By Tony Johnson - 5 Jan 2011
The Supreme Court has found GE Finance not liable for its role
in financing Mr and Mrs Bartle's failed Blue Chip investment.
Who was involved?
Mr and Mrs Bartle were an elderly couple looking for an
investment to fund their retirement. Blue Chip offered an
investment based on the purchase of a central Auckland
apartment.
The investment proved to be a poor one. During the scheme's
operation, most of the Bartles' returns were funded by their own
contributions. After a mortgagee sale of the apartment, the
Bartles lost the majority of their investment.
All the principal players in the scheme including the Blue Chip
companies, Mark Bryers (the leading figure behind Blue Chip) and
the Bartles' solicitor were unable to pay any sum the Court might
award against them.
The Bartles therefore sued GE, who had given a loan over the
Bartles' family home and the apartment so the Bartles could fund
the investment. The Bartles claimed the finance agreement with GE
was an oppressive contract under the Credit Contracts and Consumer
Finance Act (the "Act").
Although GE initially won in the High Court, the Court of Appeal
overturned that decision. So GE appealed to the Supreme Court.
The Supreme Court's decision
The test for whether a contract is oppressive is a legal test
under the Act. The lender must know the contract was
oppressive, or know circumstances that suggest that the contract
may be oppressive. In deciding what the lender knew, the Court may
look at all the surrounding circumstances to decide whether a
credit contract is oppressive.
In this case, one of the surrounding circumstances was the Blue
Chip scheme that the credit contract was financing. However, the
Court found that GE had no knowledge of the scheme and no knowledge
of anything that might alert it to problems with the scheme.
A solicitor, Mr Mathias, helped the Bartles into the Blue Chip
investment and helped them arrange the loan. Although he was
supposed to act for the Bartles, he was in reality looking out for
Blue Chip's interests. He failed to carry out the duties he
owed to the Bartles as their solicitor.
Although the solicitor was negligent, GE did not know that.
Therefore, GE was entitled to rely on Mr Mathias to point out the
uncommercial aspects of the scheme to the Bartles and to act
competently. Accordingly, there were no circumstances that should
have put GE on notice that the surrounding circumstances of the
credit contract made it oppressive.
Although the Court sympathised with the Bartles, that was not
enough to impose liability on GE. After all, the Bartles were the
ones who entered the transaction.
Moral
Choose your professional advisers carefully. It can be
acceptable for a lawyer to act for both a lender and borrower, but
this sometimes gives rise to a conflict. If you are unsure
about such an arrangement, raise your concerns with an independent
third party, such as another lawyer.
If you require any further information, or have any questions
about how the decision could affect you, please contact Tony Johnson or
your usual contact at Martelli McKegg on 09 379 7333.