Chapter 5 - Alternative dispute resolution


Application of alternative dispute resolution to trusts

It has long been recognised, although possibly more so in other jurisdictions, that there are many benefits to settling trust disputes by ADR.148 Resolving an issue through ADR rather than resorting to court action can save significantly on time and cost. ADR can achieve finality and confidentiality. Because of the often intensely personal nature of trust disputes, it is often preferable for the issues and feelings involved to be aired in a more private forum than a court.149 Adversarial litigation is usually an expensive and crude method of resolving disputes. It has been described as “particularly brutalizing when applied to the most personal and emotionally charged areas of life: family relationships, private property and death.”150 An advantage of mediation is that it can lead to a solution that meets the objectives of the parties without being limited by the legal principles and remedies available.151

Nevertheless, despite these considerable advantages of ADR in trust disputes, there are some substantive and procedural features of trust disputes that create challenges for applying ADR in this context. One of the main barriers to the use of ADR is the multipartite nature of trusts.152 Trusts commonly involve a number of beneficiaries with different interests. Some beneficiaries may be minors, incapacitated, unborn or unascertained.153 This can make it difficult, or even impossible, to achieve universal agreement, which is usually necessary for an ADR settlement.

Trust disputes can be either external (third party disputes) or internal (trustee disputes and beneficiary disputes). For the external disputes not involving the beneficiaries, the trustees will usually have the power, either under the trust deed or in statute, to settle a claim through ADR.

The settlement of a trust dispute by a trustee will usually involve the exercise of a power to compromise either in the trust instrument or in statute. Section 20 of the Act provides the trustee with the power to compromise on “any debt, account, claim, or thing whatever relating to the trust or to the trust property”. This section provides a default power to compromise, which a trust deed may override. The trustee is not liable for any loss that results from any arrangement entered into as a part of this compromise as long as it is done in good faith.154 This section is nearly identical to section 15 of the Trustee Act 1925 (UK). It is likely that section 20 of the New Zealand statute would be interpreted similarly to section 15 of the United Kingdom statute, about which it was held:155

… section 15 is concerned with what may be called external disputes … not internal disputes, where one beneficiary under the trusts is at issue with another beneficiary under the trusts.

Section 20 is, therefore, unlikely to be of assistance in the case of internal disputes between beneficiaries or between a trustee and beneficiaries. The power of settlement under current legislation will only be relevant in limited circumstances. In order for an ADR settlement to apply to internal trust disputes, it would be necessary for a trust deed to provide that ADR is to be used and to provide trustees with a power to settle in these situations. Where a dispute does involve beneficiaries in one of the internal trust disputes, it may be possible that all beneficiaries are ascertained and have legal capacity to agree to a settlement so as to conclusively decide all of the relevant trust issues.156 However, it is common for some of the beneficiaries of a trust not to be ascertained or of full capacity. This makes it more difficult to produce a binding settlement.

It would be difficult to apply ADR to trust disputes where a trustee is unwilling to settle or to be involved in the dispute resolution process. In these situations ADR does not provide a viable alternative to court action.

Paul Buckle “Trust disputes and ADR” (2008) 14 Trusts & Trustees 649 at 649.


Teresa R Peacocke “Arbitration and mediation of trust and probate disputes: Obstacles removed (or non existent)” (1 July 2008) < > at 1.

Kelly Supervision of Trustees, above n 146, at 97.

Buckle, above n 148, at 649.


Trustee Act 1956, s 20.

Re Earl of Stafford Dec’d [1978] 3 All ER 18 at 32−33.

Hayton “Problems in attaining binding determinations”, above n 144, at 1.