Arbitration has always been an attractive proposition for disputes between settlors, trustees, beneficiaries and external parties, but it has typically faltered at the last fence. There are a number of difficulties:
(1) for an agreement to arbitrate to be valid, it must be between the parties to the dispute - arbitration provisions commonly included in trust deeds may have been put there for the best of reasons, but it is imposed on the parties rather than agreed by them
(2) if a trustee engages in arbitration in accordance with such a provision, a difficulty arises over whether or not the trustee can bind future, unascertained or incapacitated, beneficiaries
(3) unascertained or legally incompetent beneficiaries need to be represented, and arbitrators probably lack the legal authority to make such appointments - that can only be done by the courts
(4) the binding effect of an award is questionable, and almost certainly outside the enforcement provisions of the NY Convention
There is also the more sensitive issue of whether or not arbitrators are seen as competent to resolve what can be complex issues (Dr Molloy, however takes the converse view that the courts have shown limited understanding of trusts and the application of the law has been poor - he uses more colourful language). For myself, I suspect this sensitivity is misplaced. Generally arbitrators are required not to take on disputes for which they have no expertise, and if they do it soon becomes apparent. It should also be recognised that typically trust disputes boil down to commercial issues which arbitrators have largely been resolving effectively for hundreds of years.
If a settlor, or the trustees and beneficiaries, wish to resolve their disputes quickly and privately in arbitration, it would be churlish to deny them those wishes.
Internationally, the ICC has approached the issue with a new arbitration clause, launched in Zurich in November last year. The new clause attempts to resolve the difficulties identified above by widening the binding nature of the arbitration provisions, providing for "deemed acquiescence" to arbitration on the part of beneficiaries (as opposed to conditional gift adopted by its previous 2008 draft) and explicitly providing for confidentiality. Unascertained and incompetent beneficiaries, however, are not covered by the new clause. It is too early to tell if that clause will satisfy the requirements for an agreement to arbitrate under the NY Convention.
In Australia, the High Court has simply adopted the expedient, in the latest of the Rinehart cases, of interpreting the wording of the trust deed to include trust disputes between the beneficiaries. On the one hand, a commercial dispute between ascertained parties is capable of arbitration like any other dispute. However, the impact on future beneficiaries and international enforcement of this approach is less than clear.
To its credit, the Trusts Bill addresses the issues above head on by validating agreements to arbitrate (whether in trust deeds or agreed as disputes arise), authorising trustees to bind the trust in future and validating arbitration awards. This is a significant step for NZ - we can properly hold ourselves out as offering confidential, Model Law based arbitrations of trust disputes that are enforceable in other jurisdictions under the NY Convention.
There are issues with the drafting, namely the extent of the supervisory capacity of the courts is at odds with the purposes of the Model Law constraining such supervision; the ability of the representative of unascertained and legally incompetent beneficiaries to walk away from the agreement and any adverse award; and the questionable enforcement of any arbitration provisions. Whether these will discourage parties from going to arbitration (on the basis that if they need to go to court, they might as well stay in court) remains to be seen. Hopefully these issues will be ironed out with time with the support of the courts.
The core issues have largely been resolved. This is something to celebrate.