Sofer v SwissIndependent Trustees SA - The High Court reviews exoneration clauses

A recent decision of HHJ Paul Matthews sitting as a judge in the High Court may provide welcome guidance for trustees as to the Court's current attitude to trustee exoneration clauses and deeds of indemnity, an area that has not been reviewed recently in the English courts. 

What is the case about?

The claimant in Sofer v SwissIndependent Trustees SA, a beneficiary of one of a number of trusts established by his father, alleged breach of trust in respect of a number of payments made by the defendant trustees to the settlor during his lifetime.  He argued that these payments were advancements, which were precluded by the terms of the trust during his father's lifetime, rather than loans which were permitted. In the event, the trustees were successful in their application to strike out the beneficiary's claim.

Why is the decision interesting?

The decision itself is interesting as a review by an English court of an unusually broad exoneration clause in favour of the defendants, that excluded liability for everything apart from loss or damage resulting from "acts done or omissions made in personal conscious and fraudulent bad faith by the trustee charged to be so liable…".    In determining that the trustees were protected by the clause, the judge considered the limits the law places on trustee exoneration clauses, reviewing relevant case law from England and Australia.  (The trust deed had been drafted by Australian lawyers, despite being governed by English law.)  He also considered the true construction of the clause and the claimant's allegations.  

The judge also indicated that, if necessary, he would have given reverse summary judgment in favour of the defendants in respect of all payments covered by deeds of indemnity on the grounds of waiver and consent by the claimant, who had signed the deeds, and also on the basis of estoppel by convention arising from the unfairness arising from one party departing from a shared assumption about the state of facts or law on the basis of which both have transacted together.  In this case, both parties to the deeds of indemnity shared the assumption that the payments made were loans rather than advances.  

Why might this decision be important?

Albeit made at first instance, the judgment of HHJ Matthews carries particular weight due to his distinguished career in trust law both in England and Wales and in Jersey and other offshore jurisdictions.  HHJ Matthews is also an editor of the seminal trust work, Underhill & Hayton on Trusts and Trustees.  Accordingly, his carefully considered judgment is unlikely to be overturned lightly by a higher court in the event of an appeal against his decision.

What can we learn from this case?

The case potentially provides comfort for trustees in its support for exoneration clauses, especially given the breadth of the exculpatory terms.  However, from a reputational perspective, few trustees would wish to be in a position where reliance on such a clause was necessary.  In fact, nothing in the judgment suggests that the trustees’ actions were made other than in good faith.

One lesson that may be drawn from the decision is that trustees exercising a power to make loans should consider carefully the terms on which they are made, particularly if other forms of advancement are precluded for any reason.  Loans requiring interest payments, security or a date for repayment, or a combination of these or other commercial terms, may better withstand any future allegation that an advancement made by way of loan was in fact, merely a gift in disguise.

If you have any queries about the case or how this might be applicable to you please do get in contact with your usual Forsters contact.