20.01  There are many good reasons favouring arbitration of internal trust disputes. In particular, parties tend to believe that arbitration will provide a dispute resolution process that is private, confidential, efficient, less costly than litigation, and will result in an award that is more easily enforceable than a court judgment. They also expect that the decision-makers they choose are likely to have more expertise about trusts than a judge randomly assigned to the case and that the process will be less adversarial. However, parties to trust disputes must consider whether a clause mandating arbitration of internal trust disputes will be upheld against a challenge made in court and whether an arbitration award arising out of such a procedure will be enforceable.

(p. 468) 20.02  Although international trusts face many of the same challenges as domestic trusts, the overlay of international law can create special concerns in matters involving cross-border disputes. This chapter focuses on one such issue, namely whether an arbitration clause that requires that all disputes arising out of a trust instrument to be arbitrated can be enforced under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, more commonly known as the New York Convention.¹ With 156 states parties, the New York Convention is extremely successful and is the primary means of enforcing arbitral agreements and arbitral awards across national borders.²

20.03  Questions relating to the international enforceability of arbitration provisions found in trusts are becoming increasingly important, given the way in which trusts have expanded in terms of both subject matter and geography. No longer simply a matter of transferring family wealth, trusts now occupy a broad range of functions, both charitable³ and commercial,⁴ and may be used in both common law and civil law countries.⁵ Although family planning trusts are more familiar to most people, commercial trusts are increasingly important around the world, including in the United States, where they account for approximately 90 per cent of the total amount of money held in trust.⁶

20.04  International parties are becoming more and more interested in trust arbitration because they want to know that their disputes will be resolved by knowledgeable decision-makers rather than by judges who may not have the experience necessary to resolve the kind of complex issues that arise in this area of law. However, prudent settlors do not want their arrangements to be thwarted by a challenge to the (p. 469) validity or the binding nature of an arbitration provision found in a trust. Thus, the question is whether and to what extent the New York Convention applies to a mandatory arbitration provision found in a trust and thus whether and to what extent a court will be required to recognize and enforce such a provision.

20.05  Procedurally, this issue can arise in several different ways. In some cases, an unhappy beneficiary may ignore an arbitration provision found in a trust and go straight to court to try to resolve the merits of the dispute. If the dispute is international and covered by the New York Convention, the defendant(s) named in that case (ie the trustee and/or other beneficiaries) can ask the court to apply Article II(3) of the New York Convention and refer the parties to arbitration.⁷ If the court decides that the arbitration provision is enforceable, then the litigation must be stayed.⁸

20.06  The other possible scenario involves an unhappy beneficiary who sees the arbitration provision in the trust and files a demand for arbitration with the appropriate arbitral institution⁹ or provides notice to the opposing party in an ad hoc proceeding, indicating that arbitration should proceed. In these types of cases, the trustee or responsive beneficiaries may attempt to evade the procedure by approaching the court and seeking some form of relief, such as an anti-arbitration injunction. Again, the court must face the question of whether to uphold the arbitration provision in the trust. In cases where a party has initially filed a proceeding in arbitration, the arbitral tribunal may be faced with this particular question, since (p. 470) arbitrators are deemed competent to determine their own jurisdiction under the doctrine of competence–competence (Kompetenz–Kompetenz).¹⁰

20.07  As discussed further in this chapter, there are some distinctive aspects of trusts¹¹ that could hinder the enforcement of an arbitration provision in an internal trust dispute.¹² However, the pro-enforcement spirit and purpose of the New York Convention suggests that courts may be inclined or even required to enforce an arbitration provision in an international trust even if they would not be likely to do so in a purely domestic dispute.¹³ The extremely broad scope of the New York Convention can be considered to provide some comfort to settlors seeking to mandate arbitration of disputes arising out of international trusts.¹⁴

20.08  However, a question exists as to whether a mandatory arbitration provision in a trust instrument falls within the scope of the Convention. To answer this question, a court must consider:

1. 1.  whether the dispute is capable of settlement by arbitration;¹⁵

2. 2.  whether there is an agreement in writing to arbitrate the subject of the dispute and whether that agreement binds all the parties to arbitration;¹⁶

3. 3.  whether the dispute is foreign;¹⁷

4. 4.  in some cases, whether the agreement arises out of a legal relationship, contractual or not, which is considered ‘commercial’;¹⁸ and

5. (p. 471) 5.  in some cases, whether the agreement provides for arbitration in the territory of a state party to the convention (Contracting State).¹⁹

20.09  The first two issues above regarding the enforceability of a mandatory arbitration provision are the most critical. The first inquiry (ie is the dispute capable of settlement by arbitration) refers to the question of arbitrability and is addressed in section II. The second matter (ie have the parties entered into a valid arbitration agreement that is binding on all the parties) deals with the validity of the arbitration agreement, particularly the need for an agreement to be in writing as defined by the New York Convention. That concern is taken up in section III.²⁰ The last three issues are somewhat more straightforward and are addressed collectively in section IV.²¹

20.10  Whether a dispute is capable of settlement by arbitration is generally referred to as a question of ‘arbitrability’. In most countries, a dispute that is arbitrable is simply one that can be submitted to arbitration. Arbitrability will be referred to in this chapter in its international sense of whether a matter is governed exclusively by the jurisdiction of a state court²² and will not reflect the US approach, which considers who (the court or the arbitral tribunal) decides whether an issue is arbitrable.²³

20.11  The effect of the arbitrability determination is critical to the proceedings. If a judge finds that the matter in dispute is reserved to the exclusive jurisdiction of the court, then that issue cannot be referred to arbitration.²⁴ If, however, the matter in dispute (p. 472) is considered ‘capable of settlement by arbitration’, then the court must cease any judicial proceedings as a mandatory matter and refer the parties to arbitration.²⁵

20.12  Deciding which matters are arbitrable can be a complicated process. Some states have enacted specific statutes that prohibit a certain kind of claim from being arbitrated, while other states rely on case law.²⁶ Examples of disputes considered non-arbitrable based on their subject matter are tax matters, child custody, and patent validity. However, a number of matters (such as antitrust claims and securities claims) that were at one time considered non-arbitrable are now regularly resolved in arbitration.²⁷ Indeed, commentators agree that ‘[t]he modern history of arbitration has been one of expansion of the parties’ freedom to arbitrate.’²⁸

20.13  Recent years have seen more and more discussion about whether internal trust disputes are arbitrable.²⁹ Most of the analysis has focused on whether mandatory arbitration provisions found in a trust can give rise to an arbitrable dispute. However, many commentators have focused exclusively on situations where the parties do not all agree that arbitration is proper. In fact, the question of consent should be irrelevant to the arbitrability determination because the determination of whether a particular subject matter is ‘capable of settlement by arbitration’ is made by the state, not by the parties, and applies even in situations where all the (p. 473) parties want to be in arbitration. In consequence, when courts have allowed arbitration to go forward in cases where all the parties have agreed to arbitrate, those courts have implicitly recognized the arbitrability of such matters.³⁰ The failure of a court to raise questions of arbitrability sua sponte is particularly telling in the international realm, given language in the New York Convention allowing courts to raise such issues on their own in matters relating to enforcement of awards.³¹

20.14  At this point, a number of jurisdictions have not yet judicially considered the arbitrability of internal trust disputes, which means that commentary is the best guide to how a particular state can or will proceed. Although scholars and practitioners differ in their views of whether courts are likely to enforce such a clause, an increasing number of commentators are concluding that internal trust disputes should be arbitrable, at least as a general proposition.³² This is consistent with the trend to find arbitrability more often in many different areas of law.³³

20.15  The New York Convention does not itself define which disputes are ‘capable of settlement by arbitration’.³⁴ Therefore, the question must be decided in accordance with applicable law, which may not always be easily determinable.³⁵ However, some jurisdictions have attempted to be very specific in their arbitration laws about what subject matter is arbitrable. For example, the Swiss Private International Law Act (PILA) provides that ‘any dispute involving property may be the subject-matter of an arbitration’. Moreover, section 1030(1) of the German Code of Civil Procedure (ZPO) provides that ‘[a]ny claim involving an economic interest can be the subject of an arbitration agreement.’ In jurisdictions following this type of approach, trust disputes should in principle be arbitrable, since they always involve either property or money.

(p. 474) 20.16  Other contracting states take a different approach and list categories of non-arbitrable matters in their legislation.³⁶ In countries where arbitration statutes do not include language about arbitrability, the question must be determined by interpretation of statutes that deal with issues other than arbitration, or by reference to jurisprudence.³⁷ While these sorts of analyses are more complicated, commentators have nevertheless noted that most rights relating to trusts are considered freely disposable either through waiver or consent.³⁸ Thus, as a matter of arbitration law, internal trust disputes should be arbitrable to the extent that the underlying rights are waivable.

20.17  Unfortunately, the analysis does not end there. Some trust disputes may arise out of what has been referred to as a trustee’s ‘irreducible core duties’ which cannot be waived or excluded if the trust is to remain in existence.³⁹ One such non-excludable duty involves the requirement that the court maintain supervisory jurisdiction over the trustee’s administration of the trust.⁴⁰ Some of the relevant procedures include judicial accounting, which provides beneficiaries with information they need to determine if the trust is being properly administered,⁴¹ or judicial instruction, which permits a party, usually the trustee, to seek guidance from the court as a kind of advisory opinion.⁴²

20.18  At first glance, these types of procedures appear extremely problematic for arbitration, since arbitrators generally do not assume the kind of long-term oversight that judicial accounting might require,⁴³ nor do they render the type of advisory opinions that are seen in cases involving judicial instruction.⁴⁴ However, historical practices need not limit future developments. David Fox has asserted that:

there is nothing in the concept of the irreducible core that necessarily precludes compulsory arbitration. The principle is that the trustee must be sufficiently accountable so that his status as the non-beneficial owner of the assets vested in him is practically real.⁴⁵

(p. 475) 20.19  Furthermore, arbitration law is not as inflexible as it may seem. Indeed, solutions to the judicial accounting problem can be found within existing arbitration practice. For example, issues relating to judicial accounting can be resolved through use of dispute review boards, a procedure well-known in the construction industry.⁴⁶ Advisory opinions might still be sought from courts in jurisdictions where judges are able to determine preliminary points of law without depriving arbitral tribunals of their competence to decide the merits of the dispute.⁴⁷ Alternatively, arbitrators could be asked to render declaratory judgments on these types of preliminary issues.⁴⁸

20.20  Some concerns could arise by virtue of statutory language that appears to grant a particular court (such as a probate or chancery court) exclusive jurisdiction over trust-related disputes. However, the argument can be made that such statutes simply indicate that if a dispute goes to court, then that particular court is the proper venue in which to file the action. According to this view, the requirement is not an exclusive jurisdiction clause depriving parties of the right to resolve their dispute in arbitration but simply a means of allocating jurisdiction between different national courts.⁴⁹

20.21  The preceding suggests that there are certain unique features about a trust that make enforcement of mandatory arbitration of internal disputes problematic. However, the situation is made even more complicated by the fact that a court tasked with determining whether a dispute should be referred to arbitration will first have to determine which law should govern the question of arbitrability. This issue is not discussed under the New York Convention, although there are a number of theories about which law should determine arbitrability, as discussed in the next section.

20.22  Article II(1) of the New York Convention does not indicate which law should determine whether the dispute is capable of settlement by arbitration. As a result, there are a number of views on which law should control that particular issue.⁵⁰ The standard choices include the law of the forum (ie the jurisdiction where a party has filed suit despite a mandatory arbitration clause), the law of the seat (ie the place where the arbitration is to be held), or the law chosen by the parties to govern the trust instrument.⁵¹ Of course, different results could arise depending on which law is chosen.

(p. 476) 20.23  Because arbitrability determinations require a court to consider whether there is a public policy or mandatory rule that would prevent an arbitral tribunal from having jurisdiction, the natural tendency of most national courts is to apply their own law.⁵² However, there is a growing trend suggesting that public policy should be interpreted very narrowly in international disputes and thus should not prevent disputes from being considered arbitrable.⁵³ Thus, for example, arbitrators can make decisions in regulatory matters that affect public interest without violating public policy.⁵⁴

20.24  Commentators have also argued that the state where the litigation is brought (the forum state) should not apply its own public policies and mandatory laws to international disputes that have no territorial connection to that state because arbitrability deals with conflicts of jurisdiction.⁵⁵ As a result, the forum court should only apply its own national law on arbitrability if the court would have exclusive jurisdiction over the matter, absent any claim regarding arbitration. If the court would not have exclusive jurisdiction over the matter, it should follow the law chosen by the parties to govern the issue. In internal trust disputes, that law will typically be the law governing the trust instrument.

20.25  Although this position may seem eminently reasonable from an international perspective, many national courts may nevertheless be inclined to adopt a more parochial approach.⁵⁶ Before doing so, however, courts should consider that giving priority to the laws of the forum does not appear to be the best solution with respect to international trust disputes, since the displacement of the settlor’s choice of law means much less predictability as to whether an arbitration clause will be enforced.

(p. 477) 20.26  Thus, a national court that is asked to enforce an arbitration provision found in a trust under the New York Convention should refer the dispute to arbitration unless the court has some territorial basis for imposing its laws. Only if the court can establish that it has exclusive jurisdiction of some aspect of the dispute and that the court’s exclusive jurisdiction would be impeded by the arbitration of the dispute should the law of the forum apply.

20.27  There are, however, potential arguments to the contrary. The strongest of these involves claims that the law of the forum must apply to questions relating to the enforcement of arbitration agreements by virtue of an analogy with Article V(2)(a) of the New York Convention.⁵⁷ Article V(2)(a) applies to enforcement of awards rather than agreements and says that the court in the country where enforcement is sought may refuse enforcement if the subject matter of the dispute ‘is not capable of settlement by arbitration under the law of that country’.⁵⁸ In other words, the enforcing court can deny enforcement if, under its own law, the dispute is non-arbitrable.

20.28  Although Article II(2) does not contain the same final phrase (ie ‘under the law of that country’), some commentators argue that the two articles should be interpreted similarly so as to provide consistency between enforcement of arbitration agreements during the referral stage of the proceedings and enforcement of arbitral awards during the enforcement stage.⁵⁹ The argument is that it makes no sense to refer a dispute to arbitration if the award will not be enforced at a later stage.

20.29  However, there are some flaws to this argument. First and foremost, the enforcement court may not necessarily be the same court as the court that initially decides whether to refer the matter to arbitration. Second, parties may have assets that can support enforcement in more than one country. As a result, a court should not be too quick to deny jurisdiction of a tribunal because of its own laws, which, as noted earlier, may not in fact be at issue in the matter before the tribunal.

20.30  In view of the silence of Article II on the law governing arbitrability, other possible laws have been suggested. These include the law governing the interpretation of the arbitration agreement,⁶⁰ the law of the arbitral seat, and the law determined (p. 478) by the forum law’s conflicts of law rules.⁶¹ In fact, according to some commentators, ‘[n]early every conceivable position as to which law governs arbitrability has been taken.’⁶² This scenario can of course make it difficult to predict whether an arbitration provision in a trust instrument will be considered arbitrable under the New York Convention.

20.31  Another question about applicable law involves issues of notice and party representation. Trust disputes are often considered to be in rem proceedings that require all persons affected by the proceedings to have adequate notice, even if those persons do not actually participate in the proceedings.⁶³ However, some parties to a trust dispute may be difficult to ascertain. In some cases, a potential beneficiary may be a minor or yet unborn. Although courts have identified a number of mechanisms that allow for representation of unascertained, unborn, or legally incompetent beneficiaries in trust litigation, it is unclear whether and to what extent those mechanisms are transferable to the arbitral realm.⁶⁴ Although commentators have suggested that such procedures would be possible,⁶⁵ there has been no real discussion about which law governs questions of notice and representation. For example, some courts might look to the law of the forum to determine whether and to what extent a beneficiary can be represented in an arbitral proceeding, while other courts might look to the law of the place of arbitration, the law of the place where the beneficiary resides, or the law governing the trust. However, if the court that has been asked to enforce the arbitration provision in the trust does not believe that proper notice and representation can be achieved under the applicable law, then that court may decide that the dispute is non-arbitrable.

20.32  In sum, the question of whether a dispute is ‘capable of settlement by arbitration’ under the New York Convention turns on several issues. First, the court must identify which law is to govern the question of arbitrability, and second, the court must decide if the matter is one that can be properly resolved by an arbitral tribunal. If the relevant statutes or jurisprudence give exclusive jurisdiction over such matters (p. 479) to the court, then the parties cannot be referred to arbitration. However, if the matter is arbitrable, then the New York Convention requires the court to refer the parties to arbitration.⁶⁶

20.33  At this point, it is unclear what law applies to an international trust dispute, which precludes a simple or predictable determination on arbitrability. This lack of certainty is one reason why parties and practitioners have advocated in favour of specific legislation that would make arbitration provisions in trust instruments clearly enforceable.

20.34  As important as the arbitrability analysis is, courts asked to enforce an arbitral provision in a trust under the New York Convention must consider other issues as well. The next most important of these considerations involves the validity of the arbitration provision, which is the focus of the next part of this chapter.

20.35  Previous chapters in this book provide in-depth analyses of how different jurisdictions deal with trust arbitration. Before considering questions of validity under the New York Convention, it may be helpful to summarize some of the national approaches.

20.36  At this point, there is a great deal of variation in how various states have handled trust arbitration. Some courts have refused to enforce an arbitration agreement in a trust agreement on the grounds that although an arbitration agreement is basically a contract, a trust does not constitute a contract between the settlor and beneficiary and therefore may not bind the beneficiary.⁶⁷ Although some of these decisions have been superseded by legislation, some courts have found ways to enforce arbitration provisions in trust instruments even without narrowly tailored legislation.

20.37  The most active courts in this area of law are found in the United States.⁶⁸ In two recent US decisions, appellate courts reversed lower court decisions denying the enforceability of arbitration provisions found in trusts.

(p. 480) 20.38  The clearest decision is found in Rachal v Reitz,⁶⁹ where the Texas Supreme Court overruled an en banc decision from the Texas Court of Appeals.⁷⁰ Here, the Texas Supreme Court rejected the appellate court’s reasoning that the arbitration provision in the trust instrument was unenforceable because there was no consideration and no consent by the beneficiaries.⁷¹ Rather, the Supreme Court found that a beneficiary manifests its assent to the arbitration clause by attempting to enforce rights under the trust.⁷² Under the doctrine of direct benefits estoppel, because the beneficiaries had accepted the benefits of the trust and brought suit to compel the trustee’s compliance with the trust’s terms, they were found to have assented to the trust instrument, including the arbitration provision.⁷³

20.39  A similar determination was seen in Diaz v Bukey,⁷⁴ where the California Supreme Court vacated an appellate court decision holding that a beneficiary of a trust could not be required to arbitrate when she had not agreed to the arbitration provision in the trust.⁷⁵ Although the California Supreme Court did not rule on the appellate decision directly, the court nevertheless instructed the appellate court to reconsider the matter in light of the California Supreme Court’s decision in Pinnacle Museum Tower Assn v Pinnacle Market Development (Pinnacle).⁷⁶

20.40  At this point, the analysis becomes somewhat murky, since Pinnacle did not involve a trust but rather a dispute between a condominium developer and the owners’ association over defective construction. In response to an action filed by the owners’ association, the developer brought a motion to compel arbitration. The appellate court in Pinnacle held that an arbitration provision in the recorded declaration of covenants, conditions, and restrictions was not binding on the owners’ association.⁷⁷ The California Supreme Court disagreed, finding that the arbitration provision was binding, because under California law, ‘each owner of a condominium unit either has expressly consented or is deemed by law to have agreed to the terms in a recorded declaration’.⁷⁸

20.41  Given that the California Supreme Court relied on underlying California law to reach this decision, it is not entirely clear whether the appellate court in Diaz, which was to have considered Pinnacle in reconsidering its vacated decision, would (p. 481) have found the same legal support for deeming consent to have been made.⁷⁹ Nonetheless, the Pinnacle decision does suggest that the California Supreme Court will not require a formalistic contract analysis in cases involving a reasonable arbitration provision included in a trust.⁸⁰

20.42  Different courts rely on different theories to support finding an arbitration clause in a trust agreement enforceable. Some commentators opine that in England a well-drafted trust deed could be viewed as providing that anyone accepting benefits or invoking rights under the trust deed would be deemed to have agreed to other provisions, such as the arbitration provision.⁸¹ This theory, which is generally referred to as ‘deemed acquiescence’, is not very different from the US theory of ‘conditional transfer’.⁸² Under the US doctrine, the concept is that the settlor can place conditions on the acceptance of benefits under the trust. In accepting the benefits, the beneficiary therefore assents to the settlor’s conditions, including the arbitration provision. Civil law countries, such as Switzerland, have also held that beneficiaries accept benefits from a trust subject to conditions imposed by the settlor.⁸³

20.43  Some commentators have suggested that deemed acquiescence, conditional transfer, and similar mechanisms are conceptually similar to judicial rationales used to bind nonsignatories to arbitration agreements.⁸⁴ Although countries take different views regarding the circumstances in which it is proper to extend an arbitration agreement to cover various non-signatories, the basic principle is well-respected in international arbitration.⁸⁵ As a result, it is possible that deemed acquiescence, conditional transfer, and similar procedures can be relied upon by courts seeking to determine whether and to what extent an arbitration provision in a trust should be considered to apply to various beneficiaries under the New York Convention, but the question remains open.

(p. 482) 20.44  One way to improve the clarity of the situation would be through the adoption of legislation. Indeed, this approach has already been used to resolve certain questions that arise as a matter of domestic law. Thus, the legislature of the US State of Arizona adopted specific legislation concerning trust arbitration in 2012⁸⁶ in order to override an Arizona Court of Appeals decision that had found that an arbitration provision did not bind beneficiaries who had not agreed to the provision.⁸⁷ The Arizona statute explicitly supersedes the court decision by providing that a reasonable mandatory procedure to resolve disputes among all interested persons would be enforceable.⁸⁸ Other US states, including Florida,⁸⁹ New Hampshire,⁹⁰ Missouri,⁹¹ and South Dakota⁹² have also enacted specific legislation dealing with trust arbitration.

20.45  The United States is not the only jurisdiction to have been active in this field. Legislation has been adopted in Guernsey, Malta, and the Bahamas and has been considered in a number of other jurisdictions.⁹³ Civil law jurisdictions such as Austria and Germany also have laws that appear to allow arbitration of disputes involving trusts and similar devices.⁹⁴ Although the United Kingdom has not yet seen similar sorts of legislative reforms, the Trust Law Committee, which is composed of leading academics and practitioners in England and Wales, has recommended that the English Arbitration Act of 1996 be modified to make mandatory arbitration clauses in trust instruments enforceable.⁹⁵

If these requirements are met, a court must refer parties to arbitration.⁹⁷

20.47  Article II(3) does not stand alone, however, but incorporates other specifications of Article II, including both positive requirements and exceptions to enforcement of the arbitration agreement. The positive requirements are that the arbitration agreement must be one that is ‘within the meaning of this article’.⁹⁸ Article II(3) therefore refers back to requirements contained in Article II(1), which provides that a Contracting State shall recognize an ‘agreement in writing’,⁹⁹ and Article II(2) which defines an agreement in writing as ‘an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams’.¹⁰⁰

20.48  The exceptions to enforcement relate to the agreement being null and void, inoperative, or incapable of being performed. These exceptions are largely requirements of substantive validity based on various contractual requirements, for example, that the agreement must have been accomplished by mutual consent and not be tainted by fraud, mistake, misrepresentation, duress, or some other contractual basis for rendering a contract invalid. Thus, Article II appears to require the arbitration agreement to meet two kinds of validity requirements: (1) formal validity, that is, the arbitration provision must meet all the form requirements of the convention, and (2) substantive validity, that is, the arbitration provision must meet various contractual requirements for validity. The following subsections will first focus on the formal validity imposed by the writing requirement and then consider the exceptions to enforcement.

20.49  One major purpose of the New York Convention’s writing requirement is to show that the parties have in fact consented to arbitration. This feature is considered to be substantive in nature, since parties who agree to take their disputes to arbitration give up their important right to go to court.¹⁰¹ A second purpose focuses on evidentiary concerns and is reflected in Article IV of the convention. That provision notes that a written agreement is required in order to provide evidence necessary for an arbitral award to be recognized.¹⁰²

20.50  Article II(2) creates a problem for enforcement of an arbitration provision in a trust agreement. How can the arbitration clause represent an agreement signed by the parties when it is contained in a document that is typically signed only by the settlor or by the settlor and the trustee, but not by the beneficiary?¹⁰³ Moreover, in most cases, the beneficiary has never expressly accepted or agreed to the terms of the trust.

20.51  The question then becomes whether a court operating under the New York Convention will enforce the writing requirement in a strict and formalistic fashion or whether the court will permit some flexibility of interpretation. In other words, do the theories of ‘deemed acquiescence’, ‘conditional transfer’, and ‘direct benefits estoppel’ meet the New York Convention requirement that there be a signed agreement between the parties?¹⁰⁴

20.52  If the writing requirement is strictly applied, these theories would not appear sufficient to meet the New York Convention’s form requirements.¹⁰⁵ However, the last decades have seen a number of concerns about the formalistic application of the writing requirement in other contexts. For example, a January 2000 Report (p. 485) of the Secretary General of the United National Commission on International Trade Law (UNCITRAL) referred to the writing requirement of the New York Convention as ‘too restrictive and no longer in accord with international trade practices’.¹⁰⁶ The problem was that in many current business situations, a contract containing an arbitration clause would be valid under national law but could be invalidated under the New York Convention for not meeting the writing requirement.¹⁰⁷

20.53  After considering the best way to remedy this problem and provide for more uniformity of interpretation, UNCITRAL chose not to propose amendments to the New York Convention.¹⁰⁸ In taking this approach, UNCITRAL was influenced by the likelihood that not all of the contracting states would adopt the amendment and that some jurisdictions might make amendments in a non-uniform fashion, thereby causing less rather than more uniformity.¹⁰⁹ Instead, UNCITRAL decided to provide a more flexible means of interpreting the New York Convention’s writing requirement by simply recommending that the Article II definition be considered ‘non-exhaustive’ (Recommendation).¹¹⁰ By offering an interpretation rather than an amendment to the New York Convention, UNCITRAL sought to provide official guidance on the application of the writing requirement of Article II(2) that would help promote a higher degree of uniformity of interpretation among contracting states.¹¹¹ Furthermore, in adopting the Recommendation, UNCITRAL has declared that the New York Convention’s writing requirement is not a unified form requirement but rather a maximum requirement that permits states to adopt less stringent requirements.¹¹²

(p. 486) 20.54  Although the UNCITRAL Recommendation is not binding, it can nevertheless be useful in cases involving trust disputes,¹¹³ since it suggests that deemed acquiescence, conditional transfer, direct benefits estoppel, and similar theories of agreement would satisfy the writing requirement.¹¹⁴ This conclusion is consistent with modern practice in other types of international arbitration, such as in cases subjecting third party beneficiaries to an arbitration clause in a contract.¹¹⁵ Indeed, courts have long held that non-signatories to an arbitration agreement can be bound to arbitrate under principles such as agency, estoppel, alter ego, and implied agreement.¹¹⁶

20.55  The UNCITRAL Recommendation contains a second provision that further supports the position that an arbitration provision in a trust would meet the ‘agreement in writing’ requirement of the New York Convention.¹¹⁷ This analysis is based on Article VII(1) of the New York Convention, which states that ‘[t]he provisions of the present Convention shall not … deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon.’ This provision is commonly referred to as ‘the more favorable right provision’,¹¹⁸ since it clearly permits a party that is attempting to enforce an award to rely upon any more favourable national law in the enforcing jurisdiction that would permit enforcement. However, Article VII(1) says nothing about the enforcement of arbitration agreements.

20.57  Interestingly, many national laws may allow this expansive reading of the form requirement, particularly if they have adopted the most recent version of the UNCITRAL Model Law on International Commercial Arbitration (Model Law).¹²³ Although the Model Law was first enacted in 1985, UNCITRAL undertook several key amendments in 2006, when UNCITRAL was also adopting the Recommendation. The 2006 amendments included two alternative proposals relating to Article 7, which reflects the Model Law’s writing requirement.

20.58  Option 1 of the new Article 7 requires an arbitration agreement to be in writing, although the agreement does not have to be signed by the parties. According to the text, a ‘writing’ is defined as something recorded in any form. Option 2 of the new Article 7 is even more expansive and does not require a writing of any type.

20.59  Both options are more lenient than the writing requirement contained in the New York Convention. As a result, either of these options would make enforcing arbitration provisions a much easier task, particularly when coupled with the understanding set forth in the UNCITRAL Recommendation that the form requirement in the New York Convention is non-exhaustive and permits parties to comply with the writing requirement in a variety of ways. UNCITRAL’s efforts therefore underscore the view that the New York Convention should, in keeping (p. 488) with its pro-enforcement purpose and spirit, be interpreted to support rather than undercut national laws on arbitration.

20.60  It makes sense that if an arbitration provision in a trust agreement would be enforceable under the law that the parties chose (or absent such a choice, under the appropriate domestic law), then an enforcing court should not refuse to refer the parties to arbitration because of an outdated, formalistic writing requirement in the New York Convention. However, there is no guarantee that all judges will interpret the New York Convention as UNCITRAL recommends. For example, many states that have adopted the 1985 version of the Model Law have not yet adhered (and may never adhere) to the 2006 version.¹²⁴ Furthermore, some courts may simply not want to apply Article VII(1) to arbitration agreements by analogy when the language of the provision only refers to arbitral awards.

20.61  Although parties to trust disputes should be aware of these potential shortcomings, there does appear to be a trend among tribunals and courts in certain circumstances to impose arbitration on non-signatories.¹²⁵ This phenomenon, along with growing support for the enforcement of arbitration provisions in trust instruments as a matter of national law, may be sufficient to ensure that an arbitration provision in a trust will be considered enforceable under the New York Convention.¹²⁶

20.62  Once a party has established that there is a valid arbitration agreement for purposes of the New York Convention, the court must refer the parties to arbitration under Article II(3) unless the opposing party can show that the agreement is null and void, inoperative, or incapable of being performed.¹²⁷ Unfortunately, Article II(3) does not describe what standard a court should use to determine whether any of these exceptions should apply. As a result, it is unknown whether the court should limit itself to a prima facie review or should engage in a full examination of the (p. 489) facts and circumstances.¹²⁸ Both approaches exist,¹²⁹ although the modern trend is to view the exceptions to validity narrowly and apply a prima facie standard to determine whether the agreement appears to be valid.¹³⁰

20.63  Although the three exceptions to enforcement are sometimes referred to as though they are interchangeable, they actually have different meanings. The ‘null and void’ exception has rarely caused an agreement to be refused enforcement,¹³¹ since this language means the agreement is defective from the very beginning by some form of invalidity, such as lack of consent, mistake, or misrepresentation. These concerns could be problematic for trust arbitration, since lack of consent, mistake, and misrepresentation are standard defences to contract formation and some courts have concluded that an arbitration provision in a trust instrument is not valid unless it meets the standard for a contract.¹³² However, many of the cases on which this premise relies have now been superseded by statute or overruled.¹³³ More recent decisions have taken the position that an ‘agreement’ is broader than a contract, and consent to arbitration can be expressed in a number of ways, including the acceptance of the benefits of the trust.¹³⁴ As a result, it is at least arguable that an arbitration provision found in the trust can pass the ‘null and void’ test.

20.64  This reading is supported by the fact that the New York Convention can apply to differences that arise out of legal relationships that are broader or other than those that are contractual in nature.¹³⁵ These sorts of non-contractual claims include tort claims and unjust enrichment claims,¹³⁶ which suggests (p. 490) that the New York Convention may also apply to trust-related claims.¹³⁷ Thus, an agreement to arbitrate contained in a trust instrument should not be invalidated just because it did not meet certain contract standards, such as offer and acceptance.

20.65  However, arbitration law still recognizes the need for some indication of assent to arbitration. Increasingly, courts are finding that a beneficiary who attempts to enforce the terms of the trust is in fact acquiescing to the terms of the trust, including the arbitration provision.¹³⁸ Courts have used a variety of theories, including deemed acquiescence, conditional transfer, and direct benefits estoppel, to find that conduct constitutes consent to the terms of the trust, including the arbitration clause.¹³⁹ Thus, a mandatory arbitration provision in a trust should not be considered null and void simply because it does not meet all of the traditional standards for formation of a contract.

20.66  The second exception to enforcement of an arbitration agreement that is recognized by the New York Convention involves situations where the agreement is inoperative (ie when it has ceased to have an effect).¹⁴⁰ This type of scenario might arise in cases where a time limitation has passed, where the parties have mutually agreed to litigate, or where the agreement has been terminated for some other reason.¹⁴¹ However, this kind of exception will probably not occur with any frequency in cases involving a mandatory trust arbitration agreement.

20.67  The third exception to enforcement involves arbitration agreements that are ‘incapable of being performed’.¹⁴² Typically, this exception is applied if there are practical hurdles to an arbitration, such as an agreement so poorly drafted that it is impossible to ascertain what the parties intended with respect to place or procedure, or if the agreement appears to require both arbitration and litigation. This exception should also not pose a problem for trust arbitrations so long as the arbitration provision in the trust instrument is drafted adequately.

20.68  In sum, the general move toward interpreting the New York Convention in a more arbitration-friendly way supports the use of arbitration provisions in trust instruments. Moreover, courts increasingly seem to be using a prima facie standard to review the exceptions to enforcement of an arbitration agreement under the New York Convention, which further supports the view that arbitration constitutes a workable dispute mechanism for trust instruments.

20.69  Assuming the arbitration provision in the trust instrument has been found to be arbitrable and valid, courts must still consider a few other elements before sending the parties to arbitration. First, nothing in Article II of the New York Convention defines the scope of an arbitration agreement. That provision does not say the dispute has to be international, and there is no express requirement that the dispute must have a connection with a foreign state.¹⁴³ Nonetheless, it is generally accepted that the New York Convention was intended to apply only to international arbitration, and that a purely domestic arbitration agreement would not be covered by Article II.¹⁴⁴

20.70  As a result, scholars and courts generally interpret Article II by analogy to Article I(1), which requires courts to recognize and enforce awards only if the award was made in the territory of a state other than one where recognition and enforcement are sought.¹⁴⁵ In other words, an award will typically only be recognized under the New York Convention if it is a foreign award.¹⁴⁶ This same requirement should apply by analogy to the recognition of an arbitration agreement, which means that an arbitration agreement will usually be subject to enforcement under the New York Convention if the agreement provides for arbitration somewhere other than in the forum state.¹⁴⁷

20.71  Article I(1) of the New York Convention also speaks of awards that are ‘not considered as domestic awards’. If this provision is considered to apply to arbitration agreements by analogy, courts must determine the circumstances in which an arbitration agreement can be considered non-domestic and therefore subject to the New York Convention. In the United States, an arbitration is considered (p. 492) ‘non-domestic’ even if it is between businesses that are both domiciled in the United States so long as there is an international aspect to the transaction, such as property located abroad or performance that is to take place abroad.¹⁴⁸ However, the concept of ‘non-domestic’ awards or agreements has not been adopted in any other country, which has led commentators to describe the second sentence of Article I(1) as ‘a dead letter’ outside the United States.¹⁴⁹

20.72  This phenomenon suggests that a party to a trust dispute should not expect a court operating under the New York Convention to enforce an arbitration provision in a purely domestic trust. The one exception would be in cases where both parties were citizens or corporations of the United States and there was an international aspect of the trust or the dispute that was connected to property or performance abroad.

20.73  Article I(3) of the New York Convention contains two other requirements for enforcement of an arbitration agreement. This section describes the various reservations that contracting states are permitted to make upon joining the convention.¹⁵⁰ Two reservations are possible, and approximately half of the 156 contracting states have made one or both reservations.¹⁵¹

20.74  The first reservation involves the concept of reciprocity and indicates that a contracting state may declare it will only apply the New York Convention to awards made in the territory of another contracting state. The language refers specifically to awards but may apply to arbitration agreements by analogy. Therefore, courts in countries that have made this reservation could very well conclude that an arbitration provision in a trust is only enforceable if the arbitration is to be seated in a state that adheres to the New York Convention.¹⁵²

20.75  The second reservation indicates that the state in question only intends to apply the New York Convention to differences arising out of legal relationships that are considered commercial in nature. In this case, the language refers directly to arbitration agreements, which precludes the need to make an argument by analogy. If (p. 493) a state has made this reservation, a question can arise about whether the legal relationship established is a commercial one. Because the legal relationship involved in business trusts is unquestionably commercial, this should not cause a problem for enforcement of most mandatory arbitration provisions in those types of trusts.¹⁵³ However, even family trusts would probably be considered commercial given that most jurisdictions define the term relatively broadly and given that most family trusts concern transfers of wealth.¹⁵⁴ Therefore, this particular reservation should not cause problems for parties seeking to enforce an arbitration provision in a trust instrument.

20.76  There is a great deal of interest today in arbitrating internal trust disputes. The advantages of arbitration, which provide for privacy, confidentiality, speed, and efficiency, make it well-suited as a method of resolving disputes involving trusts. Recent changes toward more flexible arbitral procedures make sense in international matters, where parties prefer not to be in a foreign court. The trend toward more legislative enactments providing for enforcement of arbitration agreements in trust agreements will also make enforcement more certain under the New York Convention. However, even without new legislation, the UNCITRAL Recommendation regarding a more flexible and practical interpretation of the New York Convention’s form requirements should help persuade courts to take a sensible, practical, and arbitration-friendly approach to the enforcement of mandatory arbitration provisions in trust instruments.