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. At the time the agreement was signed, Ms Scott was recovering from treatment for Lymphoma.
In September 2010, Ms Scott received a letter signed by the CEO of CHC, refuting a number of issues raised in newspaper articles in which, amongst other things, it was reported that the Central Bank had concerns about how CHC segregated its own assets from those of its clients.
The following month, the Investment Director of CHC, Mr John Whyte, arranged to meet with Ms Scott at her home in Wexford. Ms Scott claimed that Mr Whyte reassured her that her investment was safe and offered her the option of either (a) continuing to participate in the CHC Subordinated Loan or (b) 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 the company 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 and that exercise is currently ongoing.