The High Court has declared that Custom House Capital Ltd. (in liquidation) held €145,000 on trust for investor Tressan Scott from 13 October 2010, after finding that the company, through its investment director John Whyte, fraudulently reassured her that her subordinated loan funds were safe.
The declaration, made by Ms Justice Finlay Geoghegan in a judgment delivered on 5 December 2013, applies to the period from that meeting through the start of the company’s winding up. The court has not yet decided whether to make further orders, including any orders concerning the tracing of the money.
Scott had transferred personal savings and pension funds to Custom House Capital for investment. In March 2010, €145,000 was placed in a subordinated loan to the company, under a written agreement. The court rejected her alternative claim that the company or Whyte had a fiduciary relationship with her. It found their relationship was commercial and based on contract, and that the company held the money as a loan after the agreement was made.
The case turned on a meeting at Scott’s home on 13 October 2010. She said Whyte told her the funds were safe and that she had nothing to worry about, then presented a company letter offering her the choice of continuing the loan or taking repayment with interest. She said she relied on his assurances and chose to continue. The liquidator relied on an email in which Whyte recorded the meeting differently. The judge accepted Scott’s account, noting that there had been no application to cross-examine her.
The judge considered the assurances alongside evidence in a report by court-appointed inspectors. That report recorded Whyte’s evidence about money transferred from client cash funds into property investments. The judge found, on the balance of probabilities, that Whyte knew of significant improper and unauthorised transfers and knew there was a serious risk of the company’s insolvency or winding up. She concluded that he either knew the loan funds were not safe, lacked an honest belief that they were safe, or spoke recklessly as to whether the assurance was true.
The court found that the company intended Scott to rely on the assurances, and that she continued the loan because she did so, losing the opportunity to seek repayment at that time. It declared that the company held the €145,000 on a constructive trust from 13 October 2010, continuing to the commencement of the winding up. The judgment says any tracing of the money against funds held in a bank account would need to be addressed separately.