Westpac New Zealand Limited v New Dawn Holdings Limited
[2022] NZHC 1118
•27 May 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-001011
[2022] NZHC 1118
BETWEEN WESTPAC NEW ZEALAND LIMITED
Plaintiff
AND
NEW DAWN HOLDINGS LIMITED
First Defendant
COLIN KWAK YAN CHU
Second DefendantJESSE SEANG TY NGUY
Third Defendant
Hearing: 30 November 2021 Appearances:
B J Upton and S L Hawksworth for the Plaintiff R M Dillon for the Defendants
Judgment:
27 May 2022
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 27 May 2022 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Simpson Grierson, Auckland Queen City Law, Auckland
D P H Johns QC, Auckland
WESTPAC NEW ZEALAND LTD v NEW DAWN HOLDINGS LTD [2022] NZHC 1118 [27 May 2022]
Introduction
[1] Westpac New Zealand Limited (Westpac) advanced funds to New Dawn Holdings Limited (NDHL) under a loan to enable NDHL to purchase a property at Henwood Road, Taupaki, Auckland. Colin Kwok Yan Chu, shareholder and director of NDHL, gave a guarantee and indemnity to Westpac for the loan.
[2] Jesse Seang Ty Nguy (Mr Nguy) was NDHL’s solicitor for the transaction. When he received the loan advance from Westpac, rather than applying the funds to the purchase of the property, he misappropriated the money.
[3] Westpac seeks summary judgment against NDHL as borrower for the amount owing under the loan, and against Mr Chu under the guarantee and indemnity.
[4] Westpac seeks summary judgment against Mr Nguy for damages, in the loan amount, for breach of his retainer to Westpac.
[5]NDHL and Mr Chu oppose the application on two grounds:
(a)NDHL never received the loan funds, and therefore they should not be liable for the funds; and
(b)the Court should exercise its residual discretion to decline summary judgment and stay the proceeding until all claims and execution processes against Mr Nguy are concluded.
[6] Mr Nguy opposes summary judgment on quantum only.1 He consented to judgment being entered against him in respect of liability, and on 28 September 2021, Venning J entered judgment for Westpac against Mr Nguy on liability.2
1 Mr Nguy’s counsel on the record was excused from the hearing as he had no instructions to make submissions or to appear for Mr Nguy.
2 Westpac New Zealand Ltd v New Dawn Holdings Ltd HC Auckland CIV-2021-404-1011, 28 September 2021.
[7] Mr Nguy claims that Westpac knew that he had a shareholding in NDHL, that the property purchase had not settled, and a mortgage had not been registered against the property in favour of Westpac. He says that Westpac’s claim against him must be reduced to reflect its negligence by not taking earlier steps to recover the loan funds from him.
[8]The issues are:
(a)Is NDHL and Mr Chu’s defence that NDHL did not receive the loan funds arguable?
(b)If not, should the Court exercise its residual discretion not to order summary judgment?
(c)Does Mr Nguy have an arguable defence that the order against him should be reduced because Westpac was negligent?
Factual background
The parties
[9] On 7 October 2019, Mr Chu entered into a sale and purchase agreement for the purchase by him or a nominee of the property at Henwood Road. Mr Chu nominated NDHL as the purchaser of the property. Mr Chu was the sole director of NDHL and was recorded as the sole shareholder of NDHL on the Companies Office Register.
[10] Westpac advanced funds to NDHL under a Choices Home Loan, dated 18 December 2019. The purpose of the loan was to enable NDHL to complete the purchase of the property. Mr Chu provided Westpac with a guarantee to help secure NDHL’s obligations to Westpac. Westpac was also to be granted a mortgage over the property.
[11] Mr Nguy was the principal of the firm Jesse & Associates. Mr Nguy acted for NDHL and Mr Chu in relation to the purchase of the property, the loan and the guarantee. Mr Nguy was also instructed to act for Westpac, on a limited retainer, to
complete and arrange for execution of the loan agreement, the guarantee and register the mortgage over the property.
[12] Mr Nguy had a 75 per cent shareholding interest in NDHL, which Mr Chu held on trust for Mr Nguy pursuant to a Deed of Declaration of Trust dated 18 December 2019. This trust arrangement was not disclosed to Westpac at the time it provided the loan to NDHL.
Instructions to Mr Nguy and transfer of the loan funds
[13] On 16 December 2019, Westpac wrote to Mr Nguy, instructing him to act for Westpac, on a limited retainer, to attend to the execution, and where relevant, registration of certain documents (Instruction Letter).
[14]The Instruction Letter provided:
Please read these instructions in conjunction with the General Information and Requirements document previously provided to you. This document is also available online at: westpac.co.nz/solicitors.
…
General Instructions
Please act for the Banks to complete and arrange for execution and, where relevant, registration of the following documents (the Documents):
·Solicitors Certificate;
·Directors Certificate;
·Loan / Facility Agreement(s) including all Terms & Conditions document(s) where included);
·Registered first and only Mortgage from New Dawn Holdings Limited over 68 Henwood Road, Taupaki, Auckland 0782 …
·Unlimited Interlocking Deed of Guarantee and Indemnity granted in favour of the Banks by Colin Kwok Yan Chu and New Dawn Holdings Limited …
·Waiver of Independent legal advice / Acknowledgement of Guarantors;
…
Acting for the Banks, the Customer and any guarantor
In issuing these instructions (the Instructions), the Banks require that you act for them with the consent of all other relevant parties in this transaction for whom you also propose to act (including the Customer and any guarantor).
By accepting the Instructions, you agree to act for the Banks in this matter.
…
If, for any reason, you do not believe you will be in a position to act for the Banks in this manner, please return these instructions to Westpac NZ immediately.
Completion and Execution of Documents General
If:
·prior to the issue of your Solicitors’ Certificate to the Banks; or
·after the issue of your Solicitors’ Certificate but before you disburse the proceeds of any facilities you become aware of anything which could affect the validity or enforceability of the Banks’ security, please advise Westpac NZ immediately and seek further instructions.
[15] On 30 January 2020, Mr Nguy wrote to Westpac referring to the Instruction Letter and attaching the executed documents and his Solicitor’s Certificate, which certified that he had acted for Westpac in accordance with its Instruction Letter. Mr Nguy requested that the loan amount be transferred into the trust account for Jesse & Associates for settlement of the property purchase on 31 January 2020. Mr Nguy certified that he would promptly lodge with LINZ and forward to Westpac all registerable documents, including Westpac’s mortgage.
[16] Westpac was subsequently advised that settlement would not take place until the end of the following week (being 7 February 2020). On 7 February 2020, Westpac advanced the sum of $1,321,600 to Jesse & Associates’ trust account.
[17] Mr Nguy did not apply the loan funds to the purchase of the property. Instead, he used the loan funds to pay various debts of Jesse & Associates (including barristers’ fees), to renovate a property on Vauxhall Road in Devonport and to purchase a property in Australia.3 By 29 June 2020, the majority of the loan funds had been dissipated. By 24 July 2020, all of the loan funds had been used for other purposes.
3 First affidavit of Sunita Kiran Singh sworn 19 May 2021 at [22]; and exhibit in “P”.
Cancellation of property purchase
[18] NDHL failed to settle the purchase of the property as agreed. The vendor sought and obtained (by consent) an order for specific performance. Settlement was to occur on 1 December 2020.4
[19] Despite the judgment, Mr Chu and/or NDHL again failed to settle the property purchase on 1 December 2020. On 22 January 2021, the vendor gave notice to Mr Nguy cancelling the agreement with Mr Chu and NDHL.5
Law Society complaint and outcome
[20] On 11 December 2020, Mr Chu lodged a complaint with the New Zealand Law Society (NZLS) against Mr Nguy in relation to the property purchase.
[21] An interim order suspending Mr Nguy from practise as a solicitor until charges against him were brought and disposed of was made by the New Zealand Lawyers and Conveyancers Disciplinary Panel on 2 March 2021.6
[22] On 18 October 2021, Mr Nguy was struck off the roll following a decision of the Lawyers and Conveyancers Disciplinary Tribunal for his conduct, including the misappropriation of trust funds.7
Westpac takes action
[23] Westpac says it became aware of a potential problem with the purchase of the property and its mortgage in around 22 January 2021, when it was approached by NZLS in relation to Mr Chu’s complaint against Mr Nguy. Westpac subsequently made enquiries with Mr Nguy, demanding that he immediately transfer title of the property to NDHL and register the mortgage in favour of Westpac.8
4 First Singh affidavit at [16]; and exhibit “K”.
5 First Singh affidavit at [17]; and exhibit “L”.
6 Auckland Standards Committee 2 v Jesse Seang Ty Nguy [2021] NZLCDT 4.
7 Auckland Standards Committee 2 v Jesse Seang Ty Nguy [2021] NZLCDT 26.
8 First Singh affidavit at [19]; and exhibit “M”.
[24] On 27 January 2021, Westpac lodged a caveat against the title of the property. On 4 February 2021, the vendor’s solicitors wrote to Westpac to advise the bank of the true position, namely that they had cancelled the agreement. Consequently, on 5 February 2021, Westpac withdrew the caveat.
[25] On 29 March 2021, Mr Chu’s / NDHL’s lawyer, Mr Dylan, wrote to Westpac and informed the bank what had happened in the background.9
[26] On 12 April 2021, the March 2021 loan repayment was dishonoured and reversed. On 14 April 2021, Westpac terminated the loan and made demand on NDHL and Mr Chu.10
Legal principles concerning summary judgment
[27]Rule 12.2(1) of the High Court Rules 2016 provides:
The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[28] The relevant principles governing a summary judgment application are well established:11
The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
9 First Singh affidavit at [22]; and exhibit “P”.
10 First Singh affidavit at [21]; and exhibit “Q”.
11 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
[29] The wording of r 12.2 (“may give judgment”) indicates a residual discretion which has been interpreted as follows:12
(a)The discretion conferred by “may” is restrictive and is residual. In most cases, once the court is satisfied the defendant has no defence, there is no room for discretion.13
(b)The residual discretion should be invoked to avoid oppression or injustice in proceedings where:
(i)the actions or possible liability of a third party who is not before the court are in issue;14
(ii)an opportunity should be given to allow discovery or other interlocutory applications;15
(iii)unusual features in the case would mean that entry of summary judgment would be oppressive or unjust;16 or
(iv)the complexity of facts and law means that the court cannot be sure that there is no defence.17
(c)Even where a defence is not made out, in exceptional circumstances the court may use its discretion to allow other processes to be followed.
[30] I will now turn to the first issue arising out of Westpac’s application for summary judgment of its claim against NDHL and Mr Chu.
12 McGechan on Procedure (online ed, Thomson Reuters) at [HR12.2.11].
13 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 5.
14 Sudfeldt v UDC Finance Ltd (1987) 1 PRNZ 205 (CA) at 209.
15 Berg v Anglo-Pacific International (1988) Ltd (1989) 1 PRNZ 713 (CA) at 717.
16 Sayles v Sayles (1986) 1 PRNZ 95 (CA) at 99; and Herring v Herring [2010] NZCA 500, [2011] 2 NZLR 433 at [24]–[26].
17 Environmental Protection Authority v Chatham Rock Phosphate Ltd [2016] NZHC 2079 at [101]– [105].
Is NDHL and Mr Chu’s defence that NDHL did not receive the loan funds arguable?
The defence
[31] NDHL and Mr Chu’s defence is that NDHL did not receive the loan funds and did not benefit from them. As NDHL did not receive the funds or benefit from them, they are not liable to Westpac under the loan.
[32] NDHL/Mr Chu submit that Mr Nguy received the funds and held them in the Jesse & Associates trust account as agent for Westpac, with instructions to apply the funds to settle the purchase of Henwood Road or return the funds to Westpac.
[33] They say that the purpose of the transaction from the point of view of Westpac was to purchase a mortgage. The funds were provided to Mr Nguy so they could be paid to the vendor and a mortgage registered against the property in favour of Westpac. If, for any reason, that did not occur, the funds were to be returned to the bank.
[34] They further submit that at no stage were NDHL or Mr Chu authorised to deal with the funds in any way other than to purchase Henwood Road, resulting in registration of a mortgage to Westpac over that property. As such, Mr Nguy was bound to only apply the funds as authorised by Westpac.
[35] NDHL/Mr Chu submit that Mr Nguy also owed fiduciary duties to Westpac, Mr Chu and NDHL; as solicitor and agent to Westpac, solicitor to Mr Chu and NDHL, and pursuant to a joint venture with Mr Chu. His duties to NDHL were to receive the funds from Westpac and apply them to the transaction so the company became the owner of the property, subject to the mortgage to Westpac. His duties to Westpac were consistent with that: to have the security documents executed, receive the loan funds and either apply those funds to the property purchase and register the mortgage, or return the funds to Westpac. NDHL submits that it is clear from these duties NDHL did not hold the funds nor benefit from them until the property purchase.
[36] NDHL/Mr Chu point to the Loan Advance Advice from Westpac to Jesse & Associates on 7 February 2021, in which Westpac informed Nr Nguy that the funds had been paid into his firm’s trust account and said:
This payment is cleared funds. Notwithstanding this, in the event that settlement does not proceed please contact Lending Services immediately on 03 3716453 to arrange repayment of the settlement funds to Westpac.
[37] NDHL/Mr Chu also refer to correspondence Westpac wrote to Mr Nguy after it became aware that settlement had not occurred (but before becoming aware that the purchase agreement had been cancelled by the vendor and that Mr Nguy had misappropriated the funds). On 27 January 2021, Westpac wrote to Mr Nguy with a series of questions, including:
Why were the funds not returned to Westpac when it became apparent settlement would not occur?
[38] Westpac, by its solicitors, wrote to Mr Nguy again on 15 February 2021. By then Westpac was aware that the purchase agreement had been cancelled by the vendor on 22 January 2021. Westpac stated:
This is of significant and serious concern to Westpac, particularly in light of your added failure to answer the questions in paragraphs 5(c) of Mr Robinson’s letter of 27 January 2021.
These questions related to the whereabouts of the loan funds that Westpac had advanced on 7 February 2020 into your trust account. That advance was made in the expectation that settlement would occur shortly thereafter, and that the loan to NDHL would be secured by way of mortgage over … Henwood Road.
Can you please immediately answer those questions. For the avoidance of doubt, the questions were:
(a)What is the status of the $1,321,600 deposited into your trust account on 7 February 2020?
(i)If these funds do not remain in your Trust Account, to whom have they been paid, and when were they paid?
(ii)Why were these funds not returned to Westpac when it became apparent that settlement would not occur? It goes without saying that if you still hold the loan funds in your trust account, that you should return the money to Westpac immediately. The sole purpose for which Westpac had advanced the loan money was to enable NDHL to purchase
… Henwood Road. It is clear that this is no longer possible, and that the loan facility ought to be cancelled as a result.
[39] NDHL/Mr Chu submit that it is clear from these documents that the funds, when received and held by Mr Nguy, continued to be under the power and control of Westpac. Mr Nguy was obliged to Westpac under the retainer and pursuant to the fiduciary duties he owed Westpac to either apply the funds to the intended purchase of Henwood Road; or return the funds to Westpac. The funds were never under the power or control of NDHL, and they never benefited from the funds. As such, NDHL is not liable under the loan agreement to the bank, and nor, therefore, is Mr Chu.
Westpac’s submissions
[40] Westpac rejects that Mr Nguy was acting as the Bank’s agent when he received and held the loan funds in his firm’s trust account. Westpac says that Mr Nguy acted as its agent for a limited purpose only, under the limited retainer. That retainer was to procure the proper execution of the documents and register the mortgage.
[41] It submits that the limited nature of this retainer is evident from the terms of the Instruction Letter set out at [14]. It submits that in Bartle v GE Custodians Randerson J rejected a submission that the solicitor was the lender’s agent for a wider purpose than just procuring the security.18
[42] Westpac says that the funds were advanced by Westpac and deposited into Jesse and Associates’ trust account for the benefit of NDHL. The drawdown and receipt of the loan funds were tasks performed by Mr Nguy for and on behalf of NDHL. The beneficial interest in the funds always belonged to NDHL
[43] Westpac submits that NDHL mischaracterises the transaction when it states that Westpac advanced the funds to purchase a mortgage. The loan to NDHL and provision of security by NDHL are separate but interrelated matters. The provision of security is secondary, and a condition subsequent to the grant of the loan.
[44] As to the argument that neither NDHL nor Mr Chu were able to deal with the loan funds, Westpac says that it incorrect. NDHL was the borrower, and the loan funds were under NDHL’s control when in the Jesse & Associates trust account. NDHL
18 Bartle v GE Custodians [2010] 1 NZLR 802 (HC).
could have directed what was to happen to the loan funds. It is trite law that funds in a solicitor’s trust account are those of the client, not the solicitor. They are to be held for the benefit of and at the direction of the client.19
[45] Westpac admits that NDHL only had one legitimate option if the transaction did not proceed, and that was to return the money to Westpac. However, that is not because NDHL was not in control of the funds; it is because NDHL would breach the terms of the loan if it used the funds for any purpose other than to purchase the Henwood Road property.
[46] Thus, the primary obligation to return the loan funds to Westpac if settlement did not proceed was on NDHL, not Mr Nguy. There was nothing in the Instruction Letter or Specific Instructions directing Mr Nguy to return the loan funds if the transaction did not proceed as planned. The only obligation on Mr Nguy was to notify Westpac if, after the issue of his Solicitor’s Certificate but before disbursement of the proceeds of any facilities, he became aware of anything which would affect the validity or enforcement of Westpac’s security. In that event, he was to immediately advise Westpac and seek further instructions.
[47] Westpac contends that it was for Mr Chu to direct Mr Nguy to return the funds if settlement did not proceed, or to contact Westpac to ask what to do. That the customer was under this obligation is evident from the “Other Special Conditions” in the Loan Agreement which state:20
Please note: As per your request, Westpac NZ has only considered your application in relation to the purchase of … Henwood Road, Taupaki. Westpac NZ has not considered your ability to borrow any further funds to complete the subdivision or construction of a property. This approval is not a commitment of further funding, and Westpac will not be liable to you if you are unable to complete any future planned project.
Drawdown of the new lending is conditional upon any of the property mortgaged to Westpac NZ being either an owner-occupied property or investment property, as previously advised to Westpac NZ and as detailed in the schedule to securities attached to the loan summary.
19 Confirmed by s 110(1)(b) of the Lawyers and Conveyancers Act 2006 and reg 3(1) of the Lawyers and Conveyancers Act (Trust Account Regulations) 2008. See also John Odgers (ed), Paget’s Law of Banking (15th ed, LexisNexis, London, 2018) at [6.19].
20 First Singh affidavit at [6]; and exhibit “D”.
[48] Westpac submits that its instructions to Mr Nguy in the Loan Advance Advice to return the funds if settlement did not proceed were instructions to Mr Nguy in his capacity as NDHL’s solicitor. They were not instructions pursuant to the limited retainer. The limited retainer was completed when Mr Nguy completed the Solicitors Certificate and sent that with the executed documents to Westpac with an undertaking to register the mortgage.
[49] In this respect Westpac refined its case from that made in its written synopsis, where it submitted:
(a)While Westpac was entitled to require the funds to be returned if settlement did not go ahead, the beneficial interest in the funds belonged at all times to NDHL; and
(b)An obligation on Mr Nguy under the limited retainer to return the loan funds if settlement did not occur did not alter NDHL’s beneficial interest in the same funds. The loan funds remained those of NDHL who had an independent obligation to return the funds to Westpac in the event of a demand arising from an event of default.
[50] Westpac now submits that if Mr Nguy had faced a direct instruction from NDHL to apply the funds for a different purpose, he could have professionally refused because he was being instructed to commit a fraud on Westpac, but not because of the limited retainer.21
[51] Westpac further submits that the case is analogous to Nguyen v S M & T Homes Ltd, where the Court of Appeal held that funds received on behalf of the vendor into a real estate agent’s trust account, had been received by the vendor.22
21 See Fletcher v Eden Refuge Trust [2012] NZCA 124, [2012] 2 NZLR 227. The obligation on a solicitor under s 89(1) of the Law Practitioners Act 1982, now s 110 of the Lawyers and Conveyancers Act, to comply with a client’s instructions as to the disbursement of funds held in the solicitor’s trust account for the client is not absolute. A solicitor is subject to overriding duties to avoid steps to avoid committing or being a party to a criminal offence; and to take all reasonable steps to prevent any person from perpetuating a crime.
22 Nguyen v S M & T Homes Ltd [2016] NZCA 581, [2017] 3 NZLR 281.
[52] Westpac also relies on Haira v Burbery Mortgage Finance & Savings Ltd (in receivership): Koya v Haira where the Court of Appeal rejected an argument from a borrower, Mrs Haira, that she had not received the loan funds and therefore was not liable to repay the loan.23 Westpac submits that consistent with Haira, when Westpac paid the loan funds to Mr Nguy under NDHL’s assumed authority, NDHL received the funds. Once received, Mr Nguy held the loan funds for NDHL and Mr Chu pursuant to that authority.
[53] As to the defence that NDHL did not receive any benefit from the loan funds, Westpac argues that it did — it received the money and with that the ability to complete the purchase of the property.
[54] Additionally, Westpac submits that by servicing the loan, NDHL/Mr Chu accepted that they had received the funds.
[55] Finally, Westpac submits that whether fiduciary duties attached to the limited retainer is not relevant to the question of whether NDHL received the loan funds.
My assessment
[56] The issue for me to decide is whether NDHL and Mr Chu have a reasonably arguable defence, such that there should be a full trial of Westpac’s claim against NDHL under the loan and against Mr Chu under the guarantee.
[57] In my view it is arguable that Mr Nguy’s obligations to the bank did not end when he sent the bank the executed documents and Solicitors Certificate. NDHL has presented a tenable argument that Mr Nguy owed Westpac duties in relation to the loan money while he held the money in his firm’s trust account pending application to the property purchase.
[58] The following circumstances support this view. First, Westpac’s instruction to Mr Nguy that, if, prior to the issue of his Solicitors’ Certificate or after the issue of his Solicitors’ Certificate but before he disbursed the proceeds of the facilities, he become
23 Haira v Burbery Mortgage Finance & Savings Ltd (in receivership): Koya v Haira [1995] 3 NZLR 396 (CA).
aware of anything which could affect the validity or enforceability of the Banks’ security, he immediately advise Westpac and seek further instructions. I accept that this is not decisive, as the instruction concerns the bank’s security. But there is an argument that, combined with the following point, this instruction demonstrates that Westpac considered it retained control of the funds for the interim period between the loan advance and the funds being dispensed from the trust account for the purchase.
[59] Second, and more critically, Westpac’s cause of action against Mr Nguy for breach of retainer is based on Mr Nguy owing Westpac obligations in relation to the loan money after he had completed his Solicitors’ Certificate and after the money was advanced by Westpac into his firm’s trust account.
[60] Specifically, at paragraph 57 of the statement of claim Westpac pleads the instruction given to Mr Nguy in the Instruction Letter described above at [58]. At paragraph 60, Westpac pleads its subsequent instruction to Mr Nguy in the Loan Advance Advice to contact Westpac immediately if settlement did not proceed, to arrange repayment of the advance.
[61]Then:24
61. Mr Nguy breached his retainer to Westpac and Solicitors’ Certificate.
Particulars
(a) Mr Nguy failed to act for Westpac in accordance with its Instruction Letter…;
(b) Mr Nguy failed to advise Westpac of his undisclosed 75% beneficial shareholding in NDHL and, therefore, his interest in the purchase of the Property;
(c) Mr Nguy did not advise Westpac that the Property purchase had not settled as expected, that the Property purchase had become the subject of an application by the vendor for specific performance, or that it was subsequently cancelled;
(d) Mr Nguy did not return the Loan advance to Westpac as required (given the initial delay and then impossibility of settlement) and, instead, applied monies comprising the Loan advance to matters that were not associated with the Property purchase or to any matter beneficial to Westpac. Particulars of these payments are apparent from the Jesse & Associates Trust
24 Statement of Claim dated May 2021.
Account records which show the following payments from the Chu/NDHL client trust account after the receipt of the Loan Advance from Westpac:
(i)$94,500 for “Account Receivables”’
(ii)a total of $29,836.75 for Barrister’s Fees;
(iii) a total of $140,891.50 for renovations to a property at 116A Vauxhall Road in Devonport;
(iv) $10,000 to New Dawn Holdings Limited for “Funds for Monthly Payment”;
(v)$855,964.04 which was transferred to Australia; and
(vi)$256,486.10 paid to “Zhaowu Shen, Settlement”.
(e) Mr Nguy did not register a mortgage in favour of Westpac over the Property.
[62] Thus, on Westpac’s own case, Mr Nguy’s retainer to Westpac extended beyond attending to execution of the documents and registering the mortgage, and included obligations in relation to the loan funds once received by him into his firm’s trust account (but before the funds left the trust account to be applied to the property purchase).
[63] At the hearing, Mr Upton suggested that, on reflection, the particulars of Mr Nguy’s breach of retainer should be amended to remove the reference to Mr Nguy not returning the advance as required given the delay in and impossibility of settlement (beginning of 61(d)). He submitted that the cause of action against Mr Nguy did not depend on this particular. I accept that submission as correct.
[64] However, the issue is more fundamental than just the reference to Mr Nguy being obliged to return the funds to Westpac. Westpac’s cause of action against Mr Nguy concerns in large part his actions and inactions in relation to the loan funds after the funds were transferred into his firm’s trust account. (The other elements, that do not concern the loan funds, are his failure to advise Westpac of his undisclosed 75 per cent beneficial interest in NDHL, which Westpac pleads deprived it of the opportunity to decline to provide the loan or arrange for a different law firm to complete the conveyancing. And his failure to register a mortgage in favour of Westpac.)
[65] Furthermore, the loss Westpac claims to have sustained as a result of Mr Nguy’s breach of retainer includes loss of the loan funds:25
62. The breach of retainer has caused damage to Westpac:
Particulars
(a) Westpac lost the opportunity to decline to provide the Loan or to arrange for a different law firm to complete the conveyancing;
(b) Westpac has lost the total amount of the Loan, being $1,321,600, which was paid into the Jesse & Associates trust account and has not been returned to Westpac;
(c) Westpac has been unable to exercise any security rights in respect of the intended mortgage over the Property…
(emphasis added)
[66] Arguably, if Mr Nguy’s duties to Westpac were as limited as Westpac now contends, Mr Nguy’s breaches would be confined those particularised at 61 (a), (b) and (e).
[67] Arguably, if beneficial ownership of the funds passed to NDHL when the funds were transferred into Mr Nguy’s firm’s trust account, Westpac’s loss is that particularised at 62(a) and (c), but not (b).
[68] Westpac’s statement of claim is not determinative, and it is the substance that matters. But in my view the way Westpac has conceptualised its claim against Mr Nguy supports NDHL/Mr Chu’s case that there is an argument to be had at trial about the status of the funds while in Mr Nguy’s trust account.
[69] Further, the authorities to which Westpac referred do not dissuade me from this view.
[70] In terms of Nguyen v S M & T Homes Ltd, there are features that distinguish it from the present situation.26 The issue the Court of Appeal considered was whether payment by the purchaser of the deposit into the vendors’ real estate agent’s trust
25 Statement of Claim.
26 Nguyen v S M & T Homes Ltd, above n 22.
account was an act of part performance (meaning the contract was enforceable despite it not being recorded in writing).27 The vendors submitted that payment of the deposit to their agent was not an act of part performance, because until their agent dispersed the funds to them, they had not received the funds. The Court rejected this submission, finding that the second limb of the test for part performance (whether there had been part performance of the oral agreement) was focused on the steps taken by the purchaser, rather than the vendor or their agent.28 As the purchaser paid the deposit in performance of its obligations as purchaser it was consistent with there being a contract for the sale of the land. The agent accepted the deposit, deducted their commission and held the balance as agent for the vendors under the agency agreement. Although the vendors did not receive payment of the funds, that is because they had refused to accept the funds from the agent. The Court held that they could not rely on this conduct to undermine the purchaser’s part performance of the contract.
[71] Thus, in Nguyen the agent who received and held the funds was only ever an agent for the vendors.29 There was no suggestion, as here, that the real estate agent also acted for and owed obligations to the purchaser under a contract (or otherwise). Additionally, the Court was focused on a different question — whether the purchaser had taken a step to perform the contract by paying the deposit to the vendors’ agent. The argument the vendors raised that they had not received the funds was considered in that context.
[72] As to Bartle v GE Custodians, the Bartles were seeking to fix the lender, GE Custodians, with the knowledge of the mortgage broker, Tasman Home Loans, not the solicitor acting for the lender on a limited retainer. Therefore, this case does not assist.
[73] Haira also has differentiating factors. The facts were that Mrs Haira had borrowed funds from Burbery Mortgage Finance and Savings to enable her to invest, with other family members, into an investment scheme. Mr Koya was the solicitor who acted for Mrs Haira; and for the mortgagee Burbery as well. Mr Koya prepared
27 At [15].
28 At [36].
29 At [36]–[38].
the mortgage documents and they were executed. The funds were advanced by Burbery to Mr Koya; and he invested them into the scheme as instructed by Mrs Haira. The scheme failed and Mrs Haira and the other investors lost their money. Mrs Haira did not repay the loan to Burbery.
[74] Barker J in the High Court entered judgment against Mrs Haira in favour of Burbery for the principal sum and interest. Mrs Haira appealed. One of her arguments was that she did not receive the loan money, with the result that there was a total failure of consideration, and accordingly she was not liable. Mrs Haira joined Mr Koya as a third party, claiming breach of fiduciary duty and duty of care by him. The Judge found against Mr Koya for breach of fiduciary duty and gave Mrs Haira judgment for the amount of the judgment Burbery had obtained against Mrs Haira.
[75] The Court of Appeal found that Mrs Haira had received the funds, rejecting her argument that Burbery did not have authority to pay the funds to Mr Koya. The Court found that the material in that case established both receipt of the loan monies by Mr Koya under the authority of Mrs Haira, and their application by the solicitor into the planned investment scheme. The Court held therefore that Mrs Haira had the benefit of the application of the mortgage monies by the solicitor in accordance with her instructions.
[76] I have reservations about applying this authority to this situation because the Court was concerned with a different issue: whether, because the borrower had not given express authority for the solicitor to receive the loan funds, the solicitor had not received the funds on her behalf. Additionally, the Court considered it material that, once the funds were received by the solicitor, they were applied by him to the intended purpose, according to the Mrs Haira’s instructions. A mortgage in favour of the bank was executed. Thus, unlike the present situation, where the money was lost in the middle, the money was applied in the way intended and was then lost because the investment failed.
[77] For the above reasons, I consider that there is a question to be tried concerning the status of the loan money in the interim period between the loan advance and the funds being dispensed from the solicitors’ trust account for the property purchase.
Accordingly, Westpac’s action against NDHL and Mr Chu for default of the loan and guarantee must go to trial.
[78] On that basis, it is unnecessary to consider the second issue, whether the Court should exercise its residual discretion not to order summary judgment.
[79] I will now turn to the application for summary judgment against Mr Nguy for breach of his retainer to the bank.
Does Mr Nguy have a reasonable argument that the order against him should be reduced because Westpac was negligent?
[80] As noted, Mr Nguy accepts that he failed to discharge his obligations pursuant to the contract of retainer with Westpac, and therefore that he is liable to the bank for loss it has suffered as a result of his actions or inactions.30 He consented to summary judgment against him on liability for breach of retainer. Judgment has been entered against him on liability.
[81]However, Mr Nguy disputes the quantum claimed on the grounds that:31
(a)any amount he might be liable for under the breach of retainer cause of action is uncertain and needs to be the subject of evidence;
(b)Westpac, through its bank manager Wilson Sue (Mr Sue) who arranged the loan for NDHL, was aware of the factors affecting the bank’s security; and
(c)any loss suffered by Westpac has been contributed to by its own negligence through the knowledge and actions or inactions of its manager and therefore the quantum is at issue.
[82] In his affidavit, Mr Nguy deposes that he was a close friend of Mr Chu, who was, in turn, a close friend of Mr Sue. He says that he met with Mr Sue and Mr Chu
30 Affidavit of Jesse Seang Ty Nguy affirmed 24 September 2021 at [3].
31 Notice of Opposition by third defendant dated 24 September 2021.
on a number of occasions, and that as a result of these conversations, Mr Sue was aware that he was a shareholder of NDHL, the property purchase had not settled in February 2020, and a mortgage had not been registered against the property in favour of Westpac. He makes further allegations of matters he was told by Mr Chu about Mr Sue, which are hearsay, and are inadmissible.
[83] I am not persuaded that Mr Nguy has a reasonable defence to the order sought by Westpac. His first ground for opposing summary judgment, that the amount is uncertain and needs to be the subject of evidence, is without merit. The amount is certain: it is the loan funds advanced by Westpac of $1,321,600 (plus interest).
[84] His second and third grounds of opposition, that Westpac knew of the factors affecting the bank’s security and that the bank contributed to its own loss by its own actions and inactions are also inarguable.
[85] First, I do not find Mr Nguy’s evidence concerning Mr Sue’s knowledge credible. Mr Sue has filed an affidavit in which he denies that he was aware of Mr Nguy’s relationship with NDHL or that the property purchase had not settled.32
[86] Mr Sue deposes that he and Mr Chu were friendly acquaintances. He recalls meeting with Mr Chu and Mr Nguy on several occasions, often as part of a larger group, and that they discussed Mr Chu’s plans for the property at those social meetings, but not the terms of the loan or the ownership structure of NDHL.
[87] Mr Sue sets out an overview of the bank’s loan application process, including the fact that as part of Westpac’s anti-money laundering procedure he obtained a ‘know your customer’ report for NDHL. He annexes a copy of that report to his affidavit. In that report Mr Chu is recorded as being the sole shareholder and ultimate beneficial owner of NDHL. Mr Sue records that Mr Chu completed the loan application and completed an account-opening form for NDHL. Mr Chu was the only signatory on the account.
32 Reply affidavit of Wilson Ming Mang Sue sworn 1 January 2022.
[88] Mr Sue deposes that at no time during the application process did he meet with Mr Nguy as a customer in relation to the loan and the property purchase. He deposes that Mr Chu did not tell him anything to suggest that Mr Nguy was an undisclosed shareholder of NDHL. His only communications with Mr Nguy were in his capacity as NDHL’s solicitor in relation to the loan and property purchase after the loan to NDHL was approved.
[89] Mr Sue explains that the drawdown of a loan is carried out by Westpac’s Lending Services team. It is that team that receives the executed documents from the customer’s solicitor and attends to the drawdown of the loan. He is not involved in that part of the loan process and would not normally follow up on the loan after it has been handed on to Lending Services.
[90] In terms of the delay to settlement, Mr Sue says that he met with Mr Chu socially for coffee after the intended settlement date of 31 January 2020. Mr Chu told him that there had been a delay with settlement of the purchase of the property, but that he expected it would settle soon. Mr Sue deposes that when he next saw Mr Chu, a couple of weeks later, he told him that the property purchase had settled.
[91] Mr Sue deposes that the first time he was told that the purchase of the property had not settled, and that the agreement for sale and purchase had, in fact, been cancelled by the vendor, was on 29 March 2021 when he received a letter from Mr Chu’s solicitor, Mr Dillon.
[92] Mr Nguy was given leave to file further evidence in reply to Mr Sue’s reply evidence but did not so.33
[93] Notably, Mr Sue’s evidence is consistent with evidence given by Mr Chu. Mr Chu says: 34
… I do not believe I was ever asked to disclose the involvement of the Third Defendant in the dealing. I would have done so if asked, as to me it was always a fairly simple commercial arrangement – a 25% / 75% share in an investment property.
33 Westpac New Zealand Ltd v New Dawn Holdings Ltd, above n 2, at [6].
34 Affidavit of Colin K Y Chu affirmed 16 July 2021 at [38].
[94] Significantly, Mr Chu does not assert in his affidavit that he informed Mr Sue or anyone else at Westpac that the purchase of the property had not settled or that it was cancelled by the vendor. If he had informed Westpac of these facts, I would expect him to have covered this in his affidavit, on the basis that it might provide him with a defence.
[95] Sunita Singh, also a manager at Westpac, has filed two affidavits. She deposes that Westpac first became aware of the potential problem with the purchase of the property and its mortgage in around 22 January 2021, when it was approached by NZLS in relation to Mr Chu’s complaint against Mr Nguy. Westpac subsequently made enquiries with Mr Nguy, demanding that he immediately transfer title of the property to NDHL and register the mortgage in favour of Westpac. Mr Nguy told Westpac that he still expected settlement to occur and gave an expected settlement date of 29 January 2021.35 This was after the vendor had cancelled the agreement for sale and purchase.
[96] She deposes that Westpac did not became aware of the possibility that Mr Nguy had an interest in NDHL until it received a copy of the decision of the New Zealand Lawyers and Conveyancers Disciplinary Tribunal on 19 March 2021.
[97] Up until this time, the loan was being serviced by NDHL. Ms Singh explains that NDHL had two accounts with Westpac: a Business Transact Account and the Choices Home Loan Account. Loan payments were paid from the Business Transact Account by automatic transfer each month. Provided that account had enough credit funds available to cover loan payments on due payment dates, then the loan payments could be made, and the loan was in order. There were enough funds in the Business Transact Account to make the monthly payments until March 2021. Then, the monthly payment was reversed due to there being insufficient funds, and the loan went into monetary default.36
35 First Singh affidavit at [19] and exhibit “M”.
36 Second affidavit of Sunita Kiran Singh sworn 24 May 2022 at [7].
[98] I conclude that there is no credible evidence to suggest that Westpac was aware before January 2021 that the transaction had not settled, as alleged by Mr Nguy. By then, the funds had been entirely misappropriated by Mr Nguy.
[99] Second, Mr Nguy’s argument is legally unsustainable. As Westpac has sued Mr Nguy for breach of a strict contractual duty that does not depend on negligence, the Contributory Negligence Act 1947 cannot be raised as a defence to Westpac’s claim.37
[100] Furthermore, even if Westpac was negligent, it is well established that carelessness in the form of contributory negligence is no defence to a claim for fraud.38
[101] Further, negligence by a plaintiff is disregarded if it is not a proximate cause of the damage of which they complain.39 Westpac submits that the bank’s loss was caused by Mr Nguy’s fraud; and the proposition that Westpac partially caused its own loss by not requiring that the funds be returned earlier, thereby preventing Mr Nguy from committing the fraud, is absurd. I agree that such an argument is unsound.
[102] For all the above reasons, I reject Mr Nguy’s grounds for opposing summary judgment against him for the amount claimed by Westpac.
Conclusion and result
[103] I have found that NDHL and Mr Chu have an arguable defence to Westpac’s application for summary judgment.
[104] I have found that Mr Nguy has not established an arguable defence that the quantum of the order against him should be reduced to reflect negligence by Westpac or that the quantum is uncertain for any other reason.
37 Stephen Todd Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) at [59.21.2.04(2)], citing Vining Realty Group Ltd v Moorhouse [2010] NZCA 104, (2011) 11 NZCPR 879 at [64]–
[67] and ANZ Bank New Zealand Ltd v Frost and Sutcliffe [2014] NZHC 245.
38 Burmeister v Registrar-General of Land [2014] NZHC 631, (2014) 15 NZCPR 91 at [53], citing to Maruha Corporation v Amaltal Corporation Ltd [2007] NZSC 40, [2007] 3 NZLR 192 (citing Standard Chartered Bank v Pakistan National Shipping Corporation (No 2) [2003] 1 AC 959 (HL)); and Todd, above n 37, at [59.21.2.04(1)].
39 Todd, above n 37, at [59.21.2.03]; and Dairy Containers Ltd v NZI Bank Ltd [1995] 2 NZLR 30 (HC) at 114–115.
[105]Accordingly, I order:
(a)Westpac’s application for summary judgment against New Dawn Holdings Limited and C K Y Chu is dismissed;
(b)summary judgment against J S T Nguy as follows:
(i)damages in the sum of $1,334,595.48;
(ii)interest pursuant to s 10 of the Interest on Money Claims Act on that sum, from 18 April 2021 until the date of payment; and
(iii)costs on a 2B basis and reasonable disbursements.
[106] Costs on the unsuccessful application for summary judgment against NDHL and Mr Chu are reserved.
Associate Judge Gardiner
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