Royal Court issues guidance on bank's contractual indemnity

The Royal Court of Guernsey has issued guidance on a bank's ability to recover its costs from a customer pursuant to a contractual indemnity. The decision is important as limits the circumstances in which a bank, or other beneficiary of a contractual indemnity, may exercise its indemnity in respect of the costs of Court proceedings.

The Court confirmed that regardless of any contractual agreement between the parties, it always retains oversight over costs incurred in legal proceedings. Where there are Court proceedings, the bank should obtain a costs order at the conclusion of the proceedings, even it has a contractual indemnity.

Banks should obtain legal advice at any early stage, particularly where dealing with the costs associated with a dispute.

The Court also gave guidance about the scope of the contractual indemnity in question, and banks should consider their own terms and conditions in light of the decision.

The decision is likely to be the subject of an appeal and so it is expected that this will not be the final word on the matter – watch this space.

Click here to read more on this guidance.