UPDATED GE Custodians has won a Supreme Court appeal claiming their loans to an elderly couple in connection with a Blue Chip scheme were not oppressive.In August retired Blue Chip investors Bruce and Dorothy Bartle went to the Supreme Court over their de
UPDATED GE Custodians has won a Supreme Court appeal claiming their loans to an elderly couple in connection with a Blue Chip scheme were not oppressive.
In August retired Blue Chip investors Bruce and Dorothy Bartle went to the Supreme Court over their dealings with the failed group after financial giant GE won an appeal to challenge an earlier Appeal Court ruling.
After a High Court dismissal of the Bartles' claims, the Appeal Court found in May that loans the couple took out to buy an apartment in Auckland were oppressive.
In a decision released today, the Supreme Court found that the terms of the loans were not out of the ordinary and that neither GE nor the Bartles’ mortgage broker had any knowledge of the Blue Chip scheme that would have breached reasonable standards of commercial practice.
The independence – or perceived independence – of the Bartles’ solicitor Jonathan Mathias was crucial to the Supreme Court’s decision. Mr Mathias, joined as a defendant in the proceedings, was recommended to the Bartles by a Blue Chip salesman and has since been found negligent in his advice to the couple.
But, for the purposes of the GE appeal, it was agreed that Mr Mathias be considered as an independent adviser.
“The result is hard for the Bartles, whose rights against those responsible for their predicament, Blue Chip and Mr Mathias, may be of limited value,” the judgment read.
“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... 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 implication, the Court found, would be to require lenders to conduct an investigation into the affairs of borrowers - a result both inefficient in economic terms and unfair to lenders.
“While the Bartles are deserving of much sympathy, it was they who chose to put their faith in Blue Chip and their chosen lawyer. They expressly disavowed reliance on GE,” the judgment concluded.
GE was awarded costs of $25,000 and the Court of Appeal costs order was reversed.
The case will now return to the High Court to determine further issues.
The Bartles’ case was seen as a test case for many elderly investors who face losing their homes because of Blue Chip, whose largest shareholder was Mark Bryers.
Mr and Mrs Bartle were aged 66 and 65 respectively, had a combined pension income of less than $25,000, and owned a house worth $400,000 in Whangarei when they saw an advertisement for an investment opportunity from Blue Chip New Zealand Ltd.
With another $48,000 in the bank and various other assets such as a campervan and a car, they borrowed more than $600,000 from GE to buy an investment property from Blue Chip.
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.
The three Court of Appeal judges gave separate reasons for ruling in favour of the Bartles - including that the loan terms were for 25 years for people who were 65-year-old pensioners, who carried a disproportionate share of the risks associated with the loans.
GE’s own evidence agreed that the loan should not have been made – but argued that GE only had limited knowledge of the Bartles’ personal situation, and no knowledge of their agreement with Blue Chip.
The Supreme Court ruled that the Blue Chip scheme was oppressive rather than loans themselves.
It found that two of three of the Court of Appeal judges had failed to consider Mr Mathias as an independent lawyer during the case, a fatal flaw in that judgement.
Mr Mathias, now bankrupt, faces a number of liability claims by Blue Chip clients, including the Bartles.
