Harlequin Property Ltd and Another v Padraig O'Halloran and Another

• Jurisdiction: Ireland
• Judge: Mr. Justice Brian J. McGovern
• Judgment Date: 25 July 2013
• Neutral Citation: [2013] IEHC 362
• Court: High Court
• Date: 25 July 2013

[2013] IEHC 362

THE HIGH COURT

[No. 6443 P/2010]

[No. 223 COM/2010]

Harlequin Property (SVG) Ltd & Harlequin Hotels & Resorts Ltd v O'Halloran

COMMERICAL

BETWEEN

HARLEQUIN PROPERTY (SVG) LIMITED AND HARLEQUIN HOTELS AND RESORTS LIMITED

PLAINTIFFS

AND

PADRAIG O'HALLORAN AND DONAL O'HALLORAN

DEFENDANTS

DERRY & ORS v PEEK 1889 14 APP CAS 337

NORTHERN BANK FINANCE CORP LTD v CHARLTON & SHEEHY 1979 IR 149

MULCAHY & KEATON v MULCAHY UNREP LAFFOY 6.5.2011 2011/11/10993 2011 IEHC 186

BRITISH AIRWAYS BOARD v TAYLOR 1976 1 WLR 13 1976 1 AER 65

CECIL & ORS v BAYAT & ORS UNREP HAMBLEN 29.3.2010 2010 EWHC 641 (COMM)

DUGDALE & ORS CLERK & LINDSELL ON TORTS 20ED 2010

EDGINGTON v FITZMAURICE 1885 29 CH D 459

STANDARD CHARTERED BANK v PAKISTAN NATIONAL SHIPPING CORP & ORS 2003 1 AC 959 2002 3 WLR 1547 2003 1 AER 173

SHINKWIN v QUIN-CON LTD & QUINLAN 2001 1 IR 514 2001 2 ILRM 154 2000/16/6269

SALOMON v A SALOMON & CO LTD 1897 AC 22

BANCO AMBROSIANO SPA & ORS v ANSBACHER & CO LTD & ORS 1987 ILRM 669

JONES & TARLETON (T/A MCDONNELL & DIXON) v GUNN & ORS 1997 3 IR 1 1997 2 ILRM 245 1997/9/3107

FREDERICK INNS LTD & ORS (IN LIQUIDATION), IN RE 1991 ILRM 582 1991/9/1964

FREDERICK INNS LTD & ORS (IN LIQUIDATION), IN RE 1994 1 ILRM 387 1993/11/3568

LIQUIDATOR OF WEST MERCIA SAFETYWEAR v DODD & ANOR 1988 4 BCC 30 1988 BCLC 250

WINKWORTH v EDWARD BARON DEVELOPMENT CO LTD & ORS 1986 1 WLR 1512 1987 1 AER 114 1987 3 BCC 4

AHERN DIRECTORS DUTIES: LAW & PRACTICE 2009 185

YUKONG LINES LTD OF KOREA v RENDSBURG INVESTMENTS CORP OF LIBERIA (NO 2) 1998 1 WLR 294 1998 4 AER 82 1998 BCC 870

LIGHTMAN & ORS THE LAW OF ADMINISTRATORS & RECEIVERS OF COMPANIES 5ED 2011 12

BARCLAYS BANK LTD v QUISTCLOSE INVESTMENTS LTD 1970 AC 567 1968 3 WLR 1097 1968 3 AER 651

MONEY MARKETS INTERNATIONAL STOCK BROKERS LTD & ORS v MCQUILLAN & ORS (NO 2) 2001 2 IR 17 2000/12/4699

BIEBER v TEATHERS LTD (IN LIQUIDATION) 2013 1 BCLC 248 2013 1 P & CR DG11 2012 EWCA CIV 1466

TWINSECTRA LTD v YARDLEY & ORS 2002 2 AC 164 2002 2 WLR 802 2002 2 AER 377 2002 UKHL 12

KAYFORD LTD (IN LIQUIDATION), IN RE 1975 1 WLR 279 1975 1 AER 604

THOMAS THE LAW OF TRUSTS 2ED 2010 276

EAST CORK FOODS LTD v O'DWYER STEEL CO LTD 1978 IR 103

MURPHY v AG 1982 IR 241

BELMONT FINANCE CORP v WILLIAMS FURNITURE & ORS (NO 2) 1980 1 AER 393

CHARTER PLC & ANOR v CITY INDEX LTD 2008 CH 313 2008 2 WLR 950 2008 3 AER 126 2008 2 AER (COMM) 425 2007 2 CLC 968 2008 PNLR 16

KEANE EQUITY & THE LAW OF TRUSTS IN THE REPUBLIC OF IRELAND 2ED 2011 245

KEANE EQUITY & THE LAW OF TRUSTS IN THE REPUBLIC OF IRELAND 2ED 2011 370

CONTRACT

Fraud

Declaration sought that monies held held on trust for plaintiffs and that funds constitute unjust enrichment - Alleged misappropriation of funds - Alleged fraud - Alleged fraudulent misrepresentation - Whether representations made knowing that they were untrue or recklessly as to their truth - Whether plaintiffs relied on representations - Deceit - Proof on balance of probabilities required to establish fraudulent misrepresentation - Whether first defendant misappropriated monies - Whether use of corporate vehicles in carrying out fraud conferred personal exemption or immunity in respect of fraud - Whether court entitled to lift corporate veil - Companies close to insolvency - Directors' duties to creditors in circumstances of clear insolvency - Nature of Quistclose trust - Requirements for Quistclose trust - Whether monies held by first defendant on Quistclose trust for plaintiffs - Constructive trust - Whether monies held by second defendant on constructive trust for plaintiffs - Knowing receipt - Entitlement to trace funds - Whether second defendant knowingly a party to misappropriation of funds - Whether first defendant guilty of fraudulent misrepresentation and deceit - Whether second defendant liable to pay monies - Shinkwin v Quin-Con Ltd [2001] 1 IR 514 applied - Banco Ambrosiano SPA v Ansbacher & Co Ltd [1987] ILRM 669 and Bieber v Teathers Ltd [2012] EWCA Civ 1466 followed - Derry v Peek [1889] 14 App Cas 337; Northern Bank Finance v Charleton [1979] IR 149; Mulcahy v Mulcahy [2011] IEHC 186, (Unrep, Laffoy J, 6/5/2011); British Airways Board v Taylor [1976] 1 All ER 65; Cecil v Bayat [2010] EWHC 641 (Comm); Edgington v Fitzmaurice (1885) 29 Ch D 459; Standard Chartered Bank v Pakistan National Shipping Corporation [2003] 3 WLR 1547; Jones v Gunn [1997] 3 IR 1; In re Frederick Inns [1991] ILRM 582 & [1994] ILRM 387; West Mercia Safetywear v Dodd [1988] BCLC 250; Winkworth v Edward Baron Development Co [1987] 1 All ER 114; Yukong Lines Ltd of Korea v Rendsbury Investments Corp of Liberia (No 2) [1998] 4 All ER 82; Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567; Re Money Markets International Stockbrokers Ltd (No 2) [2001] 2 IR 17; Twinsectra Ltd v Yardley [2002] UKHL12; Re Goldcorp Exchange [1995] 1 AC 74; Toovey v Milne (1819) 2 B&A 683; Re Kayford [1975] 1 All ER 604; East Cork Foods Ltd v O'Dwyer Steel Company [1978] IR 103; Murphy v Attorney General [1982] IR 241; Belmont Finance Corp Ltd v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 and Charter plc v City Index Ltd [2008] 2 WLR 950 considered - Order for damages against first defendant (2010/6443P & 2010/223COM - McGovern J - 25/7/2013) [2013] IEHC 362

Harlequin Property (SVG) Ltd v O'Halloran

Facts: The plaintiffs in this action brought proceedings against the defendants for fraud and/or fraudulent misrepresentation claiming that the first named defendant had misappropriated large amounts of money paid by the plaintiffs to companies controlled and owned by him in connection with a construction project to build a luxury hotel and resort in the Caribbean. The second named defendant, who was the father of the first named defendant, was said to have been given some of this money by his son. The plaintiffs sought damages as well as declarations that the money in question was held in a constructive trust for their sole benefit. The amount allegedly diverted to Ireland by the first defendant was US$2,283,600.

In response, the first defendant argued that any money that had been invested by the plaintiffs had been used solely in the construction project. Any payments that had been taken by the first defendant from this money during the relevant period of time was said to be remuneration for his work on the project. It was also said that he was entitled to these payments due to the agreement of the plaintiffs. There was no written contract for the project. The second defendant in turn argued that he had no knowledge that the money he had received had potentially been obtained fraudulently and/or in breach of trust.

Held by McGovern J that it was clear from the evidence that the first named defendant had encouraged the plaintiffs to make substantial payments to his companies saying that this was necessary to complete the first phase of the project by the agreed date of the 1 ^st July 2010. It was also held to be clear that the first defendant knew or ought to have known that completion by this date was not achievable. Evidence before the court also showed that some money was transferred from his companies to bank accounts owned by the first defendant in Ireland using false invoices and descriptions in respect of the transfers. Some of this money was also transferred to the bank account of the second defendant. The first defendant claimed he was repaying a loan to the second defendant with money that was unconnected to the plaintiffs. However, this was held to be an unsubstantiated claim. Because the money of the plaintiffs was the only source of income for the first defendant”s company at that time, it was determined that the money that had been transferred to the defendants was intended for the construction project and which was diverted by the first defendant who had control of his companies. This finding was held to be consistent with the conduct of the first defendant who continually misrepresented the progress of the construction point in the months prior to the contract between the parties being terminated.

Because the transfers of money had been made by the first defendant”s companies, it was held that if there was found to be fraudulent misrepresentation, the court had to be satisfied that the first defendant was sufficiently involved and in control of their running to make him personally liable for the acts committed by the companies. The court was satisfied that this was the case as it was clear that the actions of the company during the relevant period were made at the first defendant”s behest. In terms of the claim of fraudulent misrepresentation, it was held that the first defendant had indeed fraudulently misrepresented to the plaintiffs each time he informed them the first phase of the project would be completed by the 1 ^st July 2010 when he knew this was not achievable. It was clear that these assurances were made despite the fact that the first defendant was receiving contrary advice from professionals within his companies at the same time. On consideration of the site when the agreement was terminated, it was also clear that there had been no genuine effort to complete the project on time. As it had already been found that transfers had been made to the bank accounts of the defendants in the months prior to the agreement being terminated, the court was satisfied that the first defendant had misappropriate the plaintiff”s money. The amount transferred was deemed by the Court to be so substantial that the first defendant”s assertion that these transfers were the agreed remuneration for his work was rejected.

In terms of the second defendant, it was held that when he received the money transfers, there was no evidence to suggest he was aware of the fiduciary relationship between the plaintiffs and...