THE ARBITRATION OF TRUSTS DISPUTES: SQUARING THE CIRCLE

Christopher J Tan and Tey Khoo

The possibility of arbitrating internal trust disputes has vexed lawyers for some time. Noting the remarkable growth of arbitration as a dispute resolution mechanism, and the importance of party consent for an arbitration to be valid and binding, a seemingly insuperable difficulty is obtaining the consent of beneficiaries. This difficulty may be more apparent than real. It is argued that various mechanisms may be deployed to properly obtain the consent of beneficiaries, or operate to deem consent to have been given. Further issues, like res judicata, are similarly analysed. Ultimately, trust disputes can—and, where appropriate, should—be arbitrated.

I. Introduction

1 Our starting point is a simple one. Why may A not conditionally settle his property on X, where X is bound to use the property for the benefit of B, subject to any terms as agreed between A and X?

2 There is no reason, in principle, why A should not provide that his property should be held for the use of B, subject to conditions. As a general proposition of law, A’s property is A’s to dispose of as A wishes. As B has no entitlement to the property other than by A’s devise, B has no normative basis of complaining that the devise is subject to these conditions. Nevertheless, the English Law Commission has said, unequivocally, that “a clause in a trust instrument requiring disputes to be arbitrated is not binding” in that jurisdiction.[1]

3 Nor is there any reason, in principle, why one of these conditions cannot be that, as between B and the person holding the property for B’s use, viz. X, any disputes between them should be subject to determination by a further disinterested party.

4 It is submitted that there is therefore an imperative that the law provides the means to recognise such a devise. The only question is how this comes to be done.

II Whither trusts?

(a) The question and trusts

5 Once it is accepted that the law should provide a way for A to settle his property conditionally on X, where X is bound to use the property for the benefit of B, and any disputes between B and X should be subject to determination by a further disinterested party, the question is whether the law of trusts, as it stands, provides an adequate means by which this can be done.

6 Why then should a settlor (“S”) be prevented from stipulating that his property should be held by a trustee (“T”) for the use of a beneficiary (“B”), subject to the condition that any disputes between T and B be settled by a neutral third party, like an arbitrator? Such disputes may be referred to as internal trust or “beneficiary” disputes (as opposed to external disputes where the T and any third parties would be able to enter into arbitration agreements using relatively straightforward contractual methods).[2]

7 There is no inherent reason why such disputes should not be amenable to arbitration. It is right for a court to consider the intentions of S.[3] Typically, disputes that are not capable of being arbitrated engage some public interest—but even this is not an insuperable obstacle, as the arbitration of competition law disputes demonstrates;[4] further, while an arbitrator cannot give the same remedies as a judge, and historic precedents do not provide a clear direction, there is a first principles argument to be made in favour of arbitrating trust disputes.[5] In traditional family trusts, arbitration ought to be an attractive way of resolving disputes where privacy and greater procedural control would be inherently more attractive for such clients.[6]

8 Of course, at this juncture, it is right to note that the courts of Jersey and Guernsey are well-versed in dealing with technical issues of law and fact in connection with trusts. Further, it is settled practice that certain trust-related applications may be heard in private or subject to reporting restrictions.[7] However, this is generally not the case for fully “hostile” litigation.[8] In any case, the normal practice after “in private” hearings is that an anonymised judgment is published—and the principle of open justice is such that the Royal Court of Jersey might opt to publish a non-anonymised judgment despite having sat in private, even in a case where “all parties [had] consent[ed] to a hearing in private and to publication only of an anonymised judgment”.[9]

9 In sophisticated, commercially minded contexts, one is looking beyond the remit of the archetypal family trust. Certain commercial trusts can and should lend themselves more readily to contractarian analysis: in reality, a B under such a trust may have knowledge of, and have consciously acquiesced to, certain dispute resolution provisions in a trust instrument.[10] Why should a B not be bound to arbitrate in such a situation?

10 If, as some contend, an S compelling the arbitration of trusts disputes is impossible,[11] then the law either requires amending, or some other mechanism must be fashioned to devise property on this basis.[12] It is submitted that, if trusts law as it stands is incapable of fulfilling this need, it would be more straightforward for trusts law to be reformed instead. Trusts are a familiar and well-established way of holding and managing property; and there should be no rush to throw the baby out with the bathwater. However, we submit that there are no insuperable obstacles preventing trusts law from fulfilling this need in the first place.

(b) Common objections to arbitrating trusts disputes

(i) Historical objections

11 Historically, courts have been jealous in guarding their jurisdiction to hear disputes. By the 19th century, however, it was widely accepted that force could essentially be given to agreements to arbitrate through the use of Scott v Avery clauses.[13] These typically stipulated that obtaining an award from an arbitrator was a pre-condition to any right of action to claim money—while the practical effect of such a clause was to compel arbitration, it did not involve the court actively surrendering its jurisdiction to a tribunal and therefore did not engage the historic rule against any apparent dereliction of judicial duty.[14]

12 For arbitration, the law has moved on. Global consensus in favour of arbitration led to the entry into force of the New York Convention.[15] Leading jurisdictions almost uniformly have clear and comprehensive legislation reflecting this, paving the way for the enforcement of arbitration agreements and of awards subsequently rendered.[16] It is obvious that parties should be held to their bargains,[17] and if they have agreed to arbitrate, then that decision ought to be respected.

13 To the extent that similar arguments might be canvassed against the arbitrating of trust disputes, public policy can and does—and has—moved on.[18] The arbitration of trust disputes may fall outside the four corners of the New York Convention for various reasons (considered further in Section III below), but the same public policy arguments in favour of arbitration ought equally to apply to the arbitration of trust disputes. It therefore has been argued that courts ought to compel the arbitration of trust disputes in certain circumstances as a matter of common law or in the exercise of judicial discretion.[19]

(ii) The Role of Court Supervision of Trusts

14 Of course, some consideration must be given to the particular relationship that exists between trusts and the courts. Courts do have an inherent jurisdiction to supervise the administration of trusts, and will intervene as appropriate. In such cases, the court has a wide discretion to make appropriate orders.[20] In relation to trusts, it has been considered that the position is different from that of a contract: the court has no inherent power to supervise the administration of a contract, whereas it has been said that there is an imperative to protect beneficiaries in the trust context.[21] Further, as a matter of practice, many prudent Ts are grateful for the possibility of availing themselves of the court’s inherent jurisdiction in this area to seek guidance and clarification as required (and thereby absolve themselves of liability via the appropriate judicial “blessing”).[22]

15 What is the justification for this special treatment of trusts? One might argue that Ts are fiduciaries, not mere contractual counterparties of equal bargaining power—and therefore judicial scrutiny is particularly important. However, is the relationship between Ts and Bs really so unique that the same analysis should lead to a different conclusion? [23] Further, there are other relationships where one party has more power than the other where there is a degree of trusting dependence, which are capable of arbitration. Indeed, in certain jurisdictions and in certain situations, internal company disputes involving company directors—who are also fiduciaries—may also be capable of arbitration.[24]

16 Ultimately, whether analysed from the perspective of proprietary rights or contractarian analysis, trust arbitration ought to be permissible as a matter of first principles. S has the right to settle property into a trust, subject to conditions—and, as will be discussed in Section III, it is possible for the relevant parties to a trust dispute to agree to arbitration. If there is such agreement, there is no principled reason why the arbitration of trust disputes should be prevented as a general rule.

III An arbitration agreement binding the beneficiaries

17 How might both the T and B of a trust give valid consent to arbitration? The recognition and enforcement of arbitral awards under the New York Convention is predicated on the existence of an arbitration agreement.[25] While this term is not defined, it is evidently something bilateral.[26] If an arbitral award does not meet the New York Convention criteria, it may fall outside the scope of national arbitration legislation. However, even in such cases, in most common law jurisdictions, it would be open to a court to compel parties to arbitrate regardless—and courts ought to do this in appropriate circumstances.[27]

18 Evidently, it would be appropriate for a court to compel a T and B to arbitrate where there has been agreement to do so, or at least something akin to agreement. We therefore consider a number of scenarios, starting from the case of actual agreement and ending with cases where there may not be any such agreement and going through the various intermediate shades of grey.

(a) Ad hoc arbitration agreements

19 One can dispose of the simple case fairly swiftly. Assuming all Bs are sui juris, known and agreeable, Bs and T(s) may enter into an ad hoc arbitration agreement after a dispute has arisen. In such a case, there is actual consent—and the situation should be treated no differently from other uncontroversial arbitration agreements.[28] Given actual consent, there is no normative reason to refuse to enforce the arbitration agreement.[29]

20 Similarly, there may be other situations where obtaining consent would be a relatively straightforward exercise. For example, in pension trusts, there are often important contractual provisions relating to pension rights that would be found in an employee’s contract of employment.[30] Putting aside specific labour law regulatory requirements, an employer could arguably insert an arbitration clause into its employment contracts or employee handbook.[31] It is certainly plausible that, in various commercial agreements, trusts and contracts are grafted together.[32] Even if the arbitration agreement is found in the contract but not the trust deed, where the arbitration agreement is sufficiently broadly drafted, care should be taken to give effect to the commercial reality of the underlying, interlinked agreements.

(b) Compelling arbitration—arbitration clause in trust deed

21 One possibility is simply inserting a clause in a trust instrument specifying that any disputes under the trust are to be resolved via arbitration. This poses an immediate problem: even if a trust instrument could be called an agreement, this would be an agreement between S and T,[33] but crucially not B[34]—who may not even know of the existence of the trust. This problem is exacerbated where a B cannot validly give consent, such as where they are minors, unborn or simply unascertained in the case of certain discretionary trusts.[35]

22 A helpful analogue may be the position of exclusive jurisdiction clauses.[36] In the Jersey appeal of Crociani v Crociani,[37] the Privy Council held that an exclusive jurisdiction clause in a trust instrument is prima facie binding upon all parties to a dispute, whether or not this was specifically agreed by them. However, whether effect is to be given to the clause does not turn on “the same test”[38] as that for a contractual exclusive jurisdiction clause: “the weight to be given to an exclusive jurisdiction clause [in a trust instrument] is less than the weight to be given to such a clause in a contract”, and “it should be less difficult for a beneficiary to resist the enforcement of an exclusive jurisdiction clause”.[39] In Crociani, the stay sought by the appellant in reliance on the exclusive jurisdiction clause was not granted.

23 This difference was explained on the basis that “the court is not faced with the argument that it should hold a contracting party to her contractual bargain”.[40] The distinction was expressed, in Crociani, on two bases. First, even where a beneficiary expecting “to take advantage of a trust can be expected to accept that she is bound by the terms of the trust”, this is “not a commitment of the same order as a contracting party being bound by the terms of a … contract.”[41] Secondly, unlike a contract, “the court has an inherent jurisdiction to supervise the administration of the trust”, “primarily to protect the interests of beneficiaries”.[42]

24 At a general level, the distinction is rightly drawn: the reasoning in the jurisprudence on exclusive jurisdiction clauses is fundamentally contractual.[43] The “benefit and burden” argument has some pedigree.[44] However, it has been observed that it arguably goes only as far as allowing the withdrawal of the benefit where the obligation imposed was not performed.[45] Further, the court’s inherent jurisdiction to supervise the administration of a trust arises as a substantive rule of trusts law.[46] It is distinct from the rule of public policy against ousting the court’s jurisdiction[47]—it is that latter rule that has been rowed back from by the increasing recognition of arbitration clauses.[48] In comparison, it is noted that the Royal Court of Jersey recently decided that an arbitration clause within a company’s articles of association (which do have contractual force) meant that a just and equitable winding up petition should be stayed.[49]

25 In addition to the simple point that little guidance is available as to the weight to be given to the trust instrument being non-contractual,[50] three further observations should be made.

26 The first observation is that a distinction should be drawn between the case where a stay in particular proceedings is sought because those proceedings were brought in violation of an exclusive jurisdiction or arbitration clause; and the case where an anti-suit injunction is sought, because proceedings in another jurisdiction (which are sought to be restrained) were brought in violation of the exclusive jurisdiction clause. Crociani was a case of the former,[51] while cases such as Donohue were cases of the latter.[52] In the latter cases, the contractual basis of the agreement is particularly important: absent this, one recalls Scrutton LJ’s dictum that the jurisdiction to restrain a claimant from suing abroad, while existing, “is a jurisdiction … to be resorted to with great care and on ample evidence produced by the applicant that the action abroad is really vexatious and useless.”[53] A stay is far less intrusive than an injunction—and it is far from clear that Crociani supports the proposition that a party seeking to rely on the clause should (even prima facie) be entitled to injunctive relief barring strong cause.[54]

27 This has several implications in the context of arbitration. Most notably, while the court of the seat might ordinarily be able to grant injunctive relief against proceedings commenced in other jurisdictions in contravention of the arbitration agreement,[55] this is not necessarily the case in the case of a trusts arbitration clause.[56]

28 The second observation is that, if the purpose of the court’s inherent jurisdiction is “primarily to protect the interests of beneficiaries”,[57] it is unclear that a trusts arbitration clause would necessarily be adverse to the interests of beneficiaries. As distinct from, say, a trustee exoneration clause, a trusts arbitration clause does not reduce the substantive rights of a beneficiary. As to procedural rights, while a different forum necessarily entails benefits and disadvantages, these are very much trade-offs absent some special reason that arbitration would particularly disadvantage a beneficiary.[58]

29 The third observation is that the foregoing analysis has proceeded on the footing that the trusts arbitration clause is a derogation from the beneficiary’s rights. But it is equally conceivable that drafters avoid this problem altogether by providing the arbitration as simply being determinative of the scope of the beneficiaries’ rights altogether. This is precedented: where a beneficiary’s entitlements turned on his being married to “an approved wife”, to be determined “in case of dispute or doubt [by] the decision of the Chief Rabbi in London of either the Portuguese or Anglo German Community”, no objection was made that this, somehow, constituted an arbitration clause which might have been in some way unenforceable.[59]

30 On the whole, then, while there is potential for weight to be given to arbitration clauses simpliciter in a trust instrument, the weight to be given remains indeterminate. Equally, they are unlikely to provide the certainty which one would ordinarily expect from an arbitration clause. Arbitration clauses simpliciter may not, therefore, be the most promising path towards a general enforceability of trusts arbitration clauses.

(c) Compelling arbitration—deemed consent

Deemed consent in the arbitration agreement

31 A permutation of the situation considered in Section III.b above would be an arbitration clauses contained in the trust instrument, expressing that Bs are deemed (often upon receiving any benefit under the trust) to have consented to arbitration.

32 One example is the ICC Arbitration Clause for Trust Disputes, which materially provides:

“Any beneficiary claiming or accepting any benefit, interest or right under the Trust shall be bound by, and shall be deemed to have agreed to, the provisions of this arbitration clause.”[60]

33 It is highly telling, however, that the Explanatory Note does not purport to explain how this clause would operate to bind beneficiaries, other than to reiterate that they are deemed to have agreed to it.[61]

34 It is submitted that a deeming provision of this nature in a trust instrument is unlikely to contribute significantly to the enforceability of the arbitration agreement, above an arbitration clause simpliciter. Like an arbitration clause simpliciter, an arbitration clause with a deeming provision is either the unilateral act of S, or an agreement between S and T—neither entails the consent of Bs.

35 At its highest, it may be said that a B receiving benefits under a trust instrument, whilst on notice of the existence of the deeming provision in the arbitration clause, thereby constructively consents to arbitration. But it is not inconceivable that, even in such a case, a B is content to receive benefits whilst protesting both the deeming provision and the arbitration clause, in which case it is unlikely that B can be taken to have constructively consented.[62]

Direct benefits estoppel

36 An emerging, and related, doctrine of US jurisprudence is that of “direct benefits estoppel”. This is a rule providing that any B who attempts to enforce rights that would not exist without the trust manifests their assent to the trust’s arbitration clause.[63]

37 While visibly elegant, this seems simply to be a different take on the “benefit and burden” doctrine discussed at Section III(b) above. As far as we know, the “direct benefits estoppel” doctrine has not received significant support outside the US. In any event, the doctrine needs development if it is not to be so blunt an instrument as to elide the distinction between contractual and non-contractual dispute resolution clauses canvassed above generally.[64]

(d) Compelling arbitration—Bs’ express adoption of the arbitration agreement

38 Perhaps a more promising basis on which to compel trusts arbitrations is to simply have Bs sign the arbitration provision in the trust instrument itself.

39 This can be effected in various ways. For instance, it has been suggested that Bs’ rights under a trust deed could be expressly made subject to a condition precedent of Bs’ actual acceptance of the arbitration agreement,[65] or that a discretionary trust could be structured in such a way that the class of would-be beneficiaries is restricted to entities which have consented to arbitration.[66]

40 However this is to be achieved, this solution is likely to have several practical benefits over other methods of binding beneficiaries.

41 First, where carefully drafted, it is likely to fulfil the requirements of an arbitration agreement in writing under the New York Convention,[67] and domestic arbitration legislation.[68] This will ensure both that the requisite stays can be obtained from courts before which claims are brought,[69] and that enforcement of any consequent award is likely.[70]

42 Secondly, given the prospective parties’ actual consent, such an arbitration agreement is more likely to be held valid, and therefore, capable of founding an arbitral tribunal’s jurisdiction.[71] The question of the actual validity of the arbitration agreement is distinct from that of its prima facie validity—while the former merely allows a party to obtain interim relief such as a stay or an anti-suit injunction to enforce the negative obligation in an arbitration agreement,[72] without the latter, it is the latter which allows a tribunal to determine the substantive merits of a dispute.[73] Arbitration clauses actually adopted by Bs would therefore reduce the risk of proceedings dragging out, where a tribunal ultimately considers that it has no jurisdiction.[74]

43 Despite the attractions evident in having Bs expressly adopt the trusts arbitration clause, this mode of binding beneficiaries is not universally applicable. As it already requires the trust instrument to be drafted in a particular way so as to provide for Bs’ express adoption of that clause,[75] this solution is confined to those trust instruments which already make such provisions, or which allow for subsequent modification and are subsequently modified to include these provisions.

44 A further difficulty is in the case of minor beneficiaries, unborn beneficiaries, and beneficiaries otherwise lacking capacity.[76] In these cases, the beneficiary (or potential beneficiary, as it may be) is unlikely to be able to consent to the arbitration agreement—and cannot, therefore, have an interest in the trust if it is structured in this way. This may militate against the use of this structure in a family trust.

(e) Statutory intervention—possible approaches

45 It is of course open for the legislatures of various jurisdictions to introduce local legislation which gives trusts arbitration clauses binding effect on Bs. Importantly, a number of key jurisdictions—including Guernsey—have done so,[77] through a range of different means.

46 It is worthwhile reproducing the relevant Guernsey legislation, art 63 of the Trusts (Guernsey) Law 2007, in full:

    “(1) Where—

(a)   the terms of a trust direct or authorise, or the Court so orders, that any claim against a trustee founded on breach of trust may be referred to alternative dispute resolution (‘ADR’),

(b)   such a claim arises and, in accordance with the terms of the trust or the Court’s order, is referred to ADR, and

(c)   the ADR results in a settlement of the claim which is recorded in a document signed by or on behalf of all parties,

the settlement is binding on all beneficiaries of the trust, whether or not yet ascertained or in existence, and whether or not minors or persons under legal disability.

    (2) Subsection (1) applies in respect of a beneficiary only if—

(a)   he was represented in the ADR proceedings (whether personally, or by his guardian, or as the member of a class, or otherwise), or

(b)   if not so represented, he had notice of the ADR proceedings and a reasonable opportunity of being heard,

and only if, in the case of a beneficiary who is not yet ascertained or in existence, or who is a minor or person under legal disability, the person conducting the ADR proceedings certifies that he was independently represented by a person appointed for the purpose by a court of law.

‘Notice’ in paragraph (b) means 14 days’ notice or such other period as the person conducting the ADR proceedings may direct.

    (3) A person who represents a beneficiary in the ADR proceedings for the purposes of subsection (2)(a) is under a duty of care to the beneficiary.

    (4) For the avoidance of doubt, the ADR proceedings need not be conducted in Guernsey or in accordance with the procedural law of Guernsey.

    (5) In this section—

‘ADR’ includes conciliation, mediation, early neutral evaluation, adjudication, expert determination and arbitration, and

‘proceedings’ includes oral and written proceedings.”[78]

47 There is limited Guernsey case law on the interpretation of this provision, but A Trust Co v F, which concerned certain questions concerning the finality of a post-mediation settlement agreement as between the T and Bs of a Guernsey trust, suggests that art 63 may be applied straightforwardly. It was said that art 63:

“establishes a mechanism under which breach of trust claims can be resolved in a binding fashion through alternative dispute resolution. There are two routes by which this can occur. The first is if the terms of the trust so direct or authorize ... The second is if the court so orders .... There are then procedural safeguards to ensure that the beneficiaries’ interests are represented, or there was at least the opportunity for them to be represented, in the alternative dispute resolution proceedings. In relation to a beneficiary who is not yet ascertained nor in existence, nor a minor, which would have been the case here, there would need to be an independent court-appointed individual who the person conducting the proceedings certifies represented the beneficiaries in question.”[79]

48 It appears most straightforward if a jurisdiction were simply to state that a B is bound by an arbitration clause in a trust instrument. As set out above, this is the approach adopted by Guernsey. This is also the approach adopted by Malta.[80] Slightly more circuitously, legislation may provide that the trusts arbitration clause is deemed to bind beneficiaries as in the Bahamas.[81]

49 A more blunt method is to allow the courts to compel the parties to arbitrate, as is done in New Zealand.[82] This method makes no provision for the effect of the arbitration clause on the parties, and accordingly may have implications if enforcement of the award is subsequently sought under the New York Convention or under local legislation.

50 Various jurisdictions are considering—or have considered—such legislative reform. In England, reform in this area has been considered by the English Law Commission, where giving the arbitration of trust disputes statutory footing was said to be supported by the Justice Committee, the Bar Council and the Society of Trustee and Estate Practitioners.[83] In Jersey, the introduction of statutory provisions to provide for the binding arbitration of trust disputes was considered in 2016, but, ultimately, the relevant working group concluded that they were “not aware of any evidence of a strong market demand for this option”, and were of the view that such legislation was “not desirable … at this time”.[84] Accordingly, no such reform made its way into the Trusts (Amendment No 7) (Jersey) Law 2018. However, given Jersey “naturally wishes to be a vanguard for new developments for the trusts industry”,[85] it may be timely for Jersey to revisit this question if “Guernsey-style” legislation is adopted in England in relation to the arbitration of trust disputes.

51 Where there are no provisions giving explicit effect to an arbitration agreement or arbitral award, some have argued that existing arbitration legislation can be read in ways to allow Bs to be bound. One often-advanced argument is that Bs claim “under” or “through” S, who would be said to be a party to the arbitration agreement contained in the trust instrument.[86]

52 While the (strict) necessity of legislative intervention is perhaps debatable,[87] it seems to be the consensus view that simple, straightforward legislation in this area would increase legal certainty.[88]

IV The mechanics of a trust arbitration

(a) Not ousting the jurisdiction of the court

53 There is no reason to think that the submission of a trusts dispute to arbitration would necessarily contradict the inherent supervisory jurisdiction of the court.[89] In addition to the fact that the precise scope of the supervisory jurisdiction is “rather ill-defined”,[90] several key inroads have been made.

54 In the first place, as has been previously canvassed,[91] it is possible to determine questions of fact of who is a beneficiary, without ousting the jurisdiction of the court,[92] and determining other questions of fact should equally not be an instance of ousting the jurisdiction of the court.[93] Admittedly, there is no express authority that questions of law can be submitted in this way, but this should not be an insuperable obstacle.

55 Second, if the beneficiaries’ interests were in the first place conditional upon accepting resolution of disputes by arbitration, no reason to consider these arbitration agreements to oust the jurisdiction of the court.[94]

56 Finally, the court’s supervisory jurisdiction (if it is the court of the seat) to supervise the arbitration means that there is no public policy reason to complain about jurisdiction being ousted: there is still a means of dispute resolution; which, being subject to ultimate control by the courts, is prima facie fair.

57 These are, admittedly, piecemeal solutions; but they demonstrate that the notion of the court’s inherent jurisdiction is at best malleable, if not obscure.[95]

(b) Availability of remedies

58 A key consideration for the arbitration of a trusts dispute is the availability of particular remedies, some of which seemingly requiring of court intervention.

59 Where an arbitration falls within the scope of the New York Convention, any resulting arbitral awards will be enforced in line with the Convention’s provisions.[96] This includes partial or interim awards, thereby allowing arbitrators to make any order that a court would have been able to make.

60 Apart from the New York Convention, similar measures have been adopted by domestic legislation in various major trusts jurisdictions. For instance, a partial award made in England which disposes of at least some of the disputed issues may be enforced in the same way as a final award may be enforced, as long as it is final and binding.[97] This is also thought to represent the Jersey position.[98] There is no reason why a tribunal in a trust dispute should feel as if they are in some way fettered compared to any other duly-constituted arbitral tribunal in the arsenal of remedies available to it.

61 Certain trust arbitrations may fall outside of both the provisions of the New York Convention, and the relevant domestic legislation.[99] In common law jurisdictions, awards resulting from these arbitrations may fall to be enforced by bringing an “action on the award” at common law. It has been said that the common law action on the award is flexible.[100] But whatever its present flexibility, it is unclear that an action on the award is available where the award does not arise from a contractual arbitration agreement—particularly where this area of the law has been somewhat underdeveloped following the introduction of methods of enforcing awards based on the Convention.

62 Of course, as a matter of practicality, there will be certain orders that a tribunal could not make as easily as a court in the trust context. An arbitrator may not be able to replace a trustee in the way a court can, but an arbitral tribunal, where the current trustee has consented to the arbitration, could certainly require the trustee to resign, appoint a new trustee and to appoint trust property to the new trustee instead.[101] Ultimately, if the parties to the dispute have either actively participated in proceedings or in some way given their consent to be enjoined, there is no principled reason why remedies which might in some way affect their rights or interests would be inappropriate or unfair.[102]

(c) Enforceability

63 A key dilemma is where not all of Ts, Bs, or some combination of the two, are parties to an arbitration. Where a person who is party to an arbitration simply refuses to participate in it, the resulting award is nevertheless enforceable against her.[103] But this is not so as against a person who is simply not a party to the arbitral proceedings, against whom an award is not enforceable,[104] and gives rise to no res judicata.[105] Ts cannot rely on the awards or any consequent orders as against them. For instance, Ts would still be potentially liable to Bs who were not party to the arbitration, for disbursements made as a result of orders made by the tribunal.

64 Where the failure to join all the interested parties is the result of Ts’ own omissions, the position is less difficult. Ts cannot be heard to say that they would be put to added expense in defending a subsequent claim, or even potentially liable to these Bs in breach of trust, where all of this resulted from Ts’ own neglect.[106]

65 The position is more difficult where the failure to join all of the interested parties was no fault of Ts. Where Bs are minors, unborn, lack capacity, or are otherwise unascertained, they may be represented by litigation friends or representatives.[107]

66 But this is of no assistance where those interested parties were not parties to the arbitration simply because a tribunal considered that it had no substantive jurisdiction over them, perhaps for want of consent to the arbitration agreement.[108] Exposing Ts to liability as against these parties would be onerous. There does not appear to be a panacea to this. While possible solutions such as applications to the court provide stopgaps, these equally have the potential to defeat the objectives of finality and expedition that arbitration may offer.

 

V Conclusions and legislative change

(a) The legislative landscape

67 As discussed above, a number of jurisdictions have introduced legislation to support the arbitration of trust disputes.[109]

68 While the necessity of legislative change has been debated, such legislative change has the virtue of being able to introduce general solutions (notably regarding the binding of beneficiaries, and the binding status of awards) without having to resort to piecemeal responses and fictions that would otherwise be required.

69 Regrettably, there is little by way of decided cases, or academic literature, on the effect of such legislation, although it is hoped that, given their relatively large potential effect and the recent flurry of academic interest in the possibility of trusts arbitrations, this is liable to change in the near future.

(b) Conclusions

70 The courts of various offshore jurisdictions are used to addressing complex issues concerning the law of trusts promptly and—often—with privacy restrictions in place. However, anecdotally, practitioners in Jersey and Guernsey do sometimes receive queries on the possibility of inserting arbitration clauses into trust instruments. There is, in any case, a normative justification for the law to provide a means for trusts disputes to be resolved by arbitration, should S wish to settle his property on such terms.

71 The positive law seems to lag behind: piecemeal solutions in individual cases are available, but none of these seems to lead to a clear, general, solution. This may be because we attempt to put round pegs into square holes:[110] existing tools are simply not designed for arbitration, and cannot be expected to fit snugly.

72 But that is why we must square the circle.

Christopher Tan, MA (Cantab) is an Associate at Carey Olsen LLP (London), and a solicitor, England and Wales.

Tey Khoo, LLM (Cantab), was a sometime member of Hughes Hall, Cambridge, and a scholar of Gray’s Inn.