Trust Arbitration

Avoiding the Perils of Litigation

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An emerging trend in the trust sector has been the use of arbitration to settle internal disputes as an alternative to judicial proceedings.  The latter approach can lead to punitive costs whilst affording litigants little confidentiality or legal certainty.  Should there be an international dimension of any kind, the parties could face complex discussions over forum selection with the possibility of protracted parallel proceedings in different jurisdictions.  Furthermore, the enforcement of a national court’s settlement in some foreign countries may prove to be challenging, frustrating the possibility of a swift and conclusive outcome. 

Arbitration can be less costly, more confidential and considerably faster than litigation.  In addition, international compliance with an arbitral settlement is reasonably straightforward under the New York Convention (The Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958).  Over 160 countries adhere to this multilateral agreement, which brings with it a reassuring degree of legal certainty.

Post-dispute Arbitration

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For an existing conflict, alternative dispute resolution (ADR) can be implemented through a contractually-binding submission agreement.  Legal certainty with respect to the international enforceability of an award depends on whether the jurisdiction of arbitration were a signatory to the New York Convention.  Some countries, such as Liechtenstein, permit the choice of a foreign seat of arbitration for proceedings conducted within their borders.  By way of illustration, a submission agreement could stipulate that alternative dispute resolution were conducted within the Principality but under the arbitral laws of the Bahamas.  Such multi-jurisdictional arrangements are not unusual in commercial alternative dispute resolution proceedings.

Pre-dispute Arbitration

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Pre-dispute arbitration for a trust may be stipulated in the constitutive deed or instrument under the laws of certain jurisdictions.  As such arrangements are unilaterally donative rather than contractual, there is a need for statute to address the position of minors, unborn and unascertained beneficiaries.  Common law conventions against the usurping of the court's role can be a stumbling block.  Leading fiduciary jurisdictions, such as the Bahamas and Florida, have introduced legislation deeming arbitral clauses in trust instruments to be arbitration agreements thus providing a certain level of legal certainty.