Robert Sofer v Swissindependent Trustees SA

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Arnold,Lord Justice David Richards,Lord Justice Patten
Judgment Date05 June 2020
Neutral Citation[2020] EWCA Civ 699
Docket NumberCase No: A3/2019/2217
Date05 June 2020

[2020] EWCA Civ 699

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT JUSTICE, BUSINESS AND PROPERT

COURTS AT BRISTOL, PROPERTY TRUSTS AND PROBATE LIST (ChD)

HHJ Paul Matthews sitting as a High Court Judge

[2019] EWHC 2071 (Ch)

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Patten

Lord Justice David Richards

and

Lord Justice Arnold

Case No: A3/2019/2217

Between:
Robert Sofer
Appellant
and
Swissindependent Trustees SA
Respondent

Leslie Blohm QC and Alex Troup (instructed by Burgess Salmon LLP) for the Appellant

Richard Wilson QC and James Weale (instructed by RadcliffesLeBrasseur) for the Respondent

Hearing dates: 19–20 May 2020

Approved Judgment

Lord Justice Arnold

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 rule 3.4(2)(a) on the ground that it did not sufficiently plead a case of dishonesty to overcome a trustee exoneration clause. In his judgment dated 2 August 2019 ( [2019] EWHC 2071 (Ch)) the Judge also held that, if the claim had not been struck out, he would have granted reverse summary judgment dismissing part (but not all) of the claim on the ground that it was barred by two Deeds of Indemnity signed by the Claimant.

Background

2

The background to the matter is fully set out in the Judge's clear and comprehensive judgment. For the purposes of this judgment, I can briefly summarise it as follows.

3

The claim concerns the Puyol Trust, which was created in July 2006 by the late Hyman Sofer, a wealthy South African bookmaker and investor who had emigrated to Australia in 1987. Although the Puyol Trust was drafted by an Australian law firm, it is governed by English law.

4

The Puyol Trust was one of three related trusts, the other two being known as the Gabri Trust and the Xavi Trust. Each of these three trusts held units in a fourth trust, known as the Jordi Unit Trust. The Defendant, which is a professional trustee company based in Switzerland, was and remains the trustee of each of all four trusts.

5

Although the three trusts were discretionary in form, it was intended by Hyman Sofer that the Puyol Trust would benefit his son, the Claimant, and that the Gabri and Xavi Trusts would respectively benefit Hyman Sofer's daughter, Tamara, and her issue.

6

Shortly after the Puyol Trust was created, Hyman Sofer was added as a “Specified Beneficiary”. As a result, the Claimant, Tamara and her issue became “General Beneficiaries”, because the term “General Beneficiaries” is defined to include the children and grandchildren of Specified Beneficiaries.

7

By clause D3(3) of the Puyol Trust, the Defendant, as trustee, had power to “lend any money forming the whole or any part of the assets of this Trust to any person who may for the time being be a Beneficiary upon such terms as to repayment and interest or interest free as the Trustees may in their absolute discretion think fit”. The term “Beneficiary” is defined to include any of the Specified and General Beneficiaries.

8

Clause M1(1) of the Puyol Trust provided that the Defendant “must not pay convey or transfer any part of the corpus of the Trust to any Beneficiary for any purpose prior to the date of death of Hyman Sofer”.

9

Between 2006 and 2016 the Defendant made 148 payments totalling over US$61.5 million (the greater part of the assets of the Trusts, which amounted to about $78 million) to Hyman Sofer at his request out of the Puyol, Gabri and Xavi Trusts. Although the payments were recorded as being loans, no provision was made for security, interest or repayment. Repayments were made by or on behalf of Hyman Sofer totalling a little over $3.9 million, leaving a balance due of about $58.5 million. The total net amount paid out of the Puyol Trust to Hyman Sofer was nearly $19.2 million.

10

The Claimant alleges that, prior to the making of these payments, the Defendant: (i) made no enquiry of Hyman Sofer as to the reason why the payment was required; (ii) made no enquiry of the financial position of any Beneficiary under the Trusts, or of any person indicated as a prospective beneficiary as set out from time to time in Hyman Sofer's letters of wishes; and (iii) made no enquiry as to the ability of Hyman Sofer to repay the same, either at the time that the payment was made or at any time in the future after the making of the said payment.

11

Of the total net amount paid out of the Puyol Trust, some $3.27 million was used by Hyman Sofer towards funding the payment of AU$9.5 million in settlement of a tax dispute with the Australian Tax Office (“the ATO”). The terms of settlement were recorded in a Deed of Settlement dated 18 July 2012. The Defendant sought indemnities from each of the potential beneficiaries, including the Claimant, which were duly given by a Deed of Indemnity executed in September 2012. There are two versions of the Deed of Indemnity, the only substantive difference being that the later version included Hyman Sofer's grandchildren as parties.

12

The Claimant alleges that, from about 2012, Hyman Sofer suffered, and was known by the Defendant to suffer, from dementia.

13

Hyman Sofer died on 8 July 2016, aged 97. His estate could not repay the remaining sums he received from the Puyol Trust. Shortly after his death the Defendant released his estate from its purported obligation to repay the outstanding loans.

The proceedings

14

The Claimant issued the present claim on 25 September 2018. In his original Particulars of Claim he alleged that, in truth, the payments made by the Defendant to Hyman Sofer between 2006 and 2016 were gifts rather than loans, and were made in breach of the prohibition in clause M1(1). He sought (among other things) a declaration to that effect, together with orders that the Defendant should reinstate the Puyol Trust and be removed as trustee. It should be made clear that it is no part of the Claimant's case that the Defendant benefitted from the breaches of trust he alleges.

15

The Defendant responded to the claim on 3 December 2018 by applying to strike it out, alternatively for summary judgment dismissing it. The strike out application was made on the basis that the Puyol Trust deed contains a trustee exoneration clause which provided a complete answer to the claim, in circumstances where the Particulars of Claim contained no properly pleaded allegation of dishonest breach of trust. The application was supported by witness statements by Nigel West (the Defendant's solicitor) and Andrew Bayles (a director and General Counsel of the Defendant since January 2016). Their evidence was that the payments were intended to be, and were in fact, loans, and that the Defendant believed that it was acting in the best interests of the beneficiaries. Neither of them was involved in the payments at the time, however, and so their evidence was hearsay.

16

The Claimant made two witness statements in response to the application. His evidence, which was based upon his personal knowledge and the documents exhibited to his statement, was that he believed that the Defendant knew that it was acting wrongly when making the payments and never believed that they were loans.

17

By application notice dated 16 May 2019 the Claimant applied to amend his Particulars of Claim in the form of the draft attached to the application, which the Judge referred to as “Version A”. At the start of the hearing before the Judge counsel for the Claimant produced a revised draft of the Amended Particulars of Claim, which the Judge referred to as “Version B”.

18

Although the Judge considered the adequacy of all three versions of the Particulars of Claim, it is Version B that matters, since if that sets out a non-strikable claim the Claimant should be given permission to make the necessary amendments.

The application to strike out

19

As noted above, the Defendant's strike-out application was based on the proposition that the trustee exoneration clause provided a complete answer to the claim given that the Particulars of Claim contained no properly pleaded allegation of dishonest breach of trust by the Defendant.

20

The exoneration clause in question is contained in clause F4 of the Puyol Trust. Insofar as relevant, it provides that the Defendant shall not be liable for or responsible for any loss or damage:

“except where the same shall be proved to have been caused by acts done or omissions made in personal conscious and fraudulent bad faith by the Trustee charged to be so liable”.

It is common ground that this requires the Claimant to establish a dishonest breach of trust.

21

The judge directed himself that the test for a dishonest breach of trust in this context was that stated by Lewison J (as he then was) in Fattal v Walbrook Trustees (Jersey) Ltd [2010] EWHC 2767 (Ch) at [81]:

“what is required to show dishonesty in the case of a professional trustee is:

i) A deliberate breach of trust;

ii) Committed by a professional trustee:

a) Who knows that the deliberate breach is contrary to the interests of the beneficiaries; or

b) Who is recklessly indifferent whether the deliberate breach is contrary to their interests or not; or

c) Whose belief that the deliberate breach is not contrary to the interests of the beneficiaries is so unreasonable that, by any objective standard, no reasonable professional trustee could have thought that what he did or agreed to do was for the benefit of the beneficiaries.”

22

Counsel for the Claimant...

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7 cases
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    ...duty, if and insofar as what is alleged is tantamount to a deliberate breach of trust: cf. Sofer v Swissindependent Trustees SA [2020] EWCA Civ 699, per Arnold LJ at [21]–[23]. However, insofar as that is what is being alleged, the difficulty of explaining how these matters were not within......
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    ...that it should not have been struck out, first because of the principle to be elicited from Sofer v. Swissindependent Trustees SA [2020] EWCA Civ 699 at [32] (“ Sofer”) to the effect that “a mere failure to identify at the outset the directors, officers or employees who had [the relevant s......
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    ...he has to meet then it becomes a vexatious pleading and should not be allowed to stand.” 55 Mr. Williams cited the case of Robert Sofer v Swissindependent Trustees SA [2020] EWCA Civ 699 to illustrate that the rules requiring an allegation of fraud to be particularised on the pleadings equ......
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    ...which I quoted above.” 48 The relevant principles were usefully summarised by Arnold LJ, in Sofer v Swissindependent Trustees SA [2020] EWCA Civ 699. The case was not included in the authorities before me, but was referred to by the Deputy Master, at paragraph 17 of the Judgment. Arnold LJ......
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1 firm's commentaries
  • When is a loan to a beneficiary really a distribution?
    • United Kingdom
    • JD Supra United Kingdom
    • 21 May 2021
    ...a lack of paperwork may result in the court making an adverse inference against a trustee. Sofer v SwissIndependent Trustees SA [2020] EWCA Civ 699. As is commonplace, summary judgment was sought in the In New Zealand, this is reflected in section 25 of the Trusts Act 2019, which creates th......

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