Paul Grant discusses the arbitration of trust disputes in ThoughtLeaders4 Private Client Magazine

Arbitration has increasingly become a preferred method for resolving disputes. In the realm of trusts, arbitration presents several potential benefits, including confidentiality and flexibility. However, despite these perceived advantages, the arbitration of trust disputes remains a contentious issue, particularly in jurisdictions that lack a specific statutory framework. This article explores the current landscape of trust arbitration, its advantages and challenges, relevant case law developments, and the future outlook for arbitration as a viable method for resolving trust disputes.

Advantages of Arbitration in Trust Disputes

Arbitration offers greater flexibility, allowing parties to tailor procedures to their specific needs, including the selection of arbitrators with relevant expertise in trust law. It also encourages settlement by fostering a more collaborative environment compared to adversarial litigation. Arbitral awards may also be more easily enforceable in foreign jurisdictions. Another obvious advantage of arbitration in the context of a trust dispute is that private issues at play can be resolved confidentially and the affairs of the family kept out of the public domain, an outcome which cannot be guaranteed in Court proceedings. Another benefit is the timely resolution of trust disputes; the volume and complexity of matters being dealt with by judges in the offshore courts can mean that litigants are required to endure a long wait following trial for a judgment to be handed down by the court.

Despite these advantages, significant challenges remain that cast doubt on the widespread adoption of arbitration in trust disputes.

Challenges and Concerns

One of the main challenges in trust arbitration is the absence of a uniform statutory framework governing its use across jurisdictions. Traditional concern has centred on the perception that arbitration seeks to oust the jurisdiction of the court, which has a unique supervisory role in trust administration. Courts are often tasked with ensuring that trusts are properly managed in the interests of all beneficiaries, which raises fundamental concerns about whether arbitration can adequately address the fiduciary responsibilities of trustees and the interests of all parties involved. Several complexities arise when considering the arbitrability of trust disputes:

1. Arbitration requires the consent of all parties. However, in trust disputes, beneficiaries, particularly minors or unborn persons, are often not signatories to the trust instrument and may not have provided consent.
2. Some disputes, such as the removal of trustees or the interpretation of complex trust provisions, may not be suitable for arbitration, as tribunals may lack the statutory powers conferred on courts.
3. Changes in trusteeship and the involvement of third parties can complicate the binding nature of arbitration clauses.
4. Even if an arbitration clause is valid under the governing law of the trust, enforcing an arbitral award in foreign jurisdictions may present significant challenges, particularly if the local law does not recognise trusts or consider trust disputes arbitrable.

Case Law Developments

Recent case law has provided some clarity on the arbitration of trust disputes, although several uncertainties remain.

In England and Wales, arbitration is governed by the Arbitration Act 1996 (the 1996 Act), which requires arbitration agreements to be evidenced in writing and relate to “present or future disputes”. This creates a distinction between prospective arbitration, where a trust instrument includes a clause referring future disputes to arbitration, and freestanding arbitration agreements, which apply when parties agree to arbitrate an existing conflict.

One key issue in trust arbitration is whether beneficiaries who did not sign the arbitration agreement are bound by it. In Ryan v Lobb [2020] NZHC 3085, the New Zealand High Court ruled that arbitration clauses may be null and void with respect to beneficiaries who are not parties to the trust instrument.

Likewise, in Crociani v Crociani [2014] UKPC 40, the Privy Council examined jurisdiction clauses in trust disputes and emphasised that beneficiaries cannot selectively accept trust benefits while rejecting associated obligations, including arbitration. Despite this, it remains unclear whether non-signatory beneficiaries can be bound by an arbitration clause under the 1996 Act.

The recent Grosskopf v Grosskopf case in England grappled with the issue of trust arbitration. It involved a trust established by an Orthodox Jewish family, where disputes arose regarding its administration. The parties agreed to arbitrate through a Jewish Rabbinical Court, which issued several interim awards. However, subsequent claims were filed in the High Court including applications for the removal of trustees. The court ruled that trust disputes were capable of arbitration and stayed the proceedings under Section 9 of the 1996 Act. It held that arbitral tribunals could issue binding orders similar to court orders, such as requiring trustees to resign and appointing replacements. But Grosskopf did leave some issues unresolved, particularly concerning the enforceability of arbitral awards against non-signatory beneficiaries and whether an arbitral tribunal has the full range of powers available to courts in trust matters. 

Jurisdictions with Specific Trust Arbitration Legislation

Some jurisdictions have sought to address these challenges through legislative reform. The Guernsey Trusts Law 2007, for example, addresses the binding nature of settlements reached through arbitration in actions against trustees founded on breach of trust. While this addresses representation issues, it does necessarily assist in circumstances where claims are not founded upon breach of trust or on matters of enforcement in other jurisdictions.

The Bahamas Arbitration Act 2009 has been considered with substantial prominence in Volpi v Delanson Services Ltd, which involved a family trust established by Gabriele Volpi, with Delanson serving as the trustee. Delanson distributed the entirety of the trust assets to Gabriele, a decision contested by his son, Matteo, who argued that the distribution constituted a breach of trust and was executed for improper purposes. The matter was addressed through arbitration, resulting in awards favouring Matteo. Gabriele and Delanson sought to challenge these arbitral awards in the Bahamian courts. The Supreme Court of the Bahamas upheld the arbitral decision, reinforcing the jurisdiction’s pro-arbitration stance on trust disputes. The position in the Bahamas has since been revised by virtue of the Arbitration (Amendment) Act 2023, which includes further provisions concerning trustee removal and appointment, and representation mechanisms for minors and unborn beneficiaries.

Conclusion

Despite evident theoretical advantages, including confidentiality, efficiency, and flexibility, several practical challenges – particularly regarding enforceability, the binding nature of arbitration agreements, and the representation of all beneficiaries – remain obstacles to widespread adoption of arbitration in trust disputes.

While certain jurisdictions have taken legislative steps to facilitate trust arbitration, the legal framework in other common law jurisdictions remains uncertain.