The time to decide how a family will resolve disputes is before there is one. A well-designed process is an escalation ladder: family members talk first under agreed rules, then bring in a family council or independent chair, a facilitator, independent advisers, an accredited mediator and, only as a last resort, an arbitrator or a court. Each step needs to be written into the documents that actually control the business and the trusts, in terms certain enough for a court to enforce.
In our view, the objective is not to prevent disagreement. Siblings with different lives, spouses and ambitions will disagree, and that is healthy. The objective is to stop disagreement becoming lawfare: open court proceedings, frozen bank accounts, directors removing each other and a business losing value while the family fights over it.
Why the process has to be built before the dispute
Once a dispute starts, every procedural question becomes a tactical one. Who chooses the mediator? Who values the shares? Can one sibling sell to an outsider? A family in conflict usually cannot agree on these either, and the first lawyer’s letter often sets the tone for years.
Agreed in advance, while everyone is on good terms and nobody knows which side of a future dispute they will be on, the same questions are simple. And when family members know there is a fair, confidential path for raising a grievance, they tend to raise it early, when it is small.
The process must follow the real power. Before drafting anything, trace who controls what: the trustee company and its directors, the appointor of each family trust, the shareholders of the operating company, the unit holders of any unit trust, and anyone who can act alone. A dispute process written into a family constitution but not into the company constitution or the trust deed will not stop a director or appointor exercising a legal power. For more on the gap between family rules and legal effect, see Is a family constitution legally binding?
A sample escalation ladder
The ladder below is an illustration, not a template; the steps, time limits and people depend on the family and its structure.
| Step | Who is involved | Typical trigger and time limit | Where it is embedded |
|---|
| 1. Direct family conversation | The family members concerned, under agreed rules of conduct | Written notice of the issue; meet within 14 days; 30 days to resolve | Family constitution (guidance); dispute clause in shareholders’ agreement or deed |
| 2. Family council or independent chair | Family council; an independent chair or trusted non-family director | Unresolved after step 1; council considers within 30 days | Family constitution; board charter; shareholders’ agreement |
| 3. Facilitator | A family business facilitator or adviser named in advance | Either party may call for facilitation; two to three sessions | Shareholders’ agreement or deed of family arrangement |
| 4. Independent advisers and expert determination | Independent valuer or accountant | Disputes about value, accounts or financial facts; determination within a set period | Shareholders’ agreement, constitution, unit trust deed |
| 5. Mediation | Accredited mediator, nominated in advance or by an appointing body | Unresolved after steps 1 to 4; mediation within 60 days | Dispute clause in each binding document |
| 6. Arbitration or court | Arbitrator (confidential) or the Supreme Court | Only after mediation ends; urgent relief always available | Arbitration agreement, or court as the default |
Each step and how it works
Step 1: Direct family conversation with agreed rules
Most disagreements should be resolved by the family members themselves, under rules for how they talk: issues are raised in writing, at a meeting rather than in a group chat, with a short cooling-off period before anyone takes action, and without involving employees, customers or the extended family. Siblings resolve issues themselves when the issue is within their own authority, the relationship is still working and nobody needs an independent view of the facts.
Step 2: Family council or independent chair
Where siblings cannot agree, the next step is a forum rather than a lawyer. A family council or an independent chair can hear both sides and separate family issues from business issues. Our step-by-step guide to family governance and family councils explains how these bodies are set up.
Step 3: Facilitator
A facilitator comes in when the conversation itself has broken down: people talk past each other, the same argument repeats, or one person dominates. The facilitator decides nothing. Naming the facilitator, or how one is chosen, in advance avoids any adviser proposed by one sibling being rejected by another as biased.
Step 4: Independent advisers and expert determination
Many family disputes are really about numbers: what a share is worth, whether a salary is fair, how a loan account is treated. These are questions for an independent valuer or accountant. An expert determination clause can provide that a nominated expert, acting as an expert and not as an arbitrator, decides a defined question, such as the fair value of shares on an agreed basis.
Australian courts generally hold parties to expert determination clauses. Under the principles in Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314, a determination made in accordance with the contract will usually bind the parties, while one obtained by fraud or collusion or not made in accordance with the contract will not. Whether the determination is final, or can be taken further, depends on the drafting. The clause should define precisely what the expert decides and on what basis.
Step 5: Mediation
Mediation is the central step for most families. An accredited mediator helps the parties negotiate their own outcome; nothing is imposed. What is said is confidential under the mediation agreement, and evidence of settlement negotiations is generally excluded under section 131 of the Evidence Act 2008 (Vic), subject to exceptions. Family group mediation can bring several generations, spouses and advisers into a structured process. See family business and family group mediation.
For many Chinese-speaking families, the language of the room matters. Justin Chua, a lawyer and mediator at our firm, conducts mediations in English and Mandarin, so that a parent more comfortable in Mandarin and children more comfortable in English can take part in the same process without everything passing through an interpreter.
Step 6: Arbitration or court as the last step
If mediation does not resolve the dispute, someone has to decide it. The choice is between arbitration and the court.
- Arbitration is a private process under an arbitration agreement. In Victoria, domestic commercial arbitrations are governed by the Commercial Arbitration Act 2011 (Vic). Under that Act, the parties and the tribunal must keep confidential information about the arbitration confidential unless the parties agree otherwise, subject to limited exceptions. If a party starts court proceedings on a matter covered by a valid arbitration agreement, the court must refer the parties to arbitration on a timely request, and an award can be appealed on a question of law only if the parties have agreed and the court grants leave. Privacy and finality appeal to families, but a wrong decision is hard to correct.
- Court proceedings are generally public. They offer full appeal rights and the court’s powers to bind non-parties, and some remedies, such as orders under the oppression provisions of the Corporations Act or the Supreme Court’s supervision of trusts, are court remedies. Our article on shareholder disputes, deadlock and oppression explains the court remedies in family companies.
Embedding the ladder in documents that bind
Governance creates the rules; legal documents give them effect. A family constitution is valuable for setting out values, the role of the family council and how the family wants disputes to be handled, and it can guide how the binding documents are read. But if a rule matters, put it in the document that controls the power.
| Document | What the dispute provisions can do |
|---|
| Shareholders’ agreement | Multi-tier dispute clause; expert determination of value; deadlock procedure; buy-sell mechanism; arbitration or court |
| Company constitution | Pre-emptive rights on transfer; board composition and casting votes; provisions mirroring the shareholders’ agreement |
| Unit trust deed and unit holders’ agreement | Dispute clause; pre-emption on transfer of units; redemption and valuation of units |
| Discretionary trust deed | Succession of the appointor or guardian; tie-break where joint appointors disagree; consultation before key powers are exercised |
| Deed of family arrangement | A binding agreement between family members, including those who are not shareholders, to follow the ladder. See deeds of family arrangement |
| Family constitution | Values, rules for conversations, the family council, and guidance on the process; usually not enforceable on its own |
What makes a dispute clause enforceable
Courts do not order people to negotiate successfully, but they will usually enforce a properly drafted dispute process by staying court proceedings until it has been followed. The New South Wales Court of Appeal held in United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177 that a promise to undertake genuine and good faith negotiations before arbitration was sufficiently certain to be enforced. In Victoria, however, the Supreme Court in WTE Co-Generation v RCR Energy Pty Ltd [2013] VSC 314 found a clause requiring senior executives to meet unenforceable because it did not set out the process to be followed. The lessons for families are practical:
- Make completion of each step a condition before the next step or court proceedings.
- Describe each step precisely: who, when, how long, and what ends it.
- Say how the facilitator, expert or mediator is chosen, with a fallback appointing body if the family cannot agree, and who pays.
- Avoid steps that depend on a further agreement before they can start.
- Carve out urgent court relief, so that no one is prevented from seeking an injunction to protect assets.
Trusts need particular care
Trust disputes are often about control: who is appointor, who can remove the trustee, who decides distributions. Joint appointors who must act unanimously can create deadlock; a single appointor creates concentrated power. A trust deed can provide for succession of the appointor, a tie-break, an independent guardian, or a requirement to consult before key powers are exercised. Whether an arbitration clause in a trust deed binds beneficiaries who never signed it is not settled in Australia, although the High Court in Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13 read arbitration clauses in family deeds broadly. A separate deed signed by the family members is the more reliable way to commit them to the process.
Deadlock and exit: the fallback when one sibling wants out
Every ladder needs a final rung that ends the dispute without destroying the business. The most common family dispute is simple: one sibling wants to sell, and the others want to keep. The documents should answer that question before it is asked:
- Who may exit, and when: a right to require a buy-out, perhaps after a minimum holding period or notice.
- Who has first rights to buy: pre-emptive rights for family members before any outsider.
- How value is fixed: an agreed method (for example, market value of the whole business, pro rata, with or without a minority discount) determined by an independent valuer.
- Where the money comes from: payment by instalments, company buy-back, borrowing, or insurance, so that liquidity is planned before anyone needs it.
- What happens if no one buys: a sale of the business or the asset as the final fallback.
Our article on when a sibling wants to sell their share explains buy-out mechanisms, valuation and funding in more detail.
Cross-border families
Many of the families we act for have members in mainland China, Hong Kong SAR, Taiwan, Singapore or Malaysia. The process should work for them too.
- Language: specify that mediation may be conducted in Mandarin or English, and that key documents are translated.
- Online participation: allow family members overseas to attend meetings, facilitation and mediation by video, with time zones in mind.
- Seat of arbitration: if arbitration is chosen, the seat (for example Melbourne, Singapore or Hong Kong) determines the supervising court and the procedural law. An award is generally easier to enforce across borders than a court judgment, because mainland China, Hong Kong SAR and Singapore all apply the New York Convention. Taiwan is not a party, and enforcement there follows its own rules. See our guide to enforcing judgments and awards across borders.
A composite illustration
Consider a typical situation. A founder built a food distribution business in Melbourne, held through a family company and a unit trust that owns the warehouses. Three adult children hold equal shares. One runs the business in Melbourne, one lives in Shanghai, and one in Singapore. When the founder steps back, the child in Singapore wants to sell her share to fund her own venture; the child running the business wants to keep everything; the child in Shanghai is unsure.
Because the family had built a ladder into a shareholders’ agreement and a deed of family arrangement, the steps were already set. The siblings met by video under the agreed rules, then put the question to the family council chaired by an independent director. When they could not agree on price, the independent valuer named in the agreement valued the shares on the agreed basis. A Mandarin and English mediation then dealt with the timing and funding of a buy-out by instalments. No court proceedings were issued, and the family’s affairs stayed private. Another family’s result may differ; what the process provides is a known path.
Practical points
- Conversations come first. The documents should record what the family has discussed and agreed, and the conversations should continue after the documents are signed.
- Stress-test the documents. Ask what happens if a sibling wants control, wants liquidity or wants out, or if a director acts alone.
- Keep it simple and review it. A process the family can actually follow is better than an elaborate one; revisit it as the next generation comes of age.
- Be consistent. A dispute clause in one document and a different process in another invites argument about which applies.
How we can assist
We review the existing documents across the family’s companies and trusts, map where power actually sits, and draft dispute provisions, deadlock and buy-sell mechanisms, trust deed amendments and deeds of family arrangement so that the agreed process has legal effect. Where a dispute has arisen, we can act for a family member or, separately, conduct a family mediation in English or Mandarin.
Related reading
Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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