The road less travelled

Trust arbitration is a topic that is often discussed within the legal profession but rarely considered in practice. There are, in fact, relatively few jurisdictions that have enacted legislation allowing for trust disputes to be determined by way of arbitration. Of those, even fewer have seen trust arbitration cases reach the courts whereby an arbitral tribunal’s award has been challenged.

One such jurisdiction is the Bahamas. Importantly, the recent Supreme Court of the Bahamas (the Court) decision in Volpi v Volpi sheds light on the ‘not well trodden area’ of trust arbitration and,[1] for the first time, considers what can and cannot be challenged in the courts for an arbitration award governed by the Bahamas Arbitration Act 2009 (the Act). This is important as it establishes whether trust arbitration in the Bahamas will be subject to the same limited grounds of appeal that already exist in commercial arbitration.

Background

The background to the dispute is an unfortunately classic tale of familial disharmony. The settlor, Gabriele Volpi, is a successful Italian businessman who made his fortune in the oil and gas industry in Nigeria in the 1980s.

Between 2006 and 2012, Gabriele settled three irrevocable discretionary Bahamian trusts: the Winter Trust (28 October 2006), the Summer Trust (28 October 2006) and the Spring Trust (27 March 2012) (collectively, the Trusts). Although a matter of dispute, it is alleged the value of the assets in the Trusts is billions of dollars. Assets included an energy company, real estate, ships, an investment company, a stadium and a water polo club.

The original language of the Trusts is Italian and all three are settled on similar terms. The beneficiaries of the Trusts were Gabriele himself, his then-wife, Rosi, their two sons, Matteo and Simone, and their descendants.[2] The trustee was a company called Delanson Services (Delanson). Delanson was originally incorporated in Panama before being re-domiciled to the Bahamas and then to New Zealand in August 2016.

In October 2016, Delanson distributed the majority of the assets of the Trusts to Gabriele personally, before subsequently executing the termination of the Trusts on 13 January 2017. Having received the assets, Gabriele transferred them into a Maltese company called Betacorp, owned by a Maltese foundation of which Gabriele was the ultimate beneficial owner.

Clauses 26 and 27 of each of the Trusts confirmed that the trust was governed by the Trust (Choice of Governing Law) Act 1989, the Trustee Act 1998, and subsequent amendments and supplements. They contained an arbitration clause in the following terms:

‘[27.1] Any other controversy relating to the institution or to the effects of the Trust, or between the Settlor and Trustee(s), or among Protectors, or among the parties to the Trust, must be submitted to the judgment of an arbitration panel consisting of three members; the litigating parties shall each appoint one member, and these shall appoint the third Member as Chief Arbitrator. The Panel shall render judgment in the customary manner within 180 days.’

The arbitration

On 30 November 2018, Matteo initiated arbitration proceedings by letter of even date against Gabriele and Delanson asserting, inter alia, that the distribution of the assets of the Trusts in 2016 was carried out in breach of trust and for an improper purpose. The arbitral panel (the Tribunal) consisted of Dr Georg von Segesser (Presiding Arbitrator), the Rt Hon Lord Neuberger of Abbotsbury and Professor Alberto Malatesta.

The Tribunal issued a partial award on 13 June 2020 (the arbitration having been bifurcated into two phases dealing with liability and quantum). The Tribunal found by majority, inter alia, that:

• The distributions made by Delanson to Gabriele were in breach of trust and for an improper purpose, constituting a fraud on the power, and are void.
• All the assets distributed to Gabriele by Delanson following the deeds of distribution of 6 October 2016, and their proceeds, were (and, to the extent that they are retained by Delanson, are) held by Gabriele on trust for the trustees of the Trusts.

The Bahamian challenges

Delanson and Gabriele sought to challenge almost all findings of the Tribunal before the Court. They also obtained a stay of phase two of the arbitration proceedings, pending their challenges. In particular, Delanson and Gabriele relied on the available gateways for challenging an arbitral award under the Act, namely ss.89–91.

In total, 15 grounds of challenge were made. The judge neatly distilled these into four core issues:

• Whether the Tribunal lacked substantive jurisdiction (within the meaning of s.41, and for the purposes of a challenge under s.89) to hear the arbitration claims because certain matters were not submitted under the arbitration agreement, were non-arbitrable at law or because the trust deeds, and the arbitration clause contained therein, were invalid (as is alleged by Gabriele).
• Whether, properly construed, the Act enables the Court to grant leave to appeal on a point of law or whether it provides for such an appeal only with the consent of the parties (that is, on an opt-in basis only).
• Whether the Tribunal in its conduct of the arbitration committed any serious irregularities under s.90 (including any contraventions of the duty of fairness under s.44) of such a kind that has caused or will cause substantial injustice to the applicants.
• If the Court concludes that, properly construed, the Act provides for the grant of leave to appeal points of law, what is the appropriate test for the grant of leave and do the alleged errors of law justify the intervention of the court, pursuant to s.91?

Decision

Judge Klein dismissed all of Gabriele and Delanson’s challenges in their entirety, finding that the Tribunal clearly did have jurisdiction for the decisions they made and there was no serious irregularity with any of their findings. Further, Klein J found that, on a proper construction of the Act, the ability to seek leave to appeal on questions of law only arose by express opt-in of the parties (and therefore the agreement of the other side to any appeal). As Matteo did not consent to such an appeal, there was no ability for Gabriele and Delanson to appeal on points of law. What is more, he found that many of the challenges of Gabriele and Delanson were nothing more than ‘points of grievance’ (because they had lost the arbitration) and should never have been pursued.

Commentary

The future of the trust arbitration industry likely relies on the robustness of the statutory regime in each jurisdiction. The Bahamas is a relatively rare jurisdiction in that it allows for trust arbitration. As commented by Klein J:

‘… the amendments to the [Bahamian] Trust Act relating to trust arbitration were intended to “provide a firm statutory foundation” for the arbitration of trust-related disputes within its scope, and to eliminate some of the uncertainties that pertain at common law in relation to trust arbitration’.

The judgment decides how the Act is interpreted and clarifies the position on the types of challenges that can be made to arbitration awards before the Court. Crucially, the judgment has made clear that challenges to points of law can only be made with the consent of all parties, which is a significant departure from other statutory regimes and therefore further limits the ability to challenge an arbitral finding.

It should also be noted that this point has also now been confirmed in statute through the Bahamas Arbitration (Amendment) Act 2023, which came into force in June 2023 and repealed s.91 of the Act. It also replaced s.90 with a new regime setting out grounds to seek the setting aside of an arbitral award.

The judgment therefore provides key precedent-setting case law, which should mean that the jurisdiction is given full consideration for parties who wish to deal with their trust disputes by way of arbitration. Having said that, due to the sheer number of points being taken, there was considerable delay in the parties receiving the judgment.