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Trustee liability, Trustee retirement, Trusts

Indemnity upheld

Retiring trustees are commonly indemnified by the continuing trustees for costs that might arise in the future relating to the trusteeship. An example where resort might be made to such an indmenity is when a  retired trustee is later named in proceedings relating to the time of the trustee’s tenure.

Where the indemnity is from the continuing trustees the indemnity is commonly, but not necessarily limited to ” … the extent of the assets of the Trust”.

The extent to which such an indemnity can be relied upon was examined in the case of Skelton v Howcroft when the indemnifying trustee unsuccessfully argued that the indemnity was limited to the amount awarded at a settlement conference relating to the proceedings filed against the trust.  In finding that the indemnity could not be limited in this way the court noted at [16] that:

“[the settlement agreement]  also operates in full satisfaction of all claims and obligations “… as between the Receiver, the Trusts and parties herein”. In my view, on its proper construction that provision does not, and was never intended to, reach issues of costs between Mr Howcroft as a retired trustee of the Trust and Mr Skelton as the continuing trustee. Clause 14 was intended to cover issues as between the trusts themselves, and matters as between the receiver and the trusts, or the receiver and “parties herein”.

The case highlights the importance of a retiring trustee obtaining a suitable indemnity (and where this can be relied upon).  Separately the case also reinforces the need for any trustee giving an indemnity to be clear as to the scope of the indemnity.

References

  • Skelton v Howcroft [2013] NZHC 3544
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