Trustees’ indemnities—is timing everything?

Abstract

This article explores two aspects of the interplay between the trustee’s right to an indemnity for liabilities incurred towards third parties (‘external liabilities’) and an adverse claim for breach of trust, as raised in the recent Privy Council case of Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd. The first is whether a full indemnity should be granted for external liabilities reasonably assumed, even if they were unreasonably maintained, as the Board held. This article argues that such a conclusion ignores the fact that an award of indemnification reflects the extent to which the trustee is forgiven her stewardship duty. There is therefore a strong case on authority and principle that the entitlement to indemnification should be determined after taking all events, whenever they occur, into account. The second issue is whether the right to indemnity should effectively be enhanced by the existence in the trust deed of an exemption clause for negligence. There is scope for saying, contrary to the apparent view of the Board, that such a clause is (or should be) entirely irrelevant to indemnification, though this is a more nuanced point, which requires further consideration by the courts. For the reasons given in the article, the outcomes on both of these points reflect the current judicial direction of travel in regard to quantifying a trustee’s liability for breach of trust.