Why alternative trust dispute resolution is now far from alternative

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Why alternative trust dispute resolution is now far from alternative
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As part of that process, an international industry to administer trusts has developed and trusts have gained global attention through leaks like the recent Pandora Papers. In short, trusts have never been so topical.

But what happens when things go wrong? And how do legal systems adapt to cope with trust disputes in the modern age?

Trust disputes are moving out of the courts and into alternative processes like mediation, and this can be a benefit to those who find themselves embroiled in trust disputes – and what the future holds for the resolution of such disputes, including the use of arbitration, is an interesting discussion.

The rise of alternative dispute resolution 

The concept of alternative dispute resolution is not new. The Courts of England and Wales' rules encourage parties to consider ADR in all disputes and parties can be penalised by courts for failing to do so.

In July 2021, the Civil Justice Council published a report that considered making ADR a compulsory step in the court process in the future. Far from being 'alternative', ADR has become an increasingly integral and desirable part of the resolution of trust disputes. Mediation (essentially a private settlement meeting with a third-party facilitator) is particularly well suited for trust disputes, which may explain its rise over recent years.  

One of the main appeals of ADR is privacy. As a result of the practice of open justice in England and Wales, generally speaking the parties’ names in litigation are public, reporters are allowed to attend hearings, and judgments are published. Even where privacy orders are obtained, anonymised judgments may still be available. In contrast, ADR is entirely private. 

This makes ADR an attractive option, particularly where disputes involve sensitive personal issues and complex family dynamics. Resolving disputes entirely in private without the formality of a court room or the glare of media attention can also help parties find a middle ground in the most entrenched of disputes. 

Parties of difficult and emotionally demanding disputes (as trust disputes often are) also increasingly prefer the speed with which disputes can be resolved through ADR. Commercial parties and families are often unwilling, and indeed unable, to wait for their day in court. 

The speedy resolution of highly charged family disputes can enable the individuals involved to put the dispute behind them and focus instead on healing complex personal relationships and on addressing the underlying issues that caused the dispute in the first place. 

At the very least, mediation tends to open parties’ eyes to the reality of their positions and what a contested court hearing would be like. Unlike a court hearing, ADR can also be paused, taken in stages and reconvened as attitudes shift and evolve. 

Can you arbitrate a trust dispute?

Any discussion of ADR inevitably also raises the question of arbitration. Like mediation, arbitration is a private forum in which disputes can be resolved outside of the courts. However, unlike mediation, it is a binding process where a decision is made by an individual or individuals called the arbitrators.

The parties to the dispute can choose their arbitrators based on their specific expertise in the field of the dispute. For those seeking finality and to put a dispute behind them, arbitration offers fewer opportunities for appeal than traditional litigation. In complex international disputes, arbitration also allows for a hearing to take place anywhere in the world.

This is as big a draw for commercial parties involved in international structures as it is for modern families scattered throughout the globe. Arbitration in many ways therefore seems to be a perfect tool for tackling a modern trust dispute. 

However, the extent to which the arbitration of trust disputes is possible in practice in England and Wales remains unclear. The reason for this is a legal but important one: parties to arbitration usually agree to arbitrate. However, in the case of trusts, some of the most important parties and likely participants in a dispute, the beneficiaries, are not parties to the underlying agreement that creates the trust.

So, the question remains whether they can be bound by a document that they did not sign up to and may never have even seen. The class of beneficiaries may, in some cases, also be comprised of hundreds or even thousands of unnamed individuals, including those that have not yet even been born.

There are also additional complications in that some other likely participants in disputes involving trusts, such as tax authorities, may be reluctant to arbitrate where the arbitrators have been chosen by the parties, rather than proceeding through what they may see as a more neutral and established court process. 

Some jurisdictions, including the Bahamas and Guernsey, have specifically legislated to ensure that beneficiaries can be brought into the arbitral process. Although the topic of debate and recommendation, England and Wales are yet to legislate in such a way.

At the moment, there remains a risk that the courts would consider that agreements to arbitrate in a trusts context are not binding on the beneficiaries, and so are not capable of fully and finally resolving a trust dispute. 

The future of trust disputes

The arbitration of trust disputes is therefore complicated and there are undoubtedly issues that would need to be overcome if arbitration was to become a mainstream way of resolving trust disputes. 

However, given how well suited the overriding nature of arbitration could be to the resolution of such disputes, it seems likely that sooner or later England and Wales will take steps to embrace arbitration in this context.

In the meantime, participation in mediation seems set to continue rising. This is not to say that the courts have had their day. Some trust disputes and applications will inevitably remain within the court system, not least because England and Wales' judiciary is so well equipped to deal with them and has powers that arbitrators do not.

However, overall, we are now living in a world where 'alternative' dispute resolution is far from alternative.

Elizabeth Doherty is a partner and Emma Cohen is a senior associate in the private client disputes team at Macfarlanes