Sofer v SwissIndependent Trustees SA [2020] WTLR 1075

WTLR Issue: Autumn 2020 #180





The claimant was the intended beneficiary of the Puyol trust (the trust) which was created in discretionary form by Hyman Sofer (the settlor) in July 2006. The defendant was a professional trustee company based in Switzerland. The settlor was added as a ‘specified beneficiary’ while the claimant and other issue of the settlor became ‘general beneficiaries’. The trust included a power for the trustee to lend any money forming part of the trust assets to any beneficiary and there was a prohibition on the trustee paying any part of the capital to any beneficiary prior to the death of the settlor.

In the event, the defendant made numerous payments over the course of ten years to the settlor and, while these were recorded as being loans, no provision was made for security, interest or repayment. Of a total $19.2m advanced, some $3.27m was used by the settlor to fund the settlement of a tax dispute with the Australian Tax Office and, in relation to this, the defendant sought indemnities from each of the potential beneficiaries, including the claimant, which were given by deeds of indemnity in September 2012.

After the settlor died in July 2016 his estate could not repay what had been received from the trust and, shortly afterwards, the defendant released his estate from its obligation to repay the outstanding loans. The claimant issued a claim in September 2018 alleging that the payments made by the defendant to the settlor were in fact gifts rather than loans and, as such, were in breach of the prohibition on making payments out of the capital of the trust. The defendant responded to the claim by applying to strike it out, alternatively applying for summary judgment dismissing it, in December 2018. The application was made on the basis that the trust contained a trustee exoneration clause, excepting loss or damage caused by acts or omissions made in personal conscious and fraudulent bad faith, and the particulars of claim originally contained no properly pleaded allegation of dishonest breach of trust. The claimant applied to amend the particulars of claim in May 2019 averring that the payments to the settlor were made in the knowledge that they were advances and not loans, contrary to the terms of the trust and in personal conscious and fraudulent bad faith. The claimant further averred that this bad faith, alternatively dishonesty, of the defendant could be inferred from matters which were then particularised.

HHJ Paul Matthews was not satisfied that the claimant’s claim had sufficiently pleaded a case of dishonesty to overcome the trustee exoneration clause and struck it out, alternatively granting reverse summary judgment on the ground that it was barred by two deeds of indemnity signed by the claimant. The claimant appealed.

Held (allowing the appeal):

Fattal v Walbrook trustees (Jersey) Ltd established that the test for a dishonest breach of trust in this context was:

  1. (i) a deliberate breach of trust;
  2. (ii) committed by a professional trustee who knew that it was contrary to the interests of the beneficiaries, or who was recklessly indifferent whether or not it was contrary to their interests, or whose belief that the breach was not contrary to their interests was so unreasonable that, by any objective standard, no reasonable professional trustee could have maintained that belief.

There was little doubt that, for the purpose of pleading, fraud or dishonesty had to be specifically alleged and sufficiently particularised, and that dishonesty could be inferred from primary facts provided that those facts were themselves pleaded. The claimant had submitted that the judge was wrong to hold that it was mandatory for particulars of claim to identify at the outset the individuals alleged to have had the relevant knowledge at the relevant time, and that it was permissible for a claimant to provide such particulars subsequently, in an appropriate case following disclosure. This was supported by a statement of principle made by Peter Gibson LJ in Rigby v Decorating Den Systems Ltd. A mere failure to identify at the outset the directors, officers or employees who had the relevant knowledge did not justify the striking out of an allegation of dishonesty without further ado. Clearly, such particulars should be given as soon as feasible and, in this case, the claimant had indicated that he was unable to give such particulars identifying the relevant individuals until after disclosure. The judge had appeared to accept that the amended particulars of claim pleaded a sustainable case in relation to limb (i), but not limb (ii), of Fattal. Whether or not the claimant could prove the allegations pleaded would, of course, be a matter for trial but the facts pleaded in the amended particulars supported not only the case that the defendant had committed deliberate breaches of trust as per limb (i), but also that the defendant had done so with one of the three states of mind identified in limb (ii). The claimant’s case was one of inference, and he relied on the totality of the particulars as permitting that inference to be drawn. Thus, the amended particulars did contain sufficient particularisation to sustain a case of dishonesty in accordance with Fattal. The judge should have granted permission to amend the particulars and, on that basis, dismissed the application to strike out the claim.

As regards the defendant’s application for reverse summary judgment, this too should have been dismissed as, as a matter of construction, the judge’s conclusion that it did not matter whether the payments referred to in the deeds of indemnity were loans was incorrect. Although the indemnity would have less width than if it extended to payments which purported to be loans, but which were in fact gifts, the documents could not be construed other than in relation to advances made to the settlor pursuant to the power contained in the trust. Furthermore, the judge’s conclusion that a substantial part of the claimant’s claim was precluded by estoppel by convention was untenable – although he had been right to say that he was not entitled to reject the evidence of any of the witnesses, it did not follow that he was entitled to treat the evidence of the defendant’s witnesses as being conclusive, particularly given that it was hearsay and in conflict with the claimant’s evidence. Unless the claimant’s case had no real prospect of success, even without assuming the truth of the defendant’s evidence, he was entitled to test it by the normal processes of disclosure and cross-examination. The same applied in relation to waiver. It followed that reverse summary judgment should not have been given because the claimant had a real prospect of success.

JUDGMENT ARNOLD LJ: Introduction [1] This is an appeal against an order dated 14 August 2019 of HHJ Paul Matthews sitting as a Judge of the High Court (‘the Judge’), whereby he struck out the Claimant’s claim for breach of trust against the Defendant pursuant to CPR r3.4(2)(a) on the ground that it did not …
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Counsel Details

Leslie Blohm QC and Alex Troup (St John’s Chambers, 101 Victoria Street, Bristol BS1 6PU, tel 0117 923 4700, email, instructed by Burgess Salmon LLP (One Glass Wharf, Bristol BS2 0ZX, tel 0117 939 2000, email for the appellant.

Richard Wilson QC and James Weale (Serle Court, 6 New Square, Lincoln’s Inn, London WC2A 3QS, tel 020 7242 6105, email, instructed by RadcliffesLeBrasseur (85 Fleet Street, London EC4Y 1AE, tel 020 7222 7040, email for the respondent.

Cases Referenced