Forester Maurice Labrouche v Frey & Ors

Where a claimant alleges that assets held through a foreign wealth-planning structure formed part of a deceased person’s English estate, the court determines the parties’ arrangement from the documents, surrounding circumstances and subsequent conduct. A fiduciary mandate may continue after death and may exclude succession by the deceased’s personal representatives. The proper law of an oral fiduciary arrangement is identified by the ordinary common-law contractual rules of closest and most real connection. A corporate or foundation conversion does not permit tracing merely because valuable rights are extinguished; there must be a transaction or coordinated series of transactional links connecting the original trust property with a substitute asset. Proceeds received on liquidation of a company used merely as a trustee’s investment vehicle are ordinarily capital where they represent a return of capital.

The claimant alleged breaches of trust arising from the administration of his grandmother Olga Martin Montis’s will trusts. The principal dispute concerned founder’s rights in a Liechtenstein establishment, Newin, and whether those rights, or rights to call for them, formed part of Olga’s residuary estate. Related claims concerned Newin’s conversion into a foundation, distributions to an income beneficiary, trustee remuneration, bank commissions, and the allocation of proceeds from the sale of Plum Bay House.

The trial also addressed the proper law and effect of fiduciary arrangements between Olga and her Swiss adviser, the alleged express trust of shares in an underlying company, tracing, issue estoppel, limitation and statutory relief for trustees.

1. Newin and the Claim Rights. The claimant failed to prove that Newin, or the right to control or recover its founder’s rights, formed part of Olga’s residuary estate. The court was entitled to infer from the 1980 fiduciary agreement, the 1980 byelaws, the 1980 file note and subsequent conduct that Olga intended to divest herself of all rights in Newin, including any right to revoke her instructions. The presumption of regularity and the absence of any sustainable case of dishonesty supported that conclusion.
2. Applicable law. The oral arrangement between Olga and Hugo was governed by Swiss law. The agreement had its closest and most real connection with Switzerland, where both parties were resident and Hugo practised as a Swiss lawyer. The agreement could continue after Olga’s death and exclude the rights of her heirs. It could also be characterised as a qualified contract for the benefit of third parties, enforceable after death by Newin’s beneficiaries. It was therefore unnecessary to decide the alternative argument based on article 404 of the Swiss Code of Obligations or the doctrine of secret trusts.
3. 1983 Resolution. The resolution did not declare an express trust of the shares in F&H. It was materially identical to earlier resolutions which had been revoked. The expert evidence was that a Liechtenstein trust would ordinarily be irrevocable unless an express power of revocation was reserved. The resolution was better understood as an administrative record of beneficiaries’ interests, and Newin’s subsequent accounts and conduct were inconsistent with an express trust.
4. Conversion, distributions and tracing. The claims concerning the conversion and Newin distributions failed because Newin was not trust property. Alternatively, reasonable trustees could have made the distributions, and the but-for test was not satisfied. Had liability arisen, relief under section 61 of the Trustee Act 1925 would have been available to the relevant trustees. Tracing also would have failed: the founder’s rights were extinguished, not transferred or transformed into a substitute asset, and no transactional links or coordinated scheme connected them with Newin Foundation’s assets.
5. Fees and retrocessions. The fees were usual and reasonable when assessed from the testatrix’s perspective, including the Swiss standards and the established charging arrangement. Delegation to ZT was authorised for trust functions. Retrocessions relating to trust business would, in principle, have been accountable as benefits arising from a conflict of interest, but the claims were too late and relief under section 61 would have been granted.
6. Plum Bay House. SCI Soltin was merely a convenient vehicle used by the trustees. The proceeds of its liquidation represented a return of capital and should have been credited wholly to capital. The trustees, including Markus, were therefore in breach of trust on this issue. Further submissions on remedies and costs were required.