Mediation: considerations for trustees
Trustees can be involved in different types of disputes. To use the categories identified by Lightman J in Alsop Wilkinson v Neary  1 WLR 1220, they can face friendly or hostile trust disputes between competing beneficiaries, disputes brought by beneficiaries and disputes advanced by third parties. Trustees can also bring claims themselves to recover or protect trust assets.
Different considerations will apply in each type of dispute, but with the exception of so-called friendly trust disputes, typically involving issues of construction, mediation may well be the most advisable way of bringing the dispute to an end.
Why should mediation be considered?
Trust disputes differ from other types of disputes in one important respect. It may not be possible for the parties to go their separate ways after the resolution of a trust dispute. However the differences are resolved, the trust structure may remain intact, with previously warring parties having to continue co-existing. Even if the trust is broken up, the family relationships underpinning most trusts will remain in existence, however badly fractured. Mediation offers a way of resolving disputes in a less confrontational, traumatic and ‘winner takes all’ way than High Court trials. Successfully concluded mediations can lead to a repair of the previously ruptured family relationships in a way that is less likely after the handing down of a High Court judgment, which usually offers little in the way of compromise.
Trust litigators may recognise that the way in which trust disputes are legally pleaded does not necessarily reflect the root cause of the conflict. As the litigation progresses, it often becomes apparent that the legal claim masks deeply rooted family tensions and politics. The relief sought in the Particulars of Claim may not in itself necessarily be what is required to put right the underlying grievances. The mediation process provides a platform for parties to air these deeply rooted feelings of personal injustice in a way that is rarely possible in High Court litigation. When these concerns are aired and due recognition given, the way to resolving the legal differences can often soon open up. It should, therefore, be incumbent on trustees and those advising them to reflect at the appropriate juncture on the way in which the mediation process can lead to a compromise of not just the legal issues in dispute but a healing of the personal relationships within the trust.
There are other more specific ways in which mediation is particularly suited to the resolution of trust claims.
Mediation is a confidential process. Litigation in the High Court becomes a matter of public knowledge from the moment proceedings are issued. The press is often drawn to trusts and estates disputes, which very often involve large sums of money and contain colourful, if not salacious, material. Trials of these disputes often take place in the full glare of publicity. Mediation, on the other hand, is conducted in private and the terms of the mediation settlement agreement are usually settled on a confidential basis. Thus, both the process of dispute resolution and the form of its determination can be kept confidential.
Mediation is a relatively quick process. A claim that may otherwise take four weeks to be heard at trial can be successfully mediated within one or two days. The mediation process avoids strict adherence to the rules of evidence, particularly the cross-examination of all the witnesses involved and the submission of legal arguments. It is an informal process that involves the consideration and negotiation of issues in headline terms. A High Court claim may take two or three years to run its full course. Mediation can take place at any time before or after proceedings have been issued, usually bringing an immediate end to the dispute, if successfully concluded.
Mediation tends to be a less stressful process than High Court litigation. The toll that the litigation process can have on individuals and the relationships involved can be extreme and long lasting. The time it takes to bring a claim to trial can be exasperating, the costs involved can be ruinous and the prospect of giving evidence and being cross-examined in Court can be very daunting and stressful. Mediation removes or, at least, reduces these stresses.
Mediation offers a greater range of settlement options. The parties involved in mediation can include in the settlement agreement provisions that a High Court judge has no jurisdiction to order. It enables more creative solutions to be agreed. For example, the Settlement Agreement can enable the trust to be wound up to allow the parties to operate more independently or it can pave the way for the trust to be varied in a way which secures tax benefits.
Costs are often a particularly sensitive concern for trustees, both in terms of the potential erosion to the trust and the trustees’ own exposure. Trust claims often involve a number of parties; the involvement of four or five sets of solicitors and barristers is not uncommon. It is also not unusual for the dispute to be waged in different jurisdictions at the same time, typically where the trust is established overseas and proceedings have been issued in the High Court. The dispute can relate to the administration of a trust over decades, which calls for the consideration and disclosure of voluminous documentation. Left to its own course, the result can be an enormous costs bill, seriously eroding the wealth of the trust itself. A successfully mediated claim heads off this scenario if conducted before proceedings are issued and brings an end to the litigation if it occurs afterwards. Either way, it can avoid the huge costs associated with trials.
It is also worth considering the costs sanctions that trustees, as parties to a dispute, may face if they decline to mediate. The Civil Procedure Rules (CPR) give specific encouragement to Alternative Dispute Resolution. Trustees are specifically required, when making a Beddoe application for a direction to prosecute or defend proceedings involving a third party, to confirm in their statement in support whether or not they have proposed or undertaken mediation. While no party can be compelled to mediate, an adverse costs order may follow at trial if the judge considers an earlier decision to decline an invitation to mediate was not justified (Dunnett v Railtract  2 A II ER 850 and Halsey v Milton Keynes General NHS Trust  1 WLR 3002).
In the case of hostile trusts disputes where trustees find themselves caught in the crossfire between the demands of the competing beneficiaries, costs protection may be sought from the Court by way of an application under CPR 64.2 (a) for an order authorising a neutral position to be adopted. As long as a neutral stance is subsequently taken the trustee should avoid personal exposure. However, pitfalls remain and neutrality in practice is not always an easy position to maintain. A successfully concluded mediation removes such risks for the trustees.
When should mediation be considered?
From a costs perspective, the sooner mediation can take place the greater the savings are likely to be. However, the parties’ positions may need to be articulated before the parties consider they have sufficient material and a clear enough understanding of the underlying issues to enable mediation to be broached. There can also be some emotional resistance in the early stages of the litigation process to commit to mediation. Having taken the decision to pursue or defend a claim there can be a reluctance to back down from a position or being seen to do so. Despite the encouragement given by the CPR to engage in Alternative Dispute Resolution and the increasing popularity of mediation, there still remains a tendency, particularly in the early stages of litigation to shy away from mediation on the basis that it might be interpreted as a sign of weakness.
Indeed, it is worth bearing in mind that a prematurely held mediation can set back the process of settlement. This can happen when the parties are not equipped with sufficient material to assess properly the merits or when they are not psychologically ready to engage. A premature mediation not only involves a waste of time and costs but can lead to a hardening of positions, undermining subsequent settlement attempts.
The challenge, therefore, is to seize the moment when the parties’ positions have been appropriately ventilated and any initial emotional resistance has worn off but before the costs have become disproportionate.
How should trustees approach mediation?
Having agreed to mediate a number of preliminary issues will arise. Trustees will want to know that they have the authority to settle the dispute at mediation. They will want to satisfy themselves that all the parties involved are properly represented. They will also have various practical arrangements to resolve.
Authority to settle the dispute
A trustee’s ability to compromise a dispute is provided by s. 15 of the Trustee Act 1925, a power which must be exercised with the statutory duty of care laid down in the Trustee Act 2000. In light of this legislation, trustees will often want to seek the Court’s blessing to any successfully mediated dispute and will invariably wish to do so in cases involving minors and unborns. It is important, therefore, to ensure that the mediation contract drawn up by the mediator makes it clear that the trustees’ authority to settle the dispute is subject to the Court’s subsequent approval. This proviso should also feature in any successfully concluded mediation agreement.
Representation of the parties
Trust disputes can involve numerous parties. Although all the interested beneficiary parties need not be present at the mediation they must be represented. In such cases, a particular class of beneficiaries can appoint someone (not necessarily a member of that class) to negotiate on its behalf. However, if its number includes minors or unborns, the Court’s subsequent approval to the settlement by way of a Representation Order will usually be required. This may only be avoided in cases involving unborns or unascertained beneficiaries, the interests of which the trustees may feel capable of safeguarding and only in situations where the trustees have no interest of their own to protect.
In cases where it is clear that a Representation Order is necessary the trustees should ensure that minors or unborns are represented at the mediation by someone suitably qualified to act as a litigation friend and able to take up the office on the Court’s approval being obtained. Incapable beneficiaries, on the other hand, can have someone representing them at mediation (usually under a Power of Attorney) who can bind them without the Court’s subsequent approval.
In some cases, the interests of the parties may be felt to be best served by the absence of the trustees at mediation. This can arise in cases where the principal dispute is between the beneficiaries but where there is also a joint challenge by the beneficiaries to the trustees’ administration of the trust or a joint attempt to seek their removal. In such cases the involvement of the trustees can hinder settlement between the beneficiaries, although any successfully concluded settlement agreement has to be in a form which is capable of being subsequently approved by the trustees. Typically, this will rest on the provision of appropriate personal indemnities for the trustees.
While mediation typically is a considerably less costly exercise than a High Court trial, it invariably involves significant expense. In hostile trust disputes involving competing beneficiaries where the trustees have adopted a mutual stance or in third-party claims brought against or by beneficiaries where Beddoe relief has been obtained, the trustees’ costs of the mediation process should be recoverable from the trust fund in the usual manner. However, if the mediation arises from a breach of trust claim brought by the beneficiaries, the trustees cannot permit their costs to be met from the trust fund unless the settlement agreement itself provides for this.
The appointment of the mediator
While mediation organisations are able to nominate highly qualified mediators, most practitioners handling trust disputes will have experience or knowledge of particular mediators specialising in the area. The choice itself should take account of the particular circumstances and individuals involved, factors that the trustees will usually be well-placed to ensure are taken into account. The relationships can be so ruptured and the atmosphere so fraught that a mediator with a delicate and emollient touch may be best suited. In other cases a more robust approach may call for the involvement of a mediator willing to challenge positions and take a more interventionist approach.
Mediations usually take place in solicitors’ offices or hired venues capable of providing rooms for the plenary session and each party. In hostile trust disputes, the offices of the trustees’ lawyers may be regarded as a more neutral venue. In cases where the dispute involves litigation in different jurisdictions, the choice of venue will be between the countries involved. This can involve parties in travelling long distances to attend the mediation but this can in itself focus minds on avoiding an empty-handed return trip.
The plenary session
The mediation usually commences with a plenary session chaired by the mediator with all parties present. These sessions can be highly charged occasions. It can be the first time warring family members have met for months or, sometimes years and emotions can run very high. The plenary session needs to be approached with care. There can be a tendency for representatives to use the opportunity to restate and stress the merits of their legal positions. This approach should generally be avoided. It can be provocative and can set a negotiation process off on an antagonistic footing. A more effective approach may involve a more personal statement being made, which may expose the underlying causes of grievance. At the same time some expression of the party’s willingness to engage and seek settlement can assist.
In some cases, feelings may be running so high that the plenary session is best avoided altogether. In such situations the mediator can meet separately with the parties and explain how the process is to be conducted and commence the negotiation process without the parties having to meet each other. Either way, and particularly in cases where the trustees are acting neutrally, they are likely to be best placed to influence the way in which the mediation process should commence.
Assuming the mediation process proceeds towards settlement, thought will turn to the terms of settlement. Agreement in principle is often only reached late in the day but hours of drafting can still lie ahead, particularly where the restructuring or breaking up of the trust has been agreed. In most cases the outline form of the settlement agreement can be predicted before the mediation and some preliminary drafting before the start of the day can save a great deal of time.
If the mediation takes place after proceedings have been issued, the terms of settlement are usually set out as a schedule to a Tomlin Order. The form of settlement agreements varies widely and each one will, of course, reflect the particular circumstances of the dispute, but there are a number of matters which commonly feature and will be of particular relevance to trustees.
After settlement terms have been agreed in principle unexpected tax issues can sometimes arise and, on occasion, thwart the settlement process altogether. The chances of this happening can be reduced by careful planning beforehand. However, some tax issues cannot always be foreseen and it often merits having a tax advisor available for consultation throughout the mediation. Tax issues cannot always be resolved during the mediation and the final form of the settlement may have to await the outcome of subsequently obtained tax advice. On other occasions, the settlement may have to be made subject to Her Majesty’s Customs and Excise’s (HMRC’s) subsequent approval.
In cases where the settlement revolves around the distribution of the trust fund, which may give rise to tax liabilities or a removal of trustees, protection is likely to be sought in the form of a personal indemnity for the trustees.
Trustees’ entitlement to recover the costs of the mediation process from the trust fund has been considered. The treatment of the other parties’ costs differs. The parties may agree that all costs should be met from the trust fund, or in other cases they may agree to bear their own costs. On occasion, the agreement may provide for a contribution by one party to another party’s costs.
While the mediation process itself is conducted on a confidential basis the parties usually agree to the incorporation of a confidentiality provision to ensure that the terms of settlement are kept confidential. In cases where the trust is to continue, the trustees will usually be anxious to ensure that such provision is made.
Some mediations fail. Failure on the day, however, does not necessarily bring an end to settlement discussions. The negotiations during the mediation process will often illuminate issues, which, after a period of due reflection, may assist the settlement of the dispute afterwards. If subsequent settlement cannot be achieved and the matter proceeds to trial, the fact of mediation may be disclosed to the Court, but the details of the discussions held during the mediation process may not be disclosed to the Court without the parties’ consent.
If the mediation succeeds, the parties will be left to obtain any consents or orders to which the settlement agreement may have been made subject or to ensure that the underlying trusts are restructured or wound up in accordance with the agreed terms.