Fisher, I.H. v Commonwealth Bank of Australia

[1990] FCA 405

Re: IAN HAMILTON FISHER and JOAN ROSEMARY FISHER
And: COMMONWEALTH BANK OF AUSTRALIA
No. G766 of 1988
FED No. 405
Banker and Customer

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Beaumont J.(1)

CATCHWORDS

Banker and Customer - Foreign currency loan - whether conduct of bank misleading or negligent - reliance

HEARING

SYDNEY

#DATE 10:8:1990

Counsel and solicitors R.M. McDougall instructed by
for applicants: Messrs Davies and Spicer

Counsel and solicitors D.M.J. Bennett QC and P.M.
respondent: Jacobsen and J. Marshall

instructed by L.E. Taylor

ORDER

Application dismissed.

The applicants pay one-half of the respondent's costs.

Cross-claim stood over to a date to be fixed.

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

JUDGE1

The background to these proceedings is described in the findings of fact published on 16 May 1990, annexed to, and forming part of these reasons, together with supplementary reasons published on 1 August 1990, also annexed.

1. By consent of the parties, submissions have now been made on certain further issues. I now make the following findings on these issues.
   A. The applicant's case based on ss.52 and 53 of the Trade Practices Act
   (1) The meeting with Mr Green in August 1984

2. The material allegations in the second further amended statement of claim with respect to the statements alleged to have been made at the meeting with Mr Green in August 1984 are contained in paras. 8, 8A and 9 as follows:
   

8. "(a) a foreign currency loan in Swiss francs was safe;" This allegation is no longer pressed. "(b) a foreign currency loan facility was the best facility for the Applicants' needs;" This allegation is no longer pressed. "(c) a Swiss franc loan facility was a cheaper form of finance than an Australian currency, or on-shore loan;" This allegation is no longer pressed. "d) Swiss francs were the most stable currency to borrow in;"

This allegation is pressed.

I have found that, on this occasion - Mr Fisher said to Mr Green:

"Could you tell me which would be the most desirable (foreign currency) to borrow in?" Mr. Green said:

"Swiss francs would be most desirable because they are the most stable, and they have been the most popular to date."

1. There is evidence that the Swiss franc was the most stable of the relevant foreign currencies in relation to the Australian Dollar before and after the Dollar was floated. On behalf of the applicants, it is said that Mr Green should have given a more sophisticated analysis of the relative exchange movements of the Swiss and Australian currencies. It is not necessary for me to deal with this argument because, for reasons to be given shortly, I have concluded that the applicants have failed to establish reliance, in any material sense, on anything said, or not said, by Mr Green.
   

"(e) A Swiss franc loan attracted an effective interest rate of 7.5% per annum being interrest of six per cent (6%) plus the respondent's lenders' margin of once and a half per cent (1-1/2%);" This allegation is no longer pressed. "(f) that the value of the Swiss franc was most unlikely to fluctuate against the value of the Australian Dollar by more than ten per cent (10%) above or below the then existing level;" This allegation is no longer pressed. "(g) (As amended on 17 July 1990), that the Applicants did not need to know about hedging because the cost of hedging added to the interest rate would bring the cost of the loan up to being comparable with an on shore loan"

1. This allegation is pressed. The applicants do not seriously dispute that the cost of hedging the whole loan for its full term would approximate the interest cost of an onshore loan. But the applicants say that Mr Green should have advised the applicants that it would have been in their interests to hedge partially at certain times during the term of the loan.

2. Even if it could be said that, in the course of the conversation with the applicants, Mr Green should have given such advice, a matter I need not and do not decide, the applicants have failed to satisfy me that anything said, or not said, by Mr Green in August 1984 had any bearing at all upon their decisions (a) to enter into the loan transaction with the Forster branch of the Bank in March 1985 or (b) having entered into the loan arrangements, to monitor or otherwise manage it in any particular way. On the contrary, I am satisfied that the applicants made up their own minds how they would act in these respects quite independently of anything said, or not said, by Mr Green on this occasion. Before and after the meeting with Mr Green, Mr Fisher made extensive inquiries about foreign currency loans with a view to satisfying himself of the possible advantages and possible disadvantages, of entering into such a transaction. Mr Fisher had many lengthy discussions with Mr Parton, his financial adviser at the time. It will be recalled (findings p 33) that in the loan application prepared by Mr Parton in December 1984, reference was made to the necessity "to come back onshore because of adverse exchange risk". Mr Fisher spoke with his accountant, Mr Crossman, concerning this matter. He also had a discussion with Mr Shaw in November 1984 and, subsequently, with Mr Vanner. In addition, he recorded in a notebook numerous discussions with bankers or financiers at this time about many of the aspects of an offshore borrowing. Notwithstanding Mr Shaw's negative reaction, Mr Fisher agreed in his evidence that by the end of 1984 he had made up his mind to obtain a foreign currency loan and was actively searching for a property which could be used as a security for such a borrowing.

3. Mr Fisher wrote a letter to a local newspaper in April 1985 making it clear that he had made up his own mind to borrow offshore and to monitor and manage that loan himself. The letter which accurately indicates his state of mind over this period, was in these terms:
   

"Sir - Traditionally in Australia the acquisition of a farm or property was seen as achieving security financially, as well as following a desired vocation. Only the latter holds true today. Successive socialist governments - be they under the Liberal or Labor banners - in their quest for the city vote, have eroded the viability of rural production. It is now the most hazardous business venture in Australia. (See Julian Cribbs - "Desperation Forces New Farm Exodus" - National Farmer April 4. It is becoming increasingly obvious to the alert primary producer that he must obtain some form of off-farm income if he wishes to stay on the land. Events of the last few years clearly spell that out. But he has no surplus income to invest. One avenue that could be open to him is to maximise his borrowings and buy a business or real estate that has a clearly established cash flow. He may feel that debt is abhorrent and is probably the cause of his current position. But this is because he has always had to service his loans from in-farm income. He knows what it is like to live with these loans in years when he has no income. Not viable

He will also argue that no real estate or business in Australia is sufficiently viable to sustain redemptions and the current high rate of interest. The answer to this dilemma could well be foreign currency loans. The term to be five years with no principle (sic) repayment, and an interest rate of about seven and a half per cent to be paid half yearly in arrears.

If an off-farm purchase is neither possible or desirable, it is still possible to defer redemptions (until property earnings have increased) and minimise interest by going offshore. It will also generate additional income to be ponded up for ultimate repayments.

As an example - Our producer has assets valued by the bank at $500,000 and a debt of $100,000 - interest at 16 per cent and redemptions on the latter are killing him. He borrows the maximum overseas (65 per cent) he can and receives $325,000; he pays out his debt and costs totalling $110,000 and places the remaining $215,000 on interest bearing deposit at his bank at 14 per cent = $30,100. Out of this he pays his interest on the foreign currency loan of $24,375 and has a nett of $5,725 income per year from the whole transaction. If our producer can keep the additional income intact and on I.B.D. for the five-year term - remember he is no longer paying his $16,000 on-shore interest plus redemption - it will have become $57,097, which will pay off over half of his original loan.

In my own case, I faced the usual difficulty meeting my commitments. An O.S.L. was obtained to buy additional income earning assets and we now meet commitments and have additional income. We are also enjoying some capital gain.

Remember, if an annual capital gain of 10 per cent accrues, the $100,000 purchase becomes $150,000 when it is sold at the end of the five years. This is, of course, if the borrower doesn't wish to renew his loan. It will be found that the average bank manager knows little of off-shore lending. He knows that currencies fluctuate and influence interest rates and is extremely nervous of the whole deal. So he hastily steers his client back to on-shore loans with its 16-17-18 per cent in interest rate - which he understands.

It is absolutely necessary to get qualified advice and I would be happy to assist primary producers with the names of qualified people. My phone number is (065) 53 4500.

It is clearly obvious that now is the time of obtain an O.S.L. as the Australian Dollar is at a record low against other major currencies. IAN FISHER

Khatabundah,

Wingham"

1. It follows, in my view, that the applicants have failed to establish that anything said, or not said, by Mr Green about hedging, was relied on by the applicants.
   

"(i) that if the Applicants entered into a Swiss franc loan facility and the relative value of the Swiss franc at any time during the term of that loan increased by more than five per cent (5%) of the value of the Australian dollar cash parity adjustment could be made by the Applicants or the Swiss franc loan would be converted to Australian dollars."

1. In view of the findings made on 16 May 1990, this allegation is no longer open.
   

"(j) the term of the loan would be five (5) years and there would be no problem renewing the term for a further five (5) years."

1. In view of the findings made on 16 May 1990, the allegation as to renewal is no longer open.
   

"8A. During the course of the Taree meeting Mr Terrence Green further orally represented to and advised the Applicants that they could and should borrow more than the amount of their present requirements and leave the balance on deposit with the Respondent at interest by way of further security"

1. Findings (22), (23) and (24) of Mr Fisher's version in the findings made 16 May 1990 support this allegation to some extent. However, it is not necessary to decide, and I do not decide, whether this is misleading or deceptive conduct because, as has been said, the applicants have failed to satisfy me that any thing said, or not said, by Mr Green in August 1984 had any bearing at all upon their decisions to (a) enter into the loan transaction with the Forster branch of the Bank in March 1985, or (b) monitor or manage that borrowing.
   

"9. The Respondent made the following implied representation to the Applicants:-

(a) that the trend shown between the relative value of the Swiss franc and the Australian dollar in the exchange rate graph:-

(i) typified the historical relationship between the Swiss franc and the Australian dollar and

(ii) was a trend which was likely to continue throughout the term of any Swiss franc loan entered into by the Applicants.

1. The implications alleged are said to arise by way of necessary inference from the words alleged to have been used by Mr Green. In the findings made on 16 May 1990, I found, in accordance with Mr Green's version, that Mr Green provided certain graphs. It is not, and could not be, suggested that those graphs were false or misleading. They indicate accurately what had happened in the past (i.e. sub-para.(i) above). As to future trends (i.e. sub-para. (ii) above), a graph indicating past movements should not, in my view, ordinarily be interpreted as stating, by implication, that the previous movements will occur again in the future. It follow, in my opinion, that the implication alleged here should not be made. In any event, the applicants have not satisfied me that they relied on any such implied representation in any relevant sense.
   

(b) that the relative value of the Australian dollar and the Swiss franc were most unlikely to vary by more than ten per cent (10%) above the then existing exchange rate, being the maximum variation shown in the exchange rate graph:"

1. For the reasons given in respect of para.(a) above, there is no basis for drawing this inference from what I found Mr Green said or did. Further, reliance in any material sense has not been established.
   

(c) that the Respondent was a prudent financial institution"

1. It is common ground that the respondent is a financial institution. It is reasonable to infer that the respondent holds itself out as carrying on its activities in a proper and responsible way, but, in my opinion, it is not appropriate to infer that it holds itself out as "prudent". In any event, reliance by the applicants in any relevant sense has not been established.
   

(d) That it would be in the Applicants' interests to borrow more than the amount of their present requirements"

1. I have already dealt with the express misrepresentation alleged in para.8A of the statement of claim to similar effect. For the reasons I have given in that connection, the applicants have failed to establish any relevant cause of action in the present respect.
   Conclusion as to the alleged reliance on the allegations made in respect of the meeting with Mr Green in August 1984 under ss.52 and 53

2. In para.10 of the statement of claim, it is said that the representations alleged in paras. 8, 8A and 9 were contrary to s.52 of the Trade Practices Act. In para.24 it is alleged that the applicants relied on these representations in entering into the loan arrangement. For the reasons already given, I am of the view that, even where I have found that a representation was made, the applicants have not established the reliance alleged. By para.26, it is claimed that, in reliance on the representations alleged, the applicants took no steps to monitor or otherwise manage their Swiss Franc facility. Again, the applicants have failed to establish the reliance alleged.

3. In the result, the applicants have failed to establish any actionable breach of s.52 with respect to the meeting with Mr Green.

4. By para.11 of the statement of claim, it is alleged that the representations alleged in para.8(c) and (e) and para.9(c) were false and misleading contrary to s.53(e). For the reasons already given in respect of s.52, I am also of the opinion that no actionable breach of s.53(e) has been established.
   (2) The meeting with Mr Isaacs and Mrs Skelton in Forster in December 1984

5. In para.13 of the statement of claim, it is alleged that Mr Isaacs made several representations (findings p 4). In my opinion, nothing of significance, and nothing actionable, was said by Mr Isaacs on this occasion (findings p 79).

6. In para.14 of the statement of claim, it is alleged that Mrs Skelton made several representations (findings p 4). These allegations are contrary to Mrs Skelton's version of the discussion (findings pp 35 and following), which I have accepted (findings p 79).

7. In para.15 of the statement of claim, several implied representations are alleged. The implications alleged were said to have their foundation in Mr Fisher's version of the discussion with Mrs Skelton. Having rejected Mr Fisher's version, no basis exists for drawing the implications.

8. In paras 16 and 17, it is said that the representations relied on were contrary to ss.52 and 53.

9. For the reasons already given, the applicants have failed here to establish any breach of s.52 or s.53. (3) The alleged meeting in Forster in January 1985 (findings p 5 - para.15A)
   

10. This allegation was not established in the evidence. (4) The meeting with Mr Isaacs in January 1985 (para.19A - findings p 5)
    

11. This allegation was not established in the evidence. It follows that the implied representations pleaded in para.19B are not established.
    (5) The meeting with Mr Vanner in February 1985 (para.22 - findings p 5)

12. The allegations made were not established (findings p 80). It follows that the implied representations pleaded in para.23 are not made out.
    (6) The meeting with Mrs Skelton in Forster in August 1985 (paras. 28, 29 - findings p 6)
    

13. These allegations were not established in the evidence (findings p 80). It follows that the implied representations pleaded in para.30 were not made out.
    (7) The meetings in 1986 and 1987 alleged in para.38A (findings p 6)
    

14. None of these allegations was established on the evidence (findings p 81).
    Conclusion on claims made under ss.52 and 53

15. It follows from what I have said that the applicants have failed to establish any actionable breach of ss.52 or 53 by virtue of anything said by any officer of the respondent. It also is possible to mislead by silence, but this is only actionable where there is a duty to speak. It is convenient to deal with this in considering the claim in negligence, below.
    B. The applicants' case in negligence

16. The applicants also rely upon the advice or information given, or not given, by Messrs Green, Isaacs and Vanner and by Mrs Skelton (paras.31, 32).
    

17. For the reasons already given, I am of the opinion that the applicants have failed to establish any cause of action in negligence as a consequence of anything said by any officer of the respondent.

18. There remains the question whether the respondent was under any affirmative duty to inform or advise the applicants in any relevant respect.

19. In the absence of a special relationship between lender and borrower, a special aspect, such as the assumption of responsibility to advise, is needed in order for there to be a duty to advise (see Ross Cranston, "The Bank's Duty of Disclosure", The Journal of Business Law, March 1990 at p 163). As Deane J. pointed out in The Council of the Shire of Sutherland v. Heyman (1985) 157 CLR 424, at p 502, the common law imposes no prima facie general duty to safeguard or warn another from or of reasonably foreseeable loss or injury or to take reasonable care to ensure that another does not sustain such loss or injury. In Hawkins v. Clayton (1988) 164 CLR 539, at p 576, Deane J. said that where (as here) the plaintiff's claim is for pure economic loss -
    

". . . the categories of case in which the requisite relationship of proximity is to be found are properly to be seen as special in that they will be characterised by some additional element or elements which will commonly (but not necessarily) consist of known reliance (or dependence) or the assumption of responsibility or a combination of the two."

1. It is convenient to deal with the position of the several officers of the respondent separately, bearing in mind, as Professor Cranston said (at p 163):
   

"Generally speaking, a lender will be under no obligation to advise a potential borrower about the nature of the borrowing, its prudence or other features. Even if the lender is the borrower's banker, there is no implied term that advice be given about risks. In Williams and Glyn's Bank v. Barnes, Gibson J. said:

'No duty in law arises upon the bank either to consider the prudence of the lending from a customer's point of view, or to advise with reference to it. Such a duty could arise only by contract, express or implied, or upon the principle of the assumption of responsibility and reliance stated in Hedley Byrne or in cases of fiduciary duty. The same answer is to be given to the question, even if the bank knows that the borrower and application of the loan, as intended by the customer, are imprudent.' For there to be a duty to advise, there must be special aspects, such as an assumption of responsibility to advise, a special relationship between the lender and the borrower, or possibly a practice among lenders to proffer advice on such occasions."

1. That is, in the absence of a special aspect, the law does not impose upon a lender, or a lending bank, the professional responsibilities of an investment or financial adviser.
   (1) Mr. Green

2. As has been said, even if it were established that Mr Green owed a duty of care to the applicants by virtue of known reliance, or dependence, or by an assumption of responsibility (and I need not decide, and do not decide, this question), I am not satisfied that the applicants in fact relied, in any relevant sense, on any advice or information, given or not given, by Mr Green.
   (2) Mr Isaacs

3. As has been said, I have found that Mr Isaacs said nothing of any legal significance.
   (3) Mrs Skelton

4. I have accepted Mrs Skelton's version of the discussion in December 1984 (findings p 79). Her account is set out at pp 35 ff. of the findings. According to the account of the discussion given by Mrs Skelton, it does appear that she did attempt to embark upon an attempted explanation of the advantages and risks associated with a foreign currency loan. This is consistent with the understanding of the general position expressed by Mr Robinson, Deputy Chief Manager, N.S.W. Branches Administration, in his memorandum to the Forster branch dated 6 February 1985 (findings p 47). Mrs Skelton said she produced "a little bit of information" in the area, including "exchange rates and parity adjustments and that type of thing" (findings p 35). She then worked through "various possibilities" on the calculator (findings p 36).

5. In my opinion, the conduct of Mrs Skelton, viewed objectively, is consistent with an assumption of responsibility in this area by Mrs Skelton, acting on behalf of the respondent in this respect. In those circumstances, in my view, the respondent owed a duty of care to the applicants to explain to them the advantages and risks associated with a foreign currency borrowing.

6. Further, in my opinion, Mrs Skelton failed adequately to discharge that duty. What she did, in essence, was to go through the mechanical process of using a calculator to calculate possible results of the borrowing in certain assumed events. In my view, this mechanical exercise fell short of a sufficient explanation of the advantages and risks of the transaction. It may have purported to be an explanation of what might happen in the future in certain assumed circumstances, but, in truth, it was not an explanation of the substance of the transaction then proposed. In my view, the respondent was in breach of its duty of care accordingly (cf. Cornish v. Midland Bank plc (1985) 3 All ER 513 at pp 517, 520 and 521). It is true that Mrs Skelton did indicate to the applicants that she did not have much experience in this area, but, in my view, that indication should not be treated as a disclaimer of responsibility on the part of the respondent in the Hedley Byrne sense (see L. Shaddock and Associates Proprietary Limited v. The Council of the City of Parramatta (1981) 150 CLR 225 at p 231).

7. However, for the reasons already given, the applicants have failed to show reliance here in any relevant sense. In his letter to the local newspaper in April 1985, Mr Fisher made it quite clear that he placed no reliance at all upon the views of a bank officer inexperienced in this special area, as he knew Mrs Skelton to be.

8. In those circumstances, in my view, the applicants have failed to establish a cause of action in negligence by reason of any conduct on the part of Mrs Skelton.
   (4) Mr. Vanner

9. I have accepted Mr Vanner's version of the discussion in February 1985 (findings p 80). Mr Hade's contemporaneous note (findings p 52) indicates that Mr Vanner warned Mr Fisher of the "possibility of large interest and exchange rate risks." It appears that this was advice that Mr Fisher did not wish to receive because, as has been said, he had made up his own mind to "maximise" his foreign borrowing no matter what Mr Vanner told him. In these circumstances, the applicants have failed to establish any cause of action in negligence by virtue of anything said, or not said, by Mr Vanner.
   Conclusion on negligence claims

10. In the result, the claims in negligence fail.
    C. The alleged breaches of fiduciary duty and of collateral contract

11. In their statement of claim, the applicants alleged certain breaches of fiduciary duty and of collateral contract. These claims are not now pressed.
    D. Limitation plea

12. I have dealt with the respondent's limitation plea in reasons given on 1 August 1990. On 7 August 1990, further submissions were made on the proper construction of the applicant's pleading. On behalf of the respondent, it was submitted that, properly construed, the case pleaded by the applicants under s.52 included a claim that, by reason of the representations complained of, the applicants entered into a disadvantageous transaction in March 1985. The applicants disputed this construction of their pleading. In all the circumstances, it is not necessary that I deal further with the respondent's limitation plea.
    E. Result of the proceedings

13. In the result, the proceedings must be dismissed.
    F. Costs

14. Since each of the parties has succeeded on some important issues, but failed on other significant issues, it is appropriate that the respondent receive one-half of its costs (see Trade Practices Commission v. Nicholas Enterprises Pty. Ltd. (1979) 28 ALR 201 at pp 206-9).
    G. Orders

15. The orders will be:
    1. Application dismissed.
    2. Order that the applicants pay one-half of the respondent's costs.
    3. Cross-claim stood over to a date to be fixed.