Hon Mr Justice David Hayton
Edited By: SI Strong, Tony Molloy (Consultant Editor)
How far is it possible to have trust disputes resolved by arbitration? There ought to be a straightforward answer in a modern world, but there is none except for external disputes where a trustee is making or defending a claim against a third party. This is so even though vast numbers of other disputes are determined by arbitration, whether as a result of specific agreements to arbitrate or of model or tailored clauses embodied in agreements. Many parties have found it increasingly easier, faster, and cheaper to avoid the courts through the confidential use of arbitrators, so what are the problems for resolution of internal trust disputes by arbitration?
To what extent are, or can, those problems be met by clauses in trust instruments or by legislation? Do trusts used to anchor financing transactions raise different considerations from donative family trusts? Should choice of law clauses in a trust instrument be significantly influenced by the degree to which they will enable internal disputes to be resolved by arbitration? How far can arbitral awards be enforced beyond national boundaries?
So far as I am aware, this book, through the extensive knowledge and experience of its jurisdictionally diverse contributors, is the first that thoroughly covers these questions. Contributions have been well organized to provide a most helpful and timely guide to these questions. They deal with the current state of play and also provide a basis for cross-fertilization between trust specialists and arbitration specialists, creating an awareness of the problems and identifying solutions that take account of the need for enforceability of awards, nationally and internationally. There is a clear need for trust arbitration, which should inevitably lead to an improved scope for it via legislation, standard arbitration rules, and model clauses for trust instruments. This book provides a solid basis for such progress.
As a preliminary matter, there is the crucial distinction between internal trustee–beneficiary disputes and external disputes between the trustees and third parties with whom they have had dealings. Such distinction, however, is not so clear for trust-related financing transactions that have become increasingly prevalent in these globalized times.
External disputes involving trustees can be resolved by the parties within standard arbitral systems since the parties, as persons of full capacity, can enter into agreements to arbitrate. Internal trust disputes, however, raise problems due to arbitration statutes requiring an agreement to arbitrate. Trust instruments do not involve agreements between the settlor and the beneficiaries or the trustee and (p. viii) the beneficiaries, though it may be that, by accepting benefits under the trust, the beneficiaries can be deemed to have consented to an arbitration clause within the trust instrument.
Moreover, there usually are beneficiaries who are minors or unborn or otherwise unascertained, and for whom special protective provision has to be made if court proceedings are involved; for example, the need for representation in proceedings and often for compromises to be approved by the court. Finally, the paternalistic jurisdiction of trust courts enables them to go beyond the award of compensation. They can make declarations as to the construction of trust instruments and as to the powers of trustees; they can approve controversial decisions of trustees as duly made within the parameters of their powers; they can confer extra powers on trustees; they can exercise powers relinquished to them by trustees finding themselves in awkward positions involving a conflict of interests; they can consent to variations of trusts proposed for the benefit of minor, unborn, and unascertained beneficiaries; and they can remove trustees and appoint trustees.
It also has to be appreciated that before internal disputes can arise there needs to be a valid trust created by a transfer of property to trustees or a declaration of self as trustee of designated property. This can give rise to preliminary disputes involving the settlor as to capacity or undue influence or involving whether or not there has been a valid transfer of property to the trustee, and decisions on these matters will impact the position of apparent beneficiaries.
A major problem arises from the existence of minor, unborn, and other unascertained beneficiaries who cannot waive their rights under conventions in force in domestic law, including the European Convention on Human Rights and the International Covenant on Civil and Political Rights. Under these conventions, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law, with very limited exclusions of the public from the hearing. Exclusion may be permitted in the interests of morals, public order, or national security; where the interests of juveniles or the protection of the private life of the parties so require; or where the court considers it strictly necessary in special circumstances where publicity would prejudice the interests of justice. The amount of discretion in interpreting these exclusions may vary from country to country. Fortunately for arbitration in the United States, the government attached non-self-executing declarations to its ratification (with reservations) of the International Covenant, thereby rendering ineffective any Covenant right that would require changes in national law to ensure compliance with obligations under the Covenant.
At the bottom end of the scale of arbitral possibilities, arbitration might take place under the aegis of court proceedings, providing for representation of beneficiaries who are minors, unborn, or otherwise unascertained and enabling their representatives to waive their rights under various international instruments. Under (p. ix) this approach, court proceedings would be stayed so that an arbitration can take place, with the award then being approved by the court. At the top end of the scale, legislation could enable the arbitrator to exercise all the powers of the court and the enforceability of the award would be assured under international treaties such as the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, more commonly known as the New York Convention.
For enlightenment and stimulation, read on, remembering that reading without reflecting is like eating without digesting. Furthermore, readers should remember that they can help to produce the momentum required to develop greater opportunities for arbitration of trust disputes and greater use of them.
Hon Mr Justice David Hayton