Exploring the role of arbitration in Guernsey trust disputes

In recent years, the landscape of international dispute resolution has witnessed significant shifts and arbitration is increasingly viewed as an attractive alternative to litigation - particularly in trust disputes. 

According to the Courts and Tribunals Judiciary, the UK recorded more than 43,000 international civil disputes resolved through arbitration, mediation and adjudication in 2020, with English law governing a significant portion of these.

As the prevalence of arbitration grows onshore, its application in the realm of trust disputes has become increasingly intriguing, especially in international finance centres like Guernsey.

But what challenges do arbitration, mediation and adjudication as an alternative to dispute resolution in Guernsey present? And how can they be combated?

The legal framework for arbitration in Guernsey

Guernsey provides a structured framework for arbitration under the Arbitration (Guernsey) Law 2016 (Guernsey Arbitration Law) and the Trusts (Guernsey) Law 2007 (Guernsey Trusts Law).

Section 63 of the Guernsey Trusts Law permits settlement of actions against trustees via alternative dispute resolution, including arbitration, making such settlements binding for all beneficiaries – a crucial consideration where there are minor and unborn beneficiaries involved. This consideration is reinforced by section 5 of the Guernsey Arbitration Law, which states that an arbitration agreement is not discharged by a lack of capacity which includes a natural person that is legally incapable.

However, there is currently only limited protection under the Guernsey Trusts Law.

At present, section 63 of the Guernsey Trusts Law only provides for binding settlement by arbitration of any claim against a trustee founded on breach of trust. It also requires the settlement to be recorded in a document signed by, or on behalf of, all parties to be binding.

The benefits of arbitration in Guernsey

Arbitration in Guernsey trust disputes offers several advantages:

Confidentiality

Arbitral proceedings are private, safeguarding the sensitive family and financial matters often involved in trust disputes.

Expertise

Parties can select arbitrators with specific expertise in trust law, leading to a more informed resolution.

Flexibility

The arbitration process can be tailored to suit the parties' needs, often making it more efficient.

Enforcement

The New York Convention enhances cross-border enforceability, a crucial factor for international parties.

The challenges of arbitration in Guernsey

Despite its benefits, arbitration in Guernsey trust disputes still faces several challenges:

Costs

The fees for arbitrators and administration can be a deterrent, although these fees will likely be offset by savings in process efficiency.

Limited jurisdiction

Not all trust issues can be arbitrated. Public policy can further complicate the enforceability of arbitral awards in certain contexts.

Limited appeal rights

Arbitral awards are often final, making challenges to errors in law or fact difficult.

Perception of bias

Concerns about arbitrator impartiality persist, although these can be mitigated through careful selection processes.

Complexity

The intricate nature of trust structures, the volume and coordination of several different parties and the diversity of interests involved can complicate arbitration proceedings in trust disputes.

Enforcement

Difficulties may arise when dealing with jurisdictions that have less robust legal frameworks for arbitration where there is a lack of local laws / regulations, or where there are additional specific requirements.

Precedent

Due to the private nature of arbitrations there are fewer precedents to guide the arbitration process. Though arbitrators can look to court decisions, it is harder for trustees to assimilate learning from other arbitration decisions as there is limited reporting. Moreover, arbitration does not create binding precedent in the same way that higher court decisions do which can lead to inconsistency and can mean there is less predictability in the outcomes.

Lack of public accountability

The privacy of arbitration means that there would be a lack of public scrutiny and transparency, which can be a downside for parties that want a more open and accountable process.

Combating the challenges of arbitration in Guernsey

Addressing the concerns associated with arbitration in Guernsey involves strategic drafting and management of arbitration clauses – ideally within the trust instrument itself. However, even without an existing arbitration clause, parties can agree to arbitrate post-dispute, albeit this requires unanimous consent.

The following aspects should be considered:

Arbitrator choice

Choosing highly qualified and experienced arbitrators reduces the potential need to appeal. Fears of bias should be minimal as professional arbitrators are neutral parties. Neutral arbitrator requirements can be set in clauses or by agreement of the parties and arbitrators can – and should – be required to declare any conflicts before being appointed. Using a panel of arbitration over a single arbitrator can also help to avoid bias. Experienced arbitrators can also produce detailed awards to ensure clarity and transparency.

Rules

Provided that experienced and knowledgeable legal advisors are working in conjunction, rules and agreements on disclosure and evidence can be agreed relatively simply, by following what is ordinarily standard practice with added flexibility. Pre-arbitration conferences can be used to outline procedures, agree timelines and set clear expectations.

Confidentiality

Confidentiality awards / non-disclosure agreements (NDAs) can also be signed as part of the arbitration process.

Costs

Fee agreements can be put in place or negotiated beforehand and included as part of any arbitration clauses drafted. Streamlining the arbitration process by limiting scope and not having to go through mandatory court processes can save costs.

Interim measures

The lack of current precedent shows the flexibility of the arbitration process. As noted above, previous findings are not binding which may (or may not) work in your favour. There are near unlimited options on what can be agreed in express arbitration clauses, or between parties before the arbitration commences in line with industry standards when granting any award to help shape a framework for decision making.

Key takeaways for arbitration in trust disputes

Arbitration holds great potential for resolving trust disputes, offering a confidential, expert-led, and flexible alternative to traditional court litigation. With careful consideration and strategic application, arbitration can serve as a powerful tool in the resolution of complex trust disputes, aligning with the evolving needs of international legal landscapes.

It would be recommended to seek to include arbitration clauses in trust documentation as the use of arbitration can become more complex without an express clause. Without an arbitration clause, all parties involved in a dispute are required to agree to arbitration, which could prove more difficult where there is existing conflict and animosity.

Through its structured legal framework and emphasis on confidentiality and expertise, Guernsey is well-positioned to utilise arbitration effectively in trust disputes, paving the way for more dynamic and adaptable dispute resolution processes in the future.

How Ogier can help

Ogier has one of the largest Dispute Resolution teams across our jurisdictions, advising on technical, strategic and procedural aspects across the spectrum of contentious commercial issues and disputes. Our team has experience in all matters relating to international arbitral proceedings, and we have a pedigree in local and cross-border trust dispute resolution. Our trusts disputes specialists form part of Ogier's Trusts Advisory Group, working seamlessly alongside Ogier's non-contentious private client and corporate lawyers.

For more information or to find out how Ogier can advise you in this area, contact a member of the team listed below. 

About Ogier

Ogier is a professional services firm with the knowledge and expertise to handle the most demanding and complex transactions and provide expert, efficient and cost-effective services to all our clients. We regularly win awards for the quality of our client service, our work and our people.

Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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