In the recent case of IFG International Trust Company Limited and others v French (2012) CHP 2012/0048, the Isle of Man High Court gave useful guidance on the entitlement of a former protector to an indemnity from a trust.

This case involved an application by the trustees of a number of Isle of Man trusts for the guidance of the Isle of Man Court as to the entitlement of a former protector of a total of nine trusts to an indemnity from each of the trust funds. The protector, Mr French, was accused of being an accessory to the alleged dishonest arrangements carried out by the famous Wyly brothers. Please see our previous news item for further details of that matter.

Mr French as protector sought an indemnity from the trustees for his costs to date and future costs. In light of his request, the trustees sought the directions of the Isle of Man Court.

The trust deeds in question contained express indemnity provisions on either one or the other of the following terms:

1. "The Trustee may grant an indemnity out of the Trust Fund to any Committee member or to such delegatee upon such terms as the Trustee may think fit."

2. "Each person occupying the office of Protector shall be entitled to exoneration and indemnity out of the Trust Fund for any liability loss or expense incurred hereunder and for any judgment recovered against and paid by such person other than liability loss expense or judgment arising out of his own wilful and individual fraud or dishonesty."

Mr French argued that:

1. in relation to the first example above, the trustees had a discretion which the Court could interfere with if in best interests of the trust;

2. in relation to the second example above, the indemnity was mandatory and applied to third party disputes, again, where in the best interests of the trust;

3. the claims in the US were that the trusts were a sham and it was in the interests of the trust to defend such claims;

4. the allegations against him were unproven; and

5. he had an implied right of indemnity in any event.

The Trustees position was that:

1. they had not made a definite decision as to whether to grant the indemnities requested in light of the proceedings in the US; and

2. they would reserve making that decision until the outcome of the US proceedings was ascertained as the expenses incurred by Mr French may not be limited to those carried out in this role as protector of the trusts.

It was found by the Court that:

1. the trustees were entitled to take the view that the claims in the US were not solely in relation to Mr French's role as protector;

2. it was not for the trustees to decide if there was a valid claim against Mr French;

3. the trustees were justified in waiting for the outcome of the US Court before deciding whether to grant Mr French an indemnity;

4. "incurred hereunder", in example 2 of the indemnities above, included those expenses properly incurred in connection with the office of protector; and

5. implying indemnities where there are express ones is "unnecessary and a recipe for confusion".

In considering the role of the protector, the Court referred to the leading Manx case of Rawcliffe v Steele [1993-95] MLR 426 and stated that "a trust protector's functions will often extend beyond the ambit of the specific powers set out in the relevant trust deed and will or may encompass a general supervisory or advisory role."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.