Westpac Banking Corporation v Chiarabaglio, D

Re: WESTPAC BANKING CORPORATION
And: DOMENICO CHIARABAGLIO; ILDE CHIARABAGLIO and DOMILD NOMINEES PTY LIMITED
No. Q G78 of 1989
FED No. 450
Appeal and New Trial

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Sheppard(1), Neaves(1) and Burchett(1) JJ.

CATCHWORDS

Appeal and New Trial - foreign currency loan - bank sued in negligence and for engaging in misleading and deceptive conduct - applicants, acting on faith of representations made by bank officer, borrowed Japanese yen equivalent to $A500,000 - challenge to findings of primary fact made by trial judge - lenghty consideration of complex evidence - discussion of applicable principles - submission that trail judge failed to deal adequately with consequences of failure by applicants to call witness said to be in their camp - discussion of principles - submission that damages should be reduced - chain of causation said to have been broken either six or twelve months after draw down of loan - discussion of relevant considerations.

Trade Practices Act 1974, s.52

HEARING

SYDNEY

#DATE 24:8:1990

Counsel for the appellant: Mr S.P. Charles QC and Mr J.C. Sheahan

Solicitors for the appellant: Feez Rutherning of Brisbane, Queensland

Counsel for the respondent: Mr J.D.M. Muir QC and Mrs D.A. Mullins

Solicitors for the respondent: Anderson and Company of Brisbane,

Queensland

ORDER

The appeal be dismissed.

The appellant pay to the respondents their costs of the appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is an appeal from the judgment and order of a judge of this Court (Foster J.) in which his Honour ordered that the first two respondents, Mr and Mrs Chiarabaglio, recover from the appellant damages in the sum of $574,080.41 and that the appellant, as cross-claimant, recover from Mr and Mrs Chiarabaglio and the third respondent, Domild Nominees Pty. Limited, Swiss francs in the amount of CHF1,201,829.51. The action brought by Mr and Mrs Chiarabaglio against the appellant ("the bank") was one in which they alleged that the bank had given them negligent advice and had engaged in misleading or deceptive conduct in relation to a borrowing made by Mr and Mrs Chiarabaglio and the third respondent ("Domild"). The bank, by its cross-claim, sought to recover from the cross-respondents the amount owed to it in respect of the borrowing. No challenge to his Honour's orders in relation to the cross-claim has been made and it is unnecessary to refer further to it. The question is whether his Honour was correct in finding the bank liable for damages in negligence and under the Trade Practices Act 1974.

The transaction in question took place in 1982. It involved a borrowing by the Chiarabaglios, not in Swiss francs, but in Japanese yen. It was at a later time - in 1985 - that the indebtedness was converted into Swiss francs. The amount borrowed was the equivalent of $A500,000. The Chiarabaglios' case was that, had it not been for the bank's advice and misleading or deceptive conduct, they would not have entered into the transaction.
Except for one submission which goes to the question of the amount of damages which his Honour awarded, the challenge to his Honour's orders is based upon submissions that his Honour's findings of primary fact were erroneous. Counsel for the bank did not, however, seek the substitution of a judgment for the bank. They conceded that the appropriate relief, if the bank were successful, was a new trial.
In Westpac Banking Corporation v. Spice (1990) ATPR case 41.024 Wilcox and Burchett JJ. (at pp 51396-399) analysed a number of authorities which dealt with the manner in which an appellate court should approach a case in which a trial judge's primary findings of fact are challenged. It is unnecessary to repeat their analysis here but it is as well to refer again to the judgment of Dixon C.J. and Kitto J. in Paterson v. Paterson (1953) 89 CLR 212 where their Honours quoted with approval the conclusions of Lord Thankerton in Watt or Thomas v. Thomas (1947) AC 484. His Lordship said (pp 487-8):-

"I. Where a question of fact has been tried by a judge without a jury, and there is no question of misdirection of himself by the judge, an appellate court which is disposed to come to a different conclusion on the printed evidence, should not do so unless it is satisfied that any advantage enjoyed by the trial judge by reason of having seen and heard the witnesses, could not be sufficient to explain or justify the trial judge's conclusion; II. The appellate court may take the view that, without having seen or heard the witnesses, it is not in a position to come to any satisfactory conclusion on the printed evidence; III. The appellate court, either because the reasons given by the trial judge are not satisfactory, or because it unmistakably so appears from the evidence, may be satisfied that he has not taken proper advantage of his having seen and heard the witnesses, and the matter will then become at large for the appellate court. It is obvious that the value and importance of having seen and heard the witnesses will vary according to the class of case, and, it may be, the individual case in question."

There was no argument before us about the applicability of these principles to this case. Counsel for the bank recognised the heavy burden which they carried and faced it accordingly.
The findings of negligence and misleading and deceptive conduct made by his Honour were based upon his acceptance of the evidence of Mr Chiarabaglio and witnesses called in the Chiarabaglios' case and his rejection of the evidence of three bank officers which was to the contrary. The evidence was of conversations which took place in April 1982. There is no question but that a conversation did take place on 7 April 1982 and that Mr Chiarabaglio also had conversations with bank officers on 14 and 19 April 1982. He, however, deposed to a further conversation which, it would seem, if it took place, must have occurred after 7 April 1982 and before 19 April 1982. His Honour's conclusion that a further conversation did take place is a matter of substantial contention by the bank.
The bank's submissions involved a wide ranging analysis of most of the evidence. In due course it will be necessary to refer to a multiplicity of submissions which were accumulated in order to provide the reason why his Honour's judgment should be set aside. It is not possible to deal adequately with these submissions without a detailed reference to much of the evidence. We proceed to that task.
The Chiarabaglios' Evidence
His Honour referred to Mr Chiarabaglio's history and his prior association over a number of years with the bank. Mr Chiarabaglio was born in Italy in 1924. He left school at the age of 10 and thereafter worked in a factory. He became qualified as a fitter and turner. Mr Chiarabaglio spent a significant part of the war years in hiding on a farm in a successful endeavour to avoid military service. He migrated to Australia in 1949. He arrived here penniless and without any ability to speak English. He learnt English whilst working in an engineering works in Ingham in Queensland. His Honour found that his grasp of the language was still far from perfect and that he had difficulties in oral comprehension, expression and reading.
However, his Honour also found that Mr Chiarabaglio was a person "of drive, initiative and intelligence". He said that, from being a penniless, illiterate immigrant in 1949 he had, by 1982, established himself in Australia as the proprietor of a business repairing agricultural machinery and as a property investor and developer. His Honour said that his ventures were well planned and successful and added,

"I am satisfied that his approach was conservative and cautious, that he took no business risk of an unacceptable kind and that he would not, by nature, indulge in any business venture which could be described as involving speculation or gambling."

Mr Chiarabaglio was introduced to the bank in 1954 by his father-in-law. His Honour found that he quickly became "a loyal customer of that bank and developed an attitude of trust towards each of a long line of branch managers with whom he dealt ..." His Honour went on to refer in more detail to the relationship with the bank which Mr Chiarabaglio had over the years and mentioned in particular his habit of discussing proposed purchases of property with his bank manager. His Honour concluded this part of his judgment by saying:-

"The impression that I clearly gained was that, at least, if the Westpac bank manager had declined finance in respect of any projected business venture, Mr Chiarabaglio would have regarded this as an indication that the venture had an unacceptable risk about it and that he would have thereupon abandoned it rather than seeking financial assistance in some other and less conservative quarter. It is quite clear to me that he would have trusted the bank not to lead him into financial error but, on the contrary, to steer him away from it."

His Honour said that at the beginning of 1982 Mr Chiarabaglio, in his own and his wife's names or in family companies, of which Domild was one, was the owner of assets to the value of approximately $2 million. He was indebted to the bank in an amount of slightly over $100,000. He was under no pressure to repay this loan. The bank was prepared to "roll it over" when it became due.
One of the interests which the Chiarabaglios had was an interest in a company, Northern Metals Pty. Limited. Northern Metals Pty. Limited owned a building in Fortitude Valley in Brisbane in which a nightclub known as "Whispers" was carried on. The Chiarabaglios had acquired their interest in Northern Metals through a Mr Hackett who is an accountant. Mr Hackett acted as the Chiarabaglios' accountant, preparing their accounts and taxation returns each year. His Honour said that he was satisfied that Mr Hackett did not provide anything in the nature of general business advice to Mr Chiarabaglio. Mr Hackett was also associated in some way with Mr Chiarabaglio's brother-in-law, Mr Ferraris, who was also an investor. Eventually Mr Chiarabaglio purchased shares in Northern Metals and he, Mr Ferraris, Mr Hackett and a Mr Hofstee, who was a friend of Mr Hackett, became directors and shareholders of Northern Metals and of the Whispers nightclub business.
In the early months of 1982, Northern Metals, unlike Mr Chiarabaglio himself, was in financial difficulty. It owed the bank $125,000 on a commercial bill facility. The facility provided for the roll-over of only $75,000 of this amount and required the repayment of the remaining $50,000.
Mr Hackett consulted another bank, the European-Asian Bank, and told Mr Story, who was then the Manager of the Fortitude Valley branch of the bank, that he proposed to borrow $50,000 offshore from it. Mr Story told Mr Hackett that the bank itself was able to provide foreign currency loans. Mr Story had no personal knowledge of these loans or of their characteristics but he knew that the bank had a department which dealt in such matters and that Mr Imhoff, described by his Honour as "a young bank officer for whom he (Mr Story) had some regard", was in charge of that department. Mr Story told Mr Hackett that he would arrange a meeting at which the question of such a loan could be discussed. This was the meeting of 7 April 1982 earlier referred to.
The meeting took place in Mr Story's office and was attended on the part of the bank by Mr Imhoff, Mr Story and Mr Gow who was Mr Story's Assistant Manager. Northern Metals was represented by Mr Chiarabaglio, Mr Hackett, Mr Ferraris and Mr Hofstee. Each of these persons gave evidence except Mr Hofstee who was not called by either party. Counsel for the bank submitted that Mr Hofstee was a witness who it might have been expected would be called in the Chiarabaglios' case. His absence from the witness box was a matter of considerable comment and contention at the trial and his Honour's treatment of the matter was the basis for one of the bank's submissions in this appeal.
Mr Chiarabaglio gave evidence of his meetings with Mr Imhoff and Mr Story in his affidavit and also in his oral evidence. Mr Chiarabaglio said that Mr Imhoff "encouraged us to proceed with the offshore loan" by Northern Metals. He said that it was "the only sensible thing to do". Mr Chiarabaglio said there were many questions which were asked of Mr Imhoff and that he recalled that he answered "all the questions in a very positive way and with encouragement about proceeding with an offshore loan". Mr Chiarabaglio said Mr Imhoff asserted that, although the Swiss franc had a lower interest rate, he thought that the yen was a more stable currency as regards the Australian dollar. Mr Chiarabaglio said that he asked Mr Imhoff and Mr Story about the possibility of borrowing approximately $130,000 for himself and his wife from offshore. He said that that would have cleared the debt they owed the bank and he thought it might be worth looking at the possibility of borrowing offshore to finance their existing loans. He said that Mr Imhoff replied that, if he were to borrow offshore, he had to borrow a minimum of $500,000. He then asked whether he could obtain the sum of $130,000 as part of the borrowing by Northern Metals. He said that no decision was made on this and when he left the meeting he intended to think about it further.
Hedging was discussed. Mr Imhoff said that hedging was not worth doing "because it involved a payment that brought the interest rate to about the same as an Australian currency loan." Mr Chiarabaglio also recalled Mr Imhoff saying that he could not foresee "any real devaluation in the Australian dollar against the Japanese yen because of the trade connection between the two countries". He added that, even if the currency were devalued 10 per cent to 15 per cent over six years, Northern Metals would still be well in front. Mr Chiarabaglio said Mr Imhoff stated, "there was no risk whatsoever", about an offshore loan.
Mr Chiarabaglio's affidavit evidence of the second meeting was that it took place about a week later. The same persons were present at that meeting with the exception of Mr Gow. He said that Mr Imhoff was again questioned on the matters discussed at the first meeting and that Mr Imhoff was again very convincing about what a good thing an offshore loan was. Mr Chiarabaglio thought it was at this meeting that Mr Imhoff produced charts on which there was a record of movements in the yen and the Australian dollar and other currencies over the previous ten years. Mr Imhoff repeated his preference for the yen as the best currency in which to borrow.
Mr Chiarabaglio said the other three directors of Northern Metals and he himself told Mr Imhoff and Mr Story that Northern Metals had decided to proceed with an offshore loan. He said he had thought about borrowing offshore himself. Mr Imhoff told him that, if he had plenty of security, it was good business to bring in $500,000 from offshore; even if he did not have any use for the amount remaining after paying what he already owed, it was good business to invest the balance in an interest bearing deposit because the Australian rate of interest was nearly double the interest payable on the offshore loan. Mr Chiarabaglio asked Mr Imhoff what risk there was in borrowing the money. Mr Imhoff said words to the effect, "There will be no risk whatever because of the stability of the Australian dollar with the yen." Mr Imhoff said several times that he wished himself to be in a position to borrow offshore and that he would like to be in Mr Chiarabaglio's position. The meeting concluded with Mr Story saying that he would look into the security aspect of the matter to see whether Mr Chiarabaglio could raise sufficient security for a loan of $500,000. Mr Chiarabaglio said that he and his wife decided to proceed with an offshore loan and he advised Mr Story of their intention. He did not say when he had this conversation with Mr Story.
In his oral evidence, Mr Chiarabaglio gave an account along similar lines. He said that, at the first meeting, Mr Imhoff said:-

"We should go offshore where we can get much cheaper interest and there was no risk whatsoever, because the risk - it was very limited - the risk of the Australian money to devalue would be very limited, even mention of some stage if even from 10 to 15 per cent in six years with the difference of your interest, you were well in front at any time. So there will not be any risk at all."

Mr Chiarabaglio recounted his raising the possibility of a loan for himself and being told that the minimum amount which he could borrow was $500,000. The matter was not discussed any further except that the possibility of the loan being lumped in with the Northern Metals loan was raised.
Mr Chiarabaglio deposed to the second meeting having taken place about a week later. His evidence was to the same effect as his affidavit evidence.
Mr Hackett gave evidence of the two meetings. He recalled Mr Imhoff explaining what was involved in an offshore loan. He also mentioned discussion which took place about hedging. According to Mr Hackett, Mr Imhoff said that the Australian dollar would not go down 7 per cent per year over seven years against the Japanese yen. Seven per cent was the difference between the interest rate payable for a loan in Australian dollars and that payable for a loan in Japanese yen. Mr Hackett recalled Mr Chiarabaglio asking whether he could borrow an amount of over $100,000 and Mr Imhoff's reply that nothing less than $500,000 could be borrowed. Mr Chiarabaglio raised the possibility of adding the amount he required on to the amount of the Northern Metals loan. No decision was made about that matter.
Mr Hackett said that the second meeting was "a couple of weeks later". The same people were present except that Mr Hackett did not mention Mr Gow. He said that similar questions about hedging and about which currencies fluctuated less than others against the Australian dollar were asked. Mr Imhoff produced a chart showing currency fluctuations and said that it showed the movement of the yen and the Australian dollar over a period of 10 years. He said that, even if there were a 10 per cent devaluation over five years, that only amounted to 2 per cent annually and they would still be better off. He pointed out from the chart that there was no great fluctuation over the period of 10 years between the two currencies.
Mr Hackett said it was decided that Northern Metals would go ahead with the offshore borrowing. Mr Imhoff said:-

"If I was in your position I would go ahead ... at worst you would still be in front because of the interest differential."

Mr Hackett said that Mr Chiarabaglio then raised the question of borrowing $500,000 himself. Amongst other things Mr Imhoff suggested it would "be a good deal" for Mr Chiarabaglio to borrow at 7 per cent and to reinvest the money with the bank at 13 per cent.

Mr Ferraris said that he recalled having two meetings with the bank in April or May 1982 about obtaining an offshore loan for Northern Metals. He was not sure whether Mr Imhoff was present at both meetings. He was certain that the four directors were present at both and, inferentially, that Mr Story was present also.
He recalled that at one of the meetings Mr Imhoff had a chart which showed 10 years of fluctuations of currencies. It showed the movement of the Australian dollar against other currencies including both the Japanese yen and the Swiss franc. Mr Imhoff said that the yen was the most suitable currency in relation to the Australian dollar and pointed out that there had not been a great variation in the value of the Australian dollar as against the yen over the previous two years.

Mr Ferraris recalled Mr Chiarabaglio asking about a loan for himself and whether the amount he wished to borrow could be added on to the amount being lent to Northern Metals. Mr Ferraris recalled a discussion about hedging but could not remember which of the bank officers talked about it. He said that whoever it was advised that hedging defeated the purpose of borrowing offshore because the cost of hedging, added on to the offshore interest rate, meant that the borrower would be paying much the same as the domestic rate of interest for the loan.
The Evidence of the Bank Officers
The evidence to which we have referred is essentially the evidence upon which the Chiarabaglios relied. We turn to consider the evidence of the bank officers. Each made or approved a diary note in respect of the meeting which took place on 7 April 1982. Mr Imhoff's diary note was as follows:-

"7 April, 1982

NORTHERN METAL PTY. LTD. Fortitude Valley By arrangement visited Fortitude Valley Branch and together with Manager Mr Story and Mr Bob Gow met with:- Mr John Hackett - Managing Director Mr Dante Ferraris - Director Mr Dominico Chiarabaglio - Director Mr John Hofstay (sic) - Director Company owns and operates "Whispers" Night Club and they wish to refinance. Recent discussions have been held with European Asian Bank Ltd. Sydney Representative who have offered Japanese Yen denominational Euroloan for equivalent of $1M. min. at 8.9% p.a. for 6 years. However they really only require $0.5 M. Today's meeting was to discuss how the Bank may be able to help.

While there is an interested buyer for "Whispers" they are not confident that a sale will result (should know by April 14) and if not they wish to refinance to relieve some of the burden of high local interest rates and a capital repayment soon due.

The subject of Euro-currency financing was discussed in detail and it was left for the Directors to consider and get back to Mr Story to advise him what they wanted to do.

The following points were discussed:-

. How the Eurocurrency Market operates . The Bank's involvement in the market . Currencies available

. Amounts - Our minimum equivalent of $0.5 m. . Term

. Documentation

. Security

. Fees - establishment fee 0.35% flat Exchange control

. Interest rates

- How set ie. S.I.B.O.R. plus set margin - Rollover - 6 months

- Interest period - payable 6 monthly in arrears. - Historical data on movement studied - Current rates

- Risk

- exchange Risk

- On interest payment

- On capital

- Historical movements

- Hedging

. Prepayment before maturity

(available at any rollover - date) . Withholding tax - The company appears to be eligible for exemption.

Funds are required late May and I expect that we will be asked to proceed to provide a loan for say 5 years. Interest only for first 2."

The abbreviation "S.I.B.O.R." is a reference to the Singapore Inter Bank Offshore Rate.

In his affidavit Mr Imhoff said that in June or July 1979 he had been appointed Queensland Manager, International Business, which was the position he held in April 1982 when the discussions with the Northern Metals directors took place. Mr Imhoff said that the International Business Department was divided into two sections, the operation area and the international liaison area. He was in charge overall and officers from both areas reported to him. Late in 1979 or early in 1980 there arose a demand by some customers for borrowing in overseas currencies. Mr Imhoff said that he was involved in a number of such interviews. He said that they never occupied less than an hour, and, in the course of them, he endeavoured to find out a number of matters the detail of which is unimportant for present purposes. He said that only if the responses to these matters were "sufficiently positive" did he progress to discussing what was involved in a foreign currency facility. He said that it was his practice to give a detailed explanation of exchange rate and interest rate differentials and an explanation of why there were these differentials. It was his practice to chart interest and exchange rates to assist in the explanation. He plotted graphs using month end or monthly average rates. He could not recall how far back this historical data would have gone but doubted whether it went back earlier than 1979. He said:-

"My practice was to show the customers the high and low point in the historical data and explain to them that no-one could say what would happen in the future and that therefore there was a risk from exchange rate fluctuations."

He informed customers that they could monitor exchange rates themselves through the press or by telephoning the International Business Department of the bank.

Mr Imhoff said that it was his invariable practice to inquire of the customer why he or she was interested in borrowing in a foreign currency. The most common response was the interest differential. He would then ask what rate of interest the customer could service. If the response was, for instance, "Not more than 10 per cent", he would say that unless the customer could afford to borrow at onshore interest rates plus a margin for potential movements, an offshore loan was not appropriate. This was because a lower interest rate would only amount to a saving to the customer if the Australian dollar retained the same value as against the borrowed currency at the end of the term of the loan as it had at the beginning.
It was Mr Imhoff's practice, so he said, to explain hedging. He referred to a booklet published by the bank about this matter and he said that it was his practice to give a copy of the booklet to the customer. He explained that in some circumstances - usually where a loan was hedged for its full period - hedging negated any benefit from borrowing offshore. Mr Imhoff said that it was his practice to explain that hedging the risk was an available course at any time during the loan and that it was entirely the customer's own decision whether or not to cover the risk.
Mr Imhoff said that towards the end of the interview, he made a practice of explaining that he was not responsible for the approval of any offshore loan. All loans were made out of the Singapore branch and it was for that branch to approve the loan. Mr Imhoff said that he explained to customers that offshore borrowing should be regarded only as an alternative source of borrowing and said that he usually summarised his explanations to customers by saying that, if the risks he had explained were acceptable to them, then offshore borrowing was an alternative to borrowing at the then high interest rates.
Mr Imhoff then referred specifically to the meeting and produced a copy of his diary note which has earlier been set out. Mr Imhoff said he recalled that a number of questions were asked him by the Northern Metals directors but he could not remember what these questions were. He could recall no discussion about Mr Chiarabaglio wishing to take out a personal offshore loan and said that he had no discussion with him apart from that which occurred on 7 April 1982. He also said that he did not meet the directors of Northern Metals on any occasion other than 7 April 1982. He said that he left it to them to get back to Mr Story if they wished to proceed with an offshore loan.
Mr Imhoff then made a number of specific denials. We do not set these out in their entirety but they included denials that he said:-

(a) It was good business for anyone to borrow offshore.

(b) There was no risk whatever in an offshore loan.

(c) The worst situation would be a devaluation of the Australian dollar of 10 to 15 per cent over a six year term.

(d) Hedging was not necessary.

We should mention at this stage that the transaction in question occurred before the floating of the Australian dollar at the end of 1983. Mr Imhoff said he believed he had told the directors that, although the dollar was not then floating and was subject to Reserve Bank control, the United States dollar and other currencies were floating. This meant that the Australian dollar was still weighted against the United States dollar so that the Australian dollar was affected by any movement in the United States dollar despite the fact that the Australian dollar was not floating.
Mr Imhoff said he could well have suggested that, given the interest differential at the time, the Australian currency could move, as we understand it, downwards, 10 to 15 per cent per annum and that they would be no worse off, provided the interest differential was maintained. Mr Imhoff agreed he had said that hedging over the whole term of the loan would wipe out the benefit of the interest differential. He also agreed that he did not raise the question of managing an offshore loan.
Mr Imhoff claimed he did not encourage any of the Northern Metals directors to go ahead with an offshore borrowing and denied that he had said that, if he were in their position, he would go ahead. He denied saying that he would like to be borrowing offshore like Mr Chiarabaglio or that he would like to be in his position. He also denied saying that the Australian dollar would not go down 7 per cent per year over seven years and he denied saying that a 7 per cent reduction per annum in the Australian dollar would not occur because of the previous record of stability of the Australian dollar in relation to the yen. He denied having any conversation with Mr Chiarabaglio concerning an offshore loan for him personally and denied saying that Mr Chiarabaglio could keep the balance of any offshore loan until he decided upon a project. He denied saying that it would be a good deal to borrow at 7 per cent and then to invest the money back with the bank at 13 per cent or that at the roll-over dates the borrower could change to another currency. He said that, at that time, the bank did not provide the facility which permitted the switching of the currency of the loan.
Mr Imhoff gave oral evidence supplementing his affidavit evidence and was then cross-examined at some length. He was asked about the charts which he said he produced at the meeting and the whereabouts of these. He said that he was reasonably sure that they did not go back beyond 1979. He did not have them available at the time of the hearing. He agreed that he did not recall having a "specific practice" of discussing offshore loans by reference to a chart at the meetings, but he said that such a chart was regularly used. He described as "just a slip" the more emphatic statement in his affidavit.
He agreed that Queensland was "the most successful" of the States in the sense that more foreign currency loans were arranged out of the Brisbane office than out of either the Melbourne or the Sydney office prior to April 1982. He also agreed that he was involved in all the loans which were made. He said that he thought that the Government, through the Reserve Bank, had restricted the growth in the money supply with the result that Australian banks could not lend more than an amount which represented an increase of 10 per cent "of what their book was the previous year". He said that it was also a time of substantial growth in the Australian economy and there was a big demand to borrow money. The Australian financial system could not meet that demand from its domestic resources. The 10 per cent restriction was not imposed on funds borrowed offshore.
Mr Imhoff was asked a number of questions about his selection of a period of only three years for his chart showing the movements of the Australian dollar and the Japanese yen. He agreed that the reason that he selected the period which he did was because 1979 was when he started charting exchange rate movements.
Other questions were asked which suggested that in relation to some matters Mr Imhoff was dependent entirely upon his diary note and his usual practice for his recollection. He agreed that it was not uncommon for follow up meetings to take place. In some cases there was one further meeting; in others there was a third. He was pressed on his practice regarding the keeping of diary notes and said that cases where he did not keep a diary note would be exceptional but he agreed that he might sometimes neglect to make a diary note and that it was possible that diary notes sometimes went astray.
We next turn to Mr Gow's evidence. We do so because he made a diary note of the meeting of 7 April 1982. Mr Story did not make a diary note of it but initialled Mr Gow's diary note to signify his approval of its accuracy. Mr Gow's diary note was as follows:-

"Subject: Proposed Euro Currency Loan. General: Directors of Northern Metals Pty. Ltd. Messrs Chiarabaglio, Ferraris, Hackett and Hofstey called for discussions regarding refinance of existing facilities. Mr Hackett and Mr Hofstey have been having discussions with an agent for European Asian Bank in respect of a $1 million loan at 8.9% (reducing rate - variable). Repayable interest only for first 2 years then 6 monthly reductions of Principal and Interest with overall clearance within maximum term 5/6 years.

Mr Nev Imhoff, Manager International Business, was present and outlined in some detail to the Directors the advantages and pitfalls concurrent with this type of finance. Bank could offer minimum of $1/2 million at an interest rate presently estimated to be under 10%, including Bank's margin. Terms could be arranged with some flexibility and those discussed were - - provision of interest only for first 2 years, payable 6 monthly in arrears at variable interest rate adjusted at 6 monthly rests.

- then, repayments of Principal and Interest to clear borrowing within overall maximum term 5/7 years. Also discussed repayment in full on sale of Whispers and advised that this could be done at any 6 monthly rollover, provided 30 days notice was given, and if repayment was effected in 1st or 2nd year, penalty clause of .5% flat would be applied. We would need to set up some type of security realisation account if Whispers security was sold pending clearance in full. Additional charges quoted:

- establishment fee .35% flat.

- interest rate was based on present SIBOR rate + margin of 3% per annum.

(fixed full term).

Also discussed possibility of hedging from the outset but this is not on with present rates being 13% p.a. based on interest rate differential. Japanese prime rate is presently 6.8125% and a loan of 135,000 yen would be required.

Risks involved with currency fluctuations were clearly explained to all Directors by Mr Imhoff in the presence of Mr Story and Mr Gow. There was some talk between the Directors that they would take the opportunity to include some personal borrowings in the deal, but we would wish to discourage this and they are to get back to us after their private discussions.

Mr Hackett has been requested to provide up to date Balance Sheets and Accounts and projected cashflow figures. Hand out of average euro currency rates and Australian bank bill rates history since 1979 and average exchange rates against Australian dollars, along with percentage movements from average rates in various currencies were given to each of the Directors. ACTION:

M.A. "A": You could start piecing together application pending advice to proceed and provision of up to date figures from Mr. Hackett."

In his affidavit Mr Gow referred to the diary note and then gave an account of his recollection of the meeting of 7 April 1982. He said that Mr Imhoff discussed the range of currencies that would be available to the company if it borrowed offshore. He presented the directors of Northern Metals with what he described as some written historical information in relation to interest rate and exchange rate movements of Japanese and other currencies. He told the directors that they should adopt a balanced approach and that cheaper interest rates were not necessarily the best option to adopt because of the potentially adverse movements in exchange and interest rates in the future. He said that Mr Imhoff explained what was involved in hedging. He did not recall any discussion concerning the management or the monitoring of offshore loans.
Mr Gow recalled Mr Imhoff saying that the main pitfall in borrowing offshore was the fact that both exchange rates and interest rates were not fixed and could change either to their advantage or disadvantage. He invited the directors to contact him if they had any further queries after reading literature which Mr Gow said Mr Imhoff handed to them. The meeting ended, so Mr Gow said, on the basis that Mr Hackett would provide up to date balance sheets and accounts of Northern Metals to the bank and that the company would advise whether it wished to proceed with an offshore loan.
Mr Gow said that there was no discussion at the meeting of a proposal by Mr Chiarabaglio to borrow offshore himself. He said that Mr Imhoff did not say that, if he were "in your position" he would go ahead or that he would like to be borrowing offshore "like Mr Chiarabaglio" or that he would like to be "in his position". According to Mr Gow, Mr Imhoff did not say that the Australian dollar would not go down 7 per cent per year over seven years or that a 7 per cent reduction per annum in the Australian dollar would not occur because of the previous record of the Australian dollar in relation to the Japanese yen. Mr Imhoff did not say that it would be a good deal for Mr Chiarabaglio to borrow at 7 per cent and to invest the money with the bank at 13 per cent.
Mr Gow said that on 19 April 1982 Mr Chiarabaglio saw Mr Story with a proposal for a loan of $500,000 to a family company, that is, Domild, the third respondent. The application for the loan was made on 23 April 1982 to the State Lending Manager. The loan was approved about 10 May 1982 which is the date of the letter sent to the Chiarabaglios by Mr Gow informing them that the loan had been approved.
Mr Gow gave oral evidence in chief in addition to his affidavit evidence. He remembered Mr Imhoff saying that the minimum amount which could be borrowed was $500,000, that the interest rate was variable but fixed within roll-over periods, that the current interest rate, as related to Japanese yen, would be inside 10 per cent per annum, that the loan could be made available on an interest only basis for the first two years and then with principal reductions for an overall term of five to six years. He said that there was a considerable amount of discussion about hedging and he gave his recollection of this. He was shown a document (exhibit 13) which he said comprised papers such as were given by Mr Imhoff to the directors of Northern Metals. He said that there was a considerable discussion about risk. In particular, Mr Imhoff pointed out the risks involved related to adverse movements in exchange rates and adverse movements in interest rates. The bank, because of these risks, required more security for offshore loans than was required for conventional loans. The meeting ended on the basis that the directors would go away and consider the material provided and would advise the bank whether they would proceed or not. Mr Gow repeated a number of the statements he made in his affidavit in which he asserted that words attributed to Mr Imhoff by Mr Chiarabaglio were not used by him.

Mr Gow said that there was some discussion about the possibility of one or more of the directors borrowing offshore. He said that Mr Hofstee said that he might like $100,000 or so and it might be convenient to incorporate that into this facility and then it could be on lent to him for private use - Mr Gow thought in relation to a home he was building or finishing at Westlake. Mr Gow could not recall how this discussion developed but said that other directors then became interested. He recalled that Mr Story "truncated that flow of conversation to get back to the matter at hand".
Mr Gow was subjected to an extensive cross-examination to most of the detail of which we do not find it necessary to refer. We should mention, however, that it was put to him that it was not unlikely a second meeting took place at which Mr Imhoff was present. Mr Gow's answer was, "It is highly unlikely; it just did not happen ... There is no record of that ever happening ... I was present at all times ... and Mr Story would have communicated that to me in his usual fashion and I would have been made totally aware of that situation". Mr Gow said that he strongly disagreed with a suggestion that there were two meetings at which Mr Imhoff was present prior to the loans being drawn down.
The document which became exhibit 13 and which Mr Gow said was handed to the Northern Metals directors at the meeting on 7 April 1982 is a schedule which is headed, "Percentage movement of today's rate from average rates during: ..." Underneath the heading were ten columns headed respectively, "Today's Rate", "Country", "Rate of Previous Day", "Past Five Days", "Last Mth. Mar/82", "Three Mths. ago Jan/82", "Six Mths. ago Oct/81", "Twelve Mths. ago Apr/81", "Rates after devaluation 29 Nov. 1976" and "Rates after Smithsonian 18 Dec. 1971".
The schedule is dated 7 April 1982 which was the date of the meeting and is stated to have been issued by the International Division of the bank in Sydney. In the second column, which is headed "Country", are the names of a number of countries including the United States of America, the United Kingdom, Germany, Japan and Switzerland. As its heading says, the schedule shows movements in the relationship between the value of the Australian dollar as against a variety of currencies including the Japanese yen and the Swiss franc. The schedule discloses a substantial decline in the value of the Australian dollar as against these currencies in 1971 and also in 1976. The fall is not nearly so pronounced if one goes back 12 months to April 1981. More needs to be said of this schedule in due course, but it should be noted at this point that Mr Gow's evidence about it appears to be in conflict with that of Mr Imhoff because Mr Imhoff's recollection was that the document he had with him showed movements of the dollar only from 1979, that being the year in which Mr Imhoff had taken up his then position of Queensland Manager, International Business.
We turn to the evidence of Mr Story. He was appointed the relieving manager of the Fortitude Valley branch of the bank in 1980. It was then that he first met Mr and Mrs Chiarabaglio. He became manager in July 1980 and held that position until his retirement in the middle of 1983. Mr Story referred to his knowledge of the investments of the Chiarabaglios and discussions he had had with them concerning advances.
On 5 April 1982 Mr Hackett rang him to discuss the Northern Metals debt. Mr Story produced a diary note of that conversation. He said Mr Hackett told him the company was looking for a cheaper method of finance and he had attended a conference in Sydney at which offshore lending had been discussed. Mention was made of the fact that the European-Asian bank was prepared to offer Northern Metals a loan of $1 million in Japanese yen for a period of six years at an interest rate of 8.9 per cent per annum. Mr Story told Mr Hackett the bank might be able to assist the company with an offshore loan of a minimum of $500,000. Mr Story said that he was not fully conversant with this method of lending. He arranged for Mr Hackett to meet Mr Imhoff.
Mr Story referred to the meeting of 7 April 1982 and to the diary note which had been prepared by Mr Gow. He had initialled the diary note and it was recorded in his diary book. The diary note has been previously set out.
Mr Story recalled Mr Hackett saying that he and Mr Hofstee had been having discussions with the European-Asian bank in respect of a $1 million loan. He said that Mr Imhoff showed the directors graphs of movements in the exchange rates between the various currencies and also, so he believed, movements in interest rates. He said a lot of questions were asked by the directors, particularly by Mr Hofstee who said that he was arranging a personal offshore loan with the National Australia Bank. The meeting concluded with Mr Story requesting Mr Hackett to provide up to date balance sheets and trading accounts for Northern Metals. Mr Story said, "As far as I can recollect, this was the only meeting in which I was involved between Mr Chiarabaglio, the other directors of Northern Metals and Mr Imhoff".
Mr Story then dealt in detail with representations alleged to have been made by Mr Imhoff. Amongst other things he said Mr Imhoff explained that there was a benefit in borrowing offshore, namely, the lower interest rate. But Mr Story said at no stage during the discussion could he recall Mr Imhoff advising Mr Chiarabaglio it would be good business for the Chiarabaglios to borrow offshore in the sum of $500,000. It was Mr Story's recollection that there was no discussion of a loan to them at all and that that matter was not raised until a further meeting on 14 April 1982. Mr Imhoff was not present at that meeting. He said the discussion did include some talk amongst the directors themselves of taking the opportunity to extend the company's borrowing to include some personal borrowings, but there was no discussion on that occasion of the Chiarabaglios obtaining a separate offshore loan.
Mr Story denied that Mr Imhoff said there was no risk whatsoever in an offshore loan. He recalled him saying that there were risks which might arise from adverse movements in the exchange rate or the interest rate. He said Mr Imhoff referred to historical information on previous fluctuations in exchange and interest rates. Mr Imhoff did not say that, if the Australian dollar devalued 10 per cent to 15 per cent over the whole period of the loan, the borrower would still be better off because of the large differential between the two interest rates nor did Mr Imhoff say that the worst situation would be if the Australian dollar devalued 10 per cent to 15 per cent over the whole period of the loan.
Mr Story said there was a discussion about hedging but said Mr Imhoff said that hedging over the full term of the loan would negate any benefit in borrowing offshore. Mr Story went on to deny most of the critical statements in Mr Chiarabaglio's, Mr Hackett's and Mr Ferraris' affidavits. We do not repeat these statements here.
Mr Story said Mr Chiarabaglio "contacted" him on 14 April 1982 to discuss two proposals he had for obtaining finance offshore. Mr Story said he made a diary note of the conversation which he produced. The diary note was as follows:-

" MANAGER 14/4/82. CHIARABAGLIO: D. and I.

A/c No. 24-0273 Cr.$4,039 F.D.A. 24-1110 Dr.$30,000S.$200,000 Domild Nominees P/L A/c 32-2076 Cr/ $35 S.B. Loan 08-9339 Limit $23,488

Bill Line $65,000 due 5/5/82 expires 31/7/62 Subject:(a) Clearance of existing loans as above. General: Following our recent discussion of off shore lending in relation to Northern Metals Pty. Ltd., Mr Chiarabaglio will seek through Northern Metals a loan of $130,000 which would be included in their 'package borrowing' 'on lent' to him. With this, he would clear all existing bank debts.

If we are to go ahead with the Northern Metals off shore lending, we could possibly accommodate borrowings for Northern Metals of up to $600/630,000 within existing security and at this stage see no objection to this from our point of view. However, there could be legal implications (on lending to Directors) which would need to be sorted out.

Decision: None at present. We will await response from Northern Metals. If all Directors want to 'get on the band wagon' the whole arrangement could easily fall through.

Subject:(b) Off shore borrowing in own name $1/2 million General: Mr Chiarabaglio for some time has considered bringing his 23 year old son into a building operation on a full time basis. He has in mind building units (one block per time) in good locationed Brisbane suburbs. Carried away by the attraction of 'off shore borrowing' he has in mind a borrowing in his own right $1/2 million against his own security. He would utilise say $300,000 on initial project, reserving $200,000 to meet interest payments and contingencies. On sale of first block, he would start on second project and so on. The borrowing would be first 2 years interest only basis. General discussion at this stage in which I have shown no enthusiasm and dealt with the many pitfalls. Decision:

None at this stage. He proposes a family 'pow-wow' and may get back to us. He is fully aware that I can make no commitments in this regard. He is also aware that he would need to provide security to at least $1 million bank valuation and be generating sufficient income to meet both interest and repayments."

Mr Story's account of his conversation on 14 April 1982 with Mr Chiarabaglio follows the form of the diary entry. It is to be observed that Mr Story did not say whether the conversation was a telephone one or one which took place in his office. The diary note throws no light on the matter. It was suggested in argument that the diary note should be regarded as no more than an account of the history of the transaction to date with the consequence that it should not be taken to be the record of any meeting or telephone conversation. We think, however, that the words, "General discussion ..." point to there having been a conversation. That would seem to have been his Honour's view. Mr Story's recollection was that there was a meeting which ended with his saying words to the effect, "If it were me I wouldn't be doing it."
Mr Story said Mr Chiarabaglio saw him again on 19 April 1982. Mr Gow was present. The conversation was recorded in a diary note which Mr Story produced. The diary note was as follows:-

" MANAGER.

CHIARABAGLIO: D.and I. 19/4/82.

F.D.A. 24-0273 Cr. $4,039 F.D.A. 24-1110

Limit $30,000 Dr. $30,000 S. $200,000 Domild Nominees P/L

A/c 32-2076 Cr. $35

S.B. Loan 08-9339

Limit $23,488 Dr. $23,486 S. $88,500 Bill Line $65,000

due 5/5/82 expires 31/7/82

Subject: Formation of new Company - offshore borrowing.

General: Mr Chiarabaglio has now come forward with the following proposal:

Formation of a new Company, possibly called Chiara Developments Pty. Ltd.

Shareholders would be:

. Chiarabaglio and his wife - 1/3rd interest. Personal particulars on file. He is a qualified Engineer and has been a Registered Builder since 1966.

. Chiarabaglio - John Luigi, son, aged 23. Assistant Manager Whispers - salary $300 p.w. net.

. Chiarabaglio - Lynette Maria, daughter, aged

28. Bachelor of Applied Science and Bachelor Pharmacy working as a locum chemist, earnings approximately $350 p.w. net. The purpose of the new Company would be to erect unit blocks say 6/8 units per site per time. Requirements would be:

Offshore loan Aust. equiv. (in Japanese Yen) $500,000 to cover:

Existing bank liabilities $120,000 Purchase land and erection

of units $330,000 Margin for interest and

contingencies $ 50,000 $S500,000 Repayment offered: interest only half yearly for the first two years then

half yearly reductions of Principal and Interest with an overall term of 6 years. The erection and sale of units would be an ongoing operation.

Security offered would be: Registered Mortgages over the following:

. No. 5 and 7 Byres Street, Newsteed, an industrial warehouse.

His value - $300,000 . 490 Hamilton Road, Chermside, unit property.

7 x 2 bedrooms, one with extra garage, one x 3 bedrooms, extra lounge and 2 garages. Erected 1964, 8400 sq. ft.

His value - $500,000 . Garnett St. and Cormorant Cres., Peregian Beach.

A 2 storey cavity brick house, 1400 sq. ft. up and down. His value - $150,000"

Mr Story said that he referred the proposal to the Chief State Manager's office. The matter was dealt with in an application dated 23 April 1982. This set out particulars of the Chiarabaglios and their family, the proposal for an offshore loan, the security which was offered, the Chiarabaglios' capacity to service the loan, the future prospects and collateral advantages to the bank which were said to be in related accounts. Under the heading, "Management", Mr Story said that Mr Chiarabaglio was an astute man in both finances and building. He said that a company was to be formed. He said that any surplus funds available from time to time were to be retained "in the system", probably in interest bearing deposits. He concluded by saying that Mr Imhoff had fully explained the advantages and pitfalls in offshore borrowing to Mr Chiarabaglio.
On 10 May 1982 Mr Story received confirmation of approval of the loan by the Singapore branch of the bank, and he informed the Chiarabaglios of this by letter. The loan was drawn down on 20 July 1982. The bulk of the loan moneys was lodged on an interest bearing deposit. On 20 January 1983 the loan was rolled over for a further period of six months.
Mr Story gave oral evidence confirming much of what he had said in his affidavit. We do not repeat it. He was subjected to a lengthy cross-examination. He was asked whether he kept a diary note of every telephone conversation he had in 1982 and 1983. He said he did not. He was asked whether he necessarily had a diary note for every meeting and said, "If it had good content in it, I should have". The cross-examination continued as follows:-

"Now, as we have seen, you have - in the past, you have read through the diary notes that you were shown by the bank to refresh your memory. That is so, is not it? ---Yes. And you have refreshed your memory from them again here this morning? ---Yes.

It would be fair to say, I suppose, Mr Story, that without the benefit of being able to go to the diary notes and read through them that you would not have been very successful in remembering many of the matters that appear in your affidavit? ---Correct.

And it is fair to say, is not it, that much of what appears in the affidavit is based upon your reading and understanding of the diary notes? ---Plus a few thoughts of my own.

Yes. Now, in paragraph 7 of your affidavit, you have set out some recollections of what was said at the meeting on 7 April 1982? ---Yes.

Is that so? ---Yes.

Now, may I take it that what appears there is based upon your understanding of the diary note of that date? ---Yes."

He was asked to describe the graphs which he said had been produced at the meeting, although we note that, when first asked about them, he said, "I feel" that Mr Imhoff showed graphs at the meeting. He said that he understood the period of the graphs was three years but said that he had thought it was longer. He said that he had obtained his understanding from the diary note which contains the words, "Handout of average Euro currency rates and Australian bank bill rates history since 1979 and average exchange rates against Australian dollar along with percentage movements from average rates in various currencies..."
Later the cross-examination proceeded as follows:-

"But generally the effect, I suggest to you, or the substance of what he was pointing out, was that the fluctuations tended to be of a fairly even nature. You would be down at one period, up another, down another period, up another? ---Yes.

He did not say any words to the effect that borrowing in foreign currencies was a gamble, or very much a gamble?---No. He did not say that no one, not even the bank, can predict where the Australian dollar might be against the Japanese yen six months hence? ---I do not recall that. He did not say that, or words to this effect, 'Insofar as any prediction can be made, it is that the Australian dollar will drop so as to effectively remove the benefit of borrowing in foreign currency'? ---I do not recall. He did not speak in terms of any borrower of foreign currencies entering into an open-ended commitment, or anything of that nature? ---I do not recall. But I suggest to you that he did give an example of how the Australian dollar could depreciate by a certain percentage from year to year and the borrower could, nevertheless, remain ahead having regard to the disparity between local interest rates and the interest rates applying to foreign currencies? ---I do not recall the facts of that.."

A further significant passage in the cross-examination is as follows:-

"... there is no doubt that you formed the impression, either during or after the Imhoff presentation, that Mr Chiarabaglio was keen on getting an offshore loan? ---After. And you were in no doubt at the time, taking yourself back to 1982, that the reason for Mr Chiarabaglio's enthusiasm, if I can use that word, about offshore loans was because of what had been said by Mr Imhoff? ---I would have to say because of the attractive low interest rate. And his enthusiasm, or keeness, manifested itself after the Imhoff presentation? ---Yes.

You, in fact, regarded him as being carried away about the benefits of a Japanese yen loan? ---I would say. You regarded him at the time, I suggest, as an intelligent enough man? ---Yes.

And his reaction, I suggest to you, was not perverse having regard to what he was told by Mr Imhoff? ---No."

In the course of his evidence in chief Mr Story referred to the chart, exhibit 13. He said that he had some difficulty reading it and did not then understand it. He said that he would have understood it on 7 April 1982 "with concentration".
Mr Story was adamant that no question of Mr Chiarabaglio borrowing money on his own account was raised at the meeting of 7 April 1982. He denied that Mr Imhoff said that, even if Mr Chiarabaglio did not have any use for the moneys remaining after paying out what he owed the bank, it was good business to invest the balance on an interest bearing deposit because the Australian rate of interest was nearly double the interest payable on the offshore loan. He also denied that Mr Imhoff had said that there was no risk in the transaction because of the stability of the Australian dollar as regards the yen.

He said he was "fairly confident" his diary note of 14 April 1982 recorded a meeting rather than a telephone conversation. He conceded that he could not recall the matter and continued, "but I am confident that it was a meeting because, naturally, you try and recollect, and I feel that I could see him opposite me talking to me."
Mr Story said he did not believe there was a second meeting at which the Northern Metals directors and Mr Imhoff were present. He said that he would normally make a diary entry in respect of such a meeting and that it was "quite unlikely" he would not have prepared a diary note.
Mr Story described Mr Imhoff's presentation as "not discouraging". Mr Story said that after it was over he could see that Mr Chiarabaglio was "carried away" with the advantages of an offshore loan. Mr Story agreed also that he perceived that other directors of the company might want "to leap on this bandwagon". He agreed that the two he knew - Mr Chiarabaglio included - were "normally cautious, conservative people".
Findings of the Trial Judge
It is appropriate now to come to his Honour's findings in relation to the evidence. At an early stage of his judgment his Honour said that, at the conclusion of the hearing, he had reached "a fairly strong provisional view of the facts, based upon my impression of the evidence and the witnesses as the case proceeded." As his Honour said, it was a case where the demeanour of witnesses and the manner of their giving evidence was of not inconsiderable significance. His Honour said that since the completion of the evidence and addresses, he had reread and considered the whole of the evidence and the submissions and found at the end of this process that his provisional views were confirmed.
In remarks made by his Honour concerning his perception of Mr Chiarabaglio, he said he was satisfied that Mr Chiarabaglio's approach was conservative and cautious, that he took no business risks of an unacceptable kind and that he would not, by his nature, indulge in any business venture which could be described as involving speculation or gambling. This finding was in accordance with Mr Story's own assessment of Mr Chiarabaglio.
After referring to events which led up to the meeting of 7 April 1982, and to the witnesses who gave evidence about it, his Honour said:-

"I have already said that at the conclusion of the hearing of this matter I had a strong provisional view. That view was that I preferred the evidence of Messrs Chiarabaglio, Hackett and Ferraris as to what transpired at this meeting to the evidence of the bank officers. That is still my view. I was more impressed with the demeanour of the Northern Metals directors than I was with the demeanour of Messrs. Imhoff and Gow who provided the more detailed aspects of the bank's evidence. I felt that these two gentlemen, who currently hold responsible positions in the bank, tended to slip, albeit unconsciously, rather readily into the role of advocate for their employer. I felt quite frequently absence of real recollection was readily supplemented by resort to reconstruction based upon a current conception of what must have been said at the time in order to bring home fully and completely the extent of the risk involved in taking a loan in a foreign currency. In truth, it was quite apparent that these gentlemen were very dependent indeed in giving their evidence upon the bank diary notes that they had brought into existence shortly after the discussion. The notes did not, and would not in the nature of things, purport to be a verbatim record of the discussion. My strong impression was that these bank officers had no recollection of the conversation over and above what appeared in the diary notes and that their evidence, in those circumstances, was little more than an attempt to flesh out the bare bones of the notes with material that could never amount to more than an educated guess at what must have been said. I do not mean by this that they were in any way seeking to mislead the court. I am merely indicating that in assessing the weight of their evidence, it is not possible to accord to it significance that one can give to evidence which, although vague and imperfect, nevertheless amounts to an actual recollection rather than an attempt to arrive by deduction at what must have occurred."

His Honour said that Mr Imhoff's evidence was based upon his diary note coupled with evidence as to what his practice was when conveying information about offshore loans to intending borrowers. Of Mr Gow he said that he was quite confident that recollection "tended to merge with reconstruction to an extent that made it impossible to attribute any real weight to what was said to be recalled." He rejected Mr Gow's evidence insofar as it purported to be recollection independent of the diary note that he made.
He had a different view of Mr Story. His Honour said:-

"I was more impressed with the evidence of Mr Story. He had very little prior knowledge of the nature and ramifications of offshore currency borrowing before he listened to Mr Imhoff's presentation at this meeting. Accordingly his recollection of what was said by Mr Imhoff in his presentation and of his reaction to it, provides a helpful indication of what might well have been the impression received by an intelligent interested but inexperienced audience from Mr Imhoff's presentation of the respective advantages and disadvantages of 'offshore' borrowings in 1982."

His Honour then came to the question whether there had been two meetings at which Mr Imhoff had been present or only one and said that he felt that the assertion by the bank's witnesses that there was no second meeting was, in the ultimate, really founded upon the absence of any bank diary note recording any such meeting. His Honour continued:-

"As previously indicated, I am firmly of the view that the evidence of these witnesses is for practical purposes confined to their diary notes. Although it was clearly practice for a bank diary note to be made of all significant meetings, this practice was equally clearly departed from on occasions. For instance, Mr Look, who succeeded Mr Imhoff as Queensland Manager International Business of Westpac did not record a meeting at which a decision was made to switch currencies from Japanese yen to Swiss francs in respect of the loans of Northern Metals and also of the Applicants, a decision which surely must have been a significant one. Again, Mr Imhoff indicated that it was not unusual for there to be more than one discussion between intending borrowers and himself preceding the actual taking of a loan in foreign currency. I gained the strong impression that, where a meeting was really a follow-up of a previous meeting, a diary note would not necessarily be made of the second meeting."

His Honour referred to the diary notes made by Mr Story of 7, 14 and 19 April 1982 which we have earlier set out. He said it was clear that, by 19 April 1982, Mr Chiarabaglio had decided to borrow $500,000 for the purpose of carrying on proposed building work but that a portion of the loan was to be used for the purpose of discharging his current indebtedness to the bank.
His Honour later said:-

"Clearly at some point between the termination of the discussion of the 7th of April and his meeting with Mr Story on the 19th of April Mr Chiarabaglio had given consideration to his taking of a loan of $500,000.00, the minimum available, for use in a building venture rather than restrict borrowing in yen to the much smaller amount required to discharge his current loan from the bank. It is quite inconsistent with the view that I have firmly formed as to Mr Chiarabaglio's nature and his approach to matters of finance that he would have reached a decision to seek a loan of $500,000.00 in yen without having had some discussion about it with an appropriate bank officer. Such a discussion could have occurred on the 7th of April. Both Mr Chiarabaglio and Mr Hackett however have a firm recollection that it occurred at a subsequent meeting with Mr Imhoff held very shortly after the meeting of the 7th of April. I am of the view that in this, as in other matters, Mr Hackett and Mr Chiarabaglio evince a hard core of reliable recollection. It would not have mattered, from their point of view, whether the representations relied upon were made at one meeting or in the course of two meetings. I accept their recollection of the occurrence of two meetings as against the absence of any bank diary note recording the second meeting. I am satisfied that it was of the nature of a second follow up meeting of the type not infrequently had with Mr Imhoff at that time and that, as such, it was not recorded by him. I am satisfied that a lot of the previous ground was traversed again and that Mr Imhoff would, not unreasonably, have seen it, at the time, though not now recollected, as a retracing by him of ground already covered in the first more formal meeting. I am satisfied, however, that at a second meeting with Mr Imhoff, prior to his speaking with Mr Story on the 14th of April, Mr Chiarabaglio discussed the taking of a $500,000.00 loan himself with some reference to the utilisation of the money once borrowed."

In the course of the discussion which followed his Honour referred to the schedule which is exhibit 13 and to references in the diary notes to a "handout" of various documents to the directors. His Honour's conclusions in relation to the exhibit and the other documents were as follows:-

"It is not clear whether they all had a commencing point of

1979. Such a time span would accord with Mr Imhoff's evidence as to the documents that he brought to the meeting. On the other hand the evidence of the directors tends towards a provision of documentary material covering a period of ten years into the past. The evidence does not enable me to establish with any clarity what the documents were. It is possible that one of them was the document, exhibit 13, which in fact covered a time span of ten years but I am unable to find on the probabilities that it was in fact handed out at this meeting. Mr Gow speaks of the documents having been handed to the directors so that they could be taken away and analysed by them. The note, again, does not support this nor, in my view, does any other evidence in the case. The most likely situation is that certain documentary material was used by Mr Imhoff in his presentation and it was handed around amongst those present to be considered by them to the extent that unfamiliar material containing comparative figures over a period of time can be considered and absorbed in such circumstances."

His Honour concluded that he was unable to accept the evidence of Mr Gow where it was in conflict with the evidence called on behalf of the Chiarabaglios.
His Honour, having referred to Mr Imhoff's evidence and diary note, said:-

"What the note does not indicate is, of course, what was actually said by Mr Imhoff in relation to exchange risks and also the manner in which it was said. As to this, Mr Imhoff can speak only as to his practice. It is clear, however, that he did not describe the risk as being an open ended one; nor did he describe the transaction as being of its nature a gamble. He makes no mention of the use of written or graph material in the presentation nor of there being a 'hand out' of the material to the directors for their further study, an event which I am satisfied did not occur. It is clear that, although reference was made to withholding tax, there was no discussion of the deductibility or otherwise of exchange rate losses on the capital of the loan.

There is a fundamental conflict between the assertion by Messrs Chiarabaglio, Hackett, and Ferraris, and Messrs Gow and Imhoff as to the manner of presentation of the material by Mr Imhoff. The former assert that the style of presentation was enthusiastic and encouraging in relation to offshore borrowing with emphasis on the advantages and but scant reference to the risks involved. Hedging was mentioned briefly and only for the purpose of indicating that it was not worthwhile. It is the contention of the latter that the presentation was measured and balanced with firm emphasis on the risks involved, with reference to historical detail and a full exposition of hedging, total and partial, involving references to 'monitoring'. As already indicated, Mr Gow gave a recollection of the mentioning of substantial inherent risks requiring careful 'management'."

His Honour then expressed views about Mr Story's evidence. Counsel for the bank placed substantial reliance on this part of the judgment and contended that his Honour's ultimate finding led him into a situation which was in conflict with his conclusions about Mr Story. His Honour said:-

"I have gained considerable assistance in resolving this conflict from the evidence of Mr Story. He was quite clear that at the completion of Mr Imhoff's presentation he personally did not have any impression that the contemplated transaction was one involving much risk. From his knowledge of Mr Chiarabaglio he was satisfied that he would not have contemplated entering into the transaction if there was any significant risk attached to it. In his diary note of the meeting with Mr Chiarabaglio on the 14th of April 1982 he says of him that 'carried away by the attraction of 'offshore borrowing' he has in mind borrowing in his own right half a million against his own security.' He was satisfied that the applicant was 'carried away' as a result of what Mr Imhoff had said on the 7th of April 1982. Mr Story also says that this was not a perverse reaction on the applicant's part having regard to what he was then told by Mr Imhoff.

Mr Story also indicates that he regarded both Mr Hackett and Mr Ferraris as cautious men of business. Nevertheless he recorded in his diary note of the 14th of April 1982 in relation to Mr Chiarabaglio's suggestion that he might borrow $130,000.00 by way of its being included in a loan made to Northern Metals and then on-lent to him, that if all Directors want to 'get on the band wagon' the whole arrangement could easily fall through. He was clearly of the view that Mr Imhoff's presentation had also made Messrs Hackett and Ferraris enthusiastic about the prospect of offshore borrowing.

It was also Mr Story's view that Mr Imhoff's presentation although a good qualified one was 'not discouraging'. From a careful consideration of his evidence and the giving of it I am of the opinion that his view of the manner of Mr Imhoff's presentation of his advice and information on the 7th of April 1982 is best summed up where he says that Imhoff 'spoke quite positively about the prospects of an offshore loan.'"

His Honour said he was satisfied that, at the conclusion of Mr Imhoff's presentation on 7 April 1982, there was general enthusiasm amongst the Northern Metals directors about the company's borrowing in yen. He accepted that there had been discussion about a loan to Mr Chiarabaglio personally. He said he was satisfied that at the meeting on 7 April Mr Imhoff did use "encouraging phrases" such as that offshore borrowing was now "the going thing".
His Honour concluded that a second meeting had taken place and said that what was then said would have had "a striking effect" upon Mr Chiarabaglio. He said it was unlikely that words of the kind used by Mr Imhoff would have been recorded in a bank diary note. He said he thought that Mr Imhoff, in 1982, was "genuinely enthusiastic about the bank's offshore loans, saw them as a worthwhile product, believed them to be advantageous to the bank's customers as well as to the bank, and was keen to promote them." His Honour said that, in those circumstances, although Mr Imhoff did not recollect what he said and, in hindsight, did not believe that he could have done so, he had no difficulty in accepting Mr Chiarabaglio's evidence that Mr Imhoff encouraged him to take out "the minimum loan of $500,000".
His Honour then went on to refer to specific passages of Mr Chiarabaglio's evidence of the conversations which he said he accepted. He said that Mr Hackett provided corroboration for these statements and that he was satisfied Mr Hackett was a witness upon whose testimony he could rely.
His Honour made findings that the following representations had been made by Mr Imhoff:-

(a) It was good business for the Chiarabaglios to borrow offshore in the sum of $500,000.00;

(b) There was no significant risk in an offshore loan;

(c) Hedging an offshore loan was not worth the cost of doing so and was not necessary;

(d) (By reference to charts recording movements in the yen, the Australian dollar and other currencies in previous years), the Australian dollar would stay strong as against the Japanese yen.

His Honour also found that hedging and monitoring were referred to in a most cursory way with no explanation of the very serious difficulties involved in determining when and in what circumstances to hedge.

In relation to negligence, his Honour, after some discussion of the authorities, said that he was satisfied Mr Imhoff, and hence the bank, were under a duty to take care. His Honour said that the duty required Mr Imhoff to advise the Chiarabaglios "at the level of an adviser of ordinary competent skill and experience in foreign exchange borrowing." He said he was satisfied that Mr Imhoff was obliged to explain fully and properly the nature and effect of the transaction. The explanation was required to be one which was adequate in all the circumstances.
His Honour then turned to the question whether there had been a breach of this duty. He referred to an internal document of the bank and said that at high management level there was full appreciation of the fact that there were significant risks involved in offshore borrowing both from the point of view of the customer and of the bank itself.
His Honour was confronted by a conflict in expert testimony concerning what was required of a bank officer in circumstances similar to those being dealt with by Mr Imhoff. He preferred the evidence of a Mr O'Brien to that of Professor Valentine. He accepted a number of specific matters to which Mr O'Brien referred. These included the need for a considerable amount of discussion of exchange risks and the provision of historical information about previous exchange rates and interest rates. The unpredictability and suddenness of exchange rate movements were required to be emphasised. His Honour drew a number of conclusions and found that Mr Imhoff, and thus the bank, was wanting in respect of each of Mr O'Brien's criteria. In particular his Honour found that Mr Imhoff's presentation failed "to lay due and proper emphasis on the unpredictability of exchange rates." He said that, on the contrary, he was satisfied the presentation led to a reasonable perception that, whereas fluctuations would occur, they would basically be of an even nature along a horizontal axis. By this he meant that there would be both rises and falls so that, if a line were drawn through the midpoint of the peaks and troughs, the result would be a fairly even one. His Honour said that no picture was given of the type of sharp decline, without recovery, to a lower level of valuation of the Australian dollar against the yen which had occurred in years prior to 1982. His Honour said that, in all the circumstances, he was satisfied that a breach of the duty of care owed by the bank to the Chiarabaglios had been established.

As mentioned, counsel for the bank relied upon the fact that the claim was made more than three years after the transaction had been entered into. There was a fall of some 13 per cent in the value of the dollar in the first six months of the loan and it was counsel's submission that that was enough to trigger alarm on the Chiarabaglios' part. If they had had a just claim against the bank, they would have mentioned it about that time rather than more than two years later. The evidence about the fall in the dollar up to that time is important for the submission relating to causation to which we shall come in due course. But it seems to us that there is nothing in his Honour's treatment of the submission based on delay which discloses any error.
His Honour noted that, whilst the exchange rate never recovered to what it had been at the time of the draw down of the loan in July 1982, there were fluctuations up and down in 1983 and 1984. As his Honour said, the really serious depreciation did not commence until the early months of 1985. His Honour said that he was satisfied that Mr Chiarabaglio was encouraged in conversations that he had with bank officers in this period to take an optimistic view of the future of the exchange rate. His Honour said that he was satisfied that, although naturally concerned about the losses he was sustaining, Mr Chiarabaglio maintained his faith in the bank until early 1986 when it became apparent that the situation was beyond control. His Honour said that it was not in his interests, as a major debtor of the bank, to make serious allegations against bank officers when he was looking to the bank for assistance and believed that the bank would assist him in the difficult problem that had arisen.
The matter was one peculiarly for the assessment of the trial judge. In reaching a conclusion about it, he had to take into account the whole of the evidence and not just that part of it dealing with events which transpired after the transaction had been entered into. The way in which the bank sought to use delay was to submit that it indicated that Mr Chiarabaglio had no cause for complaint but had decided to fabricate the evidence which he gave once it became clear that he was likely to suffer a substantial financial loss. His Honour formed a very positive impression of Mr Chiarabaglio's honesty and reliability. That, along with his analysis of Mr Chiarabaglio's state of mind in the years that followed 1982, was an all important factor which needed to be weighed in the balance when dealing with the bank's submission.
In the result we would reject the submission based on delay.
Demeanour
Counsel for the bank relied upon what was said to be an over-emphasis by his Honour on his impression of the witnesses called in the Chiarabaglios' case and their demeanour. Certainly the matter is mentioned more than once, but it is difficult to criticise a judge for this when cases of the highest authority continue to stress the primary importance of the advantage which a trial judge has when faced with the task of assessing the credibility of witnesses. The matter has been emphasised time and again both by the High Court and by the House of Lords. As recently as last year McHugh J., who wrote the principal judgment of the High Court in Jones v. Hyde (1989) 85 ALR 23, said (pp 27-28), after concluding that the observations of the trial judge in that case played a part in the trial judge's findings, "In accordance with the rules relating to the review of findings of fact based in whole or in part on demeanour, those findings are not open to review in an appellate court."
We think it is fair to say that trial judges vary in the importance which they accord to demeanour and, of course, there will be some cases in which it may play a significant part in the decision making process and others in which it will not be of substantial importance. There can be no question but that the assessment of the credibility of witnesses in a case involves in the end a subjective exercise on the judge's part. There are many ways of going about the task and it is one area in which the judicial process expects behaviour to be idiosyncratic. We think we may say that our own approach is usually to discount demeanour and our own subjective views about witnesses. We usually search amongst the surrounding circumstances and the contemporary documents for guidance; and we think it is important also to take into account the inherent probabilities of a matter. But an approach such as our own, which we believe to be followed by numbers of other judges, may not always be the correct one. Judges who mistrust their assessment of witnesses upon the basis of demeanour may be shying away from a matter which judges of the highest authority regard as extremely important. The authorities to which we have referred earlier encourage - really require - a judge to place reliance on his impressions of witnesses, and failure to accord one's impression sufficient weight may lead in some cases to injustice. It follows that we detect no error in his Honour's references to the demeanour of witnesses and his impression of them.
The Probabilities
Similar sorts of considerations apply in relation to the strong submission made by counsel for the bank that the case made by the Chiarabaglios was so improbable that it ought to be rejected. We are not persuaded that it was improbable. We mention again Mr Story's evidence that Mr Imhoff's presentation was not discouraging and the answers given by him about this matter in his cross-examination. We think that one needs to be careful not to bring to bear on a matter such as this a degree of hindsight. In 1982, when the transaction in question took place, the dollar was not floating and there was little experience either in banks or in the community generally of offshore borrowing by individuals or small businesses. Certainly there was no record of large numbers of transactions which, for whatever reason, have caused numbers of people in this community serious financial loss and have caused banks to revise their procedures when called upon to discuss offshore borrowing with their customers. By 1987 the position had changed dramatically. There have been numbers of cases in this Court and the Supreme Court of New South Wales (perhaps in other Supreme Courts as well) in which the objective facts have demonstrated the serious consequences of substantial falls in the value of the Australian dollar after it was floated at the end of 1983. That history would have been well known to the bank officers who gave evidence. It would now be quite unthinkable to them that anyone in recent times could advise in relation to such a transaction in any positive or optimistic way. Counsel put the submission to us with a great deal of force, but counsel themselves may have been able to put the case so forcefully because of their own knowledge of the experience of the last six or seven years.
Provisional View
The final matter to be mentioned concerns the criticism made of his Honour's reasons because he expressed "a provisional view" favourable to the Chiarabaglios' case and then tested that view against a variety of submissions. Counsel said that this was likely to lead a judge into error. Rather than approaching the task of judgment with an open and an objective mind, the task would be approached by one who has already provisionally made up his mind. In those circumstances it would be not unlikely that he would the more readily put aside any consideration, no matter how weighty, if it might lead him to a conclusion different from the provisional one at which he had arrived. We think there is force in this submission but the trouble is that judges do form provisional views. It is often impossible, especially after a long trial, not to have them. The fact that they are usually not discussed does not mean that they are not held and judges who do discuss their provisional views may even be thought to be more intellectually frank than those who do not. Having considered what his Honour said and the overall way in which he approached the decision making task in this case, we do not feel able to say that his Honour's method of going about it reveals any error.
Conclusions on Liability
Earlier in these reasons we said that the submissions made on behalf of the bank involved a wide ranging review of the evidence. His Honour's judgment was subjected to a most detailed analysis which has involved us in the time consuming task of reading much of the evidence and many of the exhibits. We are not complaining about this. Counsel for the bank, in the light of the authorities to which we have referred, had a difficult task. In order to succeed they had to show some fundamental error which would demonstrate that his Honour had misused the advantage which he had as trial judge. The hearing of the case occupied 17 hearing days. His Honour's judgment runs to over 80 pages and even then does not set out as much of the evidence as is set out here. Notwithstanding what his Honour said about holding a provisional view, his Honour's reasons satisfy us that he did engage in a close and anxious consideration of the evidence and did arrive at his conclusions with an open mind unaffected by his provisional view.
For the reasons we have given, most of the submissions which were relied upon should, in our opinion, fail. But there remain the two matters of criticism which we have found. These are the improbability that any second meeting with Mr Imhoff took place before 14 April 1982 and his Honour's unsatisfactory treatment of the matters put to him in relation to Mr Hofstee's absence from the witness box. Are these sufficient to persuade a court that the trial miscarried? What has worried us about the first matter is that it is capable of suggesting that his Honour failed to pay proper attention to the diary note of 14 April 1982 and may thus have failed to pay sufficient attention to those of 7 April 1982. The diary notes were critical for the bank's case and its submissions demanded that they be fully and properly considered. On the other hand, it seems to us that a finding that a second meeting took place after 14 April 1982 would not have run counter to the probabilities and would have accommodated the uncertainty which prevailed on 14 April 1982 upon which the bank so heavily relies. It is not without significance that Mr Hackett thought that the second meeting was up to two weeks after the first. It could not have been after 19 April 1982, but it could have been held between 14 and 19 April.
It seems to us that there is so much in the case which supports the conclusions at which his Honour arrived that a criticism of his finding that the meeting took place before, rather than after, 14 April ought not be allowed to disturb his ultimate conclusion. The matters which particularly support his Honour stem from Mr Story's evidence, particularly passages from his cross-examination which we have earlier quoted and his statement that Mr Imhoff's presentation was not discouraging. Yet, if one has regard to Mr Imhoff's and Mr Gow's evidence, the overall impression they give is that Mr Imhoff was extremely cautious and could not have been said to have made a presentation which was in the slightest degree encouraging. Finding Mr Chiarabaglio and Mr Hackett convincing, and supported to a significant extent by Mr Story, his Honour really could not have been moved from his acceptance of the Chiarabaglios' case by a different view about the date of the second meeting. Added to this is the plain fact that, as his Honour found, Mr Chiarabaglio was conservative in his business dealings. He was not a speculator, let alone a gambler. Counsel for the bank made some attack on this finding, but again it is from the evidence of Mr Story that one derives support for it. His assessment of Mr Chiarabaglio was that he was a cautious and conservative man in his business dealings.
We do not regard our criticism of his Honour's treatment of the submissions based on Mr Hofstee's absence from the witness box as being of major significance. This is in part due to our view that Mr Hofstee was on balance, not a witness whom it was "natural" for the Chiarabaglios to call and in part on the view we have that, given the general acceptability of Mr Hackett's evidence, one would have had to find that Mr Hofstee was given to irrational behaviour. That would be a sufficient explanation for the failure to call him.
The way the appeal was argued involved a meticulous examination of aspects of the evidence, particularly the diary notes, to which a rigorous logic was then applied. Full consideration of contentions so presented has required an exploration of the evidence in detail. But his Honour was entitled to take a broader view, as he did. It is not common sense to build an intricate logical construction wholly upon so uncertain a foundation as the incomplete and not unambiguous diary notes of the bank officers. Parts of the crucial note of 14 April 1982 do not appear to record a particular conversation, but rather to summarize the bank manager's impression of the result of possibly several discussions. The transition to what may have been said on the day of the note is elided to the point of obscurity. Other things may well have been said which may have coloured the meaning of what is recorded. Almost certainly, much else, whether significant or not, was said. In many cases, notes may be decisive. But in other cases, a partial note may be misleading. If participants in a conversation may have been at cross-purposes, or mistaken, the fact that one has recorded his impression in a note does not transform the impression itself into a mirror of the truth. There is nothing about the notes produced in this case to suggest they infallibly present the whole picture of the meetings to which they relate. In the end, this appeal should be determined on the basis that the trial judge saw and believed the witnesses; the other evidence, however the matter is approached, does not compel rejection of that belief, nor has his Honour made any mistake which could reasonably have affected it.
In all the circumstances we have reached the conclusion that the appeal on the question of liability must fail. We turn to the question of causation which goes to the amount of damages awarded.
Causation
In the submission of counsel for the bank, the trial judge should have held that the bank was not responsible for any losses suffered by the Chiarabaglios after January 1983 or, at the latest, July 1983. These months were selected because the Chiarabaglios were entitled to roll over the loan at six monthly intervals. It will be recalled that the loan had been drawn down in July 1982.
The Chiarabaglios were entitled to repay their loan on any roll over day provided they gave seven days' notice of their intention to do so. They were well aware of this. On 12 January 1983, eight days before the loan was due to be rolled over, Mr Chiarabaglio had a meeting with Mr Story. Mr Story's account of it is to be found in a diary note for that day.
We have considered the diary note but it does not, itself, suggest that Mr Chiarabaglio was anxious about any fall in the value of the Australian dollar as against the yen. It does say that Mr Chiarabaglio had had second thoughts about building units and that he was concerned about the interest "variance" between what he was paying for the loan and what he was earning on the money which he had invested with the bank on fixed deposit. However, counsel for the bank relied upon evidence given by Mr Chiarabaglio of his awareness in January 1983 that the dollar had depreciated by some 13 per cent against the yen since the loan had been drawn down. Mr Chiarabaglio said that he could see the dollar "falling down". Later he said that he was aware, on 12 January 1983, of a drop of about 13 per cent in the value of the dollar since the draw down. He also said that he was very concerned about "the devaluation of the dollar".
Later questions and answers reveal that conversations along those lines continued beyond January 1983. He also conceded that he knew that in 1983 there was some discussion by some of the Northern Metals directors of borrowing offshore for the purpose of constructing a shopping centre near Brisbane. Mr Chiarabaglio told Mr Hackett that he was not interested. His evidence continued:-

"And was that because you had formed the view that offshore loans were too dangerous? ---I was in it, I have a lot of practice.

And you had formed that view? ---Oh definitely. You did not want to be in any more offshore loans? ---For sure."

Counsel said that the bulk of the funds borrowed by the Chiarabaglios had been invested on interest bearing deposits which were available to pay out the loan. The shortfall occasioned by the fall in the dollar and the discharge of the Chiarabaglios' Australian dollar indebtedness to the bank could easily have been made up from their then extensive assets assuming that they could not borrow the necessary amount.
Counsel emphasised that they relied, not on any aspect of the doctrine of mitigation of damages, but upon a submission that the evidence disclosed that the chain of causation had been broken by the knowledge which the Chiarabaglios had no later than July 1983 when the second roll over took place. In support of their submission they relied upon the decision of the High Court in Burns v. M.A.N. Automotive (Aust.) Pty. Limited (1986) 161 CLR 653 where Wilson, Deane and Dawson JJ. said (p 668) that the case, not being a case of mitigation of damage, called simply for a determination of that point of time beyond which any damage suffered by the plaintiff could not be said to have been within the reasonable contemplation of the parties as flowing from the breach. The effect of impecuniosity upon an injured party's obligation to mitigate damages was irrelevant to that question. In any event, in the present case, there is no question of impecuniosity for the reasons earlier given. Burns' case was an action for breach of contract. Here the claims are tortious in character but, in our opinion, the principles are no different. However, Burns' case is distinguishable here upon the facts as it was in Spice's case (supra at p 51,404).
His Honour's treatment of the submission began with a statement that it was important to guard against the application of hindsight. He said that, with hindsight, it would have been desirable for the loan to have been repaid at the first roll over date. His Honour then said, "The 13% depreciation, although significant in the short period of time that had elapsed, was nevertheless within the acceptable band of fluctuation as explained by Mr Imhoff ...".
We should pause here to say that we have sympathy for criticism made of his Honour's judgment by counsel for the bank about this statement. It is to be contrasted with what appears only six pages earlier in the judgment in the section of it in which he dealt with delay. We have already referred to it. His Honour there said, "I am satisfied that he (Mr Chiarabaglio) harboured a sense of grievance that the exchange rate should have dropped so far below the range discussed by Mr Imhoff". His Honour went on, as we have earlier mentioned, to explain why it was that Mr Chiarabaglio would have kept his misgivings to himself.
It seems to us that there is an apparent conflict between these two statements. It may be that there is to be discerned some difference between them but we think that they cannot realistically both stand. In any event, we are of opinion that his Honour's earlier statement was plainly correct. A drop of 13 per cent in the value of the dollar was substantially more than Mr Imhoff had led the Chiarabaglios to believe would be likely to occur. It follows that we think that one has to approach the matter upon the basis that his Honour was wrong in saying, in the course of his dealing with the submission on causation, that the fall was within the acceptable band of fluctuation as explained by Mr Imhoff.

We return to his Honour's treatment of the submission. He continued by saying that, at January 1983 - and we would infer July 1983 as well - the Chiarabaglios were not suffering such a significant loss as to point cogently towards seizing the opportunity to rid themselves of the loan. As his Honour said, the interest rate differential was still highly satisfactory and there was nothing to indicate that the exchange rate would not regain all or a substantial part of the value which it had lost. For the reasons he gave, his Honour decided that the fact that the loan was not repaid in January 1983 did not provide a reason why the bank should not be responsible for subsequent financial losses suffered as a result of the Chiarabaglios' offshore borrowing.
There are in evidence diary entries and some letters which are dated 1983. Mr Story retired before 20 July 1983, the second roll over date. As earlier mentioned, he was succeeded by Mr Gammack. Mr Imhoff had gone to another position and had been replaced by Mr Look. Between July 1983 and early in 1986 there were meetings between Mr Chiarabaglio and Mr Gammack and Mr Look. His Honour decided that, notwithstanding the fact that the position worsened, particularly after the beginning of 1985, it was not unreasonable for the Chiarabaglios to seek to avoid the losses involved in repayment at any of the earlier dates whilst there was any prospect that the exchange rate might recover in favour of the Australian dollar. In this connection it is important to note that the flotation of the dollar in December 1983 did not immediately result in any dramatic fall. The dollar remained relatively stable throughout 1984 and, in relation to some currencies including the Swiss franc, in fact rose marginally above the level it had reached at the time of flotation.
In reaching his conclusion, his Honour took into account evidence given in the Chiarabaglios' case of discussions with Mr Look. The substance of the evidence was that on many occasions Mr Look expressed the view that the Australian dollar "would surely recover in the length of time still to elapse before repayment". His Honour found, notwithstanding Mr Look's denial, that statements of the kind were quite frequently made by him. His Honour said that it would be a misuse of language to describe Mr Look's statements as advice, but he said that they provided an encouraging and optimistic background against which the Chiarabaglios could reasonably come to the view that they should maintain the loan in the hope that their disastrous situation would improve.
Counsel for the bank challenged his Honour's findings about Mr Chiarabaglio's conversations with Mr Look by reference to the statement of claim and particulars which referred to comments made by Mr Look in February and April 1985. It was said that Mr Chiarabaglio's attempt to go beyond these dates in his evidence was so tentative that no reliance could reasonably have been placed on it, particularly in the absence of corroboration by Mr Hackett and Mr Ferraris. And, as counsel submitted, there was no evidence at all of any such statement having been made by any of the officers of the bank prior to the first roll over date in January 1983.
We do not feel able to give effect to this submission. His Honour made an assessment of the evidence and we do not detect any error in his approach. The matter was peculiarly one for him.
Counsel for the bank also submitted that the reasonableness of the Chiarabaglio's decision to stay offshore was irrelevant to the question of causation. They said that, even if Mr Look or any other person, had advised the Chiarabaglios not to repay the loan, the chain of causation would have been broken by the Chiarabaglios' knowledge of the risks and their capacity to pay.
We would reject this submission because we think it is quite unrealistic. On the basis that the case made by the Chiarabaglios was accepted by his Honour, they had very strong advice from an appropriate officer of the bank that offshore borrowing was the thing to do. That statement and others like it would have continued to operate on their minds. It would have taken a very significant event to fracture the chain of causation leading to loss which resulted from those statements. The matter has to be looked at on the basis that the bank's case that it gave the Chiarabaglios no advice has been rejected. The case that it did advise them in very positive terms has been accepted. No bank officer, Mr Story, Mr Gammack, Mr Imhoff or Mr Look, over a period of more than three years ever said to them, "You had better cut your losses and bring the moneys back on shore". It may have been a different matter if the Chiarabaglios' case had depended upon some breach of duty or obligation which required the bank positively to give advice or to warn of risks. That is not this case. It is a case where, on the findings his Honour made, the bank gave optimistic advice in the form of clear and unequivocal statements. They were the cause of loss which the Chiarabaglios suffered. One can put reasonableness on one side. But if one does, it would not be right, in our opinion, to take the view that in the circumstances of a case like this, the chain of causation could be so easily broken. There was a substantial fall in the value of the dollar in the first six months and that was certainly the cause of some dismay on Mr Chiarabaglio's part. But that, in all the circumstances, was not enough to free the bank from liability for the damage which the Chiarabaglios suffered after January and July 1983.
In the result we reject the argument based on causation. It follows that we dismiss the appeal with costs.

[1990] FCA 450

24 AUGUST 1990