Let justice be done
Blue Chip investors sue their lawyers
By JENNI MCMANUS - BusinessDay.co.nz | Wednesday, 27 August 2008
DISGRUNTLED: Out-of-pocket Blue Chip investors are suing their Blue Chip-recommended lawyers for breach of duty over the handling of millions of dollars worth of apartment purchases.
Eight out-of-pocket investors in bankrupt property company Blue Chip are suing their Blue Chip-recommended lawyers for breach of duty for their handling of millions of dollars worth of apartment purchases due to settle within weeks.
They say lawyers Jonathan Mathias, Zeljan Unkovich and law firm Foster Milroy & Turketo, who habitually did Blue Chip work, were recommended to investors for legal advice when buying apartments in the Barclay development in downtown Auckland about two years ago.
The investors claim they were dissuaded from using their own lawyers by Blue Chip, who they say told them its property schemes were complex and their own lawyers might not understand how they worked.
But Mathias, Unkovich and Foster Milroy & Turketo regularly did Blue Chip-related work and knew how the schemes operated, the investors say they were told. Some say Blue Chip threatened not to pay their legal fees unless they used lawyers Blue Chip recommended. Specifically, the plaintiffs allege the lawyers failed to advise them of the implications of the transactions they were signing or to give them any advice about the documentation
The defendants are expected to vigorously defend the claims and deny the allegations.
The claim is part of the first significant lawsuit against Blue Chip. Other defendants have been named as Greenstone Barclay Trustees, GE Custodians (a lender), Tasman Mortgages and Executive Mortgages (mortgage brokers) and Blue Chip associate Bribanc (now know as Vault Realty).
Fraud claims have been brought against Tasman and Executive, where it's alleged one or both fraudulently altered the loan documentation for one investor whose income was misstated, and mortgages were obtained from GE Custodians on the basis of fraudulent conduct.
Other claims and issues include breaches of the Securities and Fair Trading Acts, cancellation of the apartment sale and purchase agreements and unconscionable contracts.
The trial is not expected to be scheduled until next year. Meanwhile a curtain-raiser is set down for hearing in the High Court at Auckland on 2 September where the investors' lawyers, Paul Dale and Daniel Grove, are seeking an injunction to prevent Greenstone, the developers of the Barclay apartment building in downtown Auckland, from forcing the investors to settle on multi-million-dollar apartment purchases they say they'd been told they'd never have to complete.
If they win, settlement will be delayed until after the full trial.
About two years ago, the investors signed sale and purchase agreements for their Barclay apartments and paid deposits, but say they did so on the basis that Blue Chip, which was promoting and selling the properties, had guaranteed they would never have to settle.
Instead, they were told Blue Chip itself would buy the apartments from the investors when they were completed. In the meantime, investors were paid 16% interest on their deposits while the apartments were being built - payments that dried up about November last year when Blue Chip began to run seriously short of cash.
Blue Chip collapsed into liquidation in February 2008. Nevertheless, Dale and Grove argue the investors are entitled to rely on the claims and representations made by the company and its agents and employees when investors were hooked into the deals about two years ago.
Most investors say they could not settle with Greenstone even if they wanted to. For example, Neil and Michelle Hickman, plaintiffs in the case, signed agreements on apartments worth nearly $10 million on the basis that Blue Chip would buy them out before settlement.
The Hickmans, who emigrated to New Zealand from Britain and wanted to invest their $1 million savings in a NZ business for two years, were persuaded to join Blue Chip's scheme, partly on the basis of being told by Blue Chip's agents and financial advisers that the company was ``100% safe'', had never failed any of its investors, was too big to fail and had ``millions in the bank and huge assets''.
The plaintiffs allege all this was untrue and the subsequent deals they signed were agreed on the basis of misrepresentation.
Described by Dale as naive and unsophisticated investors, the Hickmans also relied on a valuation from Blue Chip associate Bribanc Real Estate that they did not even see. Dale is arguing that, as with several plaintiffs' properties, their apartment was over-valued.
At next week's injunction hearing, all the plaintiffs need prove is that they can mount a credible argument against the developers and Blue Chip. The matter is urgent as the apartments are due for completion within weeks and Greenstone is pressing for the investors to settle.
__________________
OllyN
[email protected]
Independent Property Consultant
Residential and Commercial Solutions