Re Thomas Quade; Mary Quade; Shawn Thomas Quade and Gerard William Quade v the Commonwealth Bank of Australia [1991] FCA 26; (1991) 13 Atpr 41-093; 99 ALR 567 27 FCR (14 February 1991)

FEDERAL COURT OF AUSTRALIA

Re: THOMAS QUADE; MARY QUADE; SHAWN THOMAS QUADE and GERARD WILLIAM QUADE

And: THE COMMONWEALTH BANK OF AUSTRALIA

No. N G734 of 1989

FED No. 24

Appeal and New Trial - Section 52 of Trade Practices Act and Negligence

(1991) 13 ATPR 41-093

[1991] FCA 26; 99 ALR 567

[1991] FCA 26;  27 FCR 569 

COURT

CATCHWORDS

Section 52 of Trade Practices Act and Negligence - claim against a bank arising out of a foreign currency loan - sufficiency of evidence - relationship of bank and customer - whether bank was in the circumstances under a duty to advise customers - conflict of interest between bank and customer - whether bank should have recommended that customer seek independent advice on whether to take foreign currency loan - whether bank should have advised re precautions required for monitoring foreign currency loan after it was entered into.

Trade Practices Act 1974, s.52

Federal Court of Australia Act 1976,  s.27 

Federal Court Rules, Order 52 r.36

HEARING

Counsel for the Appellants: Mr M.L.D. Einfeld QC with

Mr J. Chippindall

Solicitors for the Appellants: Messrs Ferrier and Associates

Counsel for the Respondent: Mr J.R. Sackar QC with

Mr J. Marshall

Solicitor for the Respondent: Mr L.E. Taylor

ORDER

The appeal be allowed; the orders of the learned trial judge made 12 October 1989 be set aside; and a new trial of the action be granted.

The respondent pay the appellants' costs of the trial, of the motion to receive fresh evidence, and of the appeal.

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

DECISION

2. I am satisfied that there was ample evidence before the primary judge justifying the conclusions of fact at which he arrived. No basis has been established upon which this Court would be justified in interfering with those findings. Nor has it been demonstrated that his Honour fell into any error of law in concluding that the claim should be dismissed.

3. The appellants, however, also seek a new trial based on additional documentary material which was not produced by the respondent on discovery but was made available to the appellants after the matter had been heard and determined by the primary judge. I have had the advantage of reading and considering what has been written by Burchett J. on this aspect of the matter. I am persuaded, though not without considerable hesitation, that the additional material is such as to warrant the granting of a new trial. I, therefore, agree in the orders proposed by Burchett J.

This is an appeal at the hearing of which the appellants also moved the court to receive further evidence pursuant to  s.27  of the Federal Court of Australia Act 1976 and Order 52 r.36 of the Rules. It is convenient to commence these reasons by outlining the nature of the case, and then to look at the question of fresh evidence. The appellants, by their action, sought damages for negligent mis-statements, and sought also relief under s. 52 of the Trade Practices Act 1974 and under the Contracts Review Act 1980 (NSW). These claims arose out of a foreign currency borrowing, drawn down on 6 February 1985, of the equivalent in Swiss francs of $600,000. The loan was negotiated during the latter half of 1984; offered by the bank and accepted by the appellants at the end of October 1984; and made the subject of a formal agreement of loan executed on 15 January 1985. Because of the virtual collapse of the Australian currency against the Swiss franc between February 1985 and February 1988, when the loan was brought back on-shore, the appellants now face financial ruin, the amount of their debt, as measured in Australian dollars, having more than doubled.

2. The foreign currency loan was negotiated in order to enable the appellants, who were successful farmers and graziers in the West Wyalong area, to acquire an additional property at a price of $410,000, together with additional farming equipment, while making a contingency provision in respect of increases of interest and other payments which might be incurred by reason of movements in the exchange rate. The contingency provision built into the borrowing was in the sum of $100,000. The appellant Thomas Quade, who is the husband of Mary Quade and the father of the other appellants, was the moving force in the arranging of the loan. He knew his own financial position to be such that a borrowing at the then domestic rate of interest of perhaps 15% per annum would be very difficult to service. He went to his bank manager to seek information about borrowing overseas. He was given to understand that there was some element of risk associated with a borrowing in a foreign currency, and was probably told that such a borrowing was "a punt on the foreign exchange". That was on 23 July 1984.

3. On 14 September 1984, Mr Quade met the new manager of the bank's West Wyalong branch, a Mr Plumb, who said he knew nothing about foreign currency loans. It was at that time that the suggestion was made of a borrowing of an additional $100,000 to cover currency fluctuations, particularly in respect of interest payments. Also, Mr Quade then arranged to go to Sydney to talk to the bank's experts. In the meantime, Mr Plumb gave Mr Quade a copy of a document entitled "Foreign Currency Borrowing", to assist his thinking and provide some basis of information on which he could build in Sydney. The document warned that "there is always the risk that the currency concerned will be stronger against the Australian dollar at the time of repayment than at the time of drawdown. As discussed, in such circumstances you will need more Australian dollars than were initially borrowed to purchase the required foreign currency amount to repay the loan." It also stated that this risk could be eliminated or quantified by hedging, although the mechanism of hedging was not really explained. The document then reiterated: "It is more important that you fully understand the potential risks involved in borrowing in a foreign currency on an unhedged basis." There were other warnings to similar effect. Although Mr Quade may not have fully understood each statement, the trial Judge held "he must have had a general appreciation, if he had read it, that there were risks in borrowing in a foreign currency."

4. On 16 October 1984 Mr Quade, with four of his neighbours, Messrs Connell, M. Staniforth, K. Staniforth and Tull, conferred in Sydney with two officers of the bank, Messrs Herden and Bennett. Mr Quade's account of this conference makes it plain that the bank officers indicated there was a risk of currency fluctuations; but his case was his attention was not drawn to any risk that the Australian dollar could fall in value by a significant amount, nor to the catastrophic effect such a fall could have on interest payments and on the principal of the loan. It was not suggested he should hedge the loan, and it was pointed out that hedging would take away any advantage of borrowing off-shore, by increasing the costs of the loan to the equivalent of domestic interest rates. He said he was led to believe there was no great risk involved. There was a suggestion that the exchange rate might vary by about 5% or 10%, "but", it was said, "it recovers over a period". This evidence was confirmed by Mr M. Staniforth, who recalled they were told the Swiss franc "varies a few cents either way but it moves back". According to him, one of the bank officers said it was a "good proposition". Mr Connell and Mr Tull also confirmed Mr Quade's account.

5. The learned trial judge rejected this evidence in the following terms: "I am confident that neither Herden nor Bennett stated that the (variations in) exchange rates were as limited as the applicants' witnesses claim they said they were." His Honour did not suggest there was anything about the witnesses, or the manner of their giving their evidence, to lead to this conclusion; rather, he based it on his own analysis of documents which appear to have been available at the meeting. Properly understood, those documents did show that "borrowing in Swiss francs was a risky exercise". It seems to me, with respect, that the trial judge's approach to the question whether the bank officers had in fact made the statements alleged was unexceptionable. The documents should have led the bank officers to be cautious, and in the absence of sufficient evidence to the contrary, it was appropriate to decide the question, on the probabilities, on the footing that the bank officers had expressed the natural conclusions to which their documents led, or, at least, had not expressed plainly contradictory conclusions. His Honour said:

"I am satisfied on the whole of the evidence that

neither Herden nor Bennett conveyed to those

attending the meeting on 16 October that currency

fluctuations in the future would be as limited as is

suggested by the applicants' witnesses. The written

material, which was produced at the meeting, showed

quite plainly that currency fluctuations might be

quite considerable. Neither Herden nor Bennett had

any reason to represent that future currency

movements would not be great. The fact that an

example was given of an effective interest rate of

50% per annum, admittedly over a short period, is

quite inconsistent with the bank officers

representing that a borrower could safely assume

that future currency variations would not be great.

I do not accept that the officers led Quade to

believe that there was no great risk in foreign

currency loans."

7. But it now appears that there is evidence to suggest the bank was, at the time, actively promoting foreign currency loans as a matter of policy, so that its officers would in fact have had strong conscious and subconscious motivation to put the best complexion on the exchange situation. Furthermore, the bank seems to have been promoting such loans to customers who were inadequately informed on the subject, so that its own senior management had expressed a number of concerns, including concern about the level of understanding of the complex issues involved shown by loans officers and bank managers. In particular, it is plain that the appellants did not nearly meet the criteria set by the bank itself for borrowers who could safely venture into the foreign exchange market. Only extreme optimism could have thought otherwise. Even assuming the appellants had met those criteria, the bank's own expert assessment was that it would have been necessary for them to have had the loan constantly monitored, so that at any time it could have been promptly "hedged" in order to anticipate or contain any adverse movement of the exchange rate. If this material had been before the court, in the wealth of detail that is now available, it would not have been possible for his Honour to have said that "neither Herden nor Bennett had any reason to represent that future currency movements would not be great". They had the reason that the bank was actively marketing this particular type of loan, and the fact was that some of their colleagues did appear to have succumbed to the temptation involved of promoting loans inappropriately. Had the evidence been considered free of any a priori presumption of the unlikelihood of the bank officers mis-stating the position, Mr Quade's evidence, supported as it was by a number of relatively independent witnesses, might have carried the day.

8. Some brief (not at all exhaustive) examination should be made of the documents now available (which I shall call "the new documents"). They are bank documents produced, after the conclusion of the hearing, in recognition of the fact that they had been wrongly omitted from the bank's affidavit of documents filed and served in purported compliance with an order for discovery. A fairly small proportion of them consists of documents that were also produced after the hearing in David Securities Pty Ltd v. Commonwealth Bank of Australia [1990] FCA 148; (1990) 93 ALR 271, although there no formal discovery had taken place. The documents comprise a somewhat heterogeneous collection, from which the following points may be noted:

. A memorandum for the general manager, stamped with the

date 16 March 1982 and headed "FOREIGN CURRENCY LENDING

TO AUSTRALIAN CUSTOMERS", speaks of the "considerable

difficulty" of the bank in meeting borrowing requirements

from domestic funds, which gave importance to lending not

similarly constrained. It also speaks of the importance

of "match(ing) the competition". It discusses the

desirability of the bank making more use of its own

overseas assets, and of directing "to the small and

medium size business area" foreign exchange loans which

would be very profitable for the bank. It makes fairly

scant mention of the foreign exchange risk, commenting

"it is now possible to use the hedge market to cover the

risk which should mean that all-up costs should broadly

match the cost of AUD finance." The conclusion is

reached: "There should be greater consideration given to

this source of finance (i.e. foreign currency lending) as

a means of satisfying customers' requirements."

COMMENTS", appears to deal with the subject of the last

mentioned memorandum. It describes as "urgent" the

taking of a number of steps "to make several moves now to

try and promote the full range of foreign currency

lending". It recommends that "now (this week)", among

other things, there be "a spirited promotion" of foreign

currency lending as a way of beating lending quota

restrictions. It speaks of the bank's "critical

liquidity position" as making such action urgent.

assistant general manager, headed "FOREIGN CURRENCY

FACILITIES FOR AUSTRALIAN CUSTOMERS", speaks of thought

being given to "how the CTB can make greater use of

foreign currency facilities to satisfy the needs of its

customers". It describes foreign currency lending as "an

underdeveloped segment of the CTB's lending services" and

concludes: "(T)here would seem to be considerable

advantage in present circumstances in giving this type of

business more emphasis."

loans to Australian borrowers, dated 15 April 1982, sets

out an objective as follows:

"In a total foreign currency asset book of some

AUD 1,700m, a reasonable objective for loans to

Australian borrowers (other than large

corporates, project finance and

semi-government) would be AUD 100m. This should be

capable of achievement within a 12 month period."

Specific State by State target figures, aiming at this

total, are then set out.

May 1982, a signatory to which was a Mr Knezevic, who

played some part personally in the present matter, refers

to "the promotional drive" in respect of foreign currency

facilities for Australian customers and suggests an

object "to expose as many people as possible to this type

of lending". It points out that foreign currency loans

provided "a way of meeting domestic loans which may

otherwise be declined because of A$ lending constraints".

It notes that

"it is highly unlikely clients would readily

accept foreign currency loans ... unless they

and the CTB are prepared to allow the facility

to proceed on an unhedged basis. The statement

is regularly made that the cost of hedged

foreign currency loans is approximately equal

to the cost of borrowing funds in Australia.

... However, there would be occasions where a

client would be prepared to accept foreign

currency loans on an unhedged basis ... and

applications of this type should not

necessarily be discouraged."

The memorandum suggests in some cases requiring clients

to take a foreign currency loan, acknowledging that they

might be "reluctant to accept such an arrangement," but

adding "they would have no alternative if that was the

only way the CTB would provide the accommodation."

However, under the heading "HEDGING", the memorandum

states:

"While the CTB does not have a published policy

on hedging when providing foreign currency

facilities to customers, it would be safe to

say that the majority of management consider

hedging to be an essential ingredient to any

foreign currency proposal. There are obviously

moral considerations at issue as well as the

safety of the CTB's security position.

On the moral issue, it is felt that the CTB

would protect its banker/customer relationship

by fully explaining the inherent risks in

borrowing in a foreign currency on an unhedged

basis. If after hearing of the risks involved

a client wishes to borrow on an unhedged basis

then it is not necessarily the CTB's right to

dictate otherwise. ...

This leaves the CTB's security question.

Foreign exchange rates can move sharply at

little notice and therefore regardless of the

level of allowances made for this risk, the

allowance may be insufficient."

A document bearing the same date is headed "SENIOR

MANAGERS (sic) COMMENTS". It refers to "the reasons why

CTB is keen to develop more foreign currency lending".

contains the following:

"The present high level of domestic interest

rates is creating an awareness of the

availability of foreign currency loans, which

is being exploited by merchant banks and

foreign banks. It is important that the CTB

fully exploits this area of business,

particularly at a time when lending in

traditional areas is being contained.

Accordingly I would like you to ensure that

loans officers in your capital office, and

selected branch managers are aware that the CTB

is keen to develop more foreign currency

lending. This thrust will have application,

not only to new proposals, but to existing

business, particularly at time of annual

review."

The letter refers particularly to loans of the size of

that involved in the present case, and adds that special

considerations include "whether the borrower should or

should not take advantage of forward cover/hedging as

protection against volatile movement in overseas exchange

rates". The letter again refers to Mr Knezevic as a

source of head office expert guidance.

OUTLOOK - 1983 TO 1986", prepared by the Investment and

Economic Research Department of the bank, projected some

fall in the value of the United States dollar, an

appreciation of the Jananese yen against the US dollar

and an appreciation of the West German mark against the

US dollar. It concluded:

"On these assumptions, the Australian dollar

will record diverse movements against the major

currencies. Over the period to 1986 it is

expected to appreciate noticeably against a

declining US dollar and pound sterling, but to

fall substantially against the yen and Deutschmark.

Exchange rates are expected to continue to

exhibit a high degree of volatility."

The conclusion of this report provokes the comment that

it is one thing for bank officers to warn a customer of a

risk that exchange rates may move adversely; it is quite

another to say that they are expected to do so. An

expectation of volatility involves an expectation that at

unpredictable times in the future the rates will be

adverse. The loan might fall due for repayment at just

such a time. It was not suggested in the bank's evidence

in this case that Mr Quade was warned in these terms.

Nor was he told, when considering a loan in Swiss francs,

that the Australian dollar was expected to fall

substantially against the neighbouring West German mark.

Indeed, when Mr Quade, on the occasion of the first

roll-over of the loan, "requested that (the bank) arrange

forward exchange cover for the loan", which would in fact

have avoided a great part of the loss, Mr Knezevic

"advised", as the branch manager noted, "that such a move

would be madness", and Mr Quade was persuaded against his

own better judgment to leave the loan off-shore and

unhedged. In the light of the new documents, Mr

Knezevic's emphatic advice is intelligible, and only

intelligible, on the footing he really thought, to use

the expression Mr M. Staniforth attributed to one of his

colleagues, that the exchange rate "moves back" after a

fluctuation.

. An internal memorandum to the head office of the bank

from its International Division, dated 18 April 1984,

deals with the subject of "NEW PRODUCT DEVELOPMENT

MANAGEMENT OF FOREIGN CURRENCY BORROWINGS". It refers to

a stepping up of the activity of the bank's International

Division in respect of advice concerning foreign currency

lending, and notes "considerable scope exists for the

generation of a range of corporate business out of this

initiative". It says "the level of knowledge amongst the

commercial sector generally is poor." It refers to the

International Division's "initial aim ... to generate

additional foreign exchange activity for the CTB."

. A memorandum from the bank's Corporate Banking Division

dated July 1984, on the subject of simulated currency

loans, contains the statement:

"As with the management of an actual foreign

currency borrowing, the exchange risk factor

should be continuously monitored and remedial

action taken when necessary e.g. when there are

strong expectations of the exchange rate moving

against the borrower consideration should be

given by the borrower to closing out (part or

all of) the oversold forward position and at

the appropriate time re-establishing the

original position."

It is also noted:

"The forward/hedge contract should be dealt

with in terms of C/I's although it is

emphasised that the bank needs to be satisfied

(as with an actual foreign currency loan) that

the borrower has the capacity to meet any

likely foreign exchange losses that may be

incurred."

. A memorandum dated 17 July 1984, concerned with "FOREIGN

CURRENCY LOANS TO AUSTRALIAN CUSTOMERS", refers to the

bank's effort to achieve "an increase in the

smaller/higher yielding F/C/L's to Australian customers".

It indicates that from 1982 to mid 1984 foreign currency

loans by the bank grew from about $5m US to about $100m

US - a huge increase. The memorandum states its own

object as to set "some direction for the future for the

smaller category of F/C loans (non-trade)". It refers to

recent market interest in foreign currency loans and to

the bank's need of expertise in the area. It concludes

that "a reasonable CBA attitude to F/C Loans and a plan

for handling this product in the immediate future" would

include the following:

"Foreign currency loans to be available as

a product to service those customers/non-customers

of the necessary credit standing

which have foreign currency receivables or the

capacity to manage the foreign currency exposure.

F/C Loans and simulated loans should not

be aggressively marketed. Rather they should

be used to meet the genuine needs of

customers/non-customers, particularly in the

face of competition from other lenders.

Group Treasury to have responsibility for

providing information/advice to borrowers on a

regular basis to assist borrowers manage exposure."

. A further memorandum dated 7 August 1984 suggests

"(t)he main reason for the lift in awareness of

F/C/Ls by our lending staff in the branches is the

activity of our competitors. The other trading

banks and the merchants are pushing F/C/Ls in the

profitable small to medium end of the market as are

brokers and accountants. Unless we take a more

positive approach we will lose sound opportunities."

There is then a reference to doubts "about the

desirability of lending to the small end of the market",

and to the need "to ensure that the inexperienced are not

assisted or encouraged into a situation they cannot

handle". There is a comment "we were not instructed to

hold back from F/C/Ls but merely to lend judiciously."

The memorandum refers to the urgency of the need "to

familiarise staff with F/C/Ls at the present". It

comments that they "may be marketed to those clients who

it is considered may utilise them and who would have the

capacity to manage their exposures or meet exchange

losses which may occur. F/C/Ls are not a facility for

weaker clients."

. A memorandum on the Chief General Manager's letterhead,

addressed to the managers of all branches, dated 6

September 1984, refers specifically to "FOREIGN CURRENCY

RELATED FACILITIES". It mentions "a growing interest" in

foreign currency lending and aggressive marketing by

competitors. It continues:

"With this increase in interest I consider it

imperative that CBA be in a position where it

can provide facilities to customers on a

competitive and responsible basis. It is vital

that the major aspects of these facilities be

understood by managers and appropriate CBA

lending staff.

In explaining the facilities to customers care

should be taken to ensure there is no

misunderstanding as to the inherent currency

exchange risks if unhedged (uncovered) exposure

is involved. However, notwithstanding the

exchange risks that may be involved, there are

customers of sufficient standing for whom an

unhedged foreign currency related facility can

be justified. Generally these customers would

have demonstrable capacity to meet any losses

resulting from currency exchange rate movement.

It would also be necessary for the customers to

have capacity to manage that risk."

. A memorandum dated 8 October 1984, for the General

Manager International of the bank, refers to a growing

awareness of foreign currency lending, and to a plan to

conduct, as soon as practicable, seminars dealing with

foreign currency lending techniques. Notes endorsed on

it indicate a poor opinion was held of the knowledge of

bank managers concerning foreign currency lending, and

there is also the comment: "A major (fresh) push into

this business demands an improved service to borrowers

particularly at or just before rollovers/maturities. I

understand group treasury has been looking at this but is

anything concrete happening?"

. An address by the bank's senior economist delivered on 21

February 1985, just after the drawdown of the loan

involved in the present case, emphasizes the complexity

of the matters which influence movements in exchange

rates. It also says of the banking industry: "There is a

tremendous surge towards more innovative products. ...

At the same time, international expansion has become

attractive for the Australian banks due to the increased

integration of domestic and offshore markets."

. On  27  February 1985 a memorandum from the Assistant

Manager International of the bank, written some three

weeks after the loan was drawn down, refers to "the

extent of the AUD depreciation which has occurred - ...

6% over 12 months for SFR". It seems remarkable there is

no suggestion, in the present case, that depreciation of

this extent was drawn to the attention of the appellants,

who were borrowing in Swiss francs, at about the end of

that very period of 12 months.

10. The bank's first response to the appellants' motion to adduce the new documents was a submission that, if they had been disclosed, their disclosure would have made no difference to the result of the hearing. It was not disputed that the bank had failed in its duty to make proper discovery, fulfilment of which would have involved the disclosure of these documents. But it was said that the new documents are not different in kind from the documents belatedly disclosed in David Securities (supra), which are included among them. In that case, the joint judgment of Lockhart, Beaumont and Gummow JJ. (at 293) contains the statement:

"Although the trial judge did not have them, we are

not persuaded that these documents, of themselves,

or taken in conjunction with the evidence before his

Honour, establish that the bank should be held

liable for the losses suffered by the appellants."

12. However, before I turn to an examination of the authorities bearing upon that question, which is in itself an interesting and difficult question of law, I should point out that there is yet another reason why the view taken in David Securities is irrelevant to the present case. In David Securities, the claim against the bank failed on the quite fundamental basis that the relevant advice and information were supplied, not by the bank, but by an independent accountant consulted by the disappointed borrowers, who was said to be "well versed in the intricacies of foreign loans" (at 275), and whose duty it was "to hold (their) hands" in relation to the borrowing "and generally to look after the loan" (276). Obviously, a finding of fact that the borrowers were not looking to the bank, for the relevant advice and information, precluded any rational reliance by them on documents having only the effect of the new documents. The primary ground on which the appellants in David Securities failed in their case against the bank in negligence, on the appeal, was stated by the court (at 292) as being the absence of any reliance or dependence on the bank by the appellants or any assumption of responsibility on its part. The bank had recommended they consult an accountant well versed in the intricacies of foreign loans, and they had done so. It was made clear (at 293) that the case under s. 52 of the Trade Practices Act failed on substantially the same basis. The joint judgment (at 292-293) does add that the bank, if it owed a relevant duty, was not in breach. But the question of breach was inevitably tied up with the extent of the duty owed, and thus raised the same considerations, as is made clear by the court's reference to the bank's indication, not only that there were risks and that hedging was available at a price, but also that "independent expert assistance should be sought".

13. David Securities is thus quite unlike the other full court decisions, Westpac Banking Corporation v. Spice (1990) ATPR 41-024 and Westpac Banking Corporation v. Chiarabaglio (Sheppard, Neaves and Burchett JJ., unreported, 24 August 1990), and the decision of Rogers C.J. Comm D, of the Supreme Court of New South Wales, in Mehta v. Commonwealth Bank of Australia (unreported,  27  June 1990), all of which were concerned with the consequences of a bank undertaking to give some advice or information to a customer concerning the suitability and incidents of a foreign currency loan. The evidence in Chiarabaglio raised the very same questions of principle as are raised by the evidence of Mr Quade, the vital difference between the cases being that Mr Chiarabaglio and his witnesses were accepted, whereas Mr Quade and his witnesses, at a trial at which the new documents were unavailable, were not accepted.

14. The general rule concerning the basis on which a new trial may be granted, upon an appellant's claim to have discovered fresh evidence, was stated by Dixon J. in Orr v. Holmes [1948] HCA 16; (1948) 76 CLR 632 at 640:

"If a trial has been regularly conducted and the

party against whom the verdict has passed cannot

complain that evidence has been wrongly received or

rejected or that there has been a misdirection or

that he has not been fully heard or has been taken

by surprise or that the result is not warranted by

the evidence, the successful party is not to be

deprived of the verdict he has obtained except to

fulfil an imperative demand of justice. The

discovery of fresh evidence makes no such demand

upon justice unless it is almost certain that, if

the evidence had been available and had been

adduced, an opposite result would have been reached

and unless no reasonable diligence upon the part of

the defeated party would have enabled him to procure

the evidence."

16. I do not think it can be right to treat the rule, which necessarily sets so stringent a standard for the ordinary cases to which it applies, as applicable to the extraordinary case where a respondent has seriously failed in the performance of its own obligation, and has thereby created the appellant's difficulty. In my opinion, in such a case, the principle on which the general rule is really founded - "interest reipublicae ut sit finis litium" - must be modified by its collision with the equally important principle that a party should not be permitted to mock the orders of the court, which would surely be mocked if the opponent could be deprived permanently of a fair prospect of success by a party's failure to comply with the obligation of an order so important in the conduct of litigation as an order for discovery. That the general rule is subject to exceptions was suggested in Totterdell v. Nelson (Morling, Burchett and Lee JJ., unreported, 6 November 1990), and in the authorities there cited. To revert to the language of Dixon J., in such a situation as this, an appellant is entitled to claim there is an imperative demand of justice to be fulfilled. The case is not different in character from a case of surprise, to which Dixon C.J. expressly referred: there, the need of evidence is concealed by the other party; here, the existence of the evidence was concealed.

17. In the joint judgment of Dixon C.J., Fullagar, Kitto and Taylor JJ. in McCann v. Parsons [1954] HCA 70; (1954) 93 CLR 418 at 430-431, the High Court recognised that there are cases in which broad considerations of justice require the grant of a new trial. Their Honours said, of the jurisdiction to yield to those considerations:

"But however it (the grant of a new trial) began it

came to be regarded as a remedy used by the court in

banc to relieve against a verdict when it would be

unjust to allow it to stand as a determination of

liability. The grounds upon which the court

proceeds in granting the remedy have been settled by

practice, but they have never become completely

stereotyped; they have always possessed some

flexibility and have been governed by the overriding

purpose of reconciling the demands of justice with

the policy in the public interest of bringing suits

to a final end."

19. In my opinion, if the appellants fail in their other grounds of appeal, they are entitled to have the decision against them set aside, and to be granted a new trial, on the ground of fresh evidence, being evidence which ought to have been made available to them, but was not, pursuant to the bank's obligation to make proper discovery of documents. As the trial has been aborted by virtue of the default of the bank, for which the appellants are in no way responsible, I think they should have their costs of the trial and of the appeal. It is important that this court should not shrink from insisting on the seriousness of a party's duty to comply fully with an order for discovery.

20. As to the other twenty-odd grounds of appeal, I can be brief. The appellants' case on these grounds was dressed up in a number of different ways, but, however it was put, it almost always came down to an attack on the trial judge's conclusions of fact. Without the fresh evidence, this attack cannot succeed; for the findings were well open on the evidence presented at the hearing. The full court, which has not heard or seen the witnesses, is in no position, in a case of this kind, to reconsider those findings for itself: cf. Abalos v. Australian Postal Commission [1990] HCA 47; (1990) 65 ALJR 11 at 16; Westpac Banking Corporation v. Spice (supra).

21. A point of law was, indeed, raised by an argument that a foreign currency loan is inherently dangerous, so as to bring into existence a special duty. But this argument is refuted by David Securities (supra, at 291).

22. There was some discussion concerning what was or ought to have been gleaned by the appellants from certain graphs produced by the bank. If the trial judge had accepted the account given by the appellants' witnesses of what the bank officers said, I do not think anything in the graphs could have compelled a different conclusion; for the appellants, if they studied them, might easily have misunderstood material of that kind. When experts spoke, they would, indeed, have been well advised to listen rather than attempt their own interpretation. But the trial judge did not accept their account. The graphs cannot resurrect the claim in the absence of any finding that they were read in a particular sense favourable to the appellants. Nor is there any other basis on which the appellants can be held to have been misled, so long as their version of what they were told and understood remains rejected. In my opinion, the conclusions of fact upon which the case was dismissed are impregnable, except at a new trial at which the fresh evidence is adduced.

23. However, the motion to adduce fresh evidence upon the appeal should be allowed with costs, and the orders I have already foreshadowed should be made.

Introduction

Thomas Quade and members of his immediate family (the appellants) brought proceedings in this Court against the Commonwealth Bank of Australia (the respondent) claiming damages for breach of section 52 of the Trade Practices Act, of the Contracts Review Act 1980 (NSW), and of its common law duty not to give negligent advice. A breach of a special duty not to subject the appellants to the "dangerous product" of a foreign currency loan was also suggested. The claim arose from significant financial losses suffered by the appellants following a Swiss franc loan to them by the respondent made in January 1985. The appellants conceded that if they failed on one of the three bases, they would also fail on the other two. A judge of the Court (Morling J) dismissed the appellants' claims. They now appeal from that judgment.

Facts

2. In recent times, this Court has dealt with several cases involving foreign currency loans. In each of them, the particular facts regarding what was said and done by both the customer and the bank have been crucial in determining the outcome. This case is no exception. The facts here are lengthy and have been set out in detail by Morling J. As his Honour's findings of fact are not specifically challenged on appeal, it is not necessary to set them out in detail again. It will suffice to summarise that the appellants were farmers from the West Wyalong area of New South Wales who were borrowing the equivalent in Swiss francs of $A600,000 for the purpose of purchasing a property adjoining their farm. Part of the loan was to cover interest liabilities, currency fluctuations and other contingencies. The appellants had no prior experience of borrowing sums of this magnitude, especially not in foreign currency. Their commercial and entrepreneurial skills were substantially limited to their pastoral activities.

3. Thomas Quade was the only one of the appellants who communicated with the respondent. On two occasions he spoke to the manager of the respondent's West Wyalong branch, Neville Plumb, seeking information as to overseas borrowing. At one of these meetings Mr Quade spoke on the telephone to someone from head office. At the branch manager's suggestion, Mr Quade went to Sydney in early October 1984 and spoke to two of the bank's foreign currency experts at head office. The branch manager also presented a document entitled "Foreign Currency Borrowing" to Mr Quade for his information. It was apparently custom-made but appears to have been largely taken from a standard letter probably prepared elsewhere in the bank than at the West Wyalong branch. It is not dated but was given to Mr Quade just before his trip to Sydney. Relevant parts of this document (the Advice) include the following:

Many Australian corporates, including a number of

clients of the CTB (mainly exporters with foreign

currency income) actively utilise the foreign

currency market as an alternative to Australian

Dollar borrowings.

They are usually encouraged to do so when -

* there are lending constraints within Australia

and their borrowing demands cannot be met; and

* they can arrange foreign currency loans at

lower all-up costs than Australia dollar loans.

In addition to the normal security considerations,

due recognition needs to be given by you to

potential "foreign currency exchange risk" attached

to offshore loans. Because the loan is denominated

in a foreign currency, all repayments of principal

and interest need to be effected in that currency.

If you have no offshore income in the borrowed

foreign currency you are exposed to fluctuations in

exchange rates between the Australian and foreign

currency (this is commonly known as exchange risk).

Consequently there is always the risk that the

currency concerned will be stronger against the

Australian dollar at the time of repayment than at

the time of drawdown. As discussed, in such

circumstances you will need more Australian dollars

than were initially borrowed to purchase the

required foreign currency amount to repay the loan.

The currency exchange risk can be hedged for capital

transactions, through the facilities of the CTB.

Hedge contracts may be taken out at any time during

the currency of the loan.

By entering into a foreign currency hedge contract

you can determine the amount of Australian dollars

you will eventually required to repay the borrowing.

In this way you eliminate/quantify your foreign

exchange risk and the CTB is in a better position to

assess more accurately the adequacy of the security

offered.

In some instances such as yours borrowers do not

wish to hedge their foreign exchange risk. While

the CTB has no basic objection to providing foreign

currency loans on an unhedged basis, it is most

important that you fully understand the potential

risks involved in borrowing in a foreign currency on

an unhedged basis. In particular you must

understand that you will be required to make a cash

adjustment (parity adjustment) at the end of each

interest period to meet any adverse exchange rate

movements; thereby ensuring that the value of the

loan is brought back to the approved AUD amount.

I advise you to seek advice on taxation

considerations as there are several aspects of

foreign currency loans (eg interest, hedging,

exchange losses/gains) which are assessed

differently for taxation purposes and these could

have a bearing on whether or not the proposal is

viable for the customer concerned.

This withholding tax could make the total interest

cost significantly dearer than an Australian funded

loan. Assuming the following:-

$ Amount

Interest Rate of borrowing 6.00% 30,000

Usage and Facility Fee 1.75% 8,750

Withholding Tax 10% of

Interest Amount 0.60% 3,000

8.35% $41,750

Plus any exchange fluctuations

Please have a good Accountant check my figures

because I am not sure what other tax implications

there may be.

5. Further information was provided by the bank in its letter of offer of a foreign currency loan dated 24 October 1984. Again the letter appears to contain material created for customers other than the appellants, although some of it is obviously personal to them. The principal part of this letter (the Offer) was as follows:

Dear Mr Quade

APPLICATION FOR FOREIGN CURRENCY LOAN WITH BILLS

DISCOUNT OPTION

The Commonwealth Bank of Australia is pleased to

offer you a foreign currency loan with a bills

discount option for AUD600,000 to assist with the

purchase of a 604ha farm property "Euronga".

Approval of this accommodation is on the Bank's

usual terms and conditions applicable to this type

of facility and will afford you the option of

raising funds locally by way of a bills discount

facility or in a foreign currency by way of a

foreign currency loan.

The principal terms and conditions of the facilities

are:

....

FOREIGN CURRENCY LOAN

The loan may be raised in any freely convertible and

readily available major foreign currency (eg United

States dollar, Japanese Yen, Swiss Francs, Sterling

and Deutschmarks). Provision will exist for the

loan currency to be switched at the end of each

interest period.

....

EXCHANGE RISK

On the understanding that the exchange risks

associated with borrowings in foreign currencies are

fully recognised and that any adverse exchange rate

movements are for the borrower's account, the Bank

is prepared to allow the loan to proceed on an

unhedged basis.

However, in these circumstances, it is the Bank's

normal practice to require the borrower to regularly

meet any sizeable increases in the Australian dollar

value of the loan resulting from exchange rate

movements in order to maintain a satisfactory

security/debt ratio. In this regard, the Bank will

require you to meet any increase in excess of 5% in

the Australian dollar value of the loan. These

adjustments will take place at the end of each

interest period or at the expiry of twelve months

from drawdown at the Bank's option should the

interest period arranged for you exceed twelve

months.

As you are aware exchange risks may be eliminated at

any time during the life of the loan by entering

into a hedge contract and the Bank would be happy to

provide information in this regard on request.

WITHHOLDING TAX

Withholding tax must be met by you unless a Section

128H Exemption Certificate is produced to the Bank

before the first interest payment is made.

Such a certificate must be obtained after each

drawdown/renewal and it is your responsibility to

produce this certificate to the Bank in order to be

exempted from 10% withholding tax on the interest payment.

However, we make the observation that in the light

of recent tax law changes, it is now unlikely that

an exemption will be available to you. We suggest

you contact your Accountant, once drawdown has been

effected, in order that he may put the application

in train.

We again point out the potential risk involved in

borrowing in a foreign currency without covering

your foreign currency exchange exposure and would

like to remind you that any adverse exchange rate

movements are for your account. As you are aware,

your foreign currency exchange exposure may be

eliminated at any time during the life of the loan

and in this regard we suggest you make regular

enquiries about foreign currency movements and the

price for hedging the loan amount outstanding.

Similarly, we stress the importance of your

thoroughly investigating with your accountant (tax

consultant) the ramifications of foreign currency

borrowings particularly the tax treatment of any

exchange rate profits/losses.

8. Justice Morling accepted that the respondent assumed the responsibility of giving advice to the appellants in relation to foreign currency loans, and agreed with a submission of the appellants that it "extended to fully and properly explaining the risks involved" (p 35 of the judgment). However, his Honour held that the appellants had a "real and sufficient appreciation of the risk he was undertaking in borrowing in Swiss francs" (p 33), and concluded that the respondent "sufficiently advised the applicants of the nature of the proposed transaction and the risks involved" (p 35). The print of the judgment below appears to have a typographical error of some relevant dates relating to the loan.

Appellants' Case

9. In the first place, the appellants sought a reversal of the trial result by challenging various of the trial Judge's conclusions of fact. Standing alone on the evidence at trial, this request must fail. It is not to the point that an appellate court might have taken a different view to the trial Judge on some of the evidence as it appears in the transcript.

10. In my view an appellate court ought not to substitute alternative conclusions or findings of fact made at first instance when, as here, it has not seen or heard the witnesses, and the conclusions of the trial Judge were open on the evidence and were based on assessments of credibility requiring at least the weighing of oral and written evidence on important factual issues: Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531; S.S. Hontestroom v S.S. Sagaporack (1927) AC 37 at 47 (Lord Sumner) approved in Abalos v Australian Postal Commission High Court 15 November 1990 (McHugh J at page 14) as yet generally unreported except for [2000] HCA 57; (1990) 21 Leg Rep 6 at 9.

11. However, the result at trial was placed under more significant pressure by the production by the respondent, on the appeal before this Court, of a large number of documents which by oversight or negligence were not discovered by the respondent at the time of the trial despite an order for discovery. They were referred to as the `G' documents and largely consist of internal memoranda of the respondent. The appellants moved the Court on notice in this appeal to introduce these documents as further evidence under  section 27  of the Federal Court of Australia Act.

12. The appellants submitted that the `G' documents portray the respondent as vigorously promoting foreign currency loans at the time it was advising the appellants, to the extent and with the result that they establish deception within the meaning of section 52 of the Trade Practices Act, and a failure to take adequate care in its advice to the appellants as its customers. The appellants said that the documents emphasise only the selling of the concept, not the erection of any safeguards. The respondent conceded, as is clearly the case, that the `G' documents certainly evidence an enthusiasm at the relevant time to expand the bank's commercial opportunities by promotion of this type of loan.

13. The appellants further argued that the `G' documents indicate the respondent's knowledge, at the time it was advising the appellants about and offering them the loan, that foreign currency loans required 'hedging', i.e. insurance against undue falls in the value of the local as against the borrowed currency, and constant monitoring by an expert. Furthermore, these documents were said to show that the respondent knew the dangers of foreign currency borrowing by people such as the appellants and that it should have made itself much more aware of the appellants' financial circumstances and have told the appellants considerably more than it did.

14. As Morling J. was denied the opportunity of doing so, we have been asked to assess the Advice and the Offer, and the rest of the evidence at trial, in the light of these documents. On the basis of these and other suggested features of the 'G' documents, the appellants submitted that Justice Morling would have come to the opposite conclusion.

15. The 'G' documents were not subjected to any testing before us, and of course none of the existing witnesses and none of the documents' authors or readers have been subjected to examination or cross-examination on them. The documents have not been weighed against the evidence presented at trial. Although the respondent did not use the opportunity given by Order 52 rule 36(7) of the Court's rules to address the conclusions to which the documents ex facie appear to lead and did not suggest before us that any evidence was available to refute these conclusions, it did suggest that in their context, alternative interpretations were appropriate.

16. Thus the appellants did not submit that this Court should order a verdict in their favour, but said that on the basis of the 'G' documents, a new trial should be ordered. They suggested that the relevant test to be employed in determining whether the introduction of new evidence warrants the granting of a new trial is whether the new evidence is likely to have produced a different result. The appellants described the respondent's suggested test of a "high degree of probability" of a different result as inappropriate in this case because the absence of the documents at the time of the trial was due to the fault of the respondent. They said that any test employed should be flexible enough to permit the overriding criterion of doing justice. Neither party seemed to suggest that the former onerous test of a virtual certainty of a different result was applicable here: see for example Orr v Holmes [1948] HCA 16; (1948) 76 CLR 632 at 640-2; Wollongong Corporation v Cowan [1955] HCA 16; (1955) 93 CLR 435 at 444.

The 'G' documents

17. The 'G' documents appear to establish that from the early 1980s, the respondent decided to seek foreign currency loans to retain its competitive position in Australian banking and because of the extra profits they generated in comparison with onshore lending. There was considerable concern about the bank's lack of liquidity at the time and this area of business was thought likely to contribute urgently to alleviating that problem. The respondent determined on a major marketing of this aspect of its services.

18. The purpose of an unsigned memorandum of 16 March 1982 to the general manager of the respondent was "to suggest action that will promote greater use of the facility" of offshore lending. One of the reasons was stated to be: "... we need to have as wide a range of the facilities as possible to match the competition". In a further undated memorandum of the same year the respondent prepares for a "promotional drive" to "expose as many people as possible to this type of lending" (my underlining).

19. While the documents discuss the issue of 'hedging' such loans, they point out that fully hedged foreign currency loans cost about the same as onshore loans. The obvious conclusion that this may well serve to dissuade several borrowers from such loans and therefore deprive the bank of the profits it hoped to make from them, did not lead the bank actually to advise against hedging. At the same time, the risks in not hedging, especially in the case of commercially unsophisticated borrowers, did not deflect the bank from its aggressive marketing intentions for this type of loan with such persons amongst others.

20. It seems to me that this type of situation may well give rise, in an appropriate case, to an analysis of whether the true legal relationship between at least many banks and many customers involves some element of trust. I shall return to this briefly later but to me the inescapable inference of the 'G' documents is that the loans were to be marketed primarily for the bank's benefit, not the client's advantage, at least wherever these two interests were or may be in competition.

21. It is true that the documents do emphasise the need for detailed information and explanations to be given to the clients concerning the risks of unhedged loans due to unpredictable and unexpected exchange rate fluctuations. In fact they expressly and impliedly encouraged bank officers and employees to give advice to clients about various aspects of such loans. No doubt the Advice in this case and the discussions held by bank officers with these appellants arose from such encouragement. However, the strong if not overwhelming flavour of the documents was in firmly advantaging the bank through charging fees, and in fully protecting it by ensuring that adequate security, at whatever risk to the clients, was in place. The obvious clash of interests between the bank and its clients was strongly skewed towards the bank. There was no suggestion in any of the documents that this major conflict should itself be declared and explained to clients as a most important reason for the bank to decline to give any advice at all and to recommend and encourage them to seek and obtain competent independent advice.

22. Many of the relevant documents to these effects are set out in some detail in the reasons for judgment of Justice Bruchett which I have found most helpful in finalising my own conclusions. While with his customary completeness and assiduity, his Honour points out that even his selection is not exhaustive of the documents that are influential here, he has to my mind chosen a very fair and representative selection of the material for present purposes. There is therefore no point in my repeating them here.

23. The 'G' documents show, as is well known, that in December 1983, the Australian Government released the Australian dollar from exchange rate controls and allowed it to "float" on international money markets. The documents reveal that in the ensuing 12 months, the value of the Australian dollar remained relatively steady against most foreign currencies. However, in early 1985, the dollar's value dropped sharply against all major overseas currencies. It subsequently continued, if a little more sporadically, to fall even further. The documents show that one view in the bank near the end of 1985 was that while the Australian dollar would be devalued further against the Swiss franc in the near future, some degree of recovery could be expected in the medium to longer term. Although this written view post-dates the appellants' loan, it accords with and may well corroborate evidence given at the trial by or on behalf of the appellants that the respondent's officers had often expressed confidence in 1984 that any losses due to currency movements from time to time would soon be made up.

24. The documents also seem clearly to demonstrate a realisation that not only did many of its customers not appreciate the risks involved in unhedging loans, but the bank's own officers were ill equipped to advise potential borrowers about these risks. The content and context of the documents again permit some which came into existence after the appellant's loan to have relevance here, inter alia because they are speaking cumulatively of the experience of several years of marketing the loans.

25. For example, on 7 November 1985 the respondent's Chief General Manager wrote to the managers of all branches:

It is of concern that customers may be entering

these arrangements without a full appreciation of

the risks involved.

... the lack of experience in foreign exchange

markets of the vast majority of our staff involved

in dealing with applications from customers and the

level of reliance placed on the bank's advice by a

large number of F/C/L applicants.

... it is now apparent that many of our staff do not

have an adequate understanding of the risks involved

and were not well placed to advise potential F/C/L

borrowers.

29. Although new procedures were eventually introduced, long after the appellants' loan was in place, to assist bank staff to advise clients adequately and to help borrowers to manage the loans they undertook, it should be noted that an internal memorandum of 8 October 1984, about the time Mr Quade was given the Advice, had stated:

It is ... planned to conduct as soon as practical

(subject to resources) short term seminars on

foreign currency related lending techniques.

31. The evidence before Morling J. concerning the complexities of dealing in foreign currency, supplemented by the 'G' documents on their face, shows that the risks to which the bank was subjecting its customers for these loans required considerably more education and training than could have been embraced in "short term seminars". Moreover, perhaps due to "resources" being scarce or applied to other activities, there is little evidence that even these procedures had been implemented and, if implemented, that they had had the intended results, at least sufficiently so in the case of the officers of the respondent who dealt with Mr Quade.

32. In summary, then, the 'G' documents appear to me to give a radically different underpinning and content to the evidence at the trial concerning the state of knowledge of this area of borrowing bot at West Wylong and in Sydney, and the respondent's responsibilities under section 52 and under the general law. If nothing else, the absence of the `G' documents at the trial appears to have robbed the appellants of the opportunity to cross-examine bank officers about all these matters and more, backed as the cross examiner would have been by materials which essentially represented admissions of matters which at the actual trial had had to be largely the subject of speculation, implication and inference. They also deprived the appellants of what would have been a powerful criticism of the bank's reluctance to admit its failures in this regard and to call evidence on these subjects at the trial. It is difficult to overstate the forensic and evidentiary effects of this change of atmosphere, even at a trial before a judge alone.

The case of David Securities

33. A Full Court of this Court (Lockhart, Beaumont, Gummow JJ) in David Securities Pty Ltd and Ors v Commonwealth Bank of Australia [1990] FCA 148; (1990) 93 ALR 271 dealt with a similar issue. It too was a case regarding claims made in relation to foreign currency loan transactions, where the same respondent also failed to produce the 'G' documents at the time of the trial. The bundle of 'G' documents in this case is significantly larger than in David Securities but a few of the documents are the same.

34. The Full Court in that case held that the presence of the 'G' documents on appeal did not warrant the overturning of the first instance decision or the granting of a new trial. Their Honours stated (at 293):

Although the trial judge did not have them, we are

not persuaded that these documents, of themselves,

or taken in conjunction with the evidence before his

Honour, establish that the bank should be held

liable for the losses suffered by the appellants.

36. In the present case by comparison, Morling J agreed with the appellants' submission that this is a case in which the bank assumed the responsibility of explaining foreign currency borrowing (p 35 of the judgment). The appellants suggested that the Full Court in David Securities discounted the effect of the 'G' documents not because their content had no bearing on the advice the respondent should have provided, but because the respondent in that case did not have a duty to advise.

37. The appellants also sought to distinguish David Securities on the basis that the decision turned in part on the rejection of a submission that the obligation in tort to advise of and protect from 'dangerous products' extended to the provision of financial services and that a general caution of risks is not sufficient to discharge the duty of care. The appellants submitted that the Full Court was wrong in so deciding, but in my opinion, because of the views expressed by that Court, this Court should not entertain this issue. In any event it is not necessary to do so because a sufficient duty for the present case is established by virtue of Morling J's finding that the respondent assumed responsibility to advise and knew of the appellants' reliance on whatever it said.

38. Furthermore, unlike in David Securities, these appellants were, to the bank's knowledge as their bankers for many years, financially unsophisticated. The appellants submitted that this fact is particularly relevant to the question of what level of advice was required of the respondent. They argue that the obligation of the respondent in this case was to give accurate and complete advice, whereas in the light of the 'G' documents and to the contrary of Morling J's finding, it in fact gave incomplete and misleading advice.

39. The thrust of the appellants' submission was that on the basis of these factual differences, the duty of care in this case should be more onerously stated than in David Securities, where it was said (at 293):

The most that the bank could reasonably be expected

to do was to indicate to the appellants, in a

general way, that there were risks, that hedging was

available at a price and that independent expert

assistance should be sought.

41. It is also useful to compare the views expressed in David Securities with that of another Full Court in relation to similar documentation of another bank expressed by Sheppard J in Westpac Banking Corporation v Spice 1990 ATPR 41-024 at p 51,394:

A reading of these various letters and memoranda and

of some others written within the same period

discloses a tension between the desire of the Bank

to take advantage of what it saw as profitable

business and its concern that borrowers might find

themselves in financial difficulty, particularly if

their foreign exchange loans were not adequately

monitored and managed. There are also to be found

in some of the documents indications that the bank

thought that the form of its warnings of risk to

potential borrowers in foreign currencies should be

made clearer and more emphatic than had been the

case especially as many of the borrowers were quite

unsophisticated.

43. The appellants suggested the following incomplete and misleading advice:

. the respondent told the appellants that they could reduce

the risks inherent in foreign currency loans by 'hedging'

but it did not tell them how they could do this nor that,

if it was to be done effectively, it would require

constant monitoring of exchange rates by an expert in

foreign currency

. the respondent advised the appellants to see an

accountant about the taxation implications of a foreign

currency loan, implying that no independent advice

regarding any other aspect of the proposed loan was

necessary. In fact the respondent's advice should have

been that the appellants seek and obtain comprehensive

advice from an expert on all aspects of such a

transaction, and consult this expert frequently during

the course of the loan

. the respondent told the appellants that it would indicate

which of four types of loans was suitable to their

financial situation, but instead of doing so, offered a

foreign currency loan. This implied that such a loan was

suitable and appropriate to the appellants' needs

. the respondent failed to tell the appellants that a

foreign currency loan was potentially ruinous and

effectively impossible for people like them to undertake

because of their inability to monitor the loan regularly

. a document headed "Example of Exchange Rate Fluctuations"

which reviewed the dollar's movements over several past

six monthly periods, was misleading, despite Justice

Morling's conclusion that it correctly pointed to the

nature of the risk in foreign currency loans. The

appellants submitted that his Honour failed to look at

the document as a whole and that properly construed, the

document suggests that over the long term any risk was minimal.

45. The respondent said that Morling J's conclusion that the appellants were aware of the risks represented a correct basis for his Honour's conclusion that there was no breach of section 52 or of the common law duty of care, because it is implicit in his Honour's reasoning that the respondent informed the appellants of the nature and extent of the risk. The respondent made the following submissions in regard to the alleged illustrations of misleading conduct:

. The respondent did not merely make an offer of a foreign

currency loan. Instead it told the appellants that they

could borrow on four different bases and it was up to

them to decide which one they wanted to use.

. At the trial the appellants said that they had not relied

on the document headed "Example of Exchange Rate

Fluctuations". They can therefore not now submit that

the document is misleading and that they did rely on it.

In addition, Justice Morling did not misconstrue the

document as the appellants allege, but correctly found

that the document is not misleading. The fact that it

only dealt with six month periods is not misleading. In

fact the appellants' own expert stated that six months is

probably the most relevant period.

. The advice or comment that the appellants should see

their accountant regarding tax implications is not

misleading. To tell them to enquire about tax does not

mean that the consultation with the accountant only had

to be about tax. In fact the respondent used the word

"particularly" and not the word "only".

. The appellants did not, in fact, see their accountant

about the tax implications. In these circumstances it

should be concluded that they would not have seen him/her

about the general question of whether to take the foreign

currency loan even if advice to do so had been given.

Therefore, there is no causative link between any failure

to advise the appellants to seek general advice and the

loss suffered by virtue of their entry into the foreign

currency loan.

49. Further, there was no evidence, and it is not particularly likely, that the appellants' tax accountant, who may well have been an expert in handling their tax affairs and those of other people involved in primary industry, and presumably had sufficient knowledge to deal with the possible implications of foreign currency loans on withholding tax and profits/losses treatment to which the bank drew such specific attention, would have been able to advise them on the general wisdom of undertaking a foreign currency loan, of the risks if they did, and of the precautions they should take as a consequence. Because of the limited evidence at the trial, Morling J was not asked to find whether the appellants would have sought independent advice on a foreign currency loan if it had been made clear to them that they should do so, and that they should not proceed with such a loan without doing so, because the bank lacked the expertise necessary to advise them and the bank's interests were in serious conflict with theirs. It is not difficult to speculate on the conclusions his Honour would have reached if he had needed to do so, but speculation it would nonetheless appear to be for this Court.

. In any event, the respondent told the appellants to see

their accountant about the loan generally. The basis of

this submission is that Morling J. concluded that the

appellants did not seek advice as to the wisdom of

entering into a foreign currency loan. This, the

respondent submitted, implies a prior finding by his

Honour that the appellants had been told by them to seek

such advice.

51. The respondent further submitted that if the appellants were given the relevant information, the duty of the respondent was discharged. The respondent also relies on the finding that there were many opportunities for the appellants to inform themselves. For example, in the Offer the respondent had stated:

Please do not hesitate to contact us should you

require further clarification of any of the matters

raised above.

53. I am unable to accept these arguments or approaches. There is no dispute that the bank took it upon itself to speak to the appellants about this loan. It is obviously not adequate to give an explanation of the elements of a loan in bland terms, and to be vague, imprecise or technical about the risks and potential disasters for the clients if the loan is accepted. This applies no less in a case where the language is so complex or inexact that the person being spoken to could not possibly understand it without assistance, than in the extreme case of the information actually being given in a foreign tongue.

The respondent on the 'G' documents

54. The respondent submitted that because some of the 'G' documents now relied on are the same as in David Securities, the view formed of them there should be followed here. The respondent said that, in fact, the 'G' documents add nothing new to the appellants' case. It is agreed that the documents indicate the bank's awareness of the complexity of foreign currency transactions and that they disclose a policy of active promotion of such loans, but the respondent said that both complexity and promotion were argued at the trial. There was even expert evidence before Morling J to establish complexity. In other words, to the respondent the 'G' documents do nothing but repeat, even if they perhaps underline and emphasise, what was litigated without them.

55. Again I do not agree. In my view, it is not important that an expert knew that the loans were complex; what mattered (and what the 'G' documents appear to show) is that the bank not only knew their complexity at the time it undertook the task of advising the appellants but, at least partly due to the lack of training and experience of its staff, in a very real sense failed to convey the nature and extent of the complexity to them and failed to appreciate or acknowledge their basic inability to comprehend it, at any rate without expensive outside aid. The documents also indicate that the bank knew that its officers were in truth not competent to provide the advice or quality of advice they purported to proffer. Their offer to these appellants of an unhedged loan may even have been reckless; it at least manifested a general lack of care in the advice given.

56. It is of course true that the trial included assertions that the bank's promotion of this loan was incomplete, and that the bank was therefore negligent and deceptive. But the 'G' documents appear to provide specifics where only generalities were previously possible. The respondent submitted that even if it was found that it had a policy of promoting foreign currency loans, this would not have altered the decision of Morling J. It submitted that such a finding is only relevant to the question of the credit of the respondent's West Wyalong branch manager, Mr Plumb, with whom the appellants dealt. The respondent submitted that the 'G' documents are not relevant to Mr Plumb's credibility because they were not his documents and he did not know about the policy. However, in my opinion, this is no answer to the cogency of the criticism of the bank's clearly established policy as evidenced in the documents. The bank is the respondent. The state of knowledge of its policy by individual officers is not relevant on the question of its failure to provide adequate and comprehensive advice, and of its misleading and deceptive conduct in this regard.

57. The respondent put other reasons for the irrelevance of the new evidence. The 'G' documents could indicate the forseeability of loss. The respondent said that this goes only to the question whether there was a duty of care, and since Morling J. found that a duty existed, the 'G' documents are not relevant in this respect. In my opinion, for the reasons previously given, this argument is not valid.

58. Second, the 'G' documents may indicate the nature and extent of the risk. This information would go to the question of the nature of the respondent's duty of care. As Morling J found the duty to be not to make a negligent mistake and to explain fully, the respondent said that the 'G' documents would not have led to a different result. The respondent pointed to two sources of information at the trial regarding the nature and the extent of the risk - viz. other bank documents and the expert evidence. I have already referred to the irrelevance of the expert evidence to this aspect of the case. The general bank documents at trial post-dated the appellants' loan whereas, as Burchett J has pointed out in his judgment here, many of the important documents here pre-dated the loan, and the attitudes and policy they reflect were apparently influential at the time of its negotiation and execution. Thus the material and evidence at trial were understandably entitled to significantly less and perhaps no weight on the relevant issues. The trial Judge clearly so treated them. I doubt that he would have given as scant treatment to some of the 'G' documents.

59. The respondent also made some specific submissions as to the meaning of the 'G' documents:

. They do not say that a borrower "should not hedge".

Instead, they say that hedging should be an available

option to someone who has a foreign currency loan.

. They do not say that the bank vigorously promoted them

with people the bank recognised as being unsuited. The

appellants were not encouraged to take the loan.

. The appellants' submission that the 'G' documents show

that the bank should have told the appellants to have the

loan managed by an expert is contrary to the appellants'

approach at the trial and can thus not be pursued on this

appeal.

61. Although the result of such an undertaking seems to me clear, and so long after these catastrophic events for the appellants, this Court should be hesitant in providing a prescritpion for further delay, we are apparently bound not to speculate what the fate of this argument would have been. In my view, it certainly provides a cogent reason for a new trial at which the documents would all be available for testing and consideration alongside the rest of the evidence. The only question with which I have found some difficulty was whether the necessary certainty was supplied, and the power existed, to reverse the trial result. As the appellants did not argue that we should do so, the matter does not have to be determined in this case.

The Issues

62. As I see it, the various issues raised in the appeal pose certain specific questions for resolution.

1. Attack on the conclusions of the trial Judge

63. We were not asked to hold that the trial Judge erred in his factual findings themselves. In my view we should not upset the conclusions he drew from them in a case which significantly depended on assessing witnesses and counterbalancing their evidence with the documents then available. I agree with Burchett J. that the graphs produced in evidence at the trial cannot lead to a reversal of the verdict but may very well be assessed differently when considered alongside the 'G' documents.

2. Dangerous product principle

64. Having regard to the views of the Full Court in David Securities at 291, this interesting argument is not available for review here but will have to await another day and place.

3. Negligence

65. What is in issue is the nature of the duty. Neither party clearly stated how it should here be defined. Relevant factors are that the respondent assumed the responsibility of advising, knowing that the appellants would rely on that advice and that the appellants were financially unsophisticated. In my view there are three potential aspects of the duty to advise in this case:

(a) to identify the nature of the risk

(b) to explain the extent of the risk. This in turn has two

elements: (i) the likelihood of an adverse currency

fluctuation either permanently or at the time of

rollover; (ii) the gravity of the consequences of such

fluctuation depending on its size

(c) to identify quite specifically what needed to be done to

monitor and manage the loan so that the appellants could

be in a position to make the best decision on whether to

take the loan at all and on how to minimise the risk, on

a continuing basis, once a loan was taken out

67. In Lam v Austintel Investments Australia Pty Ltd 1990 ATPR 40-990, Gleeson CJ of the NSW Supreme Court said (at p 50,880) in a somewhat different but logically related context:

Where parties are dealing at arm's length in a

commercial situation in which they have conflicting

interests it will often be the case that one party

will be aware of information which, if known to the

other, would or might cause that other party to take

a different negotiating stance. This does not in

itself impose any obligation on the first party to

bring the information to the attention of the other

party, and failure to do so would not, without more,

ordinarily be regarded as dishonesty or even sharp

practice. It would normally only be if there were

an obligation of full disclosure that a different

result would follow. That could occur, for example,

by reason of some feature of the relationship

between the parties, or because previous

communications between them gave rise to a duty to

add to or to correct earlier information.

69. There has even been discussion of something akin to fiduciary duties being imposed on a bank in some situations: Catt v Marac Australia Ltd (1986) 9 NSWLR 639. Cf James v Australia and New Zealand Banking Group Ltd [1986] FCA 41; (1986) 64 ALR 347 at 391 per Toohey J. Many relationships between bank customers and bank managers are not truly or solely arm's length transactions between independent financial and commercial entities or enterprises. Many bankers, especially in rural areas, are or become family advisers and "father confessors" to their clients. Bank managers or senior staff of this kind share personal friendships and joint social, philanthropic, communal, church or sporting pursuits with their clients, during and by reason of which the client becomes even more susceptible to trust and rely upon the bank and its advice.

70. Despite Mr Quade's single visit to head office in Sydney in October 1984, the West Wyalong branch manager was the face of the bank to these appellants. He was the person they trusted and looked to for direction and guidance. People with the background, experiences and skills of the appellants undoubtedly recognised the gap in knowledge and understanding of the relevant subject matter between themselves and the bank. The fact that the bank considered that an unhedged foreign currency loan was even feasible for them would undoubtedly carry considerable weight. They would naturally put their trust in its opinion on such a matter and the bank would undoubtedly be aware of its influence on, and the vulnerabilities of, its clients in this area. Their rural remoteness added to this reliance.

71. Although minds can differ as to precisely how far the evidence here goes in that direction, and the precise legal definition of such a relationship may need further thought, in my opinion it was plainly insufficient for the bank to have invited these appellants not to 'hesitate to ask questions' or to have told them that they could hedge the loan whenever they wanted to. A bank which has undertaken the task of advising an intending borrower on such matters is under a duty to provide a prior full, honest and clear explanation of the nature and effect of the transaction being negotiated: Cornish v Midland Bank (1985) 3 ALL ER 513 at 520 and 521; Perry v Midland Bank (1987) FLR 237. The standard of care increases with the seriousness of the risk if the duty is breached: Northwest Utilities Ltd v London Guarantee and Accident Co Ltd (1936) AC 108 at 186; Swinton v The China Mutual Steam Navigation Co Ltd [1951] HCA 54; (1951) 83 CLR 553 at 556 and 567. In a completely different context, Kirby P dissenting in Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 said, with evident correctness:

The bigger the devastation of the possible risk, the

greater is the obligation to lay it before the

patient so that he or she can make an informed decision.

73. In a lecture entitled "Developments in Foreign Currency Loan Litigation" delivered to the Banking Law and Practice Conference in Melbourne on 24 May 1990, the respected Chief Judge of the Commercial Division of the Supreme Court of New South Wales, Justice Andrew Rogers, drew a distinction between the responsibilities of banks in transactions permeated by a risk element where there is a fully informed client, and the conclusions which pertain when "those who should be making the risk known to the customer and therefore obtaining the customer's consent are insufficiently equipped to do so".

74. His Honour summarised the factual setting that had arisen in many cases as follows:

1. The bank knew that such a borrowing was

pregnant with the danger of large capital loss

unless precautions were taken.

2. The bank knew that its staff was ill-equipped

to explain the risk to the borrower.

3. The bank knew that its staff was ill-equipped

to explain the nature of the available

precautions to be taken.

4. The bank was unwilling to accept the task of

management even at a fee, and thereby undertake

the task of implementing appropriate safety

precautions as and when required.

5. The customer was unaware of the extent of the

possible risk and of the available precautions

which could be taken and the techniques for

implementing such precautions.

6. The bank was aware of this lack of knowledge on

the part of the customer.

7. The customer relied on the fact that the bank

gave no warning of any of the foregoing

matters. By reason of the omission to warn of

the extent of the risk the customer relied on

the belief that any risk was limited or slight.

First, the risk of depreciation of the Australian

dollar against the foreign currency in which the

liability of the borrower had to be repaid.

Second, the inability and, therefore, unwillingness

of the banks to manage customers' exposures to

foreign currency fluctuations. That meant that

customers were left to their own devices in meeting

the admitted risk.

Third, the bank's front-line staff up to and

including branch managers were substantially

innocent of any real knowledge of the difficulties

attaching to foreign currency borrowings. Whilst

charged by higher management with the task of

promoting such loans they were not equipped to

explain to borrowers either the risks attaching to

such loans, or the measures that were available and

required to contain the risk. Experience has shown

that even when bank managers called in "experts"

from regional offices the difficulties continued.

Higher management was advised that true expertise

was restricted to staff of the bank's International Branches.

. for the appellants to be advised in plain language

of the magnitude of the risks and consequences they faced

. for the appellants to be informed what was needed to

protect them from the risks and to remove or

minimise the possible damage they might suffer,

including a detailed explanation of how total or

selective hedging works and how it may have such

effects on the cost of the money being borrowed as

to undermine the financial feasibility of the loan

in the first place

. for the bank to acquaint itself with all the

personal and financial circumstances of the

appellants relevant to their capacity to withstand

or meet currency losses

. for the bank to reveal its own commercial interest

in the loan and its lack of real knowledge and

experience in this area

. for the bank to make clear what type of professional

expertise was needed, at what times and intervals

and on what subjects, and where it could be obtained

. for the bank to advise the appellants that they were

not really geared or suitable for a foreign currency

loan, and should not contemplate it if they did not

have access to and were unwilling to take and

continue with the required outside advice

. for the bank to satisfy itself that this advice was

clearly understood before the loan was undertaken

78. As often occurs, there is considerable overlap between the question of breach of section 52 and the question of negligence. Although, as I said earlier, it was conceded that if the appellants fail on one, they will fail on the other, it is useful to examine them separately. Was it misleading or deceptive not to have undertaken the three objectives listed under the previous heading of negligence?

79. Of course intent and knowledge are unnecessary: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191 per Gibbs C.J. at 197. But with the 'G' documents accepted into evidence as they appear, this question must be assessed in the context of the bank's policy to promote these loans, their purpose for the bank of urgently improving its liquidity, its own lack of the requisite knowledge and expertise, and the fact that it stood to make considerable profits from their successful marketing. If the 'G' documents are not successfully attacked or weakened, the bank's conduct will also fall to be evaluated in the context of its patent and stark conflict of interest with the appellants which was not even revealed let alone explained, and of the chasm in knowledge between the bank and the appellants.

80. The appellants did not even prepare their own loan application form, which was done by a bank officer. This and other facts found by Morling J. establish the bank's knowledge that the appellants were placing their trust in its advice on the possibility of taking out such a loan. It seems clear that the bank knew that the appellants were unlikely to have ready access to sources other than itself for expert advice. No doubt because a floating currency was so new to Australia, few independent people outside the banks appear to have been readily available in Australia at the time for private consultation who even had the level of knowledge or access to the facts possessed by the bank. If there were such people, they are unlikely to have lived in West Wyalong or conducted a home visiting service to rural areas, and the capital city yellow pages may not readily have provided their names and telephone numbers. In relation to these appellants, who else besides the bank would know who and where these people were? If from their own efforts the appellants had found a person who claimed to be able to advise, how would they know that he/she possessed the necessary skills? What effect would the fees payable to such a person and the costs of carrying out their advice have on their loan costs and outgoings, and therefore its feasibility? It is quite understandable that the appellants would simply choose to trust their own banker, especially this respondent with its statutory accountability to the Australian people: see Commonwealth Banks Act 1959 esp.ss. 9(2), 11(2), 32 and 121, and what they may well have viewed as its special even historical role in the nation.

81. In my opinion, the evidence at the trial, if supplemented by the unsullied or unqualified 'G' documents, manifests a clear case of misleading and deceptive conduct inducing the appellants to accept and enter the loan. It does not seem to be disputed that their subsequent losses flowed from what would then be a contravention of section 52.

Did Morling J. ask the right question?

82. His Honour found that the appellants were aware of the risks and that there was accordingly no breach by the respondent of section 52 or of the common law duty of care. However, his Honour did not specifically find that the appellants were informed of the true nature and extent of the risks and then advised to manage the risk continuously with the benefit of qualified expert outside assistance to ensure the best possible decisions throughout the loan. This is where, with very great respect, I believe the trial was caused to miscarry by the absence of the 'G' documents. They constitute these as the true matters in issue and the questions to be addressed and answered. In my view, there is only one answer provided for them by the evidence on appeal. It is that if the 'G' documents are accepted as they appear on their face to be, the respondent, having entered upon the task of giving advice to these appellants, failed to ensure that the advice it gave was comprehensive, adequate and accurate in the respects I have earlier outlined.

Conclusion

83. I have read with care the views of Burchett J, and although in my view there are grounds for concluding that the 'G' documents justify a finding that the respondent's liability has been established, I have, like his Honour, decided that a new trial is the appropriate result.

84. In view of the conclusions reached on the other heads of claim, it is not necessary to pass on any special effects wrought on these facts by the Contracts Review Act 1980 (NSW). I agree with the orders proposed by Burchett J. including those his Honour suggests as appropriate on the question of costs.