Cross-border trust disputes are becoming increasingly common. Families are expanding globally and growing their assets internationally with them. Usual methods of safeguarding wealth through trusts fail to account for future disagreements over distributions or the best way forward.

Cross-border trust disputes are inherently complex. The issues, people, and assets span multiple jurisdictions, each with conflicting governance laws. There are cultural and linguistic concerns to consider, as well as the interests of children and the unborn. Dispute resolution is complicated and requires competence and care to deliver the best outcome whilst maintaining the confidential nature of family assets.

Traditional trust oversight mechanisms do not always reflect client interests. Court litigation is slow, expensive, and most importantly – public. Courts may not understand the unique familial or cultural practices behind trust decision-making. It is therefore no surprise that clients are turning to alternatives, with the intention of preserving family harmony, quickly resolving issues, and keeping matters discrete.

There are two principle methods of Alternate Dispute Resolution (“ADR”) that are growing in popularity: mediation and arbitration.

But when should you choose mediation? What are the benefits of arbitration? And how should you choose the right path for your situation?

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Mediation

Mediation is a voluntary process where a neutral third party helps disputing sides communicate and negotiate towards a mutually accepted resolution. The process enables the parties to agree a unique set of rules to resolve their dispute in a confidential and conciliatory manner. By design, mediation is usually the most cost-effective form of dispute resolution.

Mediation is most suitable for clients where preserving relationships between the parties is of utmost importance. In addition, mediation is most effective when communication has broken down between the parties but an agreement still feels within reach. As parties are free to choose mediators between them, mediation excels where cultural or familial practices are significant to any possible resolution.

The key advantages of mediation are that any discussions between the parties are private and confidential. The outcomes of any mediation are entirely flexible – solutions can be creative, in contrast to the limited remedies available to a court in any given situation. For example, a mediation can result in not only resolving a particular issue but also agree a new communication protocol to prevent similar issues arising in the future.

Mediations therefore offer an excellent solution where disagreements are new and have not escalated too far. They offer the possibility of a confidential settlement which preserves relationships in a cost-effective way. Mediation works best at the time where the disagreements between the parties are at their smallest and most reconcilable.

There are situations where mediations are not viable.

These include situations where there are serious allegations of fraud or misconduct, or where one-party refuses to engage in discussions in good faith. In addition, mediation will not assist in situations where the involvement of the court is legally required – for example, varying the trust instrument where it affects minors.

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Arbitration

Arbitration is a process where the parties choose an independent arbitrator (or panel of arbitrators) hear submissions from the parties and reach a final, enforceable decision called an award. Whilst this is similar to courtroom litigation, parties have flexibility over who to appoint as arbitrator, the seat and governing rules of any arbitration, and the benefit of confidentiality over affairs.

Arbitration suits clients who require binding decisions in a disagreement where the other side indicates they will not participate voluntarily. Furthermore, arbitration is best suited for disputes that require complex interpretations of trust instruments or understanding of law. In these situations, specialist arbitrators can be chosen to reach an authoritative conclusion.

Importantly, arbitration awards are enforceable internationally. This is crucial for cross-border trust disputes. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (“the Convention”) enables arbitrations awarded in any of 172 countries to be enforced in any other of those countries. This is an advantage over court litigation, as arbitral awards are generally easier to enforce internationally than court judgments.

There are many other reasons to choose arbitration over courtroom litigation. As a form of ADR, parties can be flexible in their proceedings. The choice of language, jurisdiction, arbitrator, and timetable can all be chosen to serve the best interests of the clients. In addition, there is a vast choice of arbitrators to choose from. Internationally-renown trust experts can be appointed as arbitrators in cross-border arbitrations, even if the trust is domiciled elsewhere in the globe. Finally, as with other forms of ADR, arbitration maintains the benefits of confidentiality and privacy.

Despite these advantages, there are some situations where arbitration may not represent the best choice. These include cases where it would be difficult to represent or bind children or the unborn to any award. Furthermore, certain trust actions such as adding or removing trustees will still require the intervention of the court.

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Choosing the right path

Deciding the best course of action in any situation will require a careful assessment of the individual facts of the case. However, a helpful way to think about the process is:

• If your priority is preserving relationships, choose mediation.

• If your priority is a fast, confidential settlement, choose mediation.

• If your priority is a final, internationally enforceable resolution, choose arbitration.

• If your priority is an analysis of a complex legal issue, choose arbitration.

• If your priority is negotiation before reaching a decision, choose mediation, and then arbitration.

Increasingly, our clients are adopting this hybrid staged approach as the best avenue of exploring dispute resolution. This narrows the issues in dispute, reduces costs, and preserves relationships wherever possible. This enables the advantages of both forms of ADR to be utilised in addressing matters concerning significant familial assets.

The most effective way for families to safeguard not only their wealth but family relationships is to deploy effective drafting in their trust instruments from the outset. Incorporation of ADR processes into dispute resolution clauses of trust deeds greatly assists in managing threats to the trust. Well-drafted clauses can refer any disputes to mediation or arbitration in the first instance, and provide guidance as to how children and the unborn may be represented. Further, a wise drafter would prevent future disagreements about jurisdiction by guiding trustees and beneficiaries towards where any dispute should be seated. This proactive approach saves time, cost, and stress, safeguarding wealth securely for future generations.

In our experience there is a continuing trend of high-net-worth individuals exploring alternative dispute resolution in the protection of their wealth and legacies rather than traditional courts. Trust in these institutions is growing, particularly given the internationally enforceable nature of arbitral awards and the prospect of lasting reconciliation in mediation. There is an increased demand for the privacy and efficiency of these bespoke, sophisticated methods in comparison to the slow and expensive ‘one-size-fits-all’ approach of courtroom litigation. The direction of travel is clear: families and trustees are looking for dispute resolution methods that minimise damage, rather than maximise conflict.

Cross border trust disputes will inevitably be complex. But careful thought can prevent disputes from being destructive. Mediation and arbitration offer routes for families to resolve disagreements more privately, more constructively, and often more efficiently. The adoption of common law principles in places like the Dubai International Finance Centre also indicate the expanding role cross-border trusts are going to play in the future legal landscape.

Early advice, early engagement, and the right choice of dispute resolution can make all the difference.

Our team at Barnes Law will be happy to discuss the options available to you and what might be best in your circumstances.

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