Blue Chip investors' court victory

Five Supreme Court justices, led by Chief Justice Sian Elias, have ruled Blue Chip was effectively selling the investors debt securities without producing a prospectus or appointing a trustee, both of which are illegal under the Securities Act 1978.

The investors were also awarded $75,000 in costs.

Although the investors weren't seeking it, the judgment also said the investors were entitled to be refunded their deposits.

The ruling overturns previous High Court and Court of Appeal judgements allowing the developers of the apartments to force the investors to purchase the apartments.

“We see the Blue Chip products as providing mechanisms by which Blue Chip sought and obtained financing from the public,” and Blue Chip's obligations were “'rather like' those owed by a borrower to a lender,” said Justice William Young in the court's majority opinion.

While the investors were buying apartments, effectively the apartments were security in case Blue Chip didn't keep its promises. The investors would never occupy the apartments or receive any rents and next to no capital gains.

“It could not seriously be suggested that the transactions entered into between the investors and Blue Chip in relation to the partments … involved 'the ordinay purchase of land,'” Justice Young said.

“The reality is that from the point of view of the investor … the apartments were of only peripheral significance. Such profits as the investors could expect to derive were to come substantially from the efforts and substance of Blue Chip,” he said.

“The developers appointed the Blue Chip agents to market the apartments and, in that broad sense, authorised the Blue Chip agents to do exactly what they did do, that is market the apartments through the use of the Blue Chip products.”

Justice Young dismissed “the detail of the formal documents by which the developers sought to insulate themselves from the legal consequences of the actions and representations of the Blue Chip agents.”

The court declared all sale and purchase agreements (SPAs) which were executed at the same time as, or after, the corresponding Blue Chip investment product agreements are unenforceable.

In some cases, however, investors entered into SPAs to buy apartments before they entered into an agreement with Blue Chip. The court referred this issue back to the High Court to determine whether these agreements were also subscriptions for securities as well as “the practical implications of our conclusions,” including the return of the investors' deposits.