Varko Ltd ((in Liquidation))

• Jurisdiction: Ireland
• Judge: Mr. Justice Gilligan
• Judgment Date: 03 February 2012
• Neutral Citation: [2012] IEHC 278
• Judgment citation (vLex): [2012] 2 JIC 0305
• Court: High Court
• Date: 03 February 2012

[2012] IEHC 278

THE HIGH COURT

[No. 351 COS/2011]

Varko Ltd (in liquidation), In re

IN THE MATTER OF VARKO LIMITED (IN LIQUIDIATION) AND IN THE MATTER OF THE COMPANIES ACT 1963 - 2006 AND

IN THE MATTER OF AN APPLICATION BY THE EXECUTORS OF CHARLOTTE MCCOY DECEASED PURSUANT TO SECTION 21(10) OF THE COMPANIES ACT 1963

VARKO LIMITED (IN LIQUIDATION)

MUSCHINSKI v DODDS 1985 160 CLR 583

HUSSEY v PALMER 1972 1 WLR 1286

EVES v EVES 1975 1 WLR 1338

HKN INVEST OY v INCOTRADE PVT LTD 1993 3 IR 152

MURRAY v MURRAY 1996 3 IR 251

DUBLIN CORPORATION v ANCIENT GUILD INC BRICK & STONE LAYERS UNREP BUDD 6.3.1996 1996/10/3119

KELLY v CAHILL 2001 1 IR 56

FOSKETT v MCKEOWN 2001 1 AC 102

MILLET TRACING THE PROCEEDS OF FRAUD 1991 107 LQR 71

SINCLAIR v BROUGHAM 1914 AC 398

TRUSTS

Constructive trusts

New model constructive trust - Equitable remedy - Unjust enrichment - Tracing - Conduct - Whether trust created - Whether wrongdoing - Whether inequitable for legal owner to deny another's title - Whether unjust and unconscionable to exercise legal right - Whether monies held in trust for deceased - Whether money formed part of deceased's estate - Whether money available for distribution to creditros - Muschinski v Dodds (1985) 160 CLR 583; Hussey v Palmer [1972] 1 WLR 1286; Eves v Eves [1975] 1 WLR 1338; D(NA) v D(T) [1985] ILRM 153; HKN Invest Oy v Incotrade Pvt Ltd [1993] 3 IR 152; Murray v Murray [1996] 3 IR 251; Dublin Corporation v Ancient Guild of Incorporated Brick and Stone Layers and Allied Trade Union (Unrep, Budd J, 6/3/1996); Kelly v Cahill [2001] 1 IR 56; Foskett v McKeown [2001] 1 AC 102; Millett (1991) 107 LQR 71 and Sinclair v Brougham [1914] AC 398 considered - Trust created (2011/351COS - Gilligan J - 3/2/2012) [2012] IEHC 278

Re Varko Ltd (In liquidation)

Facts: The applicants were the executors of the estate of a Mrs. McCoy ("the deceased"). The deceased's son was a director of Varko Ltd, ("the company"). The deceased contended she had been misled by her son into transferring the proceeds of a re-mortgage of her home to the company. A judgment to that effect had been obtained in 2010.

During the course of the litigation, the company was placed into liquidation and the assets purchased by a company to which her son was connected through his wife. It appeared that the deceased was not informed of the liquidation, and that the liquidator and creditors of the company were not informed of the deceased's claim.

Held by Gilligan J, that the applicants alleged that funds belonging to the estate of the deceased had been wrongly used for the benefit of the company, and now sought reliefs in relation to those funds. The liquidator contended the deceased was at best an unsecured creditor, and the funds formed part of the "pot" for distributing to creditors as part of the winding up.

The Court reviewed the law on constructive trusts, as well as the equitable remedy of tracing. Considering the conduct of the deceased's son, the applicants had satisfactorily discharged the burden of showing that the transfer of funds was induced by unconscionable behaviour. As such, it was fair in the circumstances to declare that the funds were held in trust for the deceased and were not available for distribution to creditors.

The Court invited submissions on the appropriate form of order.

Headnotes

1 JUDGMENT of Mr. Justice Gilligan delivered on the 3rd day of February, 2012

2 1. This is an application by the executors of the late Charlotte McCoy, deceased, who died at the age of 89 years on 29 ^th March, 2011, in the Bon Secours Hospital, Cork. By her last will and testament executed on 1 ^st April, 2010 she appointed her daughters, Irene and Marlo as joint executors.

3 2. Varko Limited was incorporated on the 25 ^th August, 2006, and the company operated a call centre operation from premises at Unit 1, Dosco Industrial Estate, South Douglas Road, Cork. James McCoy, the only son of the deceased, Charlotte McCoy, was one of two directors of the company and held 65 ordinary shares. The other director was Richard Doggett and he held 35 shares. The company appears to have been a substantial operation with administrative expenses for the year ended 31 ^st August, 2009, amounting to €1,980,551.00. The company traded as Intercall Management and is described as one of Ireland's longest standing outsource call centre specialists with offices located in Cork City and a workforce in excess of 50 people across a diverse range of client projects.

4 3. In the originating notice of motion as dated 22 ^nd June, 2011, the applicants seek a number of reliefs as follows:-

5 (1) A determination whether an amount of €216,832 does not form part of the assets of the Company.

6 (2) A declaration that the amount of aforementioned amount or part thereof is held on trust for the Applicant or otherwise payable to the Applicant and is not available for distribution in the winding up of the Company or whether the Applicant is a secured or unsecured creditor of the Company.

7 (3) A Declaration that the Applicant is beneficially entitled to aforementioned amount of part thereof.

8 (4) Pending determination of the foregoing:

9 1. an order for discovery or disclosure of documentation relevant to the winding up of the Company and the assets available for distribution;

10 2. an injunction preventing the disposal of the assets of the Company up to the value of €216,832.00

11 (5) Such further or other orders and this Honourable Court may direct.

12 (6) An order for costs of and related to this Application.

13 4. This application centres on an amount of €200,000.00, monies belonging to the late Charlotte McCoy, which through a complicated transaction are alleged to have found their way into the accounts of Varko Limited and to have benefited the company prior to it going into liquidation.

14 5.Having had the benefit of reading and considering the affidavit of Irene Judkins as sworn on 9 ^th June, 2011, together with the exhibits as attached thereto, the affidavit of Linda Harney as sworn on 30 ^th June, 2011, and the exhibits as attached thereto, the affidavit of Jennifer Fay as sworn on behalf of the liquidator of 15 ^th July, 2011 and the exhibits as attached thereto the following is a summary as best as can be achieved from the information available and which leaves certain questions open and unanswered. In the circumstances, the court can only reach its conclusion on the basis of the facts before it.

15 6. The late Charlotte McCoy lived alone at 10B Ardbrack Heights, a property which she purchased jointly with her now deceased husband in 1989. She had five adult children including James McCoy, her only son and four daughters, including Irene and Marlo. Prior to her death she suffered from an eye condition, Macular Degeneration which in her later years rendered her partially sighted and she was not able to read the ordinary printed word although she could read much enlarged print by using a magnifying glass.

16 7. Following her husband's death in 1996, she remained living at her home at 10B Ardbrack Heights, Kinsale, Co. Cork. The property was a spacious split level apartment with panoramic views over the sea and over the years she had become very attached to it. She was a fully dependent wife throughout her marriage and all financial matters were handled by her husband and unfortunately upon his death she found that she was in a very poor financial state and her only source of income was a small disability allowance and the state pension in addition to her family home being the apartment which was unencumbered.

17 8. Subsequent to her husband's death, her only son James involved her in his business dealings by making her a nominal director/shareholder in his company, D.A.N. Limited. The deceased was glad to assist and did not think anything of it. She subsequently discovered that he had also made her a director/shareholder of another company, Club Select Limited.

18 9. Subsequently in or around 1999, James McCoy approached his mother again explaining that he was in some financial difficulty and as a result of conversations that took place, she agreed that her home could be used by James as security and, as a result of representations that were made to her by her son, the property was transferred into both their names in a joint tenancy. The deceased said that her son explained to her that this was just a legal technicality and there was nothing for her to worry about and no need to tell anyone else in the family about the arrangement and she believed and trusted her son and had no reason to think otherwise.

19 10. Shortly after this, the deceased attended with her son at a firm of solicitors in Cork who had previously represented her and her deceased husband and it was the deceased's understanding that another solicitor in that firm was to act on behalf of her son in the transfer. The deceased was informed that a mortgage application with Irish Nationwide Building Society would be processed in the sum of €100,000 credited to her bank account and that this sum would then be paid out to her son. The deceased avers that at no time was it explained to her that the legal consequences of transferring the property into a joint tenancy would bring about a situation whereby the property would not form part of her estate. Further she avers that she was not advised as to how matters were going to be regularised in the future.

20 11. Subsequently in 2002, the deceased averred that her son came to see her and as a result of a discussion about making a will she went with him to the same solicitor's office and the deceased averred that she was advised that she did not have anything to leave to her daughters because of the joint tenancy but the solicitor advised her that there...