New Court of Appeal case a gamechanger for arbitration in family law?

A recent Court of Appeal case has the potential to change the landscape of arbitration in family law.

With the court backlog worse than ever as a result of Covid-19, out-of-court settlement options, such as Early Neutral Evaluations, Private FDRs and Arbitration are seen as increasingly attractive prospects for separating couples, who would like to move forward swiftly and experience more freedom of choice than is permitted by the constraints of court.

In the case of arbitration, the “award” made by the privately-appointed arbitrator is turned into a court order after it is made, and so is binding on the parties involved in the arbitration. . Until now, it has been extremely difficult to appeal an arbitration award through the family court.

When deciding financial settlement on divorce, the judge (or in this case, the arbitrator) has a discretionary bracket within which an award can be made, and a decision that falls within that bracket can be difficult to appeal (and cannot be appealed just because one party doesn’t like the decision that has been made).

What happened in Haley v Haley?

The recent Court of Appeal decision in Haley v Haley [2020] may well change things.

The parties’ final hearing in their financial remedy case (finances on divorce) was postponed with just a week’s notice, just to the judge being unavailable.  The parties agreed to attend arbitration on the same day that they had already kept free for the court final hearing.  A decision was made by the arbitrator, which, under the terms of the arbitration agreement (and common arbitration procedure), should have been made into a court order under the Matrimonial Causes Act 1973 (the statute that governs finances on divorce).

The husband believed the award made at arbitration was unfair, and applied to the High Court under the Arbitration Act 1996 for:

1. An order to set aside the arbitration award (for serious irregularity);
2. Permission to appeal (on a point of law); and
3. An order that the arbitration award should not be made into a final order by the court (and thus enabling the court to make a new decision).

The appeal to the High Court failed, and so the husband made a further appeal to the Court of Appeal.

Points 1 and 2 were dismissed, and so the question to be addressed was limited to point 3 above, and the test to be applied if one party to the arbitration refuses to agree to the award being made into a court order or challenges the making of an order.  Could the appeal test under the Matrimonial Causes Act 1973 apply (which would apply in the case of an order made by the court in respect of finances on divorce) or should it be limited to the application of the Arbitration Act 1996 (which governs arbitration cases)>

The husband believed that the award made by the arbitrator was wrong and that the judge had erred in his assessment of:

1. the parties’ housing budgets and the realistic ability of the husband to rehouse himself to an acceptable standard;
2. how the parties’ pensions should be shared; and
3. the amount of maintenance that the husband should pay to the wife.

The Court of Appeal found that the wrong test had been applied by the High Court, and that the Matrimonial Causes Act 1973 test should apply instead.  On this basis, the Court of Appeal decided that the husband would have a real prospect of succeeding on appeal under the Matrimonial Causes Act 1973 and so the appeal should be allowed.

Where one party refuses to agree to an arbitration award being converted into a consent order, the court should “triage” the case and that party should “show cause” as to why the court should not make the order.

The case was sent back for case management by a circuit judge who was able to determine what sort of hearing was needed to determine the case again.

Comment

Take-up of arbitration in family law across England and Wales since the scheme launched in 2012 has been slower than many family law practitioners hoped. It was thought to provide a good alternative to the more traditional out of court settlement options, such as mediation, with more of the formality of a court setting, but with the benefit of it being bespoke to the parties’ circumstances (rather than the “one size fits all” constraints of the court process).

The hesitation seen is thought either to be due to the lack of understanding of the process by some family law practitioners (therefore being unable to successfully explain the process to clients), or alternatively because separating couples are put off the process due to the risk of being bound by a final decision that they may not like, made outside of the court arena. 

I acted in one of the first arbitration cases in the country, when the scheme was launched a few years ago.  We used the scheme to determine the division of the contents of a couple’s former home, where they could not reach an agreement.  We had already been through lengthy court proceedings regarding the finances and the judge indicated that he had no appetite to deal with furniture and personal items, with essentially very little value to them (other than sentimental).  Interestingly, at the time, one of the parties attempted to appeal the award at court (representing themselves in the process) but was unsuccessful in persuading the court that there were grounds to do so.

I am increasingly seeing out of court settlement options being used in a variety of family law cases (finances and children), many before considering court as an option, but also increasingly by people who quickly realise that the court process is not the panacea they were hoping for – judges have limited time, invariably the papers haven’t reached the judge before the hearing. 

People, where affordable, would much have a bespoke process, where the selected neutral evaluator (I hesitate to say “judge”) can devote a day to help parties reach an agreement, have received papers well in advance and have specifically allocated time to prepare themselves so that matters can be dealt with as effectively as possible.

Whilst the decision in Haley v Haley  may well provide some reassurance to those hesitant to engage in arbitration in finance cases on divorce, that the same appeal route is open to them as would be available if they were to engage in contested court proceedings instead, it leaves a lacuna in relation to appeals in relation to arbitration awards made in relation to other areas of family law, such as financial disputes between unmarried couples (Trusts of Land and Appointment of Trustees Act 1996) and contested probate cases (Inheritance (Provision for Family and Dependants) Act 1975).

If family law arbitration is of interest, or you would like to discuss whether it is an option  for you or for one of your contacts, please do get in touch.