Disputes over family trusts and succession are increasingly common for a number of reasons including family fragmentation, economic turmoil, and a more assertive group of next generation beneficiaries. But when fall-outs occur, how can families ensure that their personal affairs are not aired in a public court process? Despite the offshore world's reputation for secrecy, even the courts in jurisdictions with established trust industries do not guarantee that every family trust dispute will be heard in private.
For this reason, non-court dispute resolution processes, such as private arbitration, offer an attractive option for wealthy families and/or businesses that are owned by family trusts. There can be nothing more damaging or distracting than having a family rift over the ownership or control of a trading business play out in public. Ensuring that such disputes are dealt with confidentially and protecting details of the family trust and family relationships are usually a priority for any wealthy family or their advisers. But can such ‘non-commercial’ disputes be submitted to arbitration? How significant are the legal hurdles to this and how are some of the established trust jurisdictions seeking to address the challenge and make changes to their arbitration and trust law regimes to allow for the proper fusion of the worlds of arbitration and trusts?
Why Not Arbitrate?
Compared to court proceedings, the benefits of arbitration for dealing with trust disputes are quite clear:
The resolution of international commercial disputes is not often a clear-cut affair. It is rarely as straightforward as simply approaching a judge for a decision, and instead often involves a variety of dispute resolution mechanisms such as litigation, mediation and arbitration.
Litigation in essence involves going to court and petitioning a judge to rule on the dispute. Arbitration, on the other hand, is a private dispute resolution mechanism which parties opt into. Parties have plenty of flexibility in determining the structure of an arbitration and can, for example, select the arbitrators who will decide the dispute. Although litigation and arbitration are mutually exclusive, litigation is often used to support arbitration, such as by obtaining freezing injunctions or court-ordered stays of court proceedings commenced in breach of arbitration agreements.
Given the uncertain outcome, and the time and costs involved in litigation or arbitration proceedings, there is growing recognition that it may not always be in the parties’ best interests to pursue litigation and arbitration proceedings all the way to judgment or award. Parties therefore increasingly rely on mediation to attempt to settle all or part of a dispute. Mediation is a structured negotiation pr…