An update on trust arbitration in the Bahamas

The Bahamas has amended the Arbitration Act, 2009 (as amended, the Arbitration Act) pursuant to the Arbitration (Amendment) Act, 2023 (the 2023 Amendment) to transpose therein provisions for trust arbitration from the Trustee Act, 1998 (as amended, the Trustee Act). The amendments have consolidated and strengthened the Bahamas’ robust framework for the arbitration of trust disputes, making trust arbitration more attractive to settlors and trustees.

How will increased arbitration of trust disputes impact Bahamian trust jurisprudence?

The 2023 Amendment

The 2023 Amendment primarily transposed the provisions of the Trustee Act relating to arbitration of trusts into the Arbitration Act. These include, among others, provisions:

• empowering the arbitral tribunal to exercise all the powers of the Bahamian courts as it relates to trust administration, exercise of powers and disputes;
• providing for Bahamian courts to stay proceedings where the trust instrument provides for the settlement of disputes by way of arbitration;
• providing for the representation of persons in an arbitration, including those under a disability, unborn and unascertained; and
• providing for when trustees can be reimbursed for the costs of the arbitration out of the trust fund.

There were, however, two key changes to the Arbitration Act that may lead to an increase in the prevalence of arbitration clauses in Bahamian trust instruments.

First, the 2023 Amendment enhances the confidentiality of arbitral proceedings by:

• making it an offence for a party to arbitration to knowingly and unlawfully disclose confidential information. Such a party shall be liable to a penalty in damages determined by the arbitral tribunal and payable to the other party or parties; and,
• waiving the indemnity against suit afforded to arbitrators, where an arbitrator knowingly or unlawfully discloses confidential information, in which case, the parties may withhold fees otherwise due to the arbitrator.

Second, the 2023 Amendment significantly limits the provisions for challenging an arbitral award, taking away the ability to appeal an arbitral award to the court on a substantive point of law. The Bahamian courts are empowered to set aside an arbitral award only where an application is brought within three months of the appellant receiving the award (or later, if an application to correct the award is made) and:

• a party to the arbitration agreement was under some incapacity;
• the arbitration clause is not valid under applicable laws;
• the party making the application was unable to present their case due to a lack of proper notice of the appointment of an arbitrator or otherwise;
• the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration; or contains decisions on matters beyond the scope of the submission to arbitration (and only to the extent of such matters not so submitted);
• the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the Arbitration Act and the relevant arbitration agreement;
• the subject matter of the dispute is not capable of settlement by arbitration under the law of the Bahamas; or
• the award is in conflict with the public policy of the Bahamas.

The 2023 Amendment will undoubtedly make arbitration more attractive to clients using Bahamian trusts. Settlors and trustees alike will value the strengthening of confidentiality of arbitration proceedings as well as the potential efficiencies arising from increased finality of arbitral awards. These amendments are likely to encourage settlors to more frequently choose arbitration as the manner of settling disputes in respect of Bahamian trusts.

A threat to trust jurisprudence?

One cause for concern arising from the greater use of arbitration to settle trust disputes is the potential effect it may have on trust jurisprudence. The trust is a concept birthed from litigation before the Court of Chancery of England and Wales, and developed iteratively by precedent established in the courts of equity and common law over centuries and across jurisdictions. Matters adjudicated before a common-law court add to the common law by creating precedence for other common-law courts to follow when similar issues are being adjudicated. This aids in building trust jurisprudence. Arbitration does not establish binding precedence in the same manner as litigation. A move away from the courts and towards arbitration could, therefore, cause a slowdown in the development of trust jurisprudence in the Bahamas.

Recent changes to the Arbitration Act help to enhance the confidentiality of arbitral proceedings and finality of arbitral awards, potentially making it more attractive to settlors and trustees of Bahamian trusts. It remains to be seen whether a move away from litigation and towards arbitration has a stagnating effect on the development of Bahamian trust jurisprudence.

Written by Dwayne Whylly, Partner, Head of Financial Services Group, and Nastassia Rigby, Pupil, at Glinting Sweeting O’Brien