TORT - negligent advice - foreign currency loan - whether duty bank to advise. CATCHWORODS Trade Practices Act s.52 Esther Kullack v. Australia and New Zealand Banking Group Limited & Anor. Qld G7 of 1987 PINCUS J. BRISBANE 4 DECEMBER 1987 on in a oid 7 rN N -*. von cot ane wo ' -\ So rQDECI987, 7) L count GF *,/ FE USTRALIA J / vA IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) GENERAL DIVISION JUDGE MAKING ORDER: BETWEEN : DATE OF ORDER: WHERE MADE: QLD G7 of 1987 ES KULLACK Applicant AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED First Respondent PAUL HARWOOD Second Respondent AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED Cross Claimant ESTHER KULLACK First Cross Respondent VALERIE KULLACK Second Cross Respondent ARMIN KULLACK Third Cross Respondent MINUTES OF ORDER PINCUS J. 4 DECEMBER 1987 BRISBANE THE COURT ORDERS THAT: 1. 2. The application be dismissed. Judgment be entered for the first respondent against the cross-respondents Esther Kullack and Armin Kullack in the sum of 704,320.07 Swiss francs. The applicant and third cross-respondent pay the costs of the respondents of and incidental to the proceedings, to be taxed. Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) QLD G7 of 1987 GENERAL DIVISION PINCUS J. This is ESTHER KULLACK Applicant AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED First Respondent PAUL HARWOOD Second Respondent AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED Cross Claimant ESTHER KULLACK First Cross Respondent VALERIE KULLACK Second Cross Respondent ARMIN KULLACK Third Cross Respondent 4 DECEMBER 1987 REASONS FOR JUDGMENT an application by a lady who borrowed Swiss francs before the recent sharp decline in the Australian dollar; she alleges that the bank from which she borrowed the money engaged in misleading conduct within the meaning of the Trade Practices Act 1974 (s.52) and acted wrongfully in other ways set e out below. The applicant relies principally upon conversations she had with the second respondent (Harwood), an officer of the first respondent. The applicant's version of those conversations differs sharply from that of the second respondent. Resolution of that conflict has been assisted to some extent by my impressions of the witnesses, but depends largely upon study of the documents. The statement of claim in its final version (as amended at the trial) made numerous allegations, but it is not necessary to do more than summarise the main ones here. It alleged that the applicant negotiated with the respondent bank through the second respondent, Harwood, for a loan and for that purpose "allegedly executed a document entitled 'Foreign Currency Loan Application - Form B'". The pleading said in effect that only part of the document was binding on the applicant. It further alleged that, to induce the applicant to sign, Harwood told her, among other things, that she would owe $300,000 pursuant to the agreement, that the rate of interest charged would vary with the exchange rate fluctuations, that the bank would retain $60,000 as a fund to reimburse itself in respect of increased interest payments due to exchange rate fluctuations, and that the Australian dollar was "very good and would not decline". The representations I have mentioned were said to be untrue. The statement of claim also contains allegations of misleading conduct in respect of execution of securities; in substance, the case apparently sought to be made was that the applicant had been induced to give more security than she intended. The pleading also set up that the respondents acted negligently in failing to advise the applicant on such matters as the implications of exchange rate movements, the options available to her to mitigate their effects and the result of the floating of the Australian dollar on 13 December 1983. The bank cross-claimed against the applicant, against one Valerie Kullack and against Armin Kullack, the applicant's husband on documents which, on their face, undoubtedly create liability. Armin Kullack, sued as a guarantor, filed a defence and cross-claim seeking a declaration that certain securities given were void. His defence relied on the matters alleged by the applicant in the statement of claim and also set up certain defences peculiar to Armin Kullack; however, the latter were not supported by any evidence and require no further consideration. There was, at one stage, a dispute about the amount due on the bank's cross-claim but that was resolved. It was not disputed that the total 1s 704,320.07 Swiss francs, nor is it in issue that judgment may be given in that currency. In the result, the only substantial factual issue was what was said between the applicant and Harwood in their various conversations. If the applicant's version of these conversations is substantially correct, then it could hardly be doubted that she is entitled to relief. Speaking generally, my conclusion is that the applicant''s allegations of misleading conduct on the part of the bank (through Harwood) cannot be accepted. The applicant gave evidence that she went to see the respondent bank with a view to borrowing money to finance the erection of home units on a block of land she owned at Yeppoon, a seaside town near Rockhampton. She had $85,000-$95,000 on hand and the building was to cost in excess of $200,000. Her evidence was that she applied to the Commonwealth Bank at Yeppoon for a loan, in September 1983, and that bank approved a "domestic loan at about 15%". The applicant said she did not accept the loan from the Commonwealth Bank, but, being dissatisfied with its attitude, "went to the A.N.Z. to see if I can get to make a comparison to see how the other bank work". Accordingly, she went to see Harwood at Rockhampton and discussed the matter with him. The applicant's version of events was that Harwood explained that a domestic loan from his bank would be similar to that offered by the Commonwealth Bank but suggested as an alternative an offshore loan at "slightly lower interest". He did not claim much knowledge of offshore loans, but said he would contact head office about it. Harwood's version of this anitial contact is quite different. His evidence was that he was at the relevant time "Manager 1" at the Rockhampton branch of the respondent bank, his responsibility being principally to look after the "alphabetical split of accounts from N - Z on the lending side". He was not the manager, but an assistant manager. Harwood said that when the applicant came in, she told him she had applied to her own bank for an offshore loan and they would not give it to her, and said that a friend of hers, a Mrs. Anne Georgi, had recommended that the applicant come to see Harwood. The applicant's opening remarks included, according to Harwood, that she wished to borrow money in foreign currency. Speaking generally, where the recollection of the applicant differs from that of Harwood, I think the latter is more reliable. On the other hand, I am not satisfied that Harwood had as good a recollection of the relevant conversations as he claimed to have and think that in some respects his evidence cannot be entirely relied on. As to the question whether it was the applicant or Harwood who first suggested the possibility that a loan in foreign currency might be obtained, I have been unable to reach a firm concluded view. The matter has some importance, as has the broader question whether the dealings between the respondent bank and the applicant were such as to make the latter think that she was entitled to rely on the respondent for advice about her offshore loan. Harwood insisted that he had elaborately warned the applicant about the consequences of borrowing in Swiss francs. He claims, in particular, to have told the applicant at one stage: --. we would require 20 percent of the initial Australian equivalent of the principal to be lodged on term deposit, with a charge taken over that term deposit, to assist the claw-back provision. We required a one hundred percent claw-back provision or a full claw-back it was called. That means that, in this instance, a loan of $300,000, with $60,000 in Australian, held on term deposit. If the value of the Australian dollar dropped, so that the Australian equivalent of the loan became, say, 400,000, we would require her to claw-back the Australian equivalent of the loan back to the original figure of $300,000 which was the amount of exposure we were prepared to accept." My impression, derived from hearing Harwood's version of the initial interview and that of the applicant, is that the truth, on this point, may well lie somewhere in between the two versions. Iam not satisfied that Harwood recommended to the applicant the taking of a loan in Swiss francs, nor that he rather discouraged her in relation to the proposed transaction, as he claims to have done. But the onus is on the applicant; she must ebtain findings in her favour and not merely induce a state of uncertainty. To return to the applicant's story, she said that she had no understanding of the meaning of "offshore loan" hefore Harwood mentioned it, but that he explained that he meant by such a loan that the interest rate, which would be between 8% and 12%, would alter according to the currency brought. He examined her building plan and the security she had to offer and expressed the view that the loan would be "all right". The applicant went on to say that Harwood said the loan needed approval from the Reserve Bank. She then thought it "did sound like a good loan" and asked for $200,000; Harwood said he thought that amount was "all right". He told her that "they were going to buy some currency... and he mentioned the Swiss francs and U.S. dollar." He then said in effect that if the loan were obtained in Swiss francs the interest rate would be 8% - ',.- and I said, "Is this good?", and he said, "Yes, it is good".' Harwood, of course denied that the conversation just recounted occurred. The applicant said there was then a conversation at her house at Yeppoon, during which Harwood expressed optimism about the granting of the proposed loan and took certain title deeds. Shortly after that, he told her that the minimum loan would be §100,000 more. She was "petrified", and said she did not want $300,000. He reassured her and said she did not have to worry about it, because what was not spent could just be kept in the bank and "there was $60,000 that he was going to keep for security in case there is any changes in the interest that I was going to pay ..." Subsequently, she received a letter to say that the loan was approved. In this phase of her evidence the applicant also put forward a vague and improbable case that she was misled about the securities for the loan. Harwood said, as I have mentioned, that the applicant expressed a desire at their first meeting to borrow in a foreign currency and that he explained to her in detail what was involved in that - i.e. that whatever the exchange rate was at the end of the loan would determine the cost of repaying it in Swiss francs. He claims to have discussed hedging with her and shown her an international bulletin setting out the interest rates for borrowing in different currencies, and also the cost of hedging. He says he explained the notion of "clawback" to her, as mentioned above. The applicant, according to Harwood, had a great deal to say about the strength of the Australian dollar and that of the Swiss franc and their relationship one to the other. She said: -.. if there are any fluctuations in the Australian dollar against the Swiss franc, they obviously will happen from time to time and probably over a three year period they could quite well even themselves out." He agreed with the applicant that he had told her that the minimum possible loan of the type sought was $300,000; the veracity of that assertion was in the end not challenged. Counsel for the applicant, Mr. Carmody, who presented her case very competently, suggested that the evidence supported the view that her obligation to repay the loan was one to pay the principal sum of $300,000 Australian and not to repay the original amount of Swiss francs borrowed. I do not accept that either the oral or the written evidence supports that conclusion. I think that the applicant is a person of limited business knowledge and experience, but she must have been aware that there was some essentially different characteristic of the offshore loan which explained its being offered at an interest rate only about half of that available domestically. I am satisfied that she appreciated from the outset that she had to repay either the amount of Swiss francs borrowed or its Australian equivalent at the time of repayment. I do not believe her lack of commercial sophistication was so complete that she was able to convince herself that there were simply two alternative sources of loan capital, one at 8% and the other at 15%, the former having no substantial disadvantage but simply possessing the characteristics (irrelevant from the customer's point of view) that it was derived from a foreign source. I am inclined to think that the applicant exaggerated her commercial or pecuniary naivety. In particular, the assertion mentioned above, that the applicant required to be assured by Harwood that an interest rate of 8% was good, cannot be accepted, nor do I attach any credence to the evidence that Harwood misled her about the purpose of the $60,000 in the conversation I have referred to. I accept Harwood's denial that there was any such conversation although (as the applicant admitted) he did not, at the time of his initial conversations with the applicant, have any extensive knowledge of offshore loans. Iam satisfied that he appreciated precisely what the $60,000 was for. He had no reason to mislead the applicant about the matter and I do not believe that he did so. Other aspects of the contacts between the applicant and the bank are dealt with in the following analysis of the documents. On 16 November 1983, Harwood completed a bank form purporting to set out the financial position of the applicant and that of Armin Kullack. It showed nett assets of $591,500 and mentioned that a loan was desired to assist in the erection of the eight home units. On the same date, Harwood prepared an application for an advance to Armin Kullack. He described the nature of the liabilities as "offshore loan in Swiss francs" and the "recommended limits" as "AUD300,000". The interest rate was said in the document to be "ruling for Swiss francs (unhedged) say 4.4% + 2.5%". Under "funding" the application said: ' 10. "It is proposed to fund the entire development with proceeds of this loan. Applicants own funds will be used to hedge their exchange risk and to meet any cost overruns." By way of explanation of this remark, Harwood gave evidence to the effect that the "own funds" were to be derived from proceeds of the loan. In my opinion, that cannot be the proper construction of the expression. The reference to the use of the applicants' own funds to hedge their exchange risk received no plausible explanation, as neither the applicant nor Harwood claimed that anything was said between them to justify 1t. In ny opinion, nothing was so said and the reference to use of own funds for hedging was at best hyperbole on Harwood's part. The application concluded with a favourable recommendation "in view of the viability of the project and the worth of the business to be gained from C.T.B." On 21 November 1983, Armin Kullack wrote to the Reserve Bank of Australia asking "what details you require from us to ensure a smooth finalisation" of a transaction described as borrowing "Three hundred thousand dollars ($300,000) in offshore funds". I had some doubt, during the hearing, as to the admissibility of such documents against the applicant, but it became clear that she had authorised them. On 23 November 1983, an officer of the bank replied to the application Harwood had sent, declaring his dissatisfaction with the applicant's ability to service the borrowings and meet - ll. associated costs. The memorandum concluded with an intimation of preparedness to reconsider the request. On 24 November 1983, an officer of the Reserve Bank wrote a letter to Armin Kullack referring to his letter of 21 November 1983 and asking for further details of the proposed offshore borrowing. On 27 November 1983, Armin Kullack replied by a letter which included the following: "Amount and currency of the loan: Swiss francs - $300,000 (Three hundred thousand dollars)." On 1 December 1983, Harwood replied to the memorandum from head office reaffirming his support of the proposal for the loan and discussing the adequacy of the security. On 6 December 1983, the Reserve Bank wrote to Armin Kullack "concerning the proposed borrowing of Swiss Francs equivalent of §A300,000". The letter pointed out to Mr. Kullack that he didnot "hold any authority to borrow the foreign currency ..." It said, "It will now be necessary for the bank referred to to seek our authority to lend foreign currency to you." On 7 December 1983, a memorandum was sent from head office advising that "we have sought management guideline Clearance for the facility ..." Among the conditions specified was the following: 12. "Margin over SIBOR is 2.5%. Establishment fee is $1,500-00. Six monthly rollovers with full clawbacks to apply. The $60,000 T/D funds are to be utilised for this purpose. Please ensure that customers are made fully aware of the implications of adverse exchange rate movements and the existence of 10% Australian Withholding Tax which will be payable by then." On 13 December 1983, two important events happened. The more important was that the Australian dollar was "floated"; that was expected to and did lead to more rapid changes in its value against other currencies. Further, a Mr. Lindsay, relieving manager, informed the applicant that "your recent request for an offshore loan in Swiss Francs (Australian Equivalent $AUD300,000)" was approved subject to certain conditions, being those mentioned in the memorandum from head office of 7 December. Mr. Lindsay's letter of 13 December set out the condition I have quoted above, down to the words "utilise for this purpose". It concluded with the following paragraph: "In addition, please give due consideration to the implications of adverse exchange rate movements and the existence of 10% Australian withholding tax which will be payable." It may be remarked that inclusion of the bald statement just quoted could hardly have accorded with the intention to "ensure that customers are made fully aware" of the matters mentioned. 13. A copy of the letter of 13 December from which I have quoted was tendered and purports to be signed by the applicant, as evidence of receipt. She challenges the authenticity of the signature, but I am satisfied that it is hers. On 11 January 1984, Harwood wrote a letter to the applicant enclosing "foreign currency loan application form B". The letter asked that the applicant peruse the form but not sign it. The applicant denied having received the form and various points were made about it. I see no reason to doubt that the letter and the form were sent to be read by the applicant. Her version of events was that until 1986 she had seen only the last two pages of the 8-page form, that she initialled page 7 and signed page 8. I do not believe that. It seems quite unlikely that the applicant would have signed (as she claims to have done) a document which was only part of a larger whole. I find that the applicant initialled the 7th sheet and signed the 8th at a time when the whole was collected together and after having had ample opportunity to study it all. The form made it clear that the obligation to repay was to repay in Swiss francs. It provided for six-monthly "rollovers", as it was put, meaning inter alia that each six months interest fell due and also the bank had a right to "clawback". This word is a short way of referring to liability to pay at each rollover date the amount (if any) by which the Australian dollar equivalent of the loan exceeded its original value. In practice, the bank did not insist on such payments 7 14. being made on the due date, but simply added the liabilities to the applicant's account. On the same day (24 January 1984) the applicant signed a "notice of drawdown" requesting that the "Australian dollar equivalent of the foreign currency funds" be credited to a nominated account in the name of the applicant. On 10 February 1984, that was done. On 3 October 1984, Harwood prepared a review of the advance. At that time the Australian dollar was at a higher level as against the Swiss franc than it had been at the time of the advance. There was no reason to expect trouble, nor did Harwood, in my opinion, have any motive to paint a false picture. After discussing the building work and the state of the bank's security, Harwood remarked: "Mrs. Kullack has queried as to her ability to change currencies at next rollover date if she so desires and your advices inthis regard will be appreciated." I infer that the applicant did make such a request. It was answered by a letter from Harwood dated 29 November 1984 saying, in effect, that if the applicant desired to change currencies it would be necessary to make out a fresh foreign currency application, but that would not incur any further charges or stamp duty. 15. According to a graph which was tendered (Exhibit 5), the Australian dollar reached a peak against the Swiss franc of about 2.2 francs to the dollar in February 1985, but then began to fall sharply. On 27 March 1985, the area manager sent a circular out, which Harwood received, dealing with "foreign currency exposures". The theme of the circular was that customers with unhedged foreign currency commitments - a category including the applicant - should be looked at carefully and the position discussed with them. However, no specific remedial steps were suggested. The circular asked for a "brief summary of the branch position" and that was supplied by Harwood on 19 April 1985. He referred to only one foreign currency loan, being that of the applicant. He remarked: "Position has been discussed with customer. At date of interview, shortfall was $68,000. We already hold $60,000 on T/D to meet any such contingency." Again, 1t seems safe to infer that Harwood did indeed discuss the position with the applicant and in particular discussed with her the "shortfall". The record of that discussion is I think part of exhibit 6. It appears that Harwood drew attention to the ""clawback adjustment required", which was $68,343, and discussed with the applicant the possibility of investing that sum in Swiss francs. However, as he freely conceded during the course of his evidence, the suggestion was quite impractical, because she did not have the money. The fall in the dollar against the Swiss franc continued and by about May 1985 only 1.6 Swiss francs were necessary to buy an Australian dollar, whereas in February, as I have mentioned, .. 16. the figure had been 2.2. There was some recovery, but then the decline continued. On 15 August 1985, Harwood wrote to the State manager referring to the clawback differential of $76,815.98 and mentioning that $16,815.98 was necessary to make up the difference between that figure and the $60,000 term deposit. He said that the applicant did not have so much cash and had approached the office asking that $10,000 be released from the $60,000 to enable further improvements to be made to the units. Harwood recommended that that be done. On 5 February 1986, the applicant wrote a letter to Harwood referring to a conversation of 3 February 1986. She asked for the release of certain titles given as security and said: "Even allowing for the current weakness of the Australian dollar our loan of (now) of $440,000 is fully secured by the value of the townhouses plus the $60,000 retained by the bank." It is difficult to reconcile the passage I have quoted either with the view that the applicant was unaware that her liability to repay was dependent upon the value of the Australian dollar against the Swiss franc from time to time, or with the view that she had come to accept such a liability by misrepresentations made by Harwood. As to the latter point, one would have expected the misrepresentations to be at least alluded to when reference was made to the current state of the liability. On 18 February 1986, Harwood wrote to the area manager, referring to the inability of the applicant to "meet clawback" and discussing her request to have securities released. Harwood concluded with an "of 17. inquiry as to the stage at which the bank would be likely to sue to recover its money if there were a further decline in the dollar. He said "... customer may need to give thought to selling sufficient real estate to clear loan by August 1986 or at least to be able to bring the loan onshore by that time." On 12 March 1986, the applicant was given a copy of the foreign currency loan application form B, whose execution was the subject of the controversy dealt with above. The applicant claimed that she was first given the form on that date - i.e. 12 March 1986 - but I have found that not to be so, above. On 7 March 1986, Harwood wrote to the applicant declining her request to release some security and referring to her loan being, as at the last rollover date, $148,810.38 in excess of the original amount. He drew attention to that sum's being $88,810.38 more than the $60,000 held, but said that "the bank is willing to let this matter lie for the time being". He added that, 1f any of the mortgaged properties were sold, the bank would require the proceeds to be lodged on deposit to meet the clawback provision and bolster the bank's security. Again, it is noteworthy that the complaints made by the applicant before me were not evoked by that letter. One would have expected the applicant to query her liability in the stated sum ($448,810.38). On 4 April 1986, the applicant wrote to Harwood referring to the letter of 7 March 1986, but making no complaint - 18. as to the size of the asserted liability. She did complain, however, of Harwood''s failure to obtain the release of certain securities. On 8 April 1986, Harwood wrote again to the applicant referring to the letter of 4 April. He drew attention to the possibility of her purchasing a forward exchange contract on the payout date, bringing the loan onshore. He set out the Australian equivalent of the then Swiss franc value of the loan as being $468,484.64. That letter elicited neither denial of liability, nor complaint as to the way in which the liability was said to arise. On 17 April 1986, in response to a telephone call, Harwood wrote again to the applicant, setting out the exchange rate and interest liability at each rollover date. The applicant and Armin Kullack wrote on 11 June 1986 to the Reserve Bank enquiring as to the date on which it became policy that "private people in my category could get overseas loans". On 16 June, the applicant wrote again to the Reserve Bank, asking for a copy of "the Reserve Bank authorisation which was required" at the time she obtained her loan. These letters are perhaps of minor significance, but they tend to give some little weight to the considerations which I have emphasised above, namely the applicant's failure to respond to Harwood's communications in a way consistent with her present stance. As the correspondence with the Reserve Bank demonstrates, she was quite capable of pursuing her interests by letter. On 4 July 1986, the applicant wrote again to the Reserve Bank asking for reasons for refusal of authority "to borrow Swiss francs". The terms of that letter seem inconsistent with her assertion before me that she thought she was borrowing Australian dollars. - 19. On 8 July 1986, Harwood wrote to the applicant again, setting out the method of calculation of interest payable on the loan and concluding: "In view of the continuing decline in the Australian dollar, the bank will be undertaking a review of our attitude towards continuation of this loan and they will contact you shortly in this regard." The implication was, clearly, that the decline mentioned had affected the applicant's liability. On 7 August 1986, Harwood wrote to the applicant saying that, in view of the continuing decline in the dollar, the bank was no longer willing to continue the loan on = six-monthly rollovers, but prepared to do so on 30-day rollovers. The letter referred to the applicant's having told Harwood that she believed she could refinance the loan 1f necessary. On 5 August 1986, the bank's area manager wrote to the Rockhampton manager, pointing out that the selling rate for Swiss francs had dropped to 0.99, increasing outstandings to $628,787.88 Australian. The letter required the Rockhampton manager to interview the applicant. On 13 August 1986, Harwood served notice of cancellation of facility and of demand on the applicant, and on 14 August 1986 served a notice of demand on Armin Kullack. On 23 August 1986, the applicant wrote to the bank in Brisbane referring to a question which had been asked at an interview: "Why should the bank waive $300,000?" The letter said: 20. "By the time I will have paid the $300,000 loan (assuming it takes a further seven years) my costs in connection with the home unit project will be in excess of $760,000." The mode of calculation of the $760,000 was not set out, but seemed probably not to include any allowance for the capital loss consequential upon the decline of the dollar. The tone of the letter, however, is difficult to reconcile with the notion that the applicant believed herself to have been misled by the bank or believed herself not to be under legal liabilities of the kind which had been repeatedly asserted by Harwood. On 19 September 1986, the area manager wrote to the applicant threatening to "proceed against you for judgment and realise on securities held". The letter asked, in effect, whether the applicant would prefer the loan to be converted to another currency or forward exchange cover to be purchased. It concluded with a statement of alleged total liability of $650,750.58 Australian. On 15 September 1986, the applicant wrote to the bank in Brisbane, referring to interviews she had had and to her past history and making, for the first time, complaints similar to some aired before me. The applicant said in her letter: "I entered a contract with the bank which clearly limited my liability. My entire saving is at stake, yet, I only wanted $200,000 from your bank! It is ridiculous for the A.N.Z. Bank to ask me to pay for the inexpertise of Harwood, for raw material not selling on world markets, M-X missile politics etc. ..." 21. A later passage in the letter repeated the suggestion of negligence on Harwood' s part, but did not assert any misrepresentation. On 2 October 1986, the bank issued a writ in the Supreme Court of Queensland claiming $615,015.06. A defence was delivered setting out misrepresentations like those alleged in the proceedings I have heard. On 23 January 1987, the applicant brought these proceedings; the statement of claim went through a number of variations, but I do not think they are of any great importance. There was further correspondence, again not easily reconcilable with the applicant's case, but it is superfluous to discuss it. I turn to another aspect. A separate complaint made by the applicant was, as I have indicated, that Harwood misled her and broke agreements with respect to the securities to be taken. The central point of this part of the case was an assertion that it was agreed that, when the building was finished, the security would be reduced. The applicant's account was, in summary, as follows. She told Harwood that the building would be finished within eight months and the security should then be confined to mortgages on the units, a proposition to which Harwood readily agreed, with the qualification that he would have to satisfy head office. Harwood also said that the block of land on which the units were to be built would not have to be mortgaged. He further agreed that not 22. even the whole of the units would ultimately have to be mortgaged, but only such part of them as represented the $300,000. Ido not believe this account and accept Harwood's denial of it. I am satisfied that there was a discussion between the applicant and Harwood as to what would happen with respect to security when construction of the units was finished and that something was said about the possibility of reduction of security at that stage. I cannot, however, believe that Harwood agreed that the security would have to be reduced to such a number of the units as amounted to $300,000 (leaving the bank with no margin at all), and it seems improbable that any bank manager would agree that the very land on which was being erected the building whose construction the bank was financing would remain free of mortgage. I find that no assurance of the kind sworn to by the applicant was given by Harwood with respect to abandonment of securities. It is desirable now to return to the claims made in the statement of claim, in its final version. The pleading alleges that Harwood told the applicant that only certain securities would be required - not being those in respect of which mortgages were, in the result, given by the applicant. For the reasons I have explained, I reject that contention. Next, it is said that Harwood told the applicant that she would owe the bank, under the agreement, only $300,000. I am not satisfied that is so and think the contrary to be true. my 23. It is alleged that Harwood said that the rate of interest charged would vary with fluctuations in the exchange rate. I do not believe that. Harwood appeared to me an intelligent and competent person who would be unlikely to have held the opinion that there was such a simple relationship, nor can I think of any reason why he should have so misinformed the applicant. Next, it is said that Harwood promised that the $60,000 would be a fund out of which the bank could reimburse itself in respect of fluctuations in interest caused by exchange rate fluctuations. I reject that, for the reasons I have explained. It is further alleged that Harwood said the Australian dollar "was very good and would not decline". The allegation seems in the particular circumstances of this case rather fanciful, but must in any event be rejected because the applicant gave no evidence that such a statement was made. Next, it is said that Harwood claimed that the minimum amount in which a loan such as was sought could be approved was $300,000. I find that he said that; there was no evidence that the statement was untrue. The statement of claim further raises a case in negligence, alleging that the respondents owed the applicant a duty to advise her carefully. I accept that, as contended by Mr. Carmody, such a duty may arise, even before any loan is made or money deposited - i.e. when the applicant is merely a potential "a 24. customer: Woods v. Martins Bank Ltd. £19593 1Q.B. 55 at p.72. Mr. Carmody referred me to the remarks of Brennan J. in San Sebastian Pty. Ltd. v. Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 68 A.L.R. 161 at p.182 in which his Honour suggested three conditions which must be satisfied to give rise toa duty of care "Where a_ representor gives information or advice on a_ serious or business matter, intending thereby to induce the representee to act on it..." The three conditions his Honour mentioned would have been satisfied here if the applicant had asked the bank for advice about offshore loans, their making and their management; had the bank accepted the position of advising her on those matters, a duty to take care may well have arisen. Senior counsel for the bank, Mr. Muir Q.C., pointed to evidence which was given in this case to the effect that no formal advisory service with respect to relevant matters was established by the bank until considerably after this loan was negotiated. However, common sense and the evidence of Mr. Mills (an officer of the bank) support the view that customers commonly are encouraged to, and do, rely upon bank managers for advice with respect to their financial affairs, and more particularly with respect to the availability and characteristics of loans from or through the bank. The difficulty the applicant had as to her case in negligence is not a legal one, but a factual one: I am not satisfied that her account of her dealings with Harwood is true; I have discussed that in detail above. Further, the applicant admitted that Harwood claimed no special knowledge of offshore loans and claimed to be doing no more than passing onto her information he obtained from head office. I am not satisfied that Harwood gave her such advice as she alleges and, in particular, am not satisfied that he advised her to apply for the loan in question. It is said in the statement of claim that Harwood was negligent in failing to tell the applicant that if the value of the Australian dollar fell as against the Swiss franc, the amount of principal would increase accordingly. I do not know if Harwood told the applicant that in so many words, but I am satisfied that she was aware of the fact. Next, it is said that Harwood was negligent in failing to tell the applicant that the floating of the Australian dollar made such a fall "possible and/or likely". It appears to me, on the evidence, that this allegation could have substance only if the applicant acted on Harwood's advice in deciding to take out a loan in Swiss francs. Since I am not satisfied that he gave such advice, the matter becomes academic. Next, it is said that Harwood failed to advise the applicant to hedge against the fail of the Australian dollar. The applicant could have hedged between rollovers, but to do so would have made the taking of an offshore loan rather pointless; the cost of hedging would have been approximately equivalent to the interest rate saving. I am satisfied on the evidence of Mr. Mills, just mentioned, that the taking of the Swiss franc loan was, from the applicant's point of view, an 26. imprudent transaction. That is so, not because in the result it proved a disastrous course, but because, particularly after the dollar was floated, the risk involved in taking a loan corresponding to more than half the value of the applicant's nett assets (mostly real estate) was unreasonably hazardous. Even the movement in the relative values of the Swiss franc and Australian dollar prior to the date of the loan illustrated that there could well be substantial exchange rate changes over the three year period. I have given consideration to the question whether it was negligent of the bank not positively to advise the applicant against the proposed loan transaction. Harwood, although he claims to have given warnings about exchange rate fluctuations, does not say he gave such advice. Whereas in some circumstances the failure positively to advise such a customer against an offshore loan, the customer being one reliant on the bank for advice, might be negligent, in this case I am not satisfied that the applicant indicated any reliance on the bank for advice as to whether to borrow Swiss francs and this allegation therefore also fails. It is further alleged that the bank was negligent in not informing the applicant of "the specialised services by the first respondent to minimise the effects of" the uncertainty of the exchange rates and the like. I do not know what the applicant's state of mind was as to the possibilities of protecting her position. There is, as mentioned above, direct evidence in the correspondence that she discussed with Harwood the possibility of changing currencies. It r; 27. is likely that she appreciated that the loan could be converted to one in Australian currency. It may seem odd that the bank had no regular system, at least from the time the dollar was floated, of advising those of its customers who were liable to repay its loans in foreign currencies about the possibility of reducing or eliminating the attendant risks, but as I do not find in favour of the applicant that she was unaware of the possibility of changing the loan to one in Australian currency at any material time, it is not necessary to pursue that point further. The pleading also raises a number of what might be described as technical points, under money lending legislation and under the Currency Act 1965; those matters were not pursued. Mr. Carmody argued, however, one other argument which requires mention, namely that there was no concluded agreement. He said that the only direct evidence of the execution of the loan agreement is that of the applicant, and that on that evidence I should find that the parties were not ad idem - the applicant intending to contract in terms only at the last two pages of the form B, and the bank intending to contract on the basis of the whole of it. The argument fails because I am, as mentioned above, satisfied that the applicant executed the form at a time when it was complete. In the result, all the contentions put forward on behalf of the applicant fail. It is unnecessary, in my opinion, to give any separate eration to the case of Armin Kullack. The defences which ' 28. were pleaded on his behalf were not supported by any evidence except that of the applicant, which has already been dealt with. There must be judgment for the respondents on the claim and judgment for the cross-claimant on its cross-claim in the sum of 704,320.07 Swiss francs. 2 . ' Certify that this and the 27 Pages are a true copy of the roasons for Judgment herein of His Honour Air. Justice Pincu ° SLE Associate Basted 46 December 1987