Arbitrating Trust Affairs - Come For Arbitration, Stay For Legal Proceedings (Podcast)

The recent English case of Grosskopf v Grosskopf concerned an application by trustees for a stay of claims brought against them by a beneficiary. The beneficiary alleged misconduct...
British Virgin Islands Litigation, Mediation & Arbitration
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Episode Description

The recent English case of Grosskopf v Grosskopf concerned an application by trustees for a stay of claims brought against them by a beneficiary. The beneficiary alleged misconduct by the trustees and sought the appointment of a judicial trustee pursuant to the Judicial Trustees Act 1896.

There was an arbitration agreement between the parties that provided for arbitration of any and all disputes arising in connection with issues regarding disclosure of the late settlor's estate and assets. The English High Court had previously ruled that these issues include whether a full financial investigation of the trust was needed.

One question before the Court was whether the fact that the claim sought appointment of a judicial trustee, which the arbitral tribunal could not grant, made the matter incapable of arbitration. The beneficiary argued that this meant arbitration could not provide an effective remedy and argued against a stay.

The Court considered the recent Privy Council case of FamilyMart China Holding Co Ltd v Ting Chaun (please see our earlier blog on this landmark case

here). That case concerned whether disputes relating to a winding up petition could be resolved by arbitration, even though only a court could make a winding up order.

In FamilyMart, Lord Hodge held that matters relating to whether parties have breached agreements or flouted equitable rights arising out of a relationship between the parties are arbitrable in the context of a winding up application. This is because the tribunal could make findings and directions with a comparable effect to relief that a court can grant.

Applying FamilyMart, the Court found that there was no material difference where the relationship between the parties was one of beneficiary and trustee (analogous to the relationship between shareholders in FamilyMart) and that the grounds for appointing a judicial trustee, such as breaches of duties, were suitable for resolution by arbitration. The tribunal could make directions as to the trustees' position, and if needed these could be enforced by the Court.

As in FamilyMart, the fact that one remedy sought in court was unavailable in arbitration did not preclude a stay. The consequence was simply that parties faced different procedures and remedies due to their agreement to arbitrate.

The Court therefore granted the stay, finding the disputes raised in the claims fell within the scope of the arbitration agreement between the parties.

Although Harneys does not advise on the law of England and Wales, this decision displays the influential nature of the Privy Councilâs decision in FamilyMart, which is binding in the Cayman Islands and highly persuasive in other common law jurisdictions, including the BVI and Bermuda.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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