In Re Custom House Capital Ltd (In Liquidation): Scott v Wallace [2013] IEHC 559

A former director of Custom House Capital Limited (CHC) was recently found by the High Court to have fraudulently misrepresented to an investor that her €145,000 investment in the company was “safe” a year before CHC's collapse.

In March 2010 Ms Tressan Scott entered into a Subordinated Loan Agreement with CHC pursuant to which she loaned the sum of €145,000 to CHC. The High Court heard that at the time the agreement was signed, Ms Scott was recovering from treatment for lymphoma. She had not been advised to obtain legal advice and was not legally advised before she signed the agreement.

In September 2010, Ms Scott received a letter signed by the CEO of CHC, refuting a number of issues raised in newspaper articles, which included a report that the Central Bank of Ireland had concerns with regard to how CHC segregated its own assets from those of its clients. The letter categorically stated that no client funds or other assets held on behalf of CHC clients were in jeopardy and that the CHC Board was not aware of any regulatory concerns surrounding the segregation of client assets.  It also stated that CHC was in compliance with the client asset requirements issued by the Financial Regulator.

Ms Scott claimed in the High Court that the following month, the Investment Director of CHC, Mr John Whyte, arranged to meet with Ms Scott at her home in Co. Wexford. She stated that Mr Whyte reassured her on that occasion that the investment was safe and offered her the option of either (i) continuing to participate in the CHC Subordinated Loan or (ii) having CHC repay the loan together with the interest due on a pro rata basis. Ms Scott contended that she decided to continue to participate in the Subordinated Loan on the basis of the representation by Mr White that her investment in CHC was “safe”.

The Court found that on the basis of a report subsequently prepared by the inspectors appointed by the Central Bank, which ultimately led to the liquidation of CHC, that as a matter of probability Mr. Whyte was aware in October 2010 of “significant improper and unauthorised transfers” from client accounts to fund shortfalls in property investments made by CHC. The Court accordingly found that a constructive trust had arisen in Ms. Scott’s favour arising from the misrepresentations by Mr. Whyte and that as a result the money she had invested in CHC was held by the company and consequently the liquidator of CHC in trust for her.

The Court ordered that an exercise to trace the funds due to Mrs. Scott be carried out by the liquidator.