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Arbitration in Family financial proceedings – not so binding?

Posted on 27 October 2020

A recent Court of Appeal decision has given a green light to a much wider basis of challenge to arbitral awards in financial remedy cases than was previously understood to be the case. Unlike the position in commercial or other civil disputes, the Family Court can refuse to make an award reached through arbitration into a court order if it considers the award to be "wrong". Is the decision a recipe for uncertainty, or the "safety net" that will finally lead to more family cases being resolved by arbitration?

Arbitration in financial remedy cases

Arbitration was introduced for financial remedy proceedings in 2012, with a scheme developed by the Institute of Family Law Arbitrators (IFLA). The parties can select an arbitrator with suitable expertise or, if they are unable to agree, one can be independently selected for them. They can choose the issues to be determined by arbitration and the process is ordinarily significantly quicker than pursuing an application through the courts.

However, arbitration in family cases had not been as popular as might have been expected, particularly in the current environment with the COVID-19 pandemic making delays to the court process lengthier than usual. One perceived reason for this was the limited ability to challenge an award made by the arbitrator.

The Arbitration Act 1996 permits specific limited routes of challenge to a decision made. The principal routes of challenge are: the arbitrator "lacked substantive jurisdiction", there was "serious irregularity affecting the tribunal, the proceedings or the award" (which relates to process, rather than the question of whether the arbitrator reached the correct result), or the award was wrong on a question of law. Where the challenge is based on there being an error in law, the party challenging the award requires leave and must show that the decision on the question of law was "obviously wrong", unless the question is one of general public importance, in which case it must be shown to be at least open to serious doubt. As the Court of Appeal noted, "fairness as a concept has no place in a challenge to an arbitral award". The arbitrator's findings of fact cannot be challenged, even where they are obviously wrong.

In financial remedy cases, the previously decided caselaw had established that there might also be a challenge to an arbitral award where there had been a supervening event, or a mutual mistake by the parties. Beyond that, the only grounds to challenge were those available under the Arbitration Act 1996.

Where parties seek to challenge the decision of a Judge who decides a financial remedy case, they may do so on the basis that the Judge was (a) wrong; or (b) that the decision was unjust because of a serious procedural or other irregularity. Fairness tends to play a central role.

Although in either case, attacking the original decision will be difficult. It was previously considered easier to overturn the decision of a Judge than that of an arbitrator. In the circumstances, many litigants felt that they would prefer to remain within the court system, even if that led to greater delay and no choice in who determined the case.

The paternal function of the Family Court

It has long been established in financial remedy cases that, even where parties reach agreement as to the financial provision to be made between them, they cannot oust the jurisdiction of the court. An agreement to compromise a financial application does not give rise to a contract enforceable in law. The Judge considering the matter is obliged to look at all of the circumstances and decide what order should be made. If, for example, the agreement failed to properly provide for the needs of a child, the court can refuse to make an order in the terms of the agreement. This is in contrast to the position in the commercial context, where parties are ordinarily held to the terms of their agreement, even if the result is "unfair" to one of them.

In practice, where an agreement between parties to a divorce has been properly negotiated, this is heavily influential and, after considering all the relevant circumstances, the court will ordinarily confirm that agreement and make it into an order. It will very rarely use its paternal function to make some other order. Even before separation, in the context of pre-nuptial agreements, the court has increasingly accepted that parties to a divorce are sophisticated, educated and should be permitted the autonomy to reach their own agreements.

Nor can arbitration oust the jurisdiction of the Family Court to make an order on divorce. However, Family Judges had extended the principle of autonomy further, taking the view that where an arbitral award has been made, any challenge to it should be treated more stringently than where a party wished to resile from an agreement they had entered into. Practice guidance suggested that it could only be in the rarest of cases that it would be appropriate for the judge to do other than approve an order in the terms of that award.

The Court of Appeal decision

In the recent decision in Haley v Haley [2020] EWCA Civ 1369, The Court of Appeal took a different view. It emphasised that family cases are different to civil cases. It noted that, in financial remedy cases, the final decision as to the order to be made remains with the court. It did not accept that the fact the parties have agreed to arbitrate should make it more difficult to challenge an arbitral award than to challenge any other agreement reached between them.

In the circumstances, the Court of Appeal considered that the Family Court can decline to make an arbitral award into an order where there are good and substantial grounds for concluding that an injustice would be done if an order was made in those terms. Nonetheless, parties needed to understand that the court would ordinarily make an order in the terms of an arbitral award. It would be for the party seeking to avoid the consequences of the arbitral award to convince the court that it was appropriate to do so, and the onus would be on them to satisfy the court that the decision was wrong.

Where does this leave us?

Parties who agree to enter into arbitration expect a binding decision. It would completely undermine the scheme and the purposes of arbitration should it be treated as a dry run for another dispute before the court. However, for many litigants (and family law practitioners), the decision of the Court of Appeal makes arbitration a significantly more attractive option.

If an arbitral award can be challenged in similar circumstances to a decision of the court then, whilst neither type of decision will be easy to challenge, one of the largest perceived disadvantages of arbitration will have been eliminated, leaving only the considerable upsides. In the current climate, where the courts are under considerable strain to deal with the number of cases before them, an increase in the use of arbitration is likely to better meet the needs of more families who wish to resolve their financial disputes without undue delay.

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