Swissindependent Trustees SA v Robert Sofer

Hearing dates: 30 October 2023

This judgment will be handed down by the Judge remotely by circulation to the parties or representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10:30 am on 20 June 2024.

Introduction

On 30 October 2023 I heard an application made by CPR Part 8 claim form by the claimant as trustee of certain trusts for the court's approval of a proposal to wind up those trusts and make final distributions of assets to beneficiaries. The claim form was issued on 5 June 2023. It was supported by the two witness statements of Andrew Bayles, a director and general counsel of the claimant, dated 10 May 2023 and 20 October 2023, This evidence was unchallenged, and, indeed, the claim was unopposed by any of the adult beneficiaries. The fourth and sixth defendants filed the only acknowledgments of service, each indicating no intention to contest the claim.

The matter was argued before me at an attended hearing by Richard Wilson KC and James Weale, for the claimant, and Emilia Carslaw for the sixth defendant, as representative of the minor and unborn beneficiaries of the trusts. The second to fifth defendants, adult beneficiaries of the trusts, did not attend and were not represented. There was no application for the hearing to be in private or for anonymisation of the parties' names.

At the end of the hearing, I announced my decision, which was to give the court's approval. I said I would give my written reasons in due course. This judgment contains those reasons. I am sorry for the delay in preparing them, caused by pressure of other work. But the decision was announced, and the order was made, at the time, and was to grant the application sought. Moreover, my reason for giving written reasons later was to provide, for the benefit of the then minor and unborn beneficiaries, an explanation of why the court decided that it was lawful for the claimant as trustee in effect to eliminate their interests. In the nature of things, this is something for the future rather than the present. So I hope that the long delay in providing reasons has not caused any inconvenience.

Background

I can take the background to the matter from an earlier judgment of mine in related litigation, Swissindependent Trustees SA v Sofer [2023] EWHC 12 (Ch):

“5. Hyman Sofer was born in South Africa in 1918, though he subsequently settled in Australia, where he died. He had two children, Robert (the first defendant) and Tamara (the second defendant). Robert is married, but has no children. Tamara is also married, and has three adult children (the third to fifth defendants), and (as at March 2019) nine minor grandchildren. On 25 July 2006, when Hyman Sofer was 88 years old, he created a new trust structure to hold his wealth, replacing an existing trust structure that had been set up previously by an Australian law firm, and which pre-dated the involvement of the defendant as trustee.

6. In the new trust structure, set up by a different Australian law firm, Clayton Utz, there were five trusts in all. These were named the Jordi Unit Trust, the Gabri Trust, the Puyol Trust, the Xavi Trust and the Valdes Trust. I was told that these trusts were named after footballers of the Barcelona Football Club. The [claimant] was trustee of all four trusts. A BVI company which Hyman Sofer controlled, Cilantro Holdings Ltd (‘Cilantro’), acted as formal settlor, settling the sum of US$10 on the trusts of each trust, to which of course further assets would be added in due course.

7. The Jordi Unit Trust was essentially a holding vehicle, whose function was to hold the investments. The assets from the earlier trust structure were transferred to the new one. Beneficial entitlement to share in the trust fund which the Jordi Unit Trust held was divided into units, which were initially allocated to Cilantro. The other trusts were ultimately to hold the units in the Jordi Unit Trust for the benefit of the intended beneficiaries. I call these other trusts the ‘beneficiary trusts’.

8. On 8 September 2006 Cilantro transferred certain of its units in the Jordi Unit Trust to the [claimant] as trustee of the Puyol Trust (and similarly in relation to the other beneficiary trusts). Subsequently, these units were substituted by other units, but nothing turns on that. It is accepted that ultimately each of the beneficiary trusts was entitled to one third of the value of the Jordi Unit Trust. The Valdes Trust was wound up in January 2009, and need not be mentioned further.

9. The original form of each of the beneficiary trusts was entirely discretionary. No person had a fixed interest. Nevertheless, at the time of creation, the Puyol Trust was apparently intended to benefit Robert and his wife, whereas the Gabri Trust and the Xavi Trust were apparently intended in the longer term to benefit Tamara and her husband on the one hand, and their children on the other. So Tamara's family would have twice as much as Robert's. However, the casual reader of the trust documents at the time of execution would not have thought so.

10. The terms of the three ‘beneficiary’ trusts provided for two classes of beneficiary, ‘Specified Beneficiaries’ and ‘General Beneficiaries’. When the trusts were executed, the class of ‘Specified Beneficiaries’ consisted of the then youngest partner of each of two law firms, one in London, England, and the other in Calgary, Canada. The ‘General Beneficiaries’ were essentially the closest relatives of the Specified Beneficiaries (although certain other persons connected with those relatives were also General Beneficiaries, and there was also power to appoint further such beneficiaries). It goes without saying that neither Tamara nor Robert had any connection with the youngest partners in the law firms concerned.

11. However, the trustee of each trust had power, under clause Q1 of the terms of the respective trust instrument, to add further persons to the class of ‘Specified Beneficiaries’. In relation to the Puyol Trust, that power was exercised by a deed of 23 August 2006 ( ie less than one month after creation of the trust). This added Hyman Sofer as a Specified Beneficiary of the Puyol Trust, and thereby made Robert, Tamara and their respective issue General Beneficiaries of the trust.

[…]

16. In 2011, there was a dispute between Hyman Sofer and the Australian Taxation Office (‘ATO’) as to whether he was a resident of Australia for income tax purposes and whether he was liable to pay income tax in Australia on amounts paid from the Jordi Trust or accrued within it. This dispute was settled by an agreement dated 18 July 2012. This provided, inter alia, that Hyman Sofer would pay the ATO AUS$9,450,596.93 within a certain timescale, and (by clause 3.4) that, with limited exceptions, no further assessments or amended assessments would be issued to Hyman Sofer or any “Related entity at any time in relation to any income dealt with by this deed”. For this purpose, the term “Related entity” included members of Hyman Sofer's family.

17. Clauses 3.6 and 3.7 of this deed, which (by clause 7.7) was expressed to be governed by the law of New South Wales, provided as follows:

‘3.6 The Commissioner acknowledges that the amount of the corpus of the Trust Estate at 30 June 2010, as set out in that statement, is AUD 59,245,591 before the recovery of accumulated accounting losses.

3.7 The Commissioner also acknowledges that any amounts that, in the future, are paid to, or applied for the benefit of the taxpayer or any of his Related Entities from corpus, that would otherwise be included in the assessable income of the taxpayer or that Related entity by virtue of paragraph 99B(1) of the ITAA 1936 (or any future provision of the ITAA 1936 that replaces that provision), will not be so included to the extent that the amounts are attributable to, or are expressed to be paid from, the Original amount.’

As I mention below, and as explained by the Australian tax lawyer Mr Ken Lord, in his opinion, these clauses establish in effect a tax-free corpus (‘the Original Amount’).

18. Following this settlement with the ATO, the claimant, pursuant to the powers in that behalf, but with “protector” consent, by a deed dated 8 October 2015 formally amended the trusts of the various beneficiary settlements. Before I come to these amendments, I will complete the narrative by saying that, on 24 March 2016, Hyman Sofer made his last will, and also a memorandum of wishes. In the latter document, he expressed the wish that one third of the tax-free corpus should go to each of the Gabri, Puyol and Xavi Trusts. On 8 July 2016 Hyman Sofer died, at the age of 97 years. In September 2016, having taken advice, the trustee determined that the balance of the Original Amount referred to in the ATO Settlement Deed as at 8 July 2016 was just under US$24 million, or about US$8 million per beneficiary trust.”

In 2015, amendments were made to the beneficiary trusts under the powers of variation contained in them. they included the insertion of new clauses A3(1a) and A3(1b) into each trust. A problem arose because there was a difference between the definition...