Court of Appeal finds couple's Blue Chip loans oppressive
The Court of Appeal has allowed an appeal by elderly Blue Chip investors Bruce and Dorothy Bartle, and said that loans they took out to buy an apartment in Auckland were oppressive.
The appeal is seen as a test case for many elderly investors who face losing their homes because of dealings with the failed Blue Chip group, whose largest shareholder was Mark Bryers.
Earlier the High Court declined to reopen the transaction and the Bartles' claims were dismissed.
"We declare that the loan agreements at issue in this case are oppressive within the meaning of the Credit Contracts and Consumer Finance Act 2003," the judgment released today said.
The case has been remitted to the High Court to determine relief for the Bartles
The Whangarei couple are described as naive, but also very poorly served by their solicitor Jonathan Mathias, who is bankrupt, and was found in the High Court judgment to be negligent.
The Bartles sought to avoid the credit transaction which supported the purchase of an apartment and the potential loss of their home, which was mortgaged to support the transaction. They argued it was unconscionable or oppressive under the Credit Contracts and Consumer Finance Act.
Bruce and Dorothy Bartle were aged 66 and 65 respectively, had a combined pension income of $21,736, and owned a house worth $400,000 in Whangarei when they saw an advertisement for an investment opportunity from Blue Chip New Zealand Ltd. They had about $48,000 in the bank, owned a campervan, a car and personal effects.
The investment opportunity became a "Trojan Horse" to access the equity investors had in their homes. The Bartles mortgaged their freehold home and the apartment to engage in the scheme. Blue Chip failed and the Bartles faced the prospect of a mortgagee sale on their Whangarei home.
The idea was that after four years the investment apartment would be sold. The Bartles would receive a small share of any capital gain and rent of $451 per fortnight before tax.
In fact, the Bartles were borrowing money to pay that sum to themselves. They purchased an apartment in Symonds Street in Auckland for $552,000, which was later sold for $250,000 after the mortgage fell into default.
"In short, the Bartles were unwittingly borrowing very heavily in order to facilitate a relatively small income stream for four years paid from borrowed monies and with only the possibility of a small capital gain, and with a good chunk of what they had borrowed going to Blue Chip's various pockets."
The fortnightly payments of $451 dried up shortly after the purchase of the unit.
The judgment said the loan was an asset lending scheme and Blue Chip was entitled to nearly all of the potential gains and substantial underwriting and other fees.
The ultimate lender GE was independent of Blue Chip and had outsourced its lending operations in New Zealand.
GE claimed to be an innocent lender in that it advanced money for secured loans which were arranged by other companies. Counsel for the Bartles argued that Tasman Mortgages Ltd and Blue Chip New Zealand Ltd were agents of GE.
"Very significantly for this case, GE now says that if it had known the relevant facts relating to this credit transaction it would not itself have advanced these monies," the judgment said.
The judgment did not accept that a lender could avoid the application of the Act by interposing an intermediary loan originator.
The Act says oppressive "means oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice".
The judgment said the oppression remedy "floats, like oil across water, across the top of credit contracts. It is ever-present".
Truth in lending was not restricted to obvious features like interest rates but also to what the transaction was fundamentally about. Asset lending was not necessarily unconscionable but if the loan was not serviceable then in substance it was not a loan but an asset sale, the judgment said. The lender risked nothing and the borrower risked their asset.
The judgment said it was pleasing to record that counsel for the appellants had acted on a largely pro bono basis. "They are to be commended for that".