George Stanley Copping v ANZ McCaughan Ltd No. SCGRG 90/2493 Judgment No. 5455 Number of Pages 20 Negligent Misstatement

[1996] SASC 5455

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA PERRY J

CWDS
Negligent misstatement - off-shore loan transaction - Finding by trial judge that although a bank officer had in the course of the pre-contractual negotiations relating to a proposed off-shore loan misrepresented the availability of what was described as a "sinking fund" to service any blow out of the principal amount repayable by reason of currency fluctuations, the borrower had not relied on the misrepresentation and accordingly it was not actionable, reversed on appeal - action referred back to the trial judge to assess the damages flowing from the misrepresentation - held that only nominal damages should be awarded as the misrepresentation was not, in the legal sense, productive of a loss sounding in damages - discussion of the relevant principles applicable to the assessment of damages in such circumstances.

Haines v Bendall (1991)172 CLR 60 at 63; 99 ALR 385 at 386; Gates v CML Assurance Society Ltd (1986)160 CLR 1; Kizbeau Ply Ltd and Ors v W.G. andB. Pty Ltd and Anor (High Court, 11 October 1995, (unreported, available on SCALE)), considered.

HRNG ADELAIDE, 11 and 18 October 1995 #DATE 9:2:1996 #ADD 28:3:1996

Counsel for plaintiffs:     Mr S W Tilmouth QC with him
  Mr W De Garis

Solicitors for plaintiffs:    Wallace De Garis and Co

Counsel for defendant:        Mr W H Nicholas QC with him
  Mr N G Rochow

Solicitors for defendant:     Knox and Hargrave

Third party Mr F Kovaleff:    In person

Third party Tillett Nominees Pty Ltd:  Represented by Mr F Kovaleff

ORDER
Damages assessed.

JUDGE1 PERRY J The plaintiffs sued for damages with respect to losses alleged to have been suffered by them with respect to certain transactions which they entered into with the defendant.

2. In the months of March and April 1994 I conducted the trial of the action.

3. I delivered reasons for judgment on 20 May 1994 (judgment number 4557, unreported, available on SCALE). I will hereafter refer to those reasons as "the trial judgment".

4. The first of the relevant transactions was the grant by the defendant of what was described as a "loan facility". Pursuant to that transaction Australian International Limited ("AIL"), a wholly owned subsidiary of the defendant, made an advance to the plaintiff Perball Pty Ltd ("Perball") under what was described as an "off-shore loan" in Swiss francs of an amount equivalent to $A850,000.

5. The second transaction was effected in April 1985 when Perball entered into a so-called "hedge contract" connected with the off-shore loan.

6. The plaintiffs' claims were advanced as claims for damages for negligent mis-statement, or for misrepresentation or breach of a collateral contract.

7. In the trial judgment, as to the off-shore loan contract, I found that there was only one relevant mis-statement. That mis-statement was made by Mr Irvin, a servant of the defendant. I will come to the detail of that in due course.

8. I found against the allegation that there had been other mis-statements. I considered, however, that the mis-statement found to have been made was not actionable as a negligent mis-statement in that Perball, through the agency of the plaintiff George Copping, did not rely on the representation when it entered into the transaction. In those circumstances, I found it unnecessary to consider the other causes of action sued on with respect to the off-shore loan.

9. Specifically, my finding was as follows (trial judgment 84):
    "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 ... 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."

10. In the result, the claim for damages with respect to misrepresentations leading to the entry by Perball into the off-shore loan contract was dismissed.

11. As for the claim with respect to Perball's entry into the hedge contract, I found that certain misrepresentations had been made by the defendant which were actionable. I gave judgment in favour of Perball against the defendant by way of damages flowing from those misrepresentations in the sum of $183,898.62 inclusive of interest.

12. The plaintiffs appealed.

13. By order dated 24 April 1995, the Full Court by a majority allowed the appeal. The relevant part of the order allowing the appeal is as follows:
    "THIS COURT DOTH ORDER:
    1. That the appeal by the plaintiffs against the defendant
    be allowed.
    2. That the judgment dismissing the claims of the
    plaintiffs George Stanley Copping, Faye Joyce Copping,
    Layton Saxon Copping, Neville George Copping and Wayne
    Malcolm Copping be set aside.
    3. That there be a finding that the plaintiffs acted in
    reliance upon the negligent misstatement found by the trial
    judge, in entering into the foreign currency loan
    transaction and that the defendant is liable to the
    plaintiffs for damages for the loss sustained in consequence
    of the negligent misstatement.
    4. That the judgment and order for costs in favour of
    Perball Pty Ltd be set aside.
    5. That the action be remitted to the learned trial judge
    for assessment of damages and for entry of judgment for the
    plaintiffs against the defendant for the amount of such
    damages and costs, and in the case of Perball Pty Ltd for
    the additional amount of $183,898.62 already assessed.
    6. ..."

14. The Full Court went on to make orders with respect to the judgment which I had pronounced in favour of the defendant against certain third parties. I deal with that separately, later in these reasons.

15. It is plain from paragraph 3 of the Full Court order that the only finding expressly reversed on appeal was my finding that the plaintiffs had not acted in reliance upon the negligent mis-statement which I found to have been made, when they (or more accurately Perball) entered into the foreign currency loan transaction.

16. But in approaching my present task, I must regard as overturned any relevant findings made by me upon the basis of which I came to the conclusion that there had been no reliance insofar as such findings are inconsistent with the conclusion reached by the Full Court. It is incumbent upon me as well to give effect to any express findings of fact made in the reasons for judgment of the majority of the Full Court which are inconsistent with any findings of fact made by me in the trial judgment.

17. Subject to those qualifications, all other findings and conclusions made by me in the trial judgment must be regarded as unaffected by the outcome of the appeal, and conclusive of the matters to which they relate.

18. In the light of the decision of the Full Court, I have now heard further argument from the parties addressed to the issue of damages for the loss said to have been sustained in consequence of the negligent mis-statement. That argument repeated in part what had been put to me during concluding addresses at the trial, and to a certain extent extended those addresses.

19. There was no attempt to call any further evidence. Indeed, it would not have been right to do so, the trial having concluded and all evidence which the parties had wished to lead on the question of damages having been called at the trial.

20. These reasons are intended to be read with the trial judgment. I will, therefore, refrain from canvassing again matters dealt with in the trial judgment except to the extent necessary to make these reasons intelligible.

21. It follows from the terms of the judgment of the Full Court on appeal that I am to confine myself to the question of damages referrable to negligent mis-statement and not to any of the other causes of action relied upon by the plaintiffs.

22. As will be seen from the trial judgment, the defendant underwent various changes of name over the relevant period, and furthermore, the off-shore loan was made by its wholly owned subsidiary, AIL. I will not trouble to distinguish between the two. I will simply refer to "the defendant" with the intention that it be understood to apply to whichever emanation of the defendant is relevant to the immediate context, unless it is necessary to be more specific.

THE NEGLIGENT MIS-STATEMENT
23. For the reasons set out in the trial judgment, for some time before the entry by the plaintiffs into the transaction in question, their farming operations on the various properties owned by them in the south-east of South Australia, and in the case of the plaintiff Wayne Copping, in the far western region of Victoria, were becoming increasingly difficult by reason of a combination of falling returns and high interest rates.

24. Lured by the attraction of what were said to be lower interest rates applicable to off-shore loans, through the agency of the third parties, the plaintiffs applied to the defendant for an off-shore loan of $A750,000. That amount was thought to be sufficient to re-finance the farming operations in the sense that it would discharge the amounts due to various banks, including accrued interest, the amount due on a running account with a stock and station agent, and certain borrowings from other sources. In addition, it would allow for an injection of new capital thought necessary to enable the plaintiffs Wayne and Neville Copping to carry on with their particular farming operations, together with an additional amount to cover stamp duty and other transactional costs.

25. The application was approved but for an interest only loan of $A850,000. The additional $A100,000 was to be an initial contribution to what was described as a "sinking fund" (see trial judgment 9-10). The $A100,000 was not to be paid to Perball or to the other plaintiffs but was to be paid into an "insurance and investment policy" eventually issued by Aetna Life and Casualty Ltd ("Aetna").

26. As I explain in the trial judgment, the defendant first offered terms which involved the payment of $A40,000 per annum into the sinking fund in addition to the initial payment of $A100,000, in the expectation that the sinking fund would accumulate at a rate which would hopefully provide sufficient money to repay the principal at the expiration of the term of the loan. In the circumstances which I explain in the trial judgment (12), following negotiations by Mr George Copping, the requirement for an annual contribution was reduced to $A20,000, subject to periodic review.

27. Although the plaintiffs alleged a large number of misrepresentations as having been made by the defendants in the course of the negotiations leading to the entry into the off-shore loan transaction, as I have already observed, I found that the allegations as to only one mis-statement were made out. That is the negligent mis-statement referred to in paragraph 3 of the order of the Full Court.

28. Importantly, I rejected allegations advanced by the plaintiffs that the defendants through Irvin had misrepresented the risk of adverse fluctuations in the exchange rate. In particular I found (trial judgment 87-88) that Irvin did not exclude the possibility that the Swiss franc would move in relation to the Australian dollar by an amount in excess of 10%. Part of my finding was (trial judgment 87):
    "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.

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."

29. The mechanics of operation of the off-shore loan transaction, having regard to the terms of the documents by which it was evidenced, gave to Perball the benefit of a "buffer of 10%". Ten per cent of $A850,000 was $A85,000. The operation of the buffer was such that foreign currency fluctuations were permitted within the 10% limit, without any call being made on Perball. That is, the amount repayable by way of the principal of the loan could increase by reason of exchange rate fluctuations to $A935,000 without an obligation upon the borrower to make any payment by way of reduction of principal, as opposed to interest, until the expiration of the term of the loan.

30. However, pursuant to the contract documents, an adjustment was required in the form of a payment in cash of any excess over the 10% limit, that is, any excess over $A935,000, so that the principal was kept within the 10% limit. The cash repayment was described in the loan documents as a "clawback" (trial judgment 19 and 20).

31. The loan documentation did not authorise recourse to the sinking fund to service any obligation to make a "clawback" payment. Putting it another way, the contract documents did not acknowledge in any way that the sinking fund would be available to meet any excess over the 10% buffer. The 10% buffer and sinking fund therefore had separate and distinct parts to play in the working out of the transaction.

32. The misrepresentation, being the only misrepresentation which I found to have been made out, was a "... 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 over-run outside the 10% movement" (trial judgment 88).

33. The precise findings of fact made by me as to the relevant representations made by Irvin (made at the plaintiffs' farm at Redbank, which, for convenience, I will refer to as the Redbank representations) were (trial judgment 54):
    " ...
    (4) The Swiss franc against the Australian dollar was
    unlikely to move outside 10% either way, but if it did the
    'sinking fund' should be sufficient to cover any such
    movement.

(5) He did not distinguish between the purpose and
    operation of the 10% 'excess' and the sinking fund.

(6) He emphasised, to use the language of the witnesses,
    the up side rather than the down side, but did not eliminate
    the possibility that the movement in the franc could exceed
    the sinking fund. Putting it another way, he did not
    eliminate entirely the possibility that the sinking fund
    could be exceeded by adverse movements.

(7) The impression left in the mind of George Copping was
    that although the risk of a movement beyond 10% and beyond
    the limit of the sinking fund could not be eliminated, it
    was a small risk.

(8) ..."

34. During the course of the hearing before me on the question of the assessment of damages, Mr Tilmouth QC for the plaintiffs suggested that I had in fact made a finding that there had been a representation that the sinking fund would not be exceeded by exchange rate movements. Clearly, I made no such finding. Although in finding (4) I found that it had been suggested to the plaintiffs by Irvin that "the sinking fund should be sufficient to cover any such movement", as I found in finding (6): "... he did not eliminate the possibility that the movement in the franc could exceed the sinking fund ... he did not eliminate entirely the possibility that the sinking fund could be exceeded by adverse movements."

35. That finding, together with all of my other findings as to the content of the relevant representations, was not affected by the decision of the Full Court.

THE ACTUAL OPERATION OF THE TRANSACTION
36. The striking feature of the case, and one which is of critical importance for present purposes, is that the off-shore loan transaction was not performed from the defendant's point of view strictly in accordance with its entitlement under the loan documentation. In particular, the defendant never enforced the right to insist on a "clawback" when, in the events which happened, the 10% buffer was exceeded. On the contrary, it carried out the transaction as though the contractual obligations reflected what had been represented to the plaintiffs.

37. That is clear from an abundance of evidence, and may be illustrated by reference to the sequence of correspondence from AIFC to Perball which I summarise in the trial judgment.

38. As I there point out (19), by 22 March 1985 the $A935,000 limit (being the advance of $A850,000, together with the 10% buffer) had been exceeded by $A2,130. In the letter of that date written by AIFC to Perball, the text of which I set out in the trial judgment, after referring to the fact that the limit had been exceeded by that amount, AIFC informed Perball: "In view of the funds held in the Aetna Life and Casualty Investment Policy, we have noted the excess of $2,130 against the policy, over which we hold an assignment."

39. As I observed in the trial judgment (20):
    "The noting of the 'excess of $2,130 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 the paid in cash."

40. As I go on to point out in the trial judgment, the situation had worsened dramatically by 3 April 1985. I set out in the trial judgment (20) AIFC's letter of that date to Perball, in which it is pointed out that the exchange fluctuations had brought the equivalent of the foreign currency borrowings to an amount of $A996,122, an excess of $A61,122 over the amount of $A935,000.

41. What is important to note is the last paragraph in that letter as set out by me in the trial judgment. I repeat the reference to that paragraph:
    "In accordance with clause 8 of the multi currency loan
    agreement, and on behalf of Australian International Ltd,
    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 pay such excess on deposit with us
    pending an improvement in the exchange rate."

42. At the foot of that letter (exhibit P210), Mr George Copping on behalf of Perball on 12 April 1985 signed an acknowledgment worded: "We hereby acknowledge the above action."

43. It is not surprising that Mr George Copping was prepared to acknowledge the propriety of the action of the defendant in continuing to apply the excess over the 10% "buffer" against the sinking fund. After all, the action of the defendant in that respect coincided with what he had been given to understand would happen by reason of what I found had been represented to him.

44. Given the willingness of the defendant to offset the sinking fund against any overrun beyond the 10% buffer, this meant that they would not look for any cash payment from Perball until the total amount due with respect to the capital advance made on the loan had reached $A1,035,000 (that being the total of the loan advance of $A850,000, the 10% buffer of $A85,000 and the $A100,000 sinking fund).

45. That is exactly what happened. When, having regard to the exchange rate, the amount repayable with reference to the loan was $A1,041,864, AIFC required of Perball a cash payment of the excess over $A1,035,000, that is to say $A6,864 (see the letter of 15 April 1985 quoted in the trial judgment at 21).

46. Furthermore, at no time down to the date upon which the loan was brought on-shore (when there could no longer be any question of the amount of the principal varying any further) is there any evidence that the defendant sought payment in cash of any amount with respect to the capital of the loan, other than after giving crediting for the amount of the sinking fund.

47. As to that aspect of the matter, I digress briefly to make a comment about the finding in the trial judgment that the sum of $A6,864 was paid by Perball without protest in answer to a demand conveyed by letter from AIFC of 15 April 1985. In the trial judgment (84) I refer to the "failure to complain when in April 1985 the $6,000 clawback was demanded of them" as one of the matters telling strongly "against any reliance by the plaintiffs on what was said by Irvin on 4 August 1984" (the date when the misrepresentation in question was made).

48. On reflection, the significance of the failure to complain at that stage tells the other way. Whether or not the amount was in fact paid (a matter upon which the majority of the Full Court came to a different finding from that which I came to) is, with respect, not so important. What is perhaps of some significance is that the absence of a complaint by Mr George Copping that the demand for repayment of that amount was made in the manner in which it was made, is obviously consistent with a belief on his part that the sinking fund would be available to service any overrun beyond the 10% buffer, but that Perball would then be called upon to meet any further overrun by way of a cash payment. If that was his belief, and the lack of a complaint about the demand suggests that it was, this obviously points to a state of mind consistent with what he was led to believe by the critical representation. King CJ, in his reasons for judgment given on the appeal, reaches the same conclusion. It is, of course, also consistent with Mr George Copping's endorsement acknowledging the propriety of the course explained in the letter of 3 April 1985, to which I have referred.

49. I have set out at some length the precise mechanics of operation of the 10% buffer and of the sinking fund, and the way in which the contract was performed. I have done so in order to expose as clearly as I can the unusual feature of this case, a feature which, as will be seen, has the practical effect of negating the basis upon which the plaintiffs have invited me to assess damages.

THE APPROACH TO THE ASSESSMENT
50. I start with the dictum of the High Court in Haines v Bendall (1991) 172 CLR 60 at 63; 99 ALR 385 at 386 (per Mason CJ, Dawson, Toohey and Gaudron JJ):
    "The settled principle governing the assessment of
    compensatory damages, whether in actions of tort or
    contract, is that the injured party should receive
    compensation in a sum which, so far as money can do, will
    put that party in the same position as he or she would have
    been in if the contract had been performed or the tort had
    not been committed: Butler v Egg and Egg Pulp Marketing
Board (1966) 114 CLR 185 at 191; Todorovic v Waller (1981)
    150 CLR 402 at 412; 37 ALR 481; Redding v Lee (1983) 151 CLR
    117 at 133; 47 ALR 241; Johnson v Perez (1988) 166 CLR 351
at 355, 386; 82 ALR 587; MBP (SA) Pty Ltd v Gogic (1991) 65
ALJR 203; 98 ALR 193; Livingstone v Rawyards Coal Co (1880)
5 App Cas 25 at 39; British Transport Commission v Gourley
(1956) AC 185 at 197, 212. Compensation is the cardinal
    concept. It is the 'one principle that is absolutely firm,
    and which must control all else': Skelton v Collins (1966)
    15 CLR 94 per Windeyer J at 128. Cognate with this concept
    is the rule, described by Lord Reid in Parry v Cleaver
(1970) AC 1 at 13, as universal, that a plaintiff cannot
    recover more than he or she has lost."

51. Mr Tilmouth quite properly did not attempt to argue that simply because the plaintiffs, in light of the Full Court decision, must be taken to have been induced to enter into the loan transaction by reason of the negligent mis-statement, the alleged losses said to have been incurred thereafter must necessarily sound in damages. I say "alleged" losses as it by no means follows that because a contract becomes more expensive to perform than was anticipated when it was entered into, this is indicative of a "loss" in the relevant sense.

52. Be that as it may, a simplistic "but for" contention can no longer be regarded as reflecting the proper legal principles regarding causation: March v Stramare Pty Ltd (1991) 171 CLR 506. Quite properly, Mr Tilmouth's argument embodied the concession that the first step in approaching the question of quantification of alleged loss was to establish on the balance of probabilities what the plaintiffs might have done if the negligent misrepresentation had not been made.

53. As will be seen, he contended that the most likely option which the plaintiffs would have pursued in that event was to refinance themselves from on-shore sources.

54. For reasons which I come to, in my opinion, that conclusion is not supported by the evidence.

55. However, the legitimacy of that approach, namely, to determine what would have eventuated had the negligent mis-statement not been made, is clearly established by authority. The most pertinent authority is Gates v CML Insurance Society Ltd (1986) 160 CLR 1.

56. That case concerned a misrepresentation by an insurer to a proposer for insurance as to the extent of the cover which would be afforded by a life insurance policy, more particularly as to the entitlement to benefits flowing from total disability for his occupation.

57. In that case, the plaintiff was given to understand by the insurer's agent that total disability benefits under the policy would be payable if he was totally disabled from following his occupation as a builder. In fact, such benefits were only payable under the policy if he was totally disabled from following any occupation.

58. In the events which happened, he became totally disabled from following his occupation as a builder but not totally disabled from following any occupation. The insurer declined to pay benefits on the basis of total disability.

59. The cause of action pursued in Gates was under s52 of the Trade PracticesAct 1974 (Cth). One question was whether damages for contravention of that section fell to be assessed having regard to the principles applicable to breach of contract or in tort. The High Court held that in the circumstances of that case the appropriate measure of damages was in tort.

60. In their joint judgment, Mason, Wilson and Dawson JJ observed (160 CLR
11-12):
    "In contract, damages are awarded with the object of placing
    the plaintiff in the position in which he would have been
    had the contract been performed - he is entitled to damages
    for loss of bargain (expectation loss) and damage suffered,
    including expenditure incurred, in reliance on the contract
    (reliance loss). In tort, on the other hand, damages are
    awarded with the object of placing the plaintiff in the
    position in which he would have been had the tort not been
committed (similar to reliance loss)." They further observed (160 CLR 13):
    "Because the object of damages in tort is to place the
    plaintiff in the position in which he would have been but
    for the commission of the tort, it is necessary to determine
    what the plaintiff would have done had he not relied on the
    representation." As to this aspect of the matter, they observed:
    "So in the present case if the appellant were able to
    establish that, but for his reliance on Mr Rainbird's
    representation, he could and would have entered into
    policies of insurance containing a disability clause of the
    kind represented by Mr Rainbird, he might then succeed in
    obtaining an award of damages equal to the benefits which
    would have been payable under such policies less the
    premiums paid or payable in respect of them."

61. However, in upholding the conclusion of the Full Court of the Federal Court that the appellant had failed to prove his claim for damages, they held that the Full Court was correct in its finding (quoted at 160 CLR 14): " ... 'The inference seems inescapable that, but for the statements, Mr Gates would have proceeded exactly as he did save that he would not have paid extra for total disability cover'.."

62. That case emphasises the importance of determining what the representee would have done had the misrepresentation not been made. The damages which the representee is able to recover are assessed by reference to the loss which the representee is able to demonstrate that he or she suffered having regard to the benefits (or detriments) delivered under the contract into which he or she was induced to enter as opposed to the benefits which would have been derived from whatever course he or she might reasonably be expected to follow, in the event that the misrepresentation had not been made.

63. Of course, in some cases the plaintiff may be unable to prove that a contract of a kind answering to the representation would have been available. That is the reason why the appellant in Gates v CML ultimately failed.

64. In other cases, absent the misrepresentation, the representee may be able to satisfy the court that he or she would not have entered into any transaction at all.

65. It follows that the approach to the quantification of damage flowing from a negligent mis-statement will, to a large extent, depend upon findings as to the course which, on the balance of probabilities, would have been followed if the misrepresentation had not been made.

66. The submission of the defendant is that I should award no damages. It submits that the plaintiffs failed to prove what they would have done had they not relied on the representation, or alternatively, that there should be a finding that if the plaintiffs had not relied on the representation, the likelihood is that they would still have borrowed substantially the same amount in a foreign currency loan. They put the further argument that no loss or damage was proved, by reason of the fact that in the working out of the transaction the misrepresentation was made good.

67. The plaintiffs' case at trial, and as it was pursued in the argument before me following the decision by the Full Court, was that if the negligent misrepresentation which I found to have been made had not been made, they would not have entered into the loan transaction with the defendant, and indeed, would not have taken up an off-shore loan at all. As I have already noted, the plaintiffs maintained that in that circumstance they would have remained "on-shore" in the sense that they would have refinanced their existing debt levels by restructured borrowings from sources within Australia. The plaintiffs' case is that if they had done so, making a comparison of their situation as it would then have been, they would have been better off to the extent of approximately $1.8 million. They invited me to assess damages in that amount.

68. The difficulty with that approach is that I am not satisfied with the starting point, namely, that if Mr George Copping had not been misled as to the terms of the transaction, that would have meant on the balance of probabilities, that he would have looked to alternative methods of refinancing the farming operations from on-shore as opposed to off-shore sources.

69. On the contrary, having regard to the whole of the evidence, including my observations of Mr George Copping while he was in the witness box, the manner in which he went about the transaction in question, and the financial situation in which the family was at the time, I am left in no doubt that Mr George Copping would not have taken an intimation of the true function of the sinking fund (that is "true" in the sense that it correctly described what was contained in the loan documentation) tamely, or that he would have lightly abandoned his resolve to obtain an off-shore loan and resorted to exploring on-shore methods of finance.

70. To approach the evidence in such a simplistic fashion flies in the face of the reality of the situation as it then was, and flies in the face of the very strong body of evidence indicating that Mr George Copping was convinced that an off-shore loan represented the only feasible way out of the rapidly worsening financial position of the farming operation.

71. It is abundantly clear from his evidence that without selling land, a course which he was only prepared to countenance as a last resort, and given the high interest rates applicable in Australia, Mr George Copping was persuaded that the only practical course was to try to secure an off-shore loan at substantially lower rates. As I found (trial judgment 96), he was "firmly steered in the direction of an off-shore loan by the collective endeavours of Hanel and Harrap and later of Irvin ...". I have no doubt that once Mr George Copping had reached the point of putting in a written application for an off-shore loan, thereafter he would have exhausted every possibility of ensuring that the terms were satisfactory to him rather than abandoning the application.

72. That this is likely to have been so may be illustrated by reference to another aspect of the transaction. I have already referred to his response to the suggestion made initially by the defendant that the sinking fund be built up by annual contributions of $A40,000. He was adamant that there was "no way" that the plaintiffs could afford to pay so much, and he negotiated a reduction in the proposed terms to $A20,000 per annum. There is no reason to suppose that he would not have adopted the same attitude with respect to the question of the sinking fund, if it had been correctly pointed out to him that on the terms of the loan documentation the sinking fund would not have been available to service any blow-out of the loan beyond the 10% buffer.

73. What is more, it is equally clear from the course which was in fact followed in the carrying out of the transaction that there is no reason to think that if the matter had been raised with it, the defendant would not have agreed to embody in the contractual documents what it in fact did do once the contract was on foot. After all, they were keen to make the loan.

74. Putting it shortly, in the unusual circumstances of this case, and given the dogged determination of Mr George Copping to take up an off-shore loan as a long-term solution to the problems which had emerged in maintaining the farming operation, there was no reason to suppose that if his attention had been drawn to the matter, the contractual documents would not have been brought into line with the representation.

75. What I have had to say about the likely attitude of Mr George Copping and the course which, in my view, it is likely that he would have followed if he had been given a true indication of the content of the loan contract relating to the operation of the "clawback" vis-a-vis the sinking fund should not be thought to conflict with the observation made by King CJ in his reasons for judgment in the Full Court when he said (5):
    "On the judge's own findings the plaintiffs were concerned
    to know what the representative of the bank had to say. It
    follows that they were not at that time committed to
    proceeding with the off-shore loan."

76. It is one thing to say that they were not committed; it is another thing to say that they would have, through Mr George Copping, exhausted every avenue open to take up an off-shore loan on what they regarded as satisfactory terms.

77. In the trial judgment, I refer to the evidence of the plaintiffs as making it
    "... clear that they saw no alternative apart from selling
    off some land, a course which they regarded as a last
    resort. Their financial position had not improved during
    the preceding months of 1984, and domestic interest rates
    were still high. At least one member of the family, Wayne,
    was under pressure from creditors.

They had, in fact, lodged their application for an off-shore
    loan before Irvin's visit. While I suppose that the
    application could have been withdrawn, it is a strong
    pointer towards a concluded intention to take up such a loan
    if it was available." (trial judgment 84)

78. I could have added, as clearly it would have been so, that, of course, this did not mean that they would have entered into an off-shore loan on any terms. Accepting, as I must, the view of the Full Court that they would not have entered into an off-shore loan on the terms contained in the contract documents, it does not follow that they would not have endeavoured to secure a loan contract on terms which were satisfactory to them. Clearly, the represented terms were satisfactory to them, as it was on those terms that they proceeded.

79. On my view of the matter, for the reasons I have given, I am left in no doubt at all that, even accepting that before the Redbank representations Mr George Copping had not finally resolved to take up an off-shore loan, he would have proceeded in the way which I have suggested if the true position had been explained.

80. I point out also that the Full Court was not concerned to address the question of the course which was likely to have been followed by the plaintiffs if the misrepresentation had not been made. On the contrary, for the reasons which I come to, that is an issue peculiar to my task in assessing what, if any, damages flowed from the misrepresentation.

81. If the matter is approached in the manner which I have identified, it does not seem to me that the plaintiffs have satisfied the onus upon them of satisfying me on the balance of probabilities that the course of events, if they had not relied on the representation, would have resulted in the plaintiffs adopting the course which they suggest. That contention is flawed by reason of the underlying, and in my opinion unproved, premise that the plaintiffs would have refinanced by on-shore rather than off-shore loans.

82. This view of the matter makes it unnecesary for me to proceed to examine the question whether in any event the accountant Mr Ellery's calculations should be accepted, given the premise upon which they are postulated, or for that matter, the separate question whether, having regard to Mr George Copping's perception of the problems facing the farming operation, unpalatable though it might have been, he might nonetheless have considered selling off some of the land holding.

83. The plaintiffs are no better off if the matter was to be approached by putting aside the question of what they might have done if the misrepresentation had not been made, and simply addressing the relationship between the misrepresentation and the alleged loss.

84. True it is that in a very general sense, given the findings of the Full Court that there was reliance upon the negligent misrepresentation, I have to accept that the entry into the contract was in the legal sense induced by it. It does not follow that the negligent mis-statement should be regarded as productive of loss.

85. Of course, as I have already noted, the mere fact that the off-shore loan proved to be far more expensive than the plaintiffs had anticipated does not itself prove a relevant loss. But even assuming that some yardstick can be spelt out of the evidence against which a loss might be said to have occurred, on the unusual facts of this case, any loss could not fairly be attributed to the negligent mis-statement.

86. My reason for advancing that view is that consistent with first principles, I do not see how it can be right to attribute a loss, if there was one in the relevant sense, to the making of a negligent misrepresentation when that misrepresentation was made good in the carrying out of the contract. If, as was clearly the case, the defendant in fact honoured what it had promised in the representation, I cannot see that any loss sustained by the plaintiffs in the working out of the contract can be attributed to the representation. If the plaintiffs in fact got what they thought they were bargaining for, and if thereafter the performance of the contract was productive of losses, those losses must be attributable to the realisation of the risk that Mr George Copping well knew was inherent in the transaction, namely, a risk that the off-shore loan could blow out to an amount in excess of a combination of the 10% buffer and the sinking fund, and not to the misrepresentation. That observation applies to the whole of the operation of the transaction, including any losses said to have been incurred by reason of the bringing of the loan "on-shore". That occurred in the circumstances set out by me in the trial judgment at 24-26. As I there found, although it was suggested at the trial that the loan was brought on-shore by reason of a default by Perball, there was no evidence to support that. On the contrary, it was brought on-shore by reason of an instruction to do so given by Perball (trial judgment 26).

87. That it was brought on-shore so late, and not much earlier, was due to the plaintiffs' "adamant rejection of the advice of the defendant" that they should have done so at a much earlier stage (trial judgment 88).

88. That the performance of the transaction proved to be so disastrous from the plaintiffs' point of view was, from its inception to its conclusion when the defendant was paid out in December 1986, a manifestation of the risks of foreign currency borrowing, risks of which George Copping "had been well aware ... all along" (trial judgment 55).

89. Mr Tilmouth attempted to argue before me that in fact the off-shore loan transaction was not performed in accordance with the misrepresentation. He drew attention to the fact that when the defendant gave to the plaintiffs the benefit of off-setting the blow-out occasioned by the adverse movement in exchange rates against the sinking fund, the defendant did not actually receive a payment from the sinking fund.

90. It is true that the defendant had an assignment of the policy relating to the investment of the sinking fund, and it does not appear that it actually received a payment in lieu of the clawback until the loan as a whole was paid out on settlement on 23 December 1986. At that stage, the funds representing the investment policy amounted to $124,988.76, which amount was then brought into account by the defendant (trial judgment 27).

91. There is nothing in this contention by the plaintiffs, which may be answered in various ways.

92. In the first place, what I found to be the words of the representation that the "... sinking fund should be sufficient to cover any" movement outside the 10% limit (trial judgment 54, para 4) but that the possibility could not be eliminated entirely "... that the sinking fund could be exceeded by adverse movements" (trial judgment 54, para 6) did not descend into detail as to the mechanics of the recourse to be made to the sinking fund.

93. If the contract had expressly spelled out the mechanism which in fact was applied it could not have been complained of as an imperfect carrying out of the representation.

94. Furthermore, there was nothing in the representation to suggest that the sinking fund would actually be paid out and applied towards any overrun. It was only represented that it would "cover" the overrun.

95. That it was not actually reduced by the overrun but only debited by the defendant against the overrun left the plaintiffs better off. It left the capital of the investment policy intact and gave rise to a higher accrual of interest, a benefit which the plaintiffs ultimately took advantage of on settlement.

96. Finally as to that contention by Mr Tilmouth, I draw attention to the fact that the precise method by which the contract was performed in that respect was subject to the express concurrence of Perball through the agency of Mr George Copping. I have already referred to his endorsement of consent to the procedure being adopted by the defendant at the foot of the letter exhibit P210.

97. That this was so serves to underscore the conclusion which I have reached, namely, that a representee cannot complain as to the precise method of performance of a contract when it not only reflected what was represented but was a method of performance which was expressly agreed to by the representee.

98. The importance of having regard to the manner in which the contract was actually performed is illustrated by the decision of the High Court in Kizbeau Pty Ltd and Ors v W.G. andB. Pty Ltd and Anor (unreported) (judgment dated 11 October 1995 - FC-95-036).

99. That case concerned a false representation by the owner of a motel business and leasehold bought by the appellants that an upstairs portion of the premises could lawfully be used for seminars and conferences. In a joint judgment, Brennan, Deane, Dawson, Gaudron and McHugh JJ upheld an appeal from the Full Court of the Federal Court. In the course of doing so, they dealt with a contention concerning condition (p) of the of the town planning permit regulating the use of a motel. That condition provided that "all seminars shall be conducted within the breakfast/seminar room", an area that did not include the board room or board room annexe.

100. In fact, for a considerable period the purchaser conducted the premises as though condition (p) did not exist. Later, the planning permit was amended to permit the use of the board room and board room annexe for seminars, conferences and similar functions, but subject to further conditions.

101. During the course of the judgment appears the following passage (13):
    "The assessment of damages in this case therefore required
    the Federal Court to determine the value of the business as
    at 28 October 1988 on the basis that after 8 May 1991
    condition (p) had no effect on the use of the boardroom or
    annex and that after that date condition (s) imposed a
    restriction on the number of persons who could attend
    seminars, conferences and similar functions at the motel.
    Only by taking those alterations to the conditions into
    account could the Federal Court determine the loss that
    Kizbeau had suffered by relying on the misleading conduct of
    the owner. In addition, the fact that the business had been
    conducted until 8 May 1991 in disregard of condition (p) had
    to be taken into account in assessing damages. Ordinarily
    when a court assesses damages, it acts on the basis that the
    law will be or ought to have been obeyed. But it would be
    quite unjust to the owner in this case to award damages to
    Kizbeau on the basis that the boardroom and the annex could
    not lawfully be used during the period 28 October 1988 to
    8 May 1991. Damages are assessed as compensation for loss
    actually suffered and, as condition (p) caused no loss of
    revenue to Kizbeau during this period, it caused no
    diminution in the value of the business acquired by Kizbeau
    so far as that value is to be assessed by reference to the
    revenue earned."

102. During the course of his reasons for judgment in the Full Court, King CJ said (Judgment No 5028, unreported, available on SCALE, page 2):
    "I should mention in passing that in the event the lender
    did have recourse to the sinking fund to cover fluctuations,
    but that is not to the point for present purposes. The
    question is whether the plaintiffs relied upon the negligent
    misstatement in entering into the contract which caused them
    such severe losses."

103. The context in which King CJ made that observation was with respect to the question of reliance, which was the issue upon which the Full Court reversed the finding which I had made as trial Judge. The observation is not relevant to the question of assessment of damages. The Full Court did not embark upon the assessment of damages, a matter which was left entirely to me to pursue within the framework of the order referring the matter to me for that purpose.

104. The question of the quantification of any damage flowing from the negligent mis-statement is, therefore, a matter entirely for me, and is not circumscribed in any way by the decision of the Full Court. It is a matter which, for present purposes, is at large.

105. Mr Tilmouth QC of counsel for the plaintiffs complained during the course of his reply that the defendant had not raised the argument at the trial or on the Full Court appeal that, in view of the fact that the misrepresentation had been made good in the performance of the transaction, the plaintiffs had not proved an entitlement to damages.

106. As to the trial, the defendant did, however, argue that no damages were proved, albeit on other bases. But the defendant could not be expected to have anticipated that when I gave judgment in the matter I would find only one misrepresentation made out, namely, as to the operation of the sinking fund in the context of exchange rate movements in excess of 10%, and reject all other alleged misrepresentations, including the allegation made by the plaintiffs against the defendant that the latter had failed adequately to warn them of the risks associated with the off-shore borrowing.

107. It was the particular nature of the findings made by me in the trial judgment which brought into sharp focus the arguments which I have now heard based on the fact that the only misrepresentation which I was prepared to find had been made was in fact made good during the course of the carrying out of the off-shore loan contract.

108. If it had not been for the fact that I found that there was no reliance in the relevant sense upon that misrepresentation, following the trial I would have called the matter on for further argument as to what, if any, damages had been proved as flowing from that misrepresentation as opposed to the broad sweep of allegations as to a whole host of misrepresentations upon which the plaintiffs went to trial.

109. In the events which happened, my finding as to reliance having been reversed by the Full Court, it then became necessary to hear what particular arguments as to damages then fell to be considered.

110. As to Mr Tilmouth's complaint with respect to the defendant's arguments adduced at the hearing of the appeal, I suppose that they could have argued that as no damages had been proved to have resulted from the only misrepresentation made out by the plaintiffs, even if the appeal was otherwise successful, an inquiry into damages was pointless. It cannot, however, be assumed that the Full Court would have been prepared to entertain an argument limited to damages, given the issues raised by the notice of appeal and cross appeal.

111. But in any event, I do not think that the defendant was obliged to put that argument to the Full Court. It was entitled to see what the outcome of the appeal was on the basis upon which it was argued and then develop the arguments which in fact they pursued at the hearing before me.

112. There is no procedural unfairness from the plaintiffs' point of view. They have been afforded a full hearing by me on all points now raised by the defendant.

113. It seems to me that however the matter is approached, given the unusual circumstances of the case, the plaintiffs are unable to prove recoverable loss resulting from the misrepresentation.

OTHER MATTERS
114. In the judgment pronounced by me following the trial, I ordered that the plaintiff Perball recover against the defendant 75% of its costs of action to be taxed, but that there be no order as to the costs of action of the remaining plaintiffs.

115. The order that there be no order as to the costs of action of the remaining plaintiffs, was not disturbed by the Full Court.

116. The reduction made by my order as trial judge in the costs otherwise recoverable by Perball was a reflection of the fact that it had failed on the issue of reliance with respect to the representations associated with its entry into the off-shore loan agreement.

117. Although by reason of the decision of the Full Court it succeeded on that issue, it has nonetheless failed to satisfy me that it suffered a loss sounding in damages. In those circumstances it seems to me that there is no reason why the order that it have 75% of its costs should not be restored.

118. I further ordered following the trial that the defendant recover against the third parties, Kerry Stirling Hanel and Galliott Pty Ltd, a sum equal to 25% of the defendant's liability to Perball, including its liability for costs. That liability was, of course, the liability of the defendant with respect to the hedge contract.

119. As to that aspect of the matter, the Full Court ordered:
    "(6) That the defendant's judgment against the third party
    Hanel and Galliott Pty Ltd be set aside and that the third
    party proceedings against them be remitted to the trial
    judge for further consideration and determination."

120. King CJ saw no basis upon which contribution could properly be ordered to be paid by those third parties with respect to the hedge contract, but as to that aspect of the matter he was in the minority. Both Matheson and Millhouse JJ would not have interfered with my judgment in that respect.

121. The judgment against those third parties was, however, vacated in order for me to consider the question whether or not, if I found the defendant liable with respect to the Redbank representations for a sum of damages, the third parties might properly be ordered to make a contribution in respect of those damages as well.

122. In the events which have happened that situation does not arise. Having regard to the view of the majority in the Full Court, I think it proper that the existing order for 25% contribution from the third parties Hanel and Galliott Pty Ltd damages awarded with respect to the plaintiffs' entry into the hedge contract, and costs be restored.

123. But in fairness to the parties, and in order to ensure that I have heard all arguments they would wish to adduce as to those matters, I will refrain from pronouncing a formal order disposing of the hearing of the assessment of damages before me to enable further submissions to be made in the light of this judgment, limited to:
    (a) The restoration of the cost order that the plaintiff
    Perball have 75% of its costs of action against the
    defendant to be taxed; and
    (b) As to the order with respect to contribution to be paid
    by the third parties Hanel and Galliott Pty Ltd.
    (c) As to the order for costs in favour of Kovaleff and
    Tillett Nominees Pty Ltd and as to the third party
    proceedings against them.

124. Subject to those matters, in my opinion, for the reasons which I have given, the plaintiffs have not satisfied me that they have suffered any loss sounding in damages with respect to the Redbank representations.

125. I would, therefore, assess the damages which I was directed to assess by order of the Full Court in the nominal sum of $1.

126. The judgment which I pronounced following the trial reflecting an award of damages with respect to the hedge contract should be restored, that is to say, the plaintiff Perball must recover against the defendant on that head the sum of $183,898.62 inclusive of interest to 23 May 1994. Thereafter interest will run pursuant to the Supreme Court Rules.

127. I will give to the parties the opportunity of speaking to the form of the order after they have had an opportunity to consider these reasons and after they have addressed further, if so advised, on the questions to which I have referred concerning the third parties.

128. I will, of course, hear counsel then as well on the question of the costs of the hearing before me.