Negligence - foreign currency loan - basis of duty of care owed by bank to customer - content of duty of care - adequacy of advice given by bank to customer - customers' reliance on bank's advice - breach of duty of care.

Damages - mitigation of loss by use of forward exchange contracts - appropriate method of calculating loss.

Trade Practices Act 1974 ss.52, 82, 87; sub-ss.82(2), 87(1A)

Weaver, Craigie, The Law Relating to Banker and Customer in Australia (2nd Edition)

Weerasooria and Coops, Banking Law and Practice in Australia

Banbury v Bank of Montreal (1918) AC 626

B.P. Refinery (Westernport) Pty. Ltd. v Hastings Shire Council [1977] HCA 40; (1977) 52 ALJR 20

Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337

Commonwealth Bank of Australia v Mehta (1991) ATPR 41-103

Commonwealth Trading Bank of Australia v Sydney Wide Stores Proprietary Limited [1981] HCA 43; (1981) 148 CLR 304

Cornish v Midland Bank Pty. Ltd. (1985) 3 All ER 513

David Securities Pty. ltd. v Commonwealth Bank of Australia [1990] FCA 148; (1990) 23 FCR 1

Esso Petroleum Co. Ltd. v Mardon [1976] EWCA Civ 4; (1976) 1 QB 801

Haines v Bendall [1991] HCA 15; (1991) 99 ALR 385

Kimberley NZI Finance Ltd. v Torero Pty. Ltd. (1989) ATPR (Digest) 46-054

Munchies Management Pty. Ltd. v Belperio [1988] FCA 413; (1988) 84 ALR 700

Quade v Commonwealth Bank of Australia [1991] FCA 26; (1991) 27 FCR 569

San Sebastian Pty. Ltd. v Minister Administering The Environmental Planning and Assessment Act 1979 [1986] HCA 68; (1986) 162 CLR 340

Selangor United Rubber Estates, Ltd. v Cradock (a bankrupt) (No. 3) (1968) 2 All ER 1073

Spice v Westpac Banking Corporation, Unreported (Federal Court of Australia, Foster J., 1 September 1989)

State of Western Australia v. Wardley Australia Ltd. [1991] FCA 314; (1991) 102 ALR 213

Counsel for the Applicants: Mr G.A. Anderson QC with Mrs D.A. Mullins

Counsel for the Respondent: Ms S.M. Kiefel QC with Mr B.D. O'Donnell

Judgment be entered for the applicants in the sum of $696,264.

The matter of costs to stand over for submissions from counsel in writing by 25 November 1991 and further order on 6 December 1991 at 9.45 a.m.

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

In about June 1984 the applicants ("the Ferneyhoughs") obtained from the respondent ("Westpac") a loan denominated in a foreign currency, namely Swiss francs (CHF).

2. In 1989 the Ferneyhoughs commenced these proceedings alleging that Westpac had breached contractual terms, provided negligent advice to the Ferneyhoughs before and after the loan was obtained, and engaged in conduct that was misleading or deceptive contrary to the provisions of s.52 of the Trade Practices Act 1974 ("the Act"). The applicants contend that they suffered loss or damage as a result of some or all of their pleaded claims and seek to recover damages from Westpac.

3. Mr Ferneyhough is now 76 years of age. He has not had the benefit of either secondary or tertiary education but, in partnership with his wife, has been successful in business. After their marriage Mrs Ferneyhough obtained qualifications in hairdressing and Mr and Mrs Ferneyhough opened a hairdressing salon which was successfully operated before and during the Second World War. Whilst Mrs Ferneyhough was employed in the hairdressing business, Mr Ferneyhough worked as a bread carter or, during the war, as a labourer in an ammunitions factory. In 1946 Mr and Mrs Ferneyhough sold the hairdressing salon for a substantial profit having decided to purchase the business of a guesthouse at Phillip Island in partnership with friends. Mr and Mrs Ferneyhough had to sell all of their realisable assets to make their contribution to the purchase price of the business. The venture proved to be very successful. After fourteen years they sold the guesthouse business at a significant profit and moved from Phillip Island to Melbourne.

4. Upon moving to Melbourne Mr and Mrs Ferneyhough became customers of the Bank of New South Wales, the predecessor of Westpac.

5. In 1961 they acquired the businesses of two reception centres situated in Melbourne. The freehold title to the property on which one reception centre was situated was also acquired. The purchase of one of the businesses was assisted by loan from the Bank of New South Wales. The businesses were sold in 1963 and 1970 but the freehold interest was retained.

6. After the sale of the last of the reception centre businesses Mr Ferneyhough, then 55, retired from any involvement in daily business activities. However, since 1960 he had been a member of a partnership carrying on the business of subdividing and buying and selling land on Phillip Island and that partnership continued until 1980.

7. In 1979 Mr and Mrs Ferneyhough turned their attention to Queensland where they purchased an apartment on the Gold Coast and four shops in the Burleigh Heads Shopping Centre. Proprietorship of the shops was registered in the name of their daughter, Mrs McDonagh (then Mrs Kelly). Mr Ferneyhough obtained a loan from the Burleigh Heads branch of Westpac to help meet the purchase price of the property, approximately $160,000.

8. In November 1979 Mr and Mrs Ferneyhough, Mrs McDonagh and Errez Pty. Ltd. purchased land and buildings known as the Sorrento Shopping Centre situated on the Gold Coast for a price of $825,000. Apparently the controller of Errez Pty. Ltd. was a Mr Bosaid ("Bosaid"). The parties borrowed $500,000 from the Commercial Bank of Australia Limited ("C.B.A.") which became a loan repayable to Westpac after the merger of Westpac and C.B.A. All dealings with respect to that loan were carried out at the Bundall branch of Westpac.

9. The proprietorial interests in the Sorrento Shopping Centre were acquired as tenants in common by Errez Pty. Ltd. as to one part and by Mr and Mrs Ferneyhough and Mrs McDonagh as to the other, the interests being a three-quarter share and one-quarter respectively. Mr and Mrs Ferneyhough and Mrs McDonagh held their one-quarter share as joint tenants.

10. At some point thereafter Errez Pty. Ltd. was replaced by Mr and Mrs Bosaid ("the Bosaids"). Mr and Mrs Ferneyhough and Mrs McDonagh and the Bosaids held the property as an asset of a partnership carried on by them under the name Sorrento Shopping Village.

11. The partnership further developed the shopping centre by increasing the number of shops from eleven to twenty-four. At all relevant times the centre was managed for the partnership by Bosaid.

12. In 1981 Mr and Mrs McDonagh acquired the supermarket business conducted in a shop in the Sorrento Shopping Village. The purchase price of the business was met from funds provided by Mr Ferneyhough and from the proceeds of a loan provided to the Ferneyhoughs by the Burleigh Heads branch of Westpac.

13. In 1982 the relationship between Mr Ferneyhough and Bosaid soured and although the partnership continued it became apparent that the partners were seeking to cut their ties.

14. In October 1982 Mr and Mrs Ferneyhough and Mrs McDonagh executed a contract to sell their one-quarter share in the Sorrento Shopping Village property for a sum of $500,000 and for the consideration that the purchasers indemnify the vendors in respect of their liability under the loan to the partners secured by a mortgage on the property. Although the land was partnership property it appears that the sale of a one-quarter share in that manner was by the accord of the partners. The contract of sale was subject to certain conditions which were not satisfied and the sale did not proceed.

15. In view of Mr and Mrs McDonagh's interest in the supermarket business conducted in the shopping centre and Mr Ferneyhough's concern that the ill will between he and Bosaid might affect the conduct of that business if Bosaid became the sole controller of the centre, Mr Ferneyhough desired to purchase the Bosaids' share in the property if it were possible.

16. In about March or April 1983 a real estate agent and acquaintance of Mr Ferneyhough, Mr Buckland, initiated discussions in respect of the sale of the Bosaids' interest to the Ferneyhoughs and made enquiries as to the availability of the finance Mr Ferneyhough would require to effect such a purchase.

17. The Ferneyhoughs and the Bosaids instructed solicitors to exchange their views on the sale of their respective interests in the shopping centre and on termination of the partnership. Bosaid valued the centre at approximately $2.7m and sought $1.9m for the Bosaids' interest in the partnership property. In March 1983 the Bosaids' solicitor tendered a contract in which Mr and Mrs Bosaid offered to sell their interests to Mr and Mrs Ferneyhough and Mr and Mrs McDonagh for a price of $1,922,125. It appears that Mr Buckland may have been involved in generating that offer. Mr Ferneyhough let the matter lie not being interested in purchasing the Bosaids' interest at that price but Mr Ferneyhough did contact Mr O'Brien, manager of the Bundall branch of Westpac, seeking confirmation from the manager that Westpac would not insist upon the payment of an additional sum of six months' interest if the Westpac loan were discharged in advance of its repayment date upon the sale of the shopping centre.

18. Mr Ferneyhough was content to sit out the difficulties being experienced between he and Bosaid and await an offer from Bosaid to purchase the one-quarter share at a price calculated at the value Bosaid placed on the property or an offer to sell the Bosaids' share at a lower price than $1.9m.

19. In August 1983 the Bosaids' solicitor informed solicitors for the Ferneyhoughs that the Bosaids were prepared to sell their interest in the Sorrento Shopping Village to the Ferneyhoughs or purchase the Ferneyhough interest therein for a price based upon a valuation of the shopping centre of $2.3m. Using that valuation the price of the Bosaids' share was $1.725m.

20. In September 1983 Mr Ferneyhough advised the Bosaids' solicitor that the Ferneyhoughs were interested in purchasing the Bosaids' share but wished to discuss the offer with their accountant.

21. The offer was repeated in November 1983. Meanwhile, Mr Ferneyhough was attempting to organize family finances by realizing some assets and by discussing the availability of loans of the amount required to enable the Ferneyhoughs to make such a purchase. Mr Ferneyhough conducted all negotiations and made all arrangements for finance in respect of the property interests of the family.

22. In December 1983 the Bosaids' solicitor gave notice to Mr and Mrs Ferneyhough and Mrs McDonagh of dissolution of the partnership and in February 1984 forwarded a contract for the sale of the shopping centre by the partners to a third party for a price of $2.36m.

23. The Ferneyhoughs' solicitors responded by advising that the Ferneyhoughs declined to execute the contract and by restating the Ferneyhoughs' desire to purchase the Bosaids' share for a price of $1.725m. The Ferneyhoughs' solicitors stated that the Ferneyhoughs had obtained a purchaser for their Burleigh Heads shops and settlement of that sale would be effected on 12 March 1984. The letter also stated that the Ferneyhoughs had an assurance from their bank that it would provide the necessary finance by way of loan to complete the purchase of the Bosaids' share.

24. It was Mr Ferneyhough's evidence that by appointment he had met Mr Hasenkam, the assistant manager of the Bundall branch of Westpac, between March and May of 1983 and discussed the availability of sufficient finance to acquire the Bosaids' interest in the Sorrento Shopping Centre. Mr Ferneyhough said that he had attempted to make that appointment with Mr O'Brien, the manager of the branch, but was unable to do so and was referred to Mr Hasenkam. In his evidence Mr O'Brien said that he passed to the assistant manager correspondence from Mr Ferneyhough dated March 1983 seeking a waiver of the penalty interest and had referred Mr Ferneyhough's request for an appointment to Mr Hasenkam for two reasons, first, Mr Ferneyhough had already had dealings with Mr Hasenkam and, secondly, Bosaid was a customer of the branch with whom Mr O'Brien had dealt and Mr O'Brien was aware of the conflict between Bosaid and Mr Ferneyhough.

25. It is not clear what contact Mr Ferneyhough had with the Bundall branch of Westpac nor whether Mr Hasenkam was known to Mr Ferneyhough before Mr Ferneyhough was referred to Mr Hasenkam by Mr O'Brien. According to the evidence of Mr Ferneyhough, the appointment with Mr Hasenkam was the first occasion on which he had met the assistant manager. It seems that until Mr Ferneyhough began to consider buying out the interests of the Bosaids, his banking activitites on the Gold Coast were conducted at the Burleigh Heads branch of Westpac.

26. It is possible that Mr Ferneyhough met Mr Hasenkam some time between March and May of 1983 given that the need to organize finance had arisen when the Bosaids offered to sell their share in March 1983. However, it is also possible that the meeting was as late as August 1983 stimulated by the Bosaids' offer in that month to sell their share in the property for a lower price. Apparently Mr Hasenkam made no diary record of the date of the meeting or its content.

27. It was not in dispute that the meeting involved a general discussion about loan facilities available from Westpac including loans denominated in foreign currencies. On 9 September 1983 Mr Hasenkam wrote to Mr Ferneyhough referring to "recent discussions" and setting out "broad outlines" of Westpac's requirements in respect of the provision of loan facilities. Borrowing in a foreign currency was included in the outline of facilities. A set of guidelines prepared by Westpac in respect of "Euro-Currency Loans" was enclosed with the letter. Mr Hasenkam did not recall the content of the discussion he had with Mr Ferneyhough. Mr Ferneyhough considered it unlikely that he (Ferneyhough) had initiated any discussion on foreign currency borrowing.

28. Shortly after receiving that letter Mr Ferneyhough attended on his accountant, Mr Berry, to discuss the feasibility of purchasing the Bosaids' interest in the Sorrento Shopping Centre. As a result of that discussion Mr Ferneyhough concluded that an interest rate of fifteen per cent on the amount required to be borrowed to effect the purchase would be too high a commitment and that if interest rates increased to sixteen per cent or seventeen per cent even greater difficulties would be created.

29. Mr Ferneyhough asked his accountant to attempt to find another party interested in taking a share in the centre thereby reducing the amount the Ferneyhoughs would need to borrow. Nothing came of those instructions.

30. Obtaining a loan in a foreign currency at a much lower rate of interest was discussed with Mr Berry as an alternative. Mr Berry had little knowledge of the manner of operation of foreign currency loans and could offer Mr Ferneyhough little or no advice and no assistance in respect of such a proposal.

31. Mr Ferneyhough met again with Mr Hasenkam at the Bundall branch in December 1983 shortly before Christmas.

32. At that meeting it appears that the borrowing of a sum approximately $1.2m was discussed. Whether any discussion of borrowing in a foreign currency occurred is uncertain but it appears that the principal discussion concerned the respective merits of alternative domestic lending facilities provided by Westpac. Details of those facilities were set out in a letter from Mr Hasenkam to Mr Ferneyhough dated 13 January 1984. As the lending facilities discussed were all short-term propositions Mr Hasenkam may have reached the conclusion that the Ferneyhoughs would sell the shopping centre within two or three years of purchase, an assumption expressed in his letter. I accept that this was not Mr Ferneyhough's intention and that it was not stated to be so by Mr Ferneyhough.

33. Notwithstanding their investment in property on the Gold Coast, Mr and Mrs Ferneyhough continued to reside at Brighton in Victoria until January 1984 when they sold their residence and purchased a home at Runaway Bay.

34. After moving to their new home on the Gold Coast in late January 1984 Mr Ferneyhough met with Mr Hasenkam again in early February 1984 to discuss further possible financing arrangements to enable the Ferneyhoughs to buy out the Bosaids' interest. Discussion was directed to borrowing an amount of $1.3m. Mr Hasenkam recommended that the best method of borrowing would be a "bill-line" facility provided for a period of three to five years. Mr Hasenkam advised Mr Ferneyhough that Westpac had instructed its valuer to inspect the shopping centre property and that Mr Hasenkam would have preliminary discussions with accountants (presumably employed or instructed by Westpac) and have an application for loan funds prepared to await Mr Ferneyhough's further instructions.

35. The Westpac valuation of the shopping centre property was completed shortly after that meeting. The value of the property was $2.1m.

36. Shortly after that discussion the Ferneyhoughs' solicitors advised the Bosaids' solicitors that the Ferneyhoughs would not execute the contract for the sale of the partnerhsip property to a third party and confirmed that it was the wish of the Ferneyhoughs to purchase the Bosaids' share in the property for a price of $1.725m.

37. On or about 29 February 1984 Mr Ferneyhough met Mr Hasenkam once more to discuss borrowing the funds required to enable the Ferneyhoughs to purchase the Bosaids' interest. The prospect of a foreign currency borrowing was raised and discussed with Mr Hasenkam. According to Westpac's guidelines for such a borrowing, the Sorrento Shopping Village as valued by Westpac would have provided security for a foreign currency borrowing equivalent to $1.1-1.15m.

38. By that time Mr Ferneyhough had resolved that an offer should be made to the Bosaids to buy their share at the price of $1.725m. For Mr Ferneyhough the remaining question was what form of financial accommodation could be obtained from Westpac. Mr Hasenkam was satisfied that Mr Ferneyhough had "all the requirements to satisfy (an) offshore loan or Commercial Bills". Mr Hasenkam had no expertise in foreign currency borrowings but he was able to inform Mr Ferneyhough that there were advantages in borrowing in a foreign currency at an interest rate well below domestic rates. I accept that Mr Hasenkam did not offer any explanation of the methods that may be employed to limit the risk involved in borrowing in a foreign currency but I consider it to be likely that Mr Hasenkam did refer in general terms to the risk of an adverse movement in the exchange rate between the Australian dollar and the chosen foreign currency having the effect of increasing the amount of Australian dollars required to purchase and repay the foreign currency borrowed.

39. As a result of that meeting Mr Hasenkam made an appointment for Mr Ferneyhough to attend the Brisbane office of Westpac on 5 March 1984 to discuss with a Mr Look the details of the foreign currency loans provided by Westpac. I accept that Mr Ferneyhough understood from Mr Hasenkam's comments that Mr Look was Westpac's expert or "top man" in the field and manager of the "offshore loan" department of Westpac in Queensland.

40. At that time Mr Look held the position of Manager, International Business Development, and according to Mr Look his duties were "primarily to provide bank customers with information regarding offshore loans". The "offshore loans" referred to were loans in foreign currencies advanced by Westpac with the assistance of its Singapore branch.

41. It was Westpac procedure in Queensland that branch officers refer to Mr Look any customers interested in obtaining a loan from Westpac in a foreign currency. According to Mr Look, at the time he saw Mr Ferneyhough he was conducting interviews on a regular basis with customers who had expressed interest in obtaining such loans. Mr Look's evidence was not a recollection of the content of his discussion with Mr Ferneyhough but an account of his recollection of the standard form of such an interview. Mr Look had no recollection of a different approach being adopted in respect of Mr Ferneyhough. The standard interview did not involve Mr Look undertaking an assessment of a customer's circumstances to determine whether such a facility should be offered to the customer. There was a division of responsibility in that regard between the management personnel of the branch and Mr Look at head office. Explanation of the nature of the borrowing and the extent of the risks involved were the responsibility of Mr Look but the decision as to whether an application for such a facility could be recommended for approval was a matter for branch management. The setting of fees and margins, and assessment of the adequacy of the security on offer were matters for the branch to determine.

42. Mr Ferneyhough recalled that the discussion between Mr Look and himself was relatively informal and took place in a waiting area. Mr Look presented him with a folder containing various charts. It was Mr Ferneyhough's evidence that in the course of the discussion Mr Look had said that the Swiss franc was the strongest currency in the world and had pointed to outlines on a chart showing that the Swiss franc did not "deviate very much over the years". Mr Ferneyhough said that Mr Look had used charts to show that the Australian dollar had kept pace with the Swiss franc "to a certain degree". According to Mr Ferneyhough, Mr Look had said that it was to Mr Ferneyhough's advantage to borrow offshore and advised that the borrowing should be in Swiss francs.

43. It must be kept in mind that Mr Ferneyhough and Mr Look were speaking of a conversation between them which occurred seven years earlier and were attempting to recall the words used and the emphasis given thereto without the aid of any notes which may have refreshed or promoted recollection. Furthermore, the course of subsequent events may have rendered Mr Ferneyhough susceptible to a subconscious tendency to fill in gaps of memory with assumptions which became a state of belief. Of course, the evidence of Mr Look must be approached with similar considerations in mind.

44. It was not contested that Mr Look did not enquire into or assess the depth of Mr Ferneyhough's commercial knowledge or his understanding of the operation of international finance.

45. According to Mr Look the content of his conference with Mr Ferneyhough would have been similar to that of the regular interviews he conducted with potential foreign currency borrowers at that time, both in the words used and in the delivery of written information. Mr Look would have handed to Mr Ferneyhough a printed folder endorsed "International Information Service - Westpac Banking Corporation". The folder contained a Westpac information booklet entitled "Euro Market Borrowings - General Guidelines". It was not in dispute that the "guidelines" referred to by Mr Hasenkam as enclosed with his letter to Mr Ferneyhough of 9 September 1983 was a copy of such a booklet and Mr Ferneyhough conceded that he would have seen the booklet at that time. The booklet had been prepared by Mr Look. In addition the folder would have contained various tables and charts which Mr Look said would have been as follows:

percentage movements in exchange rates over a

period back to 1971;

(b) a computer printout giving details of the

percentage movements in exchange rates over

approximately the preceding 12 months;

(c) a table setting out exchange rates for each

month from 1979 until approximatley February 1984;

(d) a table setting out interest rates applicable

to the major foreign currencies in each month

from 1979 to approximately February 1984;

(e) a plotted graph showing the movement in

interest rates applicable to the major

currencies over a period from January 1981

until early 1984;

(f) a printed document giving current interest

rates applicable to the foreign currencies."

46. Mr Look said he explained to Mr Ferneyhough that there were three main risks in borrowing in a foreign currency. First, he would have said that the repayment of the foreign currency at the end of the period of the loan may require more Australian dollars to be expended to purchase that sum than the Australian dollars received when the loan commenced but Mr Look said that he would have told Mr Ferneyhough also that the amount of dollars required might be less than the amount originally received. He would also have told Mr Ferneyhough that fluctuations in the exchange rate over the period of the loan would have "little effect on the amount you will have to pay back" and the exchange rate applying at the date of repayment would govern the amount of Australian dollars required to discharge the foreign currency loan. Secondly, Mr Look would have advised Mr Ferneyhough that the interest rate on the loan was not fixed and, thirdly, that any variation in the foreign currency interest rate and in the rate of exchange would determine what amount of Australian dollars would be required to purchase the foreign currency sum to be paid by way of interest on the dates on which interest became due.

47. Mr Look said that he described the foregoing to Mr Ferneyhough as "the bad news about an offshore loan" and that the "good news" was the saving in interest payments as a result of the favourable interest rate applied to such a loan. Mr Look said he would have told Mr Ferneyhough in these introductory comments that such savings should be applied to "tax effective" expenditure such as advertising or refurbishing, or that a portion or most of such savings could be put into a "sinking type fund account".

48. Mr Look said he would have gone through the booklet page by page with Mr Ferneyhough. He would have noted that the booklet stated that loans equivalent to more than $1m could be provided in different currencies in amounts not less than the equivalent of $500,000. There was no discussion or analysis of either the possibility or the desirability of spreading the risk of such a borrowing over more than one currency.

49. A matter not in the booklet but a point which Mr Look said he would have raised was the need for Westpac to be satisfied that a customer seeking to borrow in a foreign currency had the capacity to meet the rate of interest payable on a domestic loan of the same amount. He did not undertake that assessment.

50. Mr Look said that where the booklet referred to the "exchange/interest risk" he took the opportunity to refer to a table in the folder headed "Average Exchange Rates Against Australian Dollar" which set out average exchange rates for each month between January 1979 and January 1984 for the United States dollar, German deutschmark, Japanese yen and Swiss franc against the Australian dollar. He said he then would have shown to Mr Ferneyhough a computer printout of the percentage movements in exchange rates between the Australian dollar and various foreign currencies between 1971 and 1983. He said he would have noted the performance of the currencies of the United States, United Kingdom, Germany and Japan. In relation to the Swiss franc he would have pointed out that the Swiss franc had appreciated against the Australian dollar by approximately fifty per cent between 1971 and 1983.

51. He would then have shown Mr Ferneyhough another computer printout with percentage movements in exchange rates between the Australian dollar and selected currencies over the preceding twelve months and although he would have said that the previous document was more important, he would have said that this document showed that the Australian dollar had improved eighteen per cent against the Swiss franc over the preceding year.

52. Mr Look said he would then have displayed a handwritten plotted graph showing movements in interest rates payable on borrowings in United States dollars, Australian dollars, German deutschmarks, Japanese yen and Swiss francs between January 1981 and early 1984. He would have described the margin depicted in the plotted positions of the interest rates of the Australian dollar and the Swiss franc as a "buffer". He said he would have stated that the "buffer" was "compensation for any adverse exchange rate movements" and that the Swiss franc provided the greatest "buffer".

53. The concluding comments in the booklet under the heading "Exchange/Interest Risk" were:

"The exchange risk can be hedged on the foreign

currency hedgemarket, however, cost of hedging

exchange risk would increase borrowing costs

p.a...."

and Mr Look said that in respect of those comments he would have told Mr Ferneyhough that the exchange risk could be hedged at any time but the cost of hedging would make the borrowing cost of a loan in a foreign currency equivalent to the borrowing cost of a domestic loan. He said he would have added:

"If you decide to repay your loan before a roll-over

date, you take out a hedge to roughly fix the

amount of Australian dollars that you are going to

have to pay at the next roll-over date when you

repay the loan."

54. It can be seen that there was no analysis or explanation of the procedure for or function of hedging or the circumstances in which it could be used nor were any guidelines provided for Mr Ferneyhough to employ to determine whether he should decide to hedge such a borrowing.

55. There was no discussion on whether it was prudent to have an unhedged borrowing in a currency such as Swiss francs, a currency against which the Australian dollar had continued to depreciate over the long term. Furthermore, there was no discussion on whether a borrower could remove a hedge at a later date if the Australian dollar showed a trend of appreciation or take out a hedging contract to lock in the benefit of that appreciation for the duration of the loan.

56. Although the booklet concluded with the following advice to customers:

"The choice of currency in which borrowing is to be

made rests with the customer and to assist, the

bank can arrange for an officer from our

international business area to provide further

information and discuss more fully the exchange

risk and Reserve Bank of Australia requirements"

it would seem that the discourse between Mr Look and Mr Ferneyhough on 5 March 1984 provided little more than was in the booklet forwarded to Mr Ferneyhough in September 1983 apart from the display of tables and charts.

57. In the absence of an authoritative statement as to the conclusions to be drawn from the material contained in the tables and charts, the use of those materials was of little assistance to a person in Mr Ferneyhough's position. They presented a maze of information more likely to confuse than enlighten such a customer who would need to be told what the documents meant rather than be left to draw his own conclusions from unfamiliar data and detail.

58. For example having observed Mr Ferneyhough in the witness box and the difficulty he experienced with the various charts, I think it likely that Mr Ferneyhough misunderstood Mr Look's explanation of a chart depicting a comparison of Australian and Swiss interest rates and thought the comments applied to a periodic comparison of the exchange rate for the Australian dollar and the Swiss franc.

59. Mr Look may not have said directly that the Swiss franc was the strongest currency in the world nor that Mr Ferneyhough should borrow in Swiss francs but I am satisifed that it was likely that the manner in which Mr Look discussed the matter of borrowing in a foreign currency led Mr Ferneyhough to conclude that the Swiss franc was a strong currency and an appropriate currency in which to take a loan. No discussion took place on whether the inherent strength of that currency posed a particular risk to a person who borrowed in that currency without hedging and converted the proceeds of the borrowing to Australian dollars. I am satisfied that the tenor of Mr Look's remarks was to the effect that there was an advantage in undertaking a borrowing in Swiss francs in that it provided funds at a much lower rate of interest than was possible in a domestic borrowing.

60. It is apparent that the meeting between Mr Look and Mr Ferneyhough provided the latter with considerable enthusiasm for the proposal that the Ferneyhough interests undertake a borrowing in Swiss francs. In his short diary note of the meeting Mr Look recorded that Mr Ferneyhough intended to proceed with an application for a foreign currency loan. As soon as Mr Ferneyhough returned home from Brisbane on that day he contacted Mr Hasenkam by telephone and arranged an appointment for the following day. In the meantime Mr Ferneyhough took the opportunity to have a look at the folder of documents handed to him by Mr Look and in particular to read the booklet, "Euro Market Borrowings - General Guidelines". Mr Ferneyhough read the comments in relation to hedging and decided to ask Mr Hasenkam more about it.

61. On 6 March 1984 Mr Ferneyhough instructed Mr Hasenkam that as a result of his meeting with Mr Look on the previous day he wished to apply to Westpac for a loan in Swiss francs and asked Mr Hasenkam to explain what "hedging" meant as referred to in the booklet. Mr Hasenkam replied that hedging was a type of insurance and that if hedging were employed he may as well borrow "onshore". No other explanation was offered.

62. On 7 March 1984 Mr Ferneyhough's solicitors, by verbal communication, informed the Bosaids' solicitor that the Ferneyhough family was prepared to enter an unconditional contract to purchase the Bosaid interest in the Sorrento Shopping Village for a consideration of $1.725m with settlement in sixty days. After some backing and filling in further correspondence between the solicitors, a contract of sale was eventually executed on or about 9 April 1984 providing for settlement of the purchase to be effected on 1 June 1984.

63. On 11 April 1984 Mr Hasenkam prepared and submitted an application to head office for the approval of a "Euro-Currency Loan" equivalent to $1.3m. The application stated under the heading "Special Features" that "(a)pplicants request switching facility to an alternative currency rollover if interest rates move against the borrower". It was not suggested that Mr Ferneyhough had any discussion with Mr Hasenkam in those terms and it would appear that the words referred to an option the guidelines booklet stated was available to a borrower in a foreign currency. The application also noted that Mr Ferneyhough had had discussions with the "Manager, International Business Development on the risks involved in borrowing off-shore and is fully aware of the disadvantages in this form of financing".

64. The response from head office was to suggest that the $A1.3m facility be provided either by a foreign currency borrowing equivalent to $1.1m and a fully drawn advance of $200,000 or by a foreign currency borrowing equivalent to $800,000 and a fully drawn advance of $500,000. The latter proposal would not require the Ferneyhough residence to be offered as security. Mr Hasenkam discussed the head office response with Mr Ferneyhough and Mr Hasenkam submitted an amended application incorporating the first option. The amended application was lodged on 24 April 1984 and approval was obtained from head office and from the Singapore branch of Westpac on 27 April 1984.

65. The sequence of events thereafter was a matter of dispute between the parties. A detailed letter in duplicate ("the facility letter") was prepared by the Singapore branch addressed to the Ferneyhoughs. It set out the terms of an offer to provide a foreign currency borrowing and provided for the laws of Queensland to be applied to it. The facility letter was forwarded to the head office at Brisbane. The facility letter was forwarded to the Bundall branch for signature by the borrowers together with an additional copy for the borrowers to read before signing. Mr Ferneyhough contended that the letter was not presented to him for signature until approximately 5 June 1984 after settlement of the purchase had been effected on 1 June 1984. He complained that the letter was presented as a fait accompli and that he had been given no opportunity to read it before signing it and that it had been signed under protest.

66. There seems to be no doubt that the Ferneyhoughs attended the Bundall branch on 21 May 1984 and I consider it likely that the facility letter was executed at that time as a matter of urgency, the Singapore branch requiring no less than five days' notice to arrange the delivery of the funds to be borrowed. I consider it likely that because of the urgency of the steps that were taken Mr Ferneyhough has a confused recollection of the sequence of events although I accept that he was annoyed with the lack of opportunity to consider the contents of the facility letter. It would seem that on the following day after the letter had been executed by the Ferneyhoughs, Mr Ferneyhough took a copy of the letter to his solicitor for perusal and perhaps to obtain some additional comfort if the solicitor were able to provide it. The solicitor had little or no knowledge of the working of foreign currency borrowings and was unable to offer any extra advice.

67. It is likely that the necessary security documents were signed at that attendance at the Bundall branch which in all probability was supervised by the Manager, Mr O'Brien. It is possible that the formal acknowledgement of the receipt of the facility letter and the execution of the notice of draw down were delayed whilst Mr Ferneyhough took a copy of the letter to his solicitor on 22 May 1984. It seems that at least in the case of Mrs Ferneyhough, who had been present at the bank on 21 May 1984, execution of the formal acknowledgement of receipt was carried out at the Ferneyhough residence in the presence of her housekeeper.

68. The conflict of evidence bore upon the reliability of Mr Ferneyhough's recollections but did not involve a material fact in issue in the proceeding.

69. In addition to the acknowledgement of receipt of the facility letter which contained the following sentence:

"We further acknowledge that we are aware that the

letter requires the payment by us of principal and

interest and other amounts of foreign currencies

and this may involve exchange losses or gains by us."

the Ferneyhoughs signed another document prepared by Westpac headed "Application for Euro-currency Loan" which contained the following words:

"I/We hereby acknowledge that the following matters

have been fully explained to me/us and that my/our

obligations in relation to such matters are fully

understood.

(a) the significant foreign exchange risk

being undertaken in this transaction;

..."

70. The notice of drawdown signed by the Ferneyhoughs nominated a borrowing in Swiss francs equivalent to $1.1m. At drawdown on 1 June 1984 the exchange rate AUD/CHF was 2.0478. The sum borrowed was CHF 2,252,580.

71. By letter dated 1 June 1984 the Brisbane head office of Westpac advised the Ferneyhoughs of the amount of Swiss francs drawn down and the amount of interest that would be payable thereon on 3 December 1984 calculated in Swiss francs. The author of the letter was Mr Look. He advised the Ferneyhoughs that the exchange risk in respect of the interest payment could be hedged and suggested that the Ferneyhoughs contact the bank for further information.

72. It was Mr Ferneyhough's evidence that after receipt of that letter he had sought advice from officers of the Bundall branch in respect of hedging but the branch was unable to provide the assistance he sought. His request to see the Manager, Mr O'Brien, was not met. Although I have some doubt as to the accuracy of Mr Ferneyhough's recollection of the sequence of events, I accept that at some time before and after arrangements were made for the borrowing of a foreign currency he sought advice from the Bundall branch in respect of the matter of hedging. Mr Ferneyhough did not seek that advice from Mr Look.

73. Mr Look wrote again to the Ferneyhoughs by letter dated 3 December 1984 setting out the amount of interest payable in Swiss francs for the period 3 December 1984 to 3 June 1985. There was no reference to the hedging of exchange risk in respect of either the interest payment or the borrowing in Swiss francs. The letter did not offer any advice or information on the outlook for the exchange rate nor discuss the prudence of hedging and no instructions were sought from the Ferneyhoughs in respect of the matter of hedging.

74. On 3 December 1984 the AUD/CHF exchange rate was 2.1542.

75. By 3 June 1985 when the next interest payment was discharged the AUD/CHF exchange rate had fallen to 1.6869. By a letter of even date Mr Look informed the Ferneyhoughs of the amount of interest in Swiss francs payable on 3 December 1985. Again no advice was offered nor instructions sought in respect of hedging the exposure.

76. The exchange rate continued a downward trend throughout 1985. In September 1985 Westpac began forwarding to Mr Ferneyhough a monthly report in the form of a computer printout setting out the Ferneyhoughs' position in respect of their potential commitment in Australian dollars for repayment of the foreign currency loan.

77. Between 1985 and 1987 the trend of the AUD/CHF exchange rate was of continued depreciation and by late 1987 the potential sum required in Australian dollars to repay the sum borrowed in Swiss francs, CHF 2,252,580, was in excess of $2,300,000, that is, more than double the sum received when the original borrowing was converted to Australian dollars.

78. In about November 1985 Westpac had commenced foreign currency dealings on behalf of the Ferneyhoughs in an endeavour to obtain trading profits to offset the potentiality for loss in the foreign currency loan facility as it then stood. The dealings were carried out by Westpac and presented to the Ferneyhoughs for confirmation. In early dealings profits were made. The profits were overtaken by losses in subsequent dealings and a net loss of approximately $66,587 was suffered. I am satisfied that the Ferneyhoughs did not initiate the proposal that Westpac trade in foreign exchange contracts on their behalf and I am satisfied that such trading emanated from a proposal put to them by Westpac. Similarly, I am satisfied that the Ferneyhoughs did not request that they be provided with a bank facility of $1m to enable such trading to take place. The facility was offered and provided by Westpac as part of its proposal that such trading be undertaken on behalf of the Ferneyhoughs.

79. As the AUD/CHF exchange rate depreciated Westpac became concerned that the security it held was inadequate to cover the potential liability faced by the Ferneyhoughs. By March 1987 Westpac was requesting the Ferneyhoughs to take steps to sell the Sorrento Shopping Centre and discharge the foreign currency borrowing.

80. At that point the Ferneyhoughs instructed solicitors to advise Westpac that the neglect of Westpac was considered to be responsible for the Ferneyhoughs' position.

81. In September 1987 the Ferneyhoughs executed a contract to sell the shopping centre for a price of $3.4m. The transaction was settled in November 1987. From the proceeds of sale the foreign currency loan was discharged by the payment of $2,384,692 to purchase CHF 2,252,580 at an AUD/CHF exchange rate of 0.9446.

82. I will deal first with the claim in contract. As pleaded the claim is a mixture of express oral terms, implied terms and collateral warranties. The pleading also recites misrepresentations inducing the formation of the agreement but the totality of the pleading indicates that the pleaded misrepresentations are only intended to support a later pleading of a contravention of s.52 of the Act. For the reasons set out below, the claim in contract is to be decided on the issue of implied terms. There can be no finding of collateral warranties or express oral terms on the material adduced.

83. Mr Ferneyhough, either on his own account or on behalf of the combined interests of himself, his wife, his daughter and son-in-law, had been involved in a contractual relationship with Westpac as banker and customer over many years. As is the usual nature of such a relationship the terms of the contract were not fixed within the four corners of a document but rested upon implications as to what the parties understood their contractual position to be. The criteria to be applied to determine the question whether a term should be implied in a contract wholly in writing (see B.P. Refinery (Westernport) Pty. Ltd. v Hastings Shire Council [1977] HCA 40; (1977) 52 ALJR 20 at p 26; Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 per Mason J. at p 347 (Stephen J. concurring); per Brennan J. at p 404) may not be apt for circumstances where the contractual relationship is in part based upon the conduct of parties and/or their oral exchanges, (see Hawkins v Clayton (1988) 164 CLR 539 per Deane J. at pp 570-573) or has been formed against a background of commercial customs or usages. (See Weerasooria and Coops, Banking Law and Practice in Australia, para 1309.)

"The most that can be said consistently with the need

for some degree of flexibility is that, in a case

where it is apparent that the parties have not

attempted to spell out the full terms of their

contract, a court should imply a term by reference

to the imputed intention of the parties if, but

only if, it can be seen that the implication of the

particular term is necessary for the reasonable or

effective operation of a contract of that nature in

the circumstances of the case. That general

statement of principle is subject to the

qualification that a term may be implied in a

contract by established mercantile usage or

professional practice or by a past course of

dealing between the parties."

85. The following comments by Ungoed-Thomas J. in Selangor United Rubber Estates, Ltd. v Cradock (a bankrupt) (No. 3) (1968) 2 All ER 1073 at p 1118 are also relevant:

"Banking law is not a separate body of law, though, like

innumerable other activities, it has statutory provisions

dealing exclusively with it, and, being a distinctive and

important activity, text-books dealing separately with

it. Those aspects of law with which we are at present

concerned are aspects of the general law of contract

applicable to banking. The principles of that law of

contract applicable to banking are the principles of

the general law of contract. It seems to me that it

is in keeping with this that Atkin, L.J., in Hilton v

Westminster Bank, Ltd. (1926), 135 LT at p 362,

said, in a passage already quoted, that it is the duty

of the bank to exercise 'reasonable care and skill',

that being a duty which he describes as 'arising out

of the contract' between banker and customer.

It seems to me that the passages quoted, in

particular from Atkin and Bankes, LJJ., in Hilton

v Westminster Bank, Ltd. (1926), 135 LT at

pp 362, 358 are in keeping with this appreciation.

To my mind, in accordance with those quotations, a

bank has a duty under its contract with its

customer to exercise 'reasonable care and skill' in

carrying out its part with regard to operations

within its contract with its customer. The

standard of that reasonable care and skill is an

objective standard applicable to bankers. Whether

or not it has been attained in any particular case

has to be decided in the light of all the relevant

facts, which can vary almost infinitely."

86. In the present case the contractual relationship between the Ferneyhoughs and Westpac was made formal in part by the execution of security documents containing covenants on behalf of the borrowers and the acceptance of the terms and conditions of a loan facility offered by Westpac in the facility letter prepared in the name of the Singapore branch dated 5 May 1984. However, those specific covenants or agreements in writing did not define that relationship exclusively and were only part of a continuing and broader contractual relationship of banker and customer capable of including implied terms. Although the statement of claim pleaded an extensive list of terms said to be implied in that contract, the closing submissions of senior counsel effectively refined the implied terms relied upon to a contractual obligation undertaken by Westpac to provide sufficient and accurate advice with respect to borrowing in a foreign currency, to give such advice as was required for the duration of the loan as would permit the Ferneyhoughs to make informed decisions on what, if any, action should be taken to protect their position having regard to their obligations to Westpac under such a loan facility, and to exercise reasonable care and skill in performing those contractual duties.

87. With regard to the existence of the first of those implied terms the position is reasonably clear. Mr Ferneyhough approached the Bundall branch of Westpac as an existing customer seeking information and advice on the nature of borrowing in a foreign currency. Westpac had already advised Mr Ferneyhough that it offered such facilities and was aware that Mr Ferneyhough knew little, if anything, about the ramifications of such borrowings. In dealing with Mr Ferneyhough, Mr Hasenkam as Assistant Manager of the branch made it clear that he did not possess the requisite knowledge to be able to help Mr Ferneyhough and advised that he would arrange an appointment for Mr Ferneyhough to meet the "Manager International Development ... to fully discuss all aspects of offshore borrowings". In expanding its business to offer non-trading or non-corporate customers access to borrowings in foreign currencies, Westpac made provision for that expansion by appointing an officer, Mr Look, to provide the type of advice the branches were unable to give. Mr Look was expected to use his experience and knowledge of the foreign exchange market to provide that advice. At the relevant time it was Mr Look's primary duty to provide such advice to customers of Westpac. By its conduct and by the statements of its officers Westpac undertook to provide advice to Mr Ferneyhough and having regard to the established relationship of banker and customer pursuant to which the loan facility was being offered and the acknowledged need for Mr Ferneyhough to obtain such advice, it is reasonable to imply a term in the continuing contractual relationship between Westpac and the Ferneyhoughs surrounding the acceptance of a loan in a foreign currency offered by Westpac that Westpac would provide sufficient and accurate advice in respect of such a borrowing.

88. Although the second of the implied terms contended for is not a necessary corollary of the first of such terms, the facts of this case show the nature of the risks involved in such a facility extending over a period of five years and the inexperience of the Ferneyhoughs in that field made it a term necessarily to be implied in the contractual arrangements between Westpac and the Ferneyhoughs.

89. In respect of the third implied term relied upon, the particular circumstances of this case make it appropriate and reasonable to imply such a term. In the usual unwritten contract between banker and customer the law has no difficulty in implying the term that a customer undertake to exercise reasonable care in executing written orders so as not to mislead the bank or facilitate forgery. (See Weaver, Craigie The Law Relating to Banker and Customer in Australia (2nd Edition) p 2,515 para 6.50; Commonwealth Trading Bank of Australia v Sydney Wide Stores Proprietary Limited [1981] HCA 43; (1981) 148 CLR 304 at pp 315 and 317.) In the particular circumstances of this case, where the bank is offering to its customer a new facility in respect of which, to the bank's knowledge, the customer is entirely inexperienced and unfamiliar and which involves unusual risks, the nature and control of which require arcane commercial knowledge and sophisticated management, it would appear to be equally appropriate and necessary to imply a term in the banker and customer contract to the effect that Westpac undertook to exercise reasonable care and skill in providing the advice discussed above.

90. For the reasons set out by Burchett J. in Quade v Commonwealth Bank of Australia [1991] FCA 26; (1991) 27 FCR 569 at pp 579-580 the findings of fact in David Securities Pty. Ltd. v Commonwealth Bank of Australia [1990] FCA 148; (1990) 23 FCR 1, which led to the conclusion that similar terms were not implied terms of the banker and customer relationship considered in that case, made it a case to be distinguished from the facts of this case in the same manner as it was distinguisable from the facts of the cases to which Burchett J. referred.

91. When considering the scope of such implied terms and whether they have been breached a Court must be mindful not to assume that steps, which in hindsight might be considered to be prudent and sensible, were necessarily part of the advice required to be tendered in March 1984 if that advice were to be sufficient advice to meet the requirements of the contractual terms. Having due regard to that possibility it remains obvious that Westpac did not meet its obligations under the implied terms of its contract with the Ferneyhoughs.

92. Mr Ferneyhough was quite unsophisticated in matters of foreign exchange, foreign currency trading, and in borrowings in foreign currency. He was made aware and understood that a borrowing in a foreign currency involved a specific risk, namely potential depreciation of the exchange rate between the Australian dollar and the borrowed currency but he possessed no commercial skills to equip him to manage or control that risk without further advice and instruction.

93. Mr Ferneyhough's limitations were either obvious to Mr Look or should have become obvious in the course of their conference. Although the apparent purpose of that conference was to provide advice to Mr Ferneyhough on the matter of borrowing in a foreign currency I am left with a clear impression that the meeting was steered towards an exposition of potential benefits to be enjoyed by borrowers of foreign currencies without sufficient or any attention being directed to the particular circumstances of the Ferneyhoughs. The facility offered to the Ferneyhoughs was a loan of five years' duration involving the conversion of the proceeds of a foreign currency loan to Australian dollars and consequent exposure to a variation in exchange rates over a long period of time. The Ferneyhoughs had no assets realisable in the foreign currency nor income earned from foreign sources to offset any possible variation in the AUD/CHF or any other exchange rate. The Ferneyhoughs did have a personal need and desire to borrow a substantial sum but if it were borrowed in the domestic currency the loan would have been difficult to service at the interest rates applicable at that time and, of course, more difficult if interest rates increased. In those circumstances, borrowing in a foreign currency at a substantially lesser interest rate had a natural attraction for the Ferneyhoughs but it could have been useful to the Ferneyhoughs only if there were no more than a minor depreciation in the AUD/CHF exchange rate. If the foreign currency transaction had been of short duration the Ferneyhoughs could have considered retaining the loan as an unhedged facility until such time as there was an adverse fluctuation in the exchange rate and thereupon hedge the exposure to the termination of the transaction. But no discussion took place to analyse Mr Ferneyhough's needs and to establish an appropriate management strategy involving advice as to when hedging should be undertaken and how instructions could be given to take those steps as required.

94. It was not enough to ascertain that Mr Ferneyhough was aware that variations in the exchange rate between the Australian dollar and the borrowed foreign currency may require him to pay more in Australian dollars than he had received when the time came to discharge the loan. In the context of a proposed loan for a term of five years and one subject to the payment of a "penalty fee" of 0.5 per cent if it were sought to be repaid at any time within two years, there should have been some analysis provided of the prospect of the trend of depreciation in the relevant exchange rate and to point out by a clear statement the magnitude of the risk involved. For example a depreciation in the exchange rate of fifty per cent would involve repayment in Australian dollars of double the amount received. I gained the impression from Mr Look's evidence that he shied away from providing Mr Ferneyhough with any indication of the magnitude of the risk.

95. It was entirely inadequate to say that the exchange risk could be "hedged on the foreign currency hedge market". There should have been an explanation of the hedging mechanisms and the variety of steps that could be taken to control the risk of loss and the advice should have been structured having regard to the particular circumstances of the borrower. In this case there were no natural hedges in the form of foreign assets or income earned in foreign currencies and although in Westpac's terms the Ferneyhoughs were small borrowers, the sum borrowed was equivalent to a major part of their assets. It is obvious that the discussion with Mr Look concentrated on the prospect of a loan in Swiss francs. No other currency was given serious consideration because in Mr Look's terms it was the currency which provided the greatest "buffer" by way of a differential between Swiss and Australian interest rates. In comparison with the real risk of loss involved in any continued depreciation of the AUD/CHF exchange rate the real value of that "buffer" was minimal. Following lines on charts or figures in tables was of no assistance to a customer of the Ferneyhough class. To allow Mr Ferneyhough to make an informed decision on the loan contract offered by Westpac, Westpac should have given Mr Ferneyhough the benefit of its expertise by providing appropriate analyses of that information, in particular, to explain the depreciating trend line in the AUD/CHF dollar and to explain whether there was any reason to believe that the trend had terminated. Having regard to the particular circumstances of the Ferneyhoughs there should have been advice demonstrating how depreciation of the exchange rate would increase the effective interest rate and showing at what level the depreciating exchange rate would involve an effective interest rate equivalent to domestic rates in order that instructions could be given to hedge the exposure. Proper discussion and advice on the Ferneyhoughs' circumstances would have included consideration of the need for, and advisability of, the Ferneyhoughs providing Westpac with standing instructions to Westpac to apply and remove hedges at given exchange rates given that Westpac was unable to predict any long-term trend for the AUD/CHF exchange rate.

96. The major reason why Westpac failed to discharge the undertaking in the terms required described above was the division of responsibility between Mr Look and the managerial staff at the Westpac branch with which Mr Ferneyhough dealt. The managerial staff had no competence to advise in respect of borrowings in foreign currency although able to offer such loans as part of the bank's facilities. Therefore it was not regarded as part of branch management function to be involved in analysis of the suitability of a foreign currency loan for customers such as the Ferneyhoughs. On the other hand Mr Look was either not required or did not undertake any steps to familiarize himself with the relevant information possessed by Westpac in respect of the customers sent to him for interview. He made no analysis of the suitability of foreign currency borrowing for the Ferneyhoughs and did not put himself in a position to offer appropriate advice as to the method of controlling any risk to which that particular customer may have been exposed. The end result was that those questions were never addressed by Westpac in respect of the Ferneyhoughs.

97. The steps referred to above involved no more than commercial commonsense and could have been expected to be carried out irrespective of any forecasts or predictions as to the future strength or weakness of the Australian dollar in world currency markets.

98. Evidence adduced by Westpac from a Professor of Finance, Professor Valentine, to the effect that persons with expertise in foreign currency borrowings and money markets were optimistic about the relative strength of the Australian dollar in 1984 and that no expert forecast the size of the decline of the value of the Australian dollar between 1985 and 1987 provides little assistance in determining whether Westpac discharged its contractual obligation to its customers, the Ferneyhoughs.

99. Mr Ferneyhough accepted that he was made aware by Westpac that borrowings in foreign currency involved a risk in the terms described in the "Euro Market Borrowings - General Guidelines" booklet forwarded to him by Mr Hasenkam and made the subject of the interview with Mr Look. But to be satisfied that the customer was aware that borrowing in a foreign currency involved risk would not discharge the contractual obligation of Westpac to provide sufficient explanation of the nature of the risk and to outline the particular steps that Westpac, as an international banker, considered customers such as the Ferneyhoughs should turn their minds if adequate protection was to provide against the possibility of major loss which may be suffered under the loan facility being offered by Westpac.

100. I am satisfied that after Mr Ferneyhough first discussed with Mr Hasenkam the use of the Westpac facility of borrowing in an overseas currency he extended his regular reading of his newspaper to include the column setting out the current exchange rate of the Australian dollar and Swiss franc but I am also satisfied that this did not translate into any understanding of the full extent of the risk of borrowing in foreign currency and, of course, gave him no insight into the need for or the appropriate manner of use of sophisticated techniques for the management of that risk.

101. The history of Mr Ferneyhough's dealings and experience shows that he employed a most conservative approach, a fact well understood and noted by Westpac. The explanation for his venture into this position of risk was probably two-fold. First, if Westpac was prepared to advance sufficient funds to enable the Ferneyhoughs to purchase the interest of the Bosaids in the Sorrento Shopping Centre, Mr Ferneyhough was keen to follow that course rather than have the property sold as part of the dissolution of the partnership with the Bosaids. Secondly, if those funds were provided by a loan denominated in Swiss francs the low rate of interest on that borrowing made that course attractive and whatever risk was involved Westpac had the expertise to deal with it.

102. However, I accept that the alternative risk of which Mr Ferneyhough had a proper understanding, namely the lack of adequate margin in income from the shopping centre to service the interest costs on a domestic borrowing and the risk of a shortfall if domestic interest rates increased would have caused Mr Ferneyhough to reject a borrowing in domestic currency to finance the purchase if that were the only course available and that, notwithstanding his preference for buying out the Bosaids, the shopping centre and the Ferneyhoughs' interest therein would have been sold. Whilst, therefore, Mr Ferneyhough was susceptible to the attraction of borrowing in a foreign currency I am also satisfied that had there been appropriate description of the magnitude of the risk in such a borrowing and of the extent of the management steps that were necessary for the Ferneyhoughs he would, as he said in his evidence, have declined to undertake such a borrowing. Immediately before his discussion with Mr Look, Mr Ferneyhough was in two minds about the advisability of entering into a foreign currency borrowing and was not at all sure that it was the right thing to do. Although any evidence from Mr Ferneyhough to the effect that he placed reliance upon the advice tendered to him by Mr Look has to be considered carefully, there are objective facts which permit that inference to be drawn, namely Mr Look's note at the conclusion of the discussion that Mr Ferneyhough intended to proceed with an application for such a loan and Mr Ferneyhough's action immediately after the conference in obtaining an appointment with Mr Hasenkam to make such an application. The conclusion is obvious that the content of the interview with Mr Look not only failed to reinforce any doubts Mr Ferneyhough already held but, to the contrary, served to expunge them.

103. Mr Ferneyhough's evidence was given in a straightforward manner without suggestion of dissembling. There appeared to be no artifice in his evidence and concessions were frankly made whenever required. His recollections were not complete and sometimes erroneous but, in general, I found his evidence to be satisfactory.

104. It was suggested that Mr Ferneyhough's failure to make prompt complaint to Westpac when depreciation of the exchange rate in 1985 substantially increased the Ferneyhoughs' potential liability to Westpac, was an indication that not only was Mr Ferneyhough aware of the extent of the risk but that at all times he had accepted it. However, if Mr Ferneyhough's evidence that he was advised from time to time by officers of Westpac employed in Mr Look's department to maintain the borrowing in Swiss francs is accepted, there is little room for that inference. That evidence was not contradicted and should be accepted. Not only was the evidence uncontradicted but it may also be accepted as likely that Mr Ferneyhough would have asked for advice in the terms stated and the continuation of events suggest that advice was given in the form recollected by Mr Ferneyhough.

105. I turn now to the question of negligence. The following comments on the extent of a banker's duty of care made by Lord Finlay L.C. in Banbury v Bank of Montreal (1918) AC 626 at pp 654-655 remain pertinent, notwithstanding his Lordship's dissent on other issues:

"Subject to these considerations a banker may, as

such, give advice on investments to a customer who

consults him, or, indeed, to any one who comes to

him for advice, and whom he chooses to advise. If

he undertakes to advise, he must exercise

reasonable care and skill in giving the advice. He

is under no obligation to advise, but if he takes

upon himself to do so, he will incur liability if

he does so negligently. The extent of the

obligation to care in such cases is well stated in

a passage of the Lord Chief Justice's summing-up on

the first trial. It is as follows:

'Now negligence in a case of this kind

involves a breach of duty. There can

be no negligence in law unless it is

the failure or omission to perform or

discharge some duty which is imposed

upon you. If there is a duty, then the

defendants' servant would be bound to

discharge that duty with ordinary

reasonable care and skill such as a man

would have the right to expect in the

circumstances. What I mean by that is

that, supposing a bank manager does

undertake the duty of giving you advice

(which is the simplest way of putting

this part of the porposition), it does

not mean that for one moment he commits

a breach of that duty if by the

exercise of some extraordinary skill or

care he might have discovered something

which he did not discover, and which

might have affected the advice he had

given. But, on the other hand, if a

bank manager undertakes to advise you,

you are entitled to that care and skill

which you would ordinarily expect from

a man in that position. The question

in this case is whether, in the

circumstances that have been proved

before you, you are satisfied that the

defendants' manager failed to exercise

that care and skill in the advice that

he gave to the plaintiff if he gave it.'

Exactly the same considerations as to giving advice

apply to the case of the manager of a branch bank

with regard to the business which is immediately

under his care as manager."

106. The facts referred to earlier in these reasons which show that Mr Ferneyhough had no commercial knowledge in respect of foreign currency borrowings and sought advice from Westpac in that regard resulting in Westpac undertaking the responsibility to fully discuss with Mr Ferneyhough all aspects of such a borrowing, set the ground for the existence of a duty on the part of Westpac to exercise reasonable care and skill in providing advice and information to Mr Ferneyhough in the circumstances described. Having regard to the relative positions of the parties and the knowledge reposed in Westpac and lack of it held by Mr Ferneyhough, the duty was not confined to some limited aspect of the advice or information provided.

107. It would have been obvious to Mr Look that Mr Ferneyhough knew little about foreign currency loans and that he placed trust in Mr Look as the officer chosen by Westpac, a bank with which he had dealt satisfactorily for many years, to provide the necessary advice on a serious business transaction. It would also have been clear to Mr Look in the course of his discussion with Mr Ferneyhough that Mr Ferneyhough intended to rely and act upon the information delivered by Mr Look. In the circumstances it was reasonable for Mr Ferneyhough to assume at the conclusion of their meeting, and to rely upon that assumption, that Mr Look had provided all information required for Mr Ferneyhough to make an informed decision on whether to undertake a borrowing in a foreign currency. (See San Sebastian Pty. Ltd. v Minister Administering The Environmental Planning and Assessment Act 1979 [1986] HCA 68; (1986) 162 CLR 340 at pp 355-357.)

108. I am satisfied that Mr Ferneyhough's decision to obtain such a loan was made in the course of the discussion with Mr Look. It was not merely coincident with the conduct of the discussion but resulted from reliance upon information provided by Mr Look. I am also satisfied that at that point it was reasonably foreseeable on the part of Westpac that the Ferneyhoughs could incur substantial loss in consequence of that reliance if the information provided proved to be inadequate in the circumstances and insufficient to meet the terms of the duty of care.

109. Consideration of various documents relating to Westpac's participation in this field of business and the formation of policy in respect thereof shows that Westpac was involved in the promotion of foreign currency loan facilities provided by its Singapore branch as a means of expanding its business and in doing so was in competition with other financial institutions. In particular, in 1983-1984 positive steps were taken to offer the facility to customers who would not have been considered as suitable borrowers under such a facility in earlier years. With the removal of foreign exchange restrictions a natural barrier to the use of the facility was removed and perhaps the use of such loans expanded ahead of Westpac's capacity to put in place sufficiently skilled personnel and settled instructions as to prudent practices to be followed by Westpac to advance its interests and to safeguard the interests of unsophisticated customers drawn into such transactions in response to the competition for an expanded market being undertaken by Westpac.

110. Abandonment of previous rules restricting such loans to large corporate borrowers with knowledge of the facility and access to natural hedges and relaxation of a requirement that all such borrowings be hedged raised the level of the obligation on Westpac to provide an explanation of the facility and of the need for and method of management of the risk adequate in all the circumstances for the customer concerned. (See Cornish v Midland Bank Pty. Ltd. (1985) 3 All ER 513 at pp 520 and 521; Commonwealth Bank of Australia v Mehta (1991) ATPR 41-103 per Samuel J.A. at p 52,600; Spice v Westpac Banking Corporation, Unreported (Federal Court of Australia, Foster J., 1 September 1989) at pp 62-63.)

111. The obligation upon Westpac was to exercise reasonable care to ensure that the Ferneyhoughs were provided with an explanation that was adequate in all the circumstances in describing the advantages and disadvantages of such a facility including an adequate description of the alternative means appropriate for Mr Ferneyhough's consideration for minimizing the potentiality for loss inherent in the facility.

112. For the reasons described in relation to the breach of contractual duty I find Westpac breached its duty of care.

113. I now turn to the claim for relief based upon alleged contraventions of s.52 of the Act.

114. Although this claim was pleaded as arising out of conduct consisting of a number of representations made in the course of discussions between Mr Ferneyhough and Mr Hasenkam and Mr Ferneyhough and Mr Look, in the end the case was conducted on the basis that Westpac's conduct was misleading or deceptive in the extent to which the explanation of foreign currency borrowing provided to Mr Ferneyhough by Mr Look was inadequate and in that regard it mirrored the claim based in negligence.

115. Westpac undertook to provide a full explanation to the Ferneyhoughs as banker to customer and thereby engaged in conduct in trade or commerce to which s.52 of the Act refers. To avoid a contravention of s.52 of the Act that undertaking had to be satisfied by an explanation that was adequate in all the circumstances. The circumstances have already been identified earlier in these reasons. The explanation provided by Mr Look was inadequate in those circumstances in that the true nature and quality of the risk was not described and material necessary for an informed decision by the Ferneyhoughs as to whether they should proceed with such a loan was not provided to them. That inadequacy amounted to conduct which misled the Ferneyhoughs and contravened s.52 of the Act. Such a conclusion does not depend upon a finding that the bank's conduct amounted to a failure to discharge a general duty to speak but upon a finding that Westpac had undertaken the obligation to exercise its expertise and provide Mr Ferneyhough with a sufficient explanation to equip the Ferneyhoughs to make a properly informed decision on whether to seek an advance of a foreign currency loan from Westpac. The failure to discharge that obligation caused the Ferneyhoughs to make a decision under the misapprehension that an adequate explanation had been provided. The Ferneyhoughs were thereby misled by the conduct of Westpac.

116. The liability imposed by s.52 in such circumstances attaches to a failure to adhere to a normative level of conduct. It is well explained by Samuels J.A. in Mehta (supra) at pp 52,600-52,601:

"At all events, since his Honour confined himself to

the consideration of a possible breach of s 52, it

is reasonable to give his reference to a duty to

speak a meaning directly material to that head of

statutory liability. I think therefore that what

he meant was that, in the factual context of this

case, any explanation concerning the risks and

management of the contemplated foreign currency

loan which omitted information which a borrower of

foreign currency would need to know and was thus

inadequate, might be likely to mislead or deceive.

Lawyers feel comfortable with familiar principles

and tend to deploy them in aid of the application

of new - and especially new statutory - concepts.

But, as Gibbs C.J. pointed out in Parkdale at ATPR

43, 782; CLR 197:

'The liability imposed by sec. 52, in

conjunction with sec. 80 and 82, is

thus quite unrelated to fault and it

need not involve any infringement of a

right to a trade name, trade mark,

copyright or design.'

While the same circumstances may produce coincident

liability under the general law and under s 52, the

first is plainly not a necessary prerequisite for

the second. Rogers C.J., in the judgment under

appeal, noted that concessions frequently made that

a claim under s 52 must stand or fall with a claim

under the general law may sometimes have been

inappropriate. I agree. Further, since the

liability imposed by s 52 is quite unrelated to

fault, it is difficult to see why the section

should be regarded 'as an attempt to prescribe by

statute a minimum level of probity and fairness to

which commercial behaviour could be required to

conform as a matter of public interest'. I have

quoted from Rogers CJ's reference to the report of

the Swanson Committee in 1976 para 9.52. I would

myself prefer to say that s 52 prescribes what Fox

J. called 'a norm of conduct' (Lionel Brown and anor

v Jam Factory Pty Ltd and anor (1981) ATPR 40-213 at

42,928; [1981] FCA 35; 53 FLR 340 at 348) which should not be

interpreted according to established principles of

liability under the general law and which, since it

may be offended by acts both honest and reasonable

(York and anor v Lucas [1985] HCA 65; (1985) ATPR 40-622 at 47,054;

[1985] HCA 65; 158 CLR 661 at 666), is morally neutral.

Accordingly, it is incorrect to use liability under

the general law as a means of enlivening s 52. As

French J. said (loc cit) silence is not misleading

only where there is a duty to disclose at common

law or in equity. It may simply be the element in

all the circumstances of a case (Taco at 202) which

renders the conduct in question misleading or

deceptive, whether or not it also constitutes

breach of some other precept of law or equity. If

that conduct involves, as here, the provision of an

explanation, it must adequately convey the

information which the recipient reasonably expects

to receive. If it does not it may constitute a

breach of s 52; and it may fail to do so because

the explanation is simply wrong in certain

respects, or because it is silent about material

matters. In either case the explanation given may

be likely to mislead or deceive because by positive

misstatement or by omission it conveys to the

recipient a false impression. I prefer to use the

term 'adequate' to describe the required scope of

the explanation because its lack of colour more

readily suggests a measuring function than do more

forceful words such as full or complete."

(See also Kimberley NZI Finance Ltd. v Torero Pty. Ltd. (1989) ATPR (Digest) 46-054 per French J. at 53,195.)

117. As has been established earlier in these reasons the Ferneyhoughs relied upon the described conduct of Westpac in deciding to enter the contract with Westpac to borrow a foreign currency and it follows that any amount of loss or damage suffered by the Ferneyhoughs was suffered by reason of that conduct. (See Munchies Management Pty. Ltd. v Belperio [1988] FCA 413; (1988) 84 ALR 700 at p 712.).

118. It was contended, however, that no claim for recovery of that amount of loss or damage could be sustained under s.82 of the Act because the action to recover that sum had not been commenced at any time within three years after the date on which the cause of action accrued as required by sub-s.82(2) of the Act. The meaning of this provision of the Act has been considered recently in State of Western Australia v Wardley Australia Ltd. [1991] FCA 314; (1991) 102 ALR 213. It was the opinion of the Full Court in that case that potentiality for loss to be suffered would not be sufficient to establish that a cause of action had accrued under s.82, a matter expressly provided for in a separate cause of action under s.87 of the Act. There must be a crystallization of loss before a cause of action can be said to have accrued for the purposes of s.82. In the instant case the only point where that crystallization occurred was upon the discharge of the foreign currency borrowing in November 1987. The sums paid to discharge interest payments which accrued on the borrowing from time to time did not occasion loss, such cost being less than the equivalent interest cost on a borrowing in Australian dollars notwithstanding adverse fluctuation in the exchange rate.

119. Nor could it be said that on the occasion of each interest payment the loan was repaid and readvanced notwithstanding that the end of the six monthly periods were described as "roll-over" dates. The facility was a continuing facility for a fixed term of five years although at the end of each six monthly period at which interest was payable the borrowers had the option of discharging the foreign currency loan and requesting the advance of a loan in Australian currency.

120. It was further submitted that the date on which a loss was incurred as a result of trading in forward exchange contracts was the date on which a cause of action accrued under s.82 of the Act. At that point the cause of action provided by sub-s.87(1A) of the Act to a person who has suffered or is likely to suffer loss or damage by the conduct of another may have accrued but the cause of action under s.82 of the Act providing a right to recover the amount of loss or damage suffered could not be said to have accrued. The completion of any one forward exchange contract did not mean that the whole borrowing transaction would occasion loss, nor would it permit the amount of loss or damage to be determined. If the AUD/CHF rate of exchange had been more favourable than the rate which applied when the foreign currency loan was repaid in November 1987, the applicants may have suffered no amount of loss or damage as a result of entering the foreign currency loan transaction. That could have been so on the facts of this case even if the exchange rate were less favourable than the rate which applied at the time of original drawdown of the loan.

121. It was then submitted that if the depreciation in the rate of exchange was "substantial", a loss would have been suffered before repayment of the foreign currency loan was due. That argument treats the potential exposure in Australian dollars as an actual indebtedness which, of course, is not the case. The indebtedness of the borrower remains unchanged in the amount of foreign currency borrowed and until the time arrives for the purchase of that currency by use of Australian dollars at the prevailing exchange rate, the suffering of loss or receipt of gain can be no more than a matter of possibility or likelihood.

122. Such a case was Spice (supra) where, although his Honour spoke of financial loss having been established on the balance of probability (see pp 75-76), the relief granted was structured in a form appropriate for a cause of action brought pursuant to s.87 of the Act.

123. The proceedings were commenced well within a period of three years from the time at which a cause of action accrued under s.82 of the Act.

124. I now turn to the claim for losses incurred as a result of dealing in forward exchange contracts between November 1985 and December 1986.

125. Evidence given by Westpac officers, Messrs Murphy and Hatcher, was to the effect that Mr Ferneyhough was conversant with forward exchange contracts. In particular, it was the evidence of Mr Murphy that he informed Mr Ferneyhough that "the manner in which he had been writing forward exchange contracts was straightout punting" and that Mr Ferneyhough had responded that he would worry about any losses when the time came.

126. I find that evidence to be quite unconvincing. The diary note made by Mr Murphy of the relevant conversation provides no support for that recollection. Mr Ferneyhough neither had nor acquired any glimmer of expertise in foreign exchange dealings and the commencement of such dealings on behalf of the Ferneyhoughs was offered by another Westpac officer, Mr Gibson, as a means of offsetting the potential loss facing the Ferneyhoughs by the depreciation of the exchange rate of the Australian dollar against the Swiss franc. The operation of trading in foreign currencies was carried out on the Ferneyhoughs' behalf and at their risk as far as Westpac was concerned but it was not conducted by Mr Ferneyhough and I have no doubt that he understood that such activity was being carried out by Westpac using whatever expertise it had available.

127. The losses incurred on the forward exchange contracts were claimed in the alternative as part of the loss which resulted from the Ferneyhoughs undertaking the borrowing in Swiss francs occasioned by Westpac's breach of duty of care or contravention of s.52 of the Act, or as a new and distinct loss flowing from a separate breach of duty of care or contravention of s.52 of the Act involved in recommending and undertaking foreign exchange dealings on the Ferneyhoughs' behalf.

128. I consider it appropriate to treat the losses incurred in the circumstances as part of the totality of loss incurred under the primary claim. The dealings only arose as a result of Westpac's endeavour to provide some amelioration of the Ferneyhoughs' prospective loss on the foreign currency loan transaction. It was an attempted mitigation undertaken at the suggestion of Westpac and under the control of advice of its officers. It cannot be said by Westpac that the consequences of such dealings were outside any reasonable contemplation of the totality of the loss that could have been incurred as a result of Westpac's earlier breach of duty nor can it be said that the losses flowed from an entirely independent and intervening event. The losses flowed from a misguided attempt at mitigation which Westpac at the time itself considered to be reasonable and the losses should be included in the assessment of the amount of loss or damage suffered. (See Esso Petroleum Co. Ltd. v Mardon [1976] EWCA Civ 4; (1976) 1 QB 801 per Lord Denning MR at p 821.).

129. As to the calculation of the amount of loss or damage suffered it seemed to be accepted by counsel that it was unnecessary to make any separate calculation of the amount to be recovered for a breach of contract and that the same calculation was appropriate for all claims in contract and negligence and under s.82 of the Act, to provide the amount of compensation required to restore the loss suffered. (See Haines v Bendall [1991] HCA 15; (1991) 99 ALR 385 at p 386.).

130. As Lord Denning MR said in Esso Petroleum (supra) at pp 820-821:

"Mr Mardon is not to be compensated here for 'loss of

a bargain'. He was given no bargain that the

throughput would amount to 200,000 gallons a year.

He is only to be compensated for having been

induced to enter into a contract which turned out

to be disastrous for him. Whether it be called

breach of warranty or negligent misrepresentation,

its effect was not to warrant the throughput, but

only to induce him to enter the contract. So the

damages in either case are to be measured by the

loss he suffered. Just as in Doyle v Olby

(Ironmongers) Ltd. [1969] EWCA Civ 2; (1969) 2 QB 158, 167 he can say:

'...I would not have entered into this

contract at all but for your

representation. Owing to it, I have

lost all the capital I put into it. I

also incurred a large overdraft. I

have spent four years of my life in

wasted endeavour without reward: and

it will take me some time to re-establish myself.'

For all such loss he is entitled to recover

damages. It is to be measured in a similar way as

the loss due to a personal injury. You should look

into the future so as to forecast what would have

been likely to happen if he had never entered into

this contract: and contrast it with his position as

it is now as a result of entering into it. The

future is necessarily problematical and can only be

a rough-and-ready estimate. But it must be done in

assessing the loss."

131. The applicants proposed alternate methods for calculating that loss. The first method compared the actual financial position of the applicants at the date of sale of the shopping centre with the notional financial position that may have resulted had the applicants purchased the Bosaids' interest by the use of domestic borrowing facilities. The second method compared a calculated or notional financial position of the applicants at the time of sale of the shopping centre with the notional financial expectation had the Ferneyhoughs' one-quarter share in the shopping centre been sold and the proceeds of sale invested. Although Mr McDonagh was not a beneficial owner of any part of that one-quarter share, no issue was raised that it was inappropriate to include Mr McDonagh in such a calculation of loss.

132. It was the clear evidence of Mr Ferneyhough that had he been fully informed of the nature of the risk and of the nature of hedging and the need to employ constant management of a hedging facility he would not have undertaken the borrowing in a foreign currency. I accept that he had reservations about the proposal before his conversation with Mr Look and that had he been given a better appreciation of the degree of management required for the facility and the need for him to obtain an understanding of the nature of the management techniques available, he would not have taken on the borrowing in Swiss francs and the interest in the shopping centre would have been sold either by a sale of the whole of the partnership interests or by a separate sale of the one-quarter share of Mr and Mrs Ferneyhough and Mrs McDonagh.

133. I am satisfied, therefore, that the appropriate measure of loss in this case is to endeavour to assess the extent of the financial disadvantage the Ferneyhoughs suffered when the shopping centre was sold and the foreign currency borrowing repaid.

134. Using the price paid for the Bosaids' three-quarter share on 1 June 1984, the value of a one-quarter share at that date would have been $575,000. It was submitted that a reduction of that value should be effected to take account of the prospect of the Bosaids' employing their bargaining position to offer a lesser sum to acquire that one-quarter share, or a lesser price being obtained upon sale to a third party, or the net return received being reduced by deduction of an agent's commission upon the sale of a share to a third party.

135. I consider that some reduction should be made to acknowledge those contingencies and a sum of $15,000 would be appropriate. The aggregate funds available to the Ferneyhoughs as at 1 June 1984 upon realization of the interest in the shopping centre would then have been $1,052,810. (See Exhibit LL Schedule 8.)

136. It was contended by the applicants that such a sum would have been invested in bank bills but the balance of the evidence suggests that investments in interest bearing deposits would have been more likely notwithstanding occasional investments in bank bills. I consider it a more realistic calculation in the circumstances to apply the rates of interest available on fixed deposits at relevant times. Having regard to the impact of income tax upon the notional sum earned and consequent reduction of compounded earnings by reinvestment of that interest earned, the notional net financial worth of the applicants as at sale of the shopping centre on 26 November 1987 would have been approximately $1.425m. That sum may be generous in so far as the interest income has not been reduced to take account of the impact of distributions to partners when the actual earnings of interest on the cash flow of the shopping centre may have reflected such a reduction.

137. The calculated financial position of the Ferneyhoughs after sale of the shopping centre and repayment of the foreign currency borrowing was, in round terms, $966,000 after adding back the earnings of the shopping centre including interest on cash flow, having regard to the impact of taxation on those earnings, and adding back the drawings made by partners. The difference is a sum of $459,000 which, after having regard to the contingencies involved in such a theoretical calculation, should be rounded down to $450,000 particularly if regard is given to the prospect that part of the invested sum may have been expended or applied to an ill-chosen investment.

138. The Ferneyhoughs are entitled to interest on that sum from 26 November 1987 to judgment. I have accepted the interest rates set out in Appendix F of Exhibit 68 as the appropriate rates to be applied and an interest rate of ten per cent has been applied for the period of eighty-seven days from 23 August 1991. I have departed from the method of calculation set out therein by making no deductions for income tax. Such a reduction would be inappropriate if it is assumed that the Ferneyhoughs will have a liability for tax upon the judgment pursuant to the terms of the Income Tax Assessment Act 1936 (Cth). In addition I have not considered it appropriate to compound the interest because to do so would overcompensate the Ferneyhoughs by providing a further benefit arising out of the deferred impact of taxation.

139. The amount of interest is $246,264 and the total amount for which the applicants are entitled to judgment is $696,264.