Mediation and reconciliation

Sunday, 01 April 2012
The Trust Law Committee in England and Wales proposes change to Arbitration Act 1996.

The Executive Committee of the Trust Law Committee (TLC) was invited to explore the prospects of allowing for the arbitration of trust disputes. This followed a discussion paper (June 2008) prepared for the TLC by John Wood, David Brownbill QC and Christopher McCall QC. In the paper, the authors concluded that, without enabling legislation, it was plainly impossible under English law for a settlor or testator validly to require beneficiaries to submit any dispute to arbitration. They went on to discuss a number of possibilities for statutory intervention, while also emphasising the growing significance of mediation in this area of law.

The TLC, comprising a group of academics and practitioners in the field of trust law, proposed it should take the initiative towards promoting legislation in this regard, primarily by suitable amendments to the Arbitration Act 1996. This proposal has received welcome support from the Law Commission. The Department for Business, Innovation and Skills supported the Law Commission conducting research and consultative work investigating the feasibility of extending the legislative framework for arbitration to cover disputes concerning trusts.

The most promising avenue for the Trust Law Committee to take is to promote a relatively simple amendment to the Arbitration Act 1996, giving legal validity to provisions in wills and settlements imposing a resort to arbitration, subject to one important exception, namely disputes about the validity of the trust disposition itself. Also, to promote the adoption of procedural rules, by statutory instrument or otherwise, requiring arbitrations that are determinative of the rights or obligations of any beneficiary under a trust to be held in public unless the interests of one or more children are involved; or all the parties, being of full capacity, agree to the contrary; or the court directs the contrary.

The intended benefits of such legislation would be to extend and improve the scope for alternative dispute resolution (ADR); to extend arbitration work to trust practitioners in England and Wales as litigators, advocates and arbitrators, reducing any threatened export of such work to overseas jurisdictions; and to reduce pressure on the judicial system and, accordingly, on the public purse. At the same time, the TLC is, in principle, keen to encourage the mediation of trust disputes and nothing in what it proposes is intended to diminish or abridge the freedom of disputants to settle their differences by mediation or any other form of agreed compromise.

The most promising route is a simple amendment to the Arbitration Act 1996

The proposal should extend, in principle, to all forms of trusts: public, private and commercial. It concentrates on what may be called imposed arbitration, meaning the operation of a trust provision, included at the choice of the settlor or testator (or the sponsoring company of an occupational pension scheme or other commercial trust), by which disputes involving trustees and beneficiaries must be dealt with by arbitration before resort may be had to the courts. Such clauses are not unknown, and American commentators in particular are apt to mention the will of George Washington, the first President of the US, whose will included such a provision. And yet the enforceability of such a clause is, to say the least, open to question, as the discussion document mentioned above demonstrated.

The proposal would not encompass the compulsory submission to arbitration of a direct attack on the validity of the trust disposition itself, in other words a challenge to the so-called ‘rocket-launcher’ by which the trust is created in the first place. There is a growing body of authority defining the circumstances in which a party, who may or may not be an outsider to the trust, may invoke the jurisdiction of the courts over the validity or otherwise of a trust disposition, and the TLC is persuaded that it would be unwise to encourage settlors and testators to compel such claims to be determined solely by an arbitrator.

Therefore, the proposal relates to imposed arbitration clauses applying to disputes affecting all varieties of trusts, other than the rocket-launcher disputes mentioned.

This brings up three questions:

  1. Is the arbitration of trust disputes a desirable process in principle?
  2. If so, is it desirable to promote or enable it in England and Wales?
  3. If so, would legislation be needed to achieve that end?

If the answers are yes, the TLC shall proceed to discuss what shape that legislation may, in its view, usefully take.

The TLC’s emphasis is on adopting the existing provisions of the Arbitration Act 1996, and modifying those provisions only where necessary or desirable. This has the advantage of incorporating much of the juridical infrastructure contained in or implicit in the 1996 Act, such as the duty to act fairly and impartially.

Extract from the Trust Law Committee’s paper titled ‘Arbitration of Trust Disputes’. Turn to page 4 of Trust Quarterly Review (Vol10 Iss1) to read the full proposal and suggested legislation

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