Blue Chip investors freed from unit deals

Mark Bryers. File photo / Wayne Drought

As far as Albany upholsterer Dave Lester knew, he was loaning Blue Chip money from the equity in his house and being repaid about $200 a fortnight.

But he found out later he was actually signing up to buy an apartment for $500,000 to $600,000 in the high rise Chiefley Suites (formerly the Barclay) at 70-74 Albert St in Auckland's CBD.

For more than four years, he has had the spectre of financial ruin hanging over him: he stood to lose his house and still be in debt.

But yesterday Mr Lester and a group of investors in Blue Chip won their Supreme Court appeal against being forced to buy apartments that were originally to be funded with assistance from the failed finance group.

The investors had been knocked back by the High Court and Court of Appeal in seeking to be excused from completing the purchase of apartments in the Barclay, Bianco and Icon apartment blocks in central Auckland.

They had argued that when Blue Chip marketed its investment schemes it was offering securities to the public in terms of the Securities Act 1978 and was required to provide a prospectus.

In the Supreme Court, Justices Sian Elias, Andrew Tipping, John McGrath, William Young and Noel Anderson agreed that the appellants' Securities Act arguments "are correct".

"When Blue Chip was marketing its investment schemes, it acted in breach of the Securities Act and thus brought into play s37 of that Act which renders unenforceable the allotment of improperly marketed securities and the associated subscription of such securities," the judgment says.

The Supreme Court also held the developers of the apartments to be issuers in terms of the Securities Act, "giving rise to entitlements to relief" under the Act.

"We see the Blue Chip products as providing mechanisms by which Blue Chip sought and obtained financing from the public," the judgment says. "It is true that they were also buying apartments but under the investment schemes the apartments had a very limited function. Provided all went according to plan, the investors were never to occupy the apartments."

When the Blue Chip Group collapsed in 2008 the developments, by separate companies, went ahead and the investors faced difficulties in raising the necessary funds.

The court ordered the respondents, development companies Turner and Waverley, Greenstone Barclay Trustees and Grafton Projects to pay costs to the appellants of $75,000 plus disbursements.

"It means I can be happy," Mr Lester said, recalling the fear, pressure and misery suffered since around 2006. "Every time something good happens, you can't enjoy things, or look an hour ahead."

Lester was yesterday being asked by some media if he thought the deal he had signed was too good to be true.

But he bridles at this.

"We never invested anything. As far as we were told, we were loaning Blue Chip money and they would pay us back in four years. I think it's okay to loan money and expect to be paid back. We never even knew we were buying an apartment," Lester said.

Additional reporting: BusinessDesk