Westpac Banking Corporation v Spice, C.H
[1990] FCA 110
•04 APRIL 1990
Re: WESTPAC BANKING CORPORATION
And: CHARLES HENRY SPICE
No. NG639 of 1989
FED No. 110
Appeal - Section 52 Trade Practices Act and Negligence
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Sheppard(1), Wilcox(2) and Burchett(2) JJ.
CATCHWORDS
Appeal - appellate court's approach to findings of fact involving the credibility of oral evidence - effect of alleged error of reasoning leading to acceptance of evidence - distinction between significant error of that kind and imperfection of form or expression - effect of omission of a consideration from trial judge's reasons.
Section 52, Trade Practices Act and Negligence - claim against bank arising out of foreign exchange loan - circumstances where established - reliance of applicant on bank and causation of loss where loan would not have been entered into had facts been adequately disclosed - Burns v. M.A.N. Automotive (Aust.) Pty Ltd (1986) 161 CLR 653 distinguished.
Trade Practices Act 1974, s.52
HEARING
SYDNEY
#DATE 4:4:1990
Counsel for the Appellant: Mr. S.P. Charles, QC and Mr.
B.R. McClintock
Solicitors for the Appellant: Allen, Allen and Hemsley
Counsel for the Respondent: Mr. G.A. Palmer, QC and Mr.
J.K. Chippindall
Solicitors for the Respondent: Dexter Healey and Co.
ORDER
The appellant be directed to bring in, on a date to be fixed, short minutes of appropriate orders in conformity with the reasons of the court.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
In this matter I have had the advantage of reading the judgment to be delivered by Wilcox and Burchett JJ. I agree with their conclusion that the appeal should be dismissed with costs.
The three critical dates which are in question are 9 January 1985, a day or so thereafter and 7 March 1985. These are the dates respectively of Mr. Spice's conversation with Mr. Lee, his conversation with Mr. Geddes and the day when he drew on the facility for the equivalent of $800,000 in Swiss francs. The significant conversation was Mr. Spice's conversation with Mr. Lee. Because of the attack made on the findings of the learned primary Judge about it I propose to set it out in full. According to Mr. Spice, the conversation as follows:-
"I said: Barry , I have heard for many years of people borrowing foreign currency loans at ridiculously (low) interest rates. They always seem to be too good to be true. Now I have heard of another one of your customers who has taken such a loan, what is the catch? And he said without hesitation: There is no catch. I think it is very much the thing to do. There are two foreign currency markets - again I cannot remember if he said London, I think it was London - London and Singapore. The bank would borrow on your behalf through Singapore and add its two per cent profit margin. The interest rate is about five per cent together with that two per cent and you have to reimburse the withholding tax which is another half a per cent, making seven and a half per cent. You can borrow for three or five years. I would suggest you borrow for five years which is a long time and that is the way to take this sort of loan. There are rollovers every three or six months at your option. You can change the currency at each rollover but you can only have one currency at a time unless you were to borrow more than a million. Did you ask Mr. Lee any question then? HIS HONOUR: I think you wanted to add something did not you say? THE WITNESS: Well there is much more to the conversation: There is an establishment fee of half a per cent and you would have to pay the Singapore solicitors fees of about $900. They are both one-off items. Then I asked: Is the interest payable in arrears. He said: Yes. And I asked: What currency should I borrow. And he said: You would only think of borrowing Swiss francs, they have the lowest interest rate but why don't you speak to Ces Geddes about it, he is our expert in these matters, he will tell you whether it is Swiss francs you should borrow. I will just give you his phone number. He gave me his phone number and he said: He is our international business manager; and I wrote in the margin of notes I had with me Mr. Geddes' name, phone number and his designation. And I said to Mr. Lee why do not they bring it in themselves and lend it at 14 per cent and he said: No, they cannot do that. And he said: Just lately I have noticed people getting out of foreign currencies but I cannot see any reason for that. Then he said: I will just bring your details up to date. He had my file on his table as was his custom and he said: We have already got security over the Healy Street property but we will need more than that. I think I then volunteered: What about 12 Murdoch Street and he said: Yes, that looks as if it will be enough but I will have to get the local manager to go and have a look at it. I will get that underway now. Then he said: After you have spoken to Geddes give me a ring if you intend to go ahead and I will get the application in. I think you should borrow for five years, that is a long time. He repeated that from earlier and he again said - perhaps I did not say this earlier: The exchange risk is yours. Earlier on in that first group of things he told me about the loan. He said: You have got to repay the loan back in Swiss francs and you have got to pay the interest rate in Swiss francs, the exchange risk of course is yours. It was that latter phrase that he repeated towards the end of that interview and I think that is all he said on that occasion. MR. PALMER: Did you ask any questions at that discussion? ---Only the questions I have just indicated. I am sorry there is something else. I said to him earlier on: I notice that the Australian dollar is depreciating, is that only the reverse of the US dollar gaining in value and he said: Yes, that is just because you are seeing the other side of the strengthening US dollar. The currencies in the basket of currencies move together with the Australian dollar against the US dollar.
Now what did you understand by that statement? ---Well I understood that first of all the Swiss franc was included in the basket of currencies including the Swiss franc that there was a certain stability between the Australian dollar and the Swiss franc and that these all moved as he said specifically against the US dollar. I cannot think that I understood anything much more from it."
His Honour accepted Mr. Spice's account of the conversation and relied substantially upon Mr. Lee's response to the question, "... what is the catch?", namely, "There is no catch. I think it is very much the thing to do". There is no question but that his Honour's acceptance of Mr. Spice's evidence that Mr. Lee made those two statements led him in substantial measure to his conclusion that Mr. Spice was led to believe that there was no catch in borrowing in foreign currency and was induced thereby to act accordingly.
Mr. Lee's version of the same conversation was as follows:-
"I said, Mr. Spice, you can borrow in a number of off-shore currencies including yen, US dollars, pounds sterling, Swiss francs and Deutschmarks. The bank is the principal in this area and borrows through its Singapore office and on lends to you in Australian dollars (sic) the Australian equivalent. The bank takes security in Australia over your Australian assets and charges you an establishment fee of half of one per cent on a once only basis. It charges you a margin of about 2 per cent above the borrowing rate of the currency you select. You may also be committed to withholding tax, which is a figure of 10 per cent of the interest cost. A borrowing is generally to the terms 3 to 5 years. The exchange risk is for your care and a side letter will be prepared in Singapore for your perusal acceptance and signature.' I also mentioned that the cover that the bank would require in the form of freehold security, - I think I recall 75 per cent of a managers value, which is generally 90 per cent of market less a further 10 per cent which the bank applied to cover the exchange risk. I mentioned also that the bank would be prepared to accept a reputable valuer's market value and further discounted on similar lines, I think adding another 15 per cent in addition to the 10 per cent for the exchange risk."
Mr. Lee said that "to his knowledge" Mr. Spice did not ask him any questions about foreign exchange rates or movements. In relation to whether he recalled Mr. Spice asking him, "... what is the catch?", Mr. Lee replied, "I do not recall". He was then asked, "Do you recall saying to him words to this effect, 'There is no catch. It is very much the thing to do'?" Mr. Lee's response to this question was, "I would not have said that".
The principal submission upon which counsel for the appellant relied in the appeal was that his Honour fell into error when, following reference to this evidence, he said:-
"In relation to the specific question 'do you recall Mr. Spice saying to you towards the beginning of your conversation, 'Barry I have heard for many years that Australians are borrowing foreign currency at ridiculously low interest rates, what is the catch?' He replied 'I do not recall.' He was then asked 'Do you recall saying to him words to this effect, 'There is no catch. It is very much the thing to do?' To which he replied 'I would not have said that.' In light of his previous answer I regard this latter answer as being, in effect, responsive to the question whether he said the words 'It is very much the thing to do.' It must be noted that, even so, the answer does not operate as a firm denial of his using these words."
In other words, his Honour inferred that there was no response to, let along denial of, Mr. Spice's statement that Mr. Lee had said to him, "There is no catch".
Counsel submitted that an analysis of his Honour's judgment disclosed that he had based his ultimate conclusion to reject Mr. Lee's evidence and accept that of Mr. Spice on his view that Mr. Lee had not said anything to refute the suggestion that he had told Mr. Spice that there was no catch. Counsel relied particularly on the following paragraphs in his Honour's judgment:-
"The failure by Mr. Spice to tax Mr. Lee, in this conversation other than with reference to his apparent enthusiasm on the 9th of January and his statement then as to off-setting advantages that might occur over the five year period does not, in my view, cast any significant doubt upon Mr. Spice's assertion that he had been told that there was 'no catch' involved in the off-shore loan, especially in light of the fact that Mr. Lee acknowledged in his evidence that he could not deny that that phrase had been used by him. Mr. Spice gave evidence that Mr. Lee specifically said in this latter conversation that the branch had no knowledge of any likely significant weakening in the position of the Australian dollar in 1985 at the time of his discussions with Mr. Spice in January. I have come to the conclusion that I should accept the evidence of Mr. Spice, for the most part as to what occurred on the 9th of January. In general terms he is likely to have a better recollection, it being a significant occasion for him whereas for Mr. Lee it would have been one of a large number of interviews conducted by him with potential off-shore loan borrowers. I do not fail however, to take into account that Mr. Lee's attention was drawn to the conversation at a relatively early date after it occurred, as a result of the September conversation referred to above. I also take into account that the note (exhibit L) made by Mr. Spice at the time does not refer to the terms 'no catch'. The note is a disjointed document. It was clearly not intended to constitute a verbatim record of what was said. It is largely an aide-memoire for Mr. Spice in relation to matters which he wished to raise at the meeting. Mr. Spice has obviously become fairly obsessive about this case, a fact which appeared quite often in his demeanour when giving evidence. However, his insistence that these words were used could not, in my view, result from any mistake on his part. To find that they were not used would involve a finding that Mr. Spice was deliberately seeking to deceive the Court. Although, at times, I certainly felt that Mr. Spice was being over enthusiastic in the presentation of his evidence, I do not think that he was consciously fabricating his testimony. In the absence of any positive denial by Mr. Lee of the use of these words I conclude that they were said."
It is to be observed from the passages I have emphasised that in the first of the above paragraphs his Honour used the expression, "... especially in light of the fact that Mr. Lee acknowledged in his evidence that he could not deny that that phrase had been used by him". And at the end of the second of the paragraphs he said, "In the absence of any positive denial by Mr. Lee of the use of these words I conclude that they were said." These, coupled with his Honour's conclusion that the answer to the question which wrapped up the two statements, "There is no catch", and, "It is very much the thing to do", was responsive only to so much of the question as contained the second of the statements, are the parts of the judgment upon which counsel for the appellant principally based his submission that the trial had miscarried.
Counsel also relied on his Honour's view that, to find that the critical words were not used, would involve a finding that Mr. Spice was deliberately seeking to deceive the Court. Counsel said that his Honour had left out another possibility which was that Mr. Spice, although mistaken about the language which was used, may have been honestly mistaken or may, over the years, have come honestly, although mistakenly, to believe that words such as he claimed were said were used. The rejection of Mr. Spice's evidence would not therefore have necessarily resulted in the conclusion that he was a liar.
I do not think that the submission does justice to what his Honour has said. It has to be read as a whole. Moreover, the exercise in which his Honour was engaged was the making of an assessment of the evidence of two witnesses who were in conflict about a critical matter in the case. The authorities to which Wilcox and Burchett JJ. have referred plainly show that a trial judge's findings of primary facts will not be interfered with unless it be manifest that he has palpably misused the advantage which he has or unless his findings are so inconsistent with evidence which is clearly established that they must be wrong. But it was his Honour's duty to judge the facts of the case. It was for him to make an assessment of the witnesses and that assessment will not lightly be disturbed by a court on appeal. If one takes the view that one is required, as a matter of logic, to determine what, theoretically, the range of possibilities in a situation such as this are, one can properly say that there are at least three, namely, the statement is true, the statement is deliberately false or the statement is wrong but not dishonestly so. His Honour was not concerned with such an approach. He was making an assessment of Mr. Spice as a witness. He was critical of Mr. Spice in some respects. Earlier in the same paragraph he said that Mr. Spice had obviously become fairly obsessive about his case, a fact which appeared quite often in his demeanour when giving evidence. But his Honour did not mention the possibility of honest mistake because, in the circumstances of the case as he saw it, it was not one which arose for consideration. His view was that Mr. Spice's recollection of the critical matters was reliable and that he was not a liar. That conclusion was plainly open and was one which the trial judge was well entitled to reach.
I return to the more critical point. It is true that his Honour's rejection of Mr. Lee's evidence was expressed to depend upon the absence of any positive denial by Mr. Lee of the words, "There is no catch". It is thus necessary to see whether his Honour was correct in that view. If not, it will be necessary to determine how significant such an error was for the outcome of the case.
The reason why his Honour took the view he did was based upon the terms of the question which preceded the one to which Mr. Lee replied, "I would not have said that". His Honour thought that that applied only to the statement, "It is very much the thing to do" and not to the previous statement, "There is no catch", because when first asked about that matter (the catch) Mr. Lee had replied, "I do not recall". That is an answer which one might have expected him to give in the light of an answer to an interrogatory administered to the appellant.
The interrogatory and the answer thereto were as follows:-
"5A. Did the Applicant at the interview ask Mr. Lee if there were problems or catches in overseas low interest loans? 5B. Having made all proper enquiries the Respondent is unable to say."
The answer is prefaced by the statement, "Having made all proper enquiries ...". That preface is emphatic of the appellant's duty in answering the interrogatory because it was obliged to consult such of its employees as could shed light on the matter before making any answer. The evidence discloses that Mr. Lee was consulted about the matter and had said that he could not recall whether he was asked if there were any problems or catches in overseas low interest loans. So the answer to the interrogatory and the form of the answer given in evidence to the earlier question are consistent and, in my opinion, tend, if not to support, then at least to leave it open to be concluded, that there was no response by way of denial or otherwise to the suggestion that Mr. Lee had said, "There is no catch".
Be that as it may, one needs to put an exercise such as we are engaged in in perspective. His Honour's judgment, read as a whole, has the hallmarks of a careful and close consideration of the entirety of the evidence in the case. It shows the signs of much thought and an attempt to make proper assessments of the veracity and reliability of the various witnesses. Suppose one were to take the view, contrary to the view which I think should be taken, that it was not open to his Honour to reach the conclusion that Mr. Lee had not denied the statement attributed to him, "There is no catch". There would remain the statement, "It is very much the thing to do", which seems to me to be precisely to the same effect. This was not denied in any real sense; rather the response was, "I would not have said that". It is no criticism of Mr. Lee that he did not recollect very clearly this conversation. As his Honour remarked, he must have had many similar conversations at or about this time. But it was a question of the assessment of the respective reliabilities of the two witnesses and that was a matter for his Honour. Looking at the matter in the broad it is plain that his Honour, notwithstanding his criticism of Mr. Spice, considered him to be essentially reliable and a witness the substance of whose evidence he could accept with confidence.
In a case such as this, overall probabilities and surrounding circumstances always play a part.
His Honour's findings were expressed as follows:-
"... I find that Mr. Lee made the following representations to Mr. Spice in the 9th of January conversation. Firstly, that there was 'no catch' in foreign currency loans; secondly, that in his view, foreign currency loans were 'very much the thing to do'; thirdly, that a long term loan of five years was the way to take such a loan; fourthly, that Swiss francs in his view was the only currency to borrow; fifthly, that Mr. Geddes was an expert in the area of foreign currency borrowing; sixthly, that he had noticed people getting out of foreign currency loans but could see no reason for it, seventhly, that repayments must be made in Swiss francs and the exchange rate risk is the borrower's (a statement which he repeated twice)."
As counsel for Mr. Spice submitted in the course of the argument, the effect of what Mr. Lee said to Mr. Spice could be summarised as "encouraging, affirmative and supportive" of his borrowing money in Swiss francs. There are indications in the evidence that that is the attitude one might have expected a manager of a large city branch of the appellant to have had at that time. His Honour referred to some of this material and I propose to refer shortly to some of it also.
In evidence are a number of internal memoranda and communications prepared by bank officers in relation to foreign currency loans. Many of these deal with the risk which borrowers in foreign currency run because of fluctuations in exchange rates, the exposure of the bank to such loans in cases where its security might be inadequate and the wisdom of hedging and of having loans managed. Others refer to the fact that the foreign exchange loan business was, for the bank, profitable and of the desirability of the bank competing with other banks and also merchant banks for the available business. There are other documents which deal with the question of what warning should be given to borrowers of foreign currency and what documents borrowers should be required to sign acknowledging the receipt of such warnings.
The quotation of some of these documents is instructive. On 8 June 1984 the New South Wales State Manager for International Business wrote to the Chief Manager of Retail Lending as follows:-
"From our own observations, borrowers are dazzled by the attractive interest rate and are blind to the exchange risk, despite counselling in this regard. The facility is available from our competitors and is actively promoted by spotters in the field who charge a management fee for not much more than merely introducing a potential borrower to a bank. The forces at work ensure demand for these loans will grow rapidly. From a policy control viewpoint, has the Bank addressed such questions as:- . impact on domestic loan mix . impact on Singapore Office's capital base. (I don't think this is a problem. I believe Singapore authorities view our office totally as a branch of Westpac, and would look at parent balance sheet). . management of loans in regard to - - topping up of security - any obligation (moral or otherwise) to keep borrowers appraised of any significant changes at times other than rollover dates when such advice is freely available. (This goes into the field of 'management for a fee' but it might be a prudent option to what presently exists where the borrower pays no attention to current events that could be impacting his foreign obligation in terms of exchange and interest rate risks)."
On 29 June 1984 the General Manager wrote to the General Manager, Credit Policy and Control. The letter was headed in part "Multi-currency Bullet Facilities" and, amongst other things, said, in relation to a summary prepared by the Singapore branch of the position at the end of May 1984 and 1983:-
"I have no specific reason to doubt that all these borrowers will meet their obligations on a timely basis. However the surge in volume, the increased Swiss franc exposure, and the contrast in pricing between different states suggests this marketing effort should be reviewed."
The reference to bullet repayments is a reference to a loan which is made on the basis that the capital will not be repaid until the end of the loan period.
On 2 July 1984 a letter was written to the State Manager, Corporate and Lending, Adelaide. Amongst other things the letter said:-
"With the increasing sophistication of borrowers we are seeing an ever increasing number of queries regarding borrowing Swiss Francs. Generally the queries are from individuals or small private companies and include farm loans. In recent times all enquiries have been for Swiss Francs and frequently have been in order to pay out Australian currency borrowings which the applicants see as resulting in savings on interest of something like 8% - 10% p.a."
After a long discussion, the letter ended with the following paragraphs:-
"This 'Small' offshore CHF (Swiss franc) loan product is relatively new, and it is apparent that many accountants are looking for these facilities for their clients. The smaller borrower pays the higher margin generally, and needs more guidance. If we consider this demand is not a flash in the pan, it seems timely for the bank to consider updating the guidelines and support as indicated above. No doubt there are many matters before you, but I trust you will accept these comments as constructive, and intended to contribute to any future review of the approach currently in evidence."
The emphasis is that of the writer of the letter.
On 3 August 1984 the Chief Manager, Retail Lending, wrote to the Chief State Manager, Queensland, saying that he had some concern regarding the escalation of Swiss franc loans on an unhedged basis with five year "bullet" repayments. Under a heading dealing with lending to unsophisticated borrowers the memorandum said:-
"Does the unsophisticated borrower really appreciate the risk and can he cope with the possible consequences? Whilst Swiss Franc trends have been favourable of late there was a 6 month period in the early '80's where the effective borrowing rate was 45% and no doubt you are aware of this - obviously it could happen again."
The memorandum concluded:-
"We leave it in your hands to advise Regions/Branches of the above policy aspects and pending our overall review of offshore lending policy. It is realised that good business opportunities can exist in this market and risks can be avoided if situation is closely monitored and managed. However, it seems the escalation of this lending, at least in some Divisions, has got ahead of our management information ability. We take comfort from the fact that all loans approved are through our State Lending Managers (please advise if this is not the case) and a conservative approach to security margin adopted."
On 3 August 1984 the Manager, International Business, wrote a memorandum to the State Manager, Lending. The memorandum was headed, "Offshore Lending Through Singapore". In part the memorandum said:-
"This is an excellent product which has been selectively and successfully used in this Division. It has proved to be a good avenue for gaining business from our competitors. Apart from domestic business gains (I.B.D.'s, new accounts etc.) contribution to Singapore Branch is significant. In our 1984/85 Plan, we have projected total Euro loan commitments at $150m. (presently $104m, average loan size $1m.). Income contribution for Singapore Branch (estimated fees and interest margin) is forecast at $2.2m. plus forex profit. We do not believe Euro loans should be marketed to the exclusion of domestic funding. It must be accepted, however, that there is growing competition and demand in the market for offshore facilities. Merchant banks plus ANZ and NAB have been active and margins are narrowing. Perhaps there is scope for the Bank to be more selective in writing Euro loans but there is little doubt that there needs to be flexibility to:- . Service needs of existing customers. . Capatilize on opportunities to capture worthwhile other bank business. As a general comment, in this Division, we have centralised administrative responsibility for Euro loans in this Unit. This has enabled us to minimize losses, provide greater expertise to customers and generally keep our fingers on the pulse. We do not 'manage' the loans but this is an area where we are finding some merchants/brokers are honing in on customers - 'advisory' fee income and possibility of refinancing at a later date. As an enhancement, we are looking at developing a computerised system for monitoring exposure, particularly in the event of adverse interest/exchange rate movements and deterioration in security position."
On 23 January 1985, a fortnight after Mr. Spice's conversation with Mr. Lee, the Chief Manager, Retail Lending, wrote to the Chief State Manager, Queensland Division. The memorandum was headed "Offshore Lending". It said:-
"In our above letter (of 3 August 1984) we expressed concern regarding offshore lending to unsophisticated borrowers and the rapid escalation in 'bullet' loans. Loans were generally in the Swiss Francs category. ........ ........ ........ ........ ........ ..... Looking back over the past six months borrowers of Swiss Francs are well placed and this will presumably lead to an escalation of outside advice to borrow offshore and enquiries will, no doubt, increase. It may be that the margin to be gained on the Swiss Franc has run its race; nevertheless many prospective borrowers will be expecting the same success as those that borrowed six months ago.
Your international people are kept appraised of expected currency trends and no doubt keep your lending unit fully informed. However, expected trends do not always eventuate and the need for offshore borrowers to have the resources to cope with exchange losses is essential. The following statement by a financial analyst was recently noted. 'A low interest rate on hard currency borrowings is invariably matched by extraordinary losses on borrowings'. We see it as timely to sound this warning note and to ensure judgement is not clouded as to the real risk in offshore borrowings by pressures exerted due to favourable exchange rate movement of the Swiss Franc during 1984."
On 14 March 1985, a week after the loan in the present case was drawn down, the Manager, Credit Products, wrote to the Chief Manager, Retail Lending, in relation to the offshore commercial lending policy. The letter said that enclosed for information and comment were what was hoped would be the final draft of an offshore lending policy for inclusion in a manual, procedures, also for full inclusion in a manual, and a proposed circular to be distributed with the manual pages. The proposed circular said that, following the substantial growth in the Bank's portfolio of offshore Euro-currency loans in recent years, which had seen many less sophisticated borrowers entering the field, it had been found necessary fully to review the Bank's policy and procedures for these loans with a view to minimising risk to both the Bank and its clients. The preamble to the draft offshore lending policy included the following paragraphs:-
"Offshore (Euro-currency) Loans have many complexities not found in standard onshore lending and for that reason, guidance of International Business areas should be sought at an early stage of negotiation, if appropriate. In particular, potential borrowers without a thorough knowledge of the Foreign Exchange market, should be left in no doubt as to the exchange rate and interest rate risks inherent in Offshore borrowings. They should be made aware of the existence of hedging and forward cover facilities (both in Australia and at Singapore Branch) so that they can close out all or part of their Foreign Exchange risks at any time. Borrowers should be encouraged to investigate with their Accountant/Taxation Consultant the implications of foreign currency borrowings, particularly the taxation treatment of profits and losses arising from exchange rate movements."
A reading of these various letters and memoranda and of some others written within the same period discloses a tension between the desire of the Bank to take advantage of what it saw as profitable business and its concern that borrowers might find themselves in financial difficulty, particularly if their foreign exchange loans were not adequately monitored and managed. There are also to be found in some of the documents indications that the Bank thought that the form of its warnings of risk to potential borrowers in foreign currencies should be made clearer and more emphatic than had been the case especially as many of the borrowers were quite unsophisticated.
In my opinion, two matters emerge from this background which tend to support the evidence accepted by his Honour. In the light of the view held by senior bank officers that foreign exchange loan business was profitable and should be sought after, one might well have expected a manager of a city branch such as Mr. Lee to encourage someone contemplating such a loan. In the course of the argument counsel for the Bank suggested that it was unlikely that a manager such as Mr. Lee would be prepared to say that there was no catch or that borrowing in Swiss francs was very much the thing to do. But, in the light of what is revealed in the various internal documents to which I have referred, I do not find it surprising at all. Secondly, Mr. Spice made it clear that he was told by Mr. Lee on two occasions that borrowing in foreign currencies involved a risk. Mr. Lee did not suggest that he said any more than this to him and, in the light of what appears in some of the documents which I have quoted, this again seems to me to be something which is not unlikely to have occurred.
In this respect I should mention cross-examination of Mr. Lee which was designed to bring out the apparent conflict between the statement to the effect that borrowing in a foreign currency involved no catch and was very much the thing to do and Mr. Lee's drawing to Mr. Spice's attention the fact that there were risks. We were referred to Mr. Spice's answers to questions about this matter and in particular to the following evidence:-
"THE WITNESS: I did not say he said to me there is no risk. He said to me there is no catch. When he said to me the exchange risk was mine, I have just told you how I interpreted that. I was not so naive as to think I was going to repay the same amount of Australian dollars exactly. I knew that the exchange rate would differ to some degree, that it would not be the same exchange rate to the fourth decimal place that I had drawn down on; and to the extent that it would differ it was clear to me that Westpac were accepting me as a novice in telling me this and they were trying to cover themselves against my saying in five years time 'What's this business of $805,000 you want from me? I only borrowed $800,000' as a novice would say, and they were covering themselves against that eventuality, and this is how I saw it at the time.
So you put - when Mr. Lee said to you the risk would be yours, you are saying that because he also said there is no catch, then the risk would be minimal? ---Yes."
Counsel submitted that it was improbable that Mr. Spice would have formed the view that all that was meant by the reference to risk was the possibility of a small fluctuation in the value of the dollar after a period of five years. I think, if one were to look at this matter in isolation, one might agree that there is force in the submission. But this aspect of the matter is only one aspect of it. His Honour accepted the general purport of Mr. Spice's evidence but said in a passage earlier quoted that he felt that, at times, Mr. Spice was being "over enthusiastic" in the presentation of his evidence. This may have been one such occasion. In any event, whatever view one takes of Mr. Spice's answer about this matter, it is only one of a multitude of factors. If one were to agree completely with this submission, one could not, on that account, take the view that his Honour had fallen into such error as to warrant the interference of this Court.
One matter that I think does emerge from Mr. Spice's evidence that Mr. Lee mentioned on two occasions that borrowing in foreign currencies involved a risk, is that such statements appear, at least superficially, inconsistent with the statement that there was no catch involved in such a borrowing. It seems to me to be unlikely that a dishonest person would, in the context of a situation such as this, concede any reference to risk let alone to a conversation about it in his evidence in chief. That was not a matter referred to by his Honour and it involves speculation. But the voluntary mention of risk by Mr. Spice tends to lend support to the conclusion that his evidence was reliable.
It remains to mention Mr. Geddes' evidence. There was no challenge to his Honour's finding that he should accept Mr. Spice's account of his conversation with Mr. Geddes and reject that of Mr. Geddes himself where there was a conflict between the two. Mr. Spice's account of that conversation was as follows:-
"(Mr. Spice said) 'I'm Charles Spice. I have been speaking to Barry Lee, the manager at Liverpool and Castlereagh Streets where I bank, about the prospect of my borrowing a Swiss franc loan, and he has suggested that I should speak to you to make sure that it's Swiss francs that I should be borrowing'. And he said 'Swiss francs is certainly the most stable currency'. And I said, 'Well, first of all I'd want to know something about the history of it, of the exchange rate'. And he said 'I have a chart here that shows the history of the exchange rate from 1979 to
1984. It hasn't altered much since then. This should answer your question. If you like I will send you a copy of it'. And I said 'Yes, I would like a copy of it, please'. He then said 'I'll just go through the interest rates with you if you like.' I cannot recall the details but in general he gave me high rates of interest and low rates of interest on various dates from, I think, 1980 till then on a number of currencies that included, in addition to the US dollar, Swiss francs, Deutschmark, pounds sterling and yen. Then he said 'These currencies move together against the US dollar'. That was all that he said to me on the subject of the borrowing specifically, but he went on to say that 'I will keep in touch with you if you decide to take the loan and keep you advised on matters. The bank likes to keep foreign currency borrowers well advised, and after the draw-down we will keep an eye on things for you and when the next rollover approaches I shall advise you what currency to stay in'."
After referring to some other evidence given by Mr. Spice and to Mr. Geddes' evidence, his Honour said that he had formed an unfavourable view of Mr. Geddes' evidence. He concluded:-
"Accordingly, I am satisfied that Mr. Geddes told the applicant that Swiss francs were certainly the most stable currency to borrow; and that, in response to a question as to the history of the exchange rate, he said he would send a chart that showed the history from 1979 to 1984 with this comment that it hadn't altered much since then and that it should answer Mr. Spice's question. I think that he discussed, on the telephone, only interest rate differentials amongst the major currencies and did not discuss what the graph showed in relation to exchange rate of those currencies against the Australian dollar. I am also satisfied that he gave a general indication that he would keep in touch with Mr. Spice if he decided to take the loan and, in general terms, keep an eye on things for him."
The only significance that I think Mr. Spice's evidence about his conversation with Mr. Geddes, and his Honour's acceptance of it, have for the case is that Mr. Spice did not seek advice from Mr. Geddes as to whether he should borrow in a foreign currency or not. As he himself said, he had decided to borrow in a foreign currency on the basis of what he had been told by Mr. Lee. The only question on which he wished Mr. Geddes' advice was in respect of the currency in which he should borrow. There is another comment I would make about this evidence. What I am about to say I realise involves further speculation, but it seems to me unlikely that a person concocting evidence would not have taken the opportunity, when recounting what was said by Mr. Geddes, of fabricating the making by Mr. Geddes of statements which would indicate support for borrowing in a foreign currency.
It will be appreciated that the case involved the giving of a substantial amount of oral evidence by a number of witnesses and the tender of a large number of documents. In the course of the argument counsel for both parties covered much ground. From a practical point of view it is not feasible to deal comprehensively with every matter that was referred to in counsel's submissions. I believe I have said enough to indicate the reasons why I think this appeal must fail.
In conclusion I indicate my agreement with what has been said by Wilcox and Burchett JJ. about causation. I have nothing to add to their treatment of that matter.
Accordingly, subject to the need to make any variation of his Honour's orders, I would dismiss the appeal with costs. The matter should be stood over to a day to be fixed so that counsel may bring in short minutes of order to give effect to the Court's decision.
JUDGE2
This appeal is almost entirely concerned with issues of fact. It is a case in which the learned trial judge expressly stated that "the demeanour of the witnesses and the manner of the giving of their evidence has been of importance", and in which he made findings favourable to the respondent on the basis of an assessment (not always or uncritically favourable) of the respondent's personal credibility, and on the basis of a conclusion that he "should prefer (the respondent's evidence) where it is in conflict with that of the bank officers" (i.e. the witnesses for the appellant). Therefore it is desirable to preface these reasons with some recapitulation of the principles which should guide an appellate court when an attack is made upon the findings of a trial judge concerning the credibility of oraltestimony.
For Australian courts, the fundamental decision is Paterson v. Paterson (1953) 89 CLR 212. There Dixon C.J. and Kitto J. reviewed the authorities, citing at 222 the warning of Lord Sumner in S.S. Hontestroom v. S.S. Sagaporack (1927) AC 37 ar 47:
"Of course, there is jurisdiction to retry the case on the shorthand note ... . None the less, not to have seen the witnesses puts appellate judges in a permanent position of disadvantage as against the trial judge, and, unless it can be shown that he has failed to use or has palpably misused his advantage, the higher Court ought not to take the responsibility of reversing conclusions so arrived at, merely on the result of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case. The course of the trial and the whole substance of the judgment must be looked at, and the matter does not depend on the question whether a witness has been cross-examined to credit or has been pronounced by the judge in terms to be unworthy of it. If his estimate of the man forms any substantial part of his reasons for his judgment the trial judge's conclusions of fact should, as I understand the decisions, be let alone."
Their Honours also cited at 224 three propositions from the speech of Lord Thankerton in Watt or Thomas v. Thomas (1947) AC 484 at 487-488:
"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. ..."
Dixon C.J. and Kitto J. held in Paterson v. Paterson (at 224) that the High Court "must abide by the finding of (the trial judge) ... unless it is vitiated by the erroneous admission of (certain evidence)." This was because of the importance of the trial judge's assessment, not only of the general credibility of the witnesses, but also of the reliability of their detailed observation. However, their Honours held that a serious question was raised by the admission at the trial of inadmissible cross-examination, putting before the trial judge a letter which "was not an admissible medium of proof of any fact that it stated or that could be inferred from the statements or expressions it contained." Dixon C.J. and Kitto J. concluded at 225-226:
"But in the end we have come to the conclusion that the learned judge's findings would have been exactly the same, had he disallowed the cross-examination. We are not here dealing with the verdict of a jury, the reasons for which are not known. The learned judge has stated his reasons in full, and while it certainly cannot be said that nothing deduced from that part of the cross-examination enters into the reasons his Honour gives, it can safely be concluded not only that what he so deduced did not form an indispensible part of his opinion or of the process by which it was formed, but that all the other elements in the case, had this one been excluded, would have led him exactly upon the same path to the same result. In these circumstances it would not be right to order a new trial on the ground that the cross-examination in question was wrongly admitted."
In Watt (supra) at 491 Lord Macmillan referred to other kinds of defect in a judgment accepting the evidence of a particular witness or witnesses. He said:
"The judgment of the trial judge on the facts may be demonstrated on the printed evidence to be affected by material inconsistencies and inaccuracies or he may be shown to have failed to appreciate the weight or bearing of circumstances admitted or proved or otherwise to have gone plainly wrong."
But at 492 Lord Simonds, who was "satisfied that an appellate court having none of those advantages which the trial judge enjoyed of hearing and observing the witnesses, was not justified in concluding that he was so clearly wrong that their judgment of facts should be substituted for his", stated an important qualification upon the use which may be made in an appeal of alleged defects in the trial judge's judgment. He said:
"Relying on the testimony of certain witnesses called on behalf of the respondent ...
(counsel) said that the learned Lord Ordinary had come to a conclusion which was diametrically opposed to that testimony, yet he had not explicitly stated that he did not accept them as witnesses of truth nor indeed, made any adverse comment upon them. Your Lordships were therefore invited to find that the learned judge had forgotten or ignored this evidence and to hold that his judgment was thereby vitiated. I believe this to be fundamentally unsound criticism. The trial judge has come to certain conclusions of fact; your Lordships are entitled and bound, unless there is compelling reason to the contrary, to assume that he has taken the whole of the evidence into his consideration. If his conclusion is inconsistent with the evidence of certain of the witnesses but he does not, in terms, stigmatize them as false witnesses, it is not the proper or necessary inference that he has forgotten or ignored them ... ."
Cf. Jones v. Hyde (1989) 63 ALJR 349 at 351-352.
It is important to remember that what Lord Sumner in S.S. Hontestroom (supra) at 50 called "imperfections in form and expression" are not sufficient to destroy the commanding advantage enjoyed by the judgment of a trial judge on questions of credibility. They are not to be equated with the "specific misunderstanding or disregard of a material fact" which in the same passage was identified as a matter which might lead to the overturning of such a judgment.
The effect of identified defects in a trial judge's judgment was also considered by the House of Lords in Powell v. Streatham Manor Nursing Home (1935) AC 243, where at 257 Lord Macmillan, citing an earlier speech of Lord Loreburn L.C.., referred to "misapprehension" or "miscarriage" at the trial. After emphasizing the trial judge's advantage, Lord Macmillan said:
"My Lords, I should nevertheless be ready to differ from the decision of Horridge J. if the criticisms to which it has been subjected in the Court of Appeal and at your Lordships' bar had carried conviction to my mind that he had gone wrong."
In the same case, Lord Atkin at 254-255 held that the matter resolved itself into an issue of credibility, and said:
"(The Court) must recognize the onus upon the appellant to satisfy it that the decision below is wrong: it must recognize the essential advantage of the trial judge in seeing the witnesses and watching their demeanour. In cases which turn on the conflicting testimony of witnesses and the belief to be reposed in them an appellate Court can never recapture the initial advantage of the judge who saw and believed."
Nevertheless, "on the rarest occasions, and in circumstances where the appellate court is convinced by the plainest considerations" it may be justified in rejecting a view of a trial judge on credit for which "there is no satisfactory reason shown" (see Yuill v. Yuill (1945) p 15 at 19, 21).
In Brunskill v. Sovereign Marine and General Insurance Co. Ltd (1985) 59 ALJR 842 at 844, a joint judgment of the High Court reiterated "the distinction which exists between an appeal on a question of fact which depends upon a view taken of conflicting testimony, and an appeal which depends on inferences from uncontroverted facts." Having found that the trial judge's conclusion was based on credibility, the court said:
"The question that then arises is whether the decision of the learned trial judge can be seen to be clearly wrong on grounds which do not depend merely on credibility; for example, on the ground that the evidence which was accepted was inconsistent with established facts or was glaringly improbable."
This is to raise the hurdle which the appellant must overcome to a level well above the mere identification of some error in the course of the trial or the judgment. The decision must be seen to be clearly wrong before the appellant can succeed. Cf. Uranerz (Aust.) Pty. Ltd. v. Hale (1980) 54 ALJR 378 at 381.
The questions involved where a finding on credibility is truly marred by some error are summarized in the judgment of Bray C.J. in Churchill v. Badenochs Transport Ltd (1971) 1 SASR 63 at 64-65. Bray C.J. referred to "the duty of a Court of Appeal when it appears that the trial judge in a trial without a jury has misapprehended the facts or committed some error in reasoning." He said:
"First of all, of course, mere infelicities of expression or slips of the tongue have no effect. Some latitude of construction should be applied, particularly to an extempore judgment. It is the reasoning of the court, not its mode of expression, which is under appeal, though judges like other people must be taken, prima facie at least, to mean what they say. ...
But it may be clear that the trial court has misapprehended the evidence or that its reasoning contains a non sequitur. If this relates merely to a peripheral or incidental matter which could have had no effect on the final result, once again it may be ignored. If it relates to a matter vital to the conclusion reached, then that conclusion cannot stand. What, however, if the mistake played some part in the reasoning leading to the conclusion but, nevertheless, the same conclusion might well have been reached without it? ...
I think that in a case like this we have to interfere once we are satisfied that there are errors of fact or reasoning in the reasons for judgment of the learned Special Magistrate which could have affected the result, unless we think that substantial justice has nevertheless been done."
In these statements of principle the word "clear", or some equivalent expression, keeps recurring. Whatever shifts of emphasis may have occurred to accommodate the differing key features of particular cases, it must always be clear, if a decision on credibility is to be overturned, that its acceptability has been destroyed by the revelation of some serious and demonstrable error.
In the present matter, the learned trial judge accepted the evidence of Mr Spice (the now respondent) against the evidence of two bank officers (Mr Lee, the Manager of the Castlereagh and Liverpool Streets, Sydney branch of the bank, and Mr Geddes, an officer in the bank's foreign exchange section), and found established a claim made under s.52 of the Trade Practices Act 1974 and for negligence at common law. At the beginning of his judgment, the trial judge said:
"Although a number of individual matters of commission and omission are set out in (the) pleading, they were not, in the ultimate, relied upon separately. The applicant's case really amounted to a claim that (the bank), through Messrs Lee and Geddes, misled him into a belief that there was no significant risk involved in taking out (a loan of $800,000.00) in Swiss francs, whereas if they had fully and properly explained the financial risk involved and the complex decisions and transactions necessarily involved in guarding against the risk, the applicant would simply have declined to enter into the transaction at all. ...
(H)e would have foregone the apparent financial advantages involved in an offshore borrowing and have accepted the higher interest rates involved in on-shore borrowing in Australian dollars."
Although there were a number of representations, and as these remarks show, his Honour thought it was their combined effect which mattered, one small passage in Mr Spice's account of his conversation with Mr Lee, the bank manager, on 9 January 1985, when the loan transaction was first broached, achieved prominence in the case. It reads as follows:
"I said: 'Barrie, I have heard for many years of people borrowing foreign currency loans at ridiculously low interest rates. They always seem to be too good to be true. Now I have heard of another one of your customers who has taken such a loan - what is the catch?' And he said without hesitation: 'There is no catch. I think it is very much the thing to do.'"
In the conversation which followed, Mr Spice alleged, Mr Lee asserted he could not see any reason for people "getting out of foreign currencies", recommended the borrowing of Swiss francs (but indicated Mr Spice should speak to Mr Geddes "our expert in these matters"), and explained various details of the taking out of a foreign exchange loan. Mr Spice also made it clear that he had been told: "The exchange risk is yours." Mr Lee said nothing about the necessity or desirability of hedging, and did not explain the nature or extent of the exchange risk to which he had referred.
As against this version, Mr Lee swore that Mr Spice told him he was looking at the possibility of taking an off shore loan to refinance existing debts, asking what was involved. According to Mr Lee, he himself explained the terms on which a foreign exchange borrowing could be entered into, and Mr Spice asked him "searching" questions concerning off shore borrowing. However, he could not remember any particular question. He referred Mr Spice to Mr Geddes because of the probing nature of his enquiries. (It should be noted here that Mr Geddes was in fact not at all expert in relation to the problems of foreign exchange borrowings, and the information he subsequently furnished to Mr Spice was found by his Honour to have been seriously misleading. This was despite the fact that numerous internal documents of the bank revealed clearly its awareness that such borrowings were hazardous, and that many borrowers had no appreciation of the extent of the risks involved.)
Prior to the trial, interrogatories were delivered, to be answered by the bank. They included the following:
"Did the Applicant at the interview ask Mr Lee if there were problems or catches in overseas low interest loans?"
The bank's answer, based on information supplied by Mr Lee, was as follows:
"Having made all proper enquiries the Respondent is unable to say."
In evidence, Mr Lee could not without prompting recall any particular question, or the subject matter of any particular question, asked during the course of the interview. Prompted, he recalled he had suggested that if Mr Spice borrowed off shore, "it would be to his advantage to take a Swiss franc loan because of the lower interest rate". Two questions and answers of crucial importance are the following:
"Do you recall Mr Spice saying to you towards the beginning of your conversation, 'Barrie, I have heard for many years that Australians are borrowing foreign currency at ridiculously low interest rates. What is the catch?' Do you remember that? - A. I do not recall. Do you recall saying to him words to this effect, 'There is no catch. It is very much the thing to do'? - A. I would not have said that."
In cross-examination, he agreed that he was unable to deny Mr Spice had used the words "what is the catch?". His answers on other aspects of the conversation repeatedly put him in conflict with answers to interrogatories which he himself had supplied. It is plain the trial judge would have been entitled to regard him (assuming that he was truthful) as having only a very vague and demonstrably faulty recollection of what was said. Indeed, it would have been difficult to draw any other conclusion.
It is in this state of the evidence that his Honour included in his reasons a passage which has been made the foundation of the principal attack mounted by the appellant. The passage should be set out in full:
"In relation to the specific question 'do you recall Mr Spice saying to you towards the beginning of your conversation, 'Barry (sic) I have heard for many years that Australians are borrowing foreign currency at ridiculously low interest rates, what is the catch?' he (that is, Mr Lee) replied 'I do not recall.' He was then asked 'Do you recall saying to him words to this effect, 'There is no catch. It is very much the thing to do?' To which he replied 'I would not have said that.' In light of his previous answer I regard this latter answer as being, in effect, responsive to the question whether he said the words 'It is very much the thing to do.' It must be noted that, even so, the answer does not operate as a firm denial of his using these words."
Counsel for the appellant urged that his Honour seriously mistook the position. It was said he should have accepted the answer "I would not have said that" as responsive to both parts of the question asked, and that, though his Honour does not expressly say so, he is to be taken as having refused to treat the answer as responsive to the first part of the question. More importantly, counsel claimed that the answer was "a firm denial", and that his Honour was wrong in not so understanding it. Counsel then asserted that this passage has such an important place in the judgment that the error fatally infects his Honour's conclusion. It was conceded the acceptance of Mr Spice and the rejection of Mr Lee were too strong to permit of a reversal of the judgment, but it was submitted a new trial should be ordered. These submissions raise the question whether the decision of the learned trial judge can be seen to be clearly wrong, because based on seriously erroneous reasoning and misapprehension of the true effect of the evidence.
A significant aspect of the case presented on behalf of Mr Spice is that it was not alleged Mr Lee said "There is no catch" independently of answering the question he claimed not to recall (and which he could not deny was asked). After he had said he did not recall the question, he was asked whether he recalled saying the words "There is no catch. It is very much the thing to do." The answer he gave is plainly not responsive at all: instead of searching his recollection once more, he made an assertion about what he would not have done. His Honour perhaps treats the witness generously in regarding the answer as, in effect, responsive to the question (which was not asked) whether he did indeed say "It is very much the thing to do." Mr Lee's evidence showed so little acknowledged recall of the conversation that the limited nature of his own counsel's question must have been perfectly intentional; what was sought was merely a denial of recollection of the use of the words.
But, treating the answer as the witness's response to that part of the question which related to an alleged independent and positive statement by him, not merely a reply to a question he could not recall, the judge comments on the nature of that response. In doing so, there is no reason to think he ignored any value it may have had in respect of the other part of the question. His comment is made on a positive basis; it does not deny there may be other aspects of this evidence: "Even so," he says. There is no statement by his Honour that he will not otherwise consider the answer, and as Lord Simonds pointed out in Watt v. Thomas, in a passage which has already been cited, there is no warrant for inferring a trial judge has ignored a matter simply because he has not expressly mentioned it. In this case, the wisdom of what Lord Simonds said is demonstrated by a later passage in the judgment, to which it will be necessary to refer in due course, indicating that his Honour in fact treated the answer as responsive to the other part of the question, though he did not give it very much weight. In any case, the singular word "that" in the answer must indicate one of two things: either the witness himself treated the two sentences put to him as amounting to one statement, or he referred in this answer to one sentence only. The trial judge who heard him was best placed to understand him and to resolve the ambiguity. If, indeed, he did resolve it against the witness, the fact that other answers reveal uncertainties and self contradictions suggests it would undoubtedly be unsafe at this remove to assume there was no good reason why Mr Lee might have been understood in a restricted sense.
Counsel for the appellant contended that the trial judge erred when he said: "The answer does not operate as a firm denial of his using these words." This is counsel's main point. The argument was that the statement "I would not have said that" is a firm denial that the thing was said. But this is simply wrong. What the witness said, when asked for his recollection, amounted to an assertion about his inclination, habit or disposition, from which a conclusion might, not must, be drawn about the fact. There can be no disputing people, at times and for a variety of reasons, may act uncharacteristically; so it must follow that such an assertion lacks the certainty of an actual recollection - assuming, of course, the honesty and accuracy of both. When his Honour says "The answer does not operate as a firm denial of his using these words," he is pointing out this aspect of the matter.
No doubt other considerations will often, when expressions of this sort are used, be more important, and in each case what sways the judge will be the resultant of many factors operating in the unique circumstances of the particular case as it is seen by him, under all the unrecorded influences of the trial, which are imperceptible from the distance of an appeal. It would not be to the point if some of these other considerations were to impress the appellate court more than the consideration his Honour identified. But, in this case, there is good reason for his Honour's choice of emphasis; for Mr Lee repeatedly showed in cross-examination that his own impression of what would have happened was quite unreliable - it kept differing from his impression with respect to the same matters at the time he prepared answers to interrogatories.
Even assuming fault can be found with the expression of the passage counsel selected for criticism, the substance of the reasoning withstands the attack. If the appellant could not deny that the question "What is the catch?" was asked, and the answer made to it at the time (if it was asked) was left obscure, so far as the appellant was concerned, except for an assertion that what the applicant claimed "would not have" been said, the stage was set for the final decision as to how matters really stood. That decision ultimately depended on who was believed; but, in the circumstances, the applicant was asserting a direct recollection, while Mr Lee was asserting an inference. The judge's estimate of both was all-important. In making it, he was entitled to think the colloquially expressed question "What is the catch?" and the answer "There is no catch", so powerfully evocative for the English speaking world since the publication of "Catch 22", were unlikely to have come into the case by mistake, and to ask himself whether Mr Spice "was deliberately seeking to deceive the Court". The appellant's submission to the contrary is untenable in a case of this kind.
However, counsel sought to bolster the argument by reference to other passages in the reasons of the trial judge. There is a discussion of the evidence concerning a subsequent meeting between Mr Spice and Mr Lee, of which his Honour comments that it did not:
"cast any significant doubt upon Mr Spice's assertion that he had been told there was 'no catch' involved in the off-shore loan, especially in light of the fact that Mr Lee acknowledged in his evidence that he could not deny that that phrase had been used by him."
Plainly, this is a reference back to the point already discussed in the passage with which counsel began. Counsel claimed that the final word "him" refers to Mr Lee, and pointed out that, in that case, the statement is inaccurate. But it can hardly be that the substance of such a glancing reference to the matter was really meant to differ from the earlier conclusion which was the subject of the reference. If there was an error, it was merely in the mode of expression rather than the reasoning of the court, to adopt the distinction which Bray C.J. makes in Churchill (supra). See also S.S. Hontestroom (ubi cit. supra).
Counsel then referred to a further passage in the reasons, in the course of which he said the trial judge came back to the same point. The passage is an important one, and should be set out in full:
"I have come to the conclusion that I should accept the evidence of Mr Spice, for the most part as to what occurred on the 9th of January. In general terms he is likely to have a better recollection, it being a significant occasion for him whereas for Mr Lee it would have been one of a large number of interviews conducted by him with potential off-shore loan borrowers. I do not fail however, to take into account that Mr Lee's attention was drawn to the conversation at a relatively early date after it occurred, as a result of the September conversation referred to above. I also take into account that the note (exhibit L) made by Mr Spice at the time does not refer to the terms "no catch". The note is a disjointed document. It was clearly not intended to constitute a verbatim record of what was said. It is largely an aide-memoire for Mr Spice in relation to matters which he wished to raise at the meeting. Mr Spice has obviously become fairly obsessive about this case, a fact which appeared quite often in his demeanour when giving evidence. However, his insistence that these words were used could not, in my view, result from any mistake on his part. To find that they were not used would involve a finding that Mr Spice was deliberately seeking to deceive the Court. Although, at times, I certainly felt that Mr Spice was being over enthusiastic in the presentation of his evidence, I do not think that he was consciously fabricating his testimony. In the absence of any positive denial by Mr Lee of the use of these words I conclude that they were said.
On the whole of the evidence I find that Mr Lee made the following representations to Mr Spice in the 9th of January conversation. Firstly, that there was "no catch" in foreign currency loans; secondly, that in his view, foreign currency loans were 'very much the thing to do'; thirdly, that a long term loan of five years was the way to take such a loan; fourthly, that Swiss francs in his view was the only currency to borrow; fifthly, that Mr Geddes was an expert in the area of foreign currency borrowing; sixthly, that he had noticed people getting out of foreign currency loans but could see no reason for it, seventhly, that repayments must be made in Swiss francs and the exchange rate risk is the borrower's (a statement which he repeated twice).
Counsel focused on the sentence "In the absence of any positive denial by Mr Lee of the use of these words I conclude that they were said." Possibly, there is here a loosely expressed reference to Mr Lee's inability to deny that the question whether there was a catch was asked, or to the pervasive weakness of recollection in his evidence concerning the conversation. But it may be accepted that his Honour was making at least some reference back to his earlier discussion of the effect of Mr Lee's evidence given in answer to the applicant's version of the conversation. What is then clear is that the answer treated by the judge as less than a firm (or positive) denial is now being evaluated as a reply to the allegation of a statement by Mr Lee to the effect there was no catch. For the reasons already given, the attack on this aspect of the judgment fails; but it has had the incidental effect of demonstrating that his Honour should not be taken to have finally refused to accept the answer of Mr Lee, "I would not have said that," as an answer to Mr Spice's evidence of the making of the statement "There is no catch."
It will be seen that the passage last quoted from the judgment contains a summary of the judge's findings of representations made by Mr Lee to Mr Spice at the inception of the transaction. It was necessary to set out this passage, lest the emphasis of the argument upon the appeal, which concentrated so heavily on one feature of the reasons, should distort the picture of what the trial judge actually decided. He found much more than a representation that there was no catch in a foreign exchange borrowing.
Further findings were made concerning Mr Geddes. The trial judge said he "could not properly have been described as an expert in foreign currency loans". He had received no training from the bank in advising on them or in dealing with them. He purported to provide Mr Spice "with a chart ... that shows the history of the exchange rate from 1979 to 1984" (that is, as between the Australian dollar and the Swiss franc), and he advised Mr Spice about the stability of the Swiss franc. The chart and the advice were misleading. The judge "formed an unfavourable view of his evidence." Referring both to Mr Lee and to Mr Geddes, he concluded: "Although Mr Spice's evidence was not free from imperfection I have come to the conclusion, quite firmly, that I should prefer it where it is in conflict with that of the bank officers."
His Honour's conclusions were reached against the background of a number of findings. He found the evidence:
"clearly establishes that Westpac regarded its off-shore loan facilities, negotiated through its Singapore branch, as a product which it was promoting in competition with other trading banks, merchant banks and financial institutions. It regarded these loans as a vehicle for obtaining new business. Notwithstanding this it offered no management facilities or other risk prevention techniques such as stop-loss orders to customers taking up the loans."
His Honour also found that Mr Spice was "quite unsophisticated in the matter of overseas borrowing." He was an intelligent person with legal training, who had practised as a solicitor for some years, but he had no real acquaintance with the problems of overseas finance, a fact of which Mr Lee had some knowledge. A number of policy documents of the bank revealed considerable unease in its upper echelons, growing out of an awareness of the "significant foreign exchange risk" and of the plight of unsophisticated borrowers venturing into an area of which they were ignorant. Many of the bank's staff were equally ignorant, and perhaps their ignorance was the more dangerous because they represented a corporation believed to be reliable. The documents reveal senior officers of the bank pulled between the desire to take business from competitors and the knowledge that the consequence might be disaster for the bank's clients. The Chief Manager Retail Lending wrote on 23 January 1985: "A low interest rate on hard currency borrowings is invariably matched by extraordinary losses on borrowings." His warning was specifically directed at Swiss franc loans, and was sounded at the very time the bank was arranging such a loan for Mr Spice. Yet the bank knew it was in no position to manage the foreign exchange transactions it was promoting, and despite the "extraordinary losses" foreseen by its Chief Manager Retail Lending, it gave Mr Spice no information about hedging, which might have averted or reduced those losses.
The appellant raised further arguments against the judgment of the trial judge. It contended he erred in finding that Mr Spice relied and acted upon the misleading and negligent statements made on behalf of the bank. It also contended that his Honour erred in finding a causal link between the conduct of the bank and the losses suffered by Mr Spice. These submissions cannot succeed. So far as concerns Mr Spice's reliance on the representations made to him, the finding is very much bound up with his Honour's assessment of Mr Spice and of the credibility of his evidence. The influence of demeanour and of a trial judge's impression of a witness is too subtle and pervasive to be wholly comprehended by any verbal formula in the court's reasons: cf. Jones v. Hyde (supra). If, having seen the witness, he accepts evidence showing or tending to show that reliance was placed upon particular representations, the principles to which reference has already been made are applicable. In this case, no sufficient reason appears to disturb his Honour's conclusion.
The trial judge heard and accepted evidence from Mr Spice to the effect that, had it not been for the misleading and negligent conduct of the bank, he would not have entered into the overseas borrowing, but would have continued his previous practice of borrowing on shore. This finding was clearly open on the evidence. However, counsel for the bank urged the proposition that when Mr Spice discovered he had been misled, but did not immediately bring the loan back on shore, the chain of causation was broken. Counsel cited the decision of the High Court in Burns v. M.A.N. Automotive (Aust.) Proprietary Limited (1986) 161 CLR 653. But that was a case where a plaintiff embarked upon a new and active course of conduct, in order to make use of a truck acquired by reason of misrepresentations, after the nature and consequences of the misrepresentations had been revealed. It is clearly distinguishable from the situation of Mr Spice, who was placed by the misrepresentations in a perplexing position of financial peril, from which he could not extricate himself without loss. The bank did not at the time respond to Mr Spice's suggestion that it commit itself to advising him on the best course to pursue. It would be hard indeed if the bank were entitled now, with the benefit of hindsight, to allege that his failure to take the safest path out of the financial minefield into which it had led him makes him the author of any further misfortune which resulted. His Honour's view was correct that in the circumstances of this case the respondent was entitled to obtain relief on the footing that his losses had been caused by the conduct of the bank.
There remain some submissions as to the form of the orders. Counsel for the parties indicated at the hearing that an attempt would be made to reach agreement on the formal questions raised. Therefore we propose to dismiss the appeal with costs, subject to any variation of the orders which may be found to be required, but the only formal order at this stage will be that the appellant is directed to bring in, on a date to be fixed, short minutes of appropriate orders in conformity with these reasons.
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