Originally from Trusts and Estate Planning in Israel, Second Edition and may be purchased here.

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Chapter 26.   ARBITRATION IN TRUST DISPUTES

26.1.     INTRODUCTION

Arbitration is commonly used as a mechanism for resolving disputes outside the courts. It offers advantages such as procedural flexibility, confidentiality, and the potential for a more streamlined process. In many contractual settings, parties choose to include arbitration clauses as part of their agreed dispute-resolution framework. Can the same mechanism be employed in the context of trusts?

Unlike ordinary bilateral agreements, where identifiable parties may expressly consent to arbitration, a trust is not merely a contract but a complex web of legal relationships. It involves settlors, trustees, beneficiaries, and at times additional stakeholders, whose rights and interests may arise at different stages and who have not necessarily participated in the creation of the trust instrument. This structure challenges traditional concepts of consent and privity that typically underpin arbitration agreements.

Accordingly, the application of arbitration to trust disputes is not straightforward. It gives rise to doctrinal, procedural, and practical questions that require careful consideration. This chapter examines those complexities and explores whether, and under what conditions, arbitration may serve as an appropriate forum for resolving disputes relating to trusts.

26.2.    ARBITRATION UNDER ISRAELI LAW
26.2.1.    The Arbitration Agreement

The Israeli Arbitration Law of 1968 governs arbitration procedures in Israel. According to this Law, to resolve a dispute in arbitration, the following fundamental condition must be met: an arbitration agreement must be entered into.

The scholar Ottolenghi  analyzed the foundation of such arbitration agreement:

To ascertain whether an agreement has come into being between the parties to litigate through arbitration and if so, the extent of its validity, reference should be made to the general laws of contract. It should, of course, be remembered that an arbitral agreement is a special agreement, to which, first and foremost, the provisions of the Arbitration Law apply; and where these are not in accord with the provisions of the laws of contracts, the provisions of the Arbitration Law shall prevail. However, where no special provisions exist, the principles of the law of contracts can be applied.

Such arbitral agreement is defined in section 1 as “a written agreement to refer to arbitration a dispute which has arisen between the parties to the agreement or which may arise between them in the future, regardless of whether an arbitrator is named in the agreement or not.” Thus, the law requires “a written agreement.” But Ottolenghi is of the opinion that the parties can also reach an oral agreement to submit the matter for arbitration.