Indemnities – Beware The Consequences Of "Reasonableness"

The provision of indemnities, particularly those provided to corporate trustees and agents, is an important feature of an effectively functioning structured finance market.  It enables the parties involved to allocate the risks of unforeseen expenditure to those parties with the ultimate economic interest in the transaction and allows trustees and agents to keep their fees at a reasonable level.

Whilst the need for indemnities is generally accepted, the terms on which they are provided can be an area of robust negotiation.

A recent case in the Commercial Court has highlighted the importance of carefully drafted indemnities, in a ruling which focused on the consequences of limiting attorney fees for which a party may recover under an indemnity to "reasonable attorney fees".