Tauranga law firm Tauranga Law has been granted leave to take a long-standing wrangle arising out of the Blue Chip collapse to the Supreme Court.
A former Blue Chip investor is blaming Tauranga Law for the loss of a $101,910 deposit paid out before Blue Chip collapsed in 2008.
John Appleton agreed in April 2004 to buy a $356,896 apartment from a company called Rockfort, which was an affiliate of Blue Chip.
Appleton's family trust was to buy the apartment, to be built on Turner St in central Auckland. He signed a purchase agreement without taking legal advice, but was later referred by Blue Chip to Tauranga Law.
Tauranga Law's principal Kevin Olivier sent Appleton a letter detailing some risks involved in the transaction.
Appleton's trust borrowed to fund the deposit, which was then paid into a Blue Chip bank account.
The apartment was never built. After several years Appleton contacted Blue Chip to get his money back. It never happened. In 2008 Blue Chip collapsed, Rockfort was liquidated and Appleton lost his deposit.
Appleton and his trust took Tauranga Law to the High Court in 2011 alleging inadequate legal advice, and claiming $112,000, with interest and damages, from Olivier.
High Court Justice Christopher Allan found Olivier was negligent. He failed to provide proper advice and therefore breached his duty of care. But he added that Olivier's negligence did not cause Appleton's loss, so the claim failed.
Appleton and the family trust took the case to the Court of Appeal and in September Justices Mark O'Regan, Christine French and Helen Winkelmann found in their favour.
The three judges said they saw Olivier's “failings as much more significant” than Justice Allan did, and awarded funds to Appleton and the trust, but didn't specify the exact amount.
Tauranga Law applied to take the case to the Supreme Court and leave for this appeal is granted this week. No hearing date has been set.
The approved ground of appeal is whether the Court of Appeal's judgement was correct on the issue of causation.
The Court of Appeal decision says the deficits in the advice given are more serious than the High Court appears to have believed.
The High Court judge found Appleton's claim couldn't succeed because he couldn't show he would have acted on competent advice if Tauranga Law offered it, says Judge Mark O'Regan in the Court of Appeal report.
But Tauranga Law's advice, provided in connection with the deposit, obscured the fact that Blue Chip could do what it liked with it.
“There is no explanation of why the deposit was paid to Blue Chip rather than Rockfort, and no indication of what obligations Blue Chip assumed to Appleton. Blue Chip was said to be Rockfort's agent, but it's unclear whether the credit risk taken by Appleton was a credit risk on Blue Chip or Rockfort,” says Court of Appeal Judge O'Regan.
In his evidence in the High Court, Olivier shrugged off these deficits by saying everything depended on Blue Chip performing and that Blue Chip was a large and reliable company.
“This seems to be inadequate,” says Judge O'Regan.
“The purpose of getting legal advice is to ensure the investor, who is attracted by the superficial desirability of an investment, is advised on the legal underpinning of the assumed features. The reality in the present case is that Appleton is, in effect, making an unsecured advance to Blue Chip, a party with which he had no contractual relationship at all.”
About 1200 investors in Blue Chip are still owed up to $120 million, according to the liquidator's reports.
Blue Chip principal Mark Bryers pleaded guilty in 2010 to a number of financial reporting charges and was sentenced to a $37,470 fine and 75 hours of community service.