Where parties have agreed to arbitration, the England and Wales High Court (Chancery Division) in Grosskopf v Grosskopf [2024] EWHC 291 (Ch) has determined that a claim for a court-appointed trustee for a trust does not prevent the issues in dispute from being arbitrable. This is the first English case on the issue, although it reflects an emerging trend favouring alternative dispute resolution (ADR) for trust disputes, both overseas and in New Zealand.
Background
The claimant is a beneficiary under a discretionary family trust, the M Grosskopf 1974 Settlement Trust. Two of his brothers are the present trustees of the trust and, in that capacity, the defendants in the proceedings. The class of income beneficiaries is vested and comprises the seven children of the late settlor (their father). The class of discretionary beneficiaries for distributions of capital is extensive and remains open. While the assets of the trust, comprising shares in various companies and a property in London, are worth £16 million or more (NZD$33.3m), the net income distribution to each income beneficiary, other than the trustees, was an average of £15,000 per annum (NZD$31,000) over six years.
Following the settlor’s death, and due to the claimant’s concerns regarding the defendants’ trusteeship of the trust, he sought financial information about the trust from the defendants. This led to the parties entering into an arbitration agreement for their disputes to be determined by the Beth Din of the Federation of Synagogues (a Jewish rabbinical court offering arbitration by tribunal as an alternative to court proceedings). The other beneficiaries, including the minor and unborn capital beneficiaries, were not represented in the arbitration. Following several awards by the Federation Beth Din and a High Court decision, the claimant issued a claim in the High Court for the appointment of a Judicial Trustee (a statutory court-appointed trustee), alleging breach of trust and dishonesty by the present trustees.
The present trustees sought a stay of proceedings under s 9 of the UK Arbitration Act 1996 (equivalent to s 8 of Sch 1 of New Zealand’s Arbitration Act 1996), on the ground that the matters in issue were within the scope of the ongoing arbitration agreement. The claimant resisted the stay, arguing the claim could not be arbitrated because:
- only the court has the power to appoint a Judicial Trustee and it is not a remedy available to the Federation Beth Din;
- arbitration could not be an effective remedy for practical reasons, namely, the other beneficiaries were not legally represented at the adjudication and the trustees (as the only other parties to the arbitration) did not have the power to appoint new trustees, if so awarded; and
- he was entitled to ask the High Court to exercise its inherent supervisory jurisdiction to enquire into the trustees’ conduct, and discharge its jurisdiction by using its statutory power to appoint a Judicial Trustee.
Arbitrable matters
The High Court considered the decision in Republic of Mozambique v Prininvest Shipbuilding SAL (Holding) [2023] UKSC 32 to determine the appropriate approach to s 9 of the Act. In that case, the Supreme Court said English law took a pro-arbitration approach, which might require a generous interpretation of the arbitration agreement. The Court said s 9 required a two-stage approach: identify the matters underpinning the claim and determine whether those matters fall within the arbitration agreement’s scope.
The High Court considered the substance of the dispute under consideration was, in general, complaints against the present trustees and a breakdown in trust administration. It found that both the court and the adjudicating tribunal had determined that those matters were within the scope of the arbitration agreement. Therefore, the claimant was estopped from alleging the matters fell outside the arbitration’s scope. While it wasn’t necessary, the court noted the grounds on which the proceedings were issued were “clearly suitable for resolution by arbitration” and the arbitrating tribunal had the power to make enforceable directions. There was:
[61] …no statutory prohibition or policy rule against trust disputes being resolved out of court, including as to whether a complaint made against a trustee is made out, and justifies them standing down.
The Court has inherent supervisory jurisdiction, although it must be invoked by interested parties for the matter to be judicially considered. However, the matter may be resolved between the parties without referring to the court. For example, by the trustee retiring and whether or not all beneficiaries are involved. Doing so would not affect the other beneficiaries’ equitable rights under the trust. Should another beneficiary apply to the court under its inherent jurisdiction, the risk of an inconsistent finding lies with the trustee in agreeing to arbitration.
While the arbitration agreement prevented the claimant from accessing remedies available under the High Court’s supervisory jurisdiction, such as appointing a Judicial Trustee, other remedies were available to him. For example, the Federation Beth Din could direct the present trustees to retire and to seek the person holding the power of appointment to appoint replacement trustees. The non-availability of remedies available to the court did not make the matters inarbitrable.
The option of ADR
This case reflects the support by courts for ADR options, including arbitration and mediation, as means for parties to resolve trust disputes in appropriate matters. The High Court in this case found the matter should be resolved by arbitration, notwithstanding the court’s inherent supervisory role over trusts. New Zealand’s new Trusts Act 2019 contains specific provisions governing and promoting ADR for trusts.
ADR can be attractive in the context of family trusts as it allows disputes between trustees and beneficiaries, or trustees and third parties, to be resolved expeditiously and, potentially, at a lower cost than court proceedings. Further, and significantly in the context of family matters, the proceedings must generally be held in private and the parties are generally prohibited from disclosing confidential information from the proceedings. This makes ADR a helpful tool for families seeking to maintain their privacy and reputation.
Suzanne Smith is an associate and Daniel McLaughlin is a special counsel in the private wealth team at Dentons Kensington Swan.
0 Comments