Lindsay v O'Loughnane

Factual and Procedural Background

The Plaintiff, a professional investment adviser based in London, purchased land in Corfu and a villa in Cape Verde, requiring foreign exchange transactions to convert sterling into Euros for these investments. Initially, the Plaintiff conducted these transactions through Barclays Bank, but from July 2005 onwards, he was introduced to Company A (FX Solutions Ltd), which offered competitive exchange rates. The Defendant was the managing director and majority shareholder of Company A, which was incorporated in 2000. Another company, Company B (Global FX), also under the Defendant's control, began trading in early 2008.

Between July 2005 and September 2008, the Plaintiff engaged in several foreign exchange transactions with Company A, entering into spot contracts to buy Euros for transfer abroad. Initially, the Plaintiff dealt mainly with a senior manager at Company A, receiving satisfactory service. However, from June 2008, dealings were conducted with the Defendant and through Company B's HSBC accounts, which the Plaintiff assumed was a trading name for Company A.

Delays in transferring Euros to the Plaintiff’s bank accounts occurred from June 2008 onwards. The Defendant and others attributed these delays to inefficiencies at HSBC, but the court found this was false. By mid-May 2008, Company A was insolvent, a fact known to the Defendant. Client monies were not held on trust as required but were misapplied to pay other creditors and business expenses.

The Plaintiff entered two further transactions in September 2008, transferring substantial sums to Company B's HSBC account, but the currency was never delivered. Both companies entered administration on 18 September 2008, and subsequently liquidation. The Plaintiff was a major creditor, with an expected dividend reduced to 18 pence in the pound. The Plaintiff brought claims primarily for damages for deceit against the Defendant, and alternatively sought to pierce the corporate veil to hold the Defendant personally liable.

Legal Issues Presented

1. Whether the Defendant made fraudulent misrepresentations (deceit) to the Plaintiff in relation to the foreign exchange transactions.
2. Whether the Defendant’s misrepresentations induced the Plaintiff to enter into the September 2008 trades.
3. Whether it is appropriate to pierce the corporate veil to hold the Defendant personally liable for the debts of Company A and Company B.
4. The quantum of damages and interest payable to the Plaintiff.

Arguments of the Parties

Plaintiff's Arguments

• The Defendant knowingly made false representations that the foreign exchange business was trading legitimately and that client monies would be held on trust and properly applied.
• The Defendant orchestrated a deception blaming delays on HSBC to conceal the insolvency and misuse of client funds.
• The Plaintiff relied on these representations and was induced to part with substantial sums, suffering loss.
• The Defendant controlled both companies and was responsible for the fraudulent conduct.
• In the alternative, the corporate veil should be pierced due to the Defendant’s misuse of the corporate structure to conceal wrongdoing.

Defendant's Arguments

• The Defendant denied knowledge of the insolvency at key times and denied making fraudulent representations.
• He asserted that some emails from his work account could have been sent by others due to shared computer access.
• The Defendant claimed he was not responsible for the August trades or the sending of related Trade Notes, which were handled by other employees.
• He contended that any representations were not enforceable under section 6 of the Statute of Frauds (Amendment) Act 1828 as they were not in writing signed by him.
• Regarding piercing the corporate veil, the Defendant argued that the alleged wrongdoing was within the company’s business and not external, thus not justifying veil piercing.

Table of Precedents Cited

Court's Reasoning and Analysis

The court carefully examined the factual matrix, witness credibility, and documentary evidence, finding the Plaintiff to be a credible witness and the Defendant to have been dishonest and evasive. The Defendant knowingly allowed Company A to trade while insolvent, misusing client funds held on trust to pay other creditors and personal expenses.

The court held that the Defendant made implied representations that the business was trading legitimately and client monies would be held on trust. These representations were false and known by the Defendant to be false at the time they were made, satisfying the elements of deceit.

The court rejected the Defendant’s attempt to attribute certain emails to others, finding that the Defendant sent critical emails himself, including the key 30 June 2008 email which falsely represented that delays in payment were due to HSBC and that duplicate payments had been made.

The Defendant’s failure to correct continuing misrepresentations induced the Plaintiff to enter into the September 2008 trades and part with substantial sums.

Regarding the section 6 of the Statute of Frauds (Amendment) Act 1828, the court found that the Defendant’s fraudulent implied representations were not protected by this provision, especially where emails included his electronic signature.

On the question of piercing the corporate veil, the court found that the wrongdoing was at the heart of the company’s business and not wrongdoing external to the company. Therefore, piercing the veil was inappropriate. However, this was an academic point since the deceit claim succeeded.

For quantum, the court awarded damages equal to the sterling sums paid less the expected liquidation dividend, with interest at 2% over the base rate from the dates of the respective transactions.

Holding and Implications

The court’s final decision was to ALLOW the Plaintiff’s claim in deceit against the Defendant.

The Defendant was held personally liable for fraudulent misrepresentations inducing the Plaintiff to enter into foreign exchange transactions resulting in loss. The claim to pierce the corporate veil was rejected as unnecessary and inappropriate given the success of the deceit claim.

The direct consequence is that the Plaintiff is entitled to damages representing the amounts paid less the expected dividend from liquidation, with interest awarded. No new precedent was established beyond the application of established principles on deceit, implied representations, and corporate veil piercing.