Arbitration of Trust Disputes

We often think of arbitration in the context of resolving commercial disputes. However, arbitration has a wider scope than that and can in fact be applied to other types of proceedings, even disciplinary proceedings. What about disputes involving trusts? Is arbitration an appropriate method to resolve trust disputes?

In the case of Singapore, Prof Tang Hang Wu explains that the flight of private money into Singapore has been settled into trust structures and for the following prime reasons:

  • to facilitate inter-generation wealth transmission;
  • to minimise the impact of divorce on the estate;
  • asset protection;
  • further family philanthropy; and
  • avoid foreign forced heirship rules.

Arbitration offers a range of benefits that preserve the fundamental requirements for privacy and confidentiality in private trusts. So for example, there is generally privacy and confidentiality attached to the arbitration process, the arbitral award and even the existence of the arbitration itself. Furthermore, given the specialist nature of trust (and equity) law and such related disputes, parties would also benefit from having the ability to select their preferred counsel and arbitrators.

Given all these benefits offered by arbitration, one might expect arbitration to be a more popular method of resolving trust disputes. However, there are certain unique features of a trust structure that make it difficult (and in some cases arguably inappropriate) for parties to arbitrate disputes relating to a trust.

In a simple trust structure, the owner of the property (the “settlor“) transfers ownership of the property (“trust property“) to trustees for the benefit of beneficiaries. The trustees have legal title of the trust property but hold the properties in “trust” for the beneficiaries. Such trustees owe various legal (and fiduciary) duties to the beneficiaries. For example, the trust property is for the benefit of the beneficiaries even though the trustees have legal title over the same.

This relationship between the settlor, trustees and beneficiaries tends to be governed by a trust deed. Critically, the parties to a trust deed are generally only the settlor and the trustees. Beneficiaries need not be and are generally not parties to that trust deed. Another wrinkle is that in a family trust, beneficiaries may not simply be named individuals e.g. the existing family members of a settlor. For sufficiently large trusts, beneficiaries can also be part of a class e.g. grandchildren of the settlor. Such beneficiary grandchildren might be unborn or even minors at the time of the dispute.

Issues with Arbitrating Trust Disputes

There are at least two problems with arbitrating trust disputes.

First, as the beneficiaries may be non-signatories to the arbitration agreement, there may be a lack of privity in order to bind non-signatory beneficiaries to an arbitration clause in the trust deed. We have previously written on the issue of non-signatories, privity and arbitration agreements. It is important to understand the specific trust structure in question to determine whether the trustee, settlor and beneficiary can compel one another to arbitrate a dispute.

Second, where it comes to a class of (unnamed) beneficiaries, will any arbitral award bind those beneficiaries (of that class) who refuse to take part in the arbitration? Similar issues arise for unborn beneficiaries, beneficiaries who are minors and those who are otherwise incapacitated.

Unlike a tribunal, the court has powers and processes to bind such classes of beneficiaries and also appoint counsel to appear and argue on their behalf.

Legislative Solution

In other jurisdictions, there has been legislation to facilitate and enable the arbitration of trust disputes. For example in Guernsey, section 63 of the Trusts (Guernsey) Law 2007 provides that,

Settlement of action against trustee by alternative dispute resolution to be binding on beneficiaries.

63. (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.

In Florida, s 731.401 of the Florida Probate Code provides that,

731.401 Arbitration of disputes.–

(1) A provision in a will or trust requiring the arbitration of disputes, other than disputes of the validity of all or a part of a will or trust, between or among the beneficiaries and a fiduciary under the will or trust, or any combination of such persons or entities, is enforceable.

(2) Unless otherwise specified in the will or trust, a will or trust provision requiring arbitration shall be presumed to require binding arbitration under s. 44.104.”

Singapore currently lacks such enabling legislation for arbitrating trust disputes. If Singapore wishes to be a hub for trust arbitration, legislative amendment would appear to be a key step in promoting such arbitration.

About Shaun Lee

International Dispute Resolution and Arbitration lawyer. Fellow of the Chartered Institute of Arbitration. Panel of Arbitrators and Panelist for Domain Name Dispute Resolution at the KLRCA.
This entry was posted in Arbitration, Asean, Singapore, UK and tagged , , , , . Bookmark the permalink.

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