Blue Chip ruling a relief for lenders

Lenders will be relieved to see the Supreme Court ruling that the loans of more than $600,000 provided by GE to Blue Chip investors the Bartles were not oppressive, overturning the Appeal Court decision.

Friday, December 3rd 2010, 4:41PM

by Jenha White

If the decision had not been overturned, lenders would have had to take responsibility for borrowers signed up by third parties, such as mortgage brokers.

The Court of Appeal had found earlier that loans the retired couple took out to buy an apartment in Auckland were "oppressive".

Before that, the High Court found the Bartles had little understanding of the scheme, which was very disadvantageous for them. But it also concluded the loans were not in breach of reasonable standards of commercial practice and thus were not oppressive.

James Lockie of Cairns Lockie says he was surprised by the Court of Appeal decision and concerned about what it meant for lenders in terms of looking into client's affairs to see whether they were engaging in sensible decisions.

"I don't think it's all bad news that the Bartles have lost, I think the decision in GE's favour is entirely sensible and protection from such schemes now exists in the Financial Advisers Act regime."

Westpac, ASB, Kiwibank and BNZ refused to comment.

The Supreme Court decision said "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 and where GE was not aware of, nor put on inquiry about, any matter which rendered any of the loans in breach of reasonable standards of commercial practice.

"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 Supreme Court said.

"Whilst 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. It would make bad law if they could now hold GE responsible for what has occurred."

Lockie says the Court of Appeal decision had made Cairns Lockie more conservative in terms of having a look to see whether clients were engaged in sensible decisions.

He says now this Supreme Court decision has been made, Cairns Lockie won't need to be as vigilant in looking into the business decisions clients are making, because clients ought to be able to make their own business decisions.

Lockie says the new Financial Advisers Act legislation will deal with such issues from now on as a land investment product - such as the Blue Chip scheme - will be classed as a category one product.

This means only an Authorised Financial Adviser (AFA) can give advice on such a scheme.

Lockie says people will still buy into such schemes, but promoters will get pulled up faster as they are unlikely to be AFAs which means the authorities will close them down.

Jenha is a TPL staff reporter. jenha@tarawera.co.nz

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