Family arbitral awards—a ringing endorsement

Family arbitral awards—a ringing endorsement

TDivorce Settleo what extent can the courts interfere with a family arbitral award? Suzanne Kingston, partner at Withers LLP, considers the decision in DB v DLJ, and explains why Mostyn J’s findings are likely to make family arbitration an increasingly popular choice.

 

The case and the issues

In DB v DLJ [2016] EWHC 324 (Fam), the Family Division following an application by the husband, held that an arbitration award be made an order of the court following the parties’ family financial dispute resolution under the family law arbitration scheme. This case deals with the routes of challenge and appeal for family arbitral awards, in the context of an application by a husband to show cause why the arbitral award should not be made into a court order.

Why is it significant?

It is significant for a number of reasons:

  • it is the first ‘notice to show cause’ case in the family courts following a family arbitral award—the judge went to some lengths to identify the similarities and differences between commercial and family arbitration so as to provide clear guidance in relation to the substantive legal justification for challenging a family arbitrator’s award and in order to streamline the relevant procedure
  • Mostyn J has used this opportunity to endorse family arbitration—it is another case (hot on the heels of the President’s Practice Guidance published recently (Practice Guidance—Arbitration in the Family Court [2015] Lexis Citation 281)) which puts family law arbitration firmly on the radar and sends a clear message to members of the public and practitioners that arbitration really is a beneficial and truly viable option as a means of resolving issues following relationship breakdown
  • it provides a clear analysis of the grounds of challenge available under the Arbitration Act 1996 (AA 1996) (which apply to all arbitration cases, commercial or family) together with a detailed analysis of the very limited additional grounds which are available (in the rarest of cases) in the context of family arbitration—the judgment also scrutinises those additional grounds (innocent misrepresentation and unforeseeable events) in the context of civil cases so as to provide firm guidance as to how such cases should be conducted and dealt with in the future
  • the case also provides clear guidance on the legal principles to be applied where one party is seeking to challenge a family arbitration award or a family court order on the grounds of mistake or an unforeseeable event

What did the court decide? How did it approach determining the legal issues in this case?

The court decided that the arbitral award was a ‘thorough, conscientious and clear piece of work. Its quality is a testament to the merit of opting for arbitration’ and that it should be made into a financial order.

The award provided for the parties’ property and cash to be shared equally. The wife had argued that the net figure taken by the arbitrator for the value of her home in Portugal was £373,797, when the correct figure at the time should have been £152,306, owing to subsequent planning developments and decisions. She argued that this was a vitiating mistake or alternatively, by virtue of later events, the value had fallen.

The judge held that the existence of a safety net provided by periodical payments provision in the arbitral award inevitably led him to exercise his discretion to refuse to interfere with the arbitrator’s award, even if the threshold requirements of proof or mistake or supervening event were demonstrated (which they were not). However, if he was wrong on this, the planning decisions which would arguably affect the value of the property did not constitute an unforeseeable later event which invalidated the decision of the arbitrator (as the planning application was already pending). The wife’s case on mistake was stronger, but Mostyn J was not satisfied that the wife with due diligence could not herself have discovered that the planning eventualities might well arise.

How helpful is this judgment in clarifying the law in this area? Are there any remaining grey areas?

Very helpful. A highly respected judge has scrutinised the family arbitral scheme under the Institute of Family Law Arbitration (ILFA), found an arbitral award to have been of exemplary quality, endorsed and promoted family arbitration for clients, pinned down precisely the very limited routes to challenge such awards and set out the procedural routes so to do.

An in-depth review of case law relating to set aside applications generally has been provided, whether based on mistake or Barder principles and this is helpful in cases involving negotiated agreements as well as arbitral awards.

It is clear now that if a challenge to a family arbitral award is made in the future, the application will be heard by a High Court judge at the soonest opportunity for speedy determination.

In terms of grey areas, Mostyn J seemed to suggest in his judgment that in most cases parties to a family arbitration will wish to see the award contained in a court order, especially if the award provides for a clean break or pension sharing order. Certainly, unmarried couples opting for arbitration in, for example, a Trusts of Land and Appointment of Trustees Act 1996 case may not need to commute their arbitral award into a court order which is yet another benefit of arbitration. However, we would advise all arbitral awards in financial remedy cases following divorce or civil partnership dissolution be ratified by the court to ensure the parties have complete and ongoing legal certainty and protection. The proposal to amend the ARB1 Form also deserves further debate: the family court’s duty to consider any arbitral award (or any financial agreement), in accordance with the factors set out in section 25 of the Matrimonial Causes Act 1973, derives from that statute, not from any agreement between the parties. The acknowledgment of such duty in the ARB1 Form does not, as we see it, extend the court’s powers in any way.

What does all this mean for lawyers and their clients? What should they do next?

Clients and lawyers can be confident that any previous concerns they may have had about ways in which family arbitration awards may be interfered with by the court have been laid to rest by this judgment. It will be even more difficult to renege from the terms of an arbitral award than a negotiated agreement, and in most cases any challenge will either have to fall under the grounds contained in AA 1996, or, in the rarest of cases, the very limited scenarios circumscribed by this case under the grounds of mistake or a truly unforeseeable event. The court is not a rubber stamp, but then family arbitration ‘is not a dress rehearsal: it is the first and last night of the show’ (per Lewison LJ in Fage UK Ltd & Anor v Chobani UK Ltd [2014] EWCA Civ 5).

How does this case fit in with other developments in this area? Do you have any predictions for future developments?

This case demonstrates how arbitration is growing apace in family law. There are now over 220 trained family financial arbitrators and last weekend saw the first children arbitrators trained with a view to the Children Arbitration Scheme being launched in July 2016. The President has recently encouraged members of the profession to train as arbitrators in the face of modernisation of the court system and a declining need for court hearings in the future. Our prediction for the future is that arbitration will grow even more in popularity as the optimal choice for separating couples in the weeks and months to come.

Suzanne Kingston is widely known for her expertise in all aspects of family work, in particular the resolution of complex financial issues for high net worth individuals. Her cases often have an international element and she has considerable experience in dealing with prenuptial agreements and cohabitation issues. Suzanne is a qualified collaborative lawyer and trains collaborative law for Resolution. She has been described as the 'queen of mediation, collaborative law and arbitration', spearheaded the arbitration training for family lawyers, and is herself an accredited arbitrator.

Interviewed by Jenny Rayner.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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About the author:
Mark is one of the Dispute Resolution blog’s technical editors. He qualified as a lawyer in Australia and worked in private practice before joining LexisNexis. In addition to contributing to the Dispute Resolution blog, he also writes for a number of LexisNexis blogs, including the Future of Law blog.