Forester Maurice Labrouche v Frey & Ors, Court of Appeal - Chancery Division, February 18, 2016, [2016] EWHC 268 (Ch)

Issuing Organization:Chancery Division
Actores:Forester Maurice Labrouche v Frey & Ors
Resolution Date:February 18, 2016
 
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Case No: HC 10C00412

Neutral Citation Number: [2016] EWHC 268 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice, Rolls Building

Fetter Lane, London, EC4A 1NL

Date: 18/02/2016

Before :

THE HON MRS JUSTICE ASPLIN DBE

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Between :

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Simon Taube QC, Marcus Staff & Adam Cloherty

(instructed by Charles Russell Speechlys LLP) for the Claimant

Emily Campbell & Simon Atkinson (instructed by Payne Hicks Beach)

for the 1st & 2nd Defendants

Michael Furness QC & Tiffany Scott (instructed by Boodle Hatfield LLP)

for the 3rd Defendant

4th Defendant not attending

Hearing dates: 30 October, 2 - 6, 9 - 13, 16 - 19, 23 - 27 and 30 November

and 1-3, 7 - 11, 16 and 17 December 2015

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JudgmentMrs Justice Asplin DBE :

Background

  1. The claims in this matter, brought by Forester Maurice Labrouche (``Forester'') all relate to alleged breaches of the trusts of the will of his grandmother, Olga Martin Montis ("Olga"). Having inherited a considerable fortune from her first husband, Olga died on 8 February 1980 aged 90, domiciled in Switzerland, leaving a last will dated 9 May 1974 which is in English and is governed by English Law ("Olga's Will"). The relevant background to this matter is extremely complex. In order to understand the nature of the claims being made and the defences to them, it is necessary to set it out in some detail.

    (i) The Will Trusts and Trustees

  2. Under Olga's Will the late Dr Hugo Frey ("Hugo") a partner in Swiss law firm Niederer Kraft & Frey ("NKF") who had been Olga's professional adviser since the 1950s, was appointed as executor and a trustee of the will trusts. Hugo died on 26 January 2005 and his estate is named as the second defendant in these proceedings. Under Olga's Will, in addition to Hugo, Olga's daughter Soledad Cabeza de Vaca y Leighton ("Soledad") the third defendant in these proceedings and Olga's third and last husband, Isidro Martin Montis ("Isidro") were appointed as trustees of the will trusts.

  3. Isidro died in 1991 and was replaced as a trustee by Hugo's son Dr Markus Frey ("Markus") the first defendant in these proceedings. Thereafter, both Soledad and Hugo retired as trustees in 1998, (Soledad having been thought to have already resigned and retired in 1994) at which point another partner in NKF, Dr Meister, was appointed. He remained a trustee until his death in 2009. Markus who commenced work at NKF in 1989 and worked with his father on the affairs of the Martin-Montis family amongst other things, was also Hugo's special executor limited to Olga's estate. He remained a trustee until November 2011. Throughout his time as trustee, Markus was also a member of the governing council of the fourth defendant, the Newin Foundation ("Newin Foundation"). Newin Foundation is a stiftung or foundation, which was established under the law of Liechtenstein in November 1995, having been converted from an anstalt or establishment. The anstalt also established under the law of Liechtenstein, was created in 1957 (``Newin Establishment''). The circumstances in which Newin Foundation was established, its purpose and governance are matters which are in dispute and to which I shall return. Newin Foundation was not represented before me and is content to abide by the outcome of the trial.

  4. Olga's Will contained a number of trusts and dispositions. The trustees from time to time of Olga's Will (the ``Trustees") held 60% of Olga's residuary estate as to two thirds on trust for Isidro ("Trust Isidro") and one third on trust for Soledad ("Trust Soledad") for life. Soledad had a reversionary life interest in Trust Isidro, which upon Isidro's death became a protected life interest. Soledad was also entitled to 20% of Olga's residuary estate absolutely, which was distributed to her between 1983 and 1984. Forester is entitled to a vested interest in 75% of the 60% share of Olga's residuary estate in which Soledad now has a protected life interest. Forester was further entitled to a vested interest in 75% of 20% of Olga's residuary estate contingent on attaining the age of 40. That interest was re-settled by Forester under the terms of a settlement dated 7 August 1989 (the ``FML Settlement") the first trustees of which were Isidro, Soledad and Hugo. From 1991 to 1999, the trustees of the FML Settlement were Markus, Soledad and Hugo (although Dr Meister took over from Hugo in 1998). In early 1999, at the request of Forester, Marc Bonnant and Philippe Grumbach were appointed as trustees and the new trustees appointed the entirety of the FML Settlement to Forester in March 1999.

    (ii) The Newin Establishment

  5. In 1957, shortly after Olga moved from the United States of America to live in Switzerland, having taken advice from Hugo, she transferred valuable assets to Newin Establishment which had been established by Hugo for that purpose. It is not in dispute that according to the laws of Liechtenstein, the founder's rights in the Newin Establishment allow the holder of those rights to direct how its assets should be dealt with and how distributions are made, and enable the holder to control the composition of the board of the establishment (the ``Founder's Rights''). It is also not disputed that Olga became the holder of the Founder's Rights having had them assigned to her by Hugo shortly after the Newin Establishment was set up.

  6. Until 1972, whenever the statutes or bye-laws of the Newin Establishment needed to be amended, Olga would assign the Founder's Rights to Hugo, who would exercise the rights in order to effect the amendment and then re-assign them to her. This changed in 1972 when Hugo assigned the Founder's Rights to Interhold AG (a financial services company of which Hugo was the major shareholder and of which Markus also became a shareholder) (``Interhold'') subject to a fiduciary agreement entered into between Hugo and Interhold which is expressed to be governed by Swiss law ("the 1972 Fiduciary Agreement"). On 25 January 1980, very shortly before Olga's death, a further fiduciary agreement was executed between Interhold and Hugo ("the 1980 Fiduciary Agreement") as a result of which amongst other things, Hugo had the right to have the Founder's Rights assigned to him immediately upon request, rather than Olga.

  7. It is in dispute in these proceedings whether the Founder's Rights in the Newin Establishment or the right to call for them and exercise them/ the right to revoke any contrary instructions given to Hugo, formed part of Olga's estate at her death in February 1980. The conversion of Newin Establishment into Newin Foundation was effected by Interhold in 1995. It is said that as a result, the Founder's Rights were extinguished. Whether the conversion from establishment to foundation was a breach of trust and the effects of that conversion are in dispute and are at the heart of this matter.

    The Claims

  8. Forester contends that:

    (i) the distributions paid out of Newin Foundation and its subsidiaries between 1999 and 2001, including fees and administration expenses and distributions and all assets of Newin are and were held on trust for the Trustees;

    (ii) in making distributions to Soledad from Newin Foundation, the Trustees overpaid her and are in breach of trust for failing to ensure that only net income was distributed to income beneficiaries, and further, for failing to account properly for receipts from corporate entities of which they held controlling investments, as between the interests of the income and capital beneficiaries;

    (iii) Markus and Hugo received unauthorised and excessive trustee remuneration out of trust funds and failed to account to the capital beneficiaries for benefits or profits which they or associated companies received as a result of their trusteeship;

    (iv) Hugo and Markus received undisclosed payments referred to as ``retrocessions'' as a result of their ownership of a company ZT Zurich Trust AG (``ZT'') in the form of payments by two Swiss banks which held trust monies for which they have failed to account;

    (v) Markus, Hugo and Soledad acted in breach of trust as a result of the manner in which the proceeds of sale of a property known as Plum Bay House were divided between capital and income;

    (vi) Forester is entitled to the costs attributable to that part of the claim which related to the removal of Markus as sole trustee of Olga's Will Trusts, Markus having retired after the proceedings were commenced;

    and that

    (vii) In addition to a number of declarations and other immediate relief, there should be an order made by the Court for a common account, an account on the basis of wilful default and an inquiry into breaches of trust that are not yet known by Forester and the Court.

  9. Markus and Hugo's estate counterclaim for remuneration insofar as they are deprived of it as a result of Forester's claims, which they should have fairly been paid on the basis that the trust has been receiving the benefit of professional trustee services for many years.

    The Sources of the Evidence

    Documentation

  10. As the relationship between Olga and Hugo began when she came to Europe from the United States of America in the mid 1950s and her inheritance planning took place over a long period from that time through until her death in 1980 and in the light of the fact that not only she but also Hugo are dead, a large part of the relevant background and direct evidence in this matter is contained solely in the documents. They form part of the archive material kept by Hugo's professional practice, NKF and the papers which were retained by Mr Derek Taylor, (``Mr Taylor'') the English solicitor who advised Hugo on the English aspects of Olga's inheritance planning who died in 2003. The archive material contains not only copies of the documents which were actually executed but a large number of file notes written by Hugo in which he considers the various problems faced by his clients and the possible...

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