he benefits of ADR generally are well rehearsed, and much debated. I am an ADR advocate. Adversarial litigation is, even at its best, an expensive and yet very crude zero-sum game for the resolution of disputes, which is particularly brutalizing when applied to the most personal and emotionally charged areas of life: family relationships, private property and death.
Alternative Dispute Resolution – ADR – generally refers to arbitration and/or mediation procedures. ADR affords disputants an opportunity to escape some (or all) of the most cumbersome, ineffective and costly elements of traditional civil litigation.
Nevertheless, it is often said that particular substantive and procedural features of trust and probate disputes render them unsuitable for ADR.
In this note I will review the points generally considered to be obstacles to effective ADR in trust and probate matters. My thesis is intentionally provocative: I maintain that mechanisms already exist to overcome perceived impediments to ADR, particularly in light of the ever more encouraging attitude of the modern Chancery court.
Obstacles to ADR in Will and Trust Disputes
The successful resolution of a trust or probate dispute by mandatory arbitration or mediation is said to require:
a provision, or agreement, for ADR that does not oust the jurisdiction of the court;
a provision purporting to be an arbitration clause that constitutes an agreement to arbitrate and/or mediate and which is binding on all necessary parties to the dispute;
the proper representation of all interested parties (including unascertained, unborn and prospective beneficiaries); and
that the subject matter of the dispute is arbitrable, or otherwise capable of being resolved by binding agreement and/or order between those participating in the ADR process.
Ouster: Historical legal theory was that parties intending by agreement to create legal rights and obligations cannot contract out of the possibility of judicial enforcement of those rights by the court, conferring jurisdiction instead on a private tribunal. The modern position is, however, that parties may contract into an acceptable form of ADR. ADR does not constitute extra-judicial proceedings.
The jurisdiction of the court is not, in any event, ousted in relation to the ADR process itself. The court retains its supervisory and facilitative jurisdiction over the procedure, is the forum for appeal, and assists parties in the enforcement of settlements and awards.
A Binding Agreement for ADR: For a dispute to fall within the Arbitration Act 1996, the clause purporting to be an arbitration clause must constitute an agreement in writing. An arbitration agreement, in section 6(1) of the 1996 Act, extends to 'an agreement to submit to arbitration present or future disputes (whether they are contractual or not)'.
An agreement is deemed to be in writing if it is (1) made in writing (whether or not signed by the parties): s.5(2)(a); (ii) made by exchange of communications in writing: s.5(2)(b), or (iii) evidenced in writing: s.5(2)(c). An agreement is evidenced in writing if recorded by one of the parties or by a third party with the authority of the parties to the agreement: s.5(4). Parties may orally agree to arbitrate by referring to terms that are in writing: s.5(3).
The question then is: how can unborn or unascertained beneficiaries enter into an arbitration agreement? Section 82(2) of the 1996 Act further provides that a party to an arbitration agreement includes any person claiming ‘under or through’ a party to the agreement. This is discussed below.
A private trust or will is generally distinguished from a contract or commercial arrangement. Its fundamental basis, it is said, is not contractual, or even consensual, but rather the unilateral disposition of property a person prepared to accept the office of trustee or executor for the benefit and on behalf of third party beneficiaries, with all the benefits and burdens attaching to such representative office.
Rather than seeking to construe private trusts or wills in a contractual context, the better view I think is to have recourse to the equitable principles governing trust and testamentary instruments. I refer, for instance, to the equitable doctrine of election.
The foundation of election is that no one shall both approbate and reprobate: see Sir Christopher Slade in Cleaver v Delta American Reinsurance Company  UKPC 6. A party is prohibited from claiming both under and in opposition to the same instrument. In its most basic form, the principle of equity giving rise to the doctrine of election is that a person who accepts a benefit under an instrument must adopt the whole, giving full effect to its provisions, and renouncing every right inconsistent with it: Re Macartney  1 Ch 300.
The doctrine was explained by Lord Hatherley in Cooper v Cooper (1874) LR 7 HL 53 (at p 70) as “The equitable duty which the law imposes on a person claiming under an instrument, of giving full effect to it, as far as it would be otherwise ineffective, except through his concurrence ... [or] by ... abandoning all his interest under the will ...”.
Thus, a person who elects to take under the will must confirm, so far as he is able, the whole instrument. This may be seen as constituting an implied agreement under an ADR clause in the instrument, or as creating an obligation to enter into an agreement for ADR, in the terms of the clause contained in the trust deed or will, in relation to any dispute falling within the scope of the clause.
Further than that, however, it would be appropriate for an ADR provision in a trust or will to require the trustee/executor to obtain the written confirmation of all those interested under the instrument to the ADR provision. That I maintain would satisfy the 1996 Act.
But can unborn and/or unascertained beneficiaries be put to an election, or be deemed to have elected in equity? No. But in the event of a dispute that involves such interests, the court can consent on their behalf to an agreement to resort to ADR.
Some drafting problems may be resolved by conferring a power on the trustees or another person (say a protector or enforcer) to amend the trust instrument, rather like the practice of pension trustees’ powers to amend the trust instrument so as to promote the best interests of the beneficiaries as a whole.
This power of amendment can be made available where there is uncertainty or ambiguity in the construction of any provisions in the trust instrument and can be exercisable as the trustees (subjectively) think fit for furthering the intentions of the settlor and preserving or advancing the interests of the beneficiaries, such exercise to be unchallengeable except in cases of bad faith.
Further problems can be dealt with by express provisions conferring on trustees power to agree to pay the costs of other parties’ participation in ADR from the trust estate, and even power to charge recalcitrant beneficiaries’ interests with costs where such party unreasonably fails or refuses to abide by ADR provisions in the trust or will (including participating in good faith).
ADR may be available even in the absence of an express provision in the instrument. Submission to arbitration by trustees has long been authorised by statute. The first English statute codifying the common law of arbitration was enacted in 1698: An Act for Determining Differences by Arbitration of 1698, 9 & 19 Will. 3, c.15. The arbitrability of a dispute between trustee and beneficiary was considered in England in Auriol v Smith 37 Eng Rep 1041 (Ch 1823). The Trustee Act 1893 gave statutory effect to the common law rule permitting trustees to submit claims in favour of or against the trust estate to arbitration. The Trustee Act 1925 section 15 has broadened the scope of arbitrability of trust disputes. Its exercise is now subject to the statutory duty of care under the Trustee Act 2000. Schedule 1, paragraph 4 of the Act applies the duty of care to a trustee when exercising power under s.15 Trustee Act 1925 to do any of the things referred to in that section. The effect of s.35(1) Trustee Act 2000 is that that Act applies to personal representatives administering an estate as it does to trustees carrying out a trust.
Trustees and personal representatives, as a matter of course in the administration of the estate, may not incur costs for the estate by engaging in litigation without authority. The same principles apply to ADR. Unless all beneficiaries are sui juris and agree to ADR, the court's authority should be sought, principally through a Beddoe application.
Trustees or personal representatives may, however, obtain the consent of the court to expend funds on ADR. Further, the court has power to join to the Beddoe proceedings any party (including non-beneficiary parties) with an interest in the outcome of the application.
Representation of Unborn and Unascertained Beneficiaries in ADR: ADR requires all interested parties to be willing or legally obliged to submit a dispute to arbitration and/or mediation, and legally able to do so. The rules of court enable unborn and unascertained persons to be represented. There is no requirement (under the Civil Procedure Rules Part 19.7 or otherwise) that representation can only be obtained within court proceedings. CPR Part 19.7 refers to a claim and not an action or proceedings, and specifically permits an order to be made before any action is brought. The court can, and would if asked (I venture to say) authorise appropriate persons to represent unborn and unascertained beneficiaries in an arbitration or mediation.
What is envisaged here, then, is (so far as may be necessary) an application to the court for directions relating to the conduct of proposed ADR, to authorise trustees/personal representatives to expend funds on the process, appoint proposed representatives for unborn, unascertained beneficiaries and those incapable of representing themselves, affording them all due protection, and to give directions enabling the court to exercise a supervisory role during the ADR, and provide a mechanism for binding all interested parties to the resolution afforded by the process.
This procedure would enable arbitrations and/or mediations to be conducted by parties who were previously considered to fall outside the scope of these essentially consensual processes.
If ADR is successfully undertaken, it is true that any settlement of a trust or probate dispute involving representative parties requires the approval of the court. This is, in my view, a small price to pay for the savings in time and costs, and the privacy and flexibility afforded by ADR.
The question remains, however, how the product of ADR can be made to bind representative parties, and the HMRC. The answer lies in the court’s power to approve variations of trusts.
Approval of ADR Settlements: The UK courts apply the rule in Saunders v Vautier (1841) Cr & Ph 240, under which beneficiaries who are together absolutely entitled to the property subject to the trust or the will may bring an end to the trusts, or direct the trustees/personal representatives as to the execution of the trusts, without the intervention of the court. Where the parties participating in ADR are sui juris, this is basis for the settlement of trust and probate disputes by ADR.
Where this approach is not available, the court still has the requisite power to approve a settlement by way of a variation of a private trust, under the Variation of Trusts Act 1958. Section 1 of the 1958 Act provides that “where property, whether real or personal, is held on trusts arising, whether before or after the passing of this Act, under any will, settlement or other disposition, the court may if it thinks fit by order approve on behalf of
(a) any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of infancy or other incapacity is incapable of assenting, or
(b) any person (whether ascertained or not) who may become entitled, directly or indirectly, to an interest under the trusts as being at a future date or on the happening of a future event a person of any specified description or a member of any specified class of persons, so however that this paragraph shall not include any person who would be of that description, or a member of that class, as the case may be, if the said date had fallen or the said event had happened at the date of the application to the court, or
(c) any person unborn, or
(d) any person in respect of any discretionary interest of his under protective trusts where the interest of the principal beneficiary has not failed or determined
any arrangement (by whomsoever proposed, and whether or not there is any other person beneficially interested who is capable of assenting thereto) varying or revoking all or any of the trusts, or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts Provided that except by virtue of paragraph (d) of this subsection the court shall not approve an arrangement on behalf of any person unless the carrying out thereof would be for the benefit of that person”.
31. Very importantly for present purposes, Pennycuick J said, in In re Remnant's Settlement Trusts  2All ER 554, that the concept of “benefit” is not confined to financial benefit but that the court is entitled and bound to consider benefit of any other kind. In In re Michelham’s Will Trusts  1 Ch 550 Buckley J decided that when, looking at the scheme and the probable events as a whole, the scheme was calculated to confer a benefit on possible unascertained or unborn beneficiaries, the scheme was one which the court would approve.
32. I contend that the court’s powers to approve variations, by statute and under the court’s inherent jurisdiction, enable the court also to approve an agreement to submit a dispute to ADR, an/or to approve any settlement agreement resulting from ADR. This jurisdiction could also, in an appropriate case, introduce mandatory ADR provisions into a trust or will to govern future disputes, to include, where appropriate, provisions for the American style of ‘virtual representation’ of unborn, unascertained or incapable beneficiaries, without the intervention of the court.
33. Arbitrability: One of the principal impediments to ADR in trust and probate matters is said to be the nature of the dispute. Questions of construction as to the future administration of the trust, which have fiscal consequences, can be submitted to arbitration and/or mediation. The tax authority can be invited to participate, but often will decline to do so. Once a resolution is achieved, the tax authority can be invited to agree the result, or ask the court for a determination, at its own risk as to costs.
In general, even where past tax liabilities are to be disclaimed, and new liabilities avoided, HMRC would require a formal determination of the beneficiaries’ rights and interests under the trust only where the situation will take effect as a precedent. But as ADR procedures are generally private and confidential, this problem is minimised.
Teresa Rosen Peacocke
3 Stone Buildings
London and New York