Supreme Court ruling 'hard' for couple in Blue Chip case

Friday 3rd December 2010 3 Comments

The Supreme Court has dealt a blow to Blue Chip investors Bruce and Dorothy Bartle in what has been seen as a test case for many elderly investors who face losing their homes.

The Court of Appeal had found earlier that loans the retired couple took out to buy an apartment in Auckland were oppressive.

Before that, the High Court found the Bartles had little understanding of the scheme, which was very disadvantageous for them. But it also concluded the loans were not in breach of reasonable standards of commercial practice and thus were not oppressive.

The appeal court decision was challenged in the Supreme Court by lenders GE Custodians, and in a decision published today the Supreme Court allowed GE's appeal and set aside orders made by the Court of Appeal.

"This result is hard for the Bartles," the Supreme Court decision said.

"But it would be quite wrong to hold GE culpable for what has occurred in circumstances in which the Bartles were throughout being given advice by a lawyer whose independence must be accepted and where GE was not aware of, nor put on inquiry about, any matter which rendered any of the loans in breach of reasonable standards of commercial practice.

"If the court were to do this it would require lenders to take responsibility for matters of which they neither knew nor should have known," the Supreme Court said.

"Whilst the Bartles are deserving or much sympathy, it was they who chose to put their faith in Blue Chip and their chosen lawyer. They expressly disavowed reliance on GE. It would make bad law if they could now hold GE responsible for what has occurred."

The central issue on the appeal was whether three loan contracts, and associated mortgages forming part of those contracts, between the Bartles and lender GE were oppressive and should be reopened, the Supreme Court said.

That was in circumstances where GE said it had no knowledge of any matter which would make any of the loan contracts oppressive or which should have put it on inquiry.

"Unfortunately for the Bartles, they were enticed into what has become known as the Blue Chip investment scheme promoted by the Blue Chip Group, all the New Zealand companies in which are now insolvent," the Supreme Court said.

It was important to be aware that in 2006 the Blue Chip Group appeared to a large and successful.

The Bartles had decided to go ahead with a proposal put to them by a Blue Chip salesman that they buy a residential apartment in a large building then being built in Auckland, borrowing against their Whangarei home and the apartment itself in order to do so.

Until the apartment was resold Blue Chip guaranteed to meet a shortfall on rental income, meaning it would subsidise mortgage outgoings, and would pay the Bartles $451 per fortnight.

The Bartles were to buy the apartment for $552,000, although borrowing an aggregate amount of $629,566. The first loan advance was made in November 2006, with the second and third in September 2007.

Blue Chip had fulfilled all its obligations to the Bartles during the first year but it stopped making the fortnightly payments even before the second and third loans were drawn down, and in February 2008 stopped making monthly interest payments, the Supreme Court said.

GE had exercised its power of sale over the apartment but it realised only about $250,000. GE was now seeking from the Bartles the balance, which appeared likely to be more than the value of their Whangarei home.

NZPA

Comments from our readers

On 3 December 2010 at 12:28 pm glenys templeton said:

What about the advice they got from their chosen lawyer in this matter ? Surely he should have pointed out the downside ?

On 3 December 2010 at 5:56 pm Christopher said:

Seems their "chosen" lawyer was, according to the above, independent. Leaving aside the Blue Chip failure, the unfortunate aspects here are the naivety of the unlucky purchasers who were without a knowledge of the Auckland apartment market (or it's rental market) and the quality of advice they obtained or sought. Having the rental income subsidised was a bit of a warning about over valued properties. My sympathies are with the Bartles but it's become trite but true -that if it sounds that good then the risks are higher than tolerable for people in their position.

On 6 December 2010 at 8:45 am g murphy said:

a very sad case. a very large sum of money to place into one type of investment. as always feed your money into the markets gradually over many years then watch it grow....slowly.