A breath of fresh air for trustees – The Trusts Act 2019 and alternative dispute resolution
We welcome the new default alternative dispute resolution regime which came into force on 31 January 2021.
Prior to the introduction of the Trusts Act 2019 (the Act), it was generally necessary for the High Court to be called on to resolve disputes between trustees and beneficiaries. Disputes often raised difficult trust law issues and, in many cases, only the High Court had the power to bind a trustee and all beneficiaries.
However, resolving issues in the High Court can be expensive, and contentious matters can take many months, if not years to resolve.
One of the more welcome changes to trust law introduced by the Act is the creation of a default regime which authorises trustees to refer a matter between trustees and third parties (“external matters”), or trustees and beneficiaries (“internal matters”) to alternative dispute resolution.
Alternative dispute resolution (ADR) includes commonly used practices such as arbitration and mediation, in which an independent third party is engaged to oversee the resolution of the dispute. In a mediation, the process used is less formal, and the mediator is not engaged to form an opinion of who is right or wrong, but to facilitate a settlement between them. In an arbitration, the process is run much like a court hearing, with submissions presented by each side, however an arbitral award is often faster to obtain than a High Court judgment (and often less expensive). Either process can be tailored by agreement to ensure the dispute is resolved efficiently.
Under the Act, a “matter” is defined as a legal proceeding, or a dispute that could give rise to a legal proceeding, but excludes any proceedings relating to the validity of all or part of the trust (such disputes remain for the High Court to determine).
As a default, mediation or arbitration can be commenced either at the parties’ agreement, or following an order sought from the High Court by a trustee or beneficiary.
Additional provisions include the creation of an exception to the general duty not to bind trustees to the future exercise of a discretion (so that trustees are now free to enter settlement agreements and give undertakings during ADR) and the ability for the High Court to order the appointment of a specific mediator/arbitrator, and to determine that the costs of ADR be paid from trust property.
The new regime comes into operation by default, and while the specific terms of the trust deed will continue to take precedence, it is important for trustees to know that many will now have more options available to them to resolve issues in a time and cost-effective way.
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