Divorcing couples who cannot agree how to divide their property can, as an alternative to costly and time consuming litigation, refer the matter to an arbitrator. But if one of them isn’t happy about the outcome, the matter could still end up in court. The recent case of BC v BG [2019] EWFC 7 considers the different ways this can happen, and confirms what should be the preferred approach.
Arbitration is a form of alternative dispute resolution (ADR) which is commonly used in commercial and employment disputes, but it can also be used in family finance cases. There are distinct advantages – the process is generally quick, cheap and confidential – but there may be a problem if one of the parties doesn’t accept the arbitrator’s award (decision) and wants to challenge or reopen the matter in court. How does the court become involved?
In the recent case of BC v BG the judge resolved that question by confirming that the primary route to challenging an arbitration award in a divorce case should be the same as in any other kind of arbitration, ie under one of the specified grounds in the Arbitration Act 1996. This was preferable to making an application to the court requiring the other party to “show cause” why the award should not be made an order of the court, or simply asking the court to declare that it should not be made an order.
Why they went to arbitration
In this case, the parties had originally taken their dispute to court, but the hearing listed on 10-12 July didn’t go ahead because the judge was ill. The parties were reluctant to wait several months for a fresh date (a familiar problem these days), so they decided to go to arbitration instead.
They signed an application form ARB1FS, agreeing to arbitration under the Family Law Arbitration Financial Scheme set up by the Institute of Family Law Arbitrators (IFLA), and appointed an experienced family arbitrator, Mr Gavin Smith. The two-day hearing began almost immediately, on 11 July 2018, and was concluded the following day. On 2 August the arbitrator handed down his 26-page award.
The ARB1FS form had included provisions stating that the parties agreed that the award would be “final and binding” subject to their right to challenge it “in accordance with” Part 1 of the Arbitration Act 1996. They also agreed that, if necessary, “we will apply to an appropriate court for an order in the same or similar terms as the award or the relevant part of the award” and that, in those circumstances, “the court has a discretion” as to whether and how to make such an order.
That wording reflected the rules of the IFLA scheme. The reason for the latter provision is that, as the judge explained, an arbitration award is binding on the parties without the need for a court order, but a court order (confirming the award) will be necessary in certain circumstances, for example in order to make it effective against third parties, such as a pension company or mortgage provider, or to achieve a “clean break”. (See Granatino v Radmacher [2010] UKSC 42 at [3].)
Quite apart from the provisions of the Arbitration Act, it is well established that the making of an arbitration agreement or award cannot exclude the court’s jurisdiction under Part II of the Matrimonial Causes Act 1973 to make an order relating to the parties’ finances, or absolve it of its duty to investigate the parties’ circumstances, where necessary. However, in doing so the court must take into account the award, just as it would an agreement between the parties themselves. It would have to have very good reasons not to make an order in the same terms.
Challenging the award
In the present case, the wife did not agree with the way the arbitrator decided who should get what. She had a number of specific complaints, including that the arbitrator had made errors of law, that a “supervening event” rendered the award wrong or unworkable, and that the husband had misled the arbitrator in relation to his pension. The matter therefore came back to the court, where another judge, Mr Justice Mostyn, gave directions that the case was to be listed for the hearing of an application “that the award is not make an order of the court pursuant to DB v DLJ [2016] EWHC 324 (Fam).”
DB v DLJ was an earlier case in which Mostyn J had to decide a challenge to an arbitration award in a post-divorce financial dispute resolution case. In his judgment in that case he explained the relationship between arbitrators and the courts under the regime established by the Arbitration Act 1996, and referred to other cases and practice directions in which the courts have considered arbitration as a means to resolve family disputes, such as the judgment of Sir James Munby P in S v S (Arbitral Award: Approval) [2014] EWHC 7 (Fam).
It was clear from those cases that the grounds for challenging an arbitration award were limited to those provided for by the Arbitration Act. These are basically threefold. (1) A challenge under section 67 of the Act to the ‘substantive jurisdiction’, ie the power of the arbitrator to decide the case in the first place. (2) An allegation under section 68 that there was a ‘serious irregularity’ in the conduct of the arbitration. (There are lots of cases on this, but it is basically quite hard to establish.) (3) An appeal based on a ‘question of law’, under section 69, ie that the arbitrator got the law wrong in some way and that this vitiated the award.
If none of those apply, the award is binding and effective without needing to be also made an order of the court, but it is open to a party to apply for enforcement of the award under section 66 of the Act. Alternatively, the parties can ask the family court to make a consent order, based on the award in the same way as if they had agreed the outcome between themselves. An order of the court might be necessary to make the award effective against third parties, such as a mortgage lender.
If asked to make a consent order, the family court has a duty under Part II of the Matrimonial Causes Act 1973 to investigate the parties’ financial circumstances: in doing so it would be bound to take into account the award and it would be exceptional for it to refuse to approve a consent order containing an award.
However, the court can refuse to make an order giving effect to an award in the exceptional case where there are supervening circumstances, something unforeseen happening since the award, that would justify reopening the case, or where new evidence showed that it was based on a fundamental mistake. These are narrow and exceptional grounds.
What the judge decided
The important point about the present case is that the deputy High Court judge, Clare Ambrose, resolved a question about the best procedure to be adopted if and when a party wished to challenge an arbitration award made to resolve a post-divorce financial dispute.
In order to respect the statutory rights and mandatory safeguards of the Arbitration Act 1996, including a strict 28-day time limit on challenges to awards, and for other good practical reasons, the preferred approach should be to make any challenge under the Arbitration Act, by way of an arbitration claim in the High Court. The case could then be transferred to the Family Division (not the Family Court) to enable that court to take full account of the matters set out in section 25 of the Matrimonial Causes Act 1973.
The problem with the alternative approach of applying to the Family Court or Division under the “notice to show cause” procedure (or application that the award not be made an order of the court) was that it ran counter to the Arbitration Act as a comprehensive code for all arbitrations, and risked giving inadequate effect to the certainty and safeguards that it conferred.
(All this may seem very technical. Perhaps it is. But the basic point is that arbitration is arbitration, whether it resolves a financial dispute in business, or employment, or in a divorce; and the same rules should be applied to any attempt to challenge or appeal against the award.)
Having resolved the procedural question, the judge in this case then went on to reject all the grounds on which the wife sought to challenge the award.
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