Court of Appeal: Lawyer's client must pay $1.3m loan to Westpac despite lawyer's thievery

The lawyer had taken the loan and used the funds to pay his own debts

Court of Appeal: Lawyer's client must pay $1.3m loan to Westpac despite lawyer's thievery

The Court of Appeal has ruled that a lawyer’s client must repay a $1.3m loan he obtained from Westpac – even though the lawyer stole the money, reported the NZ Herald.

Colin Chu had obtained the loan to finance a house purchase, but his lawyer, Jesse Nguy, instead misappropriated the money to pay off his own debts and to fund the renovation of a house in Devonport. The High Court ordered in May 2022 that the loan be recovered against Nguy but not against Chu and the company New Dawn Holdings Ltd, where both Chu and Nguy held shares.

Westpac appealed that decision, and Court of Appeal Justices Murray Gilbert, David Goddard and Mark Cooper determined that the bank was entitled to demand repayment from Chu and New Dawn.

The case traces its roots back to October 2019 when Chu entered into a sale and purchase agreement via New Dawn for a West Auckland house valued at $1.88m. The house was intended to be an investment property.

Operating under the firm Jesse and Associates, Nguy settled the initial deposit in November 2019, utilising money in his solicitor’s trust account for a client unconnected to the deal, as per a March 2021 decision released by the Lawyers and Conveyancers Disciplinary Tribunal.

Chu served as guarantor when New Dawn applied for a mortgage with Westpac. Nguy, who facilitated the application, did not disclose to the bank that he held a 75% share in the company. The amount of $1,321,600 was advanced to his solicitor’s account on 7 February 2020 and the full amount drawn down.

However, Nguy did not settle the West Auckland property purchase on 31 January 2020; rather, over the period of 2 March to 24 July 2020, he made 14 payments to cover his personal debts to two barristers, to finance renovations on a property in Devonport, and to pay lawyers in Melbourne $855,964 to settle the purchase of an apartment for another client. Over a 12-month period, interest repayments on the mortgage were made to the bank while Westpac was in the dark about how the funds were being applied.

To stall the vendor’s solicitors over the settlement, on 19 June 2020 Nguy blamed the delay on the COVID-19 pandemic’s impact on banking operations, claiming that the funds could not be transferred due to the lockdown. In response, the vendor initiated legal proceedings against Chu and obtained a court order by consent to force settlement in December 2020. The sale and purchase agreement was voided in January 2021 after New Dawn still did not settle.

Chu raised his concern regarding Nguy’s conduct to the Law Society, which commenced an investigation through which Westpac became aware of the situation. The bank proceeded to lodge a caveat against the property’s title until it was informed by the vendor that the sale agreement had been cancelled.

According to the Lawyers and Conveyancers Disciplinary Tribunal, Nguy alleged that Chu had instructed him to apply the funds thusly – a claim disputed by Chu. Nguy was struck off in October 2021 after he obstructed the investigation by the Auckland Standards Committee.

During Westpac’s appeal of the High Court’s decision to exclude Chu and New Dawn from repaying the loan, Chu’s lawyer held that the New Dawn never received the money and thus had no obligation to repay.

“New Dawn never had the loan monies in its power or control, never benefited from the loan advance and therefore has no liability to repay the bank. It follows that Mr Chu also has no liability”, the lawyer said in the Court of Appeal decision.

However, the court said that the funds had been advanced to the company with the interest repaid in line with drawdown for a year. The court pointed out that after drawdown, Westpac did not control the loan anymore.

Thus, Westpac’s appeal was permitted.

 

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