ICC launches ICC Arbitration Clause for Trust Disputes
Since 2009, legislative and other developments in the field of trusts arbitration have led to increasing demand and interest in bringing trust disputes to arbitration. The recently updated ICC Arbitration Clause for Trust Disputes and its Explanatory Note was launched last month, 10 years after first being issued, at a special event hosted by law firm Withers at its international headquarters in London.
Alexander Fessas, Secretary General of the ICC International Court of Arbitration and Chris Southworth, Secretary General of ICC United Kingdom welcomed participants who included members of the ICC Commission on Arbitration and ADR and its Task Force on Trust and Arbitration as well as other arbitration and trust practitioners.
Mr Fessas noted the popularity of London as an arbitral seat and said that according to ICC dispute resolution statistics, the number of UK nationals appointed as arbitrators in ICC arbitrations in 2017 topped rankings – followed by French, German and Swiss arbitrators.
When two planets meet
During the event’s opening panel, independent arbitrator Sophie Nappert, Co-chair of the ICC Task Force on Trust and Arbitration paid tribute to the “visionary work” of the ICC 2009 Task Force that paved the way for the updated ICC Arbitration Clause for Trust Disputes and its Explanatory Note.
Ms Nappert said that when the members of the task force first approached the topic, it seemed that they were looking at two different planets: the trust planet on one side, and the arbitration planet on the other.
Ms Nappert explained that task force arbitration practitioners had rely on the basics of arbitration because of the particular characteristics of trusts.” A trust is not a contract, it is a unilateral disposition,” Ms Nappert said. Arbitration is (outside statutory schemes) typically a creature of consent and is based on an agreement (even if the scope can extend beyond contractual matters).
Ms Nappert explained that trust matters have particular features and are often complex, involving multiple parties and differening fora. Arbitration provides for flexibility which is key in complex trust matters. In trust disputes there are usually multiple parties involved, so the arbitral tribunal may not be appointed in the same way, and arbitral institutions, such as ICC, may help by appointing arbitrators. The arbitration clause may also help in bringing proceedings in a single forum rather than in multiple fora.
Ms Nappert said that the goal of the task force was to bring the two planets together but that certain points highlighted the difficulties in merging the two planets, such as whether disputes on non-contentious matters may fall under the arbitration clause or whether minor / incapacitated beneficiary can be bound by the arbitration proceedings.
Hussein Haeri, a member of the Drafting Committee of the Task Force, partner and Co-Head of the International Arbitration practice at Withers, said that enforcement was a major driver in commercial arbitration disputes and that confidentiality was a bigger driver for the arbitration of trust disputes and of particular interest both to settlors and trust practitioners. Trust disputes are often of significant value, frequently involving high-net worth individuals and members of the same family who do not want to expose their name and dispute to the public.
Mr Haeri explained that the ICC Arbitration Clause for Trust Disputes is formulated as an agreement to be included in the initial trust instrument or in a deed of variation (provided there is a suitable power of variation). It is binding on the settlor and initial trustees and power-holders by virtue of their execution of the trust instrument, and on all others by virtue of having acted under (in the case of subsequent trustees and power-holders) or claimed or accepted benefits under the trust (in the case of beneficiaries, who are deemed to have agreed to the provisions). The clause covers only “internal disputes”, including among trustees, between trustees and power-holders, between trustees / power-holders and beneficiaries or between beneficiaries themselves. External disputes brought by third parties challenging the validity of the trust are not covered.
Mr Haeri turned to the representation of minors, unborn and unascertained beneficiaries which may be provided for through an appointment anticipated in the trust instrument or possibly otherwise by a representative appointed by court or separate body. The Explanatory Note to the Clause advised to include in the terms of the trust a mechanism for the appointment of litigation friends and representatives to represent minor, incapacitated or unascertained beneficiaries in arbitration.
A clause to simplify requirements
The second part of the panel discussion continued with the views of leading contentious trust practitioners. David Brownbill QC, a barrister and QC at XXIV Old Buildings and a Member of the Drafting Committee of the Task Force, argued that some domestic courts may want to guard their inherent jurisdiction, particularly in the case of beneficiaries in need.
Mr Brownbill focused on the practical issues regarding beneficiaries in the context of an arbitration, saying said that an arrangement some adhere to is to require all beneficiaries to sign the trust instrument. However, Mr Brownbill said that this was difficult to do in practice because all beneficiaries must communicate and respond at the same time and be in a position to do so. To address this issue, the drafters of the ICC Arbitration Clause for Trust Disputes have put forward less demanding requirements. If the beneficiaries accept the trust, they will be automatically bound by the arbitration clause.
Despite these challenges, Mr Brownbill observed that there are numerous statutory developments in different jurisdictions around the world, notably offshore jurisdictions and Switzerland, which are moving towards the use of arbitration to solve trust disputes. In this context, he referred to his experience in drafting legislation to provide for the arbitration of trust disputes in the Bahamas and noted that in England and Wales the Law Commission is yet to be engaged on this topic.
A rebirth for trusts
Steven Kempster, a partner in the contentious trust and succession team at Withers, closed the session on considerations as to the end game. The advantage of an award is that it may be more readily enforceable than court judgments in many foreign jurisdictions. As regards minors and unborn beneficiaries, Mr Kelpster welcomed the inclusion in ICC’s Explanatory Note of useful guidelines on the appointment of litigation friends. He observed that this may provide an excellent opportunity for people to have more confidence in the efficacy of arbitration to resolve trust disputes. Mr Kempster closed the panel noting that trusts have been under attack for a long time from various quarters. He suggested that the ICC Arbitration Clause for Trust Disputes may represent a new birth for trusts.
The Drafting Committee of the ICC Task Force on Trust and Arbitration were: Sophie Nappert, Tina Wustemann, Hussein Haeri, David Brownbill, Christopher Koch and Hélène van Lith.
Report by Withers associate Camilla Gambarini, ICC Task Force on Trust and Arbitration
The clause is also available in issue 3 – 2018 of the ICC Dispute Resolution Bulletin, accompanied with contributions by the Drafting Committee.