In essence, a trust is an arrangement whereby the settlor is placing the title to certain assets to a trustee for the benefit of one or more third parties known as beneficiaries or for a specified purpose on the basis of a trust deed. A trust is originally set up through a unilateral act of the settlor, creating a legal relationship between the trustee and beneficiaries governed by the trust deed. While the structure of a trust is similar to that of a Swiss foundation, a trust - unlike a Swiss foundation - does not have a separate legal personality. Trusts are typically used as an instrument in estate planning. The field of application for trusts is wider than what is commonly presumed. Trusts have been increasingly used for commercial purposes, such as the establishment of pension funds.

The trust industry in Switzerland - a success story

While trusts are a specific development of common law, they have long reached civil law countries where they have gained wide recognition. This holds specifically true for countries that have adopted the Hague Convention on the Law Applicable to Trusts and their Recognition providing for the recognition of foreign trusts according to internationally accepted rules. Switzerland has ratified the Hague Trust Convention on 1 July 2007, and even though so far it has not yet adopted any substantive trust law, the trust industry in Switzerland has achieved considerable growth. Trusts have become an economic reality and commercial success in Switzerland over the past years. As a consequence, Swiss courts have been confronted and dealing with trust-related disputes for many years.

Arbitrating trust disputes - a significant opportunity for the trust and legal industry

The widespread recognition of trusts in civil law countries such as Switzerland combined with the growing field of application has put trusts to the radar of the international commercial arbitration. And rightly so, as arbitration presents a number of advantages that can be of interest to the parties to a trust dispute. Arbitration has grown out of international commerce and the need for a flexible, individually tailored and confidential means of dispute resolution. International cross-border disputes further often entail complex and technical questions the resolution of which requires experts in the respective fields. Trust disputes typically present the same challenges: Trust matters have particular features and are often complex, involving multiple parties and different fora. Arbitration provides for flexibility and confidentiality which is key in complex trust matters that often concern sensitive financial matters. In other words: The potential for the use of arbitration in resolving trust disputes is significant.

Legislative work in Switzerland - the Revision of Chapter 12 SPILA and the introduction of a Swiss trust

This has not gone unnoticed. While the ICC has just recently released its revised 2018 ICC Trust Arbitration Clause with its accompanying explanatory note setting out a mechanism for the arbitration of trust disputes, Switzerland is taking its own steps to establish a respective framework to better accommodate trust disputes by currently adapting Chapter 12 of the Swiss Private International Law Act, i.e. the Swiss lex arbitri. In addition, there have been repeated attempts in Swiss politics to introduce substantive trust legislation. Just this week, a motion to this effect was discussed in parliament, and both councils of the Swiss parliament have voted in favor of introducing the legal instrument trust by means of a national trust legislation in Switzerland.

Challenges to trust arbitration

When arbitrating trust disputes, certain challenges may arise due to the specifics of the area of law. Such challenges include the subjective scope of the arbitration clause contained in a trust deed, in particular the binding effect of the clause on beneficiaries. International arbitration is typically based on the parties' agreement and, thus, consent-based, a trust may not be characterized as a contract but rather as a unilateral act. This raises the questions whether parties such as the beneficiary can be compelled to arbitrate based on a unilateral arbitration agreement contained in a trust deed. The 2018 ICC Trust Arbitration Clause foresees for a theory of deemed acquiescence by including language stating that any beneficiary who claims or accepts any benefit, interest or right under the Trust will be deemed to be bound by it. The draft bill concerning the revision of Chapter 12 of the Swiss Private International Law Act, explicitly allows for arbitration clauses by means of unilateral acts such as last wills, tender offers, instrument of constitution for foundations and trusts. The draft bill, therefore, provides legal certainty codifying established case law and clarifying open questions.

Conclusion

The international recognition and increased use of trusts for commercial matters have led to a rise in complex, cross-border trust disputes in recent years. International arbitration as a flexible and confidential means of dispute resolution offers a number of advantages that are particularly attractive for parties in trust disputes. Having recognized the potential for the use of arbitration to resolve trust disputes, Switzerland is currently adapting its legal framework to accommodate trust disputes better. Together with the work accomplished by the ICC to extend arbitration to trust disputes, the explicit acknowledgment of unilateral arbitration clauses increases the accessibility and, therefore, the appeal of arbitrating trust disputes in Switzerland.