b. An Arbitration Clause That is Operable, Effective, and Capable of Performance
The second issue to consider involves the arbitration provision itself. For a mandatory arbitration clause found in a trust to be enforceable, "the clause purporting to be an arbitration clause ... [must be] an agreement which is not inoperable, ineffective or incapable of being performed." (257) Furthermore, there must "actually [be] a dispute within the scope of the clause." (258)
The second of these two requirements is easily disposed of. Issues regarding the scope of an arbitration agreement have long been decided by arbitrators pursuant to the doctrine of competence-competence (Kompetenz-Kompetenz), which describes the ability of an arbitral tribunal to decide its own jurisdiction. (259) As a result, allowing arbitral tribunals to determine whether a particular dispute falls within the scope of an arbitration provision found in a trust does not seem problematic in any way.
The first of these two requirements--i.e., the need to establish that the arbitration clause that appears in the trust is operable, effective, and capable of being performed--gives rise to much more significant concerns. Most courts and commentators consider these issues solely from the perspective of national law. However, recent developments in international arbitration suggest some new solutions to some of the more intransigent problems in this area. The following discussion considers the relevant concerns under both national and international law, although it should be noted that some of the innovations in the international realm affect domestic disputes as well.
i. Solutions Suggested Under National Law
Because arbitration is considered "a creature of contract," (260) many jurisdictions require an arbitration agreement to reflect certain contractual qualities. (261) Therefore, if the language invoking arbitration is located within a larger document, as would be the case with mandatory arbitration provisions in trusts, then that larger document must typically meet the formal requirements for a contract. (262)
Trusts run into two difficulties in this regard. First, trusts are typically only signed by the settlor, not by other parties. (263) Second, trusts do not involve the exchange of consideration, which is problematic in jurisdictions that hold that "[a]rbitration rests on an exchange of promises." (264) Although the signature and consideration requirements have proven fatal to mandatory arbitration of trusts on occasion, (265) courts and commentators have identified a number of ways to overcome both problems. However, the approach varies according to the party's relationship to the trust.
Issues relating to trustees are the simplest to address. In these situations, a settlor can explicitly create a contractual relationship with the trustee, either using language in the trust itself or a side agreement. (266) Although the problem of consideration remains, that concern can be addressed in one of three ways, by either (1) paying the trustee for his or her efforts (indeed, it is rare for a trustee to act gratuitously these days); (267) (2) deeming the trustee to have consented to the terms of the trust when he or she accepted the trust appointment; (268) or (3) concluding that there is no need for mutual consideration in cases involving an agreement to arbitrate in the context of a trust. (269)
Issues relating to beneficiaries are more difficult to resolve, since beneficiaries neither sign the trust instrument nor accept any burdens thereunder. However settlors could attempt to draft a trust deed
in such a way that benefiting from the trust would be deemed an agreement to submit trust disputes to arbitration. By accepting the gifts or invoking any rights under the trust deed, the beneficiaries would be deemed to agree to settle any dispute in accordance with the arbitration agreement contained in the trust deed. (270) This technique is known in England as "deemed acquiescence," whereby beneficiaries who receive some sort of benefit under the trust are considered bound by the terms of the instrument, including any mandatory arbitration clause contained therein. (271) Under this doctrine, "any beneficiary (even an unborn or unascertained one) who derives his entire interest in the trust from the settlor, and whose rights and obligations under the trust are hence determined by the trust deed, is deemed to acquiesce to the arbitration provision." (272)
The United States has adopted a similar approach under a theory known as "conditional transfer." (273) Under this doctrine, provisions found in the trust are binding on beneficiaries to the extent that the beneficiary's "rights" in the corpus of the trust are seen as "wholly derivative" of the settlor's "right to pass her property to the persons of her choosing." (274) The settlor is considered capable of conditioning receipt of any benefits on compliance with arbitration provisions contained in the trust because the beneficiary's "rights" in the trust are contingent on the wishes of the settlor. (275)
These theories are not limited to the United States and England. Courts in civil law countries such as Switzerland have used similar techniques to bind beneficiaries to arbitration provisions found in the trust instrument. (276)
As useful as deemed acquiescence and conditional transfer are, they do not eliminate all concerns relating to the operability and effectiveness of an arbitration provision found in a trust. Because these doctrines are derived from the settlor's consent to arbitration, difficulties can arise in situations where the settlor's consent to the trust, and therefore to arbitration, is in doubt (i.e., in cases that challenge or deny the existence of the trust altogether). (277) This issue is discussed below. (278)
Interestingly, deemed acquiescence and conditional transfer resemble certain theories used in arbitration law to consider whether the benefit or burden of an arbitration agreement can or should be extended to various nonsignatories. Arbitration law allows courts and arbitrators to extend an arbitration agreement to nonsignatories in cases involving "agency (actual and apparent), alter ego, implied consent, 'group of companies,' estoppel, third-party beneficiary, guarantor, subrogation, legal succession and ratification or assumption." (279) Deemed acquiescence and conditional transfer could easily be analogized to implied consent, estoppel, or third-party beneficiaries in the arbitral context. Legal succession and ratification might also apply in cases involving a successor trustee or protector. While this analysis suggests a useful overlap between trust law and arbitration law, caution should nevertheless be exercised, since U.S. courts appear somewhat split as to the application of arbitral principles regarding nonsignatories in the context of a trust dispute. (280)
ii. Solutions Suggested Under International Law
Although the techniques suggested above may be sufficient to eliminate concerns about the effectiveness and validity of an arbitration provision arising in a trust, certain international developments relating to form requirements in arbitration shed additional light on these issues. Form requirements in arbitration exist as a matter of both national and international law, and serve two different purposes. "First, some form requirements are relevant to the validity of an arbitration agreement: if these requirements are not satisfied, then the agreement to arbitrate is invalid. Second, other 'form requirements' are in reality jurisdictional conditions that must be satisfied in order for a particular legislative instrument ... to apply...." (281) Both of these types of requirements must be considered in cases involving mandatory trust arbitration.
The analysis begins at the international level. According to the New York Convention:
Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration. (282) That provision goes on to indicate that "[t]he term 'agreement in writing' shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams." (283)
If a trust is a contract, then the requirements of the New York Convention are obviously met by an arbitration provision found in the trust. (284) However, the New York Convention does not define what "a contract" is, which means the issue will be determined by reference to domestic law. This is of course problematic, given the uncertainty regarding the contractual nature of trusts. (285) Debate also exists as to whether the New York Convention requires a contract containing an arbitration provision to be signed by the parties in question. (286)
Although the New York Convention's definition of "an agreement in writing" appears clear on its face, certain problems have arisen in practice. (287) For example:
It has been repeatedly pointed out by practitioners that there are a number of situations where the parties have agreed to arbitrate (and there is evidence in writing about the agreement), but where, nevertheless, the validity of the agreement is called into question because of the overly restrictive form requirement. The conclusion frequently drawn from those situations is that the definition of writing, as contained in ... [various] international legislative texts, is not in conformity with international contract practices and is detrimental to the legal certainty and predictability of commitments entered into in international trade. (288) Concerns about "overly restrictive form requirement[s]" would also seem relevant in the context of trust arbitration, since strict...