Blue Chip investors lose case

Bruce and Judy Bartle maintain they were unaware they would be borrowing more than their home was worth. Photo / Martin Sykes

Pensioners Bruce and Judy Bartle have lost their case against the finance company that lent them more than their house was worth to invest in Blue Chip.

However the judge has ruled that the lawyer who advised them - a Blue Chip specialist who acted for over 150 investors in the collapsed property scheme - failed in his duty of care to them.

The High Court action, heard earlier this year, was being seen as a test case by dozens of other victims of the Blue Chip collapse. Justice Tony Randerson delivered his decision yesterday.

In 2006 and 2007 the Bartles borrowed a total of $639,000 from GE Custodians to invest in the Madison House development on Auckland's Symonds St.

Their only assets are their $400,000 Whangarei home and some cash, and they live on national superannuation.

The purchase price of the apartment was $552,000. It has recently been sold for $235,000.

The borrowed amounts included $27,000 in fees and $55,000 in "working capital". It has since emerged that Blue Chip used the working capital funds to pay investors a regular return - meaning they were effectively paying themselves. The Bartles were not aware of any of this.

They were also not aware that they were liable for the full $639,000. They believed they were only borrowing an initial $137,000 and that Blue Chip was putting up the rest.

They realised the true circumstances just before the Blue Chip scheme began to unravel in late 2007.

The Bartles argued that the company that arranged the loans, Tasman Mortgages (now in liquidation), altered the loan documents to describe them as "self-employed investors" so they would qualify for the loans.

They claimed that Tasman was an agent of the lender GE, that the loans were an "unconscionable bargain" or "oppressive" under the law, and that GE owed them a duty of care.

But Justice Randerson said Tasman was not the agent of GE, and the Bartles had signed some documents which said so.

He said GE did not know anything about the terms of the Blue Chip investment or that the Bartles could not support the loans.

The loans were not more than 70 per cent of the total value of the Bartles' home and investment apartment, and there was no evidence that Tasman was trying to mislead GE.

The description "self-employed investor" may have been added to the documents but the Bartles themselves accepted that they may have signed them without noticing, and the term was consistent within the context of the transaction being conducted.

GE was also entitled to assume that the couple would get proper independent legal advice.

"There is no evidence that GE acted improperly by taking advantage of the Bartles," Justice Randerson said.

However he said their lawyer, Jonathan Mathias, conveyed "a very misleading impression" of the Blue Chip investment. There were obvious risks and "any competent solicitor should have warned prospective investors such as the Bartles of those risks".

In particular he should have made it clear they would be borrowing much more than their home was worth, and that if Blue Chip were to fail the full burden of the borrowings would fall on them. None of the documentation they were given before they signed up described the true picture, he said.

The Bartles' barrister, Paul Dale, said he was disappointed with the result, but would be taking it further because so many people were affected and their lives were in limbo. "We will try and go to the Court of Appeal pretty quickly."

He said he would seek compensation of more than $400,000 from Mathias for the Bartles.

However Mathias faced many other similar claims. "I'd be surprised if there was enough to go round."