Arbitration of Trust Disputes: A Procedure Whose Time Has Come?

Trusts and their civil law equivalents form a vital part of the global economy, holding trillions of dollars’ worth of assets and generating billions of dollars’ worth of revenue and trustees’ fees annually.  Although donative trusts (ie, those used for charitable and inter-generational wealth transference purposes) are perhaps the best-known types of trust vehicles, commercial trusts are equally, if not more, important than traditional trusts in the modern world.

The increasing use of on- and offshore trusts has led to record amounts of hostile trust litigation around the world.  As a result, industry insiders, concerned about the cost, publicity and unpredictability of litigation, have sought a better approach to resolving trust-related disputes.  Unfortunately, the options have been limited, since the most likely judicial alternative – arbitration – has traditionally been viewed by many in the trust law community as extremely risky, given various questions about the legal enforceability of an arbitration provision found in a trust.

Obstacles to trust arbitration have taken several forms.  For example, some opponents of trust arbitration have claimed that trusts are not contracts, which means that an arbitration provision in a trust cannot be binding if arbitration is viewed exclusively as a contractual construct.  Other people have argued that arbitrators lack the power to name special guardians for unnamed and unascertained beneficiaries to the trust, which would call into question the finality of any arbitral award involving the trust.  Still other people have suggested that arbitration is improper in situations where the existence of the trust itself is challenged.

For decades, these concerns successfully thwarted any attempt to develop a system of trust arbitration.  However, the growing sophistication of arbitral law, including the contemporary understanding of the separability of arbitration agreements, the ability of arbitrators to provide interim relief, and an expansive approach to arbitral non-signatories, has provided a means of addressing most if not all of the traditional obstacles to trust arbitration.  As a result, a diverse range of stakeholders now appear to accept the viability of the procedure.  Furthermore, support for trust arbitration is not limited to a single country or region but is instead spread throughout the world, as I discuss in a recent book chapter, available here.

Of the various jurisdictions discussed in the chapter, the United States is the one that has considered trust arbitration most comprehensively.  Because trust law is primarily found at the state rather than federal level, there is considerable variation in the scope and nature of US law.  At this point, five US states – Florida, Arizona, New Hampshire, Missouri, and South Dakota – have adopted statutes expressly authorizing arbitration of internal trust disputes and one state supreme court – the Texas Supreme Court, in Rachal v Reitz, 403 SW3d 840 (Tex 2013) – has enforced an arbitration provision in a trust even in the absence of specialized legislation.  Further developments are anticipated in the relatively near future.

Other jurisdictions have also demonstrated a favourable attitude toward trust arbitration.  For example, the Bahamas amended the Bahamas Trustee Act 1998 in 2011 to allow for arbitration of trust disputes, and Guernsey permits trust arbitration pursuant to the Trusts (Guernsey) Law 2007.  A number of civil law jurisdictions also acknowledge the legitimacy of trust arbitration.  For example, Switzerland will enforce arbitral awards arising from trust arbitration through its  conflict of laws provisions.

Positive developments have also been seen at the institutional level.  For example, the American Arbitration Association (‘AAA’) has had specialized trust arbitration rules in place since 2003, with the most recent revision occurring in 2012.  The International Chamber of Commerce (‘ICC’) takes a somewhat different approach and suggests use of a special arbitration provision rather than a particular set of arbitral rules.  The ICC is currently reviewing its trust arbitration regime, however, and a report from the dedicated task force is expected in the coming months.

Trust arbitration has also been considered by specialists in trust law.  Thus, in 2006, the American College of Trust and Estate Counsel (‘ACTEC’) proposed model legislation, as well as model arbitration rules, while the English Trust Law Committee published a position paper in 2010 discussing how English law might need to be changed to allow for trust arbitration.

As the preceding shows, trust arbitration is a topic of significant interest to practitioners, policymakers, and scholars.  Although my chapter provides an overview of the relevant developments and policy issues, each of these topics are discussed in more depth in Arbitration of Trust Disputes:  Issues in National and International Law (OUP, 2016), along with other matters of interest.

S.I. Strong is the Manley O. Hudson Professor of Law at the University of Missouri School of Law.