Court of Appeal Finds Summary Dismissal Rejected Too Abruptly

A claim brought against a trust corporation by a beneficiary has been given a second chance in his claim that the trustee had acted dishonestly.

Beneficiary Robert Sofer, is attempting to recover sums amounting to $19.2m from trust corporation Swissindependent, that were allegedly paid out to the settlor, Sofer’s father Hyman, during his father’s lifetime.

The payments were recorded as loans, however Sofer has challenged their validity and that instead they were gift made in breach of the prohibition set out in the trust deed.

Despite the trust being set up in the Australian state of Victoria, it is governed by English law.

The trust contained an exoneration clause that covered all breaches, except that for dishonesty, and this was what the trustees relied upon when attempting to avoid liability, as well as deeds of indemnity agreement signed by the beneficiaries, including Sofer.

The trustees claimed that there had been no dishonesty, but Sofer claims the trustees acted wrongly when making the payments, knowing they were not loans as Hyman was suffering from dementia and incapable of making a valid request for a loan. There was never a request for the repayment of the loans, nor did the trustees had also never made any enquiries as to the financial position of the prospective beneficiaries as was indicated in Hyman’s letter of wishes.

In bringing the claim to the High Court, Sofer had claimed:

“For the avoidance of doubt, the Claimant avers that the standard of probity and honesty reasonably required of an offshore alternatively Swiss trustee is the same standard required of any professional person administering trust funds as a trustee. To the extent that it may be inferred that the Defendant in making the payments to Hyman considered itself to be acting in the best interests of the beneficiaries, it is denied that the Defendant acted with that intention in fact, and it is averred that no reasonable professional trustee (or trustee in the same category as the Defendant) could reasonably have considered that it was so acting honestly and/or in the best interests of the beneficiaries in the particular…”

Sofer, in making an explicit allegation of dishonest behaviour produced evidence in the form of two witness statement, based upon his personal knowledge and documents. This was considered to be insufficient by Matthews HHJ, and the case was dismissed.

The EWCA however had agreed with Sofer that Matthews rejected the case too abruptly, stating that he had been wrong to threat the hearsay evidence given by the trustee’s witnesses as conclusive especially with its conflicts with Sofer’s own evidence. Sofer had been denied the opportunity to test the trustee’s evidence by the normal processes of disclosure and cross-examination.

With regard to the indemnity signed by the beneficiaries and Sofer, he claimed they “did not waive his claim against the Defendant because he did not know what he was doing and the legal effect of it, since he did not know that what they were described as ‘loans’ were in fact gifts.’

During the initial heading Matthews had stated:

“It is not necessary that the claimant should have understood exactly what was the character of the payments, or whether or not the defendant was complying with its fiduciary duties in making them, only that they were being made by the trustees apparently under the terms of the trust, and that the claimant could not thereafter complain that these payments amounted to a breach of trust.”

Sofer argues that this was an incorrect statement for the law and that there had been a crucial difference “between the Claimant understanding that the payments were loans, which were permitted by the clause…and his understanding that they were gifts, which were prohibited by the clause.”

The arguments put forward by Sofer led the EWCA to rule that there was a real prospect of success in a full hearing and therefore allowed the appeal to that it can proceed again in the EWHC.

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