Trustees often seek to limit their liability in the form of exoneration clauses in trust deeds. As such, it is generally difficult for a beneficiary to challenge a trustee's decision that falls within the scope of the exoneration clause.
In Sofer v SwissIndependent Trustees SA  EWHC 2071 (Ch), the England and Wales High Court confirmed just how high the bar can be for beneficiaries to overcome the limitation on liability provided by exoneration clauses and also set out a test for doing so. Here the defendant (the trustee) applied for striking out or summary judgment of a claim pursued by a beneficiary for breach of trust, on the basis that the trustee's relevant action was covered by an exoneration clause. The strike out was granted.
The judgment is also noteworthy in particular for Hong Kong and Australian trustees and beneficiaries. The judge relied on both English and Australian case law and highlighted that the relative homogeneity of trust law in this and other Commonwealth jurisdictions meant the Australian case law had considerable persuasive value.
The dispute revolved around a discretionary family trust (the Puyol Trust) set up by Mr Sofer and managed by SwissIndependent Trustees SA (SIT) as the trustee. Mr Sofer and other family members were beneficiaries of the trust and the Puyol Trust was entirely discretionary in nature. The trust instrument was governed by English law.
The Puyol Trust contained an exoneration clause limiting the trustee's liability for any loss or damage in relation to (i) any power exercised under the trust or alleged failure to exercise such power and; (ii) any of the trust's assets unless caused by omission or fraud.
The case hinged on two particular clauses in the trust deed:
That the trustee may lend any money to any beneficiary on such terms as the trustee (in their absolute discretion) thinks fit (Lending Clause); and The trustee must not transfer any part of the trust assets prior to the death of Mr Sofer (Non-distribution Clause). Over a period of ten years, the trustee made a number of considerable payments, on very favourable terms, out of the trust to Mr Sofer. The trustee made the payments on the basis of the Lending Clause. At the time of Mr Sofer's death, he left a debt of around US$19m to the trust which his estate could not pay. The trustee had also obtained further deeds of indemnity in relation to the payments.
The claimant (Mr Sofer's son and a...