Institutional arbitration of trust disputes in England and Wales is almost unknown, because the interests of unborn/unascertained beneficiaries cannot be reliably bound by an arbitration agreement when the trust instrument is drafted. Therefore, English will/trusts and settlements do not usually contain an arbitration clause.
CPR, r.26.4(1) provides, ‘A party may, when filing the completed directions questionnaire, make a written request for the proceedings to be stayed while the parties try to settle the case by alternative dispute resolution or other means.’
Section 6 of the Arbitration Act 1996 [‘AA 1996’] defines an ‘arbitration agreement’ widely as meaning any ‘agreement’ , i.e. whenever made, ‘to submit to arbitration present or future disputes (whether they are contractual or not).’
In a trust dispute, where the instrument does not contain an arbitration clause, does an English Court have the jurisdiction to grant a stay under CPR, r.26.4(1) where e.g. at the first CMC, an oral application is made by consent, for a stay for arbitration in London, and a litigation friend consents to act (e.g. for a minor) with the approval of the Court, following the making of submissions about why this is appropriate?
In other words, can:
(i) the parties agree to an ad hoc arbitration; and
(ii) the court, then stay proceedings, so that the ad hoc arbitration can be convened?
The trustees would need to have the power to agree to arbitration.
A theoretical obstacle is the extent to which the supervisory jurisdiction of the Court over trust administration cannot be ousted.
However, logically, the jurisdiction of the Court cannot be ousted if it grants an order by consent, because the Court is acting in the exercise of its jurisdiction, and note the default procedural rules contained in sections 15 to 29 and 33 to 41 of the AA 1996.
The Court could make it a term of the Order that the arbitration decision is subject to a right of appeal to the Court (see sections 67 to 69 of the AA 1996), i.e. so that:
(i) the application for the Order cannot be, and therefore is not, in itself, an attempt to oust the jurisdiction of the Court, which is capable of depriving the Court of its power to grant the Order; and
(ii) notwithstanding that the application is voluntary (i.e. where each beneficiary is an adult and has full capacity),the convention right provided for under Article 6.1 of the European Convention for the Protection of Human Rights and Fundamental Freedoms: (a) is not engaged; (b) cannot be infringed; and (c) is therefore satisfied.
‘In England and Wales, there is case law to the effect that a settlor or testator cannot validly exclude the jurisdiction of the Court from determining all issues which arise in the administration of a trust. [In Re Wynn ] … Danckwerts J [had] occasion … to consider the juridical basis of allowing arbitration in a contractual context, stating:
“[o]ne’s mind naturally turns to provisions which are often found in contracts providing for the decision of disputes by an arbitrator, the common arbitration clause. After considerable doubt, the position of an arbitration clause appears to have been settled by Scott v Avery as being valid, provided that it merely requires as a condition precedent to the bringing of legal proceedings upon the contract that there shall have been an arbitration fixing the amounts to which the parties are entitled: and, on the other hand, that anything which goes beyond that, and attempts to deprive the parties of their right to bring an action is unlawful as an attempt to oust the jurisdiction of the Court.”
The principle is that the Court must be allowed to retain ultimate control, nowadays represented by the right of appeal on a point of law. In the context of a will it therefore appears to be settled that it is not possible to make a decision of the trustees final and binding. In the process of declaring the clause in In re Wynn to be void, Danckwerts J followed In re Raven, a decision of Warrington J. … As for arbitration clauses, the clear implication of both authorities is that such clauses are safe from invalidity for the very reason that the arbitrator’s decision is not final. In the ordinary course of an arbitration pursuant to a statute, there is a right of appeal, even if a limited one, and this prevents an arbitration clause from being void as an ouster of the Court’s jurisdiction. However, the corollary is that if an arbitration clause does not have an explicit or implicit right of appeal, then there remains a real danger that the clause does amount to an invalid ouster of the jurisdiction. The conclusion for present purposes is that the arbitration of trust disputes in England and Wales would need legislation.’ (‘Arbitration of Trusts Disputes – Issues in National and International Law’ (2016) edited by S.I.Strong, paragraphs 10.56 – 10.67, by Mark Herbert QC).
Why though, is legislation necessary if either:
(i) an arbitration clause in a trust instrument expressly requires:
(a) the consent of all beneficiaries; and
(b) the approval of the Court where there are any: unborn; minor; or incapacitated beneficiaries, who in the exercise of it’s ‘supervisory jurisdiction’ can sanction the bringing of arbitration proceedings, supported by a stay, on terms which provide that any party is at liberty to apply to the Court to review the arbitrator’s decision, and then allow the decision to be appealed under s.69 AA 1996; or
(ii) after a dispute has arisen, all trustees and beneficiaries agree to an ad hoc arbitration, and if as in (i) above, an application is then made to the Court for:
(a) directions; and
(b) if necessary a stay,
the Court grants its blessing, whilst preserving its supervisory jurisdiction?
In other words, can the Court grant an order by consent, which enables the parties to resolve their dispute by arbitration, i.e. because there is no prohibition in the circumstances outlined above?
I cannot see why not.
For a full discussion, please refer to Chapter 12 (ADR and settlement) of my book, the ‘Contentious Trusts Handbook’ (2020), published by the Law Society: Wildy & Sons Ltd — The World’s Legal Bookshop : Tax-Efficient Wills Simplified 2013/2014
To view my recent article ‘Judicial Early Neutral Evaluation and the New Normal’ published by Trusts & Trustees (Oxford University Press): Trusts & Trustees | Oxford Academic (oup.com) please visit the ‘Publications’ page at www.ihtbar.com
In the summer, I am planning to write an in-depth article about duties and powers of executors and trustees in relation to property and investments, which will be co-authored with a leading trust law academic at Cambridge University.