Trust funds

In its determinations in the four misuse of trust funds matters, the Committee remarked that Mr Nguy’s conduct “followed broadly the same pattern”. That pattern was revealed in the trust account client ledgers. Instead of holding funds on trust as he was obliged to do, Mr Nguy had used those funds for his own purposes – including to repay other clients and to purchase property.

By the time the Committee was considering the final investigation reports in these matters, Mr Nguy had already been struck off the roll by the Lawyers and Conveyancers Disciplinary Tribunal (Tribunal). A summary of that Tribunal decision is available on the New Zealand Law Society Te Kāhui Ture o Aotearoa’s website. Nevertheless, the Committee considered there remained a worthwhile public interest in continuing to consider the matters. It was particularly concerned to ensure there was a complete disciplinary record for Mr Nguy. 

In one of the matters, instead of holding several hundred thousand dollars on trust for his client, Mr Nguy made multiple unauthorised debits reducing the balance to nil. When Mr Nguy eventually repaid the client, he did so by way of composite receipts from the ledgers of other clients.

In another matter, Mr Nguy had used the deposit his clients had paid to him for their property purchase, together with funds of other clients, to repay a loan owed by him. As such, when settlement occurred, his clients’ ledger was short by the amount of the deposit. After the clients complained to the Lawyers Complaints Service Mr Nguy paid them, from sources unknown.

In another matter, Mr Nguy acted for his clients on the sale of two properties. The trust account ledger for one sale was overdrawn by tens of thousands of dollars shortly before the deposit was received (transfers from the ledger were made to other unrelated clients). Then, shortly before Mr Nguy was prevented from operating his trust account, he transferred funds into the ledger (from himself personally and from another client ledger) to make up the shortfall. In the other sale, he used up the entire balance of sale proceeds (more than $100,000) by transfers to his firm’s accounts receivable and to another unrelated client. 

In the final matter, Mr Nguy acted for a property developer. In that capacity, he received deposits totalling more than one million dollars. Mr Nguy began making payments out of the ledgers soon after the deposits were received and continued for the two years that followed, by which time each deposit had been depleted to nil. There were over 20 debits from the various ledgers, none of which were authorised by the parties. Those entries included references to a luxury car and a property understood to be linked to Mr Nguy.

The Committee concluded that Mr Nguy had “clearly breached fundamental duties of lawyers in relation to holding money on trust”. Those duties were, in particular, those set out in s 110(1)(b) of the Lawyers and Conveyancers Act 2006 (Act) and reg 12(6) of the Lawyers and Conveyancers Act (Trust Account) Regulations 2008 (Regulations). Section 110 of the Act deals with a lawyer’s obligation to pay money received for or on behalf of any person into a bank to a trust account. Under subsection (1)(b), the lawyer must then:

…hold the money, or ensure that the money is held, exclusively for that person, to be paid to that person or as that person directs.

Regulation 12 of the Regulations relates to receipt and payment of trust money. Sub-regulation (6) includes:

A practice may make transfers or payments from a client’s trust money only if—

(a)     the client’s ledger account has sufficient funds and they are available for that purpose; and

(b)     the practice obtains the client’s instruction or authority for the transfer or payment, and retains that instruction or authority (if in writing) or a written record of it; and…

The Committee noted that the conduct was “sufficiently serious” for it to have referred the matters to the Tribunal, but that it “would not be a sensible use of resources” to do so given he was already struck off.  It determined in each of the matters that there had been unsatisfactory conduct “at the very highest end of the range of such conduct.”

In each of the matters, the Committee censured Mr Nguy and ordered him to pay costs and expenses. In deciding what level of fine to impose in each matter, the Committee noted the seriousness of the conduct. It said:

Any dishonest breach of the trust accounting standards is likely to lead to the erosion of public trust and confidence in the legal profession as a whole and, as such, attracts the most severe sanctions available under the regulatory framework. The Committee’s decision not to refer this matter to the Disciplinary Tribunal, for the reasons set out above, does not diminish the severity of Mr Nguy’s conduct.

The Committee imposed a fine in each matter, ranging from $10,000 to $15,000, having taken into account any repayment to the complainant by Mr Nguy.  It also ordered Mr Nguy to pay compensation to one of the complainants for legal fees incurred in pursuing repayment.

Where Mr Nguy had made no repayment, the Committee made its most condemnatory comments:

The Committee considered that Mr Nguy’s conduct demonstrated an egregious disregard for his duties as a lawyer and amounted to a serious breach of the trust that the public should be entitled to place in members of the legal profession. As such, Mr Nguy’s conduct constituted a threat to the integrity of the profession as a whole. Having noted that the maximum penalty that it can impose is $15,000, the Committee considered that a fine at the very highest level was appropriate in these circumstances.

Conflicting interests between lawyer and client

In the conflicting interests matter, Mr Nguy and Mr A had entered into a business arrangement to purchase a residential property. They arranged a loan from a bank, the funds were drawn down and, while settlement did not occur, Mr Nguy used the loan funds. Mr A subsequently complained about Mr Nguy.

The trust accounting aspects of the complaint were dealt with separately. However, Mr A had also made serious allegations of conflicting interests, with Mr Nguy being personally involved in the transaction as well as acting for Mr A and the company that was to be the vehicle for the investment.

The circumstances giving rise to the conflicting interests are described in the Committee’s findings:

Mr Nguy took on two roles in these matters. Firstly, he entered a business arrangement and property transaction with Mr [A] and [a company]. Secondly, he ‘put on his lawyer’s hat’ and carried out the legal work for his arrangement with Mr [A] and for the proposed purchase of the Property.

In that regard, the Committee considered, on the evidence before it, Mr Nguy’s independence as the lawyer in the matters was severely compromised. His interests clearly conflicted with those of his clients.

It is difficult to see how any other conclusion could be reached. This was a situation where the arrangement between Mr Nguy and Mr [A] was barely documented at all. The minimal documentation of the arrangement was prepared by Mr Nguy, for both he and Mr [A] to sign. Mr Nguy was to own [a large] per cent of the shares of [the company] and was to contribute that same proportion of the purchase price but would keep his name hidden from official records. It was Mr [A] alone who would have the responsibility of being the sole director and the sole legal shareholder of the company. Mr [A] personally entered into the agreement to purchase the Property. While he later nominated [the company], that nomination did not relieve him of his contractual obligations as purchaser. Mr [A] gave a personal guarantee for the borrowing of more than [$1 million] from [the bank].

The matter quickly became contentious. And, even if it could be said that Mr Nguy’s and Mr [A’s] interests at one time aligned, those interests soon starkly diverged.

The Committee noted that the failure to settle was “entirely the fault of Mr Nguy” yet it was Mr A who faced the very serious consequences, as the person whose name was on the official records.

As was the case with the misuse of funds matters above, the Committee considered there remained a worthwhile public interest in continuing to consider the complaint, despite Mr Nguy already having been struck off. 

The Committee concluded that Mr Nguy had breached “a whole raft of rules relating to conflicting interests” (rr 5.4, 5.4.2, 5.4.3 and 5.4.4 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008).  It determined there had been “clear unsatisfactory conduct.” In terms of orders, the Committee censured Mr Nguy and ordered him to pay costs and expenses. In deciding what fine to impose, the Committee noted that Mr Nguy had breached “one of the most fundamental obligations of lawyers…in a comprehensive way.”  It considered that the breaches were not inadvertent in any sense, rather they were “wilful and duplicitous.” It said that, had Mr Nguy not already been struck off, it would have referred the matter to the Tribunal. Because of the gravity of the findings it ordered Mr Nguy pay a fine in the maximum sum of $15,000.