November 2019 | By Dr. David Hayton
Sofer v SwissIndependent Trustees SA: A review of exoneration clauses
Sofer v SwissIndependent Trustees SA  EWHC 2071 (Ch)
The recent judgment of the English High Court in Sofer illuminates the extent of protection given by exoneration clauses, the law allowing trustees exoneration from liability for all breaches of trust, even breaches that are deliberate breaches, unless dishonesty was involved. The trustees are exonerated if they acted in the honest belief that they were acting in the best interests of the beneficiaries.
The judge held that the onus lies on the claimant to establish his case which extends to proving that the trustee had acted dishonestly, not having such honest belief. The statement of claim must specifically allege dishonesty and support this with detailed particulars. The claim was struck out, avoiding the need to file a defence, because it had failed to do this.
An objective approach is taken so that a professional trustee’s ‘honest belief’ it had acted honestly in the best interest of the beneficiaries will not count if such belief was so unreasonable that, by any objective standard, no reasonable professional trustee could have thought that what was done for the benefit of the beneficiaries.
In Group Seven Limited v Notable Services LLP  EWCA Civ 614, the English Court of Appeal very recently held that an objective approach applies also to liability for dishonest assistance in a breach of trust or other fiduciary relationship, following the UK Supreme Court making an objective standard apply to guilt in the criminal law.
Previously, for dishonest assistance liability, the claimant had to establish the defendant’s actual knowledge of the facts amounting to the breach. Actual knowledge was treated as covering ‘blind-eye knowledge’. However, knowledge that the defendant would have had but for his negligence, even if gross, did not suffice.
Where was the line to be drawn between gross negligence and a worse position below the standard of ‘blind-eye’ knowledge?
The Court held there could be liability if there was ‘constructive knowledge’. This arises from the “overall picture” which includes the defendant’s subjective “suspicions of all types and degrees of probability.” With this overall picture, would ordinary, reasonable and honest people have made inquiries to clarify the position? If so, the defendant is liable. This question in a ‘grey’ area is essentially a question for a jury, but it is the judge alone in a civil case who applies the test.
Deeds of indemnity
Finally, to return to Sofer, if the claim had not been struck out, then, even if no defence had been filed, there would have been summary judgment in the defendant’s favour based on the deed of indemnity that bound the claimant. It would have been an abuse of process to make a claim covered by an indemnity for the defendant.
Dr. David Hayton LLD (Cantab) LLD (Newcastle Univ) TEP (Hon) ACTAPS (Hon), Barrister and Bencher of Lincoln’s Inn, London, Fellow of King’s College London, was a full-time Judge of the Caribbean Court of Justice in Trinidad from July 2005 to July 2019. As a member of the CCJ and one of the Court’s longest-serving judges, he has been described by advocates and fellow judges as an “intellectual giant” and “a jurist of international repute.” David joined Lennox Paton in early September 2019 as a Consultant, his practice spans the firm’s Trust and Litigation groups. He provides legal opinions, litigation support and acts as an expert witness in Trust Law and arbitrator. He has contributed over 50 papers to learned journals and authored or edited sixteen books in the area of trusts (including Underhill & Hayton, Law of Trusts & Trustees), property, succession and tax. He is thus arguably the leading authority in the United Kingdom and Europe on trust law. (Read more)