Bruce Leonard Bartle and Dorothy Judith Bartle and Anor v Ge Custodians Ltd and Ors

• Jurisdiction: New Zealand
• Judge: William Young P,Hammond,Arnold JJ
• Judgment Date: 06 May 2010
• Neutral Citation: [2010] NZCA 174
• Docket Number: CA627/2009
• Court: Court of Appeal
• Date: 06 May 2010

BETWEEN

Bruce Leonard Bartle

And

Dorothy Judith Bartle

First Appellants

And

Bartle Properties Limited

Second Appellant

and

Ge Custodians Limited

First Respondent

And

Tasman Mortgages Limited

Second Respondent

And>

Jonathan Mathias

Third Respondent

[2010] NZCA 174

Court:

William Young P, Hammond and Arnold JJ

CA627/2009

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against a decision of the High Court which held that a loan agreement between the Bartle's and GE Custodians was not oppressive under the Credit Contracts and Consumer Finance Act 2003 — the Bartle's had purchased an apartment as part of the Blue Chip investment scheme which was arranged as a joint venture — the Bartle's were superannuitants on a limited income — the loan agreement was for a period of 25 years and after a fixed period of 5 years at fixed interest switched to a variable rate principal and interest loan — whether loan agreement was oppressive.

Counsel:

J G Miles QC, P J Dale and D W Grove for Appellants

R B Stewart QC, B J Upton and M V Robinson for First Respondent

No appearance for Second and Third Respondents

• A The appeal is allowed.

• B We declare that the loan agreements at issue in this case are oppressive within the meaning of the Credit Contracts and Consumer Finance Act 2003.

• C We remit the case to the High Court for consideration of the appropriate remedy.

• D The appellants will have costs in the High Court as fixed by that Court.

• E In this Court, the first respondent must pay the appellants costs for a complex appeal on a band A basis and usual disbursements. We certify for two counsel.

JUDGMENT OF THE COURT

Hammond J	[1]
Arnold J	[103]
William Young P	[232]

HAMMOND J

Table of Contents

	Para No
Introduction	[1]
The general narrative	[10]
The tangled web of companies	[27]
Oppression
The claim in this case	[32]
The evolution of the present oppression remedy	[36]
The legislative basis of the oppression remedy	[40]
Judicial consideration of the oppression remedy to date	[43]
The arguments in this case	[59]
Discussion: The relevant factors in this case	[61]
1. The credit contract	[62]
2. A murky and disjunctive transaction	[73]
3. The type of lending	[77]
4. Total failures of comprehension	[81]
5. The relationship between TML and GE	[84]
6. Incompetent legal advice	[91]
Conclusion	[98]

Introduction

1 The appellants, Mr and Mrs Bartle and their associated company Bartle Properties Limited, purchased an apartment in Auckland as part of a “Blue Chip” investment scheme. The investment failed. The Blue Chip group of companies are worthless.

2 The Bartles sought to avoid the credit transaction which supported the purchase of the apartment – and the potential loss of their residential home, which was mortgaged to support that transaction – on the basis that it was unconscionable at common law or that it was oppressive and should be reopened under the provisions of Part 5 of the Credit Contracts and Consumer Finance Act 2003 (the CCCF Act).

3 The appellants' proceeding against the respondents in this respect was heard by Randerson J in the High Court in April and May 2009. In September 2009, his Honour delivered a judgment dismissing those claims. 1

4 The Bartles have appealed to this Court on a number of grounds with respect to those holdings. The proceeding is said to be a test case for many investors who are in a similar position. Many of these investors are elderly and the security of their homes is at stake.

5 It is convenient to note here that the solicitor who acted for the Bartles, Mr Jonathan Mathias, was found to have been negligent by Randerson J but is bankrupt. There is no appeal against the Judge's finding against Mr Mathias. Whether any recovery is to be had through his insurers may be problematic.

6 It is as well to be clear at the outset that all that this Court is asked to decide on this appeal is whether the credit transaction is susceptible to being reopened under the CCCF Act. Although in the High Court the Bartles sought to have the mortgage over their home set aside, Randerson J declined to reopen that transaction. The

judgment was issued on an interim basis, with various issues relating to relief reserved for further consideration. What we are asked to do on this appeal is to find (contrary to the holding of Randerson J) that the transaction was unconscionable or oppressive within the meaning of the CCCF Act and to make a declaration to that effect; and to then remit the proceeding to the High Court for further consideration of outstanding issues

7 I will proceed in a relatively conventional fashion by first outlining the general narrative and the nature of the particular transaction. I will then consider the character of an oppression action under the CCCF Act. I will then turn to the case for and against the reopening of this transaction under the CCCF Act.

8 I observe at this point that a great deal of the evidence and argument in the High Court and in this Court was taken up with whether an agency relationship existed between the lender (GE, the first respondent) and mortgage broker (Tasman Mortgages Limited (TML), the second respondent). This was because the Bartles' were anxious to establish that the knowledge of TML could be attributed to GE. It is easy to understand why that was thought to have been an important matter. At the same time, I observe from the outset that to my mind this is at heart an oppression proceeding under the CCCF Act. Obviously, the relationship between the various parties and what knowledge those parties had is of real significance, but I think those factors are better considered within the framework of the CCCF Act itself.

9 This is of some importance on this appeal because a great deal of the evidence and argument, and much of the High Court judgment, are taken up with the minutiae of a complex transaction, rather than being seen, as I think to be appropriate, in the more rounded way which is required by the CCCF Act. However the minutiae are to be seen, the transactions as I will describe them undoubtedly occurred: they are an established fact. The real question is whether the transaction is to be avoided on the basis of the statutory scheme to which resort has been sought.

The general narrative

10 At the time of the relevant transactions, Bruce and Dorothy Bartle were aged 66 and 65 respectively. They had a combined pension income of $21,736. They owned a house on Amber Drive in Whangarei worth about $400,000, which was unencumbered. They had about $48,000 in the bank. They owned a campervan, a car and personal effects.

11 Blue Chip New Zealand Limited advertised an investment opportunity. “Opportunity” is a somewhat optimistic description; as will become apparent, the investment scheme had rather more the character of a Trojan Horse to access the equity of investors in their homes. This company was part of a loosely aligned Blue Chip group of companies. The largest shareholder was Mr Mark Bryers.

12 As Randerson J noted (at [2]), the Blue Chip scheme was said to be attractive to people who were “asset rich but cash poor”. Persons in the Bartles' situation would use the equity in their unencumbered home to assist with the purchase of a residential apartment and thereby secure an income stream. The scheme was not “long term”: the idea was that after four years, the apartment would be sold. The Bartles would receive a small share of any capital gain. In the meantime, their income would be enlarged by $451 per fortnight (before tax), being rental on the apartment. In fact they were borrowing money to pay that sum to themselves.

13 The Blue Chip scheme was promoted on the basis that there would be no cash outlay from the Bartles. The Bartles' claim was that they understood Blue Chip would be responsible for all costs and expenses including payments due under any loans required. However, as will become apparent, there were a number of problematic features for them.

14 The Bartles were introduced to a Mr Michael Davis. He acted as the sales agent for Blue Chip throughout. Mr Davis recommended to the Bartles that they obtain legal advice from Mr Mathias, the third respondent. Mr Mathias was an Auckland based lawyer, who was said to be experienced in Blue Chip transactions. It is now suggested by counsel for the Bartles that he was a “tame” solicitor for Blue Chip. Randerson J found him to have been negligent in a number of respects in relation to the Bartles' transaction. There is no appeal against that holding.

15 The Bartles took advice from Mr Mathias and made such inquiries as they could. Mr Bartle in particular gave the matter close albeit somewhat misconceived consideration. On 29 September 2006 the Bartles signed an agreement for sale and purchase to purchase unit 701 in an apartment building being refurbished on Symonds Street in Auckland. The purchase price was $552,000. No finance had been confirmed at that stage but the agreement was unconditional.

16 Finance was subsequently arranged by TML, and actually advanced by GE. This finance was under a “Fast doc” scheme under which self-employed investors were not required to produce proof of income. Advances would be approved if the borrowers had a sufficient loan to equity value ratio in their home and signed a declaration as to their ability to pay.

17 The advances were made in three tranches:

(a) 8 November 2006	$137,484
(b) 28 September 2007	$125,791
(c) 28 September 2007	$366,291
	$629,566

18 The first two advances, totalling $263,275, were made to the Bartles personally. They were secured by mortgage over their Amber Drive residential property. The third advance was made to Bartle Properties Limited. That was a company formed by the...