The Arbitration Act 1996 (Act) was enacted to facilitate the arbitration of commercial disputes and to enable international arbitration so that disputes decided here can be easily enforced in other jurisdictions. In principle, the incorporation of an arbitration clause should lead to the successful resolution of such disputes in a private, expeditious, and cost-effective way.
While the ability to arbitrate is most obviously premised on arbitration being the parties' contractually agreed method of resolution, there is currently no general guidance in the Act as to what matters of dispute may or may not be arbitrated. Throughout the Act's existence, many commentators have been of the view that disagreements between parties, capable of being settled by direct agreement, should be able to be determined by way of arbitration. However, in the trust law area in particular, the lack of statutory guidance has meant that lawyers have always approached the possibility of arbitration with caution, and arbitration has been very rare.
Arbitration of trust disputes
Trusts continue to be the preferred vehicle for the protection and maintenance of wealth in both personal and commercial contexts. But while the number of trusts increases (currently estimated to be in excess of 500,000) so too does the prospect of disputes between trustees and beneficiaries and other interested parties, and the inevitable litigation that follows. Trust litigation requires parties not only to have deep pockets, but also an indifference to the potential disclosure of the financial, commercial, and personal affairs associated with the trust (unless confidentiality orders are obtained, which can be difficult, court proceedings are a matter of public record).
Currently, there is a degree of uncertainty as to whether a trust deed with an arbitration clause is to be considered an 'agreement' capable of being arbitrated, or rather a 'disposition of property' which would not. Accordingly, the arbitration of trust disputes appears to fall at the first hurdle.
The Arbitration Amendment Bill 2017 (Bill) seeks to alleviate any uncertainty by expressly stating arbitration clauses in trust deeds are to be treated as arbitration agreements for the purposes of the Act, bringing trust disputes clearly under the ambit of the Act.
The Bill seeks to apply the privacy and confidentiality advantages associated with arbitration to the trust context by exchanging the presumption of publicity in court proceedings to a rebuttable presumption of confidentiality in arbitration.
These amendments and the possibility of incorporating arbitration into a trust deed should appeal to settlors for the following reasons:
a. Privacy - sensitive financial, commercial, or personal affairs can remain private and confidential;
b. Efficiency – arbitral processes and procedures can be tailored to the dispute, achieving greater flexibility than would otherwise be possible through litigation;
c. Expertise – the disputants have the freedom to choose the decision-maker, ensuring an arbitrator that is often better equipped in dealing with specialist trust disputes; and
d. Cost and speed – arbitrations can be quicker with greater freedom to negotiate arbitrators' fees.
These advantages were the very reason Parliament passed the original Arbitration Act; the proposed amendments simply ensure that these advantages are clearly and unambiguously extended to allow prudent and risk adverse settlors to effectively implement arbitration clauses in trust deeds. This is welcome after two decades of uncertainty.
Public submissions are now being invited on the Bill. Have your say by submitting your views to the Justice and Electoral Committee here
by no later than 22 June 2017
If you would like any assistance in making a submission, would like to speak with an experienced trust practitioner, or would like to take advantage of these new provisions in a current or proposed Trust Deed, please contact Wynn Williams.