A man whose company borrowed $1.3 million to buy a house must repay the loan to Westpac - despite the money being stolen by his lawyer to pay off debts and a house renovation in Devonport.

Lawyer Jesse Nguy was struck off for misappropriating the money and now his client Colin Chu and a company the pair both had shares in - New Dawn Holdings Ltd - also owe a debt to the bank for the loan, the Court of Appeal has ruled.

The saga began in October 2019 when Chu entered into a sale and purchase agreement to buy a $1.88m house near Massey in West Auckland as an investment property through New Dawn.

Nguy, through his firm Jesse and Associates, paid the deposit in November that year using funds held in his solicitor’s trust account for another unconnected client, according to a March 2021 decision of the Lawyers and Conveyancers Disciplinary Tribunal.

New Dawn, with Chu as guarantor, then applied for a mortgage with Westpac Bank through Nguy, who concealed from the bank his 75 per cent share in the company.

When the $1,321,600 was advanced to his solicitor’s account on February 7, 2020, the full amount was drawn down.

Nguy failed to settle the house purchase on January 31, 2020 and instead the lawyer used the money between March 2 and July 24, 2020 to make 14 payments on debts he owed including to two barristers, payments for renovation work on the Devonport property, and $855,964 to Melbourne lawyers to settle purchase of an apartment for another client.

Interest repayments on the $1.3m mortgage were made for 12 months with the bank initially unaware of how the money had been used.

Nguy stalled the vendor’s solicitors over settlement stating on June 19, 2020: “The delay in settlement is largely due to the effect of the Covid-19 epidemic namely, part of our clients [sic] funds were unable to be transferred to New Zealand due to the lockdown overseas and the bank only operating with half capacity”.

The vendor took legal action against Chu and while that process was under way Nguy continued lying to the vendor’s solicitors.

This included on November 2, 2020 when Nguy’s firm advised in writing that they “have spoken directly to our client’s business acquaintance overseas and have been assured that they are very confident that the funds will be available shortly”.

On December 7 further delays were explained by Nguy suggesting banks in New York and the United Kingdom were now involved.

The tribunal said Nguy asserted Chu gave instructions for him to use the money the way he did but Chu disputed that.

“In our assessment, it seems improbable that any of these payments were authorised by Mr C. In any case, the payments are in clear breach of the practitioner’s obligations to the bank.

“It is a fundamental obligation on solicitors to be scrupulous in dealing with client funds. Mr Nguy’s conduct in this case has shown repeated breaches covered by associated dishonest representations.”

In December 2020 the vendor got a court order, by consent, to force settlement but New Dawn still failed to settle and the sale and purchase agreement was cancelled in January 2021.

The vendor went on to sell again in March 2021 for $2.01m.

Chu complained to the Law Society whose investigations alerted Westpac to the situation and the bank lodged a caveat against the title of the property.

On February 4 the vendor’s solicitors told Westpac the sale agreement was cancelled and Westpac withdrew the caveat.

Nguy had been suspended by the tribunal and charges were brought against him in the tribunal, but not before he obstructed the Auckland Standards Committee investigation. He was struck off in October 2021.

Westpac appealed the May 2022 High Court decision that ordered summary judgment for recovery of the loan against Nguy but declined to do so against New Dawn and Chu.

In the Court of Appeal decision released today Chu’s lawyer argued the money was never advanced to New Dawn and accordingly there could be no repayment obligation.

“...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.”

However, Justices Murray Gilbert, David Goddard and Mark Cooper (CoA president) said the funds were advanced to New Dawn and interest was repaid for a year consistent with drawdown.

They said New Dawn was not entitled to use the money for anything else and after the loan was drawn down Westpac no longer had control of it.

The bank was entitled to demand New Dawn and Chu repay the money, and the appeal was allowed.

Natalie Akoorie is a senior reporter based in Waikato and covering crime and justice nationally. Natalie first joined the Herald in 2011 and has been a journalist in New Zealand and overseas for 28 years, more recently covering health, social issues, local government, and the regions.