Analysis
Mr French (F) was either a protector or member of the committee of trust protectors of each of nine trusts governed by the law of the Isle of Man. The trusts were set up with one or other of two American brothers and their families as beneficiaries in various combinations. Trusts set up in 1992 contained a clause (clause 8.7) ‘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.’ while those set up in 1994/1995 provided in sch 4, para (8) (b) that:
‘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.’
F retired as protector of all of the trust in December 2000 with effect from 23 January 2001. The US Securities and Exchange Commission (SEC) brought proceedings in New York against F, the brothers and another alleging a fraudulent scheme to hold and trade securities in US public companies without disclosing their ownership and trading, effectively using the trusts. F asked the claimant trustees to indemnify him for the litigation expenses that he had incurred or would incur in defending the SEC legislation after he had incurred them and without awaiting final resolution of the litigation. The trustees sought directions from the court on the basis that they had not made a final decision about whether to grant F indemnities and in the light of the serious allegations made it would not be appropriate for them to make such decisions until the outcome of the SEC proceedings was known. While the 1994/1995 trusts contained mandatory indemnity rights those did not extend to cover the SEC legislation since this arose out of F’s ‘own wilful and individual fraud or dishonesty’; the conduct alleged was carried out in a number of different capacities, including as lawyer and advisor to the brothers and as a director of US public companies associated with the fraud; and in any event was not connected with his powers as a protector. F countered that the right to an indemnity extended to third party disputes where it was in the interest of the trusts to defend them against an allegation that they were shams; he had an implied right of indemnity anyway and the accusations were entirely unproven.
Held
Until the outcome of the SEC complaints was known the trustees could not determine whether there had been any ‘disqualifying wrongdoing’ by F such that he was disentitled to an indemnity [88].
The court would not interfere with the trustees’ discretion where their conduct was informed, bona fide and uninfluenced by improper motives [57] and it would be wrong for the court to imply indemnities where there were express indemnities set out by the settlor. To do this was unnecessary and would be a recipe for confusion [75].
Claims that F would be acting in the best interests of the beneficiaries could not be substantiated since they had not been given the opportunity to make representations on this point and it was not possible for the court to form a view as to the SEC allegations since it had not been provided with all the papers [61].The trustees were entitled to form a view that the claims against F were not purely tied up with his role as protector on the base of the material before them but it was not for the trustees to determine the SEC complaint which was a matter for the New York Court. It was only when the proceedings were finally concluded that the trustees would be in a position to make a fully informed decision as to whether to exercise their discretion to grant F an indemnity against his costs and that they will be able to determine whether the conditions for granting an indemnity under the 1994/1995 trusts have been met [65].
Should the trustees find that there was a right to indemnity under the 1994/95 trusts after the conclusion of the SEC trial there were other matters that they were bound to consider including, but not limited to, the effect any deed of release signed by F when retiring as protector and the nature of any other funding available to him.
JUDGMENT DEEMSTER CORLETT. Introduction [1] The four claimants are each trustees of a total of nine trusts, all of which are governed by Isle of Man law, the majority of which were originally settled by one Samuel E Wyly or his brother Charles Wyly, one of which was originally settled by one Keith L King, …Continue reading "IFG International Trust Co Ltd & ors v French Case no: CHP 2012–0048"