Sofer v Swissindependent Trustees SA

A trustee-exoneration clause may protect a professional trustee from liability for breach of trust except where the claimant properly pleads and proves a deliberate breach accompanied by dishonesty or bad faith. The pleading must identify the deliberate breach, the relevant trustee decision-makers, the trust terms breached and the payments concerned. It must also particularise knowledge that the breach was contrary to the beneficiaries’ interests, recklessness as to that issue, or an objectively unreasonable belief that the breach benefited them.

On summary judgment, the court must assess the evidence presently available and evidence reasonably expected at trial, but cannot assume that undisclosed material will emerge. A beneficiary who knowingly enters an indemnity on the shared assumption that payments were loans may be estopped by convention from later asserting that they were advances, although the estoppel does not extend to later, unmentioned payments.

The claimant, a beneficiary of the Puyol Trust, alleged that the defendant professional trustee had made payments to the claimant’s father as gifts or advances rather than loans, contrary to the trust terms. He sought replacement of the trustee and restoration or compensation for the trust fund.

The defendant applied to strike out the claim under CPR rule 3.4(2), alternatively for reverse summary judgment under CPR Part 24, relying principally on a trustee-exoneration clause and deeds of indemnity signed by the claimant. The claimant sought permission to amend his particulars of claim to plead fraudulent or dishonest breach of trust. The central issues were whether the pleadings overcame the exoneration clause and whether the indemnity deeds barred or defeated the claim.

1. Disposition. The claim was struck out under CPR rule 3.4(2). Permission to amend in either proposed form was refused. If striking out had not been ordered, reverse summary judgment would have been granted for the defendant in respect of payments made before the indemnity deeds and the further AUS$9.5 million contemplated by them. Later payments would have required a trial.
2. Exoneration clause. Following Armitage v Nurse, Walker v Stones and Fattal v Walbrook Trustees (Jersey) Ltd, the clause protected against ordinary breach of trust, but not a fraudulent or dishonest breach. For a professional trustee, the claimant had to plead a deliberate breach and either knowledge or reckless indifference as to whether it was contrary to the beneficiaries’ interests, or a belief in the beneficiaries’ interests so unreasonable that no reasonable professional trustee could have held it.
3. Dishonesty and Ivey v Genting Casinos. The objective civil standard of dishonesty applied, but the trustee’s subjective belief about the beneficiaries’ interests remained relevant to whether the conduct was dishonest. The claimant’s pleadings alleged, at most, recklessness as to breach of trust and supplied inadequate particulars of knowledge, belief and the individuals involved.
4. Construction. The words “personal conscious and fraudulent bad faith” in the clause referred to actual fraud or dishonesty, not the wider concept of equitable fraud. The court respectfully adopted the reasoning in Wilden Pty Ltd v Green, subject to the qualification that bad faith alone is not necessarily fraud or dishonesty in English private law.
5. Indemnity and estoppel. The deeds did not create an immediate set-off, but could support a cross-claim. Estoppel by deed and contractual estoppel were confined to claims founded on the relevant deed or contract. Estoppel by convention applied because the parties shared the assumption that the payments were loans and the defendant acted detrimentally by making the contemplated further payments. The estoppel covered earlier payments and the AUS$9.5 million contemplated by the deeds, but not later payments.
6. Summary judgment. The possibility of further disclosure or a trial did not itself establish a real prospect of success. The claimant identified no reasonable grounds for believing that further evidence concerning the indemnity deeds would materially alter the result.