Hickman and Ors v Turner and Waverley Ltd Sc

JurisdictionNew Zealand
JudgeElias CJ,McGRATH,William Young,Anderson JJ
Judgment Date09 August 2012
Neutral Citation[2012] NZSC 72
Docket NumberSC 46/2011
CourtSupreme Court
Date09 August 2012
Neil Tony Hickman and Ors
First Appellant


David John Lester and Ors
Second Appellant


Anthony Collingwood and Ors
Third Appellant


Norman and Marie Herrick
Fourth Appellant
Turner and Waverley Limited (Formerly Turn and Wave Limited)
First Respondent


Greenstone Barclay Trustees Limited
Second Respondent


Grafton Projects Limited (Formerly Icon Central Limited)
Third Respondent

[2012] NZSC 72


Elias CJ, Tipping, McGrath, William Young and Anderson JJ

SC 46/2011


Appeal from High Court and Court of Appeal decisions where appellants (“investors”) unsuccessfully sought to impeach agreements for sale and purchase (“ASPs”) closely associated with property investment schemes — “Blue Chip” group of companies (companies associated with Blue Chip (New Zealand) Ltd and Bryers) marketed certain investment products — investment schemes required appellants to commit to purchase of apartments in proposed developments — sale agents for Blue Chip assisted investors in arranging finance for purchase of the apartments and authorised Blue Chip to seek finance on their behalf — appellants relied heavily on Blue Chip parties honouring financial promises which were later dishonoured — if appellants held to ASPs with developers, would suffer substantial losses — whether s37 Securities Act 1978 (void irregular allotments) applied to ASPs rendering them unenforceable.


P J Dale, N R Campbell and D W Grove for Appellants

S H Barter for Appellant Herrick

D J Chisholm and G P Blanchard for First Respondent

D J Neutze for Second Respondent

B O'Callahan for Third Respondent

  • A The appeals are allowed.

  • B The SPAs executed at the same time as, or after, the corresponding Blue Chip investment product agreements were entered into are declared to be unenforceable under s 37 of the Securities Act 1978.

  • C The High Court is to determine whether SPAs, entered into before the corresponding Blue Chip investment products were executed, were subscriptions for securities.

  • D The cases are otherwise generally remitted to the High Court to make such further orders as may be consistent with this judgment.

  • E The respondents are to pay the appellants costs $75,000 and usual disbursements.

  • F Costs in the High Court and Court of Appeal are to be as determined by those courts.


Para No

Elias CJ, McGrath, William Young and Anderson JJ


Tipping J


Elias CJ, McGRATH, William Young AND Anderson JJ

(Given by William YoungJ)

Table of Contents



The facts


Blue Chip and its business model


The details of the investment products involved in the case


The Barclay development


The Bianco




Blue Chip's marketing methods


Were the JVA, PIP and PAC products securities for the purposes of the Securities Act?


A preliminary comment


Relevant provisions and definitions as the debt securities argument


The competing approaches of the parties


The relevant legislative history


The general structure of the Securities Act


The leading decisions on the scope of the “debt security” definition


The “otherwise owing” issue


Was Blue Chip an “issuer” ?


Did the marketing of the JVA product constitute the offering of equity securities to the public?


Is the exemption in s 5(1)(b) applicable?


Do breaches of the Securities Act associated with the marketing of the investment products affect the developers and, if so, to what extent?


Preliminary comments


A broad analysis of the relationships between the parties


The operation of s 37(1) and (4)


The s 5(1)(b) exemption


Tainting by illegality


The developers as issuers


Sections 37AH, 37AJ and 37 AL





The appellants participated in investment schemes marketed by the Blue Chip group of companies. 1 These required them to commit to the purchase of apartments in one or more of three proposed developments on land which had originated with entities associated with Blue Chip but which, in two cases, had by then been sold to independent third party developers. The appellants relied very heavily on the Blue Chip parties honouring their financial promises, which, in the event, they did not do. If the appellants are held to the purchase agreements with the developers, they will suffer very substantial losses.


The appellants maintain that when Blue Chip marketed its investment schemes, it was offering securities to the public within the meaning of the Securities Act 1978 and that it did so without meeting the associated requirements. On this basis they seek to impeach the closely associated agreements for sale and purchase (SPAs) they entered into with the developers. These arguments (and a number of

other arguments which are no longer pursued) have been dismissed by Venning J in the High Court 2 and by the Court of Appeal. 3

As will become apparent – and in respectful disagreement with Venning J and the Court of Appeal – we have come to the conclusion that the appellants' Securities Act arguments are correct. When Blue Chip was marketing its investment schemes, it acted in breach of the Securities Act and thus brought into play s 37 of that Act which renders unenforceable the allotment of improperly marketed securities and the associated subscription for such securities. We also conclude that the unenforceability prescribed by s 37 extends to the SPAs; this primarily because the way the investors subscribed for the securities marketed by Blue Chip was by entering into the SPAs. In the result, we hold that the SPAs are unenforceable under s 37(4). 4 As well, we consider that the developers are also issuers, giving rise to entitlements to relief under s 37(5).

The facts
Blue Chip and its business model

Blue Chip (New Zealand) Ltd 5 was established in 2000 as a promoter of property investments. Mr Mark Bryers was its driving force. Unless there is need for greater particularity, we will refer to this company, its subsidiaries and associates along with companies perhaps more closely linked to Mr Bryers, as “Blue Chip”.


Blue Chip marketed four investment products:

  • • the mainstream agreement;

  • • the joint venture agreement (JVA);

  • • the premium income product (PIP); and

  • • the put and call agreement (PAC).


Under the mainstream agreement, the investors purchased apartments which were subject to leases with the rent guaranteed by Blue Chip. There were associated agreements for the sale and purchase of a furniture pack and for property management. None of the appellants in this case acquired the mainstream product although it was envisaged that the apartments the appellants purchased would later be sold again, with the new purchasers entering into mainstream agreements.


The other three products (which we will discuss in a little more detail shortly) were all associated with a Blue Chip strategy which was based around:

  • (a) Blue Chip identifying and securing sites suitable for apartment buildings;

  • (b) either selling such sites to an independent developer who would build an apartment building on the site, or alternatively Blue Chip itself directly putting in train the planning and funding arrangements for the erection of such a building;

  • (c) Blue Chip selling apartments “off the plan” to short-term investors and in this way generating sufficient pre-sales to allow funding to be drawn down for the construction of the apartment buildings and at the same time generating underwriting fees for Blue Chip based on the selling prices of the apartments; and

  • (d) Blue Chip, in due course, locating a second purchaser for each apartment whose purchase payment would enable the original investor to be taken out.


Whether Blue Chip made profits on the initial securing of the development sites and their on-sale to developers was not explored before us and is not material to the outcome of the appeals. But there were plainly other benefits. The arrangements facilitated the receipt by Blue Chip of underwrite fees which were essentially commissions on the sales made to the investors. More generally, according to material generated by Blue Chip, these arrangements enabled it to maintain control over a significant number of apartments which were, in effect, “on the shelf” and could later be sold to investors under the mainstream agreement (who were said to prefer “immediate settlement stock”). Any capital gain derived on such further sales would accrue, either entirely or substantially, to Blue Chip.


The returns for the investors were in the form of “fees” which, in the case of the JVA product and particularly the PIP, were functionally very similar to interest and in the case of the PAC product involved a sharing of Blue Chip's underwrite fee. Assuming that all went according to plan, that was, for the investors, either it, or just about it. 6 In return, they became unconditionally committed to the purchase of the apartments and they paid the required deposits. 7 The investors' outgoings were either covered by the fees payable by Blue Chip or were the subject of indemnities. 8

The details of the investment products involved in the case

The JVA was the form of investment in issue in GE Custodians v Bartle. 9 The investor agreed to purchase an apartment and furniture pack but also agreed, jointly with Blue Chip, to establish a joint venture entity to engage in the business of owning and leasing the apartment. The investor was required to fund the purchase of the apartment and the associated furniture pack. The return for the...

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