Hamilton sheriff orders repayment of over £436k of misappropriated trust funds by stepmother to stepson

About this case:

• Citation:
  [2025] SC HAM 47
• Judgment:
  External link
• Court:
  Sheriff Court
• Judge:
  Sheriff M J Higgins

Pursuer A argued that the defender B’s actions had assisted his father, C, in the misappropriation of the loan balances, that she had benefited from the proceeds of the breach of fiduciary duties, and that C could not have done so without her assistance. The defender’s position was that she had stepped into the role of director to relieve stress on C and had no knowledge of the misappropriations.

The case was heard by Sheriff Michael Higgins at Hamilton Sheriff Court, with McKenzie, solicitor advocate, appearing for the pursuer and Foster, solicitor, for the defender.

Figurehead only

The pursuer’s father separated from his mother when he was six or seven years old and subsequently began a relationship with the defender. At some point he began to reside solely in his mother’s care and stopped contact with his father. When he was approaching 25, the pursuer learned that his paternal grandparents had set up testamentary trust funds which would vest in him on his 25th birthday in March 2019, of which C was one of the trustees.

Prior to the deaths of both grandparents, their trusts made loans to E Ltd, a company set up by C of which the defender later became sole director. It was established by a Court of Session action that C had misappropriated the loans due by E Ltd to the trust funds, and almost immediately after that action was served on him C put himself into a debt moratorium. The money taken out of E Ltd increased from 31 January 2009 onwards, when C became a director alongside the defender, which gave the pursuer cogent reasons to believe that the defender continued to benefit from the misappropriated trust funds from 2006 to 2009.

The defender’s case was that the money paid to E Ltd was used for the purpose of buying property, and that at no point had she ever received any of the loaned funds directly or indirectly. She was persuaded to become director of E Ltd to relieve the stress that her husband was under at the time and was told that she was to be a figurehead only.

It was a matter of agreement between the parties that the remedies sought by the pursuer had a sound and established basis in the law. For the pursuer it was submitted that it had been established before the Court of Session that the only reasonable conclusion to be drawn from the accounts of E Ltd was that C, with the defender’s assistance, had intromitted with the two loans for his own personal benefit. The defender argued that, on the factual matrix of this case, the pursuer had failed to establish that the remedies sought should be granted.

Made no sense

In his decision, Sheriff Higgins began by saying of the parties’ evidence: “I found the pursuer to be a reliable and credible witness. He appeared to me to give his evidence in a balanced and straightforward way. He did not seem to me to make any attempt to embellish or exaggerate his evidence. I found him to be an impressive witness and I had no difficulty in accepting his evidence in full.”

In contrast, he said of the defender: “She seemed to me to give evidence which was contrived to try and justify and explain her actions and involvement in the matter as being without fault or worthy of attracting criticism or liability. She consistently sought to apportion blame to others. Her evidence was entirely self-serving and at odds with the evidence of others which I found to be credible and reliable.”

Considering the defender’s position that she was a figurehead director, the sheriff said: “The explanation made no sense. If nothing was to change and C was to continue to run the affairs of E Ltd, in what way would that relieve the stress to C? No evidence was led by the defender that, for example, in some way, her becoming a director would mean that C would not need to attend to as much, if any, meetings with clients or suppliers or that he would no longer have to reply to correspondence from third parties or be involved in any clerical or administrative tasks for the company. Presumably, if she was to be a figurehead only and was to do nothing, then C would have to continue to do what he previously did.”

He added: “I consider the evidence is that the defender was properly informed of her statutory duties and responsibilities as a director of E Ltd and chose to ignore them by signing accounts containing false accounting entries as regards the loans. Moreover, the defender allowed the director’s loan balance to be so depleted and repeatedly caused, or at least permitted, false accounting entries to that effect in the accounts of E Ltd.”

Sheriff Higgins concluded: “Even if she was not aware of [the false accounting], she clearly benefited from same. The evidence was that, after the misappropriation took place, she received monies on an ongoing basis. She accepted that she did so but maintained that these monies came from her husband and not from E Ltd and that they were for housekeeping. I consider that the evidence shows that they came ultimately from the misappropriated trust monies and were received via the vehicle of E Ltd.”

The sheriff therefore granted decree for payment of £138,036.47 in respect of the monies misappropriated from the first trust, and £298,190.75 in respect of the second trust.