Recently the Supreme Court 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 v Turner and Waverley Ltd & ors [2012] NZSC 72, involved the Blue Chip group of companies. Blue Chip promoted property investment schemes to the New Zealand public before collapsing in 2008. As part of the Blue Chip scheme, investors entered into sale and purchase agreements with Blue Chip associated property developers and various financial arrangements with Blue Chip companies. The Court of Appeal had held that the sale and purchase agreements 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 s 5(1)(b) exemption). 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 sale and purchase agreements were part of the same broad arrangement, they too were void (having also been offered without a prospectus).

The Supreme Court's decision indicates that when determining whether the requirements of the Securities Act apply, courts are likely to take broad approach and look at the investment scheme overall. Notwithstanding that a particular agreement relates to a sale and purchase of land, a prospectus may be required if there are collateral arrangements under which funding is sought from the public. The result is that a much greater number of agreements may be caught by the Securities Act.


The appellants in Hickman (the investors) had all participated in investment schemes marketed by the Blue Chip group of companies. The various schemes differed in detail, but all required the investors to commit to the purchase of apartments in one or more developments. Broadly, the Blue Chip strategy involved:

  1. Blue Chip identifying and securing sites suitable for apartment buildings;
  2. Blue Chip selling such sites to an independent developer who would build the apartment building on the site, or Blue Chip itself planning and arranging the funding for the erection of the building;
  3. Blue Chip selling the apartments off the plans to short-term investors and thereby allowing it to draw down funding for the construction of the building, as well as generating underwriting fees for Blue Chip based on the selling prices of the apartments; and
  4. Blue Chip then locating a second purchaser for each apartment whose purchase payment would enable the original investor to be taken out.

Blue Chip paid fees to the investors as part of these schemes. For their part, the investors became unconditionally committed to the purchase of the apartments by signing sale and purchase agreements (SPAs) with Blue Chip associated property developers. The investors also paid deposits to those developers.

When Blue Chip collapsed in 2008, the developments were progressed by different companies. However, the investors were still bound by their SPAs to purchase the properties. Many investors had difficulties raising the necessary funds to meet those commitments.

Supreme Court decision

In the Supreme Court, the investors argued 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 argued that they should be released from the SPAs they entered into with the developers. That argument (and a number of other arguments the investors raised) was unsuccessful in the High Court and Court of Appeal. However, the Supreme Court took a different view, holding that:

  1. The Blue Chip products fell within the definition of a "debt security" in the Act because they conferred on the investors the right to be paid money that was owing to them by Blue Chip (i.e., the fees from Blue Chip). In other words, the products were a mechanism by which Blue Chip sought and obtained financing from the public.
  2. Blue Chip was an "issuer" for the purposes of the Securities Act (which is defined as a person "on whose behalf any money paid in consideration of the allotment of the security is received"). Although Blue Chip did not receive money directly from the investors (the deposits went to the developers), it received a number of benefits which could be described as "money's worth". The entering into SPAs by the investors facilitated the payment of underwriting fees to Blue Chip from the developers and conferred on Blue Chip control over the apartments.
  3. The products did not fall within the exemption in section 5(1)(b) of the Securities Act for interests in real estate. From the point of view of the investors, the apartments were of only peripheral significance. It was not intended that the investors actually occupy the apartments or receive any capital gain when the apartments were sold. Any profits the investors might derive were to come from the efforts of Blue Chip and Blue Chip's promises were (the Supreme Court said), "well removed from what could be seen as ancillary to ordinary real property transactions."

It necessarily followed from the above that Blue Chip's marketing of its investment products was in breach of the Securities Act as Blue Chip has offered debt securities to the public without a prospectus, it was an issuer, and the s 5(1)(b) exemption was not applicable.

The next issue was whether Blue Chip's Securities Act breaches were attributable to the developers. The developers had argued that the SPAs between themselves and the investors were separate from Blue Chip's financial products and therefore could not be invalidated under the Securities Act in the same way. However, the Supreme Court noted that the developers had knowledge of the investment products that Blue Chip was marketing and instructed Blue Chip to market the apartments in conjunction with those products. Looking at the scheme overall, it was clear that the SPAs were offered as part of an integrated package with the Blue Chip investment products. Accordingly, the SPAs suffered from the same problem (having been offered without the required prospectus) and were invalid. As an alternative approach (which reaches the same result) the Court held that the commitments of the investors under the SPAs, and the conditional interests of the developers under those SPAs, were sufficient to amount to subscriptions so as to find the developers (like Blue Chip) were "issuers" under the Act.


The effect of the Supreme Court's decision is that the SPAs entered into by the Blue Chip investors are unenforceable under s 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.


  1. In deciding what is a "debt security", it is important to look at the nature of the transaction overall and ask: are the obligations effectively borrower / lender obligations (even if not exactly the same)? Is the product being offered really a mechanism of obtaining financing from the public? If the answer to either of those questions is "yes", it may be a debt security. A debt security may arise where an investor has paid money or accepted financial obligations on the basis of a promise that they would be reimbursed for their financial outlay and receive a return for their outlay and risk.
  2. Offers of real estate may be securities when accompanied by collateral arrangements intended to provide returns based on the efforts of others (for example, the efforts of a party like Blue Chip to market and sell the property).
  3. A person need not receive money directly from the investor in order to be an "issuer" of a security for the purposes of the Act. It may be enough for that person to receive other benefits as a result of the investor's entry into an agreement, such as payment of fees by a third party or control over property.
  4. It may not matter that, for example, the issuer and the offeror of securities are separate parties, or that separate contractual arrangements are in place with separate parties. The Court will be prepared to step back and look at the scheme overall in deciding whether the Securities Act applies.

The Supreme Court's decision highlights the need for caution in the design of any product which obtains funds from the public, including those connected with real estate, and careful consideration as to whether the requirements of the Securities Act apply.