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),
[1994] SASC 4557
•20 May 1994
COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA PERRY J
CWDS
Tort - negligent misstatement - off-shore loan - Plaintiffs allegedly induced to enter into off-shore loan agreement in Swiss francs by pre-contractual negligent misstatements made by an officer of the defendant merchant bank - held that circumstances in which a financier when approached for a loan owes a duty to dissuade the potential borrower because of a judgment about the borrower's means will necessarily be rare indeed and did not exist in this case - further held that the defendant was not guilty of negligent misstatements with respect to the entry into the contract, and having pointed out the risks, it was under no duty to emphasise them so long as it did not mislead - but held further that the element of proximity and reliance were satisfied with respect to misstatements which led to entry into a separate hedge contract - observations as to the difference between the objective test of proximity and reliance in determining the existence of a duty of care and the subjective test of reliance in the context of causation. Banbury v Bank of Montreal (1918) AC 626; Mehta and Anor v Commonwealth Bank of Australia (1990) Aust Torts Reports 81-046, 68,119; Potts v Westpac Banking Corporation (1993) 1 Qd.R 135; Cornish v Midland Bank plc (1985) 3 All ER 513; San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340; Karrawirra Wines Pty Ltd v State Bank of South Australia (unreported) Matheson J, 25.2.94 (available on SCALE); Fenneyhough and Ors v Westpac Banking Corporation (unreported) Lee J, 18. 11.91; Davkot Pty Ltd and Ors v Custom Credit Corporation Ltd (unreported) Wood J, 27.5.88; Fisher v Commonwealth Bank of Australia (unreported) Beaumont J, 16.5.90; Ralik Pty ltd v Commonwealth Bank of Australia (unreported) Cole J, 14.10.90; Spice v Westpac Banking Corporation (unreported) Foster J, 1.9.89; Beneficial Finance v Karavas (1991) 23 NSWR 256; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84; Foti and Ors v Banque Nationale de Paris (unreported) (1990) 158 LSJS 23; Sutton v Thompson (1987) 73 ALR 233; Gould v Vaggelas (1985) 157 CLR 215 and Chiarabaglio v Westpac (1989) ATFR 40-971, considered.
Contract - off-shore loan agreement - Plaintiffs alleged a collateral contract which involved terms obliging the defendant to monitor and advise during the currency of an off-shore loan - held that the plaintiffs' assertion that there was a collateral agreement represented nothing more than an athletic but unsuccessful attempt to pull together scattered alleged misrepresentations and other matters said to be imPlied in dealings between the parties within the rubric of a contract - the formal detailed loan documents left no room for a collateral contract. Hoyt's Pty Ltd v Spencer
(1919) 27 CLR 133; J.J. Savage and Sons Pty Ltd v Blakney (1971) 119 CLR 435; Heilbut. Symons and Co v Buckleton (1913) AC 30 and Greig and Davis. Law of Contract Law Book Co Ltd (1987) at 497-498, considered.
Misrepresentation - off-shore loan contract - Allegations of actionable innocent misrepresentation - held on the facts that the elements of inducement and materiality necessary to sustain an action for misrepresentation at common law were not satisfied. Misrepresentation Act (1972) s7.
Tort - contributory negligence - Action by the plaintiffs for damages for alleged negligent misstatement leading to entry into a foreign currency loan contract - allegation by the defendant that the plaintiffs were guilty of contributory negligence - held that while it is true that in a general sense a plaintiff must take reasonable care of his or her own interests, it was not unreasonable for the Plaintiffs to put the trust they did in the officers of the defendant with whom they dealt, and with an independent financial adviser with whom they had other dealings - the mere fact that they knowingly assumed the risk when they went into an off-shore loan transaction did not expose the plaintiffs to a finding of contributory negligence. Parkdale v Puxu (1982) 149 CLR 191, considered.
Practice and procedure - trial - Counsel for the defendant invited the trial Judge during the course of closing addresses to have regard to an earlier edition of the Statement of Claim to be found in the Supreme Court file - held that the contents of the file were in no sense before the trial Judge who is obliged to confine himself or herself to the copy documents (representing the final edition of the pleadings) and the oral and written evidence given during the course of the hearing - if a party wishes the Court to take into account the allegations in an earlier edition of the pleading, the proper course is for the party to tender it as an exhibit at the hearing so that the opposing party has an opportunity to give evidence explaining the pleading.
HRNG ADELAIDE, 7-11, 21, 25, 28-30 March, 5-15, 20, 26-28 April 1994 #DATE 20:5:1994
Counsel for plaintiffs: Mr S. Tilmouth QC with him
Mr W. Degaris
Solicitors for plaintiffs: Wallace Degaris and Co
Counsel for defendants
except Galliott P/L: Mr H. Nicholas QC with him
Mr N. Rochow
Solicitors for defendants
except Galliott P/L: Knox and Hargrave
Defendant Galliott P/L,
all third parties: No appearance
ORDER
Judgment in favour of Perball against the defendant in the sum of $183,898.62 inclusive of interest. The claims by the other plaintiffs are dismissed.
JUDGE1 PERRY J The plaintiffs sue for damages with respect to losses alleged to have been suffered by them with respect to two transactions which they entered into with the defendant.
2. The first transaction was the grant in October 1984 of what was called a "loan facility" by the defendant pursuant to which $A850,000 was lent to the plaintiff Perball Pty Ltd ("Perball") in Swiss francs advanced under an off-shore loan agreement between Perball and Australian International Ltd ("AIL"), a wholly-owned subsidiary of the defendant. The second transaction was the entry into a hedge contract, as it was called, between Perball and the defendant in April 1985.
3. The plaintiffs' claim is substantial. As finally quantified, it is in excess of $2.4 million. The defendant disputes its liability to pay any damages, and at the same time advances a claim against the third parties on the footing that if it is in any way liable to the plaintiff, the third parties are liable to indemnify the defendant or contribute towards any amount for which the defendant may be found liable.
4. At the commencement of the trial, the third parties were excused from attendance at the hearing. This was not treated as a default of appearance. They appeared in person but were excused from further attendance. Thereafter, they did not attend at, or participate, in the trial except for a brief appearance by the third party Mr Hanel at the conclusion of addresses. The third party proceedings must also be determined by this judgment. The case ran for some six weeks, and the cross examination of some of the key witnesses extended over several days. Lengthy written and oral submissions were given at the conclusion of the hearing.
5. I have taken account of all of the issues raised in the pleadings and of all of the arguments which have been put on each side. It is not possible in an already long judgment to canvass every point which was taken. It may be assumed that I have rejected the evidence which is inconsistent with the findings of fact which I reach, and that I have accepted the arguments which support the final conclusions to which I come, to the exclusion of arguments to the contrary.
6. As will be seen, at the time of the transactions in question, the defendant was known as AIFC. Later, it became known as ANZ Capital Markets, and later again, ANZ McCaughan Ltd, the name in which it is sued. Throughout these reasons for judgment, I do not trouble to follow the defendant's changes of name. When not describing it as the defendant, I refer to it as AIFC. Background Facts 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.
7. 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.
8. In 1972, the family purchased another property situated a few miles south-east of Lucindale, known as Katani Park1. 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.
9. 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 Victoria2. His interest in Katani Park was bought out by Neville and Layton Copping.
10. 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.
11. 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.
12. 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 Pty Ltd and Tillett Nominees Pty Ltd5.
13. Hanel and Harrap went to Redbank on 13 December 1983 where they met George Copping, Layton and Neville. The meeting took about one and a half hours. I accept the evidence of Harrap that Hanel did most of the talking. Naturally enough, after such a long period of time there are differences in the recollection of those present as to just what was said. After considering the whole of the evidence bearing on that occasion, I am satisfied, however, that certain things were stated by Hanel, and registered on the mind of George Copping and his two sons. The most important of them were:
(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".
14. 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. I think it likely that it was only Neville Copping who appreciated the difference between the sinking fund and the $85,000 buffer, or at least who is able now to recall the difference between the two concepts, and that as it was put to him by Hanel, the $100,000 would be an "extra buffer" which would insulate the borrowers against the effect of currency fluctuations.
15. On the other hand, I do not think that even Neville understood it fully. If there was a fluctuation which exceeded the buffer of $85,000, it would have to be a fluctuation in excess of 10% before any question of calling on the sinking fund could arise, whereas he was adamant that Hanel suggested that 10% would be the maximum movement "either way". Neville's evidence was that Hanel said "that the 10% buffer would cover all fluctuations". His evidence, however, was confused, as elsewhere he described the $100,000 sinking fund as "an extra buffer, and at no stage would the currency exceed the outside (sic) of that amount of money".
16. Although George Copping in particular was pressed in cross examination to agree with the proposition that the Coppings had decided there and then to take out a foreign currency loan in Swiss francs, I think it unlikely that they had made up their minds at that stage to take out such a loan.
17. True it is that in his evidence George Copping said:
"If it was available, we had made a decision to ask for it".
18. But he added:
"But there would be a lot of other things to consider as
well before we took it."
19. The meeting concluded on the footing that Hanel would find out whether a loan was available from AIFC, which was mentioned by Hanel as a possible source of the funds, and that he would come back to them.
20. In early 1984 the Coppings prepared financial information at Hanel's direction. This included the preparation in February 1984 of financial projections as to the farming operations for 1983/84 and 1984/85.
21. The information prepared for Hanel included a list of the liabilities of George Copping, his wife and of the three sons12. This showed the balances owed to various banks, including accrued interest, and the amount owed on the Bennett's accounts and some other borrowings from other sources. The total was $663,904. In addition, he estimated that for Wayne and Neville Copping successfully to carry on their farming operations they would both need an injection of what he described as "carry on finance", in the case of Wayne in an amount in excess of $36,000 and in the case of Neville in excess of $24,000. When those amounts were added to the total indebtedness, an overall total was brought up of approximately $725,000.
22. At about the same time when that list was drawn up by George Copping, the family's accountant, Mr Munro, drew up and forwarded to Hanel documents in the form of profit and loss accounts for the years ending 30 June 1981, 1982 and 1983. These were headed "G.S. Copping and Sons" but there was no business, or at least no partnership, carrying on business under that name. Although Mr Munro was not called, it appears from other evidence that the accounts drawn up in that way were a consolidation of the figures shown in the individual profit and loss accounts of George Copping and his wife, and of the three sons. This showed a one-fifth apportionment between each family member of the net profit for each year. This was misleading. In fact the profit was not distributed in that way, but was earned individually by each family member from his or her own farming operation. Be that as it may, there is no evidence to suggest that the trading profits and the expenses of earning those profits are not correctly disclosed in the document in a consolidated fashion.
23. By about mid-1984, Hanel put forward a formal application for finance in the sum of $750,000 to AIFC, accompanied by summaries of the financial and other background information. The application was duly considered by the corporate loans manager of the Adelaide office of AIFC, the witness Irvin, who prepared a document headed "Precis of Credit Application". That document summarised relevant information concerning the application. Irvin treated the application as one for $850,000 rather than the amount of $750,000, adding to the former figure $100,000 described as "initial contribution to 'sinking fund'". He observed towards the end of the document:
"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."
24. He recommended approval. The document was countersigned by Mr Duncan, the South Australian manager of AIFC.
25. On 3 August 1984, the approval of Mr Pat Hannah, the credit manager of the Melbourne head office of AIFC, was endorsed on the "precis".
26. The approval of the credit committee of AIFC was endorsed on 6 August 198
27. In the meantime, on Saturday 4 August 1984, Irvin visited Redbank and spoke to George Copping and other members of the family. In the precis18 he had foreshadowed that visit in the following terms:
"The partners have recognised the benefits in consolidating
their current debts (with banks in the main) and borrowing
off-shore in Swiss francs, in order to reduce the interest
component. Whilst they are aware of the exchange risks
involved, we will emphasise the dangers during our
forthcoming visit to the south-east when we plan to call on
the Coppings on Saturday, 4 August. At that time we intend
discussing their forward projections and will inspect the
security property."
28. It is statements alleged to have been made by Irvin during his visit to Redbank on 4 August 1984 which constitute the basis of the plaintiffs' case in negligent mis-statement and misrepresentation. I deal with the factual findings as to the Redbank meeting of 4 August 1984 under a separate heading. It is sufficient to note at this stage that at the meeting Irvin gave a further explanation to the Coppings of the nature of the contemplated off-shore loan, in much the same terms as the explanation which had been given by Hanel at his meeting at Redbank on 13 December 1983.
29. Whatever else might have occurred at the meeting, the Coppings made it plain that they wished to proceed with the application for a loan. Following the meeting, Irvin wrote a favourable report.
30. As I have said, the application was formally approved by the credit committee of the defendant in Melbourne two days later. This was followed by a formal offer of a loan, addressed by AIFC to the Coppings dated 21 August 1984. This is a five-page document setting out the proposal in some detail. The amount of the loan is stated as $850,000, for a three year term. The purpose of the loan is expressly stated to discharge the current mortgages and debts of the various members of the Copping family which are itemised, and which, as in the list prepared by George Copping to which I have referred, lead to a total of $725,000. An additional $100,000 of the total loan advance was to be paid into the sinking fund insurance and investment policy, and it is implicit in the figures that the remaining $25,000 would be made up of various fees and expenses.
31. The principal security was to be registered first mortgages over the various titles comprising the farming property at Lucindale, together with a mortgage over Wayne Copping's property in Victoria. Other so-called "securities" were to be a cross deed of covenant (an interlocking guarantee to be given by the members of the Copping family and a company which was to be formed to receive the loan), and an assignment of the insurance investment policy to AIFC.
32. The offer included a stipulation that in addition to the initial deposit of $100,000 in the insurance investment policy, the Coppings were to contribute $40,000 per annum to the issuer of the policy, Aetna Life and Casualty Ltd ("Aetna"), which would form an accumulating sinking fund.
33. The offer referred to the fact that a separate offer of a foreign currency advance would be made by AIL, which would be guaranteed by AIFC.
34. On 31 August 1984, Harrap met George Copping and Neville in Adelaide and took them to Hanel's office where the letter of offer was discussed with Hanel. During the course of the discussion, George Copping made it clear that there was, to use his expression, "no way" that they could pay the $40,000 per annum into the sinking fund. It was finally agreed that, subject to the concurrence of AIFC, the contribution would be cut down to $20,000 per annum21, to be reviewed annually "with the view of increasing to the prescribed amount over the next few years". A marginal note to this effect was endorsed on the offer document which was signed by George and Neville. The acceptance was dated 31 August 1984.
35. In the meantime, AIL wrote to the Coppings by letter of 28 August 1984 with a separate offer of what was described as "a foreign currency advance facility to a new corporate entity to be formed for G.S. Copping and Sons". George Copping said in his evidence in chief that he really did not understand it23. Other evidence suggests that it was not the subject of any discussion by George Copping with anyone else, such as Harrap or Hanel. I am satisfied, however, that George Copping did read the document carefully and understood it.
36. In cross examination, he was asked with respect to the document24:
"Q. Let me bring you over to the next page - half-way down
the page. You see in the left there the words 'foreign
exchange risk'.
A. Yes.
Q. And, no doubt, when you read this letter, before you
signed it, you looked very carefully at what was written
beside that heading, didn't you.
A. I would have read it.
Q. And, I suggest, thought very carefully about it, did you
not.
A. Well, that would be a normal term, I thought about it,
but that's in the terms, isn't it?
Q. Then his Honour can take it that you read with care the
statement beside the heading 'foreign exchange risk'.
A. Yes, to the best of my ability.
Q. And you had no difficulty then in understanding what was
put there, did you.
A. That would be right.
Q. Then at the foot of the page, you see the item 'Costs',
'All legal costs, withholding taxes and other costs', et
cetera.
A. Yes.
Q. And you, no doubt, read that paragraph with care before
signing it, did you not.
A. That would be right.
Q. You had no difficulty understanding to what it was
referring, did you.
A. That's right. That was the first time I knew that was
in it, withholding tax, and that hadn't been considered
before. That was the first time I seen that.
Q. That is the first time you saw that.
A. That I knew about it, yes."
37. His comment about the withholding tax is an indication that he studied the document with some care.
38. He said later that he would not have signed the acceptance of the letter of offer, on behalf of Perball, if he had not been satisfied about its contents.
39. The letter of offer from AIL, although similar in general terms to the letter of offer from AIFC, differed in some important respects from the AIFC offer. The letter offers what is described as a "multi-currency loan available to be drawn in major Euro currencies" to an amount equivalent to $A850,000. The term offered was the same as that offered by AIFC, that is to say, three years. The letter of offer did not detail a security, but simply referred to the fact that security was to be taken in the name of AIFC which would, in turn, guarantee AIL. The letter included an important statement as to the foreign exchange risk. It reads as follows:
"Any foreign exchange risk is to be borne by the Borrower.
The facility will include an exchange rate buffer of
$A85,000 within which the $A equivalent of the amount
outstanding can fluctuate. Any excess over 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."
40. George Copping was specifically cross examined as to that statement:
"Q. ... looking again at exhibit P74, that is that letter
of offer that I showed you a moment ago, if you would turn
to the second page, again, the matter relating to forward
exchange risks. You have told us that your recollection is
that Irvin didn't say anything to you on that subject matter
on 4 August, as I understand what you say.
A. He mentioned about the buffer of $85,000.
Q. But just so that I understand your evidence, you would
say that he didn't say anything about excess.
A. No. I can't recall any of the other, only about the
$85,000, 10% buffer.
Q. May we take it, then, that when you read before you
signed this document the words beginning 'any excess above
this limit' and so on, do you see that.
A. Yes.
Q. That was the first time that that matter was drawn to
your attention. Would that be right.
A. I think Hanel may have mentioned something along that
line at one stage.
Q. Hanel may have.
A. Yes.
Q. May I take it, then, that when you read this letter of
offer, and when you read these words here which include the
passage 'any excess above this limit' and so on, you see the
rest of the sentence there.
A. Yes.
Q. Then it was a matter which Hanel had spoken to you
about, correct.
A. He had mentioned it in his talks with us, I think, yes.
Q. So when you came to read these words for the first time
in this letter of offer, they didn't come to you as a new
matter, did they.
A. They came to me as a bit of a shock, yes.
Q. They came to you as a bit of a shock.
A. Yes. Well, when you sort of see it in writing it always
looks different.
Q. I see. Because that is when it gets fair dinkum,
doesn't it, right.
A. Well, it is fair dinkum when you put your signature to
something like that.
Q. So you got a bit of a shock when you saw it in writing
and that made you, of course, look at it with extra care, I
take it, before you signed it.
A. Yes, and other things in there too."
41. Having read the letter carefully, as he said in his evidence, George Copping, together with his wife, both signed an acceptance of the offer, dating the acceptance 17 September 1984, and returned it to AIFC.
42. It is important to note that the letter of offer from AIL did not operate in substitution for the previous letter of offer from AIFC. The two operated in parallel, for reasons which will become clear when I address the formal loan documents. On 19 September 1984, Perball Pty Ltd was incorporated as the vehicle to receive the loan. The individual plaintiffs, excluding Wayne Copping, were the shareholders, and the directors were George and Faye Copping. All that remained was for the formal loan documentation to be executed.
43. Those documents were signed at the ANZ Bank, Lucindale on Sunday 28 October 198428. A Mr Smith, the bank manager, was present with Harrap, who had brought the documents from Adelaide, together with George Copping, his wife and their three sons.
44. The documents, of course, included not only the loan documentation but the mortgages. By then, the idea that Wayne Copping was to give a mortgage of the Victorian property appears to have been dropped. The mortgages were limited to the land at Lucindale.
45. 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. Drawdown took place on 31 October 1984. The full amount, namely, the Swiss francs equivalent of $A850,000 was advanced. The application of the moneys was in accordance with what had previously been agreed. The first rollover was due 181 days thereafter, on 30 April 1985.
46. It was not long before the Coppings needed further finance. In about December 1984, they needed money to pay for shearing expenses. George Copping spoke with Irvin of AIFC. AIFC responded favourably. By letter of 6 December 1984 addressed to Perball, AIFC offered an additional $100,000 as a Short Term Loan to 30 November 1985. The advance was to be an on-shore loan in Australian dollars rather than Swiss francs, and was not initially associated with AIL, although the intention was to take the additional loan "off-shore" at the forthcoming rollover date35 making it an extension of the existing loan.
47. Through George Copping, Perball accepted the letter of offer. A supplementary loan agreement was executed by Perball and AIFC on 4 January 1985. On 22 March 1985, $35,000 was paid off the $100,000 supplementary loan, leaving a balance of $65,000. 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.
48. 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".
49. 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 at 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."
50. 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 $2,130 as a clawback to be paid in cash.
51. By 3 April 1985 the situation had worsened dramatically. By a letter to Perball of that date, AIFC advised as follows:
"The current A$ 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 at 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."
52. 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.
53. 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 $1,035,000.
54. At this time, however, the fall of the Australian dollar against the Swiss franc was so sustained and so steep that it was not long before that limit was exceeded.
55. By letter of 15 April 1985, AIFC advised Perball as follows:
"As at today, the exchange rate for Swiss Francs is 1.7269
and the A$ equivalent of your foreign currency borrowings is
therefore calculated as follows:-
CHF 1,799,195 at 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."
56. 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 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.
57. 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.
58. 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.
59. 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.
60. 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.
61. 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.
62. 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.
63. 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
$155,122.61
64. In order to repay that amount, Perball raised a loan with ANZ Bank by commercial bills.
65. I should say that throughout 1985, in a developing crescendo, AIFC had pressured the plaintiffs to bring the loan on-shore. That pressure continued into 1986 and came to a head in July 1986. By letter of 3 July 1986, the defendant wrote to Perball confirming advice which had been telephoned by Duncan to George Copping of what was described in the letter as "the current drastic fall in the A$ 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.
66. 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 : $A1 for two consecutive days. A form of irrevocable authority, unexecuted, was tendered in evidence. The plaintiffs did not execute it, and continued to resist the suggestion that they come on-shore.
67. At this stage, Duncan was in fairly close touch by telephone with George Copping. He eventually secured instructions to bring the loan on-shore. That he had received instructions to that effect was confirmed in a letter dated 24 July 1986 from the defendant to Perball. That letter reads as follows:
"Following your instructions by telephone today I am pleased
to confirm that on your behalf we have taken out an official
forward contract to convert your Swiss Franc loan into A$ 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."
68. 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.
69. 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.
70. 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.
71. 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.
72. 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.
73. 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.
74. 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. Documentation relating to the Transaction As I have said, the Coppings and Perball executed the formal documents evidencing the transaction on 28 October 1984. The documents were all dated 31 October 1984 which presumably is the date inserted on execution by AIFC and AIL.
75. The relevant documents are: (A.) Loan Agreement between Perball and AIFC53 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.
76. 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".
77. 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).
78. 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.
79. 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).
80. 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%."
81. 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.
FINDINGS AS TO CREDIT
82. So far I have referred to facts and matters which are largely non-contentious. I come now to deal with events which were, in large measure, at issue during the hearing. It is, therefore, convenient at this stage to make some observations as to matters of credit.
83. Evidence was given at the trial by George, Layton and Neville Copping, but not by Wayne or Faye.
84. The defendant criticised the plaintiffs' failure to call those two members of the family. However, it is clear from the evidence that the relevant dealings were largely conducted through George Copping. 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.
85. The evidence of all of the members of the family, and for that matter, the witnesses called by the defendant with respect to the negotiations leading up to the loan, suffered by reason of the long lapse of time between the relevant events which occurred between 1983 and 1986 and the time of the trial.
86. 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.
87. The recollections of Neville and Layton were fragmentary, and their answers to interrogatories to which I refer in due course tended to erode confidence in their evidence generally.
88. Harrap, who was called by the plaintiffs, did not impress me as a witness. He clearly attempted to distance himself from any involvement in the preliminaries to the making of the loans, and to disassociate himself from anything said or done by Hanel. He went to extraordinary lengths to suggest that certain diary notes which he made might have had to do with transactions other than the one in question, when clearly they did not. I do not accept his evidence on any critical feature of the case unless supported by others, or unless it is intrinsically likely.
89. 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.
90. 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.
91. It will be seen that I have rejected the evidence of Irvin and Duncan on the critical issues.
92. Certain expert witnesses were called, including a Mr Butler for the plaintiffs and a Professor Valentine for the defendant, both of whom had impressive qualifications in the area of commerce and finance, and particularly off-shore loans. Accountants were also called, Mr Ellery for the plaintiffs and Ms Micalizzi for the defendant. I accept the qualifications of all of the expert witnesses, and accept them as witnesses of truth. Where I have accepted the evidence of one expert witness over that of another, that decision simply results from a critical appraisal of their evidence in the context of the evidence as a whole.
93. I accept that the other two witnesses called, persons who had had dealings with the defendant, namely, a Mr Manuel and a Mr Smart, were witnesses of truth. The Redbank meeting of 4 August 1984 The allegations as to statements attributed to Irvin on the occasion of his visit to Redbank on Saturday 4 August 1984 are central to the plaintiffs' case. The plaintiffs allege that the statements constituted negligent mis- statements, breach of a collateral contract and misrepresentations actionable under s.7 of the Misrepresentation Act.
94. The relevant factual allegations in the Statement of Claim as to the statements in question are as follows:
"7.1 On or about the 4th August, 1984 at Redbank Irvin held
discussions with George Copping, Faye Copping, Layton
Copping and Neville Copping (Neville Copping joined the
meeting at a later stage) concerning the provision of a
foreign currency loan from the Defendant. On the day of
this visit Irvin visited a number of farmers in the area who
were seeking foreign currency loans.
7.2 In the course of these discussions Irvin stated and
represented to the aforesaid Plaintiffs with respect to
foreign currency loans to the effect that:- 7.2.1 there was
a down side to foreign currency loans but any down side
movement in the exchange rate would not be great;
7.2.2 if there was any down-side movement in the exchange
rate the Defendant would bring such loan back on-shore until
the exchange rate had settled down;
7.2.3 if brought back on shore the loan could be taken back
offshore when the exchange rate settled;
7.2.4 the Defendant was monitoring the exchange rate on an
hourly basis and therefore the Defendant could move a loan
off and on shore without embarrassment or delay;
7.2.5 a sinking fund was to be security against exchange
rate fluctuations and should offset any adverse movements in
the exchange rate and be available to repay or substantially
reduce the principal sum of any loan;
7.2.6 Irvin illustrated with two graphs (which the
Plaintiffs cannot now accurately describe) that there was
little movement in the exchange rate from what he described
as the median line. He said all movement was within a 10%
variation and the sinking fund should take care of the
movement. Irvin also said he would be surprised if there
was more than a 20% movement in the exchange rates, such
movement being within 10% above or below the median line.
Irvin further said this has happened in the past but is not
expected to happen in the future;
7.2.7 that the CHF was a stable currency and the most
appropriate to the Plaintiffs' need.
7.2.8 the loan would be able to continue indefinitely ie 3
years with a right to roll several times."
95. All those present at the meeting in question, that is to say, George Copping and his two sons, Layton and Neville, together with Harrap and Irvin, were called as witnesses at the trial. Their evidence must be scrutinised carefully in the process of making findings of fact as to the plaintiffs' allegations. Both parties point as well to other items of evidence, such as answers to interrogatories and material circulating within the defendant's office in support of the contentions which they raised as to this aspect of the case.
96. The long lapse of time since the meeting took place had an adverse effect on the ability of the witnesses to recollect what was said. There are other matters which I come to in due course which prompt me to approach the assessment of that evidence with a good deal of circumspection. It is common ground that Irvin was accompanied by Harrap when he came to the property on the morning in question. I am satisfied that at the time they arrived George and Layton Copping were at home but that Neville was yet to arrive. Mrs Copping was also present but she took no part in the discussions, and seems to have been occupied in making and serving tea and doing other things. She was not called and no criticism was levelled at the failure to call her with respect to the content of the conversations with Irvin.
97. Although there are some discrepancies in the evidence, I am satisfied that immediately following his arrival, Irvin drove off for a tour of the property with George and Layton Copping. This took about ten minutes. The conditions were too wet for them to cover all of the areas which they might otherwise have covered. On the road, they passed Neville who was on his way to the house. Neville stood talking to Harrap while waiting for the others to return.
98. When the others returned, the whole party stood for a little while on the veranda and then moved into the dining room where there was further discussion.
99. Irvin and Harrap stayed for about an hour in all. The relevant statements were made by Irvin during the course of the discussion which took place, both on the veranda and in the dining room. I do not pause to distinguish between what was said at each location.
100. George Copping said in his evidence in chief that he asked Irvin how the foreign currency rate worked, and said that he (George Copping) "didn't understand it". He went on to say in evidence that Irvin responded by saying: "That the foreign currency exchange rate with the Swiss franc and the Australian dollar was the most stable, and he said that it could rise and fall but it would not rise or fall any more than 10%, and if it did fluctuate that the $100,000 sinking fund would be there to take care of the fluctuations. He also told me that the past history of the Swiss franc had shown that it would not fluctuate more than the 10% because it had been stable for so long. He also talked a bit about the land, but I must admit it wasn't very much different from what Kerry Hanel told me previously.... He said it was top land and good security."58 Later in his evidence, during the course of cross examination, George Copping said that Irvin had said to him:
"He said that the rate had been very stable for a long time
and the variation hadn't been very great. The fluctuations
hadn't been very great. He said that you could lose money
and that you could make money, and he also referred to 10%,
but it hadn't varied very much over a long period and there
wasn't very much fear of it fluctuating more than 10% at the
most......"
101. He described what I have just quoted as "the main points" made by Irvin. Later60, he said that the substance of what both Hanel and Irvin had told him was "very similar". Elsewhere he said:
"Q. From your point of view, would you have been prepared
to enter into a foreign currency loan if you had understood
that the cost might be equivalent to a domestic loan of the
same amount?
A. No way.
Q. Had you been told that the liability on the foreign
currency loan might exceed the amount of money in the
sinking fund, would you have entered into such a loan?
A. No, we wouldn't have taken it on."
102. As to Layton Copping, he said that he had asked Irvin if the interest rate had remained steady or stable, and the answer was that it had remained stable at about 8%. His evidence was that Irvin went on to say:
"... that the Swiss franc had been the most stable of the
foreign currencies, which by that time, he said, was the
best currency for us to be looking at."
103. He said that his father asked questions about the exchange rate, about the interest rate and the sinking fund. His recollection was that Irvin said that the Swiss franc was:
"... stable and would not fluctuate more than the sinking
fund."
104. Neville Copping remembered that Irvin explained the sinking fund. His evidence was that Irvin:
"... said that there would have to be a sinking fund. He
also said that the fluctuation wouldn't exceed 10% either
side of the loan, and he indicated that seeing we had good
security it was possibly something that we could use."
105. In cross examination, Neville Copping said that Irvin:
"... stated the way that the buffer worked. He stated that
a 10% buffer should be quite ample to cover any fluctuations
with the Swiss franc. That is the basis of what he said."
106. Although surprisingly, neither George Copping nor his two sons referred to the use of a graph by Irvin, Harrap in his evidence stated that Irvin had several graphs with him. Part of his evidence was:
"A. Mr Irvin told the Coppings that this was a new facility
that had become available to selected people, and as I
indicated, that meant that their financial position had to
be such to qualify. Mr Irvin also pointed out the problems
associated with offshore loans.
Q. Let's deal with that issue. What did he say the
problems were with offshore loans.
A. The problems as mentioned by Mr Irvin was that there is
a downside and an upside to offshore currencies.
Q. What did he say the downside was.
A. He said the exchange rate could move against the
borrower.
Q. Did he describe how it could move against the borrower.
A. He described, using the graphs, that there is a possible
movement against the borrowing which could cause the loan to
be brought back onshore, but also mentioned that that should
not be a problem because of the sinking fund, plus the
anticipated growth due to inflation on the property.
Q. You have mentioned downside and you mentioned upside as
well. What did he say about the upside.
A. He was just as eager to point out.
OBJECTION Mr Nicholas objects
XN Q. He talked of the upside on the topic of the loan,
what did he say was the upside of foreign currency
borrowing.
A. He said that there is an upside to offshore borrowings
and they can work to the advantage of the borrower, in as
much that if the exchange rate improved in favour of the
borrower, they could come back onshore, take the profit and
reduce their debt, with the understanding that they could go
back offshore if and when it suited them.
Q. In relative terms, how long did he talk about and
explain the downside of these loans as compared with the
upside.
A. Probably the same amount of time.
Q. You have mentioned about the downside and the upside,
what other topics concerning the loan were mentioned by Mr
Irvin.
A. The sinking fund was very much a talking point. ...
He said that the sinking fund was an agreement between the
bank and Hanel in every loan application that should come
forward because it was looked upon as the source of repaying
the debt some time in the future.
...
Q. What did he say about the time of the loan itself. You
have mentioned three years and some other period, can you
just be precise about what Mr Irvin said about it.
A. There was no definite time for that loan to be repaid
back."
107. He said further that Irvin had said that there were two ways of funding the sinking fund: one by way of payment of what he described as a "single up-front fee", or by making contributions on an annual basis "from some of the savings from the lower interest payment that were required to meet the loan". Harrap continued:
"A ... he said that if the exchange rate, pointing to the
graphs, and showing the area of which there was a 10% above
and 10% below the medium, where the exchange rate hadn't
varied through that area over the last two years, but he
said that it there should be a change, if it should be a
downside then the Coppings would be expected to come back
onshore, vice versa, likewise on the upside. Now, he also
said that the bank monitor these movements and would be in a
position to move quickly to bring the client onshore if
things looked as though they were a problem."
108. Irvin's evidence was very different. I have previously referred to the precis of the loan application which he had prepared. He said that he took a copy of the precis with him to the meeting, but denied that he brought any graphs. I prefer the evidence of Harrap in that respect, despite the absence of a reference to the graphs by George Copping and his two sons.
109. Harrap's evidence was that Irvin had also with him a document which it appeared likely had been prepared by Hanel and which set out general details of what were described as "off-shore loan facilities". The document referred to various aspects of the type of facility in question, including the establishment of a sinking fund, and an example of how money might be saved by use of an off-shore loan.
110. A document said to be similar was tendered in evidence, but there are internal reasons in the particular document tendered in evidence suggesting that it is unlikely to have been in existence at the time, in particular, a reference within the document to current rates of interest as at 8.8.84. But there is no doubt that there were other "editions" of that document, including one which was produced by way of discovery by the plaintiffs, although said by George Copping not to have been in his possession until after the Redbank meeting of 4 August.
111. I think, on the balance of probabilities, that there was some other document prepared by Hanel answering the general description of the documents put into evidence, but the precise content cannot now be ascertained as both of the two versions put into evidence have quite significant differences.
112. Be that as it may, Irvin in his evidence admitted that he discussed the proposed loan with the Coppings, and in particular George Copping. By reference to his precis which he was allowed to refer to during his evidence, he gave an account of what was said which was closely tied to that document. I am satisfied that he was tying himself to the precis because it suited him to do so, and because it was a safe way of giving his evidence which avoided any semblance of agreement with the critical aspects of the plaintiffs' case. In effect, he was simply giving evidence in chief by summarising that document instead of stating his recollection of his discussions with the Coppings.
113. Of course, it might have been a proper and accurate way of saying what had occurred with the Coppings if in fact he had tied himself to his precis when he saw them. But I am satisfied from the other evidence of what took place that he did not do so. His evidence as to what he explained as to the loan was:
"A. I explained to George that it was proposed that a
facility, Australian dollar facility, for $850,000 was being
submitted for approval. It was a three year facility to
expire in 1987. I also explained that if the facility was
to be transferred offshore and drawn down in a foreign
currency, a buffer would be provided which was equivalent to
10 per cent of the Australian dollar loan amount. That
buffer was to provide a facility to take care of minor
fluctuations in the exchange rate applicable to the foreign
currency advance between rollovers. it took care of the day
to day variations in the exchange rate, and it then was not
necessary for us to have to go back to George every time the
exchange rate moved adversely as fluctuations took place.
In the event that the buffer was exceeded with the exchange
rate moving greater than 10 per cent away from the original
draw down rate, then our documents would include a provision
for a claw back to be made, that is that as lenders, AIFC
would be advising George of the movement and that we would
be requesting a contribution equivalent to the Australian
dollar equivalent above the buffer. That surplus, any
surplus, we would require a cash contribution which would be
placed on deposit and held on deposit until such times as
either the exchange rate moved back in George's favour, or
otherwise it would be held there until the next roll-over
date when those funds would be utilised to reduce the loan
to the original limits.
...
A. We went on to cover the purpose of the loan and that was
to pay out the existing loan facilities, that various
members of the Copping family had with other lending and
other commercial institutions and that, $100,000 from the
loan funds was to be placed in a sinking fund, an insurance
policy arrangement which gave, providing the interest was
retained in the policy for 10 years, that interest was tax
free.
Q. Was anything further said by way of reference to the
sinking fund, in relation to its purpose or its use or
matters of that sort. Said by you I mean.
A. There wasn't a great deal of discussion in relation to
the sinking fund."
114. With further reference to the sinking fund, Irvin's evidence was:
"A. I said that I thought it was a worthwhile idea to have
such a fund in operation where funds, where monies that were
saved in interest, by borrowing offshore against borrowing
at the much higher rates onshore, at the time, that some of
those funds saved could be placed and utilized in due course
to repay the debt."
115. He went on as to the risk of the transaction to say that he had:
"A. ... informed George that it was, borrowing offshore,
was a considerably riskier business in that, the borrower
never knew, could not tell from day to day, what the extent
of their exposure would be under the loan arrangements."
...
A. The offshore rates were very volatile, could be
volatile and whilst there was the potential for some upward
movement in the rate, which could result in the borrower
making a capital gain on the facility, the concern of AIFC
was that the rates could reduce considerably and leave the
borrower owing a great deal more than they originally
borrowed."
116. Both the plaintiffs and the defendant contended that the evidence given on each side as to the 4 August discussion at Redbank was a reconstruction, or worse, a concoction. The defendant emphasised that none of the plaintiffs had kept any records or notes of the events in 1983 or 1984, including the discussions in question. The defendant made much of discrepancies between answers to interrogatories given by certain of the plaintiffs.
117. Some explanation is needed of the manner in which the interrogatories were administered and answered.
118. The defendant (together with Australia and New Zealand Banking Group Ltd which was then a second defendant) administered a lengthy set of interrogatories for answer by "the Coppings" which was defined in the interrogatories to mean George, Faye, Layton, Neville and Wayne Copping "individually and collectively" (Court file document No 43). The interrogatories, inter alia, invited the plaintiffs to look at various paragraphs of the further amended statement of Claim, and amongst other things, to give what were defined as "the usual particulars" of the various conversations referred to in certain paragraphs of that edition of the statement of claim. In the various questions embodied in the interrogatories, of which there were some 85, there is no distinction made between the individual members of the Copping family.
119. The plaintiffs filed one set of answers to the interrogatories (Court file document No 108). Consistently throughout the answers they use the collective expression "the Coppings" to describe their collective awareness as to various matters.
120. The answers to interrogatories directed to elicit the content of statements made by Irvin on 4 August 1984 at Redbank become, at least in part, divided between responses attributed to each of the Coppings who were present. Given the nature of their oral evidence, the answers made by Neville and Layton Copping are, to say the least, surprising.
121. Neville's answer was:
"6.2 As to the plaintiff Neville Copping, he understood the
substance of the conversation to be as follows: I can't
recall Mr Irvin saying anything about foreign currency
loans. Mr Irvin asked questions about horses and showing
them. I was late for the meeting (about 15 minutes late)
and passed George and Layton and Mr Irvin near the old
church. I recall asking him if he played basketball."
122. Layton Copping's answer was as follows:
"6.3 As to the plaintiff Layton Copping, he understood the
substance of the conversation to be as follows: I cannot
remember much being said about foreign currency loans. It
seemed to be more of a social visit and rushed visit then to
assess the bank's security. We asked Mr Irvin a few
questions but not much was discussed. A little bit was most
likely discussed about the loans, but mostly the
conversation was about social things i.e. history of the
farm. I can't recall any of the conversation about foreign
currency loans. Mr Irvin may have asked us if there was
anything we wanted to know. On the veranda we might have
asked him what the exchange rate was doing. I cannot recall
his response. I didn't really understand what it meant when
exchange rates were quoted."
123. Answers to interrogatories were given by the individual members of the Copping family who were present and took part in the discussion with Hanel on 13 December 1983. The content of the answers to the interrogatories as to that meeting indicate that Hanel had canvassed the same topics in much the same terms as was asserted in the witness box to have been the case with Irvin at the later meeting.
124. Apart from the answers to interrogatories, George Copping gave a statement to his solicitors in the course of instructing them. A statement by a client to a solicitor for the purpose of instructing him in the matter would normally be privileged. This statement, however, came to light due to a combination of circumstances which I dealt with during the course of the trial when I made a ruling that any privilege had been lost.
125. As to that statement, George Copping's evidence was that the version he had given to the solicitors was handwritten and they must have typed it up, but he did not deny that it was his statement. In fact his evidence was:
"I just sat down one evening and wrote that off the top of
my head without any referring to any documents, figures or
anything. It was just what I thought about at the time to
get it started."
126. Although the statement was undated, it seems likely to have been written out by George Copping late in 1989, which is when his solicitors were first instructed in the matter. Other evidence suggests that Neville Copping had a hand in the preparation of the statement81. I am satisfied that George Copping was well aware of the importance of the statement, and endeavoured to give an accurate account to the solicitor of the salient features of the case as he understood it at that stage, which, of course, was much closer to the events than at the time of the trial before me.
127. For present purposes, the significant feature of the statement is that it contains no reference whatever to the representations now alleged to have been made by Irvin on 4 August 1984 at Redbank. The statement deals extensively with remarks attributed to Hanel, and the various actions taken by him, and to the events of 18 April 1985 leading to the taking out of the hedge contract.
128. The conclusion to be drawn is that George Copping did not think to raise with the solicitors anything concerning the meeting with Irvin of 4 August 1984.
129. The explanations by Neville and Layton Copping as to the lack of correspondence between their answers to interrogatories and their oral evidence were inherently improbable and leave me in a position where I am unable to accept their evidence as to the critical issues.
130. In this context regard should also be had to the letter before action written by the plaintiffs' solicitors to the defendant dated 9 November 1989. That letter, after briefly referring to the introduction of the plaintiffs to AIFC for the purposes of securing a foreign currency loan, turns to the immediate history at and following the execution of the loan documents, and to the history of the loan thereafter until it was paid out. The letter nowhere refers to anything in the nature of alleged conversation at Redbank on 4 August 1984. The letter seems to focus on a general allegation of a failure to advise adequately of the risks of the transaction, a failure to manage the loan after drawdown, and a lack of opportunity for the plaintiffs to obtain independent advice.
131. The defendant also attempted to rely upon an earlier version of the statement of claim, that is, earlier than that version upon which the matter went to trial. I ruled that the first reference to the earlier statement of claim having occurred during the course of final addresses, I was not at liberty to look at it. This provoked the submission that the whole of the Court file was always before the trial Judge. When I pointed out that this would mean that the trial Judge could read, and presumably take account of affidavits and other material which could be quite prejudicial, it was then suggested that at least earlier versions of the pleadings could be perused by the trial Judge without them being tendered in evidence. I ruled against that submission.
132. It is not uncommon for counsel to think that the trial Judge has before him the Court file, and it is, therefore, not inopportune to state the legal position.
133. The trial Judge commences a trial with the copy documents, that is, the copy pleadings in their final form. Except by consent, he or she is not entitled to have regard to anything else except oral and written evidence which is adduced during the course of the trial. The trial Judge is not at liberty to peruse the Court file for the purpose of using any of its contents in an evidentiary sense. Occasionally it may be necessary to have regard to the Court file to determine some point as to the history of the action, should that become material. The documents which are perused, and the use made of them, must then clearly be pointed out to counsel.
134. However, insofar as earlier editions of the pleadings are to be held against a party, they should be adduced in evidence during the course of the trial, and not during the course of final addresses. To adduce them in evidence during the course of the trial has the consequence that the opposing party then has the opportunity to give whatever explanation by way of evidence may be necessary in order to answer any inference that his or her opponent seeks to draw.
loss or damage if the representee does not in fact rely on
the representation, as in that case, the negligent
mis-statement cannot be regarded as a cause of the loss or
damage; Sutton v Thompson (1987) 73 ALR 233 at 240; Gould v
Vaggelas (1985) 157 CLR 215. Although the former case
concerned an action under s.52 of the Trade Practices Act
1974 (Commonwealth) and the latter an action at common law
in deceit, the principle is equally of application to
negligent mis-statements.
203. During the course of argument I was referred to a considerable number of authorities in which the general principles to which I have referred have been applied in the context of claims for damages arising out of losses incurred in transactions involving an off-shore loan. No useful purpose would be served by canvassing those authorities at length. (See, for example, Karrawirra Wines Pty Ltd v State Bank of South Australia, Supreme Court of South Australia (Matheson J, 25 February 1994, unreported, available on SCALE), Fenneyhough and Ors v Westpac Banking Corporation, Federal Court of Australia (Lee J, 18 November 1991, unreported), Davkot Pty Ltd and Ors v Custom Credit Corporation Ltd and Ors, Supreme Court of New South Wales (Wood J, 27 May 1988, unreported), Fisher v Commonwealth Bank of Australia, Federal Court of Australia (Beaumont J, 16 May 1990, unreported), Ralik Pty Ltd v Commonwealth Bank of Australia, Supreme Court of New South Wales (Cole J, 14 October 1990, unreported), Spice v Westpac Banking Corporation, Federal Court of Australia (Foster J, 1 September 1989, unreported), Beneficial Finance v Karavas (1991) 23 NSWR 256, David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84, Chiarabaglio v Westpac (1989) ATPR 40-921.)
204. As to the suggestion that a lender must be taken to have assumed the responsibility of a manager of the off-shore loan, such an undertaking should not be lightly imputed to a bank: see Foti and Ors v Banque Nationale de Paris (unreported) (1990) 158 LSJS 23 per White J at 31:
"Mr Conti submitted that there was no evidence which could
support an inference that the bank had donned, as it were,
the mantle of manager ..... The undertaking of monitoring
and management of an off-shore loan is onerous and fraught
with danger. The economic loss can be huge. These awesome
responsibilities were said ought not to be lightly imputed
to a bank which is at arm's length with its customer in an
ordinary lender/borrower situation. I agree with that
submission. The evidence must be clear before the bank is
"saddled" with this burden of responsibility."
205. As in Foti, the plaintiffs in this case assert a combination of careless representations before the contract was entered into and careless management and negligent advice after the loans had been taken up.
206. Before proceeding to deal with the question whether the facts support findings of either negligent representations or a negligent failure to give subsequent advice and management, I should deal with one particular aspect of the matter.
207. Perball was not incorporated until 19 September 1984, which was after the alleged representations were made on 4 August 1984. However, as no point has been taken by the defendant as to the ability of Perball to maintain an action based upon the alleged representations, I do no more than refer to the authority relied upon by Mr Tilmouth in that respect, namely, Wild v National Bank of New Zealand Ltd (1991) 2 NZLR 454. Also, I do not pause to address the question of liability for statements of opinion as to future events. The defendant pleaded that the alleged representations "were not capable of being the subject of reliance by the plaintiffs", being "promissory in nature as to future events" (Defence paragraph 9.1(6)). I am not sure that the difficulty in suing at common law on an innocent misrepresentation as to future events applies to a careless prognostication as to the future in the context of a negligent mis-statement. 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.
208. The gravamen of the arguments advanced by the defendant with respect to the representations of 4 August 1984 was that they were not as a matter of fact made; or if they were, they were not actionable as the occasion did not give rise to any duty of care on Irvin's part; or if it did, the duty was discharged.
209. 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.
210. In my opinion, the circumstances gave rise to a duty of care on Irvin's part.
211. 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.
212. 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).
213. Those circumstances gave rise to a duty of care. The fact that the defendant had a pecuniary interest in the transaction goes to support that conclusion: see San Sebastian Pty Ltd (supra) at 358.
214. However, the question of reliance takes on a different colour when looked at from the point of view of the Coppings.
215. 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.
216. 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.
217. 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.
218. 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 (see point 7, supra). The case illustrates the point that whereas the elements of proximity and reliance, for the purposes of determining the existence of a duty of care, are viewed objectively, when it comes to the question whether any loss is recoverable, there must be, in the subjective sense, reliance in fact. Even if I was to be wrong in that conclusion, and there was, initially, reliance in fact on what Irvin said, for reasons which I will come to, that reliance no longer existed at the time of the execution of the formal loan documents.
219. Before explaining those reasons, it is necessary to refer to the findings I have made as to the various statements by Irvin, with a view to determining whether they should properly be characterised as mis-statements. Having regard to my findings of fact, I am not satisfied that an assertion that the Swiss franc had been stable, accompanied by an illustration of its stability on the graphs, was a mis-statement. It was nothing more than a true account of the historical position of the Swiss franc at that time. The advice that it was the best currency for the Coppings to adopt for the proposed off-shore loan has not been shown to be bad advice.
220. What must be borne constantly in mind is that the statements made on that occasion should not be viewed unrealistically with the benefit of hindsight. Insofar as the plaintiffs seem to have advanced their case on the footing that if a statement if proved, and if it is not borne out by future events, it is ipso facto a negligent mis-statement, such an approach is clearly wrong.
221. The statement that the Swiss franc against the Australian dollar was unlikely to move outside 10% either way, but if it did that the sinking fund should be sufficient to absorb any overrun, creates greater difficulties.
222. The assertion as to the likely degree of movement of the Swiss franc, taken without reference to the sinking fund, was not a breach of the duty of care.
223. True it is that relatively soon thereafter the movement exceeded 10%. But one must look at the position as it appeared in August 1984. Professor Valentine, gave the following evidence:
"Q. I just want to ask you one other matter. I want to put
a matter which occurs at p.478 of the transcript. I want to
put this to you as at 4 August 1984. You understand the
situation as it was then. If it was said then 'That the
exchange rate, as between the Swiss franc and the Australian
dollar had been very stable for a long time and the
variation hadn't been very great, the fluctuations hadn't
been very great' would such a statement accord with your
observations as at that time.
A. It was an accurate statement as at that time.
Q. If it was said that 'In relation to a foreign currency
borrowing at that time, you could lose money and you could
make money' would you agree with that as an accurate
statement.
A. Yes.
Q. And that, with reference to the figure of 10%, in
relation to fluctuations either above or below the median
line, do you follow.
A. Yes.
Q. If it was said that 'The rate hadn't varied very much
over a long period' would you agree with that as an accurate
observation.
A. Yes.
Q. And continuing on 'and there wasn't very much fear of it
fluctuating more than 10% at the most' would you agree with
that as an accurate statement.
A. Yes.
Q. As at that time.
A. Yes."
224. Although cross examined about that passage of evidence, he adhered to it even if it applied to a fluctuation of more than 10% over three years. Indeed, he amplified the statement in this way during the course of cross examination:
"Q, If you look at the suggestion or the statement for this
purpose 'There wasn't much fear of it fluctuating more than
10% at the most', would you adhere to your evidence in
relation to that, if that had to be read in the context of
this 'There wasn't very much fear of it fluctuating more
than 10%, at the most, for the next three years'.
A. You mean 10% over three years?
Q. Yes.
A. Obviously the longer the period of the loan the less
definite you would be about the statement, but that appears
to me not to be an unreasonable statement to make at that
time."
225. I accept that evidence. That leads me to the view that given that Irvin did not exclude the possibility altogether that the Swiss franc would move in excess of 10%, what he had to say about the degree of movement was not a mis-statement for the purposes of the law as to negligent mis-statements.
226. What the plaintiffs are really asserting is that the risk was not emphasised enough. But there was no duty to emphasise the risk. Only to identify it in terms which were not misleading.
227. Neither do I consider that the statement that there should be no difficulty in extending the term of the loan to a ten year period was a mis-statement. Such a statement could not have been understood to mean other than that if interest was paid promptly and the borrower was not otherwise in default, the borrower could expect that the bank would agree to extensions of the period of the loan to at least ten years. I am satisfied that the bank would, in those circumstances, have done so, and more importantly, that Irvin's statements truly reflected current bank policy.
228. Likewise, the statement that the plaintiffs would be free to bring the loan "on" and "off-shore" was not a mis-statement. Clearly, in the loan documents which were later to be executed, they had such a right. The fact that they did not exercise it until late in the day, after substantial losses had been suffered, is purely a result of their adamant rejection of the advice of the defendant that they should have done so.
229. On the other hand, the failure by Irvin clearly to distinguish between the purposes and operation of the 10% "excess" and the sinking fund, and in particular to suggest that the sinking fund would be available to absorb any overrun outside the 10% movement, was, in my opinion, misleading, and would amount to a negligent mis-statement if the element of reliance was present.
230. I have already explained that pursuant to the off-shore loan agreement, an entitlement to "clawback" occurred when the 10% buffer was exceeded. That entitlement had nothing to do with the availability of the sinking fund. While it is true that the defendant did, in fact, give the plaintiffs the benefit of bringing the sinking fund into account before invoking the "clawback" provision, that was a concession which was outside the strict terms of the contract. It cannot be assumed, had the loan run its course, that that attitude would have persisted.
231. 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 AIL 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.
232. 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.
233. 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 10% fluctuation could be exceeded, and that if it was, the plaintiffs would have to pay the excess of any fluctuation over $85,000.
234. 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.
235. 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 beyond George Copping's perusal of the letter of offer dated 24 August 1984.
236. The action with respect to the 4 August 1984 representations must, insofar as it is based upon negligent mis-statement, be dismissed.
237. If the statements by Irvin of that date are approached from the point of view of an action for misrepresentation at common law actionable by virtue of s.7 of the Misrepresentation Act (1972), the result is the same.
238. It is true that an action for misrepresentation at common law is, in certain respects, wider in its potential ambit than an action for negligent mis-statement. In the case of the latter, a statement is only actionable if fault exists, in the sense that the statement is made carelessly. In the case of the former, except in cases of deceit, where the question of the representator's fraud is relevant, the representation may be actionable even if innocent, and even if the representor was not at fault in any way.
239. However, an innocent misrepresentation is not actionable unless the elements of inducement and materiality are both satisfied. While it is true that in certain respects the concept of inducement in the law of misrepresentation may differ from the concept of reliance in the context of negligent mis-statement, the practical application of both concepts on the facts in this case does not give rise to any different result. For the same reasons as those which led me to the conclusion that there was no reliance in the sense necessary to allow recovery for negligent mis-statement, the plaintiffs have not made out the elements of inducement necessary to sustain an action for misrepresentation at common law.
240. I am not able to ascribe to the defendant an obligation to monitor or manage the loan. True it is that it in fact monitored currency fluctuations, including the position of the Australian dollar against the Swiss franc, but there is nothing to suggest that it did so other than for its own purposes. From time to time it divulged and communicated to clients, including the plaintiffs, the information which it obtained in that respect. That circumstance does not lend support to the view that the defendant assumed a contractual responsibility or other responsibility arising by reason of any duty of care to advise the plaintiffs of the currency fluctuations, or in other respects to manage the loan.
241. I make the same finding as to the argument that in some way the defendant owed a duty to protect the plaintiffs against themselves, and having regard to their means as known by or as they should have been ascertained by the defendant, to advise the plaintiffs against entering into the off-shore loan in the first place. I must say that circumstances in which a financier, when approached for a loan, owes a duty to dissuade the potential borrower from taking up a loan because of some judgment about the borrower's means, will necessarily be rare indeed. However desirable in some cases that may be, such a duty did not exist in this case. In this, as in most cases, so long as it is not misleading, a lender is entitled to look after its own interests and its own interests alone, unless the circumstances give rise to a duty of care.
242. I turn to the taking out of the hedge contract on 18 April 1985, and to the other events of that day.
243. I have already set out relevant findings of fact. As to that occasion, there is no doubt that the plaintiffs were in a position in which the defendant owed a duty of care towards them. Given their lack of knowledge as to the nature of a non-deliverable hedge contract, George Copping and his two sons, with whom he discussed the matter on the morning in question, were entirely in the hands of the defendant. There is no question but that the defendant owed a duty in that situation to give a clear indication of the nature of the hedge contract, and of its likely cost to the plaintiffs. It did neither.
244. I find that the duty was broken because Duncan failed to convey to George Copping the essentials of the non-deliverable hedge contract, and equally failed to indicate the risk that it might cause further loss to the plaintiffs.
245. Indeed, what Duncan said about the cost, to the effect that it would cost Perball nothing, was calculated to leave the impression with the plaintiffs that the taking out of the non-deliverable hedge contract would not expose them to risk of loss. The suggestion by the defendant that all that was intended to be conveyed was that there would be no up-front fee is not tenable. It is inconsistent with the context in which the statement by Duncan was made, and contrary to the ordinary and natural meaning of the words used in that context.
246. It was perfectly plain to Duncan that George Copping was hesitant about entering into a hedge contract, and I think it clear that he deliberately failed to disclose the true significance of it in terms of the risk in an endeavour to ensure that the hedge contract was taken out on that day.
247. Towards that end, he put pressure on the plaintiffs, and George Copping in particular, to comply with his request. The circumstances in which that transaction was entered into reflect little credit on the defendant which through Duncan took advantage of the relative ignorance of the plaintiffs as to the essential nature of the transaction to secure what was regarded as an advantage to the defendant in the form of extra protection against what it perceived as a threatening fall in the dollar.
248. There must be a finding of negligent mis-statement as against the defendant, through the agency of Duncan, with respect to his conversations with George Copping in failing to give a clear account of what the hedge contract involved, so as to leave the plaintiffs with a misleading impression of its essential characteristics, in failing to warn of the risk of loss being occasioned in the event of an adverse movement in the Australian dollar during the currency of the hedge, and in making a positively misleading statement as to the likely "cost" to the plaintiffs.
249. Another element in the plaintiffs' claim is the assertion that the defendant should have advised the taking out of a hedge contract in 1985 earlier than it did, at a time when no loss would have been suffered. It was suggested that such a hedge would have protected against losses arising by reason of the fall in the Australian dollar apparent in February and March of that year.
250. I do not pause to consider the evidence given on that topic which includes the evidence of the plaintiffs' expert witness, Butler. However the matter is approached, it seems to me that the defendant was not saddled with a duty of care with respect to advising as to, monitoring or managing the loan for the reasons which I have already given, and in those circumstances there was no duty of care to advise the entry into the hedge at an earlier stage.
251. It follows from what I have said that the plaintiffs succeed on one issue only, that is with respect to its claim for damages with respect to the taking out of the hedge contract in April 1985. As I have indicated, this resulted in a transactional loss of $82,864.
252. I deal separately with the assessment of the damages payable by the defendant with respect to this head of loss. Contributory Negligence Although I have referred all along to the plaintiffs, the judgment to be entered in the matter can only be entered in the name of Perball, as that is the only entity which suffered the loss on the hedge contract taken out in April 1985.
253. It follows that the plea of contributory negligence must be assessed with respect to Perball which, in reality, boils down to the actions of those controlling the destiny of the company.
254. Even if the actions of the individual plaintiffs in total can be for these purposes assimilated to the position of Perball, I am not satisfied that any case of contributory negligence has been made out. True it is that although the plaintiffs' recovery has been limited to damages with respect to the hedge contract, there would not have been a hedge contract if the plaintiffs had not decided to take out an off-shore loan in the first place. It might be argued in those circumstances that in determining the question of contributory negligence, it is relevant to look at the circumstances in which the plaintiffs, or more accurately Perball, took out the off-shore loan, as well as the hedge contract.
255. In that regard, the defendant advances the argument that the plaintiffs were at fault in failing to have the "matters the subject of Hanel's representations verified by an independent professional adviser known to them". But the plaintiffs having been referred to Hanel by Harrap were entitled to assume that he knew what he was about. They were firmly steered in the direction of an off-shore loan by the collective endeavours of Hanel and Harrap, and later of Irvin, and I do not see that they were put in a position where they should have questioned the advice to that effect which they were given.
256. The defendant next submits that "they took no care to verify the accuracy of the figures prepared by Munro to ensure that their position was projected by the figures to a prospective lender". I do not understand that submission. The figures prepared by Munro, so far as they went, were accurate except as to the extent of the indication of division of profit which, in any Defendant's written submissions event, was irrelevant for the purpose at hand. Munro's figures were an accurate consolidation of the earnings and expenses with respect to the farming business over the relevant period.
257. Insofar as they involved projections, they were George Copping's figures, not Munro's. True it is that George Copping may have given an over-optimistic account of the future prospects of the farming operation. I must say that I have never seen a loan application accompanied by other than optimistic predictions as to future profitability. But there is nothing in this case to support the view that George Copping (for Perball) was guilty of negligence in putting forward the figures which he did.
258. I do not pause to go through each of the arguments advanced by the defendant with respect to contributory negligence. At one stage the defendant described the conduct of the plaintiffs as an expression of "reckless indifference" regarding the consequence of borrowing off-shore. But it can hardly be right that the plaintiffs could be guilty of "reckless indifference"
259. in entering into the transaction after accepting a representation by the defendant that there was only a slight risk of the loan blowing out beyond the 10% variation. It is true that in a general sense a plaintiff must take reasonable care of his or her own interests (see Parkdale v Puxu (1982) 149 CLR 191 per Gibbs CJ at 199). But it was not unreasonable for the plaintiffs to put the trust they did in Hanel and Irvin. The mere fact that they knowingly assumed the risk when they went into the off-shore loan transaction does not expose them to the liability of a finding of contributory negligence. If that was to be so, there would be contributory negligence every time a plaintiff entered into a contract which carried with it an element of risk.
260. Neither am I satisfied that the plaintiffs were guilty of contributory negligence in the carrying out of the loan transaction until it was paid out.
261. Turning more particularly to the hedge contract, there are two answers to the assertion by the defendant that they were, with respect to that aspect of the matter, guilty of contributory negligence. The first is that once the defendant had, through Duncan, assured the plaintiffs that they would not be exposed to the risk of any loss arising as a result of entering into the non-deliverable hedge contract, it does not seem to me that it could be suggested that they were guilty of a failure properly to look after their own interests.
262. Why should they be under a duty to second-guess the assurance given by Duncan? In any event, they did ask Hanel about the matter, and for what it was worth, his attitude was that if it was not going to cost them anything, they might as well go into the transaction. From the point of view of the plaintiffs, it could hardly be suggested that they should have sought advice other than from Hanel, whom they might reasonably have regarded as a person with some knowledge of these matters. The allegations as to contributory negligence are dismissed. Mitigation The defendant raises by way of defence an alleged failure on the part of the plaintiffs to mitigate their loss. That line of defence, if available at all, could only be available in the context of the plaintiffs' claim for damages with respect to the losses on the off-shore loan. There is no room for the operation of the defence with respect to the hedge contract. The loss on that contract was suffered within a matter of days. Once suffered, it could not be ameliorated; it could only be paid out. Damages As I have already indicated, the liability of the plaintiffs with respect to the hedge contract was met by a further loan from the defendant. That loan, down to 23 December 1986, when it was paid out, carried interest and other charges amounting to $23,034.02. The plaintiffs claim damages for the loss of use of the money, that is, a loss of use of the amount of the hedge contract loan and the interest paid on it, but there is clearly no foundation for such a claim.
263. There is no evidence that the advance by the defendant of the loan to pay out that loss occasioned a reduction in working capital, or other reduction in moneys in the hands of the plaintiffs which, were it not for the hedge contract loss, they would have put to some other use.
264. The assessment of this loss must therefore proceed on the basis of interest actually paid for the period down to the payment out of the loan, and from then on interest pursuant to s.30c of the Supreme Court Act to the date of judgment.
265. According to the evidence of the accountant, Ellery, and in particular a table (Appendix 3 updated April 1994) which he prepared, the interest paid (together with fees) on the loan of $82,864 was as follows:
July 1985 3,505
.25 December 1985 3,563
.15 January 1986 3,850
.3 April 1986 3,782
.23 May 1986 6,015
.20 October 1986 1,912.91
Fee on $82,864 facility 405.55
$23,034.62
266. Added to the principal sum, this means that as at the date of discharge of the loan with respect to the hedge contract, the plaintiffs expended $105,898.62 inclusive of interest.
267. From 23 December 1986, the plaintiffs are entitled to interest under s.30c of the Supreme Court Act.
268. That section precludes the award of "interest upon interest" (s.30c(4)(a)). Accordingly, interest under the section should be calculated on $82,864 only. The period is approximately seven and a half years. For this purpose, a "commercial" rate should be adopted. Such rates varied dramatically between 1987 and now. I take an average of 12.5%. I award a lump sum in lieu of interest of $78,000.
269. The award becomes:
$
Transaction loss on hedge contract 82,864.00
Interest and fees paid to 23.12.86 23,034.62
Lump sum in lieu of interest under
s.30c of the Supreme Court Act 78,000.00
$183,898.62
THIRD PARTY CLAIM
270. As I have indicated, the third parties did not take part in the trial, and were not represented or present at it, although there was no default of appearance in the sense that they appeared at the commencement of the hearing and were excused from further attendance.
271. The third parties are two limited companies, Galliott Pty Ltd and Tillett Nominees Pty Ltd, and two individuals, Hanel and Kovaleff. There is no allegation in the Statement of Claim against the third parties to the effect that the four third parties were trading in partnership. But it is alleged against each of them that they were, inter alia, conducting a business of independent financial advisers, and that they and each of them traded variously "under combinations of the names of Hanel and Kovaleff". To digress for a moment, an example of the style under which they traded is the application for finance put forward on behalf of the plaintiffs by Hanel. This was signed by him on a letter head which has at the top the names "Kerry Hanel and Fred Kovaleff", followed by the description "independent advisers". At the bottom of the letter head appears the name "Fred Kovaleff Pty Ltd". There is no mention on the letterhead of Galliott Pty Ltd. (Fred Kovaleff Pty Ltd is alleged to have been the former name of the third party Tillett Nominees Pty Ltd.)
272. Other exhibits, such as a letter signed by Hanel to Harrap dated 8 August 1984 are on a letterhead "Kerry Hanel, independent financial adviser", with the name at the foot "Galliott Pty Ltd" but without reference to either Kovaleff or Tillett Nominees Pty Ltd or Fred Kovaleff Pty Ltd.
273. Most of the correspondence emanating from Hanel, insofar as it is represented by exhibits tendered in evidence, was on letterheads which correspond to one or other of the forms to which I have referred Two defences were filed by the third parties. One was a defence in which Galliott Pty Ltd and Hanel jointly pleaded to the third party Statement of Claim insofar as it sounds against them. The other is a defence filed by Tillett Nominees Pty Ltd and Kovaleff which seems to be in more or less identical terms with the other third party defence, but which pleads to the matters alleged against Tillett Nominees and Kovaleff.
274. Both third party defences are written in what might be described (without being critical of them) as lay language, and go into some considerable detail to explain what is alleged to have been the involvement of the third parties in the transaction. There is no allegation or admission in the third party pleadings which deals with the relationship between the four entities, that is, the two companies and Hanel and Kovaleff.
275. I have no difficulty in finding that Hanel was actively engaged in the transaction. But there is no evidence which satisfies me that either company or Kovaleff was involved.
276. I will, however, before entering judgment on the third party proceedings permit further argument from counsel for the plaintiffs, with an opportunity for the third parties to respond, as to that aspect of the matter.
277. In the meantime, I go on to make findings against Hanel.
278. Hanel was not only present at Redbank on the occasion of the telephone call from Duncan with respect to the hedge contract, but he spoke to Duncan and to the Coppings, at least George Copping.
279. He said that he did not understand what a non-deliverable hedge contract was. Importantly, as I have already pointed out, he was party to the decision to enter into it. The question whether or not by doing so Hanel was guilty of negligence contributing to the loss ultimately suffered by the plaintiffs with respect to the hedge contract depends on a consideration of all of the circumstances surrounding his conduct.
280. Although by then he had been paid a commission of $12,750 which was split with Harrap, his involvement in the raising of the off-shore loan had long since ceased. There is nothing to suggest that he or Kovaleff had anything further to do with the plaintiffs concerning the off-shore loan once the drawdown had been made.
281. Certainly there was no assumption of responsibility on the part of Hanel or Kovaleff to give any further advice or assistance with respect to the off-shore loan once the advance had been made.
282. But those considerations do not exclude the possibility that there was a relationship of proximity and reliance on the occasion when Hanel took part in the events leading up to the taking out of the hedge contract, such as to impose upon him a duty of care.
283. After carefully considering those aspects of the matter, it seems to me that the proven facts indicate circumstances which did give rise to such a duty. Hanel's advice was sought in connection with the proposed hedge contract because the suggestion that it be taken out was sprung on George Copping in circumstances in which he was clearly unable to decide what to do. Even if Hanel did not give any misleading advice as to the terms of the hedge contract itself, as he said that he did not know what the expression meant (a surprising statement by a person holding himself out as a financial adviser), in my opinion, it was negligent for him not to dissuade the Coppings from going ahead with it in such a state of ignorance.
284. At the 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. He spoke to Duncan, and should have clarified the matter with him. That apparently he did not indicates a failure to question Duncan properly about the proposed transaction.
285. Looking at the situation in which the plaintiffs were placed at the time, and the nature of the statement by Duncan, Duncan's conduct was both more significant in inducing the plaintiffs, or at least Perball, to enter into the hedge contract, and more blameworthy. As between Duncan and Hanel on the question of contributory negligence, I would apportion responsibility 25% against Hanel and the balance against the defendant.
286. For the reasons which I have given, I will not enter a judgment with respect to the apportionment or otherwise on the third party proceedings until the parties have had an opportunity to address me as to the question of the liability, if at all, of the other third parties.
CONCLUSION
287. There will be judgment in favour of Perball against the defendant in the sum of $183,898.62 inclusive of interest. The claims by the other plaintiffs are dismissed.
288. The third party proceedings are stood over to a date to be fixed for further argument.
289. I will hear the parties as to costs.
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