Academy trusts no longer need to seek consent for contractual indemnities within the ‘normal course of business’. What do trusts need to consider?
In the latest edition of the Academy Trust Handbook, the ESFA have helpfully addressed the issue of trusts being able to enter into contractual indemnities which are in the normal course of business without seeking approval.
An indemnity is a term used in law to recompense for any loss or liability. So, in any contract, an indemnity is a clause under with one party promises to protect the receiving party against loss by paying money on the happening of a specified event. They regularly feature in contracts because of the perceived benefits over relying on contractual claims where the party suffering a loss would need to prove the breach of contract or any fault. In many ways, indemnities are used to allocate risk within agreements between the parties entering it.
Up until publication of the latest Handbook, a trust that was entering into any indemnities beyond the delegated limits needed to obtain prior ESFA approval before entering into it. That meant that, theoretically at least, trusts needed to seek consent for relatively standard indemnities that feature in the day-to-day contacts that trusts will be regularly entering into as part of running the academy, including catering contracts and data sharing arrangements. Often the theoretical liability under the indemnities would be greater than the delegated limits under the Handbook.
The Handbook contains a new provision that makes clear that trusts are no longer required to seek consent for indemnities where they are within the ‘normal course of business’, which is a sensible change and will no doubt be welcomed by the sector.
Separate guidance has been produced that explains what is meant by ‘normal course of business’ in more detail, which gives a number of examples of the types of contracts considered by ESFA to fall under this provision. The guidance also makes clear that whenever trusts are seeking to enter into an indemnity, even if ESFA approval is not needed, legal advice needs to be sought to advise on the terms.
Whilst the ESFA’s advice gives some examples of situations which will fall within the ‘normal course of business’ in situations that trusts may be less familiar with or which are not given as examples in the guidance, trusts will need to consider whether they are within the ordinary meaning of normal course of business or whether ESFA approval is required. As was previously the case, if any indemnity is outside the normal course of business, it is considered novel, contentious or repercussive and prior ESFA approval must be sought.
Senior Associate
philip.wood@brownejacobson.com
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