CATCHWORDS

 

 

TRADE PRACTICES - Foreign currency loan - Borrower seeking to re-finance - Representations concerning advantages of off-shore borrowing - Whether misleading and deceptive - Whether borrower relied upon representations in entering into loan - Whether loss caused by reliance.

 

NEGLIGENCE - Foreign currency loan - Borrower seeking to re-finance - Circumstances under which a duty of care will arise - Content of duty - Whether careless representations made - Whether representations relied upon - Whether loss caused by reliance - Whether lender's reconversion of loan to Australian dollars negligent.

 

LIMITATION OF ACTIONS - Foreign currency loan - Borrower remaining in foreign currency as a result of representations - Loss of opportunity to reconvert loan to Australian dollars - Date of accrual of cause of action.

 

UNCONSCIONABLE CONDUCT - Fiduciary relationships - Foreign currency management agreement - Whether fiduciary relationship between parties - Content of fiduciary relationship governed by contract - Whether borrower breached fiduciary duties by engaging in "point taking".

 

CONTRACT - Foreign currency management agreement - Term that no fee would be charged by manager - "Point taking" by manager -  Whether breach.

EVIDENCE - Similar facts - Foreign currency loan - Alleged representations inducing loan - Similar representations inducing another borrower - Admissibility.

 

DEEDS - Material alteration by one party after delivery - Whether consented to by other - Date of consent not apparent - Time from which alteration operates.

 

INCOME TAX - Withholding tax - Foreign currency loan - Provision in facility agreement obliging borrower to pay withholding tax - Provision void - In reliance on provision lender debits borrower's account with tax and remits to Commissioner - Recovery by borrower - Money had and received - Restitution - Unjust enrichment.

 

BANKER AND CUSTOMER - Security documents entitling bank to charge interest at such rate or rates as it from time to time determines - Validity.

 

CONTRACT - Security documents entitling bank to charge interest at such rate or rates as it from time to time determines - Validity  -  Whether term can be left to discretion of one party - Illusory promise - Uncertainty.

 

Trade Practices Act 1974, ss 51A, 52, 82(2)

Income Tax Assessment Act 1936, ss 128B, 261

Limitation of Actions Act 1974 (Qld), s 10(1)(a)

 

DF Lyons Pty Ltd v Commonwealth Bank of Australia (1991) 100 ALR 468

Martin v Osborne (1936) 55 CLR 367

Mister Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd (1981) 36 ALR 23

Aroutsidis v Illawara Nominees Pty Ltd (1990) 21 FCR 500

Westpac Banking Corporation v Spice (1990) 12 ATPR 41-024

Pappas v Soulac Pty Ltd (1983) 50 ALR 231

Denning v Darling (1889) 20 NE 107

Gould v Vaggelas (1985) 157 CLR 215

Metcalfe v NZI Securities Australia Ltd (1995) ATPR 41-418

Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1

Warner v Elders Rural Finance Ltd (1993) 41 FCR 399

Redmond v Allied Irish Banks Plc (1987) 2 FTLR 264

David Securities Pty Ltd v Commonwealth Bank of Australia (1990) 23 FCR 1

Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84

Karedis Enterprises Pty Ltd v Antoniou (1995) ATPR 41-427

Thannhauser v Westpac Banking Corporation (unreported Pincus J 19 March 1991)

David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353

Neate v Harding (1851) 6 Exch 349

Bavins & Sims v London and South Western Bank Ltd [1900] 1 QB 270

Westdeutsche Bank v Islington LBC [1996] 2 WLR 802

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41

Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1

Diversified Mineral Resources NL v CRA Exploration Pty Ltd (1995) ATPR 40-381

ANZ Banking Group (NZ) Ltd v Gibson [1981] 2 NZLR 513

Kabwand v National Australia Bank Ltd (1989) 11 ATPR 40-950

Commonwealth Bank of Australia v Prentice (unreported Supreme Court of New South Wales 14 December 1995)

 

Cross v National Australia Bank Ltd (unreported 29 April 1994)

Placer Development Ltd v Commonwealth of Australia (1969) 121 CLR 353

Godecke v Kirwan (1973) 129 CLR 629

Powell v Jones [1968] SASR 394

Sweet and Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699

 

DRAMBO PTY LIMITED v WESTPAC BANKING CORPORATION LIMITED QG 92 of 1991

 

COURT:                       Sundberg J

PLACE:                       Brisbane

DATE:              1 August 1996

IN THE FEDERAL COURT OF AUSTRALIA                       )

QUEENSLAND DISTRICT REGISTRY                                )                       No QG 92 of 1991

GENERAL DIVISION                                                            )

 

 

 

                                                            BETWEEN:     DRAMBO PTY LIMITED

 

                                                                                    Applicant and Cross-Respondent

 

                                                            AND:               WESTPAC BANKING CORPORATION LIMITED

 

                                                                                    Respondent and Cross-Claimant

 

 

 

COURT:                       Sundberg J

DATE:              1 August 1996

PLACE:                       Brisbane

 

 

 

                                                           MINUTES OF ORDER

 

The Court declares:

 

1.         On the application, that the respondent is liable to the applicant in the sum of $577,732.15 together with interest at the rate prescribed by O 35 r 8 of the Rules on each component part of the said sum from the date on which that part was debited to the applicant's account with the respondent to the date judgment is entered under Order 1 of these Minutes.

 

2.         On the cross-claim, that the cross-respondent is liable to the cross-claimant in the sum of $37,822,975.07 together with interest at the respondent's Unarranged Loan
Rate from 1 July 1996 to the date upon which judgment is entered under Order 1 of these Minutes.

 

The Court orders that:

 

1.         The amount payable under declaration 1 be set off against the amount payable under declaration 2 and judgment be entered for the respondent/cross-claimant for the balance.

 

2.         The applicant pay the respondent's costs of the cross-appeal and nine tenths of the respondent's costs of the application, in each case including any reserved costs.

 

3.         There be liberty to apply.

 

 

 

 

 

 

 

 

 

 

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

 

IN THE FEDERAL COURT OF AUSTRALIA                       )

QUEENSLAND DISTRICT REGISTRY                                )           No QG 92 of 1991

GENERAL DIVISION                                                            )

 

 

 

                                                            BETWEEN:     DRAMBO PTY LIMITED

 

                                                                                    Applicant and Cross-Respondent

 

                                                            AND:               WESTPAC BANKING CORPORATION LIMITED

 

                                                                                    Respondent and Cross-Claimant

 

 

COURT:                       Sundberg J

DATE:              1 August 1996

PLACE:                       Brisbane

 

 

 

 

                                                     REASONS FOR JUDGMENT

 

SUNDBERG J:

1.         THE MAIN EVENTS

At all material times the applicant ("Drambo") had three directors: Robert George Porter, Porter's father and Laurence Joseph Henderson.  It was, however, essentially run by Porter.  He had acquired Drambo in 1981 as the vehicle for the development of the Whitsunday Terraces Resort.  Finance for the development was provided by Tricontinental Corporation Limited ("Tricontinental").

 

By the end of 1982 Drambo was in default under the Tricontinental loan, and by 1984 the position had deteriorated substantially.  Under pressure from Tricontinental, Porter made enquiries about having the loan re-financed, and in October and November 1984 held discussions with officers at a Brisbane branch of the respondent ("Westpac").  In late

November Westpac gave Drambo "in-principle" approval for facilities totalling $13.5 million, $13 million of which was to be in foreign currency.

 

An off-shore loan facility agreement was executed by Drambo in January 1985, and the loan of CHF 28,382,900 was drawn down at the end of the month.  Tricontinental was paid out.  The facility had a five year term.

 

Shortly after drawdown the Australian dollar depreciated rapidly.  As against the Swiss franc it fell from 2.18 at drawdown to 2.03 towards the end of February, and was at 1.81 at the end of March.  After discussions with Westpac in February and March about hedging the loan, Drambo decided to leave things as they were.  The dollar continued to slide.  At the end of April it had fallen to 1.65.

 

In March 1985 the Whitsunday Terraces Resort and the Whitsunday Village Resort, the principal assets securing the loan, were sold, and in May Drambo received almost $16 million in cash, which it placed on interest bearing deposit with Westpac as replacement security.  Part of the consideration for the sale consisted of shares and share options in the purchasing company.  In September 1985 these were sold for $1.5 million, and the proceeds deposited with Westpac as further security.

 

In August 1985, allegedly contrary to Henderson's instructions, Westpac failed to implement a direction to hedge at the rate of 1.65 CHF/AUD.  This led to the execution of various documents.  One was a release in favour of Westpac expressed to be given by Drambo in return for Westpac permitting the loan to remain off-shore.  The parties also entered into a form of management agreement with respect to the loan.  This consisted of two documents: a deed dated 16 September 1985 and a power of attorney dated 1 October 1985.  It was
apparently intended to contain Drambo's exposure to an amount equivalent to Westpac's valuation of the security held by it plus $500,000.

 

The dollar had continued to fall.  On 13 August, the date of Henderson's instruction, it was at 1.62, on 16 September 1.61, and on 1 October 1.51.

 

On 6 June 1986, with the dollar at 1.35, Drambo entered into a Foreign Exchange Management Agreement ("the FXMA") with Westpac under which Westpac assumed total management of the loan.  Westpac was to report, after the event, on the contracts written and the profits and losses made and suffered as a result.  Although Westpac agreed not to charge Drambo a fee for this management, it nevertheless retained "points" on the inter-bank rates in trading undertaken on Drambo's behalf.

 

On 5 July 1988, with the dollar at 1.17, the loan was brought back on-shore.  The amount owed by Drambo was $25,164,160.24, representing a capital loss of $12,164,162.20.  The money held on deposit was set-off against the amount owing, leaving a shortfall of $7,259,922.90.

 

On 4 July 1991 Drambo sued Westpac for damages for the loss it had suffered on and as a result of the loan.  Westpac cross-claimed for $31,650,765 together with interest on account of the shortfall and other alleged indebtedness.

 

2.         THE PROCEEDING

In its further re-amended statement of claim ("the statement of claim") Drambo first contends that in answer to enquiries made by it between June and December 1984 about re-financing the Tricontinental facility, Westpac made representations that were misleading and deceptive in contravention of the Trade Practices Act, and which involved a breach of a duty
of care said to be owed to Drambo.  These included representations as to the suitability of a facility in Swiss francs, that off-shore borrowing was financially prudent and even lucrative, that it was a low-risk form of finance, and that Westpac possessed expertise in dealing with foreign currency borrowing.  Drambo says it relied on these representations, and as a result suffered loss when the Australian dollar declined against the Swiss franc and it was required to repay a greater sum in Australian dollars than it had borrowed.  The relief claimed under this head is the setting aside of the instruments on which the cross-claim depends and damages of $8.35 million.

 

Drambo next alleges that on or about 15 February 1985 Westpac made further representations that were misleading and deceptive and in breach of its duty of care when it advised Drambo that despite the fact that the dollar had fallen to 2.07, it was unnecessary to convert the loan to Australian dollars.  Drambo claims to have lost the opportunity to reconvert the loan to Australian dollars, or alternatively to have the loan "managed".  The relief claimed under this head is the setting aside of the instruments on which the cross-claim depends, and $6 million damages.

 

Similar representations are said to have been made by Westpac at the end of March 1985, when the dollar stood at 1.81, and to have caused Drambo to lose the opportunity to convert the loan to Australian dollars and repay it, alternatively to have the loan "managed".  The relief claimed under this head is the setting aside of the instruments on which the cross-claim depends and $2 million damages.

 

Then follows a claim that Westpac breached the agreement made in September and October 1985.  Drambo alleges that contrary to express terms of the agreement, Westpac failed to advise it as to the prudent management of the loan, failed to provide it with an automatic hedge arrangement to come into effect upon a stipulated event, and failed to effect a forward
exchange contract at a rate of A$1.00 to CHF 1.61.  Westpac is also said to have breached an implied term of the agreement that it would exercise all reasonable skill and care and perform the agreement in a good and prudent fashion.  Drambo alleges that as a result it lost the opportunity appropriately to hedge and un-hedge the loan from time to time and to consider and act upon proper and timely advice as to the prudent management of the loan.

 

The next claim is that during negotiations preceding the signing of the September/October agreement, Westpac made representations concerning the service it would provide, and its expertise in foreign currency transactions, which were misleading and deceptive and involved a breach of its duty of care.  Drambo alleges these representations were repeated between October 1985 and June 1986, and that it relied on them in entering into the FXMA in June 1986.  As a result Drambo lost the opportunity to manage the loan, and to have it managed properly so as to minimise the risk of exchange rate fluctuations by taking out forward exchange contracts on certain dates.

 

Drambo further claims it was informed by Westpac's officers that unless it entered into the FXMA Westpac would not continue to manage the loan, would bring it on-shore, crystallise any loss, and execute against the secured assets to recover any shortfall.  In the premises Drambo contends it entered into the FXMA under duress.  Alternatively, it says it would be unconscionable to permit Westpac to rely upon the FXMA in assessing Drambo's liability under the facility.

 

Westpac is alleged to have again breached its duty of care on 5 July 1988 when, contrary to express instructions, it converted the loan to Australian dollars, even though there were then reasonable grounds to suppose the dollar would improve as against the Swiss franc.  Drambo says that as a result it was exposed to a claim by Westpac for a substantially greater sum in
Australian dollars on repayment of its loan than would otherwise have been the case on the maturity of the loan.

 

Further, Drambo claims that in debiting its account for certain sums and paying them to the Commissioner of Taxation in satisfaction of Westpac's withholding tax obligations, Westpac breached s 261 of the Income Tax Assessment Act, acted unconscionably, and was unjustly enriched.  Provisions of the facility agreement which permitted Westpac to do this are said to be rendered illegal and void by s 261.  In the alternative, it is said that if the withholding tax sums were paid by Drambo to Westpac (rather than by Westpac to the Commissioner), they were paid in circumstances where, had they not been, Westpac would have claimed to be entitled to terminate the facility and demand repayment of all moneys owing together with interest.  Drambo claims the payments were made under duress, and that it would be unconscionable for Westpac to retain the money.  Drambo also claims it made the payments in the mistaken belief that Westpac was lawfully entitled to them, and it is unconscionable for Westpac to retain the benefit of the money.  Finally, Drambo claims it is entitled to be repaid the money "by way of account or, alternatively, by way of restitution or, alternatively, as money had and received".

 

Finally, Drambo claims Westpac breached fiduciary duties it owed Drambo, and also acted unconscionably, in taking secret commissions by the practice of "point taking".  This involved Westpac receiving the difference between the rates at which its inter-bank dealers sold foreign currency to the managers who controlled Drambo's facility, and the rates at which the foreign currency was available to the managers on the open market.

 

 

 

3.         THE EVIDENCE

Drambo

In October 1981 Porter and his father acquired the shares in a shelf company which changed its name to Drambo.  The company was purchased as a vehicle for the development of the Whitsunday Terraces Resort at Airlie Beach.

 

Porter said his father and Henderson, who were the other directors, acted merely as signatories.  He made all decisions with respect to Drambo's affairs.  For this reason, in the balance of these reasons for judgment I will often refer to Porter and Drambo interchangeably.  Henderson, an accountant, was appointed a director in about October 1981, and his professional association with the company consisted of the preparation of tax returns.  He became a director because it was inconvenient for Porter's father, who lived at Airlie Beach, to execute company documents located in Brisbane.  Henderson had no role whatsoever in the running of Drambo's affairs or the management of its business.  Drambo had no financial adviser so called, though Porter acknowledged that in dealings with bankers, including Westpac, he may have described one of his employees, Ernie Menadue, as his "financial adviser".

 

Tricontinental

Patrick Bradley, then Corporate Lender at Tricontinental's Brisbane office, who gave evidence for Drambo, said he first met Porter in June 1981 when Porter asked whether Tricontinental was interested in providing finance to assist with the construction of the Whitsunday Terraces Resort.  A loan of $7.5 million was approved in October 1981.  Bradley was in charge of the account from then until April 1984.

 

Bradley said Porter's accounts were constantly in default and were substantially in excess of the initial loan facility.  In Bradley's opinion Porter simply wanted to complete the Terraces
and did not concern himself with the financial planning aspects of the transaction.  Porter displayed a "lack of understanding and incompetence" in shouldering a borrower's responsibilities.  He had little knowledge of finance or banking practices or the procedures involved in financial compliance accounting principles.  This view of Porter was shared by Mark Vallance, who worked with Bradley.  Vallance also said Porter was a very trusting man, who would place his life in the hands of an adviser in whom he had confidence.

 

According to Bradley, Porter raised the question of foreign currency loans in social conversations between 1982 and 1985.  Porter often remarked that if he took a foreign currency loan he would be able to meet his financial commitments more easily because of the difference in the interest rates.  Bradley told Porter he should not borrow in foreign currency because of the risk involved and Porter's lack of expertise in currency management.  Porter seemed to Bradley to appreciate that currency fluctuates, but had no appreciation of the effect of the fluctuation upon his potential exposure in a foreign currency loan.  In cross-examination Bradley agreed he had told Porter there was a risk of a capital loss with a foreign currency loan, and that Porter had understood this.

 

Bradley formed the view that Porter had almost no comprehension of foreign currency loans, and no knowledge of margin calls, top-up clauses, security ratios, hedging or other matters relating to the management of a foreign currency loan.  Under cross-examination, however, Bradley admitted that Porter would have been capable of comprehending these notions.

 

By the end of 1982 Drambo was in default under the Tricontinental facility.  In March 1983, amidst threats that Tricontinental would appoint a receiver to the Resort were the facility not brought into order, Ian Johns, Tricontinental's General Manager, Lending and Corporate Services, was appointed Drambo's "adviser on the construction of the Terraces".  Porter said he could not recall discussing foreign currency borrowings with Johns during his period
as adviser, though he acknowledged that sometime between September 1983 and June 1984, in the context of a discussion about repaying the Tricontinental loan, Johns told him that borrowing in foreign currency was not suitable for Porter as he wanted construction finance, and off-shore loans were not designed for construction finance.  Under cross-examination Porter accepted that he may have discussed foreign currency transactions with Johns on as many as six occasions, but never received from him a more detailed explanation as to why an off-shore facility was not appropriate for him.  Porter claimed he did not learn anything much about foreign currency transactions from his conversations with Johns.

 

On 5 June 1984, the day after he had told Johns he thought he would be able to re-finance through Citicorp, Porter received a letter in which Johns "condemned" off-shore borrowing "in your instance".  In cross-examination Porter accepted that the letter sounded a serious warning against borrowing off-shore.  Porter disputed Johns' contention in the letter that the two had discussed the advantages and disadvantages of Euro-currency borrowings on a number of occasions, and maintained that the letter did not alert him to the existence of disadvantages in foreign currency transactions, because he didn't really pay much attention to it.  The same letter stated that Tricontinental required the loan to be re-financed by 30 June 1984.

 

After he had discussed with Johns the possible re-financing of the facility by Citicorp, which involved an option to take part of the loan in a foreign currency, Porter received a letter dated 11 July 1984 in which Johns referred to arranging an option to convert part of the Tricontinental facility to a $6 million Swiss franc loan.  Porter acknowledged this was probably his idea.  On 23 July Porter received from Tricontinental a letter of offer for $11.5 million, $6 million of which could be taken in foreign currencies.  He said he did not accept the offer.  In the course of cross-examination he was shown a letter by which he had accepted it.  He conceded the point, but maintained he did not recall accepting it.  He also
said he read neither the part of the offer letter concerned with "Currency Fluctuation" nor the section headed "Currency Risk".  The letter stated that where the advance was denominated in a foreign currency, Drambo was to pay Tricontinental the "Australian dollar countervalue" at the date of repayment.  Under "Currency Fluctuation" it stated that if at any time during the term currency fluctuations caused Drambo's liability, when translated to Australian dollars, to exceed the amount drawn down by more than $300,000, Drambo would deposit funds to cover the excess.  The "Currency Risk" entry stated that if the Australian dollar depreciated against the foreign currency during the term, the risk was to be borne by Drambo.

 

The Citicorp offer

Porter said that as a result of earlier conversations with David Brookman, then Corporate Account Manager of Citicorp in Brisbane, in which they had discussed the interest differences between off-shore and on-shore loans, Brookman sent him a letter dated 18 April 1984 accompanied by a graph showing the break-even point between interest rates and loan costs, as well as some financial bulletins.  Porter perused this material but did not give the matter much further thought.  In cross-examination Porter accepted that he was keen to reduce his interest costs, which were then over $1 million a year.  Further, he revealed that he had received from Citicorp "an early proposal" regarding the borrowing of foreign currencies dated 12 April 1984.  He acknowledged that Swiss francs were specifically referred to in this proposal because his "interest was in Swiss francs", and that he understood that the purpose of borrowing a basket of currencies was to spread the risk, although he claimed not to know what this risk was.

 

Porter also conceded that Brookman's comment, in the letter enclosing the graph and financial bulletins, that a proposal to borrow more than was required to refinance the Tricontinental facility, so as to be able to earn interest at Australian rates on the excess
sufficient to cover the entire cost of foreign currency borrowing, was not prudent, suggested that the proposal was his own.  He further acknowledged that the letter contained a clear warning that the dollar was volatile, and showed that Citicorp expected the dollar's value to decrease in 1984 and 1985, but said he had not read the document at the time.

 

On 9 October 1984 Porter received two letters of approval with respect to the re-financing, one from Citibank involving an option to borrow in foreign currency, the other an on-shore loan from Citicorp.  In cross-examination he was unable to explain why, if he did not realise there were drawbacks associated with borrowing off-shore, he did not immediately take the off-shore option since it provided interest savings of over $1 million per year, whereas the Citicorp on-shore offer involved no such savings.  Porter claimed that although he showed the Citibank and Citicorp letters to Henderson, he did not particularly discuss them with him.

 

On 6 November Porter sought an increase in the facility offered, and subsequently received two draft letters of offer dated 29 November incorporating the increase.  In cross-examination he said that although he probably showed the Citibank/Citicorp letters to Tony Kootsookos, his solicitor, this was "normal practice" and was not done to obtain advice.  Kootsookos did not alert him to any disadvantages in the Citibank offer.

 

Porter acknowledged that he understood the Citibank offer required $1 million to be put on deposit in case of a fall in the dollar, and he was therefore aware there was a risk in borrowing off-shore that the borrower might end up paying more than had been borrowed.

 

Brookman gave evidence for Drambo.  His account of his dealings with Porter essentially corresponded with Porter's evidence.  Brookman formed the view that Porter had little understanding of the nature of the foreign currency loan instrument Citibank was offering
him.  He insisted he did not provide Porter or any member of his group with advice concerning the Citibank offer.

 

Under cross-examination Brookman acknowledged that the risk of capital depreciation was amongst the "sorts of things" discussed with Porter in a meeting on 29 March 1984.  He also acknowledged that in an unsigned document headed "Rates Effective, 12 April 1984", he set out various details concerning the probable structure of a foreign currency loan for Porter, and that he must therefore have thought a foreign currency loan was suitable for him.  He also accepted that he and Porter had discussed the idea of spreading the risk of a foreign currency borrowing by using a basket of currencies.

 

Brookman accepted that the idea of a loan of $15 million in Swiss francs (rather than $11 million in Swiss francs), with the $4 million increase to be deposited in Australia, that had been approved in a letter from Citicorp to Porter dated 14 April 1985, was Porter's.  He agreed he had cautioned Porter about borrowing too much in Swiss francs.  He also agreed that the comment in a memorandum of 16 August 1984 that "Porter seeks multi currency facility" would have expressed Porter's desire.  He further agreed that the word "Yes" inserted by him next to the query "Does the borrower understand exactly for what purpose the $1 million ForEx contingency can be used" in an undated document headed "Robert George Porter-CA" signed by Jim Palmer and marked "received 5 September 1984", would only have been placed there if Brookman believed Porter knew the amount was required for Citibank's protection in the event that the dollar fell against the foreign currency borrowed.

 

Brookman agreed that an Australian dollar loan would automatically be offered by Citicorp to anyone to whom Citibank offered a foreign currency loan.  He also said the Citibank letter of offer dated 9 October was capable of immediate acceptance.  He acknowledged that
his diary note recording a meeting of 5 April 1984 was correct when it said that Ernie Menadue was introduced to him by Porter as his "principal financial adviser".

 

Bradley (Tricontinental) said that when Porter showed him the Citibank letter of offer, he told him that as he had no "natural hedge" it was inappropriate that he undertake a foreign currency loan.  Bradley said he mentioned to Porter again the risk involved in foreign currency transactions, and "generally gave him a very hard time about his potential entry into such a loan".  According to Bradley, this warning was in very strong terms, and focussed on the fact that Drambo had no income in a foreign currency (i.e. no natural hedge).

 

From mid 1981 until late November 1984 the Porter group's domestic accounts had been managed by Noel Osborne, first at the Commercial Bank of Australia and then at Westpac.  Osborne gave evidence for Drambo.  Porter showed him the Citibank letter, but said he did not give Porter the benefit of his views in detail in relation to the efficacy of foreign currency loans.  Osborne noted that Porter was extremely enthusiastic about the prospect of taking up the Citibank offer, and on a later occasion that Porter was "adamant that he was to take up the loan".  Osborne suggested that Westpac be given the opportunity to match Citibank's offer.

 

The sugar mills

In or about May 1984 Porter was contacted by John Caske of Australian International Finance Corporation Limited ("AIFC"), who told him that certain sugar mills were interested in purchasing the resorts.  AIFC prepared a marketing report on the resorts, and Proserpine Mill was given an option to purchase.  In cross-examination Porter acknowledged that he had asked Caske for a foreign currency loan, and Caske had refused.  Porter said he had not enquired of Caske or been informed by him about drawbacks to foreign currency
loans.  Even when Porter had shown Caske the Citibank letter of offer, Caske had merely said it was "pretty good".

 

Caske, who gave evidence for Drambo, said he found it very difficult to obtain from Porter details of the operating expenses and revenues of the resorts.  He soon realised Porter had precious little ability in financial planning, and relied completely on others for advice with respect to financial matters.  Caske acknowledged that in the latter half of 1984 he had a number of conversations with Porter about foreign currency loans and interest rates.  However he said they were in general terms, and he never advised Porter on the complex issues involved in borrowing in a foreign currency.

 

Caske said his reasons for refusing Porter's request for a foreign currency loan included the fact that such loans are usually of three to five years duration, whereas Porter, who was looking to complete work on his resorts and then sell them, required financial assistance for a much shorter period; that he had a limited income base, and hence his ability to service the loan was doubtful; that he had a liquidity problem; and that Porter had very limited knowledge of foreign currency loans and economics generally, which would mean he would be unable to comprehend "hedging" and the risk involved in foreign currency transactions.  Caske did not give Porter his reasons for refusal.  It was easier to fob him off by telling him that the amount requested was too large for AIFC.

 

Caske agreed that he discussed the Citibank/Citicorp offers with Porter in a summary fashion, merely telling him they were "good offers".  Caske asserted that if he had been willing to provide Porter with a foreign currency loan, he would have first made sure that Porter understood the enormous risks involved.  Caske claimed that although he thought a foreign currency borrowing unsuitable for Porter, he did not feel obliged to warn him about the Citibank offer, as he didn't think Porter would proceed with a foreign currency
borrowing since the resorts were going to sell very shortly.  Although he later realised Porter was getting serious about borrowing in a foreign currency, Caske said he thought the Citibank people with whom Porter was dealing were more qualified than he was to tell Porter about the risks of overseas loans.

 

Caske maintained that in general conversations with Porter about foreign currency loans in the latter half of 1984, despite realising they were fraught with danger and there was a risk of capital loss, he did not warn Porter of this, but merely told him not to be misled by the low interest.

 

European Asian Bank

Porter said that after Drambo commenced proceedings he inspected a letter from the European Asian Bank to him dated 5 June 1984 suggesting he had sought of the Bank a foreign currency loan.  He did not recall making any such application or attending the meeting referred to in the letter, and could only surmise that Kootsookos, who also acted for the Bank, had made an informal application on his behalf.  Under cross-examination he conceded that the application had come from his own office.

 

Westpac's involvement - Osborne

It will be recalled that Osborne managed the Porter group's domestic accounts at Westpac in Brisbane.  Osborne observed that from mid 1982 Porter and his group of companies were constantly in excess of their approved facilities.  Osborne had the opportunity to observe Porter at close quarters, and formed the view he had little working knowledge of corporate business and banking practice.  Porter relied almost exclusively upon his professional advisers.  When Osborne asked for information as to financial data, cashflows and details relating to balance sheets and profit and loss statements, Porter claimed he had no knowledge of these matters.  He had little detailed knowledge or understanding of the
complexities of the financial instruments into which he and his group were entering.  Although Porter often used Osborne as a sounding board, and on or about 24 October 1984 gave him a copy of the Citibank/Citicorp letters of offer, Osborne did not provide him with any advice in relation to foreign currency loans.

 

Osborne claimed he and Porter had no detailed discussion about the advantages or disadvantages of foreign currency borrowing.  Porter said nothing to him that indicated he had any detailed knowledge of foreign currency transactions, foreign currency loans, the mechanism of hedging foreign currency loans, the concept of bringing loans back onshore, or any knowledge whatsoever of the intricacies or complexities of the financial instruments used in foreign currency loans.  However, Osborne accepted that Porter was quite an intelligent man, and capable of understanding the pros and cons of borrowing in a foreign currency and the essentials in relation to hedging.

 

Osborne also gave evidence as to his experience concerning foreign currency loans and the criteria he applied in deciding whether to support them.  In determining whether to approve foreign currency transactions he would consider whether a fifty per cent loan to security ratio could be provided, whether the proposed borrower could hedge the foreign currency component of the loan, whether the borrower had a good understanding of the hedge mechanism, whether the borrower was an exporter who could pay for expenses in a foreign currency, whether the borrower had a specialised knowledge of foreign currency transactions or commodities transactions, and whether the borrower had the capacity to service the foreign currency loan if it were brought back on-shore.

 

Osborne said Porter would not have qualified on any of these criteria.  He did not have adequate security, did not have the capacity to pay high on-shore rates if required to come on-shore, did not understand hedging, and did not appreciate the risks involved.

October-November 1984 meetings

On 19 October 1984 Porter was contacted by David McElwee who was Manager, Corporate at Westpac in Brisbane.  He told Porter Westpac was interested in putting a proposition to him to re-finance the Tricontinental debt.  Porter had a number of meetings with McElwee and Garvin Riley, State Manager, Corporate and International, between 19 October and early November 1984.  Porter claimed that at the initial meetings Riley suggested he borrow off-shore to re-finance, and in response to Porter's questioning, said there was no real risk associated with borrowing in Swiss francs because the extent of the interest differential would more than compensate for any currency fluctuations, given the recent history of the franc against the Australian dollar.  Porter said one of the reasons Riley gave for the absence of risk was that Westpac's Sydney dealing office basically knew of every significant move that was likely to occur between the two currencies, and was well equipped to obtain the very best of market rates and conditions and to manage and monitor the loan.  Moreover, Albert Look, one of the best foreign currency men in Australia, was in Westpac's Brisbane office.

 

Under cross-examination Porter maintained he had not seen much point in enquiring of his advisers about the drawbacks to off-shore borrowing, and claimed the first occasion he had made such an enquiry of a banker was when he asked Riley about drawbacks.  At that stage he had only a "slight" knowledge of such notions.  He conceded he was unable to remember what was actually said by Riley at any particular meeting.

 

Porter claimed it was Riley's "higher position" that explained why he did not query Riley's claim that there were no drawbacks associated with foreign currency borrowings, even though Bradley had informed him to the contrary only two weeks earlier.

 

Riley, who gave evidence for Westpac, could not recall meeting Porter in late October and early November.  He thought it unlikely he attended the initial meeting with Porter, as he was absent from Brisbane until 29 October.  He did however remember discussing with Porter the possibility of Westpac refinancing his Tricontinental debt.  He said Porter was keen to borrow off-shore from the outset, and was not interested in a domestic facility.  He was keen to get Porter's business, but "there was no question of encouraging him to borrow off-shore".

 

Riley could not recall Porter asking him whether there were any drawbacks associated with off-shore loans.  Had he been asked, he would have said there were drawbacks, and would have referred Porter to Look for further guidance.  Riley denied he told Porter there was no real risk in borrowing off-shore, that interest differentials would make up for currency fluctuations, that the Sydney dealing office basically knew of every significant move that was likely to occur between the two currencies, that Westpac was best equipped to obtain the very best market rates and conditions, or that Westpac was best structured to manage and monitor the loan.  According to Riley, Westpac was not then offering to manage the foreign exchange risk of the loan.  He said that had Porter asked him about the risks, he would have said they existed, but that over a five year period he would have been "all right".  He was of the opinion at the time that the Swiss franc was the best currency in which to borrow, that the interest benefits would compensate for currency fluctuations, that Westpac was the best bank to provide foreign currency services, and that Look had particular experience in off-shore borrowing.  He agreed that if the conversation had turned to any of these matters, it was quite likely he would have expressed these opinions to Porter.  Later he conceded he may have told Porter that Westpac was recognised as one of the leading and biggest dealers in foreign exchange in Australia and that Porter, as opposed to his loan, would be in the best of hands if he borrowed from Westpac.  Riley said Porter told him he had spoken to a lot of merchant banks, and conversed in a manner that suggested he was well aware of the
"parameters of off-shore borrowing".  He conceded, however, that he did not ask Porter any direct questions about his knowledge of foreign currency loans, and that his awareness of Porter's knowledge in this area was "pretty meagre".

 

Riley knew Porter had received an offer from Citibank, and he did not want to lose Porter's business, but rejected the suggestion that he could not make him an offer "fast enough".

 

Riley was not aware of any policy guidelines that existed in 1984 for the assistance of Westpac officers in deciding whether to grant a foreign currency loan.  But he did say that in order to qualify for such a loan, a borrower would have to have a regular cash flow to service an Australian dollar equivalent of the loan, be able to meet top-up requirements if called upon to do so, have substantial net assets, and be a proven and reliable borrower.  Further, the borrower would have to have a thorough knowledge of the foreign exchange market.  It was in order to satisfy this requirement that Riley put Porter into Look's hands.

 

McElwee gave evidence for Westpac.  He said he had no specific recollection of the meetings in late October and early November.  His recollection was limited to what was recorded in his diary notes.  To the extent that his evidence as to what occurred at the meetings expanded upon these notes, he was only saying what he thought would have happened.  He could not recall Riley suggesting that Porter borrow off-shore, though he agreed that Porter was not discouraged from taking a loan in Swiss francs.  He could not recall Riley saying there was no real risk in an off-shore loan for Porter.  Riley certainly did not say that the extent of the interest differential would more than compensate for any currency fluctuations, or that Westpac's Sydney dealing room basically knew of every significant move likely to occur between the two currencies.  Nor did Riley make any comment about Westpac managing and monitoring the loan, as it did not offer such services.

McElwee said that on the first occasion he and Riley met Porter, they told him about the risks involved in foreign currency loans.  He was given the "routine spiel".  He could not explain why, if this were the case, it was not recorded in his diary notes.  But he was adamant that the warning had been given.  Later in his evidence he was less certain.  He assumed Porter had been warned because this was his and Riley's customary practice.  Later still he said "I know we told him".

 

The Grove meeting

Paul Grove, then Westpac's Manager, Corporate Banking in Brisbane, attended a meeting in late October/early November 1984 at which Porter, Riley and another Westpac officer, possibly McElwee, Osborne or Ross, were present.  He gave evidence for Westpac.  At the meeting Riley told Grove that Porter had received an offer from Citibank to refinance his Tricontinental loan by an off-shore loan, and asked him whether Westpac could come up with a better package cost-wise.  He was not asked whether Westpac could compete with any on-shore loan offered to Porter.  He was told the matter was urgent, as Porter's deadline for accepting the Citibank offer was 9 November.

 

Grove was unable to fix the date of this meeting, but said that the statements attributed by Porter to Riley at the meetings held between 19 October and early November did not occur at the meeting at which he was present.  Riley and Grove then prepared a submission dated 6 November 1984 in respect of Porter's loan application.  The submission contained the statement - "Applicants are fully aware of the inherent risks in off-shore borrowings but consider these risks are adequately compensated by cash flow advantages and their ability to service on-shore rates comfortably in need".  Grove claimed this statement was based on his "perception of the tenor of the discussion" in the meeting with Porter, though he admitted he had no real recollection of what happened at the meeting on which he could found the perception.

The submission was approved by Harvey Garnett, Chief Manager, Credit Control, on 9 November, and Grove probably telephoned Porter to tell him immediately.  Grove then prepared and dispatched a letter dated 12 November approving in principle a $13 million facility of which $12.5 million was to be off-shore.  Under the heading "Exchange Risk" the letter stated that the facility would be reviewed six monthly when total liability would be examined for reasonable containment of Westpac's exposure.  Should exchange fluctuations result in the commitment reaching $14 million, the borrower would be required to "top up".

 

At the time he approved the submission Garnett was not aware Porter was in default under his existing domestic facility.  He agreed he should have been informed of this, and had he been, he would have scrutinised the submission more closely.

 

23 November meeting

On 23 November 1984 Porter received a letter from Westpac confirming its approval of a foreign currency loan, and on the same day attended a meeting with Look, who was then Manager, International Business Development.  McElwee and his assistant Les Ross were also present.  Porter said he was informed that Look, who was introduced as Westpac's expert in international foreign currency, would be on hand to manage the facility, and Look then advised Porter as to the advantages of borrowing in Swiss francs.  Look said "Swissies" were the way to go because they represented the best interest rate when compared to the "Aussie", and the "Aussie" was unlikely to depreciate against the "Swissie" by any more than the interest differential would normally be.

 

Questioned about this meeting, Porter admitted McElwee may have suggested that $5.5 million of the loan be taken in Australian dollars in order to reduce the risk of borrowing off-shore.  Porter also conceded he had sent copies of the Westpac and Citibank letters to Kootsookos for his opinion, and that although he decided immediately after the meeting that
he would accept the Westpac offer, it was not in fact accepted until after he had received the revised Citibank offer, and had shown this and the Westpac letter to Kootsookos.  Porter conceded that prior to the meeting of 23 November he had told Osborne he would most likely be accepting Westpac's offer.

 

Porter agreed that because of the interest savings associated with Swiss francs, of which he was aware at the time of the 23 November meeting, it would be Swiss francs he would take if he were to borrow off-shore at all.  Nonetheless, according to Porter, the Westpac officers confirmed that this was the currency in which to borrow.

 

McElwee agreed that he, Ross and Look met with Porter on 23 November and suggested a facility of $13.5m, $5.4m of which would be held on-shore.  McElwee's diary note of the meeting records this, and that it was explained to Porter that the foreign exchange risk would be reduced if a substantial part of the facility was in Australian dollars rather than a foreign currency.  However, the note continues, Porter remained keen on the original concept, namely $13 million of the loan to be off-shore.  The note also records that Porter "is well aware of the exchange risk aspect", and that he "could have his choice".  McElwee then prepared a revised letter of offer, which was collected by Porter later in the day.  The letter confirmed approval of an off-shore loan to the equivalent of $13 million dollars, the balance of $500,000 to be on shore.  The letter contained the same "Exchange Risk" note that appeared in the 12 November letter, save that the "top up" requirement applied when total commitments reached $14.5 million rather than $14 million.

 

McElwee denied that anyone had said Look would be on hand to manage the facility, though he may have said Look would be on hand to discuss Porter's position or to take instructions in relation to hedging.

In cross-examination, McElwee admitted he could not actually recall this meeting and could only rely on his file note.  Nonetheless, he agreed Look could have been introduced as "Manager, International Business", and described as Westpac's expert in foreign currency in Brisbane.  He could not recall Look saying "Swissies" were "the way to go", but he might have said it, because Look did use the words "Swissie" and "Aussie", and at the time "Swissies were the cheapest interest rates".  But that was like "coal to Newcastle" because Porter knew that anyway.  That's why he wanted to borrow in Swiss francs.  McElwee maintained he could say with reasonable confidence that Look did not claim the "Aussie" was unlikely to depreciate against the "Swissie" by any more than the interest differential.

 

Look, who gave evidence for Westpac, said he was introduced to Porter as Westpac's Queensland expert in foreign currency.  He agreed that prior to the meeting it had been impressed upon him that Westpac was very keen to get Porter's business.  In response to the suggestion that in view of this he would not do anything to frighten Porter out of taking the loan, he said he always gave an even-handed explanation of foreign exchange fluctuations - his main thrust was always to say "we don't know where the dollar's going to go".  He denied he had told Porter the dollar was unlikely to depreciate against the Swiss franc.  He did not recall whether the possible depreciation of the dollar was discussed.  If it had been, he would have said he had no idea what was likely to occur.  He was also unable to recall whether a mix of currencies had been suggested to Porter, but recalled Porter saying he would rather stay in Swiss francs as they were "safer".  Look denied using the word "Swissies".  It was a dealing term which he used only when talking to dealers.  He did not say the Swiss franc was the most favourable currency in which to borrow.  Nor did he say the risk of the loan exposure increasing was not significant.  Any such statement would have been inconsistent with the historical data he had prepared.

 

He said he did not give "advice" to potential customers as to whether they should enter into foreign currency loans, but merely passed on "information" he derived from the dealing rooms.

 

Look accepted he did not give Porter the explanation of off-shore loans he usually gave customers.  One of the reasons he did not follow the usual course was that he knew Porter had received the Citibank offer of a foreign currency loan.  Porter appeared to Look to be an astute and intelligent businessman who seemed "quite comfortable" in discussing such loans.  He could not, however, recall Porter asking any specific questions.  Another factor that influenced him in not giving his usual warning was that he was aware of Grove's comment in Drambo's Credit Application dated 6 November 1984, that "Applicants are fully aware of the inherent risks in off-shore borrowings".  He accepted Grove's opinion as correct, without "really thinking about it".  He acknowledged that the fact that Grove was of that opinion did not mean Porter in fact knew of the risks.

 

Ross, who gave evidence for Westpac, said that at the meeting McElwee raised with Porter the possibility of borrowing a significant proportion of his total proposed loan in dollars rather than foreign currency.  He told Porter this would reduce the extent of the exchange risk involved in the borrowing.  Porter rejected the suggestion.  Ross did not recall Look making the comments Porter said he made at the meeting.  Look did not say the "Aussie" was unlikely to depreciate against the Swiss franc by any more than the interest differential.  According to Ross, Look was not in the habit of venturing long term predictions of exchange rate movements.

 

29 November meeting

According to Porter, at a meeting on or about 29 November 1984 attended by Porter, Henderson, McElwee, Look and Lex Mitchell, Look said "Swissies" were the most
favourable currency in which to borrow, and also claimed that hedging the loan would destroy interest differential gains, and while there was a risk the loan exposure could be increased, this was not significant given the stability of the Swiss franc.

 

Porter admitted that prior to this meeting he had heard of "hedging", and understood it was used as protection against fluctuations in currency.

 

According to Henderson, Westpac was represented at this meeting by McElwee and Look.  The substance of the meeting was the recommendation that Porter take out a foreign currency loan in Swiss francs in order to pay out the Tricontinental facility.  Henderson asked Look why the loan was to be in Swiss francs, and was told it was the most favourable currency in which to borrow.  There was also a discussion in which a bank officer talked about the savings that could be made because of the difference between the Swiss franc interest rate and the current Australian dollar interest rate.  After Henderson raised the issue of hedging, Look said this would destroy the interest differential.  A Westpac officer also stated, in response to Henderson's request about "exposure", that given the stability of the Swiss franc and the short-term nature of the loan contemplated, the risk was minimal.  Under cross-examination Henderson admitted that when he mentioned "hedging", Porter had not enquired what "hedging" was.  Although Henderson had gleaned a certain amount about hedging foreign currency loans and foreign currency exposure from the press, he did not share his knowledge with Porter, but rather left it to Westpac to inform Porter about those matters.

 

Henderson affirmed that a mix of currencies was mentioned at the meeting, but could not recall by whom.  He also acknowledged that he and Porter were aware, at the meeting, that there would be a cost to Drambo if there were any increase in the value of the Swiss franc, but they were consoled by Look's claim that the Swiss franc was "incredibly stable".

While Henderson asserted that Look mentioned the "vast" interest savings that could be made by foreign currency borrowing, he admitted he was already aware of the nature of these savings, if not their extent.

 

Henderson said he did not know whether Porter made the decision to take out a foreign currency loan as a result of this meeting, and did not try to ascertain whether Porter understood foreign currency loans because he thought Porter "was intellectually capable of informing himself".

 

Henderson claimed that until he became aware of the foreign currency loan taken out by Drambo, he had had no involvement whatsoever with foreign currency loans.  He said neither Porter nor Drambo sought any advice from him as to whether foreign currency loans from Citibank or Westpac should be entered into, and he proffered no such advice.

 

McElwee could not recall what transpired at this meeting.  In his witness statement Look denied he had said the Swiss franc was the most favourable currency in which to borrow, though everyone at the meeting knew Swiss franc interest rates were the lowest at the time.  In cross-examination, however, he repeatedly denied that there had been a meeting on 29 November.

 

The facility documents

Porter said that on 3 December 1984 he signed the copy of Westpac's approval letter of 23 November, and on or about 25 January 1985 signed the relevant security documentation.  Probably on 25 January Porter also signed Westpac's facility letter dated 21 December 1984.  The minutes of a meeting of Drambo's directors held on that day note that the offer contained in the letter of 21 December required payment by Drambo of principal and interest and other amounts in foreign currencies, and "this may involve exchange losses and gains"
by Drambo.  The directors resolved that Porter accept the offer on behalf of Drambo by signing a formal acceptance of the facility letter.

 

With respect to his complaint that Westpac did not tell him to seek specialist advice prior to making the borrowings, Porter conceded he had spoken to his solicitor about the facility, though he did not consider Kootsookos an expert on foreign currency, and that he had a chartered accountant, albeit not an expert in foreign currency, on the board of Drambo.  In March 1985 Kootsookos rendered a bill for his costs.  The work done included perusing and considering the Westpac and Citibank loan offers and advising thereon, and perusing, considering and advising on Westpac's loan facility agreement.

 

Henderson said that on 15 January he received about thirty five documents from Westpac for signing.  He enquired of Porter whether the documents were "in accordance with how he expected them to be", and having received an affirmative answer signed them.  Henderson said he skimmed the documents briefly but did not analyse them.  Westpac's officers gave him no explanation as to the effect of the documents, and the various meetings of Drambo the subject of the certificates as to resolutions did not occur.

 

Under cross-examination, while continuing to assert he had not properly read the documents, Henderson acknowledged he had been at least generally aware of their contents, and had been told by Porter they were in order for signing.  Henderson was equivocal as to whether he sought advice from Kootsookos about the documents the day prior to drawdown.  He acknowledged that he may have asked Kootsookos whether the documents were in order for signing.  He said he was familiar with the type of documents he was signing, and that a sufficient explanation of them had been given by Westpac's officers at the 29 November meeting.  He thought the legalities were reasonably easy to understand.

Drawdown

The Westpac facility was drawn down on 30 January 1985, and $12,967,500 credited to Drambo's account.  $12,807,212.63 was paid to Tricontinental on 31 January.  Westpac's 30 January letter to Drambo confirming drawdown noted that an interest payment of CHF 1,025,677.19 was due on 30 July 1985.  It was said that if Drambo wished to hedge the exchange risk associated with this payment, it should contact Westpac for further information.

 

Bradley said he was very surprised when, in February or March 1985, Porter told him he had drawn down a foreign currency loan from Westpac, because Bradley knew Porter was an extremely "poor performing" domestic borrower.

 

26 February 1985 meeting

During February 1985 the Australian dollar fell in value as against the Swiss franc.  From 2.18 at drawdown on 30 January, it had fallen to 2.07 on 12 February.  On or about that date Brookman told Porter he should hedge the Westpac loan, and Bradley advised him to bring it back on-shore.  Porter and Henderson met with McElwee, Look and Riley on 26 February, by which time the dollar had fallen to 2.03.  According to Porter, Look told him the current fall in the dollar was merely a temporary hiccup in the market, and he should not be concerned about the current exchange rate between the "Swissie" and the "Aussie".  Look then advised against hedging, and stressed that for Drambo to suffer a loss over the five year period of the loan the dollar would have to devalue against the Swiss franc by 10 per cent per year.  On the assumption that Drambo placed the proceeds of the resort sales on deposit with Westpac, any losses on the exchange rate would be off-set by the interest earned on the deposit.  It was very unlikely Drambo would in the long term sustain a loss on the facility.  Look stressed the expertise of Westpac's staff with regard to foreign currency transactions.  Riley said Westpac was in a perfect position to know of any adverse movement trends in the
currency market.  Porter said he was particularly impressed with the fact that Look and McElwee would be monitoring the Drambo loan daily.

 

When asked why he had not complained at the meeting of 26 February that Westpac had not informed him of the fall in the dollar, especially given its previous claim that it knew of currency movements likely to occur before they occurred, Porter said he was placated by Look's comment that this was merely a hiccup.  Porter said he had not queried Riley's comment that Westpac was in a perfect position to know of any adverse movement trends in the currency market because, despite what had occurred, he was not qualified to contradict Riley or Look.

 

Porter said he was aware, at this stage, that the cost of hedging would offset any interest advantages in borrowing off-shore, and that in February 1985 Drambo could not have afforded to hedge.

 

McElwee did not believe Porter was advised to place the proceeds of the resorts on term deposit rather than use them to pay out the loan.  He did not think Look made any prediction about how the dollar would perform over the next twelve months, as Westpac did not make predictions of that sort.  He could not recall any of the other things Porter claimed were said at the meeting.  Riley had no recollection of this meeting or the conversations that were said to have occurred in it.  Look did not recall whether Porter mentioned the fall in the value of the dollar.  He said that although hedging was an obvious matter for Porter to have raised, he did not enquire as to whether he should hedge.  Look did not recall telling Porter that hedging would defeat the purpose of the loan since the cost of hedging was approximately the difference between the Swiss rate and the dollar rate.  He conceded he may have said hedging would eliminate the exchange risk at the price of the interest differential.  He denied having made the statements Porter attributed to him, namely that the
loan should be looked at over a five year period, that any losses on the exchange rate would be off-set by the cash earned by Drambo's deposit of the resort money, and that the Swiss franc would not increase against the dollar by more than 10 per cent over the next twelve  months.  Nor did he stress the expertise of Westpac's staff.  Ross, who was present, was unable to recall the conversation claimed by Porter.  He said no-one advised Porter in his presence that he should stay off-shore.

 

March and June 1985 assurances

Porter said that on 28 or 29 March 1985, when the dollar was down to 1.85 and 1.82, and again on 17 June 1985, when it fell to 1.69, Riley and Look gave him assurances similar to those given at the 26 February meeting.  Porter agreed that due to the fall in the dollar, the proceeds of sale of the resorts (about $16 million of which had been deposited with Westpac towards the end of May) would not have been sufficient to pay out the foreign currency loan (which then stood at $17.47 million), and that accordingly it would have been in his interest to keep the loan off-shore.  However, he denied it was his idea, rather than Look's, that the proceeds of the sale be put on deposit and the loan maintained off-shore.

 

Although Porter initially said he could not recall McElwee suggesting in June 1985 that he write a stop-loss order at 1.6, he later acknowledged that McElwee had said this in a meeting on 24 June 1985, but that he did not act on it once Look had advised him he should continue with the loan, because, unlike Look, McElwee was not considered an expert on foreign currency.  Henderson could not recall McElwee's suggestion, but accepted that McElwee told him in late July that he should "lock it".

 

McElwee confirmed he had suggested that Porter hedge at 1.6, and hotly denied that his file note to this effect was false.  He said that at this time neither he nor any other officer encouraged Porter to think he should remain off-shore.  He could recall a number of
occasions on which he attempted to persuade Porter to set a bottom rate at which he would come on-shore to avoid further losses.  His recollection was supported by a file note of a meeting he had with Henderson on 24 July.

 

Look agreed there had been a meeting on 17 June because he had a note in his diary, but had no recollection of the meeting.  In any event he denied he had made the statements attributed to him at the meeting.  He did not say Porter should not hedge the loan, that he would like to borrow Swiss francs himself, or anything about Westpac monitoring or managing the loan.

 

The Henderson hedge

Porter said that on or about 9 August 1985, while overseas, he telephoned Henderson and asked him to arrange for the loan to be hedged at the rate current on that day.  Henderson agreed he received such a call, and on 13 August, when the rate was at 1.62, telephoned Westpac and spoke to a Duane O'Donnell and instructed him to lock-in Drambo's exposure at 1.65.  Westpac did not act on the instruction to hedge until 16 August, by which time the rate was down to 1.58, and Drambo suffered a paper loss of $819,000.

 

On 16 August, following a telephone call from Look on the previous day, Henderson attended a meeting with Riley and Look.  He was told Drambo's exposure had not been locked in at 1.65.  According to Porter, in mid-August he and Henderson met with Riley and Look.  Although the Westpac personnel initially claimed Henderson had not placed the order, they soon became very apologetic and agreed that Westpac should have locked in at 1.65.  There was a further meeting on 20 August between Porter, Henderson, Henderson's secretary, Riley, Look and McElwee, at which Porter said he intended to sue Westpac for the loss incurred by Drambo as a result of the failure to hedge as instructed.  According to Porter, Riley later told him the loan would thereafter be handled personally in Sydney by
Westpac's top currency Manager, Peter Chan, who "basically controlled the market".  Riley said Chan knew of virtually every movement likely to take place in the Australian dollar/ Swiss franc market, and the management of the loan would be free of charge.  Drambo would obtain currency at the same rates as Westpac.

 

Riley denied he told Porter that Chan "basically controlled the market" or that Chan knew of virtually every movement likely to take place between the two currencies.  He agreed he said Chan would be actively involved in the management of the loan.  He also said the management of the loan would be free of charge, but not that it would be at no cost whatsoever.

 

Soon after the 20 August meeting Porter informed Riley that Westpac's action in closing out the forward exchange contract written on 16 August at no cost and no profit to Drambo was in accordance with his wishes to have the loan re-denominated in Swiss francs.  He confirmed this by letter a few days later.

 

27 August and September meetings

Porter claimed that at a breakfast meeting with Chan and McElwee on 27 August 1985 he told Chan he "did not want to take any position that may cause a greater loss" or lose the ability to earn the interest difference, and that at a meeting on 2 September 1985 attended by him, Henderson, McElwee and Riley, Riley told him Westpac would not permit Drambo's loan exposure to go above the value of its security/loan ratio plus $500,000.

 

Porter was unable to say why, if he had previously thought Look was Westpac's leading foreign currency dealer, he did not express surprise when this claim was made of Chan.  Porter agreed his claim that Riley told him Chan controlled the market was incorrect.  He
was unable to say why, given the losses previously experienced, he did not take issue with Riley's claim that Chan knew of movements in currency likely to occur.

 

Porter agreed he realised, at the time of the breakfast meeting with Chan, there was a risk of loss even under Chan's management.  However, he believed it was Chan's position that the risk was minimal.  Porter agreed that Chan never expressed a view about the dollar's likely future movements, but rejected any notion that his desire, at this time, to have Westpac increase the value it attributed to his securities, thereby increasing the amount of debt that Westpac would accept before taking the loan back on-shore, was in any way a recognition that there was a risk of the dollar falling further.  Rather, this was done to show Westpac the strength of Drambo's security position.

 

Chan denied that at the 27 August meeting Porter said he did not want to take any position that may create a greater loss or lose the ability to earn the interest difference.  Chan pointed out that these desires could not both be achieved, since the only way of ensuring the loss did not increase was to fully hedge the loan, and that would have negated the interest differential.

 

Henderson was also present at the breakfast meeting with Chan on 27 August and the 2 September meeting.  At the later meeting, according to Henderson, Riley was even more apologetic than previously, and told Porter and Henderson that Westpac was looking after the management of the Drambo loan in Sydney, and that the file would always remain on Chan's desk.  Chan was to be personally responsible for the account, and as Westpac "basically controlled the Australian dollar/Swiss francs market in Australia", Chan would be able to trade Drambo out of its problems.  Riley stated emphatically that Westpac would not permit the foreign currency account to exceed the value of Drambo's security/loan ratio plus $500,000.  Riley also said Porter should look at the loan over a five year period, and that
the differences in interest rates between the Australian dollar and the Swiss franc would soon put Drambo in a credit position.  Drambo would not be charged at all for the management.  With respect to Riley's alleged claim on 2 September that Chan controlled the foreign currency market, Henderson seems to have accepted that this was not what was said.  Rather it was that "If anyone can trade you out of this, he is the man".

 

With respect to what he thought Riley had meant at the breakfast meeting when he said Westpac would be "managing" the loan in Sydney, Henderson claimed he thought this would be "desk top stuff", as Chan had access to all the electronic gadgetry that showed the movement in the dollar twenty four hours a day.

 

McElwee was present at the 2 September meeting.  He denied Riley said Westpac basically controlled the Australian dollar/Swiss franc market in Australia, and that Chan would be able to trade Drambo out of its problem.  He also denied Riley had said Porter should look at the loan over a five year period and that the difference in interest rates would soon put Drambo in a credit position.  He did not recall any discussion of the rates at which transactions would be done for Drambo.  In cross-examination, however, he said he could not recall anything that was said at the meeting.

 

Riley maintained that at the 2 September meeting he said Chan would be responsible for the management of the loan, but denied he said the file would always remain on Chan's desk, that Westpac basically controlled the Australian dollar, that Chan would trade Drambo out of its problems, that Drambo would soon be in a credit position, or that the limit of $500,000 above the security value would enable Chan to retrieve Drambo's position.  He agreed he said there would be no charge for the management of the loan.

 

Porter, Henderson and Nicholls met Riley on 11 September.  Riley told Porter that Westpac had approved a maximum commitment of current security value plus $500,000.  Reference was made to an upcoming meeting with Chan in Sydney, and to the need for documentation to be executed dealing with Chan's management of the loan.  This was being drafted.

 

On 13 September Henderson and Porter met Chan at his Sydney office.  According to Porter and Henderson, Chan told them the only chance Drambo had to trade out of its loss position was to take advantage of the interest difference between the Swiss franc and the Australian dollar by remaining in off-shore currency.  According to them he also said Westpac's Brisbane office did not know much about foreign exchange markets or monitoring or management of foreign currency.  Chan denied making either of these statements.

 

The September-October deeds

On 16 September 1985 Drambo executed a deed which recited that Henderson had requested Westpac to hedge at 1.65, that Drambo had requested Westpac to release it from its obligation to purchase the overseas currency involved in the implementation of the hedge, and that Drambo had requested Westpac to provide an automatic currency hedge to come into effect on the occurrence of certain events.  By the deed Drambo released Westpac from its obligation to implement the Henderson hedge, the parties released each other from all claims arising out of the request for the hedge, Westpac agreed to provide "an automatic hedge arrangement" on terms there set out, Drambo released Westpac from any liability for past or future loss "in respect of the premises herein", and Drambo authorised Westpac to debit its account with all amounts payable in respect of any hedge.  Porter claimed that when signing the deed he had no idea it contained broad provisions releasing Westpac from liability, but thought it was to give effect to the agreement reached between Riley and himself in their 2 September meeting under which Westpac was to credit Drambo with $410,000, and Drambo was to release Westpac with respect only to the failure to implement
the Henderson hedge.  Porter claimed he did not read the document in detail, and neither he nor Henderson received any explanation as to its effect, other than being told Westpac needed the agreement so it could manage Drambo's facility.

 

On 1 October 1985 Drambo executed another deed.  This was a two page document by which Drambo appointed Westpac its agent for the purpose of selecting the currency and/or the term of any foreign exchange contract, foreign currency borrowing or other foreign currency transaction, and purchasing and selling currencies under foreign exchange contracts with Westpac as principal.  Drambo indemnified Westpac in respect of any liability incurred by Westpac as a consequence of acting as agent under the deed.  Westpac was not to be liable to Drambo for any loss or damage suffered by Drambo in relation to any selection, purchase or sale.  Porter claimed he was similarly ill-informed prior to his execution of this deed.  However, Henderson sent a copy to Kootsookos, presumably for his consideration and comment.

 

Henderson too claimed he was provided with no explanation of the deeds.  However he acknowledged that he would not have signed them had Porter not signed first.  He also said he would have read them prior to signing.

 

McElwee signed both deeds as one of Westpac's attorneys.  He admitted he had not explained to Porter the contents of either.  The other attorney, Mitchell, said he did not give Drambo's officers any explanation of the documents.  That was not his job, and the documents came to him for signing after they had been executed by Drambo.  John Anderson, then Relieving Manager, Corporate Banking in McElwee's absence, witnessed Drambo's execution of the September document.  He did not explain the effect of the deed to Porter or Henderson.  Riley said the deeds gave effect to terms arranged in advance with
Porter: the loan could stay off-shore, the "Henderson hedge" miss would be forgiven, Westpac would manage the loan, and Drambo's trading limit would be increased.

 

Pursuant to the deeds the exposure was from time to time hedged and unhedged depending on the value of the dollar as against the Swiss franc.

 

Porter's complaints

Porter said that in a telephone conversation on or about 15 November 1985 he asked Riley why Drambo's exposure had been allowed to go over the agreed security level plus $500,000.  He said Riley did not directly respond, but rather pointed to the fact that Porter had previously said Westpac had undervalued the group's security.  This is consistent with Riley's file note of the conversation.  According to Porter, Riley was non-committal when asked why Drambo had suffered losses during recent falls in the value of the dollar when he had previously said Westpac was aware of trends prior to their occurring.

 

Porter was unable to say why he waited until November 1985 to ask Riley why Drambo had suffered losses as a result of the fall in the dollar, when Riley had claimed on previous occasions that Westpac was aware of trends in the foreign exchange market prior to them occurring.

 

Riley denied Porter had challenged him about the losses.  He said that during this period Porter's view was that the loan should remain off-shore since he could not afford the cost of hedging it.

 

On 3 December 1985 Porter told Riley he was extremely angry about the increase in exposure of the Drambo loan.  He said that whilst it may not be possible for Westpac to pick every currency movement, it should have done better than it had to date.  In cross-
examination Porter contended it was only then that he became aware that Westpac could not pick currency movements correctly all the time.  He acknowledged that even after Westpac had failed to implement an automatic stop-loss when the value of the loan exceeded the agreed limit, he still wanted to stay off-shore.  He was "sold on the idea" he would "make money out of staying in the off-shore currency with the interest differential".

 

On 11 February 1986 Porter attended a meeting with Anderson and Michael Abdy.  Anderson was then Manager, Corporate, the Brisbane manager of Drambo's accounts.  Abdy was his assistant.  Porter said the "unimpressive" nature of Westpac's management of the loan was discussed, and he told them he wanted Drambo's position protected.  Anderson had no recollection of the discussion, and said it was the sort of thing that would have been mentioned in the file note of the meeting had the discussion occurred.  The file note prepared by Abdy contained no such mention.

 

June 1986 Management Agreement

By mid-April 1986 Anderson had formed the view the existing arrangements in relation to the management of Drambo's exposure were inadequate.  The need to involve three parties in decision-making (dealer, Anderson and Porter) was too time consuming and cumbersome, given the extraordinary volatility of the foreign exchange markets.  Anderson concluded the best solution was for Westpac to take over management of the exposure.  Riley supported his recommendation to this effect, and their superiors approved it.  On 13 May Anderson and Porter discussed Westpac's proposal that the loan be managed in the Sydney dealing room.  Porter agreed with the proposal.  The FXMA was dated 6 June, and is in the form of a deed.

 

The obligations imposed on Westpac by this agreement were similar to those contained in the deed of 1 October 1985.  By clause 6 Drambo acknowledged, inter alia, that Westpac
did not represent it was able to make better selections or enter into more advantageous contracts than any other person, that Westpac would not be liable for any breach of duty or misleading or deceptive conduct in relation to any act done under the agreement, that Westpac was released from liability for anything done in the past or in the future under the agreement, and that Westpac could deal on behalf of Drambo as principal and could retain any profits, commissions or fees arising from any transaction as if it were not an agent.

 

Porter claimed not to recall the circumstances under which he executed the agreement.  He was merely informed by Riley or Anderson that Westpac was establishing a special management division which would provide selected clients with an "even more special management and monitoring service".  They said Drambo should have this service, and the agreement "had to be signed".  Porter did not read the agreement in any detail prior to signing it, and claimed that no officer of Westpac gave information to him or Henderson as to the effect of the clauses in the document.  He could not recall getting legal advice about it.

 

Henderson said no bank officer explained the document to him, but he would have read it before signing, and he would not have signed had Porter not signed first.

 

In relation to Porter's statement that the agreement "had to be signed", Anderson said there was no requirement that Porter sign unless he wanted Westpac to manage the loan.  Since he did want the loan managed, he had to sign the agreement.

 

Chan's involvement

Porter said that at some time in 1987 Chan told him he should leave the management of the loan to Chan.  Chan would get him back into the Business Review Weekly's Top 200 Australian Businessmen.  Under cross-examination Porter insisted this conversation had
occurred, and while acknowledging that Chan's exact comments may have been made slightly tongue in cheek, he understood him to mean that he would get Drambo out of the position it was in.  Chan denied having said he would return Porter to the top 200.  That was never a realistic prospect.

 

According to Porter, on 20 March 1987 Chan told him he had looked at the draw-down period of Drambo's account in January 1985, and could not understand how the Brisbane office could possibly have put Drambo into a Swiss franc loan at that time.  Chan had said that two weeks prior to the drawdown of the Drambo loan, Westpac's Sydney office had advised all their staff and international departments not to put any more customers into Swiss francs.  When asked why he had not immediately got in touch with Riley and put to him what Chan had said, Porter responded that he didn't think there was any need to as he was quite happy with the way Chan was going.  Chan denied having said what was attributed to him.  He made a practice of not criticizing other bank officers in front of customers.

 

Porter said that on 7 April 1987 Chan told him he was leaving Westpac, and that Drambo's account would be managed by Agnes Wong and would be in good hands.  Chan said he had been able to convert Drambo's $6 million loss at the time he began his management to a position where Drambo owed Westpac about $500,000.  In a telephone conversation with Porter on 28 May Chan repeated that only about $500,000 was owing.  Chan denied ever having told Porter that only about $500,000 was owing.  He said that after he left Westpac, Porter continued to contact him fairly regularly.  Their discussions were friendly, and Porter never accused Chan of lying to him about the level of his exposure.  He said that although Porter frequently expressed criticisms of Westpac officers in relation to the handling of Drambo's affairs, he never complained that Westpac staff had misled him either as to the risks of borrowing off-shore or as to the results of management of Drambo's loan.

Agnes Wong's role

According to Porter, at a meeting with Wong on or about 1 July, he told her only $500,000 was owing, and that he did not want Drambo's exposure to go beyond this.  She did not correct his assertion as to the level of indebtedness.  Wong denied Porter had said only $500,000 was owing, and that Drambo's exposure was not to exceed that amount.  She was on holidays in the weeks before and after 1 July and could not recall speaking to Porter during this period.

 

Porter claimed he was not made suspicious as to the true level of Drambo's indebtedness by a letter from Westpac dated 31 July 1987 recording a loss of $4,544,058.41, as this merely recorded a particular transaction rather than indicating the overall position of the loan.  The same applied to a letter dated 8 October 1985 reflecting a loss of $550,000.  And in any case, Porter merely had a quick glance at it.

 

Porter acknowledged that between October 1986 and February 1988 he periodically received "printout details of transactions and the overall position".  However, he claimed he never paid a lot of attention to these documents and did not understand them.  He assumed that if there was any major problem, Westpac would tell him.

 

Porter also said that early in 1987 Wong told him Westpac was making profits of up to $100,000 per week for Drambo.  Wong denied having said this.

 

Moser's role

Porter said that on 1 September 1987 he was told by Wong that Gerhard Moser would be taking over management of the Drambo loan, but would be closely supervised by her.  In early October Wong told Porter she was leaving Westpac, but that the loan would be in good hands with Moser who came to Westpac with the highest qualifications.  Moser was also
recommended to Porter by Anderson on 16 October 1987.  Anderson said he was having difficulty obtaining a statement of the current position of the Drambo loan from Westpac in Sydney, but observed that Moser was held in very high regard because of his international banking experience.

 

In a meeting with Moser on 13 November 1987 Porter reiterated his desire that Drambo's exposure not exceed $500,000.

 

Gauci's role

Porter said he discovered the true level of Drambo's indebtedness ($4 million) at a meeting at Westpac's Brisbane offices on 9 December 1987.  Those present were Leno Gauci, Manager, Corporate Banking in Brisbane, his assistant John Friend, and Paul Williams, Senior Manager, Corporate Banking.  Gauci had taken over from Anderson in December 1987.  Friend had been Anderson's assistant.  Porter queried that so much could be owed, and said he had told Wong the exposure was never to exceed $500,000.  Gauci said he would investigate the matter.

 

Porter was unable to say why, if he did not know the true level of Drambo's indebtedness until this meeting, and was shocked by it, he did not complain to Moser, with whom he had had lunch only a few weeks earlier, and who, according to Porter, knew Porter believed Drambo owed Westpac only $500,000.

 

Friend could not recall any discussion at the meeting about a limit of $500,000.  Nor could he recall Porter expressing concern at the extent of the losses, though he did express concern that losses had occurred.  Friend believed Porter was aware in general terms of the results of trading.  The fact that more than $4 million had been lost on contracts maturing on 31 July 1987 had been mentioned in a letter from Anderson to Porter of 6 August 1987.

Gauci recalled telling Porter the indebtedness was $4 million.  He also recalled that Porter had said something to the effect that he had told Wong that Drambo's exposure was not to exceed $500,000.  He agreed Porter had expressed disappointment that Westpac had not monitored and managed his loan properly.

 

Repatriation of the loan

Porter had another meeting with Gauci and Friend on 25 February 1988.   According to Porter, Gauci told him the loan was to be brought back on-shore as Westpac saw no future in it remaining off-shore and no longer saw any advantage in managing the loan.   Porter was also told, he said for the first time, that the loan was fully hedged.   Porter told Gauci he would get back to him about bringing the loan on-shore.   Porter could not explain why, if he had in fact been told by Gauci that the loan was fully hedged at this stage, he gave instructions in March, April and May of that year that the loan be hedged.   Friend could not recall Gauci having said what Porter attributed to him at this meeting.   Nor could Gauci.

 

Porter, Henderson and Anthony Nicholls (from Henderson's office) met with Gauci and Friend on 16 March.  Porter told Gauci he was considering bringing the loan back on-shore if terms were to his satisfaction.  According to Henderson, Porter said he intended to bring the loan back on-shore.  According to a Gauci/Friend file note, Porter and Henderson were critical of Westpac's management in recent months.  Porter said he would repay the loan on 22 March "provided terms and conditions were suitable to both parties".  On 18 March Gauci wrote to Porter offering to provide Drambo with an Australian dollar loan at commercial interest rates subject to the provision of a release with respect to the Drambo off-shore loan.  The offer was not acceptable to Drambo.

 

On 27 March while lunching with Moser, Porter said he thought it strange that Westpac would not allow the Risk Management Unit to take advantage of the improvement in the Australian dollar by allowing the loan to remain off-shore.  Porter was unable to explain why he had apparently waited a month to speak to Moser about the loan being brought back on-shore, even though he was "surprised" by this and had apparently thought Moser was doing "quite a good job" with the management of the loan.

 

Porter and Nichols met with Gauci and Friend on 26 May, when Gauci again stated the terms on which Westpac would provide Drambo with a line of credit.  Friend's file note of the meeting records that Gauci acceded to Porter's request that the facility be rolled over until 4 July and fully hedged until then, and notes that the rollover was in fact made to 5 July because of a holiday in the United States on 4 July.  The note also records the terms on which Westpac was prepared to offer "residual finance of approximately $8,000,000 required on 5/7/88".  Shortly after the meeting concluded Henderson faxed Gauci a request that the facility be paid out on 18 July rather than 4 July.  By return fax Gauci refused the request, giving as his reasons that at the meeting Porter had agreed that settlement would take place on 4 July and that the hedge contracts had already been taken out.  On 7 June Gauci wrote to Porter advising that all arrangements had been made to convert the loan to an Australian dollar domestic loan on 5 July, and requesting his acceptance of the attached terms and conditions of a replacement loan.  One of the conditions was a release of Westpac from any liability in relation to the off-shore loan.  Porter did not sign the accompanying form of acceptance.  Gauci wrote again in similar terms on 5 July, and advised that the loan was being converted to a domestic loan on that day.  Again Drambo did not sign the accompanying acceptance form containing releases. On 5 July Westpac brought the loan on-shore by converting it to Australian dollars.  On the same day Gauci wrote to Porter advising that the loan amount converted into dollars was $25,164,160.20, that the total amount owing was $25,281,994.65, and that this had been partially repaid with the proceeds
of Drambo's commercial bills ($18,022,071.75), leaving a shortfall of $7,259,922.90, which had been funded by a commercial bill acceptance discount line to mature on 4 August, on which date the account was to be settled.  Shortly thereafter settlement was extended to 5 September, and Drambo signed terms and conditions which did not include any releases.  Further extensions were granted to 28 October.  Settlement did not occur on that day or at all, and Westpac began dishonouring Porter group cheques.  On 4 November Porter had a meeting with Gauci and Bruce Cowan at Westpac's Brisbane offices, at which Cowan said he would "pull the pin" if the loan were not repaid.  Porter said that if this happened, he would sue.  Gauci agreed with this account of the meeting which became "rather heated".

 

Porter acknowledged that his claim that the conversion of the loan to Australian dollars was contrary to his express instructions was false.  He accepted that from November 1987 onwards he was contemplating paying out the loan, a course of action consistent with the conversion of the loan into Australian dollars.

 

4.         THE EXPERT EVIDENCE

Systematic v. discretionary management

A great deal of expert evidence was presented as to the comparative merits of "systematic" as opposed to "discretionary" methods of managing foreign currency loans.  Speaking generally, a systematic trader is one who uses a technical system of management, while a discretionary trader applies personal judgment to every trading decision.  Robert Holroyd, who gave evidence for Drambo, cautioned that assessing the appropriateness of hedge activity after the event is fraught with danger.  In order to gain an overview of the market activity in the Australian dollar/Swiss franc exchange rate at the relevant time without being influenced by hindsight, he programmed a simple automated trend following system known as a Simple Moving Average Crossover System ("the 5/20 system").

The 5/20 system utilises the average closing price of the Swiss franc/Australian dollar over the previous five days and over the previous twenty days.  The five day average makes it "easier to determine the weekly price trend", and the twenty day average makes it "easier to determine a long term trend".  When the weekly average is lower than the monthly average, the market is considered to be in a downward trend, and a buy signal is generated, indicating that the loan should be left unhedged.  This position is then held until the five day moving average crosses below the twenty day moving average.  The occurrence of that event indicates that the loan should be hedged.  According to Holroyd, the 5/20 system provides a "reasonable benchmark" from which to judge Westpac's performance, and operates over a "reasonable timeframe."

 

Holroyd's choice of the 5/20 system for use as a benchmark was, in the course of proceedings, greatly undermined. First, he acknowledged that systematic traders and discretionary traders, such as Westpac in the relevant period, may each be successful, albeit at different times.  Indeed, between 1 October 1985 and July 1986 Westpac's management of the Drambo loan was more successful than the 5/20 system would have been.  Holroyd said he was not critical of the use of the discretionary method as a means of managing a foreign currency loan.  It was a quite valid approach, and there were some very good discretionary traders.

 

Later, Holroyd agreed he did not mean to assert that the 5/20 system was the best systematic management system for foreign currency loan exposure.  Rather, his purpose was to show that it was the simplest form of technical analysis for use in foreign currency loan management.  He agreed there was not in the period from 1985 to 1988, and is not now, any one system which is accepted as the best way to manage a currency exposure, and stressed that he merely used the 5/20 system as a benchmark from which to judge Westpac's performance.

Then Holroyd admitted that market circumstances could determine the efficacy of a particular trading system.  He acknowledged that a competent fund manager or foreign exchange loan risk manager, acting quite reasonably and without negligence, might choose a number of trend following systems to manage a loan, and that there will be a divergence of results depending upon the system chosen and the particular exchange rate for the period in question.  He also accepted that a further variability is brought about by the selection of the long and short averages, and that beforehand there is no way of knowing which combination of averages will produce the best result.

 

Asked whether it would not have been more appropriate to use as a basis for comparison the techniques other major banks in Australia were employing at the time, rather than comparing Westpac's results with those that would have been achieved using the 5/20 system, Holroyd said that it never crossed his mind to do this.  He felt it was easier to try to develop some sort of system that did not rely on hindsight.

 

Dr. David Chessel, who gave evidence for Westpac, rejected Holroyd's contention that the 5/20 system was suitable for use as a benchmark.  He said the many simulations he had performed showed the 5/20 system does not always give a significant edge in the market.  Although it would have worked successfully if it had been applied to Drambo's loan over the period 30 January 1985 to 5 July 1988, over many of the time periods and currencies included in the simulations the 5/20 system produced net losses.  Therefore, the successful operation of the 5/20 system owed much more to good luck, or judicious selection after the event, than to good management.  Further, no single combination of "numerator" and "denominator" emerged from the simulations as clearly likely consistently to provide a manager with a significant edge in the market over time.  There was too much variation in the simulation results to enable a manager to have confidence in the application of any particular form of simple moving average crossover system.

 

Holroyd made various criticisms of Chessel's methodology, the most serious of which was that Chessel's testing programme contained a fatal programming error which rendered the whole report "basically a waste of paper".  The error resulted in the programme intermittently buying when it should have been selling and selling when it should have been buying.  Chessel accepted that his method of implementing of the 5/20 system was erroneous, but maintained that as that method only produced different results from Holroyd's method in cases where the short moving average was less than the long moving average on the first day, the difference in methodology had little impact on his conclusions.

 

Objection was taken by counsel for Westpac to the admission of Holroyd's evidence except in so far as it relates to the loss claimed to have been suffered as a result of the representations alleged to have been made by Westpac on 26 February and 29 March 1985 (paragraphs 11(h) and 12(h) of the statement of claim).  The February loss is described as loss of the opportunity "then and thereafter to cause that loan to be managed, that is to say, for movements in the worth of the Swiss franc as against the Australian dollar to be monitored and that loan to be reconverted to Australian dollars when such movements occurred equal to any comparable interest saving on that loan as against an equivalent loan in Australian dollars".  The March loss is described as loss of the "opportunity then and thereafter to cause that loan to be managed so as to accommodate movements in the worth of the Swiss franc as against the Australian dollar".  It was contended that Holroyd's evidence could not be used to show Westpac was negligent in having made the statements it is said to have made on 26 February and 29 March (paragraphs 11(a) and 12(a)).  I admitted the evidence in so far as it relates to paragraph 11(h)(i)(a) and said I would rule later on its admissibility for more general purposes.  Holroyd's evidence is in two parts.  The first deals with the correctness of the advice Westpac is said to have given Drambo in February and March 1985 that the loan should not be hedged, and with the loss suffered as a result.  The second contains Holroyd's assessment of Westpac's management of the loan over the period
30 January 1985 to 5 July 1988.  The first part is relevant not only to the loss asserted in paragraphs 11(h) and 12(h) but to the allegation that certain of the statements alleged in paragraphs 11(a) and 12(a) were negligent.  See for example those in paragraph 11(a)(iii) and (iv) and paragraph 12(a)(iii) and (iv).  Accordingly, Holroyd's evidence is admissible for the purposes of paragraphs 11 and 12 generally and not only for the purposes of computing the loss alleged in those paragraphs.  The second part of the evidence may have been relevant to the matters the subject of paragraphs 13 to 17, but reliance on those paragraphs was abandoned.

 

Point taking

Much time was consumed with evidence about Westpac's point taking, an activity I have described earlier in these reasons.  In view of the conclusion to which I have come on this issue, I will not attempt to summarise this evidence.

 

5.         THE SIMILAR FACT EVIDENCE

Drambo sought to rely on a witness statement made by John Eccles.  Eccles said that between November 1984 and 19 August 1985 he had a number of meetings with Look about a possible foreign currency loan.  In these meetings Look said Westpac was very experienced in the foreign currency field, the Swiss franc was the currency in which to borrow because it was very stable against the Australian dollar, there was really no risk at all in borrowing in Swiss francs, the dollar was basically very sound, and while there would be times when the dollar would vary during the course of the loan, over the period of a five year loan Eccles would be miles in front.  The statement was objected to on the grounds that it was irrelevant, and that the conditions of admissibility in s 97 of the Evidence Act 1995 were not satisfied.  I ruled the statement inadmissible and said I would give my reasons later.

 

 

In assessing relevance in a similar fact context, it is necessary, in a case such as the present, to have close regard to the particular circumstances of each customer's dealings with the bank.  See D F Lyons Pty Ltd v Commonwealth Bank of Australia (1991) 100 ALR 468 at 478.  Porter had been to other lenders and knew what he wanted - he was after Swiss francs.  The only issue for Westpac was whether it could better the terms offered by Citibank.  Eccles' statement does not disclose his circumstances - why he wanted an offshore loan, his state of knowledge about foreign currency loans, whether he needed advice about the currency in which to borrow, the state of his finances, whether he was already a customer of Westpac, whether financial pressures had attracted him to a low interest loan, and whether he had offers from other lenders.  Accordingly, the fact that Look said something to Eccles does not tend to prove he said the same sort of thing to Porter.

 

Eccles' evidence could not by itself establish any system or pattern of business practice on Look's part.  Cf Martin v Osborne (1936) 55 CLR 367 at 376, Mister Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd (1981) 36 ALR 23 at 30 and Aroutsidis v Illawarra Nominees Pty Ltd (1990) 21 FCR 500 at 509.

 

Mr. Hampson submitted that Eccles' statement was admissible on the following basis.  Look's own evidence established he had a standardised presentation he followed with applicants for offshore loans.  By putting forward his system he invited the inference that he followed it in relation to Porter's application.  Eccles' evidence attained logically probative force because it established that Look told him the same things he told Porter.  The short answer to this submission is that Look did not invite the inference that he followed his usual practice.  His evidence was that he did not follow it with Porter (Ex 186 par 14).

 

Even if I had thought Eccles' evidence relevant, I would in the exercise of my discretion have refused to receive it.  The trial involved complex issues of fact, the evidence extending
over a six week period.  Crucial issues of the credit of central witnesses were involved.  If Eccles' statement were admitted, further factual and credit issues could arise.  An already long trial would be further prolonged, and there might be no substantial countervailing benefit in assisting the resolution of the primary issues.  Cf Lyons at 478.

 

6.         DRAMBO'S PRINCIPAL WITNESS

Drambo's case is dependent on Porter.

 

He was cross-examined for four and a half days.  Like most other witnesses in the case, he was purporting to recall events that had occurred up to eleven years before, and he did not have contemporaneous notes from which he could refresh his memory.

 

Once upon a time Porter had been in the Business Review Weekly's Rich List.  Then he was bankrupt.  Drambo had lost a lot of money as a result of the Swiss franc venture, and Porter hoped to restore its position by suing Westpac.  To this end he portrayed himself as an untutored person who had walked into a bank and, unsuspecting, had been fed false information about foreign currency loans and enticed into taking one.

 

But in the course of the case it became clear that this was not the paradigm case of a bank encouraging an ignorant customer to take a Swiss franc loan, the attraction being explained as lying in the big interest savings to be had, the bank being represented as expert in the field, and the risks involved played down or never properly explained.

 

Porter was not the foreign currency ignoramus he suggested he was.  He had been interested in borrowing Swiss francs for months before he came to Westpac.  What robbed his case of the attributes of the paradigm with which he sought to endow it was that he had spoken to and negotiated with other financiers about foreign currency loans, and came to Westpac with

an offer of a Swiss franc loan from Citibank with which he was basically happy, and which he could then and there have accepted.   In substance he said to Westpac's officers - "if you can better Citibank's terms, I'll borrow from you".  Westpac had a narrow brief.  It was not asked for advice about the merits of borrowing off-shore as opposed to domestically.  All it had to do to win the account was to make the off-shore borrowing cheaper than the Citibank offer.  However, the case was pleaded and run as if this background and context did not exist.  This led Porter to "recall" statements by Westpac officers that in the circumstances are unlikely to have been made - how desirable off-shore loans were, what interest savings were to be made by borrowing Swiss francs, and how little risk was involved.  So gilded was the lily its stem snapped.

 

When Porter was confronted with awkward or embarrassing contemporary documents which threatened to upset his preferred status as a foreign currency babe in the woods, he resorted to unsatisfactory explanations - he only glanced at a document, or didn't attach much importance to it - despite the fact that obtaining a Swiss franc loan, and thereby saving large sums in interest, was of the highest importance to him at the time.

 

Porter had fallen on hard times as a result of the Swiss franc loan, and I think he convinced himself it was all Westpac's fault.  But the improbability of certain aspects of his account, when viewed in the context of contemporary events and documents, means that where his evidence conflicts with that of other witnesses, I will on some occasions prefer their evidence to his.

 

7.         WESTPAC'S OFFICERS

It will often be the case that a customer is likely to have a better recollection of what occurred in meetings with bank officers than the officers themselves.  The officers attend many meetings, and the meetings are frequently routine.  Cf Westpac Banking Corporation v
Spice (1990) 12 ATPR 41-024 at 51,389.  Certainly in the present case Westpac's officers had no specific recollection of what was said at a number of meetings.  This was especially the case with McElwee, and to a lesser extent Look.  They did not pretend to any such recollection.  But all must depend on the facts of the particular case.  In Spice, for example, the issue concerned one conversation between Spice and a bank officer.  In the present case Porter had many meetings with a shifting cast of Westpac officers, and with people from other financial institutions.  Further, Porter's general recollection of events was not good.  On countless occasions in the course of his evidence, he was unable to recall events, participants or dates.  Accordingly, while I accept that in many cases a customer is likely to have a better recollection of relevant events than a bank officer, other factors may diminish that probability - the certainty of the customer's recollection, the likelihood of his recollection being accurate, the number of meetings he had, the consistency of the recollection with contemporaneous documents, and the length of time over which the recollection has been retained.

 

Bank officers giving evidence based on their general practice rather than on actual recollection (as in "I would have done this" or "I would not have said that") are really giving evidence about their habit or disposition, evidence which lacks the certainty of an actual recollection.  While a conclusion can be drawn from such evidence (i.e. that the officer did do the thing in question or did not say the thing in issue), it is not a conclusion that must be drawn.  See Spice at 51,401.  A number of Westpac officers used the "would" word, and it is obvious that their evidence based on past practice lacks the force of actual recollection.

 

 

8.         THE FIRST CLAIM - DECISION  TO  BORROW

In the remainder of these reasons the numbers in brackets refer to pages in the transcript.  BD I and BD II refer to the respondent's two books of documents and the numbers following are to pages in those books.

 

(a)        Porter's state of knowledge in late October

When Porter met with Westpac officers in late October 1984 he had made up his mind to borrow off-shore in Swiss francs.  He had an off-shore offer from Citibank, and had already paid an establishment fee of $34,750 in connexion with the offer.  It is true that the cheque for the fee was payable to Citicorp, which had offered Drambo a domestic loan.  But Drambo's letter (also addressed to Citicorp) enclosing the cheque was primarily concerned to water down security and other requirements for which both Citibank and Citicorp had stipulated.  These requirements were contained in the Citicorp offer.  The Citibank offer incorporated them by reference.  Since in writing Drambo's letter Porter was working from Citicorp's letter, it is perhaps not surprising that he addressed his letter to Citicorp and made the cheque payable to Citicorp.  In any event, the evidence is clear that Porter was not negotiating about a domestic loan (555, 1533-1534) (Ex 59).

 

Although the Citibank offer was not tied to Swiss francs, Porter's interest was not in overseas loans generally, but specifically in Swiss francs (109).  His approach to Westpac was solely with a view to discovering whether Westpac would offer him better terms than Citibank (185, 186, 190-191, 194).  Whether he should borrow off-shore or on-shore was not an issue.  The advantages of borrowing in Swiss francs were known to him.  Early in 1984 he had read about low interest Swiss franc loans and was very interested in them (98-99).  Between then and his meetings with Westpac he had discussed Swiss franc loans with Bradley and Johns of Tricontinental, Brookman of Citicorp and Caske of AIFC.  Porter told Bradley that if he took a foreign currency loan he would be able to meet his financial
commitments more easily because of the difference in the interest rates (Ex Q par 35).  He and Brookman discussed the interest differences between on-shore and off-shore loans (132).  Porter's interest costs were then over $1 million a year, and he was keen to reduce them (153-154).

 

Porter was also aware there were risks in borrowing foreign currency.  Bradley told him he should not borrow in foreign currency because of the risk involved and Porter's lack of expertise in currency management (167-169).  He warned him there was a risk of a capital loss with a foreign currency loan, and said Porter appeared to understand this (627).

 

Johns did not think off-shore borrowing was suitable for Porter (1464), and he and Porter discussed the disadvantages (as well as the advantages) of such borrowings on a number of occasions (Ex 1) (1455).

 

Although Brookman could not recall specific conversations, the risk of capital depreciation with the resultant increase in the amount of the loan was amongst the "sorts of things" that would have been discussed when he and Porter met in March 1984 (538-539).

 

Tricontinental's letter of 23 July offering a $6 million Swiss franc loan, which Porter accepted, stated under the heading "Currency Fluctuation" that repayment of a foreign currency loan had to be made in the "Australian dollar countervalue" of the foreign currency at the date of repayment.  Under "Currency Risk" it was pointed out that if the dollar depreciated against the foreign currency during the period of the loan, the risk was the borrower's.  It also said that a "top up" would be required if during the term currency fluctuations caused the borrower's liability, when translated into Australian dollars, to exceed the amount drawn down by more than $300,000.

 

Brookman's letter of 18 April 1984 sounded a clear warning that the dollar was volatile and that Citicorp expected its value to decrease in 1984 and 1985 (Ex 8) (148-149).

 

Porter accepted that the Citibank offer required $1 million to be put on deposit in case of a fall in the dollar, and that he was therefore aware there was a risk that in borrowing off-shore he might end up paying more than he had borrowed (165-166).  He also understood in April 1984 that the purpose of borrowing a basket of currencies was to spread the risk involved (141).

 

So that was the state of Porter's knowledge when he met McElwee and Riley in late October and November when the representations relied on are said to have been made.

 

(b)        The representations - October to 23 November

I deal first with the conversations and meetings preceding the meeting on 29 November.  Porter attended that meeting in the company of Henderson, but went to the others on his own.

 

The first of the alleged representations is that Drambo's best option was to borrow off-shore in Swiss francs.  Porter's evidence in support of this representation is not persuasive.  His witness statement includes the following passages:

 

                115.         Between 19 October, 1984 and early November, 1984 I had a number of meetings with Garvin Riley and David McElwee ....  The subject of these meetings was a prospective offer by Westpac Bank to match the Citicorp finance offers ....

                ...

                118.         At the initial meeting with Riley and McElwee ... Riley told me that he was confident that he could put together a finance package ... which would more than match the facility offered to us by Citicorp.

                ...

                121.         At the same meeting at which Garvin Riley suggested that I should borrow off-shore to refinance the Tri-Continental debt, I asked Riley whether there were any drawbacks attached to this sort of loan ....

 

In paragraph 118 dealing with the "initial meeting" Porter does not assert that Riley suggested he borrow off-shore.  The question at that meeting was whether Westpac could match the Citicorp/Citibank offers.  The context shows that when Porter refers to "Citicorp" he intends to refer to Citibank as well.  In paragraph 121 Porter has converted Riley's statement that he was confident he could match the existing offers into a suggestion by Riley that Porter borrow off-shore.

 

In the course of his cross-examination, it became clear that Porter was not asserting he had been advised to borrow off-shore as opposed to on-shore, but that the off-shore borrowing he wanted to undertake should be in Swiss francs.  He based this on Look's statement that "Swissies is the way to go" (240), and agreed that this statement related to the choice of currency.  Similarly with the statement he then attributed to Riley or McElwee, that "my best option was to borrow Swiss francs".  That was not an encouragement to borrow off-shore as opposed to on-shore, but a statement that of the off-shore currencies, the most suitable was the Swiss franc.

 

Riley denied he was at the initial meeting.  He was not in Brisbane at the time, and did not return until 29 October.  His evidence to this effect was not challenged, and I accept it.

 

Putting the actual date to one side, McElwee could not recall Riley suggesting that Porter borrow off-shore.  His recollection was that Porter was enthusiastic about borrowing off-shore because of the low interest rate.  The relevant officers were aware from the outset that
Porter had an offer of off-shore finance from Citibank which Westpac had to match if it was to get his business (Ex 169 par 10(a)).  Riley's evidence was to the same effect (Ex 128 par 15(e)).

 

In the course of Riley's cross-examination the following exchange occurred (1533-1534):

 

                ... at any time prior to the grant of the loan did you ever ask [Porter] any questions or cause him to make any observation? --- Mr Porter came to me and at that stage he told me that he had been to a lot of different merchant banks and he spoke as though he was well aware of the parameters of borrowing an off-shore loan.  So that was what he was seeking.

                ...

                Well, what did you say? --- ... I would have liked to have seen some of the content of the loan in Australian currency and was he interested in Australian currency?  To which he responded, no ....  At that stage I asked him whether or not he was just looking for an off-shore loan.  I asked him whether it was worth our while working on bringing together an onshore loan ... so that it would be a comparable loan to that being offered by Citibank and Citicorp and because of the rate difference we could come in on much more competitive rate on the domestic facilities than the off-shore facilities.  At that point in time he indicated, no, that he was looking for an off-shore loan.

 

That evidence, which I accept, is quite inconsistent with the suggestion that Westpac encouraged Porter to borrow off-shore as opposed to domestically.  Indeed it shows he resisted Riley's attempt to interest him in an Australian dollar loan.

 

Look was not at the initial meeting.  The first meeting he attended was on 23 November.

 

I am satisfied Riley did not suggest that Porter borrow off-shore (as opposed to on-shore).  To start with he was not at the initial meeting or at any meeting until 29 October.  But quite apart from the date of the conversation, I am satisfied he did not make any such suggestion.  McElwee does not recall it, and Porter's cross-examination supports a different suggestion, namely that the currency of the off-shore borrowing Porter wanted to make should be Swiss francs.

 

Given the history I have recounted, and the Westpac officers' knowledge of the Citibank offer, it is highly unlikely that any of them would have suggested Drambo borrow off-shore as opposed to on-shore.  There was simply no reason for them to have done so.  Porter needed no encouragement to borrow off-shore.  The only question was whether Westpac could better Citibank's offer.  I find that all that was said by Riley (though not at the initial meeting) or McElwee was that the Swiss franc was the best currency in which to borrow, and that this statement was made on the assumption that Porter wished to borrow off-shore and not domestically.

 

The second representation alleged is that Porter would save an enormous amount of money because of the differential interest rates.  Porter did not refer to this in his witness statement in relation to the meetings at present under consideration.  In cross-examination he said it was "taken as read".  It was the whole basis on which he was speaking to Westpac.  He already knew he would make large interest savings.  Westpac did not have to tell him that (243).  It was why he wanted to borrow off-shore, and in Swiss francs.  So the second representation has not been established.

 

The third representation, that on the sale of the resorts Drambo would make even more money because of the differential interest rates, is not supported by any evidence, and Porter conceded it had not been made (243-244).

 

The fourth and fifth representations amount to the same thing - there was no risk in borrowing off-shore (Swiss francs) because the interest differential would more than compensate for any possible fluctuations.  Porter said Riley made this statement, but Riley
denied having made it (Ex 128 par 15(c)), and Grove agreed with him (Ex 174 par 8).  McElwee did not recall Riley saying there was no real risk in an off-shore loan.  He would have been greatly surprised had Riley said that, because it was not McElwee's view, and he believed it was not Riley's (Ex 169 par 10(c)).  McElwee was positive Riley did not say the extent of the interest differential would more than compensate for any currency fluctuations (Ex 169 par 10(d)).  I accept Riley's evidence.  I found him an impressive witness.  He appeared to me to be trying to give a dispassionate and honest account of what occurred, acknowledging that it all happened long ago.  He was ready to admit confusion about various matters, and struck me as genuinely sorry for Porter and the predicament in which he found himself.

 

In preferring Riley's account to Porter's, I have taken into account the improbability that Riley would have said what Porter attributed to him.  The loan application, which Riley supported for approval, referred to the inherent risks in off-shore borrowing (BD I 19).  Westpac's standard loan terms provided for "top-up" if currency fluctuations caused the amount of the loan to increase over a predetermined amount (408-409).  They also included an acknowledgment by the borrower that the agreement required the borrower to repay in foreign currency, and that this could involve exchange losses (Ex A 913, 932).  Riley had been involved in making off-shore loans before (Ex 128 par 2), and would have known these things.  It is unlikely he would have made representations that were at variance with statements appearing in Westpac's own lending documents.

 

Further, it must again be remembered that all Westpac needed to do was to better Citibank's offer.  Porter was sold on a Swiss franc loan (1599) (Ex O par 28).  He did not need encouragement.  Riley was in possession of the Citibank offer.  He knew what he had to do to improve on it - offer better terms and a lower margin.  Porter was going to accept one or other of the offers.  The determining factor would be which would cost him less. 
Minimising the risks did nothing to increase the prospect of Porter accepting the Westpac as opposed to the Citibank offer.

 

In the course of Riley's cross-examination the following exchange occurred (1534-1535):

 

                Yes? --- And at that point in time I can recall having said something to the effect that I would prefer to see [the bridging facility] in domestic currency because of the exchange rate movements.  And at that stage, to the best of my recollection, he made some observation about bringing the loan back into Australian currency or hedging it.  He didn't use the word "hedging" but it was something about "I can bring it into Australian currency if I want to" or something of that nature.

 

It is unlikely that, having unsuccessfully sought to persuade Porter to take the bridging component of the loan in Australian dollars because the exchange rate might move against Drambo, Riley would at or about the same time have said there was no risk in borrowing off-shore.

 

Later in his cross-examination (1535) Riley said that when McElwee returned to Brisbane, McElwee raised the same bridging loan issue, and Riley told him not to worry about it because Porter was looking for an off-shore loan and not an on-shore loan.  McElwee said he would put the on-shore component in the letter of offer "anyway", because he felt the same as Riley.

 

McElwee's file note of 23 November (BD I 49) records a meeting between himself, Look, Ross and Porter:

 

                We suggested a total facility of $13500, apportioned as follows:-

 

                Overdraft                                                                                                               $ 100

                BADL                                                                                                                     $5400

                Euro Currency                                                                                                      $8000

 

                We explained the rationale for putting a lesser amount offshore, but Bob remains keen on the original concept, viz:-

                Overdraft                                                                                                               $  100

                BADL                                                                                                                     $  400

                Euro Currency                                                                                                      $13000

 

                He is well aware of the exchange risk aspect.  Told him we were flexible and he could have his choice.

 

Having regard to McElwee's conversation with Riley, the explanation "for putting a lesser amount offshore" must have been the risk of adverse exchange rate movements.  Although Porter did not attribute the "no real risk" representation to McElwee, the pleadings attributed it to him.  However McElwee's file note indicates that far from encouraging an off-shore borrowing by seeking to diminish the risk involved, McElwee (like Riley) was trying to diminish it by suggesting an on-shore component because of the possibility of adverse exchange rate movements.

 

Finally, the "no real risk" representation would have been inconsistent with the acknowledgment by Porter and Henderson in the minutes of directors' meeting of 25 January 1985, accepting Westpac's foreign currency offer, that the offer "requires the payment by the Company ... of principal and interest and other amounts in foreign currencies and that this may involve exchange losses or gains by the Company" (Ex A 1029).

 

The sixth representation is that Westpac had a particular expertise in off-shore borrowing, especially in the person of Look.  Riley said he may have told Porter that Westpac was
recognised as one of the leading and biggest dealers in foreign exchange in Australia (Ex 128 par 11(f)).  Porter's account is that Riley said Westpac was the biggest trader in foreign currency, including Swiss francs, in Australia.  That is more or less what Riley thought he may have said.  McElwee agreed that Look may have been introduced as Westpac's expert in foreign currency in Brisbane (1712).  Look seems to have accepted that he was so introduced (1824).  I find that Riley said Westpac was recognised as one of the leading and biggest dealers in foreign exchange in Australia, and that he introduced Look as Westpac's expert in foreign currency in Brisbane.

 

The seventh representation is that Westpac knew of every significant move that was likely to occur between the two currencies.  Porter's witness statement supported this representation (Ex B par 121).  Riley denied having said this (Ex 128 par 15(f)), and I accept his evidence.  It would have been an absurd thing for him to have said.  No one would take seriously a statement that Westpac's dealers knew of every likely movement in the currency.  My assessment of Riley is that he would never have made such a statement.  Grove said Riley did not make it: (Ex 174 par 8).  McElwee did not recall Riley having made it.  It would have been a very foolish remark for him to have made (Ex 169 par 10(e)).  Further, in the course of Porter's cross-examination it became apparent that he attributed to Riley a much more realistic and less overblown statement - namely that Westpac had the facilities to monitor current rates and trends.  At one stage the following exchange occurred (275-276):

 

                                ... it is right, is not it, that Mr. Riley had said to you, "The bank ... knows of currency movements likely to occur before they occur? --- That's right.  He said they knew the - the movements.

                                That were likely to occur? --- Likely to occur, yes.

                                Obviously, therefore, before they occurred? --- Well, I don't know.  I - I didn't say that.

                                ...

                                Do you say that Riley said to you ... "The bank knows about movements likely to occur"? --- Yes, he mentioned they had all the latest equipment that could monitor the trends and fluctuations in the movements of the currency rates.

 

At another stage (211):

 

                                You would scarcely forget a statement that the bank basically knew of any significant moves likely to occur between the two currencies, would you ...? --- Well, I think that was approximately what was said.  He said that they monitor all the ... currency movements.

                                You think that was approximately what was said? --- ... Yes, I agree that that's what he told me.

 

I find that Riley said no more than that Westpac's Sydney dealers had the facilities to monitor currency trends and movements.

 

The eighth representation is that because of its presence in the market, Westpac was best equipped to get the best market rates and conditions for its customers.  Porter's evidence supported this representation (Ex B par 121).  Riley denied making it (Ex 128 par 15(f)), but did not contest that he may have said Westpac was one of the leading and biggest foreign exchange dealers in Australia.  I find he did say this, and he added that as a result Westpac could get the best of terms for its customers.

 

The ninth representation is that Drambo's off-shore borrowing would be in the best of hands.  Porter said Riley told him this (Ex B par 121).  Riley said McElwee and Look were both highly competent in their respective areas.  He may well have said that if Porter borrowed from Westpac he would be in very good hands.  But he did not believe he said the loan would be in good hands or the best of hands (Ex 128 par 15(g)).  What Riley accepts
he may have said accords with Porter's oral evidence.  On two occasions he said that what Riley told him was that "we'd be in good hands".  On another that "I would be in the best hands with Westpac".  On another that "my account was in the best of hands".  I do not think there is any meaningful difference between the two formulations.  The only relevant relationship between Westpac and Drambo was that the former was proposing to make a loan to the latter.  In those circumstances, for Westpac to say to Drambo "You will be in good hands" must mean "your loan will be in good hands".  However, I do not consider Riley's remark amounts to an undertaking to manage Drambo's loan, or a representation that it involved no real risk to Drambo.  It is no more than puffery which is not actionable at common law or under s 52.  In Pappas v Soulac Pty Ltd (1983) 50 ALR 231 at 234-235 Fisher J, after stating that courts should be reluctant to give puffery the status of potentially misleading conduct, quoted with approval the words of Holmes J in Denning v Darling (1889) 20 NE 107 at 108-109: "The rule of law is hardly to be regretted, when it is considered how easily and insensibly words of hope or expectation are converted by an interested memory into statements of quality and value when the expectation has been disappointed".

 

The tenth representation is that any short-term fluctuations between the two currencies tended to even themselves out over time.  Porter attributed this to Riley (Ex B par 121), and said Riley added that "for this reason I should not be concerned about day to day fluctuations in the exchange rates".  Riley denied making the statement (Ex 128 par 15(e)).  He pointed out that part of the proposed loan was short-term - $5 million was to be repaid in September 1985.  He would have preferred the bridging part of the loan to be an on-shore facility.  But his discussions with Porter related to what Porter's requirements were and whether Westpac could better Citibank's offer (Ex 128 par 15(e)).  Grove agreed that Riley did not make the statement attributed to him (Ex 174 par 8), and McElwee denied Riley said Porter should not be concerned with day to day fluctuations in exchange rates.  I accept their
version.  There was no need for Riley to have made the remark.  He was not trying to persuade Porter to take an off-shore rather than a domestic loan.  He did not need to steer him away from a domestic loan by saying there was little or no risk with an off-shore facility.  Porter was going off-shore, and that was that.  The only question was whose boat he sailed in.  He would travel with Citibank unless Westpac made a more attractive offer.

 

The final representation is that a Swiss franc loan for five years was preferable to bridging finance in dollars, because the interest differential between the off-shore rate and that to be earned on the resort deposit would result in a substantial profit for Drambo.  There is no evidence to support this representation.

 

Five of the representations pleaded have thus been made out.  The first is that at the time in question the best foreign currency in which to borrow was the Swiss franc.  The second, though not precisely in the terms pleaded, is that Westpac was recognised as the biggest, or one of the biggest, foreign currency dealers in Australia.  The third is that Look was Westpac's foreign currency expert in Brisbane.  The fourth is that Westpac's Sydney dealers had the facilities to monitor currency trends and movements.  The fifth is that because of its presence in the market, Westpac could get the best terms for its customers.

 

There is no evidence that the first, second, fourth and fifth representations were not true.  As to the fifth, Chan's evidence was that because of its position in the market, Westpac was able to offer its customers highly competitive foreign exchange rates (Ex 101 par 8).  The truth of the third representation, that Look was Westpac's foreign currency expert in Brisbane, is difficult to assess because there are degrees of expertise.  At the time of the representation Look was Manager, International Business Development, and had been since October 1982.  In Look's managerial appraisal form for the year ending 30 September 1984 (about two months before the representation), Ray Ramke, Manager, International Business,
described him as displaying professionalism in the presentation of Euro loan products to customers and potential customers.  Feedback on his provision of Euro loan support to customers and branches seeking advice on Euro loans was described as excellent "both inside and outside Bank".  There had also been excellent feedback on his professional approach to the servicing of branches and customers in all aspects of Eurocurrency borrowing (Ex A 805).  As State Manager, Corporate and International, Riley would have been aware of the appraisal form.  It makes provision for his signature, though the copy in evidence is not signed by him.  The evidence is that Look had some degree of expertise in foreign currency lending.  According to McElwee, Look was very experienced in foreign exchange (1711), much more so than McElwee and the other Brisbane officers (1722).  He may not have had Chan's level of expertise, but I am satisfied that the level of expertise he was considered by his superiors in Brisbane to have possessed, justified Riley's statement that he was Westpac's foreign currency expert in Brisbane.  There is nothing to suggest Riley did not honestly hold that view.

 

(c)        The representations - 29 November

Porter attended all but one of the October/November meetings on his own.  Henderson accompanied him to the one held on 29 November.  Henderson said the Westpac officers recommended that Porter take out a foreign currency loan in Swiss francs, that the Swiss franc was the best available currency in which to borrow, that there would be vast interest savings, that hedging the loan would destroy the interest differential, and that given the stability of the Swiss franc the exposure risk was minimal.

 

McElwee did not recall what transpired at the meeting.  Look agreed he would have said Swiss franc interest rates were the lowest at the time, but denied having said the Swiss franc was the most favourable currency to borrow.  He said he would have explained that the exchange risk could be eliminated by hedging, but that the cost of hedging was equivalent to
the interest differential.  He did not say the risk of the loan exposure increasing was not significant.  That would have been an untrue statement in the light of the historical data he had prepared.

 

Mitchell was present at the meeting, and did not recall the representations attributed to Look and McElwee by Henderson and Porter.

 

Henderson had a precise and assertive demeanour, a generally good recollection of distant events, and struck me as an honest witness doing his best to recall what happened.  I do not accept he was colluding with Porter.  This was the first Westpac meeting Henderson attended.  He thought Porter may have invited him along so he could learn something about foreign currency (645), and indeed this appears to have been so (Ex B par 141).  It would be natural for him to ask questions Porter would not have asked because he knew the answers.  I accept that, when asked why the loan was to be in Swiss francs (Ex R par 30), Westpac officers said there would be vast interest savings on a Swiss franc as opposed to a domestic borrowing.  But as Henderson said, that did not tell him much, because he was already aware of the nature of these savings, if not their extent (670-671).  I also accept that Henderson raised the question of hedging, and that Look said the cost of it would remove the interest differential.  Although in his witness statement Henderson said he raised the risk issue, in cross-examination he conceded he had not done so, because everyone present knew of the risk that the amount of the loan would increase should the dollar fall in value (660).  I do not accept that any Westpac officer at this meeting recommended that Porter take out a foreign currency loan.  It was even less likely that this would have been said at this meeting (the last before the facility documents were signed) than at the earlier meetings.  In addition to the reasons I have already given, by this time Westpac's offer of 23 November had been sent to Kootsookos for comparison with the Citibank offer.  The sort of loan (on or off-shore) that was to be taken had been well and truly settled long before, and I am quite
satisfied that Westpac officers did not at this meeting make this particular representation that Henderson thought was made.

 

The result is that only one of the representations pleaded is made out by what was said at the 29 November meeting.  Westpac's officers said that by taking a loan in Swiss francs Drambo would save a lot of money because of the interest differential.  As matters then stood, and in the light of the recent history of the relationship between the two currencies, the officers had reasonable grounds for making the representation.

 

(d)        Reliance

The four representations made to Porter alone were, as I have said, not untrue, and were thus not misleading or deceptive or likely to mislead or deceive.  Viewed at the time it was made, the representation made at the Henderson meeting was not untrue.  Viewed as a prediction, the Westpac officers had reasonable grounds for making it.  Whichever way it is viewed, it was thus not misleading or deceptive or likely to mislead or deceive.  But even if the five representations were misleading or deceptive or likely to mislead or deceive, in order to obtain relief Drambo must establish it relied on them for its decision to take the Westpac facility.  The onus of establishing that a representation induced the representee to enter into a contract rests on the party seeking relief: Gould v Vaggelas (1985) 157 CLR 215 at 237-238.  The representation need not be the sole inducement.  It is sufficient if it plays some part, even though only a small part, in contributing to the formation of the contract.  It is not necessary to show that "but for" the representation, the representee would not have entered into the contract.  However it is not enough for the representee to establish that a representation might have contributed to a decision to enter into the contract.  He must show, on the balance of probabilities, that the representation played some part - beyond the trivial - in inducing him to enter the contract.  See Metcalfe v NZI Securities Australia Ltd (1995) ATPR 41-418 at 40,672.

(i)         The Henderson representation

This was the representation that Drambo would save a lot of money by taking a Swiss franc loan because of the interest differential.  Although Henderson was a director, he took no part in the running of Drambo's affairs or the management of its business.  His role was simply to ensure that Drambo complied with taxation and Corporate Affairs requirements (Ex R pars 24-25).  Drambo's decision to borrow was Porter's.  Henderson had no discussion with Porter between the meeting and drawdown as to whether Porter should accept Westpac's offer (Ex R par 31).  I am quite satisfied that the interest saving representation made at this meeting did not induce Porter to enter into the transaction.  This topic would not have been raised if Porter had been the sole Drambo representative present.  There would have been no occasion for it to be raised.  Porter was adamant he would borrow off-shore and in Swiss francs because of the interest savings (1599).  The things that were said were in response to Henderson's enquiries.  This was Henderson's first meeting with the Westpac people, and his questions caused them to explain things to him about the advantages of Swiss francs that Porter was well aware of from sources outside Westpac (Ex R par 30).  Nothing had changed in relation to borrowing off-shore as opposed to taking a domestic loan.  Nor was there any doubt in Porter's mind that Swiss francs were the appropriate currency, because he knew there were interest savings to be made.  As McElwee said, there was a lower interest rate in Swiss francs than in any other off-shore currency - "but that was like coal to Newcastle because Bob knew that anyway".  That's why he wanted to borrow Swiss francs in the first place, "because he knew it was the cheapest interest rate".  Porter had expressed this view "very early in the piece" (1713).  Porter's decision that Drambo should sign up for the loan on 3 December 1984 was made independently of anything said at the 29 November meeting.  He was not, even to a small extent, induced to enter into the transaction by what was said at the meeting.

 

 

(ii)        The Porter representations

Drambo did not enter into the Westpac facility in reliance on the representations that the Swiss franc was the best currency in which to borrow at the time, that Westpac was the biggest or one of the biggest foreign currency traders, that Look was Westpac's foreign currency expert in Brisbane, that Westpac's Sydney dealers had the facilities to monitor currency trends and movements, or that Westpac could get the best rates for its customers.  It chose Westpac rather than Citibank for the sole reason that Westpac offered more favourable terms.  I am quite satisfied that none of these representations played even a minor part in inducing Drambo to go with Westpac.

 

(iii)       The puff

If I had upheld the "best of hands" statement as a representation rather than a mere puff, I would have concluded that Porter did not enter into the facility in reliance on it, even to a small degree.  I refer to what I have said in paragraph (ii) above.

 

(e)        Causation

The matter may be approached in another way.  Let it be assumed that Drambo took the Westpac facility in reliance on the representations that have been made out.  Did it suffer any loss as a result?  What would it have done had it not relied upon the representations?  See Gould v Vagellas at 220-221 and Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 13.  Drambo may still have taken the Westpac facility.  But if it had not, it would have accepted Citibank's offer.  It will be remembered that Porter had already paid a $34,750 establishment fee in connexion with the Citibank offer.  Citibank's offer was capable of immediate acceptance (559), and so far as Porter was concerned it was just a matter of choosing between the two offers.  He would select the one that offered the "best deal" (197).  The only reason he did not proceed with the Citibank offer was that Westpac bettered it.  Westpac contended that had Drambo accepted the Citibank offer, it would have
been in the same position when the dollar fell as it was in the events that happened.  Counsel for Drambo disputed this, saying that had it accepted the Citibank offer it would have hedged the loan in February 1985 and thus avoided the loss it suffered at Westpac's hands.  It relied on Porter's claim that in early February Brookman told him Citibank was hedging all its Swiss franc clients.  I ruled this inadmissible, but Westpac's counsel cross-examined upon it.  Westpac relied on the evidence of Wong, who between 1984 and 1986 worked for Citibank as a corporate foreign exchange adviser, that it was not until about June 1985 that Citibank began trying to convince its customers to hedge (Ex 195 par 6).  Wong was not cross-examined on this part of her evidence.  Brookman could have dispelled the hearsay quality of Porter's evidence on the point, but he was not asked whether Porter's account was an accurate statement of Citibank's practice in February.  For those reasons I accept Wong's evidence in preference to Porter's account of what Brookman told him.

 

But even if in February Citibank had advised that Porter hedge the hypothetical loan, I find he would not have done so.  At the same time as Brookman is said to have told Porter Citibank was advising its customers to hedge, he told Porter he should hedge the Westpac loan.  Porter did not do so.  Straight after the Brookman conversation Porter told Bradley of Brookman's advice.  Bradley told him he should immediately bring the loan on-shore and close out Drambo's losses.  He did not do so.  In June McElwee suggested Porter should hedge at a time when the dollar had fallen below its February level.  He did not do so.  In any event, even if in February Citibank had advised Porter to hedge, Drambo could not have afforded to do so.  Counsel for Drambo disputed this, submitting that by the time the hedging cost had to be paid, Drambo would have had a substantial surplus as a result of the resort sale, which would have settled before the first rollover date in July.  The resorts were sold in March, and settlement took place in May.  But on Porter's account of what Brookman told him, the matter must be tested in early February.  Porter did not then know the resorts would sell in March and settle in May.  Surely the best evidence on the point is
Porter's own.  In February Drambo could "probably not" have afforded to hedge or convert the loan into dollars (277-278).  For those reasons I find, on the balance of probabilities, that had Citibank advised Porter in February to hedge, he would, for one reason or another, not have done so.

 

The claim in paragraph 10(a) of the statement of claim, that in consequence of Westpac's contravention of the Act Drambo was damnified by reason of having taken up the Westpac facility rather than borrowing $13 million in Australia "as otherwise it would have done", is untenable.  If Porter had not gone with Westpac, he would have accepted the Citibank off-shore offer.  Although Citicorp's domestic offer was available to him, he would not have accepted it (222).  The claim in paragraph 10(b) that Drambo was damnified as a result of being exposed under the Westpac facility to the risk of having to repay in excess of $13 million must be rejected.  For the reasons I have given, under the hypothetical Citibank facility Drambo would have been exposed to the risk of having to repay in excess of $13 million.

 

(f)         Negligence

There is no doubt that if a bank provides information or advice to a customer, it comes under a duty to take reasonable care in doing so: Dwyer v Commonwealth Bank of Australia (1995) 31 ATR 48.  But if a customer comes to a bank and asks if it can better an offer of off-shore finance made by someone else, the bank comes under no duty to warn about the risks or drawbacks of the proposed course of action.  Cf Warner v Elders Rural Finance Ltd (1993) 41 FCR 399 at 403; Redmond v Allied Irish Banks Plc (1987) 2 FTLR 264 at 266; David Securities Pty Ltd v Commonwealth Bank of Australia (1990) 23 FCR 1 at 21-23; Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 at 92.  Drambo fell into the second category.

 

The only statements I have found were made were that the Swiss franc was the most favourable currency in which to borrow because of the interest savings, Westpac was recognised as the biggest or one of the biggest foreign currency traders in Australia, Look was Westpac's expert in Brisbane, Westpac's Sydney dealers had the facilities to monitor currency trends and movements, and Westpac was able to secure the best rates for its customers.  There is no evidence that these statements were erroneous.

 

Even if these statements were wrong and carelessly made, Porter did not enter into the Westpac facility in reliance on them.  What I have said about reliance in connexion with the s 52 claim is applicable here.

 

Further, if the "best of hands" statement was a representation rather than a mere puff, and was made carelessly, Porter did not enter into the Westpac facility in reliance on it.  He would have entered into it in any event.

 

Again, assuming the various statements were carelessly made, the contention that that caused loss to Drambo in the manner claimed in paragraph 10 of the Statement of Claim is untenable for the reasons I have given in paragraph (e).

 

9.         THE SECOND CLAIM - 26 FEBRUARY LOST OPPORTUNITY

(a)        The pleading

The claim in paragraph 11 of the statement of claim is that on or about 15 February 1985, in response to an enquiry by Porter as to whether to reconvert the loan to Australian dollars, Westpac's officers made a number of representations, in reliance on which Drambo decided not to cause the loan to be reconverted, and thereby lost the opportunity to reconvert and the opportunity to cause the loan to be managed.  The particulars of loss of opportunity to reconvert assert that had Drambo reconverted the Westpac facility to Australian dollars by entering into a forward exchange contract on 15 February 1985 for the purchase of CHF29,408,577.19 to be delivered on 31 July 1985, its liability to Westpac on 31 July 1985 would have been $14.8 million, which it could have discharged from its deposits with Westpac which then totalled $16 million.  The surplus $1 million could have been invested for the period 31 July 1985 to 12 February 1992 "such that the value of the funds held on deposit together with the interest accrued thereon" would have been $4.9 million.  Because the loan was not then reconverted, Drambo's liability to Westpac at 12 February 1992 was $15.8 million.  Drambo's loss is said to be $2,075,310.55.  The loss was "updated" to 11 September 1995 in exhibit Y.

 

(b)        Representations

The representations are pleaded as having been made at a meeting on "about 15 February 1985", but Porter's statement claims they were made on 26 February.  He says Riley, McElwee and Look were present.  I am satisfied Riley was not at the meeting.  He did not recall it (Ex 128 par 22(a)), and Look's diary records that he, McElwee and Porter were to lunch at Michael's (Ex 186 par 16).  Porter has all four present at the meeting and the ensuing lunch.  Further, in his telephone conversation with Riley on 3 December 1985 in which he complained about advice he had been given when the dollar had fallen to 2.07 (its level on both 15 and 26 February 1985), Porter did not claim Riley had been present; only McElwee and Look.

 

The only pleaded representations that are supported by Porter's evidence are that in response to his enquiry as to whether he should hedge the loan Look told him he should not worry about the exchange rate, because the fall in the dollar was a temporary hiccup in the market, and said he thought the Swiss franc would not vary in value against the dollar by more than 10 per cent over the ensuing year (Ex B pars 183, 187).

 

Look did not recall having been asked whether Drambo should hedge, or making the temporary hiccup statement.  He said that before the meeting he would have ensured he had up to date information from the Sydney dealers to pass on.  He would have reviewed the dealers' comments on the market for 26 February and the few days before that.  The comments for 26 February disclose that the US dollar had made substantial gains across the board, the Australian dollar was largely following US dollar trends with occasional hiccups, and some sort of optimism was creeping back in.  Look would have passed on the substance of the dealers' comments (Ex 186 pars 17-19).  He denied having made the 10 per cent prediction.

 

McElwee did not recall the conversation deposed to by Porter.  He did not believe any prediction was made about how the dollar would perform over the next twelve months.  "We did not make predictions of that sort" (Ex 169 par 18).

 

I accept Porter's evidence that he asked whether Drambo should hedge, and that Look made the temporary hiccup statement.  In the events that had happened, it is not unlikely Porter made the enquiry.   Look and McElwee do not deny it.  The temporary hiccup remark is not inconsistent with the Sydney dealers' comments for 26 February.  I think it follows from the fact that the hiccup representation was made in response to Porter's enquiry as to whether he should hedge, that Look and McElwee impliedly represented that it was not necessary to do so, though Porter appeared to accept that neither actually told him "it was better not to convert" (285).

 

I do not accept that Look made the 10 per cent statement.  He denied it.  It would have been a silly remark for him to have made.  He did not impress me as someone given to making silly predictions.

 

(c)        Reliance

Drambo has established that Porter asked whether Drambo should hedge, that Look told him he should not worry about the exchange rate because the fall in the dollar was a temporary hiccup, and thereby impliedly represented that there was no need to hedge.

 

But Drambo's claim that it relied on those representations in deciding not to cause the loan to be hedged has not been made out.  Porter accepted in the course of cross-examination that nothing the Westpac officers said to him at this meeting affected Drambo's course of action, which was to sell the resorts, pay out the loan and keep the surplus (283).  Quite apart from this admission, I would have held that in deciding not to reconvert/hedge Porter did not rely, even to a small degree, on what was said at the meeting.  To reconvert was to pay Australian interest rates which he did not want to do, and the high level of which had in the first place attracted him to the Swiss franc.  To hedge amounted to the same thing.  The cost was the difference between Swiss franc and Australian dollar rates.  Porter was always keen to remain in Swiss francs to retain the benefit of the differential (337-338).  At the end of the discussion his long-term view (337-338) was unchanged.  He would leave the loan in Swiss francs and ride out the storm, relying on the differential interest rates as a buffer.  Further, Porter agreed that in February Drambo could "probably not" have afforded to hedge the loan or convert it to dollars (277-278).  I refer to what I have said in paragraph 8(e) on that point.

 

(d)        Negligence

The negligence claim must fail for the same reason as that based on s 52.  As I have said in paragraph (c), Drambo did nothing in reliance on what was said at the meeting.  Porter's plan of action was unchanged.  Furthermore, he could not then have afforded to hedge the loan or bring it on-shore (277-278).

 

(e)        Limitation period

If I had concluded that Drambo suffered loss as a result of relying on the representations, I would have held the claim in paragraph 11(h)(i) of the statement of claim barred under s 82(2).  If I had concluded that the representations were negligent and caused loss to Drambo, I would have held the claim barred under s 10(1)(a) of the Limitation of Actions Act 1974 (Qld).

 

In some foreign exchange loss cases the determination of the date when the cause of action accrued is not without difficulty.  See for example Thannhauser v Westpac Banking Corporation (unreported, Pincus J, 19 March 1991) and the comment thereon by Heydon, "Damages under the Trade Practices Act", in Finn, Essays on Damages, at 65-66, and cf Karedis Enterprises Pty Ltd v Antoniou (1995) 17 ATPR 41-427.  However, Drambo's loss on the instant claim is pleaded as loss of the opportunity then to reconvert the loan to Australian dollars.  The Particulars allege that what was lost was the opportunity to reconvert by entering into a forward exchange contract on 15 February 1985, though in Exhibit Y the opportunity is described as the opportunity to hedge on 26 February 1985.  In either case the loss is said to have been suffered at a point in time, either on 15 or 26 February 1985.  On the evidence, 26 February is the correct date.  The three year period under s 82(2) thus expired at the end of February 1988, and the six year period under s 10(1)(a) at the end of February 1991.  Drambo did not commence its proceeding until July 1991.  Drambo contended that Westpac was estopped from relying on s 82(2), and that the commencement of the six year period should be deferred under s 38 of the State Act.  No argument was addressed in support of either submission.

 

 

 

 

10.       THE THIRD CLAIM - 29 MARCH LOST OPPORTUNITY

(a)        The pleading

The claim in paragraph 12 of the statement of claim is that on or about 29 March 1985, in response to an enquiry by Porter as to whether to reconvert the loan to Australian dollars, Westpac's officers made a number of representations, in reliance on which Drambo decided not to cause the loan to be reconverted, and thereby lost the opportunity to reconvert, the opportunity to cause the loan to be managed, and the opportunity to repay the loan.  The particulars of loss of opportunity to reconvert have the same structure as those of the comparable loss in February.  The loss was updated to 11 September 1995 in Exhibit Z.

 

The only pleaded representations that are supported by Porter's evidence are that on 29 March 1985, in response to his enquiry as to whether the loan should be hedged, Look and Riley told him the decline in the value of the dollar was not a cause for concern, they did not believe the dollar would decline further, it was better for the loan not to be hedged so as to obtain the benefit of the interest differential, and earlier day to day fluctuations in the exchange rates were not important.

 

Although it is pleaded that the alleged representations were made at a meeting at Westpac's offices, I do not think there was a meeting.  Several considerations have led me to this conclusion.  First, Porter's evidence is simply that he contacted McElwee who referred him to Riley and Look to whom he then spoke (Ex B par 200).  Secondly, Look could not recall such a meeting (Ex 186 par 23), and said he never met Porter except in the presence of some other Westpac officer (1818).  Thirdly, Look's diary records no such meeting (Ex 186 par 23), and no file note was made by any Westpac officer, though Look always made a file note of meetings he attended unless a more senior person was present, in which case that person made the note (1818).

 

I find that on or about 28 or 29 March Porter telephoned McElwee and was referred to Look with whom he then spoke, again by telephone.  That there was no formal meeting is consistent with Porter's evidence.  He does not assert a meeting, merely saying he contacted McElwee and spoke to Look and Riley.  I do not accept that he spoke to Riley, who was out of the country from 2 to 31 March (Ex 128 par 23), and Porter conceded that he probably spoke to Look alone (375).  When in December 1985 Porter complained to Riley about Look's and McElwee's February and March advice not to hedge, he did not suggest Riley had been present (BD I 177).

 

Look did not recall saying Drambo should not be concerned about the falling dollar, that he did not believe it would fall further, or that earlier day to day fluctuations in the exchange rates were not important.  He denied saying it was better not to hedge the loan so as to be able to obtain the interest differential (Ex 186 pars 24-26).

 

I accept Porter's evidence that he asked Look whether Drambo should hedge.  There is nothing improbable about the enquiry.  The dollar had fallen to 1.85, and Porter was naturally concerned.  However, while I accept that Look said that day to day fluctuations were not important, I do not accept that he said the decline in the value of the dollar was not a cause for concern, or that he did not believe the dollar would decline further.  Both statements would have been inconsistent with the dealers' comments for the day in question, which were available to Look.  They spoke of disillusionment with the dollar spreading globally.  According to them, the rug was being pulled from under the dollar by various factors, normal month-end and quarter-end buying of the dollar was not occurring, the dollar was "baffling to say the least", there was too much local pessimism, and month-end imports were keeping the lid on any rate recovery.  Having regard to the extended fall the dollar had already suffered, and the dealers' comments, it would have been absurd and rash for Look to have said he did not believe the dollar would fall further or that its decline was not a cause
for concern.  As I have said, I do not think Look was given to making rash and imprudent predictions.  That was also the view of those who worked with him (1720) (Ex 183 par 6).  Look had no reason to mislead Porter.  Although I do not think Look advised Porter not to hedge, the implication of his statement that Drambo should not worry about day to day fluctuations, in the context of an enquiry as to whether Drambo should hedge, was that it did not need to do so.

 

(c)        Reliance

The only pleaded statements made out were that in response to Porter's enquiry as to whether Drambo should hedge, Look said Porter should not be concerned about the day to day fluctuations between the currency values, and thereby impliedly represented that it was not necessary to hedge the loan.  However I do not accept Drambo's claim that in reliance on the representations it decided not to cause the loan to be reconverted/hedged.  I refer to what I have said in paragraph 9(c) about the cost of reconversion/hedging.  Further, in the course of cross-examination Porter agreed that in March he understood that if he hedged he had no prospect of recovering the lost ground unless the dollar recovered dramatically (295).  The following exchange then occurred:

 

                Because once you hedged you lost the benefit of the interest differential? --- ... Yes, once I hedged, but I understood at the time from the bank managers that once I crystallised the loan, in other words, when that loan was brought back on shore I would never be ever able to recover the losses.  Had I taken the five year view with the money on deposit, with the assured income of that money on deposit, which the bank said they'd go along with, there was a very good chance that I would convert that to, I think it is $31 million ....

                And you always understand that, did you not? --- Yes, very much so.

                And you always understood that that course, while it offered the prospect of recovery, also offered the prospect of further losses? --- Yes, but the bank managers ... were fairly confident that that was about the bottom of the Swiss franc ....

At the end of the telephone call Porter's long-term view was unchanged.  He would leave the loan in Swiss francs and rely on the interest differential and, if the resorts sold, on the interest to be earned on the deposit money, as a buffer.  I find that the idea of depositing the resort money was Porter's, not Westpac's, despite Porter's assertion to the contrary (Ex B par 204).  Riley was opposed to the idea.  He wanted the resort money to be used to repay part of the loan.  He did not insist on that course because Porter was most reluctant to realise exchange rate losses and asked for Westpac's indulgence (Ex 128 par 22(b)).  As Porter said in the course of cross-examination, it was a proposal Westpac said "they'd go along with" (295).

 

(d)        Negligence

The negligence claim must fail for the same reason as that based on s 52.  Drambo did nothing in reliance on Look's representations.  Porter's plan of action was unchanged.  He wanted the benefit of the interest differential.  If he hedged or came on-shore he would lose it.

 

(e)        Limitation period

If I had found that Drambo had a cause of action under s 52 and a cause of action in negligence, each would have accrued at the end of March 1985.  The claim in paragraph 12(h)(i) and (ii) became barred under s 82(2) at the end of March 1988 and under s 10(1)(a) at the end of March 1991.  I refer to what I have said in relation to the February claim.

 

11.       THE FOURTH CLAIM - BREACH OF SEPTEMBER/OCTOBER AGREEMENT

The September/October agreement was made consequent upon Westpac's failure to implement the "Henderson hedge".  In Drambo's written submissions filed in response to Westpac's, the Court was informed that Drambo "does not address the Court in relation to
[this] claim", and in closing submissions it was confirmed that the claim had been abandoned.

 

12.       THE FIFTH CLAIM - SEPTEMBER REPRESENTATIONS

These were the representations alleged to have induced Drambo to enter into the September/October agreement.  In Drambo's written submissions the Court was informed that Drambo "does not address the Court in relation to [this] claim", and in closing submissions it was confirmed that the claim had been abandoned.

 

13.       THE SIXTH CLAIM - REPRESENTATIONS INDUCING FXMA

Once again the Court was informed that Drambo "does not address the Court on [this] claim".  I will treat that as an abandonment of the claim.

 

14.       THE SEVENTH CLAIM - RECONVERSION OF LOAN

In the statement of claim it is alleged that on or about 5 July 1988, in pretended performance of its obligations in respect of the management of the loan, and contrary to express instructions given by Porter to Gauci on or about 26 May 1988, Westpac reconverted the loan to Australian dollars.  It is also pleaded that Westpac was negligent in reconverting the loan when it did, because there were reasonable grounds for supposing the dollar would increase in value as against the Swiss franc, as a result of which Drambo lost the benefit of the appreciating value of the dollar between July 1988 and 30 January 1990.

 

As to the 26 May instruction, Porter admitted that no such instruction was given.  He could not explain why it was pleaded (360-361).  In lieu of the pleaded instruction, Porter gave evidence that at a meeting with Gauci and Friend on 25 February 1988, Gauci told him Westpac saw no future in the loan remaining off-shore and that his instructions were that it was to be brought on-shore (Ex B par 957).  He said he told Gauci he would consider the
position and get back to him.  Gauci and Friend disputed this conversation.  Gauci said he did not have instructions to ensure the loan was brought on-shore, and did not say he had.  According to him, Porter said he wanted the loan brought back.  Gauci's file note records that "Porter indicated his desire to crystallise his CHF exposure by using all the Bill and 11 a.m. call moneys to repay part of the Euro loan and converting the residual Euro Loan to Australian dollars" (BD II 458).  Friend supported Gauci's account (Ex 228 par 15).

 

Contemporary documentary evidence shows that since November 1987 Porter's intention was to pay out the loan.  On 16 November he wrote to Anderson saying it was his intention to pay out the loan when his Woodwark Bay $10 million settlement took place (BD II 396).  On 18 November, after Anderson had received the letter, Porter called on him.  Anderson's file note records that Porter told him he intended to repay the loan upon settlement of the Airlie Beach sale, and that he was also considering crystallising the loan and using cash security to repay portion of it.  A loan for the balance of around $6 million would be required pending settlement of Airlie Beach (BD II 398).

 

On 17 December Gauci made a credit application on behalf of the Porter group in which he stated that Porter had indicated quite positively that he wanted to crystallise his off-shore indebtedness and make progressive principal and interest payments as bills matured (BD II 416).  As I have said, Gauci's file note of the 25 February meeting is to the same effect (BD II 457-458).  At a meeting on 16 March Porter told Gauci he was considering bringing the loan back on-shore if terms were to his satisfaction.  This was repeated at a meeting on 22 March.  On 26 May there was another meeting at which Porter requested that the facility be rolled over until 4 July.  Gauci agreed.  Friend's file note of the meeting records this, and that Porter's taxation advice "indicates that the loan should be refinanced on-shore at the beginning of the next financial year" (BD II 474).  Henderson's fax of the same day, written at Porter's behest, requested that the loan be paid out on 18 July rather than 4 July (BD II
478).  On the same day Gauci wrote saying that at the meeting Porter had agreed that settlement would take place on 4 July, and instructed that the Swiss franc exposure be fully hedged until that date.  The facility had been rolled over until 5 July (4 July being a holiday in the US) and hedge contracts taken out.  Accordingly, he refused the requested rescheduling.  So the position at the end of May was that the Swiss franc loan was to be settled on 5 July.  On 7 June Gauci wrote to Porter saying that all necessary arrangements had been made with respect to his request to convert the off-shore loan to a dollar domestic loan on 5 July, and inviting his acceptance of the terms and conditions of a replacement domestic loan.  Porter did not sign the duplicate letter of acceptance enclosed, and did not respond to the letter.  On 4 July Gauci and Porter met.  Gauci's file note records that Porter told him Citicorp and RESI - Statewide had offered to refinance his residual debt with Westpac (i.e. the amount that would remain owing after partial repayment on 5 July), and requested that Westpac's facilities remain in place until 5 August.  Gauci agreed, and provided Porter with a Bill Acceptance Discount Line for $7.35 million (BD II 510).  Porter gave no evidence about this meeting.  On 5 July the loan was brought on-shore.

 

In connexion with Gauci's alleged demand on 25 February that the loan come on-shore, Porter was asked why it was not brought on-shore until July.  His answer was that he wanted to investigate the tax position, "and the moment Mr. Henderson gave Mr. Gauci instructions to hedge the loan, we were quite happy to come on-shore".  He was just selecting the correct time from a tax point of view.  The delay in coming on-shore was caused by the fact that he did not want it in the then current financial year (363).  This accords with Friend's file note of the 26 May meeting (BD II 474).

 

It is plain therefore that not only is the pleaded instruction not made out, but at least by 26 May (the date of the alleged instruction not to bring the loan on-shore), Porter wanted it
brought on-shore.  In those circumstances, the claim that it was negligent of Westpac to bring the loan on-shore on 5 July 1988 is without foundation.

 

15.       THE EIGHTH CLAIM - WITHHOLDING TAX

The Swiss franc loan was made by Westpac's Singapore branch.  Accordingly s 128B of the Income Tax Assessment Act 1936 ("the Act") applied to the interest income derived by Westpac from the loan.  Sub-section (5) obliged Westpac to pay withholding tax on the amount of income it derived from the loan.  Withholding tax is levied at the rate of 10 per cent: Income Tax (Dividends and Interest Withholding Tax) Act 1974.  Sections 221YL and 221YN of the Act require an Australian borrower, when making payments of interest to a lender having an address outside Australia, to deduct the amount of the tax and remit it to the Commissioner.  Section 261(1) provides:

 

                A covenant or stipulation in a mortgage, which has or purports to have the purpose or effect of imposing on the mortgagor the obligation of paying income tax on the interest to be paid under the mortgage ... shall be absolutely void.

 

"Income tax" in s 261 includes withholding tax: s 128A(4).

 

Clause 6.04 of the facility agreement provides in part:

 

                All payments made by the Borrower under the terms of this letter ... shall be made free of all present and future Taxes of whatsoever nature ... unless the Borrower is compelled by law to deduct or withhold the same in which event the Borrower shall ensure that such deduction or withholding does not exceed the minimum legal liability therefor and shall forthwith pay to the Bank such additional amount which after any further such deductions or withholdings will result in the receipt by the Bank of the full amount which would otherwise have been payable hereunder had no such deduction or withholding been made.

Clause 6.06(a) provides:

 

                The Borrower will forthwith, or within such period as may be permitted by law pay over to the Australian Commissioner of Taxation the full amount of the deduction or withholding which shall have been made by it pursuant to sub-clause 6.04 ....

 

The facility agreement is a "mortgage" for the purposes of s 261(1): see sub-s (5).  Clauses 6.04 and 6.06(a) of the agreement are "covenants" or "stipulations" within s 261(1).  Those clauses have, or purport to have, the effect of imposing on the borrower the obligation to pay withholding tax on the interest to be paid under the facility letter, and are void under s 261.  See David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353.

 

It was common ground that Westpac had debited Drambo's account with sums totalling $577,732.15 and paid that amount to the Commissioner towards Westpac's liability for withholding tax, and that it did so in reliance on the void clause 6.04.  Westpac was not entitled to help itself to the funds, and Drambo is entitled to recover the amount of the payments as money had and received.  See Neate v Harding (1851) 6 Exch 349; Bavins & Sims v London and South Western Bank Ltd [1900] 1 QB 270; Goff and Jones, The Law of Restitution 4th ed (1993), 715 et seq.; Chitty on Contracts 27th ed (1994), pars 29-049 et seq.

 

Because the payments were not made by Drambo to Westpac, the alternative ways in which Drambo put its case (payment under duress and by mistake) do not fall for consideration.

 

 

 

 

16.       THE NINTH CLAIM - POINT TAKING

Drambo claims that a fiduciary relationship existed between it and Westpac.  The relationship was said to arise out of the October 1985 deed and the FXMA.  By clause 1 of the October deed Drambo appointed Westpac its agent for the purposes of

 

                (a)           selecting the currency and/or the term of any foreign exchange contract, foreign currency borrowing or other foreign currency transaction (each, a "Selection"); and

                (b)           purchasing and selling (whether spot, forward or otherwise) currencies under foreign exchange contracts with the Bank as principal ....

 

Clause 1 of the FXMA is in similar terms.  It is claimed that by reason of those provisions, in effecting foreign exchange transactions for Drambo and in managing the loan, Westpac owed Drambo fiduciary duties to act in good faith, not to make profits or take secret commissions, and not to place itself in a position in which it suffered a conflict between its duty to Drambo and its own interest.  The breach complained of is that Westpac engaged in "point taking".  This practice involved Westpac receiving the difference between the rates at which its designated inter-bank dealers sold foreign currency to those who managed Drambo's loan, and the rates at which the foreign currency was available to the managers in the open market.  The profits or commissions are claimed to total a little over $3 million: about $323,000 while the October deed was in force and the balance while the FXMA was in force.

 

Contractual and fiduciary relationships

In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97 Mason J said:

 

                That contractual and fiduciary relationships may co-exist between the same parties has never been doubted.  Indeed, the existence of a basic contractual relationship has in many situations provided
a foundation for the erection of a fiduciary relationship.  In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties.  The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them.  The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.

 

His Honour dissented in that case, but that does not affect the authority of his utterance on this point, which has been followed in later cases.  See Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 at 14, 17 and Diversified Mineral Resources NL v CRA Exploration Pty Ltd (1995) ATPR 40-381 at 40,284 - 40,285.  So I must go first to the parties' contractual arrangements.

 

FXMA clause 6(f)

Drambo relies on clause 1 of the FXMA to create the fiduciary relationship relied on.  Clause 6(f) provides:

 

                the Bank may on behalf of the Company deal with itself as principal and may retain (without being liable to account for) any profits, commissions or fees arising from such transaction as if it were not the agent of the Company.

 

That clause would negate the fiduciary duties relied on.  However Drambo disputes that clause 6 ever became part of the FXMA.  When the document was presented to Porter and Henderson for signing it consisted of four pages.  The first page contained the recitals and clauses 1 and 2.  The second contained clauses 3 to 5 and part of clause 6.  The third contained the balance of clause 6, clauses 7 to 11, and provision for the affixing of Drambo's seal.  The fourth page contained provision for execution by Westpac.  Clause 6 was a lengthy provision.  Its general effect may be rendered thus:  Westpac does not hold
itself out as being able to obtain the best selection or exchange rate for currency or a better selection or rate than others might be able to obtain; while Westpac agrees to employ its best efforts to obtain a favourable selection and exchange rate, it is not responsible for negligence in connexion with any action taken under the agreement; Drambo releases and discharges Westpac from and in respect of any loss incurred or which might in future be incurred "by reason ... of the premises herein" and from all claims Drambo may now have "arising out of or ... relating to the premises"; and Drambo indemnifies Westpac against all claims in respect of or "arising out of these presents or otherwise in relation to the premises herein".

 

According to Anderson, when he presented the document to Porter and Henderson for execution, they read it and refused to sign it with clause 6 in place (1883, 1894, 1896).  The clause was then crossed out, and Porter and Henderson initialled the deletion on each of pages 2 and 3 and attested the affixation of Drambo's common seal.  Porter and Henderson, on the other hand, gave no evidence about the deletion.

 

The FXMA is Exhibit 40 and has an unnumbered page containing a replacement clause 6 inserted between pages 2 and 3.  The replacement clause is initialled by Henderson.  In the course of cross-examination Porter was shown Exhibit 40.  He noted that he and Henderson had initialled the deletion of the old clause 6, and that Henderson alone had initialled the new clause.  Porter did not know why it was not initialled by him (384).  He was then shown another copy of the FXMA (BD II 297).  It is in the same form as Exhibit 40 save that other initials appear underneath Henderson's at the foot of the new clause 6.  Porter identified them as his.  He agreed with the suggestion that the probability was that when Westpac proffered the replacement clause for initialling, Henderson was available and obliged, but he was for some reason unavailable, and initialled it later (385).

 

The replacement clause 6 is, with one exception, essentially the same as the old clause, but is divided into six sub-clauses.  Sub-clauses (a) to (e) render the effect of the old clause, but are well-spaced, and some of them are themselves broken up into separate paragraphs.  Sub-clause (f) is new.

 

Since Porter and Henderson objected to signing the FXMA with the old clause in it, but initialled the new clause the content of which, apart from sub-clause (f), was substantially the same as that of the old clause, their objection to the old clause must have related to its form.  It consists of one sentence of thirty four closely typed lines and is very difficult to follow.  Porter, or more likely Henderson, saw that Drambo appeared to be giving releases and indemnities, and insisted that the clause be retyped in more accessible form so they could understand what was being "given up".

 

In any event, the new clause was initialled, and Henderson at least read it and understood it (715).  There is no suggestion in Porter's or Henderson's evidence that the new clause 6 was not part of the FXMA, that they were not happy with it, or did not know what it contained.  In these circumstances I find that the FXMA consisted of the pages at BD II 297-301 (i.e. with the inserted page initialled by Porter and Henderson).  When after execution a deed is materially altered, it is enforceable in its altered form against all who consented to the alteration: Halsbury's Laws of Australia vol 10, par 140-255.

 

A deed takes effect from delivery.  Although the date expressed in the instrument is prima facie to be taken as the date of delivery, this does not exclude evidence of the actual date, and the actual date, when proved, prevails, in case of variance, over the apparent date: Halsbury, op cit, par 140-180.

 

Putting the new clause 6 to one side, there being no evidence as to when the FXMA was actually delivered, it is taken to have been delivered on the date it bears, namely 6 June 1986.  When the new clause 6 was initialled by Porter, some time after 23 July 1986 (BD II 326), it could hardly have been intended it should operate from a date other than that on which the balance of the document operated.  The new clause is intimately connected with the others.  For example, by clause 2 Drambo appoints Westpac its agent to select currencies.  In new clause 6(c) Westpac agrees to seek in good faith to make favourable selections.  The two clauses cannot have been intended to have different starting dates.  Further, clause 10 provides that the deed is to commence on the date it bears.  Given my finding that the new clause 6 is part of the deed, it follows that clause 10 applies to it.  Accordingly, all parts of the FXMA took effect from 6 June 1986, and from that date Westpac was entitled to the points it took.

 

October deed

Clause 1 of the deed is less specific than clause 6(f) of the FXMA.  The latter expressly states the consequences of Westpac's freedom to deal with itself as principal (i.e. it may retain profits).  Clause 1 of the former merely states that Westpac may deal with itself "as principal".  A fiduciary's liability to account for profits made by trading does not arise where he has an express authority to deal with his own business: Finn, Fiduciary Obligations, par 531.  See for example Re Sykes [1909] 2 Ch 241.  That seems to me to be what clause 1 permits Westpac to do.  Notwithstanding that it is an agent, it may trade with itself.

 

Breach of term of September/October 1985 agreement

In the alternative to the claim for breach of fiduciary duty, Drambo contended that the point taking was in breach of an oral term of the September/October 1985 agreement, namely that Westpac would not impose any fees or charges for its management of the loan.  This term
conforms with clause 6 of the October deed, in which the amount of the agency fee payable for the services referred to in clause 1 is left blank.  Given that the written agreement itself provides that no fee is payable, it is unnecessary and inappropriate to have regard to a pre-contractual statement to the same effect.  Accordingly the effect of the contract (ie of clauses 1 and 6) is that no fee is payable by Drambo, but Westpac may deal with itself as principal in the way I have described.

 

The September/October agreement subsisted only until 6 June 1986 when it was superseded by the FXMA.  The Risk Management Unit to which Wong and Moser belonged was not established until mid-1986, and Wong did not start taking points until, at the earliest, May 1987.  Accordingly, during the seven month life of the term relied on, the only points taken were those taken by the inter-bank dealers.

 

Chan's evidence was that an agency or management fee would have compensated Westpac for the professional time and skill involved in managing the loan (1297).  Westpac was not charging a fee for that service, but was selling foreign exchange to Drambo at prices which realised no more than Westpac's normal margin for customers such as Drambo who were accorded concessional rates on their dealings (Ex 101 pars 8-12).  The margin was not a fee or charge for Westpac's management of the loan.  It was Westpac's customary profit on the sale of its foreign currency - its trading stock.  Accordingly the points taken were authorised by clause 1.

 

Although it is not pleaded, Porter's evidence of the oral term was more generous to Drambo than that no fee was to be charged.  It was that currency would be sold to Drambo at the rate at which Westpac bought it (Ex B pars 250, 263).  Riley agreed that no fee would be charged, but denied Porter's more expansive claim (Ex 128 pars 31(h), 33(c)).  So did McElwee (Ex 169 par 33(b)).  Henderson claimed that when on 2 September 1985 Riley
said no fees would be charged, Porter asked what "fees" meant.  Riley replied there would be "no charges at all".  Henderson's secretary, who was at the meeting, was not called as a witness.  I do not accept Porter's account.  First, only the more narrow agreement (no fees or charges) was pleaded.  Secondly, the more narrow agreement is reflected in the written agreement.  Thirdly, no other witness (including Henderson) agreed with Porter's account.  Finally, the oral term asserted by Porter would be inconsistent with clause 1.

 

17.       CROSS-CLAIM

(a)        Drambo's own liability

The claim was supported by the evidence of Barry Growcock, Westpac's Loan Manager.  He calculated Drambo's liability of $22,804,522.23 as at 30 June 1995 by adding interest to the amount due when the commercial bills matured on 28 October 1988 ($7,613,947.27).  Interest was at the "Bank's Unarranged Loan Rate", described by Growcock as a variable rate of interest applied by Westpac to facilities in default or outside arrangements.  Over the period in question the rate varied between a low of 16.499% and a high of 24.999%.  Interest was calculated on daily balances and was payable on the full amount from time to time owing.  Interest was debited as at the end of each quarter and on the basis that the amount so debited carried interest from the date of debiting.  See par (g) of the definition of "Moneys Hereby Secured" in Drambo's mortgage (Ex 237).  After the conclusion of argument, a fresh calculation was performed by Westpac which disclosed the amount owing as at 30 June 1996 to be $27,601,104.25.  During the preceding twelve month period the Unarranged Loan Rate was 19.499%.

 

Drambo claimed Westpac was not entitled to charge the Unarranged Loan Rate. However under the mortgage Westpac is entitled to charge interest "at such rate or rates as [it] from time to time determines": par (g) of the definition of "Moneys Hereby Secured".  That provision empowered Westpac to charge a higher rate of interest on accounts in default.  Drambo contended the provision is void for uncertainty as an agreement to pay a rate of interest fixed by the other party to the agreement.  It cited no authority for this proposition.  In ANZ Banking Group (NZ) Ltd v Gibson [1981] 2 NZLR 513 at 525 the court upheld a clause entitling the bank to charge interest "at the rate or rates and in the manner from time to time usually charged by the Bank to its other customers on accounts of a similar nature".  In Kabwand v National Australia Bank Ltd (1989) 11 ATPR 40-950 a Full Court of this Court upheld a clause enabling the bank to charge interest "conformably with general movements in the Bank's interest rates".  In Commonwealth Bank of Australia v Prentice (unreported, Supreme Court of New South Wales, 14 December 1995) a clause permitting interest to be charged at the rate the bank charged "on like accounts" to that of the customer was upheld.  In those three cases the rate was related to some benchmark - essentially the rate charged by the bank on accounts similar to that of the customer.  In the present case there is no such benchmark.  In the terms of the clause, Westpac may charge interest at such rate as it determines.  In Kabwand at 50,381 the Court left open the validity of a clause such as this, though without necessarily casting doubt on it.

 

Counsel for Westpac drew my attention to the decision of Drummond J in Cross v National Australia Bank Ltd (unreported, 29 April 1994).  There the bank was entitled to charge interest "at such rate as is determined by the bank from time to time".  That is indistinguishable from the present provision.  His Honour held the clause invalid, though severable.  He said:

 

                It was not suggested that this expression could be read as a reference even to the bank's own benchmark rates.  This is a clear example of a provision which reserves the fixing of a substantial obligation entirely to the discretion of the bank as one of the two contracting parties.  It is therefore illusory: see Placer Development Ltd v Commonwealth of Australia (1969) 121 CLR 353 at 356 and 359-361; Godecke v Kirwan (1973) 129 CLR 629 at 646-647.

In Placer the Commonwealth agreed with Placer that if customs duty was paid upon the importation into Australia of certain goods, and was not remitted, the Commonwealth would pay Placer a subsidy upon the goods "of an amount or at a rate determined by the Commonwealth from time to time ...".  A majority of the High Court held that the Commonwealth was not obliged to determine an amount or rate of subsidy, to pay a subsidy of such amount or rate as would recoup the customs duty paid, or to pay a subsidy.  Kitto J said the Commonwealth's promise was, in substance, a promise to pay such subsidy if any as may be decided upon by the Commonwealth.  It therefore did not create any contractual obligation.  The principle was, he said (at 356):

 

                that wherever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no contract on which an action can be brought at all.

 

At 360 Taylor and Owen JJ said:

 

                a promise to pay an unspecified amount of money is not enforceable where it expressly appears that the amount to be paid is to rest in the discretion of the promisor and the deficiency is not remedied by a subsequent provision that the promisor will, in his discretion, fix the amount of the payment.  Promises of this character are treated by Pollock ... not as vague and uncertain promises - for their meaning is only too clear - but as illusory promises ....

 

Placer was an illusory promise or illusory consideration case - the Commonwealth had a discretion as to whether to perform its part of the bargain.  There was therefore no contract, because there was no real consideration for the other party's promise.  That was not the case in Cross.  The interest clause was not the bank's promised consideration for the obligations undertaken by the customer.  The parties were in a contractual relationship, and the question was whether an agreement that one of them was free to fix the interest rate from time to time payable by the other was an effective term of the contract.  That question cannot be answered by resort to cases dealing with illusory promises or illusory consideration, the effect of which is to prevent a contract coming into existence.  See Kabwand at 50,380.

 

In Godecke v Kirwan a contract for the sale of land, having set out all the essential terms, provided that the purchaser agreed to execute a further agreement to be prepared by the vendor's solicitors "containing the foregoing and such other covenants and conditions as they may reasonably require".  The purchaser refused to complete, contending that the further agreement clause showed that the parties had not settled upon all the terms of the contract, so that there was no concluded agreement.  All members of the High Court rejected this contention.  Walsh J, with whom Mason J agreed, said he had obtained much assistance from the judgment of Bray CJ in Powell v Jones [1968] SASR 394.  In that case a written offer was made to a landlord's agent to take a lease of premises for five years, and the offer was accepted by the agent on behalf of the landlord.  The offer stated: "Agreement for Tenancy or Lease to be in terms and to contain such special clauses as the Landlord may require".  Bray CJ referred to Sweet and Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699 in which an agreement contained a provision for a lease to be taken on certain terms one of which was "the lease shall contain such other covenants and conditions as shall be reasonably required by Sweet and Maxwell".  The Court of Appeal held there was a concluded contract for the taking of a lease which was capable of specific performance.  What the lessor could demand was limited by the requirement that it be reasonable, and in the event of a dispute as to the reasonableness of a requirement, the court could decide.  In Godecke Walsh J, at 642, said:

 

                Bray CJ considered that the provision with which he was concerned was not a mere agreement to agree, notwithstanding that it did not refer to the reasonableness of what the landlord might require.  His Honour considered that the agreement was enforceable because what the relevant provision left to be determined was not dependent upon any further agreement between the parties.  It is clearly established that a binding agreement may be made which leaves some important matter, e.g. the price, to be settled by the decision of a third party.  I agree with respect with the view of Bray CJ, that, subject to the qualifications to which he refers, there is no reason in principle for holding that there cannot be any binding contract if some matter is left to be determined by one of the contracting parties.

 

The two qualifications mentioned by Bray CJ (at 398) were that it cannot be left to one party to decide whether there is to be any performance at all (as opposed to determining the mode of performance), and that there must not be left any matter on which agreement still has to be reached between the parties before all the terms of the bargain are settled.  Walsh J then said that the clause in Godecke did not mean that the purchaser was making an agreement to agree later upon additional provisions to govern the bargain.  He was agreeing presently to accept as part of the bargain such additional provisions, if any, as were required, provided they were consistent with the other terms of the contract and were reasonable.

 

The other member of the Court, Gibbs J, founded his conclusion that the provision was effective on the proposition that the parties may leave even essential terms of a contract to be determined by a third party, in that case the vendor's solicitor (at 645).  His Honour added (at 646):

 

                I should perhaps make it clear that it does not necessarily follow from what I have said that an agreement which left further terms to be settled by one of the parties, rather than by his solicitors, would be treated as a concluded contract.

 

This is the passage upon which Drummond J relied in Cross.  Gibbs J did not say that a further term could not be left to be settled by one of the parties.  He merely left the question open - "it does not necessarily follow ...".  On the other hand, Walsh J and Mason J held that there can be a binding contract even though some matter is left to be determined by one of the parties.  In Powell v Jones and Sweet and Maxwell the additional provisions were left to one of the parties.  As to the reality of the distinction suggested by Gibbs J between a party and his solicitor, see Howard, "Terms to be Supplied by a Contracting Party", Australian Law Journal vol 56 (1982), at 77 and Cheshire and Fifoot on the Law of Contract 6th Aust ed (1992), at 104.

 

Had Drummond J been referred to the relevant passages in the judgment of Walsh J (concurred in by Mason J) rather than to the inconclusive remarks of Gibbs J, I do not think his Honour would have held as he did.  Further, as I have pointed out, whatever arguments may properly be advanced against the validity of a clause permitting one of the parties to add a further provision to the contract, that the clause is illusory is not one of them.  See Kabwand at 50,380.  For the foregoing reasons I am, with the greatest respect, unable to agree with Cross.  In my opinion the interest clause in the mortgage is valid and entitles Westpac to charge interest at the Unarranged Loan Rate.

 

Walsh J's requirement in Godecke that the further terms be "reasonable" was a reflection of the clause in question - such other provisions as the vendor's solicitors may "reasonably require".  Reasonableness was also a requirement of the clause considered in Sweet and Maxwell.  It was not a feature of the provision considered in Powell v Jones, and is not a feature of par (g).

 

(b)        The liability of Porters Pty Ltd

Porters Pty Ltd had two overdraft accounts with Westpac.  Growcock calculated the liability of Porters Pty Ltd on account 75-8494 as at 30 June 1995 ($8,291,210.39) by adding interest to the amount outstanding at 30 June 1988 ($762,069.41).  Between 1 July and 27 October 1988, during which period Porters Pty Ltd was not in default, interest was charged at Westpac's Indicator Lending Rate, described by Growcock as a variable lending rate used by Westpac as a base rate for business lending, plus a margin of 1.75%.  This is the rate stipulated in par 6 of the Terms and Conditions accompanying the letter from Westpac to Porter of 2 August 1988 and acknowledged by Drambo and Porters Pty Ltd (Ex 238).  In the period in question the Indicator Lending Rate varied between a low of 15% and a high of 15.75%.  From 28 October 1988 (when Porters Pty Ltd was in default) to 30 June 1995 interest was calculated at the Unarranged Loan Rate.

 

Growcock calculated the liability of Porters Pty Ltd on its other account (75-0505) as at 30 June 1995 ($203,864.95) by adding interest to the amount outstanding at 30 June 1988 ($47,598.05).  Between 1 July and 30 December 1988, during which period Porters Pty Ltd was not in default, interest was charged at the Indicator Lending Rate plus 1.75%.  See par 6 of the Terms and Conditions.  Over the period in question the rate varied between a low of 15% and a high of 16.5%.  From 31 December 1988 (from which time Porters Pty Ltd was in default) to 30 June 1995 interest was charged at the Unarranged Loan Rate.  During this period the rate varied between a low of 17.249% and a high of 24.999%.

 

On both accounts interest was calculated on daily balances and was payable on the full amount from time to time owing.  Interest was debited as at the end of each quarter and on the basis that interest so debited itself carried interest from the date of debiting.  See par (g) of the definition of "Moneys Hereby Secured" in the guarantee referred to in par (c) below.  After the conclusion of argument fresh calculations were performed by Westpac which disclosed the amount owing on account 75-8494 as at 30 June 1996 to be $10,035,126.32, and the amount owing on account 75-0505 as at that date to be $246,744.50.

 

 

(c)        The guarantee

By guarantee dated 25 January 1985 Drambo guaranteed to Westpac all money owing to Westpac by Porters Pty Ltd.  See par (a) of the definition of "Moneys Hereby Secured".  By par (g) Drambo guaranteed the payment of interest at the rate or rates agreed, and in the absence of agreement "at such rate or rates as the Bank from time to time determines".

 

Drambo attacked the use of the Indicator Lending Rate on the same basis that it challenged the Unarranged Loan Rate.  For the reasons I have given, the use of the former rate is justified by par (g) of the definition of "Moneys Hereby Secured" in the guarantee.

 

(d)        Conclusion

Westpac is entitled to judgment on its cross claim for $37,882,975.07 together with interest from 1 July 1996 to the date judgment is entered.

 

18.       ORDERS

Drambo is entitled to recover the withholding tax amount ($577,732.15) together with interest.  Westpac is entitled to recover $37,882,975.07 on its cross-claim together with interest.  The amount of Drambo's entitlement should be set off against the amount of Westpac's, and final judgment entered for Westpac for the balance.

 

                                                                                    I certify that this and the preceding 100 pages are a true copy of the reasons for judgment of the Honourable Justice Sundberg

 

 

 

 

 

                                                                                    .................................................

 

                                                                                                            Associate

                                                                                                            1 August 1996

Counsel for the Applicant and Cross-Respondent:                     C E K Hampson and T W Quinn

 

Solicitors for the Applicant and Cross-Respondent:                   Lynch & Company

 

Counsel for the Respondent and Cross-Claimant:                      R N Chesterman QC and

                                                                                                J C Sheahan

 

Solicitors for the Respondent and Cross-Claimant:                    Feez Ruthning

 

Dates of Hearing:                                                                      11-15, 18-20, 25-29 September, 2-6 October, 20-24, 27 November - 1 December 1995, 2 February 1996, 4 July 1996

 

Place of Hearing:                                                                      Brisbane

 

Date of Judgment:                                                                     1 August 1996