Resolving cross-border trust disputes via arbitration and mediation
This article discusses the role of arbitration and mediation in resolving cross-border trust disputes.
- Cross-border trust disputes can involve relevant parties, assets and legal systems spanning several countries.
- Litigation before national courts is not the only avenue for resolving such disputes. Arbitration and mediation can, individually or together, serve as viable alternatives.
- The right dispute resolution mechanism for a dispute will depend on, amongst other things, the reasons for exploring dispute resolution, the nature of the dispute and the parties involved, cost considerations, and the relevant legal systems.
- Jurisdictions considered: UK, UAE, USA, Singapore, India, Switzerland, Bahamas, Liechtenstein, Guernsey.
Disputes relating to the management or administration of a trust are usually emotionally charged and high-stakes. The repercussions of these disputes, both financial and interpersonal, can last generations. When the assets, settlor, fiduciaries and/or beneficiaries of the trust under dispute are spread across jurisdictions, additional layers of complexity are introduced. The dispute may include novel points of law, cover more than one area of law, and lead to conflicts between the legal systems of the different applicable jurisdictions. Resolution will then require a multi-faceted approach. This article considers the benefits of mediating and/or arbitrating such disputes and considers developments across multiple jurisdictions.
Why Mediate?
Mediation is a process whereby a neutral third party, known as a mediator, facilitates a dialogue between conflicting parties to help them reach a mutually acceptable resolution. It gives parties the ability to tailor creative resolutions to disputes in a confidential and non-adversarial setting at limited costs. It is often strongly encouraged by local courts in many jurisdictions. In England and Wales, for example, parties to litigation are strongly encouraged to mediate[1] and can be penalised for unreasonably refusing to mediate[2]. In the DIFC, the court has the power to refer parties for mandatory mediation[3] and has established a mediation centre.
In contrast to litigation, where the court’s mandate is limited to determining the legal questions before it, mediation is intended to be a flexible process that can be moulded by the parties to secure their specific interests. So, if a party desires an apology or a protocol for working together effectively in the future, this can be brought into the settlement agreement.
Mediation, unlike litigation, takes place in private and is subject to a strict form of legal privilege. This means that 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.
In terms of costs, mediation is also an attractive option. Although mediation involves some costs (administrative and mediator’s fees), this is often a fraction of the expense of litigation (or arbitration). The costs can further be limited if mediation is undertaken at an early stage of the dispute when parties are less likely to be entrenched in their positions and more willing to find a way to continue to work together.
In the context of family disputes, where preserving family harmony and reputations is of paramount interest, these factors make mediation especially suitable to resolving disputes.
Can All Types of Trust Disputes Be Mediated?
Disagreements can arise wherever wealth is held, even from apparently uncontroversial trust arrangements. While mediation is often the best option for clients in these circumstances, it may not be uniformly suited to all types of trust disputes. Acknowledging the nuances of the dispute is key to deciding how effective a mediation might be for a particular trust dispute.
Mediation serves as a particularly suitable method for resolving disputes involving a violation of fiduciary responsibility, proposed trust distributions, and accounting, valuation, and information disputes. 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.
There are some cases however where judicial intervention may be essential. 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.
There are also some disputes which may be unsuitable for mediation because of those involved. In such cases, a decision will need to be taken based on an assessment of the specific facts. Disputes involving multiples parties with divergent interests, for example, can be complex and challenging to mediate. However, this can be managed through careful preparation, strategy and the right choice of mediator.
Making Mediation Work
To be an effective dispute resolution strategy, there are some critical factors to consider:
Timing
There is no single stage at which to trigger the mediation process. Instead, mediation must be commenced when parties are most likely to participate meaningfully in the process. This will vary with each case.
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 and a dispute has crystallised. Early mediation can lead to significant cost savings by avoiding the escalation of legal fees.
However, if done prematurely, parties may not be able to fully evaluate their positions. This would create scenarios where parties enter mediation with wildly different expectations and result in failed mediations that are not only unproductive but also expensive and damaging. If parties feel that they were brought to the table underprepared or under pressure, subsequent attempts at settlement become more difficult.
Therefore, in other cases, it may be more beneficial to start mediation once the litigation or arbitration process unfolds and the potential downsides (particularly the cost implications) of continuing with the litigation or arbitration become more apparent. 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 (frequently misguided) perception that engaging in mediation signals a lack of confidence in one's position.
Even where mediation is commenced after the litigation or arbitration process has been set into motion, timing the mediation to coincide with the most advantageous litigation or arbitration stage is important. Mediation may be particularly opportune after an exchange of pleadings that provides clarity on the other side’s case, a preliminary hearing that has clarified the legal issues, or once a significant piece of evidence has been disclosed that changes the parties' assessment of their prospects.
Participants
The presence or absence of particular people can play a deciding role in a 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 made available if needed). Wider family members who wield power in the family or can make the family members feel reassured and comfortable. So too, fiduciaries, if their interests are directly affected by the outcome, should also be invited to participate in mediation.
Mediator
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.
Why Arbitrate?
Some disputes (or some stages in disputes) may be more suitable for arbitration. In arbitration, parties submit their disputes to an arbitrator (or a panel of arbitrators) to obtain a binding decision. As a private form of dispute resolution, arbitration grants the parties a neutral and confidential forum to resolve their disputes using a system that can be tailored to meet their requirements. The decisions that ensue from arbitrations, known as awards, are final and binding on the parties and enforceable across borders.
Like mediation, arbitration grants parties a confidential and flexible means of resolving disputes. Arbitration allows a far higher degree of confidentiality than litigation in most court systems. It also grants parties a greater amount of flexibility and control over the dispute-resolution process, from the choice of jurisdiction in which the dispute can be resolved to the selection of the arbitrator(s) and party representatives.
In addition, arbitration offers a robust system for enforcement of awards. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, commonly known as the New York Convention, usually makes it simple, fast, and cheap in principle to enforce arbitral awards rendered in one jurisdiction against assets held in other jurisdictions. There is no equivalent established global regime for court judgments.
In the context of trust disputes, especially, those that are cross-border, these are significant advantages. Private clients, families, and high-net-worth individuals generally wish to keep their disputes confidential, and the arbitration process will guarantee that this remains the case. The parties’ autonomy to dictate the terms of their arbitration is also of particular value in such disputes. Parties can decide on the place of jurisdiction in which the dispute can be resolved – which may differ from the jurisdiction of the trust’s governing law; agree on a timeline for the arbitration process to be completed; and select the arbitrator(s) – which would allow them to appoint specialists in equity, the laws of offshore jurisdictions that often govern trust instruments, family law, and cross-border disputes.
Courts themselves often go far in upholding agreements to arbitrate in the context of trusts. Challenges to trust arbitration proceedings including applications to set aside tribunal decisions, orders, and awards, have generally been unsuccessful in common-law jurisdictions and not granted on the basis of any trust-related attacks (as opposed more generally to attacks that could be made about arbitrations over other substantive disputes). Challenges to the validity of arbitration agreements in these disputes on the grounds of alleged fraud/dishonesty in procuring the trust arrangement have also been considered by courts and generally the answer is that the agreements are valid. In civil law countries, where trusts are not an automatic fixture of the legal system, courts are recognising trusts and awards related to trust disputes. For example, in Switzerland, courts will enforce arbitral awards arising from trust arbitration through its conflict-of-laws provisions that effectively allow foreign trusts to be incorporated into Swiss law.
Obstacles to Arbitrating Trust Disputes
Certain disputes generally fall within the arbitration agreement, such as disputes between the settlor(s), trustee(s), and/or beneficiary or beneficiaries. These so-called “internal” disputes may concern the construction of the trust document, applications for the removal of trustees, applications by trustees for directions or to approve courses of action, actions for breaches of trust by trustees, and disputes between beneficiaries. However, even with these disputes, there are potential obstacles to their arbitration.
Third Parties to the Arbitration Agreement
Foremost, generally speaking, an arbitration agreement is limited to its signatories and does not bind third parties. In the context of trust agreements, the key signatories are the settlor(s) and the trustee(s). Thus, a preliminary issue may arise as to whether other interested parties are bound by the arbitration agreement therein.
Thus, for example, questions may arise as to whether the beneficiaries are parties to the arbitration agreement. Indeed, perhaps the greatest challenge in trust arbitration is the absence of a contractual mechanism binding beneficiaries to an arbitration agreement, thereby requiring an express contractual mechanism or other legal mechanism to make arbitration agreements contained in trust instruments binding on the beneficiaries.
An example of the contractual approach is the Model Arbitration Clause for Trust Disputes issued by the International Chamber of Commerce (the “ICC Model Clause”). This clause expressly provides that “[a]ny beneficiary claiming or accepting any benefit, interest or right under the Trust, shall be bound by, and shall be deemed to have agreed to, the provisions of this arbitration clause.” The ICC Model Clause also provides that “each successor trustee and [protector] [other power-holder], by acting or agreeing to act under the Trust, also agree, or shall be deemed to have agreed, to the provisions of this arbitration clause.”
The legal approach varies within and across jurisdictions. Jurisdictions such as the Bahamas[4], Guernsey[5], and Liechtenstein[6] have legislated to confirm the binding effect of arbitration agreements on beneficiaries. Elsewhere, courts have stepped in to provide precedent on this issue. For example, the Texas Supreme Court has applied a doctrine of "direct benefits estoppel", i.e., a beneficiary is considered to have acquiesced to the provisions of a trust instrument, including its arbitration agreement, where the beneficiary seeks to enforce the instrument, to give effect to the intention of the settlor[7]. A similar approach has been taken in Singapore[8].
In England, approaches vary. There is no Supreme Court authority on the issue but lower courts are willing to find beneficiaries are bound depending on the drafting of the trust instrument[9], e.g., a “carrot and stick” approach via the insertion of conditions precedent that require potential beneficiaries to submit any disputes to arbitration before benefitting under the trust and the use of forfeiture clauses that remove beneficial interests in the trust in cases of dispute resolution other than arbitration.
Another manifestation of this issue is with respect to parties external to the trust arrangements. External parties may “attack” the trust arrangement via challenges on the validity of the trust documents or the very creation of the trust on grounds such as breaches of inheritance rights, lack of capacity, or undue influence. The claimants in these types of action are unlikely to be bound by the agreement to arbitrate and will instead have to bring their claim(s) via court litigation.
Limited Remedies
Another challenge that frequently arises is that trust disputes often involve remedies that arise from statute or a court’s inherent supervisory jurisdiction over trusts, and a party may argue that an arbitral tribunal lacks the necessary authority to grant this type of relief. However, the English High Court recently upheld an arbitration agreement between a beneficiary (as the claimant) and the trustees (as the defendants) where the beneficiary sought to have a judicial trustee appointed in place of the defendant trustees even though the appointment of a judicial trustee was a statutory remedy of the court[10].
Obstacles to Enforcement
Some jurisdictions, like India, consider trust disputes to be non-arbitrable. The Law Commission advised in 2017 that “a clause in a trust instrument requiring disputes to be arbitrated is not binding”, but no express provision is made either in the English Arbitration Act 1996 or the 2025 amendments thereto. In the context of cross-border trust disputes, laws prohibiting the arbitration of trust disputes could mean that an award obtained pursuant to a trust arbitration which is recognised and enforceable in one jurisdiction cannot be enforced against assets in other jurisdictions.
There can also be public policy arguments against binding and enforcing awards against beneficiaries like children, the unborn, and the unascertained.
More practical obstacles may be encountered in the actual enforcement process as well. For example, if the trust property has already have been paid out to beneficiaries and dissipated, asset tracing and recovery – necessary elements of any enforcement action – will be difficult, expensive, and time-consuming.
Costs
Arbitration is not an inexpensive process. In addition to the legal costs that parties will incur, arbitration will also involve additional costs such as the arbitrator fees and administrative costs in cases of institutional arbitrations. These costs will vary with the arbitrator (in cases of ad hoc arbitrations) or the relevant arbitral institution.
In deciding whether to pursue arbitration, parties must therefore consider whether the amount in dispute is worth the costs of the arbitration.
The Way Forward
There is an undoubtedly warm attitude to mediating and arbitrating trust disputes around the world. In the context of arbitrations, this shift is encouraged by several trends including a desire for families to have a wider range of legal instruments to protect their property, the development of financial centres that want to attract financial services companies to manage and invest assets on behalf of others, and the adoption of common law in places like the Dubai International Financial Centre in the Arabian Gulf in order to protect foreign investment.
Institutions are responding to this by issuing bespoke rules (for example, the American Arbitration Association has a set of Wills and Trusts Arbitration Rules and Mediation Procedures) and template dispute resolution clauses (for example, the ICC Model Clause).
As discussed above, both mediation and arbitration have their own distinct advantages with respect to each other and over litigation. Determining whether either (or both) forms of dispute resolution are suited to a particular dispute involves challenges that require careful navigation.
Thomas Snider, Tamasin Perkins, ‘In trust we arbitrate’, Trust Quarterly Review (Issue 3, 2025).
[1] See Heyes v Holt [2024] EWHC 779 (Ch) where the judge observed that “this is a case which cries out for mediation”.
[2] Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, Northamber v Genee World [2024] EWCA Civ 428 and CPR 44.3(4)
[3] RDC rule 27.3 and Practice Note no.1 of 2021
[4] Trustee (Amendment) Act 2011, § 91A and the Bahamian Supreme Court decision in Volpi v Vopli.
[5] Trusts (Guernsey) Law 2007, Art. 63. Notably, the other jurisdiction in the Channel Islands – Jersey – has not followed Guernsey’s lead.
[6] Liechtenstein Code of Civil Procedure, § 634(2).
[7] Hal Rachal, Jr., v John W. Reitz, No. 11-0708 (Tex. 3 May 2013).
[8] Jiang Haiying v Tan Lim Hui and another suit [2009] SGHC 42 and Cassa di Risparmio di Parma e Piacenza SpA v Rals International Pte Ltd [2015] SGHC 264.
[9] Lewin on Trusts, 20th edition, chapter 49 and Grosskopf v Grosskopf [2024] EWHC 291 Ch.
