Sofer v Swissindependent Trustees SA

A claim alleging dishonest breach of trust need not identify at the outset every individual within a corporate trustee who held the relevant knowledge. It must nevertheless plead sufficient primary facts, read as a whole, to make dishonesty a sustainable inference rather than an assertion consistent with innocence or negligence.

On a strike-out application, pleaded facts are assumed true, although particulars of dishonesty require careful scrutiny. A contractual indemnity referring to specified loans does not, on its ordinary construction, necessarily protect a trustee if the payments were in fact prohibited gifts. Where the facts and state of knowledge underlying alleged estoppel or waiver are disputed, a beneficiary may have a real prospect of resisting summary judgment.

The appellant beneficiary alleged that the respondent professional trustee had made payments from the Puyol Trust to Hyman Sofer as prohibited gifts, although they were recorded as loans. The trust contained an exoneration clause requiring proof of dishonest breach of trust.

HHJ Paul Matthews, sitting as a High Court judge, struck out the claim under CPR rule 3.4(2)(a). He also held that, if necessary, reverse summary judgment would have been granted for part of the claim because of deeds of indemnity signed by the appellant: [2019] EWHC 2071 (Ch).

The appeal concerned whether the proposed amended particulars sufficiently pleaded dishonesty and whether the indemnity, estoppel by convention and waiver defences could properly succeed summarily.

1. Appeal allowed. Arnold LJ, with whom David Richards and Patten LJJ agreed, held that the claimant should have been permitted to amend his particulars in Version B. The strike-out application and the application for reverse summary judgment should both have been dismissed.

2. The trustee exoneration clause required a sustainable allegation of dishonest breach of trust. Applying the test in Fattal v Walbrook Trustees (Jersey) Ltd [2010] EWHC 2767 (Ch), the proposed pleading sufficiently alleged deliberate breaches and facts capable of supporting the required state of mind. The allegation was to be assessed from the totality of the pleaded facts, including the alleged pattern, scale and character of the payments. Whether dishonesty could be proved remained for trial.

3. Particulars of dishonesty must identify the primary facts from which the inference is drawn and give the defendant fair notice of the case. However, under Civil Procedure Rules 1998 rule 3.4(2)(a), the pleaded facts are assumed true. A corporate dishonesty allegation is not automatically liable to strike out merely because the pleading does not initially identify the relevant directors, officers or employees. The claimant should provide the best available particulars promptly, and failure to do so when properly required may have procedural consequences.

4. Whether payments were gifts or loans was primarily a factual question as to the parties’ intentions. The proposed particulars adequately pleaded that the recorded loans were in truth gifts.

5. The deeds of indemnity were, on their construction, directed to actual loans advanced under clause D3(3), not prohibited gifts. The claimant also had an arguable case that dishonesty would fall outside any implied protection. He therefore had a real prospect of defeating the contractual-indemnity defence.

6. The judge had impermissibly treated disputed and hearsay evidence as conclusive when finding a shared assumption for estoppel by convention. The claimant had real prospects of showing that any description of the payments as loans was a false representation rather than a shared assumption, and that it would not be unjust to challenge it. He also had a real prospect of resisting waiver because he may not have understood the factual character and legal effect of the payments to which the deeds referred.

• Court of Appeal (Civil Division): Allowed the beneficiary’s appeal, set aside the strike-out and the proposed reverse summary judgment, and permitted amendment of the particulars: [2020] EWCA Civ 699 .

• High Court, Chancery Division: HHJ Paul Matthews struck out the breach-of-trust claim under CPR rule 3.4(2)(a). He would also have granted reverse summary judgment on part of the claim based on the deeds of indemnity: [2019] EWHC 2071 (Ch) .