Blue Chip rulings favour stung clients

Helene Philpott is taking action against lawyers Trainor Maclean. Photo / Herald on Sunday

Auckland lawyer Zel Unkovich has been ordered to pay two Blue Chip victims $160,000 in compensation for failing to advise them of the risks of the investment.

It is the second court ruling against a lawyer Blue Chip recommended to its clients, and comes amid a raft of other claims being filed against the preferred providers of legal services to investors in the property scheme.

Last month Jonathan Mathias was struck off the roll of barristers and solicitors after admitting 13 misconduct charges. This followed a High Court decision last year, which said Mathias conveyed "a very misleading impression" of the Blue Chip investment to Whangarei pensioners Bruce and Judy Bartle.

In the latest decision, Auckland District Court Judge David Wilson said Unkovich "failed in his basic duty to his clients to see that they understood the transaction".

He said the Blue Chip agreement Pukekohe couple Carl and Rachel Bilbe signed was "so unusual and risky that any reasonably competent conveyancing solicitor would have been duty bound to draw the risks to his clients' attention whether asked or not".

In May 2007, the Bilbes signed an unconditional agreement to buy a unit in Carlos Drive, Flatbush, from the plans.

Their Blue Chip adviser recommended they use Unkovich as their lawyer because he was familiar with the Blue Chip operation.

Even though the Bilbes had already signed, Judge Wilson said Unkovich should have pointed out problems with the deal because under the Resource Management Act they still had 14 days to withdraw.

The agreement had "significant legal issues and shortcomings":

The Blue Chip company selling the property was not the registered owner;

A standard provision about holding the deposit had been deleted, meaning it could be released to Blue Chip;

The $107,000 deposit was 21 per cent of the purchase price, not 10 per cent as normal;

There were no plans attached so it wasn't clear what the Bilbes were buying;

There were no common conditions, such as a solicitor's approval condition.

Unkovich argued that the Bilbes had not specifically asked for any advice. But the judge disagreed.

"Mr Unkovich should have got the Bilbes into his office so he could advise them of the effect of the agreement they had signed, the exposed position it left them in, and the escape route available," he said.

The Bilbes lost their investment when Blue Chip collapsed in February 2008.

Unkovich has been ordered to pay the Bilbes $150,000, covering their deposit, interest, and fees, plus $10,000 in general damages.

Barrister Paul Dale, who is representing several hundred Blue Chip victims, said the District Court matter was a test case. Unkovich had acted for numerous Blue Chip investors and there were a lot of claims to come.

"Hopefully it will bring the indemnifiers to the table and they'll start settling them," he said.

Unkovich said his insurers' solicitors were looking at whether to appeal.

He said it was conjecture whether the Bilbes would have proceeded with the deal if his staff had pointed out problems.

"At that time it wouldn't have mattered what you told people, wild horses couldn't stop them getting into a lot of these Blue Chip deals."

Lawyers before the bench

Around 10 claims have been filed against lawyers recommended by the Blue Chip property group, with investors seeking compensation about the advice they were given.

Barrister Paul Dale, who represents a raft of Blue Chip victims, said another six claims were close to being filed and dozens more were in the pipeline.

One is against Christchurch law firm Trainor Maclean, which acted for around 50 investors in Blue Chip.

It is being brought by Helene Philpott, a 72-year-old widow who has been forced to take out a reverse mortgage on her Russley home because of the losses she has suffered.

Philpott mortgaged her house to put a $166,000 deposit on an apartment to be built in the QuBa development in Auckland. Unbeknown to her, she was described as "self-employed" on the loan documents so she would qualify.

It emerged the deposit was not held in trust but passed on to a Blue Chip company, and the group had no right to sell the apartments. Blue Chip recommended she use Trainor Maclean as her legal adviser.

Her barrister Jason Goodall alleged the lawyers had been negligent in not advising her of the risks of the transaction.

The deposit was excessive and there was no fixed settlement date. "So you end up with a situation where you're paying a huge amount of money, you have no control over the timing of the development and no trust account protection for the sum. You're taking a massive credit risk."

Trainor Maclean has filed a defence to the claim. Philpott says her lawyer did not even advise her that she would be liable for the loan.