Arbitration and Trust Disputes: Grosskopf v Grosskopf [2024] EWHC 291 (Ch)

February 21, 2024

In a judgment last week, the High Court has decided that a claim for the appointment of a Judicial Trustee is arbitrable.

The claimant beneficiary is in dispute with the trustees over their administration of a family trust. The claimant and the trustees had entered into an arbitration agreement for the disputes to be determined by the Beth Din (court) of  the Federation of Synagogues. The claimant was not satisfied with the proceedings in the Beth Din and started a claim in the Chancery Division for the appointment of a Judicial Trustee to replace the defendant trustees. The defendants applied to stay the claim under section 9 of the Arbitration Act 1996.

The claimant resisted the stay arguing that the claim was incapable of arbitration because only the court can make an appointment under the Judicial Trustee Act 1896; the other beneficiaries (including minor and unborn beneficiaries) were not parties to the arbitration agreement and that the court’s supervisory jurisdiction over trusts could not be displaced by arbitration.

Master Clark held that there was no reason in principle why the questions of whether there had been misconduct by the trustees or a breakdown in the administration and whether there were sufficient grounds to appoint a judicial trustee could not be resolved by arbitration. The existence of the court’s supervisory jurisdiction was not a reason to refuse to give effect to the arbitration agreement between the parties. The fact that other beneficiaries were not parties to the arbitration agreement did not prevent the arbitral tribunal from deciding whether the defendants should stop acting as trustees.

Master Clark also held that the fact that the claim asked for an order that can only be granted by the court did not make the claim inarbitrable.

Although there was no English authority directly on point, she referred to the Australian case of Rhinehart v Welker [2012] NSWCA 95 where the court had expressed the views that an agreement to submit a dispute about the removal of a trustee to arbitration was not contrary to public policy and the fact that an arbitrator could not grant all the remedies of a court did not make the dispute incapable of arbitration. In the recent Privy Council decision of FamilyMart China Holding Co Ltd v Ting Chaun (Cayman Islands) Holding Corporation [2023] UKPC 33, the Privy Council held that a dispute between shareholders could be arbitrated even though the tribunal could not make a winding up order.  Lord Hodge said: “Matters, such as whether one party has breached its obligations under a shareholders’ agreement or whether equitable rights arising out of a relationship between the parties have been flouted, are arbitrable in the context of an application to wind up a company on the just and equitable ground and the arbitration agreement is not inoperative because the arbitral tribunal cannot make a winding up order.” [emphasis added].

The Master held that there was no material difference where the relationship between the parties is one of beneficiary and trustee. She therefore granted the stay.

As noted above, this is the first English case on the question of the arbitrability of a claim to replace a trustee. The decision continues the “pro arbitration” approach of the courts and shows that in appropriate cases, it is open to have disputes about the management of a trust dealt with by arbitration.

Elizabeth Weaver acted on behalf of the successful defendants, instructed by Fladgate LLP.

For the full judgment of Grosskopf v Grosskopf [2024] EWHC 291 (Ch) please click here.