Security Provident Fund Limited (In Liquidation) v Geraldine Joan Gourlay [1987] ACTSC 21 (27 March 1987)

SUPREME COURT OF THE ACT

SECURITY PROVIDENT FUND LIMITED (In Liquidation) v. GERALDINE JOAN GOURLAY
S.C. No. 1269 of 1984
Companies - Mortgage - Negligence

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Miles C.J.(1)

CATCHWORDS

Companies - winding up by the court - application of Companies Act 1981 sections 365(1) and 368 - no new matter of principle.

Mortgage - leasehold property - mortgagor's allegation that agreement with mortgagee not contained in mortgage document alone - statement in prospectuses and bulletin and verbal assurance - parole evidence rule - no new matter of principle.

Mortgage - leasehold property - clause in mortgage regarding sale of mortgaged property alleged to be fetter on equity of redemption - whether clauses in mortgage bring about acceleration of payments which should be regarded as a penalty - court's general jurisdiction in equity to grant relief against unconscionable mortgage provisions - no new matter of principle.

Negligence - negligent representation - no allegation that representation false in point of fact - availability of action in deceit or fraud - availability of action in non-fraudulent misrepresentation - no imputation of knowledge to party making representation - no identification of act or omission relied upon as failure to take reasonable care - no new matter of principle.

Negligence - negligent representation - duty of care - whether special category of person providing advice - no new matter of principle.

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

Hickman v. Kent or Romney Marsh Sheep-Breeders' Association (1915) 1 Ch 881

Halsbury's Laws of England 4th ed. Vol. 7 para 118

Sykes, The Law of Securities 4th ed. p.55

Companies Act 1981 s.365(1)

Wanner and Another v. Caruana and Another (1974) 2 NSWLR 301 at p 305

Fleming, The Law of Torts 6th ed. p.607

O'Leary and Short v. Lamb and Lensworth Finance Ltd. (1973) 7 SASR 159

The Mutual Life & Citizens' Assurance Company Limited and Another v. Evatt [1968] HCA 74; (1971) AC 793, 122 CLR 628

HEARING

CANBERRA
27:3:1987

DECISION

This is an action by a mortgagee against a mortgagor for the recovery of monies which were lent by the mortgagee to the mortgagor and which allegedly became payable during the term of the mortgage. There are several complicating factors, but the essential nature of the action should not be overlooked.

2. The allegations made by the plaintiff mortgagee in its statement of claim are substantially admitted in the mortgagor defendant's amended defence. On 13 May 1981 the plaintiff lent to the defendant the sum of $19,678.40, the loan being secured by a mortgage over the defendant's leasehold interest in a property at 11 Wirraway Crescent, Scullin ("the Scullin property"). The sum lent was repayable by equal monthly instalments of principal and interest over a period of twenty-five years, the rate of interest being five and a half percent per annum.

3. Amongst the terms and conditions of the mortgage were the following:

"11. The Mortgagor shall not during the continuance

of this security sell the mortgaged premises
AND in the event of the Mortgagor attempting to
sell the mortgaged premises the Company shall be
entitled to exercise its power of sale hereunder.

. . . . .

20. In the case of default by the Mortgagor in
payment of any of the monies required to be paid
hereunder or in the performance or observance of
any covenants, conditions or agreements herein
contained referred to or implied on the part of
the Mortgagor to be performed or observed or if
the Mortgagor shall at any time fail to pay any
instalments or calls due to the Company in
relation to shares allotted by the Company to the
Mortgagor within fourteen (14) days of such
instalments or calls becoming due and payable then
notwithstanding the waiver of any previous default
the whole of the balance of the principal sum
hereby secured shall at the option of the Company
become due and payable immediately, although the
time herein appointed for payment thereof may not
have arrived and thereupon the Mortgagor shall pay
the same to the Company upon demand with interest
thereon to the date of payment at the rate set
forth in Item 7 of the said Schedule.C

4. It may be observed that the Reference Schedule to the mortgage sets out in Item 7 a default interest rate of twelve per cent per annum.

5. On 22 March 1983 the defendant entered into a contract to sell the property. The plaintiff, exercising what it claimed to be its entitlement under clauses 11 and 20 of the mortgage, called in the balance of the principal and the outstanding interest. The total sum claimed at that stage was $19,346.90. That sum is not disputed as a matter of arithmetic.

6. Since March 1983 there have been negotiations and dealings between the parties whereby the mortgage has in fact been discharged, the settlement of the sale of the property by the defendant has taken place and from the proceeds of sale the sum claimed by the plaintiff has been paid into a joint interest bearing account to await the decision of the Court.

7. The relief claimed by the plaintiff is as follows:

"(a) A declaration that upon the sale of the
property by the defendant the whole of the
principal sum then outstanding and secured
by the mortgage became immediately due and
payable to the plaintiff.

(b) A declaration that the plaintiff is entitled
to be paid the said sum of $19,346.90
together with any accrued interest."

8. In her amended defence and counter-claim the defendant raises three substantial issues which I paraphrase. These are:-

1. The mortgage was only part of a wider
agreement between the parties whereby the
plaintiff was obliged at the direction of
the defendant to accept a "suitable
property" in substitution for the Scullin
property as security for the loan and was
not entitled in the circumstances to call up
the loan.

2. Clause 11 of the mortgage has the effect of
rendering the estate of the defendant in the
property irredeemable and is therefore void.

3. The defendant was induced by the negligent
representation of the plaintiff to enter
into the agreement, including the
mortgage, referred to above, whereby she has
suffered damage.

9. I deal first with the defence which sets up an alleged agreement of which the mortgage formed only a constituent. The defendant alleges that she has at all times been ready and willing to perform that agreement for her part. The defence is pleaded as follows:

"3. By an agreement ("the agreement") by and
between the plaintiff and the defendant and
entered into in Canberra in the Australian
Capital Territory on or about the 24th day
of June, 1973 it was agreed by the plaintiff
that it would for reward to it issue certain
shares to the defendant upon certain terms
and conditions.

4. It was a term and condition of the agreement
that upon becoming the holder of the said
shares the defendant would, upon the
happening of certain events, become entitled
to borrow from the plaintiff up to
$20,000.00 on mortgage, and upon payment of
a low rate of interest ("the loan").

5. It was a further term and condition of the
agreement and/or it was represented by the
plaintiff that if the defendant was offered
and accepted the offer of the loan, and she
later sold the property take by the
plaintiff as security for the loan, she
could substitute another suitable property
as security.

6. On or about the 17th day of March 1978 the
plaintiff offered and the defendant accepted
the loan."

10. These allegations are all denied in the plaintiff's amended reply.

11. Evidence was presented on behalf of the plaintiff by way of the affidavit of Mr. John Malcolm Perrins, a partner of the liquidator of the plaintiff company. The defendant gave oral evidence in her own case. There is substantial documentary material in evidence. It is necessary to make certain factual findings which I now do.

12. The plaintiff company was incorporated on 6 November 1972 under the name of Tukinya Mutual Homes Loans Fund Limited. Its name was changed to Tukinya Loans Limited on 24 March 1975 and it acquired its present name on 8 August 1980. On 20 January 1983 the plaintiff company presented its own petition for a voluntary winding-up order. An order to that effect was made by Kelly J. in this Court on 8 April 1983.

13. The general objectives of the plaintiff company were to provide low interest loans for its members repayable over a long term and secured by mortgages on real estate. There was a system provided for in the Articles of Association whereby members acquired in the first instance a minimum number of A class redeemable preference shares, to be paid off over a period of twenty consecutive months, entitling the holder on full payment to take up B class shares to be paid off over two hundred and twenty consecutive months. The allotment of B class shares entitled the holder to a low interest loan, although the availability of funds for loans to members depended upon what funds were available to the company. The rate of interest varied according to when the holder of the shares took up the offer of the loan.

14. On 24 June 1973 the defendant was allotted two hundred A class shares, which were fully paid up by 4 March 1975.

15. On 16 October 1975 the defendant was allotted two hundred B class shares, which were fully paid.

16. On 10 March 1977 the company offered a loan to the defendant repayable over twenty-five years on the security of the Scullin property.

17. On 28 June 1977 the defendant applied for a loan of $6,680 on the Scullin property, which loan was approved. The monies were advanced and the loan secured by mortgage executed on 24 August 1977.

18. On 17 March 1978 the plaintiff wrote to the defendant stating that the balance of her loan entitlement was then available and offered a loan of $13,320, subject to certain terms and conditions. The offer was expressed to be for a period of fourteen days only after which, if not accepted, the offer would lapse.

19. What happened over the next two years is not entirely clear. Some time in 1979 the defendant received a prospectus issued by the plaintiff (exhibit 1) in which page 5, bearing the heading "Advantages of Tukinya Finance", includes the following paragraph:

"TRANSFER OF LOANS

All loans will be transferable by the member
from property to property subject to the valuation
and payment of transfer expenses."

20. In fact, all prospectuses issued by the plaintiff after its first prospectus contained similar statements to that contained in exhibit 1 relating to transfer of loans. I find that the first prospectus (exhibit JMP 2) was issued some time in or soon after June 1973. The evidence does not enable me to find that any other prospectus came to the attention of the defendant prior to that received by her in 1979. I am satisfied that the defendant as a shareholder received at least one information bulletin from the plaintiff similar to that dated 1 October 1980 (exhibit JMP 13) in which it was stated "You can transfer the loan from property to property." I am further satisfied from the evidence of the defendant that from time to time the plaintiff advertised its home loan system and that a feature of those advertisements was a claim or statement that a member was entitled to transfer the loan from property to property. I am further satisfied that the defendant was given similar verbal assurances by an employee or employees of the plaintiff, but it is not possible to determine what authority those persons had to give such assurances. It is impossible to know exactly when the defendant saw these advertisements or received the information bulletins or received the verbal assurances. I am, however, quite convinced that by the beginning of 1980 and thereafter the defendant was induced by the conduct of the plaintiff to believe that the right to take up a loan with the plaintiff carried with it a further right to continue and maintain the loan by "transferring" the mortgage by which the loan was secured from one property to another, subject to valuation by the plaintiff of the later security and subject to payment by the defendant of the expenses involved in such a transaction. Whether or not the defendant had reached that understanding at the time of entering into the initial mortgage to secure the loan of $6,680 in 1977 is impossible and, I think, unnecessary to determine.

21. It was submitted on behalf of the plaintiff that whatever the defendant's understanding as a lay person, it cannot make sense in legal terms to speak of an agreement to "transfer" a mortgage from one property to another. It was contended that, for the defendant to succeed on this issue, she would have to prove that the contract between the parties contained a set of mutual rights and obligations whereby, subject to valuation and payment of expenses, the defendant had the right to call upon the plaintiff to discharge the mortgage, without repayment of the loan by the defendant, in consideration of the defendant granting to the plaintiff a mortgage of her interest in another piece of land (a "suitable property"). It was submitted on behalf of the plaintiff that such an hypothesis is in the face of the terms of the mortgage of 13 May 1981 which constitutes the contract between the parties and that the case for the defendant rests upon an attempt to imply into that written contract terms which do not expressly appear in it, alternatively, an attempt to infringe the parole evidence rule whereby extrinsic evidence, including evidence of antecedent negotiations, is not permitted to subtract from, add to, vary or contradict the language of a written instrument. Reliance was placed upon the decision of the High Court in Codelfa Construction Proprietary Limited v. State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337. However, in my view, the issues raised in that case were quite different from those in the present case. As is indicated in the opening paragraph of the judgment of Mason J., as he then was, at p.345, it was common ground in that case that the contract between the parties consisted of certain specified documents and it was not suggested that outside those documents there was to be found a term agreed upon by the parties which, together with the contract documents, stood as the true contract or which stood in its own right as a collateral contract. In the instant case the position is the opposite. The defendant contends that the agreement between the parties is not to be spelt out in the terms of the mortgage document alone, but in the dealing between the parties, including the prospectus referred to, the information bulletins, the verbal assurances and also the Articles of Association of the plaintiff. In this latter respect it is to be observed that the defendant was a member and shareholder of the plaintiff company and the Articles constituted a contract between her and the company: Hickman v. Kent or Romney Marsh Sheep-Breeders' Association (1915) 1 Ch 881. Yet it has been said that the question as to how far the Articles constitute a binding contract between the company and its members is one of great difficulty and that the Articles do not constitute a contract between a company and a member in respect of rights and liabilities which he has in a capacity other than that of member, and where such rights and liabilities are the subject of a written agreement, the Articles will not be imported unless they are referred to: Halsbury's Laws of England 4th ed. Vol. 7 para 118.

22. Particulars furnished by the defendant's solicitors in a letter dated 26 August 1985, although not tendered in evidence, were among the material made available by the parties to the Court pursuant to Practice Direction No. 2 of 1981. These particulars allege that the term and condition referred to in paragraph 5 of the amended defence is to be found in:

(a) a newspaper advertisement which the defendant
read in 1973 and which caused her to
obtain a prospectus and an application
for A class shares;

(b) a verbal assurance given to the defendant by
a Mr. Barrett at Canberra in 1973;

(c) prospectuses dated 18 September 1973,
18 March 1974, 28 October 1974, 27 March
1975, 22 March 1976 and prospectus No. 1.

23. The evidence given by the defendant as to particulars (a) and (b) is somewhat vague and I am not convinced that it was intended by the plaintiff that the advertisement or the statements by an employee should form any part of the contract between the plaintiff and the defendant. However, the evidence relating to these matters is at the least consistent with the understanding on the part of the defendant that the often repeated statement in the prospectuses that the loans would be "transferrable by the member from one property to another" was intended to be part of the agreement between the company and any shareholder to whom a loan might be granted. Although the Articles and the mortgage are silent on the precise point, they are, in my view, not inconsistent with the promise on the part of the plaintiff through its prospectuses that loans would be "transferrable" in the sense which I have already mentioned. I reject the notion that the promise contained in the prospectuses is void for uncertainty or is too vague to be enforceable. In my view, it has been established that by 13 May 1981, the date of the mortgage in question, there was an agreement between the plaintiff and the defendant whereby in consideration of the defendant taking up shares and giving to the plaintiff a mortgage over her interest in a particular property, the plaintiff agreed that it would, at the direction of the defendant, discharge the mortgage over that property and accept a mortgage over another suitable property, without requiring repayment of the loan in the interim. In my view, clause 11 of the mortgage is not inconsistent with this promise as to "transferability". The plaintiff's right to call up the loan under clause 11, taken in conjunction with clause 20, was subject to its promise and obligation to accept a new mortgage from the defendant on another property and to continue the loan accommodation to the defendant. In the event that the defendant sold her interest in the Scullin property without offering a mortgage over a "suitable property" the defendant's rights under clause 11 and clause 20 would not be subject to the obligation on the part of the plaintiff and the defendant would be liable to pay the outstanding balance of principal and interest as provided for. That, however, according to the case presented on behalf of the defendant, was not what happened. She says that she nominated a property as suitable, namely the house at which she lived at 16 Walu Street, Aranda when she applied for the balance of her loan entitlement on 19 February 1980.

24. Between 1978 and 1980 it appears that the Scullin property was let out to tenants. During that period, or during the latter part of it, the plaintiff lived with her family at 16 Walu Street, Aranda. She and her husband were the joint lessees from the Commonwealth and their interest was subject to a mortgage or mortgages which bore a higher rate of interest than the mortgage over the Scullin property. Having received advice from accountants and acting on her understanding of the "transferability" of the loan on the Scullin property, the defendant wrote to the plaintiff on 19 February 1980 in the following terms:

"I wish to apply for the balance of the $20,000
loan including $13,000 which I believe is still
available to me.

The property to be offered as security is the
property, 16 Walu Street, Aranda, the family home
in my husband's and my name, at which we reside.

The present mortgages on the property are as
follows:-

(1) 1st mortgage. Loan (interest only) of
$28,000 administered by Perpetual Trustee.

(2) 2nd mortgage. Loan of $7,000 (reduced to
$6,000), from Repatriation Credit Union,
Sydney.

I would anticipate the second mortgage being paid
out and the Tukinya loan of $13,000 replacing it.

I assume the rate of interest would be 4 1/2% because
of the entitlement and the fact that the property
would be entailed by both mortgages to the value
of $43,000 less than 90% of its market value.

I would appreciate your help in expediting the
application."

25. It may be observed that at the time of this letter the defendant acted upon the understanding, not unreasonably held in view of the plaintiff's letter of 17 March 1978, that she had been offered a loan of $13,320 on a property to be nominated by her, over and above the loan of $6,680, which had been secured by the mortgage on the Scullin property. Again the course of events are not very clear, but in May 1981 the existing mortgage over the Scullin property was discharged and the plaintiff advanced to the defendant the total sum of $19,678.40 on the security of the mortgage of 13 May 1981 to which reference has already been made. I presume that that advance was made up of the $13,320 which the plaintiff had stated to be the balance of the defendant's loan entitlement, together with the balance of principal and interest outstanding on the previous mortgage over the Scullin property.

26. For nearly two years the defendant continued to reside in the jointly owned home at Aranda during which time she paid the instalments of principal and interest due on the mortgage over the Scullin property. By early 1983 it appears that the term of one or other or both of the mortgages over the home at Aranda was about to expire, that there was some attractiveness to the defendant in what she saw as the possible "transfer" of the mortgage from the Scullin property to the home at Aranda. However, no approach was made by her or on her behalf to discharge the mortgage over the Scullin property and to seek to have the plaintiff accept in lieu thereof a mortgage over the home at Aranda whilst maintaining the loan. What happened was that on 16 March 1983 the defendant's solicitors wrote to the plaintiff's solicitors informing them that the defendant had sold the Scullin property and wished to transfer the security to her other property at 16 Walu Street, Aranda. A copy of the contract of sale for the Scullin property dated 22 March 1983 was enclosed with the solicitor's letter. It is to be noted that this letter was received by the plaintiff's solicitors subsequent to the lodging of the winding-up petition, but three weeks before the winding-up order. There were no further transactions between the parties before the winding-up order was made. The liquidator, faced with the situation which had then come into existence, approached the Court for directions but, as I understand it, Blackburn CJ. directed that the case proceed, as it has, on the pleadings. The application for directions on the part of the liquidator was made as part of an arrangement with the defendant whereby settlement of her sale of the Scullin property was allowed to take place on 6 June 1983 which enabled the amount agreed as a matter of arithmetic at $19,346.90 to be deposited in the joint account.

27. It is not proper to speculate as to all the reasons which may have led the liquidator to press the plaintiff's claim and to resist the counter-claim of the defendant. It is, however, appropriate to observe there are about twenty-five members of the plaintiff company to whom loans were made similar to that made to the defendant and that their loan repayments are expected to continue beyond the turn of the century. The liquidator takes the view, apparently, that it is in the interests of the liquidation that it conclude as soon as possible and it is seen as conducive to the conclusion of the liquidation that members who sell properties subject to mortgage to the company should be required to pay the principal and interest outstanding at the time of sale.

28. From the foregoing I conclude that there was at 13 May 1981 a contract between the plaintiff and the defendant of the nature for which the defendant contends, that is to say, that the defendant was entitled to call upon the plaintiff to discharge the mortgage on the Scullin property and take a mortgage over another property, so long as the other property was suitable for that purpose and subject to valuation and payment of expenses. The essential question is whether the defendant was at any relevant time entitled to enforce that right. According to the sequence of events, she did not seek to enforce that right until she had sold the Scullin property. At the time of the sale she had not sought discharge of the mortgage over the property, and more importantly, had not tendered the Aranda property, or any other property, as suitable for a substituted security. Obviously the plaintiff had not had the opportunity to carry out a valuation of the proposed suitable property. Can it be said then that the defendant had forfeited her right to the "transfer" of a loan, as promised by the plaintiff, because she sold the property before informing the plaintiff that she intended to exercise that right? Because this is such a difficult question to answer I think that there are two other aspects that should be discussed before an attempt is made to answer the question.

29. On the one hand, regard may be had to the general equitable jurisdiction to grant relief from the enforcement of harsh and unconscionable provisions imposed by a mortgagee upon a mortgagor: see Sykes, The Law Securities 4th ed. p.55.

30. On the other hand, the plaintiff, through the liquidator, relies upon the provisions of s.368 of the Companies Act 1981 which is in the following terms:

"(1) Any disposition of property of the company,
other than an exempt disposition, and any transfer
of shares or alteration in the status of the
members of the company made after the commencement
of the winding-up by the Court is, unless the
Court otherwise orders, void.

(1A) In sub-section (1), "exempt disposition", in
relation to a company that has commenced to be
wound up by the Court, means -

(a) a disposition made by the liquidator of the
company pursuant to a power conferred on the
liquidator by this Act or by an order of the
Court; or

(b) a payment of money by a banking corporation
out of an account maintained by the company
with the banking corporation, being a
payment made by the banking corporation -

(i) on or before the date on which the
Court makes the order for the winding
up of the company; and

(ii) in good faith and in the ordinary
course of the banking business of the
banking corporation.

(2) Notwithstanding sub-section (1), the Court
may, where an application for winding up has been
filed but a winding up order has not been made, by
order -

(a) validate the making, after the filing of the
application, of a disposition of property of
the company; or

(b) permit the business of the company or a
portion of the business of the company to be
carried on, and such acts as are incidental
to the carrying on of the business or
portion of the business to be done, during
the period before a winding-up order (if
any) is made,

on such terms as it thinks fit.

(3) Any attachment, sequestration, distress or
execution put in force against the property of the
company after the commencement of the winding up
by the Court is void."

31. The date of the commencement of the winding-up was the date of the passing of the resolution by the company for winding-up: Companies Act 1981 s. 365 (1). That date does not appear on the evidence,but it must have preceded the date of the presentation of the petition to the Court, namely 20 January 1983. Accordingly the plaintiff was not in a position to make any disposition of property after that date. This would preclude it from making any further loans. As to whether it was precluded by virtue of s.368 (1) from discharging the mortgage over the Scullin property without requiring a repayment of the principal and interest in order to maintain the loan and accept the substituted security of a mortgage over the Aranda property again is a difficult question. Whilst it might have been open to the liquidator, once appointed, to take those steps with the leave of the Court, it was not open to the company from the time of the passing of the resolution for voluntary winding-up to the date of the winding-up order on 8 April 1983 to take part in such a transaction. The relinquishing of its rights under the mortgage would, I think, have fallen within the concept of a disposition of property within s. 368 (1) of the Companies Act and, accordingly, would be void. In other words, from the date of the resolution to wind up the company the defendant could not have held the plaintiff to its promise to "transfer" the loan. Accordingly, the sale by the defendant of her interest in the Scullin property was effected by her at a time when the plaintiff was unable to fulfil its promise to discharge the mortgage on the Scullin property without calling up the loan. If instead of selling the property when she did, the defendant had sought to obtain a discharge of the loan of the Scullin property and had tendered a substitute mortgage over the Aranda property, it would have become apparent that she could not do so, at least until there was an order of the Court pursuant to s. 368 (1) of the Companies Act. In that situation the defendant could have chosen whether or not she wanted to sell the Scullin property and face the consequences. I do not think that she should be put in a stronger position because she chose to sell without trying to arrange for a discharge of the mortgage on the Scullin property beforehand. Accordingly, I see no reason for relieving the defendant from the obligations which she undertook by virtue of clauses 11 and 20 of the mortgage.

32. The second matter raised in defence on behalf of the defendant is that clause 11 of the mortgage is void in that it has the effect of rendering the plaintiff's interest in the property irredeemable. In fairness to counsel for the defendant, I must say that the possibility that there might be such a defence was first suggested by myself during the course of the hearing, and the defence itself was amended during the course of the hearing to enable such a matter to be raised in bar. However, I am ultimately of the opinion that clause 11 does not stand in the way of the defendant's right to redeem her interest. What it does is to impose a barrier against her selling, or indeed even attempting to sell her interest in the property without the principal and interest immediately becoming payable by her. That provision, however, in no way fetters her right to redeem the mortgage, although it may perhaps be said that it converts her right into a contingent obligation in the event of a certain event, namely a sale or attempted sale. The equitable rule whereby a court will not enforce a provision which has the effect of fettering a mortgagor's right to redeem is only one example of a general jurisdiction in equity to grant relief against mortgage provisions which are unconscionable: see Sykes, The Law of Securities 4th ed. p. 55. Another example of that jurisdiction is where a mortgage contains a stipulation for repayment which may be treated as a penalty. In Wanner and Another v. Caruana and Another (1974) 2 NSWLR 301 at p 305, Street CJ. spoke of the care "with which a court will examine the details of a bargain providing for acceleration of payments in the event of default in order to ascertain whether the acceleration can be regarded as a genuine pre-estimate of damage". On the facts of the case before him, his Honour concluded at p. 306 "the present mortgage has, in this respect, the hallmarks of a stipulation in terrorem designed to force the mortgagors to adhere to their bargain, and I do not see that this provision has any of the ingredients of a genuine pre-estimate". However, it is unnecessary for me to consider whether the combined effect of clause 11 and clause 20 of the mortgage bring about acceleration of payments which should be regarded as a penalty, and there is nothing before me to indicate whether the sum presently claimed includes interest at the rate of five and a half per cent or at the higher rate of twelve per cent provided for in clause 20. The issue has not arisen because the point has not been taken.

33. It remains to deal shortly with the defendant's counter-claim for so-called negligent representation. As the defence is pleaded in paragraph 5, the representation is that "if the defendant was offered and accepted the offer of the loan, and she later sold the property taken by the plaintiff as security for the loan, she could substitute another suitable property as security". The counter-claim itself is pleaded in the following way:

"9. The defendant refers to and repeats the
allegations and each of them contained in
paragraphs 3, 4, 5, 6, 7 and 8 of her defence
herein.

10. At the time of making the representation set
out in paragraph 5 of the defence herein the
plaintiff intended and well knew or ought to have
known that the representation would be relied on
by the defendant who would be induced thereby to
enter into business engagements or contracts.

11. In the premises the plaintiff was under a
duty to take care in the making of the said
representation.

12. Acting on the faith of the said representation
and induced thereby the defendant accepted
the offer of a loan from the plaintiff, and later
entered into (a) a contract to sell the property
taken by the plaintiff as security for the loan,
and (b) a contract to buy the suitable property.

13. In breach of the said duty the plaintiff was
guilty of negligence in making the said
representation.

Particulars

Failing to foresee that the defendant would enter
into the said contracts and incur expense thereby.

AND the defendant claims:

(a) a declaration that upon the sale of the
property by her she thereupon became
entitled to substitute another suitable
property as security for the loan but
otherwise to retain the loan upon the same
terms and conditions.

(b) a declaration that the defendant is entitled
to be paid the said sum of $19,346.90 as a
loan together with any accrued interest,
upon offering as security another suitable
property and executing a registrable
mortgage in the same terms, mutatis mutandis
as the said mortgage.

(c) damages.

(d) interest pursuant to s. 53A of the Supreme
Court Act 1933."

34. In my view, the counter-claim must fail for several reasons. First, it is not a claim for misrepresentation. There is no allegation that the representation was false in point of fact. Second, the allegation is not that there was a misleading statement as to a situation of fact, the allegation rather seems to be that the plaintiff made a representation as to its future conduct. If that representation was knowingly false, the plaintiff never intending to carry out what its stated intention was represented to be, then the defendant may have an action in deceit or fraud, but not in negligent representation. Alternatively, the pleading may be seen as seeking to allege that the plaintiff misrepresented the legal effect of the relationship into which the parties would enter. But "it has long been a settled principle that damages (as distinct from rescission) are not recoverable for non-fraudulent misrepresentations inducing a contract unless promissory in nature and contractual in intent": Fleming, The Law of Torts 6th ed. p 607, O'Leary and Short v. Lamb and Lensworth Finance Ltd. (1973) 7 SASR 159. In other words, the cause of action would be for breach of contract, and this is not how the defendant's counter-claim is framed. Thirdly, paragraph 10 alleges that at the time of making the representation the plaintiff well knew that it would be relied upon by the defendant who would be induced thereby to enter into business engagements or contracts. I find as a matter of fact that the plaintiff did not have such knowledge and such knowledge was not to be imputed to it. Further, the counter-claim does not identify the act or omission which is central to the failure to take reasonable care. The particulars given in paragraph 13, namely failure to foresee that the defendant would enter into contracts and incur expense thereby, is not a particular of a failure to take care in giving the advice or making the representation, but in failing to see the effect of such advice that might be given.

35. Lastly, it is well established in Australia that for an action for damages for negligent advice or negligent representation there must be proven a special duty of care on the part of the person whose advice is called into question. That duty of care will arise from a situation where the advice is given by a person whose business or profession is to provide the kind of advice and where that kind of advice is one which demands special skill and competence. In The Mutual Life & Citizens' Assurance Company Limited and Another v. Evatt [1968] HCA 74; (1971) AC 793, 122 CLR 628, it was held that a life insurance company did not fall into that special category, and in the present case it must follow that the plaintiff company falls outside the special category.

36. The counter-claim for negligent representation fails. I am prepared to make orders and declarations along the lines sought in the statement of claim. However, before final judgment is given, I think the amount of interest ought be fixed. I am of the opinion also that the final order of the Court ought to have the effect of enabling the plaintiff to have the immediate benefit of the $19,343.90 standing in the joint account of the parties pending this decision together with accrued interest. Accordingly I stand the matter over to enable the parties to bring in short minutes to give effect to what I have said.