The recent Blue Chip Supreme Court decision will come as a huge relief to families up and down New Zealand.
An argument had been made on behalf of numerous investors in Blue Chip schemes that Blue Chip had breached the requirements of the Securities Act. In signing up mum and dad investors across the country Blue Chip had marketed four products:
- an agreement for sale and purchase of an apartment;
- a joint venture agreement;
- a premium income product; and
- a put and call agreement
Even though the investors were to sign agreements for sale and purchase, the underlying expectation was that they would be short term investors and that Blue Chip would locate a second purchaser for each apartment. The original purchaser would not be required to settle the purchase.
Blue Chip indemnified each of the investors in respect of their obligations under the agreement for sale and purchase. Of course Blue Chip did not survive and was unable to honour these financial commitments.
The investors argued that the investment scheme amounted to the offer of a security to the public and as a result needed to comply with the Securities Act 1978. Blue Chip was an issuer. The products were debt securities and there was no exemption under the legislation from the obligation to comply with full prospectus obligations.
When an issuer issues a debt security without complying with the Securities Act requirements, the Securities Act renders the improperly marketed securities unenforceable. Because each of the investors had subscribed to the securities by signing an agreement for sale and purchase, if the overall package of documents was unenforceable, the agreements for sale and purchase were to be unenforceable too.
The argument failed in the High Court and the Court of Appeal. However it found success in the Supreme Court. The Supreme Court unanimously agreed that Blue Chip was an issuer, the investment products were debt securities and no exemption applied. Because no prospectus was created and no trustee was appointed, the marketing of the investment products breached the terms of the Securities Act. As a result the products were unenforceable.
You can read the full decision and a press summary here. The decision is called Hickman and Others v Turner and Waverly Limited.