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Inserting arbitration clauses as standard into trust deeds may well be a waste of time, argues Ian Meakin
Arbitration is increasing in popularity and Switzerland is a well-established jurisdiction to arbitrate disputes. This had led some private banks in Switzerland to insert arbitration clauses into their trust deeds as standard.
However, despite the many advantages of arbitrating disputes, if a party to a trust dispute has not expressly agreed to arbitration, they may challenge the arbitral tribunal’s jurisdiction.
In Switzerland, “any dispute involving an economic interest may be the subject matter of an arbitration.” This clause is very broad. Provided the arbitrability of trust disputes does not offend Swiss public policy, trust disputes may be arbitrated in Switzerland.
But for an arbitral tribunal to have jurisdiction there must be a substantively and formally valid agreement to arbitrate. Trust deeds are not contracts. So unless there is a separate agreement to arbitrate disputes, for example between the various parties (settlor, beneficiaries, trustees, protectors, etc), there may be problems ahead.
Any challenge to the jurisdiction of an arbitral tribunal must be made to the arbitral tribunal itself under the doctrine of ‘Kompetenz-Kompetenz’, or Article 186(1) of the PIL Act. This is the case even if the parties are not Swiss and the only link to Switzerland is the arbitration clause itself.
Recently, the English Court of Appeal refused to enjoin an English arbitrator sitting in Switzerland from continuing with the arbitration or deciding any issue as to his jurisdiction because the correct forum for such decisions was Switzerland.
For an arbitration clause to be substantively valid under Swiss law there must be: an express common will of the parties to submit the dispute in question to an arbitral tribunal; a determinable dispute covered by the clause; and written evidence of a mutual acceptance by the parties to submit themselves to arbitration.
Substantive validity of a Swiss arbitration clause will be accepted if the clause conforms either to the law chosen by the parties ;or the ;law governing the subject-matter of the dispute (this could be the law of the trust deed, which will not be Swiss law), or if it conforms to Swiss law (Article 178(2), PIL Act).
Formal validity of an arbitration clause providing for arbitration in Switzerland is determined in accordance with Swiss law only. But although the PIL Act requires the arbitration clause to be in writing or evidenced in writing, it does not require signatures.
It is easy to imagine a party successfully attacking the jurisdiction of an arbitral tribunal on the basis that there is no binding agreement to arbitrate because that party was not formally and substantively made a party to it – and in the case of unborn or unascertained beneficiaries, may not have existed at all when the trust was created. Such an attack would render a seemingly good idea at the time an expensive legal headache later on.