Bridging Differences: The Role of Mediation in Resolving Cross-Border Trust Disputes
International trust disputes require a multi-faceted approach. They may include novel points of law, cover many areas of law, and lead to conflicts between the legal systems in different international jurisdictions. They require commercial nous, especially where the trust structure is used to hold complex corporate assets. They also touch upon the deeply personal for the individuals and families involved and the core values and beliefs that individuals hold most dear.
In a typical cross-border trust dispute the administration, the assets held, the settlor, the trustees, and the beneficiaries are spread across multiple jurisdictions. Disputes typically can involve a trustee's decision to distribute trust assets in a particular way, contentious investment and management decisions by trustees, or a breakdown in the fiduciary relationship leading to hostile breach of trust claims. The core of these disputes can revolve around motivations tied to perceived rights and entitlements and the family relationships underlying those perceptions. The stakes are usually considerable, emotions highly charged, and the potential outcomes can have repercussions for generations, both financially and with the possibility of relationships being irreparably damaged.
The Benefits of Mediation in Cross-Border Trust Disputes
Cross-border mediation is a process where a neutral third party, known as a mediator, facilitates a dialogue between warring parties to help them reach a mutually acceptable resolution on a multi-jurisdictional dispute, for example where assets are located across the globe, or parties are based or operate in different jurisdictions. If utilised effectively, cross-border mediation can be a valuable tool for resolving cross-border trust disputes, particularly, when they span across multiple jurisdictions, due to its ability to offer tailored, confidential solutions that focus on preserving relationships. Mediation is often strongly encouraged by local courts in many jurisdictions and, for example in England and Wales, parties to litigation can be penalised for unreasonably refusing to mediate.
One big advantage is that mediations take place in private and are subject to a strict form of legal privilege, which means the parties can speak openly to one another on the day and, if a settlement is reached, avoid the need for a public judgment, preserving the reputations of those involved.
Another advantage of mediation is cost. Although committing to the process and the mediator’s fees involves incurring some costs, this is often a fraction of the costs of going to a trial or final hearing, especially if mediation is proposed early in the dispute.
Mediation also maximises the chances of preserving family harmony. The longer litigation goes on, the more entrenched parties become, whereas early mediation can try to capture and manage disputes early to help family members find a way to continue to work together and with their trustees. The flexibility of mediation is an important part of this. When a case reaches a final hearing, the Court has a limited role: it must decide the legal questions before it and nothing else. In mediation, anything can be on the table. So, if a party really wants an apology or a protocol for working together effectively in the future, this can all be brought into a binding settlement agreement.
Litigation vs Mediation: What Types of Trust Disputes are Suitable for Mediation?
Mediation serves as a particularly suitable method for resolving disputes involving breach of trust, proposed trust distributions, and accounting, valuation, and information disputes. Mediation offers a confidential and non-adversarial setting which provides a safe space to air private family matters or where beneficiaries can raise concerns about their trustees and work together towards a mutually acceptable resolution without the need for contentious litigation and while minimising reputational risk for all parties. Disagreements can occur wherever wealth is held, even in relation to the simple and apparently uncontroversial trust arrangements. Here, mediation can facilitate a dialogue that helps all parties involved to understand the perspectives of others and negotiate a fair settlement. Additionally, in situations where beneficiaries request detailed accounting or information about the administration of an estate or trust and there is resistance or lack of clarity from the trustees, mediation can serve as an effective platform for clarifying misunderstandings, ensuring transparency (as documents can be disclosed on a limited and privileged basis for mediation only, preventing wider dissemination), and resolving disputes, potentially preserving relationships, and saving time and resources that might otherwise be spent in court.
Mediation is often the best outcome for clients, but it can be more suitable for some disputes than others and acknowledging the nuances of the dispute is key to deciding how effective a mediation might be. There are some cases where judicial intervention may very well be a must to provide clarity and an authoritative decision. Examples of this might be a dispute over the construction of the trust, where rectification or variation of the trust is sought, where there are concerns about the position of minor beneficiaries, where there are serious allegations of fraud or misconduct or where specific relief, such as the production of documents, is required. In relation to the latter, in the absence of full disclosure, any settlement may be reached on a false premise, leading to further litigation and cost.
Where there are multiple parties with divergent interests, mediation can be complex and challenging to navigate, but this can be managed through careful preparation, strategy, and the right choice of mediator.
Practical Considerations for Cross-Border Trust Disputes
Before committing to mediation and as part of detailed preparation, it is sensible to consider the following:
Jurisdictional issues and applicable laws
Determining which country's laws apply to the trust and the dispute may be complex, which can lead to conflicts of law where different legal systems have competing claims to jurisdiction and directions may need to be sought in several jurisdictions. The starting point will be the governing law of the trust (and which court may be given jurisdiction under the trust deed, which can be different). However, when looking at enforcement it is also important to consider the location of the trust’s assets and of the beneficiaries and others involved (for example if a trust company is regulated in a particular jurisdiction). Approach to mediation is also important, given that different jurisdictions have varying legal frameworks and cultural attitudes towards mediation: some may have well-established mediation procedures, while others may lack a formal process, leading to uncertainty about how to proceed and the strength of any outcome, even when there may be appetite for mediation.
Choice of law and the enforcement of mediation agreements internationally
Even if parties agree to mediate and the jurisdiction of the dispute, they must agree which legal framework will govern the mediation process and any resulting contractual agreement. Enforceability of any settlement agreement is a major consideration in the decision to try mediation. Unlike the case of arbitration, where the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards facilitates the enforcement of arbitration awards across borders, there is no equivalent established global regime for mediation agreements. The Singapore Convention on Mediation, which opened for signatures on 7 August 2019, is the closest equivalent in place at the time of this article. Instead, the law of contract in the relevant jurisdiction will apply, turning a trust dispute into a potential contractual dispute.
Tax and regulatory implications of mediation settlements
Mediation settlements may have tax implications in multiple jurisdictions. Understanding and planning for these consequences before mediation will, therefore, be essential to ensure that the settlement is well structured and cannot be later undermined by unforeseen tax liabilities. Furthermore, the trust, which is the subject of the mediation, may be subject to regulatory oversight in various jurisdictions, and any settlement will need to comply with these regulations.
Cultural dynamics
Cross-border disputes often involve parties from different cultural and linguistic backgrounds, making compatible communication and negotiation styles, a necessity for the success of the mediation process. In addition, in the context of family trust disputes, involving members spread across different countries, cross-border elements can exacerbate existing family tensions and complicate the dynamics of the mediation.
Success Factors and Making Mediation Work the First Time Around the Table
Despite the practical and legal challenges posed - differing jurisdictions, cultural nuances, and complex legal frameworks - mediating cross-border disputes is often the most effective route for all of those involved.
Timing Mediation Effectively
Timing, they say, is king! In some cases, getting the parties to meet at a mediation as soon as possible may be in everyone’s best interests, to remedy relationships before serious damage is done. In other cases, the emotional state of the parties and the costs they have incurred can influence their approach or openness to the process. In the very early stages of a dispute, parties may be less inclined to show flexibility or consider settlement, as emotions are often running high and there may be a perception that engaging in mediation signals a lack of confidence in one's position. As the litigation process unfolds and the potential downsides become more apparent (particularly the costs implications), parties may become more open to finding a mutually acceptable resolution.
Identifying strategic litigation stages for mediation is also crucial. Key moments, such as after the exchange of pleadings, can provide a natural juncture for mediation because they allow each party to understand the other's case while still leaving room for negotiation before positions become too entrenched. Similarly, mediation may be particularly opportune after a preliminary hearing has clarified the legal issues, or once a significant piece of evidence has been disclosed that changes the parties' assessment of their prospects.
However, if done prematurely, and without sufficient information or preparation, parties may not be able to fully evaluate their positions, leading parties to enter mediation with wildly different expectations and to a mediation that is not only unproductive but also potentially damaging. It can result in a hardening of positions if parties feel they have been brought to the table underprepared or pressured, which can make subsequent attempts at settlement even more difficult.
Finally, the cost implications of mediation timing are another practical consideration. While earlier mediation can lead to significant cost savings by avoiding the escalation of legal fees (and should be recommended wherever suitable), this benefit must be balanced against the readiness of the parties to engage meaningfully in the process. A failed mediation can incur costs without resolving the dispute and may even increase the complexity and hostility of the case.
Ensuring the Right People Are Present at Mediation
The mediation process typically involves the parties to the dispute, their legal representatives, and the mediator. However, the presence of other individuals may also be necessary or beneficial. For example, if the dispute involves technical or financial matters, experts in those fields should be invited to the table as well (or to be available if needed). Wider family members or fiduciaries, if their interests are directly affected by the outcome, should also be invited to participate in mediation. The presence or absence of particular people can make or break a mediation, for example those who really wield the power in a family, or someone who can make the family members feel reassured and comfortable. Otherwise, the process or any outcome may fail not from a lack of effort but from poor set-up.
Selecting the Best Mediator for Cross-Border Disputes
One of the most important decisions which will affect the outcome of a mediation is the choice of mediator. The mediator should not only possess the right expertise in the relevant subject matter but also demonstrate impartiality, patience, and the ability to facilitate difficult conversations. In some disputes the underlying law is less important, but in others the mediator’s familiarity with the applicable laws and the nuances of the customs involved cannot be overstated; such knowledge ensures that the mediator can guide discussions within the appropriate legal and cultural frameworks. Additionally, a mediator with cultural insight and language proficiency can bridge divides, fostering understanding and smoothing over potential miscommunications. The London based Centre for Effective Dispute Resolution (CEDR) provides an internationally recognised qualification for mediators. For mediations in the UAE the Dubai International Arbitration Centre (DIAC) upholds a similar standard of mediator competence and practice.
Mediation & Family Business Disputes
In the context of family business disputes, mediation can play a crucial role due to the unique blend of personal relationships and commercial interests at stake. It provides a confidential and informal setting that can help maintain business operations and preserve family relationships.
Disputes about family businesses, such as shareholder disputes, suit mediation for many of the same reasons as trust disputes. There are several other factors to consider.
Financial Preparation for Family Business Mediation
Financial preparation is critical in mediation involving family businesses. This includes obtaining accurate valuations of the business and its assets, which are often a central issue in disputes. Valuations must be conducted by qualified professionals and should be agreed upon by all parties to ensure that discussions are based on a shared understanding of the business's worth. Ideally these should be circulated well in advance of mediation, so the parties can comment and consider these.
Focusing Discussions on Financial Realities
Discussions during mediation should be grounded in the financial realities of the business. This means considering not only the valuation but also the business's cash flow, debt, and profitability. A clear picture of the financial situation helps to set realistic expectations and facilitates more pragmatic discussions about the division of assets, responsibilities, and future business strategies.
Engaging Banks and Stakeholders in Mediation
Banks and other third parties, such as investors or creditors, often have a stake in the outcome of family business disputes and in the enforceability of any deal. Their involvement in mediation can be crucial, as they may need to agree to any changes in the business structure or financial arrangements that result from the mediation. Keeping these parties informed and involved can help ensure that any agreement reached is viable and can be implemented effectively.
Structuring Preliminary Settlements in Mediation
Introducing a preliminary settlement structure at the outset can serve as a roadmap for discussions. This structure outlines potential solutions and can be adjusted as mediation progresses. It helps to focus the parties on the end goal and provides a framework within which they can explore different options for resolving their dispute.
Handling Family Dynamics Sensitively in Mediation
Family dynamics can significantly influence the mediation process. The mediator must handle these dynamics sensitively, recognizing the emotional undercurrents and personal relationships that may impact negotiations. Building trust and ensuring that each party feels heard and respected is essential for a successful mediation.
Managing Difficult Personalities in Mediation
Dealing with difficult personalities is a common challenge in family business disputes. Mediators and participants should be prepared with strategies to manage conflict and keep discussions on track. This may include setting clear ground rules for communication, taking breaks when tensions rise, and focusing on common goals rather than personal grievances. The mediator's skill in redirecting negative energy and fostering a collaborative environment is key to keeping the mediation process moving forward.
Conclusion: Transforming Disputes Through Mediation
Mediation can be pivotal in the resolution of global trust disputes, offering a path through the personal values, familial bonds, and commercial interests that define such conflicts. The process, when correctly applied, can transform a potentially destructive dispute into a constructive dialogue, preserving relationships and legacies across borders and generations.
While mediation may not be suitable for all disputes it stands out for its flexibility, confidentiality, and capacity to accommodate the complex realities of cross-border trust disputes. Jurisdictional issues, enforceability of agreements, tax implications, and cultural dynamics present challenges that require careful navigation. Yet, with the right timing, preparation, representation, and mediator, these hurdles can be overcome, turning mediation into a strategic opportunity rather than a procedural afterthought.
