set out in a summary way the matters that they then regarded as significant in the history of the matter, and he said that they probably took a "couple of hours" to prepare it. It concluded with a paragraph headed "Summary" which he agreed was "a summary of the significant matters which, in the ultimate, had led to the disaster that (they) were facing".
30. Mr. Tilmouth asked his Honour to:
"recall the order (he) made in relation to a line of
cross-examination on the document (D1432) because the
foundation upon which the document was admitted, namely,
that it had been a part of Butler's report, (was) not
correct".
31. After hearing both counsel, his Honour said that he was not satisfied that grounds had been made out to recall his order "as to the question whether or not privilege attached to Exhibit D1432", as his Honour put it.
32. The problems of inadvertent disclosure are discussed in Cross on Evidence, Australian Edn (looseleaf), at para 25020 et seq. In some cases where a document has inadvertently been produced for inspection, injunctive relief has been granted restraining the other party from using it, see for example Guinness Real Properties Ltd v Fitzroy Robinson Partnership (1987) 2 All ER 716 and Key International Drilling Co Ltd v TNT Bulkships Operations Pty Ltd (1989) WAR 280. The relevant principles are stated in a judgment of Slade LJ, with whom Woolf LJ and Sir Walker agreed, in the Guinness Real Properties case. At pp730-731, his Lordship said:
"In my judgment, the relevant principles may be stated
broadly as follows.
(1) Where solicitors for one party to litigation have, on
discovery, mistakenly included a document for which they could
properly have claimed privilege in Pt l of Sch l to a list of
documents without claiming privilege, the court will ordinarily
permit them to amend the list under RSC Ord 20, r8, at any time
before inspection of the document has taken place.
(2) However, once in such circumstances the other party has
inspected the document in pursuance of the rights conferred on
him by RSC Ord 24, r9, the general rule is that it is too late
for the party who seeks to claim privilege to attempt to correct
the mistake by applying for injunctive relief. Subject to what
is said in (3) below, the Briamore decision is good law ((1986) 3
All ER 132.)
(3) If, however, in such a last-mentioned case the other
6. A family company Perball Pty Ltd was formed to be the recipient of the loan.
7. When the loan was advanced, at the end of October 1984, the exchange rate was SF 2.11 to the A$. The loan was $850 000. When the loan was brought back on shore, in July 1986, the exchange rate was SF 1.05 to the A$. The loan was $1 711,888.65. A financial disaster.
8. Eventually the Coppings had to sell up everything. AIFC was paid out in full but the Coppings lost the land in the South East which they had been working for well over 100 years.
9. That is a bare account of what happened, sufficient, I hope, to resolve the points taken on appeal. The trial judge, Perry J, has in his Reasons, set out in detail the events which led to this misfortune. There is no need to repeat it. Who was responsible? That is the question. Kerry Hanel had first put the idea of an off-shore loan to the Coppings in December 1983. Sometime in the first part of 1984 the Coppings made an application, through Hanel, to AIFC for a loan. On 4 August there was a meeting at Redbank between Mr K J Irvin, the Corporate Loans Manager of AIFC and members of the Copping family, to discuss a loan.
10. Before I say what happened at the meeting I should set out the relevant findings of His Honour on credit:-
Evidence was given at the trial by George, Layton and
Neville Copping, but not by Wayne or Faye (Mr George
Copping's wife)
I have no doubt that it was the impression on his mind left
by the various people with whom he dealt before taking out the
loan in question which was decisive in terms of Perball's entry
into the transaction, and the signing of the collateral security
documents by the other members of the family.
At times George Copping seemed to have a firm grasp of the
detail of what occurred, but at other times he became vague and
uncertain. Nonetheless, I am satisfied that he made an honest
endeavour to recollect the salient features of the dealings
between the parties. Hanel was not called by either party.
The recollections of Neville and Layton were fragmentary.
The evidence of the two officers of the defendant who were
called, Irvin, and Duncan, to whom I have already referred, did
not impress me.
The evidence of both of them seemed to me to be closely
identified with the defendant's cause, and defensive of their
own position. They, too, attempted to distance themselves from
matters of contention, and offered unconvincing explanations for
a number of documents on the defendant's file which contained
entries which could be construed unfavourably to the defendant's
case.
It will be seen that I have rejected the evidence of Irvin
and Duncan on the critical issues."
11. While the learned Judge did not accept completely the evidence of George Copping he certainly rejected the evidence of Irvin.
12. With those findings - which we must accept - there is no reason why not - I come back to the meeting of 4 August.
13. In the pleadings the defendant AIFC had alleged that Irvin went to the 4 August meeting only to see the properties, to satisfy himself that AIFC had sufficient security for the loan. The Coppings asserted that he advised them about the loan. They were cross-examined in accordance with the pleadings. When Irvin gave evidence he told a story different to that alleged by the defendant in the pleadings; that he had in fact advised on a loan.
14. His Honour sets out at considerable length the evidence of various of those who were at the meeting.
15. He gives his findings in the form of 9 points:
"Looking at the evidence as a whole, and allowing for all of
the arguments put forward by the parties, I find that what
was said by Irvin by way of representations as to the nature
and effect of the transaction appears in the following
findings of fact:
1) Irvin had much more to say than he was prepared to accept
in the witness box.
2) He said that the Swiss franc had been stable, and
illustrated its stability by referring to the two graphs
which indicated the history of its movement over the
preceding two years at least.
3) He said that given that stability, it was the best
currency for the Coppings to adopt in the context of the
proposed off-shore loan.
4) The Swiss franc against the Australian dollar was
unlikely to move outside l0% either way, but if it did the
"sinking fund" should be sufficient to cover any such
movement.
5) He did not clearly distinguish between the purpose and
operation of the l0% "excess" and the sinking fund.
6) He emphasised, to use the language of the witnesses, the
upside rather than the downside but did not eliminate the
possibility that the movement in the franc could exceed the
sinking fund. Putting it another way, he did not eliminate
entirely the possibility that the sinking fund could be
exceeded by adverse movements.
7) The impression left in the mind of George Copping was
that although the risk of a movement beyond l0% and beyond
the limit of the sinking fund could not be eliminated, it
was a small risk.
8) He said that the plaintiffs would be at liberty to bring
the loan "on" and "off-shore" as they thought fit.
9) He said that there should be no difficulty in extending
the term of the loan to ten years."
16. Later on in his Reasons, the learned Judge says:-
...."But as the only mis-statement which I have found, namely, a
mis-statement as to the operation of the sinking fund, was
clearly descriptive of what was then proposed as a term of
the contract to be entered into, it would be actionable if
the other elements of negligent mis-statement were present."
17. No doubt that finding arises out of the fifth and seventh points which I have quoted.
18. Perry J goes on:
"I have already made findings of fact as to the statements
by Irvin, and it is necessary only at this stage to consider
the question whether the circumstances gave rise to a duty
of care, and if they did, whether that duty was discharged.
In my opinion, the circumstances gave rise to a duty of care
on Irvin's part.
It is true, as the defendant contends, that there had
already been extensive dealings with the plaintiffs' own
agent, Hanel, particularly on the occasion of the meeting in
December 1983. This included advice from Hanel as to the
nature of the transaction which they were entering. The
plaintiffs were nonetheless concerned to know what the
representative of the bank had to say about the transaction, and
there is no question but that they put a number of questions to
him designed to elicit more information. The fact that that
information was, generally speaking, conf irmatory of what they
had been told by Hanel is not to the point. The plaintiffs were
inexperienced in loan transactions of this kind, as Irvin well
knew. Looked at from his point of view, one would have thought
that he would or should have been aware of the fact that what he
had to say about the transaction would, in a general sense, be
likely to be relied upon by the plaintiffs in coming to a
decision as to whether or not to proceed with the loan
application. Irvin produced the graphs, answered questions and
volunteered some remarks with respect to the characteristics of
the off-shore loan, and might properly be taken to have assumed
that those present were relying on what he had to say.
Furthermore, I have no hesitation in finding that what he
had to say was said with the intention of inducing the
plaintiffs to proceed with the loan application (see point 6
above).
Those circumstances gave rise to a duty of care."
19. Later he says:
"The failure by Irvin clearly to distinguish between the
purposes and operation of the l0% "excess" and the sinking
fund, and in particular to suggest that the sinking fund
would be available to absorb any overrun outside the lO%
movement, was, in my opinion, misleading, and would amount
to a negligent misstatement if the element of reliance was
present."
20. From those findings in favour of the appellants there is no appeal. The appellants complain about His Honour's finding, that George Copping did not rely upon the misrepresentation and therefore the appellants have no cause of action. We come to the crux of the appeal.
21. The appellants asserted reliance but His Honour found against them. This is what he said and it is this about which Mr Sydney Tilmouth QC for the appellants complains. Having remarked that, "the defendant has a pecuniary interest" the learned judge went on:
"However, the question of reliance takes on a different
colour when looked at from the point of view of the
Coppings.
I am satisfied that by the time of the Redbank meeting with
Irvin, they were committed to proceeding with the off-shore
loan. Their evidence is clear that they saw no alternative apart
from selling off some land, a course which they regarded as a
last resort. Their financial position had not improved during
the preceding months of 1984, and domestic interest rates were
still high. At least one member of the family, Wayne, was under
pressure from creditors.
They had, in fact, lodged their application for an off-shore
loan before Irvin's visit. While I suppose that the
application could have been withdrawn, it is a strong
pointer towards a concluded intention to take up such a loan
if it was available.
The failure to complain when in April 1985 the $6,000
clawback was demanded of them, the failure to refer to the
alleged Redbank representations in George Copping's
statement to his solicitor, the failure to refer to them in
the letter before action, and the other matters to which I
have referred in that connection, tell strongly against any
reliance by the plaintiffs on what was said by Irvin on 4
August 1984.
I find, therefore, that there was no reliance in fact by the
Coppings upon the representations in question. In those
circumstances, they are unable to recover..."
22. It will be noted that His Honour mentions particularly three matters. Mr Tilmouth argues that he was in error in relying on any of them to draw an inference of non reliance because, in fact, the $6 864 clawback was never paid.
23. Mr H Nicholas QC, for the respondent, argued that this was a classic case of assessment of witnesses and evidence by the trial judge, that we as a court of appeal should not interfere unless the judge has made some glaring error and there was none: the decision must stand.
24. I readily acknowledge the force of Mr Nicholas' argument. The High Court has several times in the last few years said as much. We were referred to Abalos v Australian Postal Commission (1990) 171 CLR 167 at 178 per McHugh J, and Louth v Diprose (1992) 175 CLR 621 at 634-635 per Deane J. The latest High Court authority seems to be Devries v Australian National Railways Commission (1992-1993) 177 CLR 472. Brennan, Gaudron and McHugh JJ say (at 479):-
"More than once in recent years, this Court has pointed out
that a finding of fact by a trial judge, based on the
credibility of a witness, is not to be set aside because an
appellate court thinks that the probabilities of the case are
against - even strongly against - that finding of fact. If the
trial judge's finding depends to any substantial degree on the
credibility of the witness, the finding must stand unless it can
be shown that the trial judge 'has failed to use or has palpably
misused his advantage' or has acted on evidence which was
'inconsistent with facts incontrovertibly established by the
evidence' or which was 'glaringly improbable'."
(See also Brunskill v Sovereign Marine (1985) 62 ALR 53 and Wodrow v Cth
(1993) Aust Torts Rep 62, 711 at 62, 716 per Gallop and Ryan JJ).
25. The question of whether or not that $6864 clawback was paid is critical to the outcome of this appeal. The trial Judge's finding that there was no complaint when it was demanded and was paid, is, as the extract which I have already quoted shews, one of the matters which led him to find there was no reliance.
26. At page 21 of his Reasons, the learned Judge says:
"By letter of 15 April 1985, AIFC advised Perball as
follows:
'As at today, the exchange rate for Swiss Francs is 1.7269
and the A$ equivalent of your foreign currency borrowings is
therefore calculated as follows:
CHF 1,799,195 O 1.7269=A$l,041,864
This amount exceeds the abovementioned limit by A$106,864.
In accordance with Clause 8 of the Multi Currency Loan
Agreement and on behalf of Australian International Limited, Vi
1a, we hereby inform you of the situation which currently exists
and further advise that part of the excess amount will, for the
time being, be applied against the funds held in Managed
Investment Bonds, over which we have an assignment. The excess
amount however exceeds the amount of the Bonds by $6,864.00 and
it will be necessary for you to place such excess on deposit
with us pending an improvement in the exchange rate. Please
forward $6,864.00 within seven days to AIFC Ltd.'
The $6,864.00 was paid by Perball in answer to that demand.
Payment was not accompanied by any sort of protest. The
significance of the payment-was clear. The operation of the
clawback provisions in the offshore loan agreement which had
before then been cushioned by the willingness of AIFC to off-set
the excess over the 10% buffer by reference to the sinking fund,
now struck home."
27. Mr Tilmouth's argument on the point can be summarised in this way. This is not a question of credibility: the trial Judge drew the wrong inference from the evidence in finding that the clawback was paid and then in using his inference as a factor in finding that there was no reliance. There was undisputed accounting evidence, admitted by agreement between the parties, which shews that no clawback payment was ever paid.
28. The problem facing the Full Court is that the discrepancy between the accounting evidence and Mr Copping's recollection of paying the money was not explored at trial. Mr Copping said in evidence-in-chief that an amount had been paid and Mr Nicholas therefore did not cross-examine on it. As a result, the trial Judge was not in a good position to decide this particular question of the discrepancy in the evidence. It simply wasn't argued.
29. Resolution of the problem is crucial to the outcome of the appeal. The answer to it is in the joint judgment of Gibbs ACJ, Jacobs and Murphy JJ in Warren v Coombes (1978-1979) 142 CLR 531.
30. In that case their Honours discussed at length the authorities which deal with the circumstances in which an appellate court is entitled to overturn the decision of a trial Judge when the trial Judge's decision is based on inferences drawn from facts.
31. They summarise the law at page 551:-
"Shortly expressed, the established principles are, we
think, that in general an appellate court is in as good a
position as the trial judge to decide on the proper inference to
be drawn from facts which are UNDISPUTED or which, having been
disputed, are established by the findings of the trial judge. In
deciding what is the proper inference to be drawn, the appellate
court will give respect and weight to the conclusion of the
trial judge, but, once having reached its own conclusion, will
not shrink from giving effect to it. These principles, we
venture to think, are not only sound in law, but beneficial in
operation." (emphasis added)
32. Later, at page 552:-
"The duty of the appellate court is to decide the case - the
facts as well as the law - for itself. In so doing it must
recognise the advantages enjoyed by the judge who conducted the
trial. But if the judges of appeal consider that in the
circumstances the trial judge was in NO BETTER POSITION TO
DECIDE THE PARTICULAR QUESTION THAT THEY ARE THEMSELVES, OR IF,
AFTER GIVING FULL WEIGHT TO HIS DECISION, THEY CONSIDER THAT IT
WAS WRONG they must discharge their duty and give effect to
their own judgment." (emphasis added).
33. It is necessary to look at the accounting evidence, to consider it in some detail, to come to a conclusion as to whether or not the learned judge has drawn a correct inference.
34. Brenton Ellery, the accountant for the Coppings, wrote a report. We have been provided with Mr Ellery's summary of "Costs of Foreign Currency Loan" for the "Copping Group" which lists in chronological order from October 1984 to December 1986 all of the costs associated with the loan. The costs totalled $1 277 031.75.
35. Nowhere is there a clawback cost. Nowhere is there a cost entered under a different title for $6 864. During April 1985 (in which the AIFC was chasing payment for the clawback) there are only three costs according to Ellery: a guarantee fee of $1 053.77, withholding tax of $4 212.15 and interest of $37 909.34. There are no costs listed for May or June 1985 and the next entry is for July 1985 being interest on $82 864 of $3 505.25.
36. The defendants had their own report, also in evidence. It was written by Marian Micalizzi of Coopers and Lybrand and runs to 22 pages. Paragraph l of the report explains its purpose and scope: to review and respond to an earlier report on the Coppings' ability to service debt written by Edwards Marshall and Co.
37. The Coopers and Lybrand report does not dispute the evidence of the plaintiff's accountant that no clawback was paid. It reviews in detail the capacity of the Coppings to service their debts taking into account the costs involved including establishment fees, the sinking fund, guarantee fees, interest payments, brokerage charges, cash flow, taxes, legal fees, stamp duty, refinancing and living expenses of the Coppings.
38. Appendix A to the report contains a letter from AIFC to the Coppings' company Perball Pty Ltd dated 30 July 1985. The letter refers to "Short Term Loan Facilities" of the Coppings, including a sum of $82 864. It will be noted that this is the same sum upon which the plaintiff's accountant shewed interest payments paid by the Coppings.
39. The sum of $82 864 is explained in five letters relating to the clawback sent by AIFC to Perball Pty Ltd in 1985, one of which is contained in the Coopers and Lybrand report and another which was referred to by the trial Judge. They are not in dispute.
40. The first letter to which I refer is dated 3 April 1985. It quotes the exchange rate for Swiss Francs as 1.8062, advises Perball that at that exchange rate the limit of its loan agreement has been exceeded by A$61 122 and "the excess amount will, for the time being, be applied against the funds held in Managed Investment Bonds, over which we have an assignment. Should the excess amount exceed the amount of the Bonds, it will be necessary for you to place such excess on deposit with us pending an improvement in the exchange rate." The letter asks Perball to "please acknowledge our action on the attached copy letter." George Copping's signature for Perball appears at the foot of the page under a sentence which has been typed in, "We hereby acknowledge the above action." He has dated it 12 April 1985.
41. The second letter from AIFC was written on 15 April 1985. As His Honour noted in his Reasons, it advises the exchange rate for Swiss francs is now 1.7269. The loan agreement is now exceeded by A$106 864. The clawback is raised, "The excess amount exceeds the amount of the Bonds by $6 864 and it will be necessary for you to place such excess on deposit with us pending an improvement in the exchange rate. Please forward $6 864 within seven days to AIFC Ltd." There is an additional point to note: the letter asks Perball to acknowledge the action. At the bottom of the page provision has been made for Mr Copping to sign for Perball under the sentence "We confirm the above action." It is blank: Mr Copping did not sign it.
42. Next is AIFC's letter of 23 April 1985. The exchange rate is now 1.6065, and the limit is exceeded by A$184 947. AIFC writes,
"The excess amount exceeds the amount of the Bonds by
$84 947 and it will be necessary for you to place such
excess on deposit with us pending an improvement in the
exchange rate. Please forward $84 947 (less $6 864 as
requested in our letter of 15 April 1985 but not yet
received) within seven days to AIFC Ltd."
43. Once again AlFC asks Perball to acknowledge the action. They use a different formula of wording at the foot of the page for Mr Copping to sign: "The above action is acknowledged." It is. in vain. George Copping did not sign or date the letter. Once again it is blank.
44. The fourth letter is dated 29 April 1985. AIFC demand payment of A$124 985.75 to their Adelaide office. By far the greatest part of this amount payable is "A$82 864.26 (Loss of Hedge)." The remainder consists of interest of $37 909.34 and another smaller expense of $4 212.15. (On 18 April 1985 AIFC had contacted Copping to convince him to hedge against the deterioration in the exchange rate. The hedge contract was taken out but it failed, exposing the Coppings to the $82 864 loss.
45. Finally, there is the letter from AIFC dated 30 July 1985 which appears in Appendix A to the report of the defendant's accountants. It states:
"We refer to your recent rollover request and on behalf of
Australian International Limited, Vila, confirm that the
rollover has been agreed to on the following terms and
conditions:
1) The rollover will be for a term of 184 days to 31 January
1986.
2) A minimum of $100 000 must be repaid on the Short Term
Loan Facilities of $65 000 and
$82 864 by 31 January 1986.
Please sign and return the duplicate of this letter
as an acknowledgment as an urgent matter."
46. On the second page has been typed in:
"PERBALL PTY. LTD. hereby accepts the above terms and
conditions in consideration of Australian International Ltd,
Vila, agreeing to roll over our Multi Currency loan facility
for a further one hundred and eighty-four days."
47. George Copping's signature appears immediately below.
48. In other words, AIFC agreed to lend Perball the outstanding moneys which were due, the loan being until the end of January 1986.
49. Taking into account all the evidence on this point and bearing in mind the principles stated in Warren v Coombes, I draw the inference that the $6 864 clawback payment was not paid by Perball.
50. In deference to Mr Nicholas' argument that the determination of this question depends on a finding of fact based on the credibility of Mr Copping, I will go further in this analysis.
51. At the trial, George Copping gave some evidence about the clawback in his evidence-in-chief :-
Q. Try and remember when it was that (Irvin) first
talked to you about paying money in.
A. No, I just can't remember the date.
Q. Did you, in fact, pay money in at any stage.
A. Yes, we did pay 6 800 or something in at one
stage."
52. Putting to one side the obvious point that the question, "Did you, in fact, pay money in at any stage?" is a bit imprecise and Mr Copping's answer also imprecise, I suggest that in the light of the other evidence in the trial, the accuracy of Mr Copping's answer that "Yes, we did pay 6 800 or something in at one stage" is glaringly improbable under the test in Devries v Australian National Railways Commission.
53. Although it may not be strictly necessary for me to do so under Devries I should say that the trial Judge's finding that the clawback was paid is "inconsistent with the facts incontrovertibly established by the evidence.
54. I also wish to say something about the other two matters from which Perry J drew inferences. With respect, I do not think the learned Judge was justified in drawing an adverse inference from the failure of George Copping to mention Irvin's representations at the Redbank meeting on 4 August 1984 in his statement for his solicitors. George Copping is a layman. He cannot be expected to know what fact is or is not, as a matter of law, significant. His lay view of the facts should not be used against him: it may be quite different from that of a legal practitioner. One should not give weight to a preliminary statement written out by a layman for his solicitor. Likewise with the letter before action. We do not know how detailed the instructions Messrs Wallace DeGaris and Co had by then taken in a matter which already was long and complicated. Neither matter should have been used against the appellants.
55. There is something else to which the learned Judge refers in another passage, the failure of the Coppings to mention their reliance on Irvin in their Answers to Interrogatories. As the Chief Justice remarked during the hearing, Answers to Interrogatories are drawn as shortly as possible and to include only what is strictly necessary to answer the question asked. The relevant question was not asked of the Coppings in the Interrogatories but no inference adverse to them should be drawn from that.
56. His Honour's finding that George Copping did not rely on Irvin's representations at the Redbank meeting is based on wrong inferences. We may, therefore, set it aside and reach a fresh finding.
57. Having reached these conclusions, I refer to His Honour 's further findings:
"But even if George Copping was misled by what was said by
Irvin about the operation of the sinking fund, the effect of the
statement in the mind of George Copping was corrected by his
perusal of the offer document from AlL dated 28 August 1984. I
have already drawn attention to the clause within that document
in which the foreign exchange risk was explained in terms which
made it plain that there would be a "clawback" if the exchange
rate buffer of $A85,000 was exceeded.
As I have already pointed out, that document was carefully
perused by George Copping, and despite some of his evidence to
the contrary, understood by him.
It seems to me that at the time when the contractual
documents were executed, insofar as they relied, as they clearly
did, on the understanding of George Copping of the transaction,
the plaintiffs were aware that there was a risk, albeit not
rated very highly by Irvin, that the l0% fluctuation could be
exceeded, and that if it was, the plaintiffs would have to pay
the excess of any fluctuation over $85,000.
I reject the evidence of George Copping that he would not
have been party to the taking out of the foreign currency loan
if he had realised that the liability under it might exceed the
sinking fund. Similarly, I reject the evidence of Neville
Copping to much the same effect.
It follows, even assuming (against my finding to the contrary)
reliance in fact at the time in the relevant sense upon what was
said by Irvin on the occasion of his trip to Redbank on 4 August
1984, that reliance did not extend beyong George Copping's perusal
of the letter of offer dated 24 (sic - it was in fact the 28th)
August 1984.
The action with respect to the 4 August 1984 representations
must, insofar as it is based upon negligent mis-statement,
be dismissed."
58. Mr Tilmouth QC for the appellants has argued that the AIL letter should have been considered against the background of the Redbank misrepresentations which continued to operate on the mind of George Copping. I accept that. My view is that George Copping continued to rely on what Irvin had said at the Redbank meeting and that his faith in Irvin's advice outweighed anything which he may have read later.
59. The appellants did rely on Irvin's misrepresentations made at Redbank on 4 August 1984. They succeed on Ground I of their appeal.
60. I should mention briefly that the appellants did not fail altogether before the trial Judge. They were successful in their claim, also based on negligent misrepresentation, over the hedge contract in 1985. I need not go into the facts of it as His Honour's findings are not in dispute: the dispute is only as to contribution between the respondent and the appellant Hanel (originally a third party joined by the respondent) for the consequent damages.
61. The Coppings were awarded nearly $184 000. His Honour ordered that Hanel contribute 25 per cent. All I need say is that Hanel had in a memorandum given to the Coppings held himself as providing:
"... AN ONGOING SERVICE TO ALL CLIENTS IN RESPECT TO:
(A) CURRENCY EXCHANGE MOVEMENTS
(B) FUTURES/HEDGING FACILITIES
(C) MONITORING THE INTEREST RATES OF THE VARIOUS CURRENCIES
AVAILABLE
(D) AND ANY OTHER GENERAL CLIENT QUERIES THAT MAY ARISE FROM
TIME TO TIME."
62. Hanel was present with the Coppings when the hedge contract was discussed. I agree with His Honour that he should have advised the Coppings not to enter into the contract until they all knew more about it. Instead he refused to provide any "service": he refused to give any advice. I consider 25 per cent to be a proper contribution for Hanel to make and I suggest dismissing his appeal.
63. The only other matter at issue is a comparatively small one, concerning interest. The Coppings had to borrow from AIFC money to meet their obligations under the hedge contract and they had to pay interest on the loan. Perry J calculated it at $23 034.62. There is no complaint about the calculation. The appellants' complaint is that the learned Judge did not allow interest on that $23 034.62. (He did on the principal which was $82 864.00.). The appellants argue that interest should have been paid because the $23 034.62 was part of the total amount paid by them to extinguish their liability to the respondent. Perhaps, but I am afraid they are caught by s30c(4) (a) of the Supreme Court Act which says that, "the award of interest upon interest" is not "authorized". Perry J thought there was no foundation for the claim because of s30c. With respect, I agree. This part of the appellants' claim fails.
64. Coming back to the main point, the appellants relied on Irvin's misrepresentations of 4 August 1984, contrary to His Honour's finding.
65. I suggest that the appeal be allowed, the cross appeals be dismissed and the action be remitted to His Honour to assess the appellants' damages.
0
9
0