Trusts and Alternative Dispute Resolution – The New Regime By Maria Cole*
The creation of a statutory alternative to resolution of trust-related disputes is historic. As many litigators know, prior to the Trust's Act 2019 (Act), it was often necessary to file proceedings in the High Court to achieve the binding resolution of disputes between trustees and beneficiaries, despite the parties wanting to resolve their disagreements privately. At the heart of the concern was whether the resolution of a trust dispute achieved privately would be enforceable. In what has been described as a watershed event, the Act provides for private dispute resolution as a default mechanism for the resolution of “internal matters” (between trustees and/or beneficiaries) and “external matters” (between a trustee and a third party), where legal proceedings are foreshadowed in an express trust. Surprisingly, this new dispute resolution regime has hardly featured in the articles and blogs that have been published about the new Act. Focus has been on the mandatory and default trustee duties, the exemption and indemnity clauses for trustees, and the requirements around disclosure of information to beneficiaries. The dispute resolution procedures have often merely been acknowledged but not remarked on. So, why are the changes significant and what is the relevance of this change for litigators and their clients? Express provision for private dispute resolution Under the Act, private dispute resolution is referred to as an “ADR process” and defined as meaning “an alternative dispute resolution process (for example, mediation or arbitration) designed to facilitate resolution of a matter”. A “matter” is defined as a legal proceeding, or a dispute that could give rise to a legal proceeding, but excludes any legal proceeding or dispute about the validity of all or part of the trust (validity remains for determination by the High Court). 1
At section 143 of the Act.
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The default provision1 stipulates that if there is no provision for private dispute resolution in the terms of a trust, a matter may be referred by a trustee to an ADR process with the agreement of each party to the matter. This statutory acknowledgement of the suitability of ADR to resolve trust disputes is long overdue. As the Law Commission stated in its review of the law of trusts, when considering dispute resolution outside of the courts and the benefits of ADR, when compared with a court hearing, these include lower costs, quicker resolution, achieving finality, maintaining confidentiality and privacy, and being less adversarial.2 Prior to the passing of the Act, parties were often hamstrung when they wanted to implement clauses in trust deeds which explicitly provided for private dispute resolution. As a consequence, they invariably ended up in the High Court, often with a public spotlight on their affairs. One issue was the inability to obtain the consent of all parties to agree to engaging in the dispute resolution process or to be bound by the terms of any settlement. This was due to many beneficiaries of trusts being discretionary, unascertained, or lacking capacity, which meant their interests could not be considered or safeguarded. There was a further issue arising from the duty of trustees to actively consider the decisions they take as trustee and not fetter the future exercise of their discretions. The concern was where the terms of any settlement would require trustees to commit to a future course of action which may breach those duties. The Act expressly addresses these issues and has removed them as impediments for eligible disputes to be subject to an ADR process. Considering and safeguarding beneficiaries’ interests Where an internal matter is subject to an ADR process and has “unascertained” beneficiaries, for example grandchildren not yet born, or beneficiaries who lack capacity, then the court must appoint representatives for them. The Act specially provides that representatives may agree to an ADR settlement, or agree to be bound by an arbitration agreement or any arbitral award under it, on behalf of the beneficiaries they represent3. Law Commission|Te Aka Matua O Te Ture, Review of the Law of Trusts, August 2013, Wellington, Report 130, Chapter 14, page 197 at [14.2]. 3 Section 144 of the Act. 2
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