Re Custom House Capital Ltd ((in Liquidation)) and Others

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan
• Judgment Date: 05 December 2013
• Neutral Citation: [2013] IEHC 559
• Judgment citation (vLex): [2013] 12 JIC 0502
• Court: High Court
• Date: 05 December 2013

[2013] IEHC 559

THE HIGH COURT

[No. 219 MCA/2011]

Scott v Wallace (official liquidator of Custom House Capital Ltd)

BETWEEN

IN THE MATTER OF CUSTOM HOUSE CAPITAL LIMITED (IN LIQUIDATION) AND IN THE MATTER OF THE COMPANIES ACTS 1963 TO 2012 TRESSAN SCOTT

APPLICANT

AND

KIERAN WALLACE, OFFICIAL LIQUIDATOR OF CUSTOM HOUSE CAPITAL LIMITED (IN LIQUIDATION)

RESPONDENT

COMPANIES ACT 1963 S280

EUROPEAN COMMUNITIES (MARKETS IN FINANCIAL INSTRUMENTS) REGS SI 60/2007 REG 11

EUROPEAN COMMUNITIES (MARKETS IN FINANCIAL INSTRUMENTS) REGS SI 60/2007 REG 166(2)

MCMULLEN v CLANCY (NO 2) 2005 2 IR 445

BRISTOL & WEST BUILDING SOCIETY v MATTHEW 1998 CH 1

DELANEY EQUITY AND THE LAW OF TRUSTS IN IRELAND 5ED 2011 215

DELANEY EQUITY AND THE LAW OF TRUSTS IN IRELAND 5ED 2011 216

CORPORATION OF DUBLIN v BUILDING & ALLIED TRADE UNION 1996 1 IR 468

MUSCHINSKI v DODDS 1986 160 CLR 583

MCCAUGHEY v IRISH BANK RESOLUTION CORP LTD & MAINLAND VENTURES CORP UNREP SUPREME 13.3.2013 2013 IESC 17

FORSHALL v WALSH UNREP SHANLEY 18.6.1997 1998/6/1685

CLERK & LINDSELL ON TORTS 20ED 2010 1197

EQUITY

Trusts

Constructive trust - Subordinated loan agreement - Fiduciary relationship - Whether facts supportive of fiduciary relationship between parties - Whether relationship between parties commercial in nature - Whether monies invested in defendant company - Whether monies retained by way of fraudulent conduct - Whether fraudulent representations made - Whether reliance placed upon representations to detriment of plaintiff - Whether constructive trust created in favour of plaintiff - McMullen v Clancy [2005] IESC 10, [2005] 2 IR 445 and McCaughey v Irish Bank Resolution Corporation Ltd [2013] IESC 17, (Unrep, SC, 13/3/2013) applied - Bristol & West Building Society v Matthew [1998] Ch 1 approved - Corporation of Dublin v Building and Allied Trade Union [1996] 1 IR 468, Muchinski v Dodds [1986] 160 CLR 583 and Forshall v Walsh (Unrep, Shanley J, 18/6/1997) consideredEuropean Communities (Markets in Financial Instruments) Regulations 2007 (SI 60/2007), regs 11 and 166 - Companies Act 1963 (No 33), s 280 - Relief granted (2011/219MCA - Finlay Geoghegan J - 5/12/2013) [2013] IEHC 559

In re Custom House Capital Ltd (In liquidation); Scott v Wallace

Facts: The applicant was a retired solicitor who engaged with Custom House Capital Ltd (‘CHC’) in 2009 to discuss the investment of her pension funds and money. CHC”s core activities related to the provision of asset, portfolio and investment management services, and pension advisory services. On the 26 ^th May 2009, the applicant signed a mandate form with CHC, which the respondent described as governing their relationship. The form detailed how the applicant desired a risk strategy that was ‘low risk’ and had little investment knowledge. Subsequently, the applicant transferred most of her personal savings and pension funds to CHC for investment between April and July 2009. By July 2009, this amounted to €744,238.16. Part of the personal funds transferred included a deposit of €145,000, which the applicant said was invested in CHC on the basis that it could offer interest of around 5% per annum if she lent the money for a period of five years. On the 11 ^th September 2011, CHC sent a copy of a ‘Subordinated Loan Agreement’, which purported to relate to the applicant”s €145,000 deposit. A second letter from CHC, dated the 29th October 2009, outlined the key features and risks of the Subordinated Loan Agreement and incorrectly noted that the applicant had already entered into the agreement. On the 5 ^th March 2010, CHC sent copies of a revised agreement to the applicant, which she duly signed.

CHC subsequently fell into financial difficulties and entered the winding up process. The applicant then brought a notice of motion pursuant to s. 280 of the Companies Act 1963 seeking a declaration that the respondent held the sum of €145,000 on a constructive trust for the applicant on the basis of the fraudulent or unconscionable behaviour of agents acting on behalf of CHC. It was undisputed that one of the terms of the revised agreement, which she signed, stated that ‘in the event of winding up of CHC, all other non-subordinated credits of CHC must be repaid before the Subordinated Debt lenders and therefore there is a risk that Lenders may not receive back the whole amount of the loan’. However, the applicant argued that she signed the agreement at a time when the subordinated status of the agreement had not been explained to her, she had not been advised to obtain legal advice by CHC, and she was had been legally advised. She also argued that she signed the agreement when she was seriously ill, a fact that CHC was aware of. Further, the applicant averred that immediately prior to CHC entering administration, she met with Mr John Whyte of CHC and was informed that she had the option of either continuing to participate in the loan or opting out and receiving her money back. However, she stated that she was assured that her investment was not in any jeopardy whatsoever, and so she took no action on that basis. It was said by the applicant that she would not have continued to lend her money to CHC if she believed there was any risk to her investment. The respondent denied that CHC had misled the applicant.

Held by Finlay Geoghegan J. that in order for the Court to make a finding of a constructive trust in the applicant”s favour, it had to be satisfied that it was by reason of fraudulent conduct by or on behalf of CHC that it retained the monies in October 2010. The Court considered the applicant”s account of her meeting with Mr Whyte to be a full and frank description of what had occurred. On consideration of that account, it was said that Mr Whyte had made representations as to a past or existing fact i.e. that her investment was safe; that the representations were made without belief in its truth or recklessly careless of whether it was true or not; that Mr Whyte had made them with the intention of enticing the applicant to act on them; that the applicant had acted on the basis of the representations; and that the applicant had suffered loss as a result. These were considered to be the essential proofs that the applicant had to demonstrate to establish fraud or deceit. On that basis, it was said that CHC had retained the applicant”s monies on foot of fraudulent representations, and therefore, the Court would make a finding that a constructive trust in the applicant”s favour came into being on the 13th October 2010 when the fraudulent representations were made. Consequentially, a declaration was made that CHC held the sum of €145,000 on trust for the applicant from the 13th October, 2010 which trust continued to subsist at the date of commencement of CHC”s winding up.

Application granted.

1 JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 5th day of December, 2013

2 1. The applicant seeks a declaration that the respondent holds a sum of €145,000 on trust for the applicant. She primarily contends that he does so by reason of a constructive trust which came into existence prior to the commencement of the winding up of Custom House Capital Ltd. ("CHC").

3 2. The application was brought by a notice of motion pursuant to s. 280 of the Companies Act 1963, grounded on an affidavit of the applicant. There is one replying affidavit sworn by the respondent. There is no significant dispute on the facts or as to the evidence to which the Court may have regard in this application. There is a difference as to the inferences which the Court is asked to draw from the primary facts. Similarly, there is no significant dispute as to the legal principles, but rather, a difference of emphasis and dispute as to the application of those principles to the facts herein.

Background Facts

4 3. The applicant is a retired solicitor who had qualified in 1980 and worked from that time until her retirement in 2009 in private practice in County Wexford. She has been widowed since 2001. Shortly after her retirement, she was recommended by her accountant to Mr. John Whyte whom she describes as the Investment Director of CHC. She was given a positive view of Mr. Whyte and CHC by her accountant and told that Mr. Whyte came to visit clients personally in Wexford. CHC, in 2009, was authorised under Regulation 11 of the European Communities (Markets in Financial Instruments) Regulations 2007 ("the MiFID Regulations"). It had previously been authorised under the Investment Intermediaries Act 1995, since 1998. Its core activities related to the provision of asset, portfolio and investment management services as well as pension advisory services as an approved Qualifying Fund Manager to Approved Retirement Funds and a PRSA provider.

5 4. The applicant met with Mr. Whyte in her home in April, 2009. She states that they had a preliminary meeting where she informed Mr. Whyte of her priorities and he suggested certain plans for the investment of her pension funds and money. Thereafter, there was initial correspondence from Mr. Whyte setting out how she might achieve her desired annual income.

6 5. The applicant and Mr. Whyte met again in May, 2009 and there was further correspondence. On 26 ^th May, 2009, the applicant completed a mandate form exhibited by the respondent which he states governed her relationship with CHC. In that form, as is repeated in the correspondence, her desired risk strategy is identified as "low risk". She also describes her investment knowledge as limited. In section 4 of the form, there is included the following declaration:

"In accordance with regulatory requirements and in line with Criminal Justice Act 1994 (as amended from time to time), your account(s) cannot be opened until all required documentation is provided and this Form...