Sofer v Swissindependent Trustees SA

Factual and Procedural Background

The claimant, residing in the state of Victoria, Australia, initiated a claim against the defendant, a Swiss incorporated professional trustee, concerning the defendant’s trusteeship of the Puyol Trust established in 2006. The claimant alleges breach of trust by the defendant in relation to payments made from the Puyol Trust to the claimant's late father, who was a beneficiary. The defendant made payments purportedly as loans without security or repayment terms, which the claimant contends were improper advances in breach of trust. The defendant denies breach, asserting the payments were proper loans and relies on a trustee exoneration clause and deeds of indemnity signed by the claimant and others as defenses. The defendant applied to strike out the claim or obtain summary judgment, while the claimant sought permission to amend the particulars of claim. The court considered witness statements from both parties, but no cross-examination took place. The proceedings involve complex issues of trust law, the scope of trustee exoneration clauses, and the effect of deeds of indemnity executed in the context of a tax dispute with Australian authorities.

Legal Issues Presented

1. Whether the claimant’s particulars of claim disclose a reasonable cause of action, considering the trustee exoneration clause.
2. Whether the claimant’s proposed amendments sufficiently allege fraudulent or dishonest breach of trust to overcome the exoneration clause.
3. The proper construction and effect of the trustee exoneration clause, particularly the meaning of "personal conscious and fraudulent bad faith".
4. The validity and effect of the deeds of indemnity executed by the claimant and others, including whether they bar the claim by estoppel or amount to waiver or consent to breaches.
5. Whether summary judgment or strike-out is appropriate given the pleadings and evidence before the court.

Arguments of the Parties

Defendant's Arguments

• The payments made to the claimant’s father were loans, properly made under the trust deed powers.
• The trustee exoneration clause shields the defendant from liability except for acts done in personal conscious and fraudulent bad faith.
• The deeds of indemnity executed by the claimant and others operate as a defense by estoppel (deed, contract, and convention), waiver, or consent, barring the claim or providing an indemnity.
• The claimant’s particulars of claim do not sufficiently plead knowledge or dishonesty to overcome the exoneration clause.
• The claim should be struck out or summary judgment granted because the claimant has no real prospect of success.

Claimant's Arguments

• The payments were not loans but gifts or advances made in breach of the trust deed, specifically contrary to a clause prohibiting payments before the settlor’s death.
• The trustee exoneration clause does not apply because the defendant acted recklessly or dishonestly.
• The deeds of indemnity are invalid or ineffective due to lack of proper execution under Victorian law, non-delivery, and failure of a condition precedent (non-execution by the Guardian).
• The claimant was misled or tricked into signing the deeds without independent advice and without understanding their effect.
• The deeds do not amount to waiver or consent to breaches of trust, nor do they estop the claimant from denying the payments were loans.
• The indemnity is limited in scope, does not cover dishonest conduct, and cannot provide a set-off but only a cross-claim.
• The claimant seeks permission to amend the particulars of claim to properly plead fraudulent or dishonest breach of trust.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first considered the nature of the claim and the applications before it: the defendant sought strike out or summary judgment, while the claimant sought permission to amend the particulars of claim. The court accepted the written evidence as credible in the absence of cross-examination.

Regarding the trustee exoneration clause, the court applied established principles from Armitage v Nurse and subsequent authorities, confirming that such clauses exclude liability except for actual fraud or dishonesty, requiring conscious, deliberate wrongdoing contrary to beneficiaries' interests. The court adopted the test set out in Fattal v Walbrook Trustees, requiring that a fraudulent or dishonest breach of trust allegation include knowledge or reckless indifference to the breach being contrary to beneficiaries' interests, or an unreasonably held belief to the contrary.

The claimant’s original particulars did not allege knowledge or dishonesty sufficient to overcome the exoneration clause, only recklessness. The claimant sought to amend to include such allegations, but the proposed amendments lacked sufficient particulars required by pleading rules to support a claim of fraudulent breach. The court found these inadequacies fatal, and refused permission to amend.

On the deeds of indemnity, the court analyzed their execution, validity, and legal effect. The claimant’s arguments about invalidity under Victorian law failed for lack of proper evidence and because English law governed the deeds. The court rejected arguments that the deeds were not delivered or were in escrow, finding counterparts executed by the Guardian sufficient.

The court examined estoppel doctrines: estoppel by deed and contractual estoppel were limited to claims on the deed itself and could not bar the breach of trust claim. However, estoppel by convention applied because the parties shared the assumption that the payments were loans, and the defendant acted to its detriment relying on this assumption. The claimant was therefore estopped from denying the loan character of the payments for amounts covered by the deeds, but not for subsequent payments.

The indemnity clause was construed broadly to cover payments described as loans, regardless of their true nature, but subject to an implied exception for dishonesty (not pleaded here). The indemnity did not create a set-off but a cross-claim, which would likely succeed, making continuation of the claim an abuse of process for payments covered by the deeds.

On strike out and summary judgment, the court applied the relevant CPR rules and case law, concluding that the claimant had no real prospect of success given the exoneration clause and deeds of indemnity. The court acknowledged the claimant’s concerns about early summary judgment but found no reasonable grounds to expect further evidence to alter the outcome.

Accordingly, the claim was struck out for failure to plead a cause of action outside the exoneration clause’s protection, and, alternatively, reverse summary judgment would have been granted for the defendant on payments covered by the deeds. Payments made after the deeds were not covered and would require trial.

Holding and Implications

The claim is STRUCK OUT under CPR rule 3.4(2) for disclosing no reasonable cause of action capable of overcoming the trustee exoneration clause.

Alternatively, if not struck out, the court would grant reverse summary judgment for the defendant on the claim in respect of payments made prior to and including those covered by the deeds of indemnity, on grounds of estoppel, waiver, and abuse of process.

The claim relating to payments made after those covered by the deeds must proceed to trial.

This decision directly affects the parties by terminating the claim at this stage in relation to most payments but does not establish new legal precedent beyond applying established principles on exoneration clauses, estoppel, and summary judgment in trust law disputes.