The Supreme Court has issued a significant decision on the scope of investment products which fall within the Securities Act 1978 (reversing the findings of the High Court and Court of Appeal).

The case, Hickman and Ors v Turner and Waverley Limited & Ors [2012] NZSC 72, involved the Blue Chip group of companies which promoted property investment schemes to the public before collapsing in 2008. The various schemes differed in detail, but all required the investors to commit to the purchase of apartments "off the plan" (as short-term investors with returns by way of fees) in one or more developments under sale and purchase agreements (SPAs) with Blue Chip associated property developers. The schemes involved Blue Chip providing funding assistance for the purchases as well as Blue Chip locating a second purchaser for each apartment, enabling the original investor to be bought out. However, after the Blue Chip group collapsed, the developments (by separate companies) went ahead and the investors faced difficulties in raising the necessary funds to complete the purchases. The investors argued that they were entitled to the return of their money because the offer of the schemes without a registered prospectus contravened the Securities Act and the SPAs were invalid and of no effect.

The Court of Appeal had held that the SPAs were independent of the Blue Chip investment arrangements and were exempt from the requirements of the Securities Act because they were agreements for sale and purchase of land (within the section 5(1)(b) exemption of the Act). This meant that the investors were still bound by their SPAs to purchase the apartments, without the benefit of the financial arrangements promised by Blue Chip under the investment schemes.

However, the Supreme Court took a different view. It held that Blue Chip's various products constituted "securities" and that Blue Chip had breached the Securities Act by offering those products without a prospectus. Because the SPAs were part of the same broad arrangement, they too were void (having also been offered without a prospectus).

The effect of the Supreme Court's decision is that the SPAs entered into by the Blue Chip investors are unenforceable under section 37 of the Securities Act. This relieves the investors from ongoing financial commitments and leaves them free to seek redress for losses suffered as a result of the developers' enforcement of those SPAs. More broadly, the case has given new guidance about what constitutes a "security", and therefore when the requirements of the Securities Act (such as issuing a prospectus) might apply.

For detailed commentary on this case see our earlier client update: 'What is a "security" and when does a sale of land require a prospectus? The Supreme Court reverses previous thinking'

Interestingly, in order to prevent a repeat 'Blue Chip' type property scheme from potentially falling outside the scope of New Zealand's securities regime, under the Financial Markets Conduct Bill the FMA is to be given a "call-in" power for products which do not neatly fall within the new defined product categories in the Bill.