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Home > Articles > 2012 archive

Family arbitration – a soft launch or a hard landing? Some provisional thoughts

Rhys Taylor barrister, family arbitrator and collaborative lawyer offers guidance on family arbitration


















Rhys Taylor
, barrister, family arbitrator and collaborative lawyer of Thirty Park Place Chambers

Introduction
On 22 February 2012 family arbitration was launched as a new method of alternative dispute resolution ("ADR"). Family arbitration has now taken its place alongside mediation and collaborative law, in offering what may turn out to be a realistic way of settling family finance disputes without having contested court proceedings. The proponents of the new scheme describe the launch as a "soft launch" to be followed by further public information about the scheme next month. The question is, will it get a hard landing?

As one of the newly admitted family arbitrators I would say that it is a well thought out scheme. It requires that the law of England and Wales is applied and is moulded to dovetail with the statutory protections provided by the Matrimonial Causes Act 1973. Awards under the scheme are enforceable only with an order of a court in England and Wales. Contrary to the connection suggested by some commentators, it has nothing to do with Sharia Law councils, which do not seek to apply the law of England and Wales.

The "it's only for rich litigants and fat cat city lawyers" charge comes as something of a surprise to someone such as myself, who is a barrister based in Cardiff. My wish is to be able to provide an additional form of dispute resolution service at an affordable cost anywhere in England and Wales.

Key documents
Family lawyers who wish to participate in family arbitration are going to have to familiarise themselves with some new materials. The key documents comprise:-

• Arbitration Act 1996 ("the Act"). This is a consolidating statute which draws together the best thinking concerning arbitration practice. Given that commercial arbitration conducted in England and Wales can involve parties from around the world, the statute has been drafted to be readily comprehensible by everyone. Its commercial provenance should not deter any family lawyers who may wish to participate in an arbitration. I will deal with some of the key provisions below, but an important point to grasp is that there are mandatory provisions out of which the parties cannot contract (which are set out in schedule 1 of the Act) and non mandatory provisions which will only apply unless the parties choose to agree something different. Do not worry about Part III which deals with recognition and enforcement of certain foreign awards. It is a fundamental principle of family arbitration that it is determined only in accordance with the law of England and Wales. The route to enforcement will be via the conversion of the arbitrator's "award" (more of which below) into a consent order in a family court in England and Wales. Many of the key international conventions concerning reciprocal enforcement of arbitration awards have reservations which mean that they apply only to commercial cases.

• The Institute of Family Law Arbitrators ("IFLA") rules ("the Rules"). IFLA is the guardian of the family arbitration scheme (although any person holding themselves out as a Family Arbitrator needs to have been admitted as a Member of the Chartered Institute of Arbitrators). Family lawyers have worked in conjunction with experienced commercial arbitrators to devise a set of procedural rules. The Rules have made canny choices as to how the non mandatory sections of the Act may be best moulded to suit the purposes of the family arbitration participant. This means that much of your bedtime reading can be focussed on the Rules, rather than worrying as to which non-mandatory parts of the Act, on a case by case basis, should be modified and which default positions should be retained. It is commonplace in arbitration for Institutes in particular commercial domains to develop their own procedural rules which will best suit the community they seek to serve. This is what has been done here. The Rules are accessible and should be easily navigated by family lawyers hitherto unfamiliar with arbitration procedures.

• The Form ARB1  
All applicants for arbitration must personally sign an application for family arbitration, known as Form ARB1. This invites a member of the Family Arbitration Panel to determine their family law dispute in accordance with the Act and the Rules. By signing the Form ARB1 the parties contractually invite a family arbitrator to make a decision (called an award) resolving their dispute. Once the parties have agreed terms as to remuneration and other matters, and the nominated arbitrator has accepted the invitation to arbitrate, the arbitration is underway.

• There are two further invaluable documents to which reference should be made. Timothy Scott QC of 29 Bedford Row has produced an excellent article which details much of how the Act and the Rules will operate. Timothy Scott QC's article is an excellent resource and I have tried not to cover the same ground here. This article should merely be read alongside his. On the IFLA website there is a useful Q&A section which deals with many of the typical questions we are all having as to how the scheme will work in practice.

• The arbitrator's award. This is the arbitrator's judgment. The formalities are set out in s.52 of the Act. It should be in writing, signed by the arbitrator, contain reasons, state the seat1  of the arbitration and the date of the award. After the reasons there will follow the formal award which will look very similar to, and be very easy to convert into, a financial remedy court order.

• For anyone seeking a helpful and reasonably priced textbook I recommend The Arbitration Act 1996, A Commentary, eds Harris, Planterose and Tecks (4th edition, Blackwell Publishing). One of the authors, Jonathan Tecks was a trainer on the training course successful completion of which is a prerequisite for membership of the Family Arbitration Panel.

Key sections of the Act
A brief article such as this cannot attempt an in-depth analysis of the Act. However, I draw attention to the following:-

• s.1 sets out the general principles of the Act. Think of it as being akin to an overriding objective provision in the CPR/FPR. It provides that the Act is founded on the following principles:-

o the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense;

o the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest;

o in matters governed by this Part the court should not intervene except as provided by this Part.

• s.3 defines the meaning of the seat of the arbitration (see footnote 1)

• s.4 defines the mandatory and non-mandatory provisions of the Act (by cross reference to Schedule 1)

• s.33 contains the duty of the arbitrator who shall:-

o act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and

o adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.

• s.34 confers wide case management powers on the arbitrator, subject to the parties agreeing otherwise (although note that by Art 1.4 the parties may not amend any procedure after the appointment of an arbitrator unless the arbitrator agrees to such amendment).

• s.40 of the Act places a duty on the parties to the arbitration "to do all things necessary for the proper and expeditious conduct of the arbitral proceedings" which includes:-

o complying without delay with any determination of the tribunal as to procedural or evidential matters, or with any order or directions of the tribunal; and

o where appropriate, taking without delay any necessary steps to obtain a decision of the court on a preliminary question of jurisdiction or law (see sections 32 and 45). 2

• s.41 describes the powers of the arbitrator in the event of a party's failure to do something necessary for the proper and expeditious conduct of the arbitration.

• ss.42 to 45 set out the support that the arbitrator can look to receive from the court.

• ss.66 to 71 set out the  powers of the court in relation to an award, including enforcement and the  rights of challenge which may be entertained.

o Under s.67 a challenge can be made to the award on the basis that the arbitrator lacks jurisdiction. Given the clarity of the ARB1 that appears unlikely to arise in most post separation appointments under the scheme.

o Under s.68 a challenge can be made for a "serious irregularity" which the court considers has caused or will cause substantial prejudice to the applicant. This includes the arbitrator failing to comply with his duty under s.33 of the Act, a failure to conduct the proceedings in accordance with the procedure agreed by the parties and failing to deal with the issues put by the parties.

o Under s.69 there is an appeal on a point of law unless that is expressly excluded by the parties. The surrender of a right of appeal on a point of law may appear objectionable to some, but when contrasted with the millions of pounds spent filling the law reports over the last 11 post-White years, some may prefer for quick and relatively inexpensive finality over the more protracted and sometimes disproportionately expensive route to justice. 3

Arbitration in the context of other ADR formats
There has been some concern expressed in collaborative law and mediation circles that family arbitration is something of a rogue form of ADR, in that it will encourage people to adopt "positional stances" rather than seek to work out their own problems. Time will tell whether those caught up in family breakdown seek out adjudicated resolutions short of court proceedings. This will determine, I imagine, whether family arbitration gets a hard landing or not.

There are some bread and butter family law problems which a reasonable participant in mediation or collaborative law simply may not be able to answer themselves.   Does the resident granny have the benefit of a constructive trust in the family home after spending her life savings on a garage conversion; should a party's inheritance be treated differently; what should the term of a periodical payments order be, and should there be a s.28(1A) bar? Are there not parties out there who would prefer that the law answered those complex questions for them?

It is to be hoped that family arbitration will take up a useful and complementary place alongside other forms of ADR. Parties to a mediation might be unable to resolve their issues until the "granny flat" issue is solved. Provided Granny was prepared to be involved in the arbitration, there would be nothing, from the arbitration point of view, to prevent that discrete point being put to an arbitrator for determination, so that the parties could then go on to resolve the rest of their issues via the mediation route.

The benefits of family arbitration.
There are many advantages to be had from arbitration:-

a. The parties can choose their tribunal, choose what they wish their tribunal to resolve and can, subject to the interests of justice being met, determine the process that they wish to adopt. It is a fundamental principle of arbitration that it does not have to follow court procedures. This opens the way for light touch paper determinations, the parties having determined their own disclosure regime. If the parties remain in dispute as to a point of principle, say the treatment of an inheritance, they may choose to agree a very light level of disclosure, more akin to that provided upon the submission of a consent order.

b. The parties can choose the environment in which their dispute is determined. How many of lawyers have turned up at a court to find themselves at the back of a long list with no conference rooms available? Would not some parties prefer to choose their venue, be it a solicitor's office, barristers' chambers, meeting room or remotely via telephone (more likely for directions appointments, but it is the parties who chose their procedure). Provided that a family arbitrator's award can be converted into an order in a family court in England and Wales, which presupposes no jurisdictional issues in a main suit, then the parties would also be free to have their arbitration heard abroad if that was more convenient for them.

c. There is also the issue of timing and speed. Family cases, quite rightly, have to take their turn in publicly available judicial lists. But what if the parties are keen to, or their personal and/or commercial interests demand that they, get a move on and not be subject to months of waiting. Under the family arbitration scheme the arbitration will start on a date and at a time,of the parties' choosing. The sometimes apparently overwhelming burden of the lists in some family courts also means that not all judges get the opportunity to read the papers in as much detail as they would have wished. How many times do lawyers get told, in front of the clients "I am very sorry, but I have not had time to read the papers and you will have to guide me through this?" Not so with family arbitration. Whilst there is undoubtedly a cost to appointing an arbitrator, it would be most interesting to compare that with the burden of costs (and inconvenience) on parties whose interlocutory directions hearing or FDR is "not reached" or whose final hearing goes part heard, neither of which is an infrequent occurrence in courts around England and Wales.

d. Confidentiality. It is a fundamental principle of the Rules that the arbitration shall be confidential (Art 16). No press intrusion is guaranteed.

e. The parties can choose their costs' regime.

i. The default position in the Rules (Art.14.4) provides that there will be no order as to costs. Some family lawyers bemoan the loss of the Calderbank regime. Well, if the parties agree to adopt the Calderbank Rules, they are free to do so.

ii. Or what of the litigant's cost risk (on either side) where one party seeks a beneficial interest in a property in the other party's sole name. The biggest topic of discussion in conference is often not only the cost but the risk of costs. In family arbitration, if the parties agree, they might choose to stay with the no order as to costs regime. It is, as in so many areas of family arbitration, a matter of the parties' autonomous and dignified choice as to how they wish to proceed.

The current jurisprudential basis for family arbitration
In an article, entitled "Statutory Arbitration in Ancillary Relief" [2008] Fam Law 26, Thorpe LJ set out the case and his support for binding family arbitrations in appropriate cases. However, His Lordship's caveat was, "...the advantages of arbitration can only be assured if arbitration rests on a statutory foundation that prevents a party from rejecting the arbitrator's award."

There has been no statutory reform since 2008, so how can parties be confident that their arbitration will be upheld?

Radmacher (formerly Granatino) v Granatino [2010] UKSC 42  changed, fundamentally, the way the courts regard parties to a marriage contracting for the consequences of their marriage breakdown, whether pre-nuptially or post-nuptially. As is well known, "The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement." [75]

Go back to Form ARB1 – that is, in effect, a post-nuptial settlement -  It is a contractual agreement which provides a mechanism by which a dispute can be resolved. The typical vitiating factors of duress, fraud, misrepresentation and undue pressure, making it unfair for an agreement to be upheld, are far less likely to be evident in an agreement which has been entered into after the relationship has broken down with all the safeguards which are provided by the Act and the Rules.

Brief mention should be made of s.34 of the Matrimonial Causes Act 1973 ("MCA") which provides that any "maintenance agreement4" which purports to restrict the right to apply to court shall be void. The background to this section is explained by Wilson LJ (as he then was) in the Radmacher case in the Court of Appeal [2009] EWCA Civ 649  at [134]. Section 34 of the MCA has been drafted in from earlier legislation which dealt with the situation where married parties were living separately (but not divorcing) and one sought maintenance from the other. Wilson LJ stated, "sections 34 and 35 have been dead letters for more than thirty years ..." In the Supreme Court Lord Phillips referred to Wilson LJ's analysis at [36] stating, "It seems likely that issues as to maintenance have, since the 1973 Act came into force, been pursued in ancillary relief proceedings."

Arbitration practitioners will no doubt look to the courts for an authoritative decision as to whether family arbitration awards are to be treated as being (or akin to being) presumptively binding under the notice to show cause procedure. It is hoped that the scheme will receive early judicial blessing, or it will be a very hard landing indeed.

But what if the parties are not married?
However, it is important to note that there are jurisdictions which fall within the family arbitration scheme which do not require the court to exercise its paternalistic review 5 prior to granting a financial remedy order. A dispute concerning the beneficial interest of unmarried partners in a property might well be resolved by consent in a Tomlin Order 6 if the matter were before the courts. In such circumstances the court exercises no formal supervisory "fairness" jurisdiction and allows the parties to freely enter into such agreements as they choose.

The normal procedure to enforce a civil law award (albeit one under the family arbitration scheme) is by the summary procedure under s.66 of the Act. This provides that an award made by the arbitrator pursuant to an arbitration agreement, may, with leave of the court, be enforced in the same manner as a judgment or order of the court of same effect. Where leave is given, judgment may be entered in terms of the award.

Foskett 7 states at 32.08, "Machinery analogous to that of a Tomlin order is not available as a means of compromising an arbitration. Since enforcement is not a matter for the arbitral tribunal, which will be functus officio once it has delivered its award, there is no summary process available to be invoked in such a manner. Permission to enforce the award as a judgment or order is the nearest equivalent."

Overall
Currently, when parties reach an agreement following a divorce, they are almost always advised to seek to turn their negotiated agreement into a formal order of the court. This is the same under the Rules. If either party seeks to rescind that agreement then there have long been mechanisms in place to hold the parties to the terms of their fairly entered into agreements. Edgar v Edgar (1981) 2 FLR 19 and Xydhias v Xydhias [1999] 1 FLR are both well known examples where this happened.

When the parties are not married the position is slightly different in that they are able to contract without the court exercising a "fairness" review of what they have agreed. A case may well settle upon agreed terms without a formal order ever being produced, the agreement being recorded in Part 36 correspondence. Should a difficulty arise with enforcement reference should be made to CPR Part 36.11(8).  However, in the arbitration setting, the award, will be enforced under s.66 of the Act.

What are the arbitrator's thought processes when deciding upon procedural matters?
The mind map as to how an arbitrator should be thinking through procedural questions is as follows:-

a. Do I have the power to do this

i. by virtue of the Act,
ii. by virtue of the rules,
iii. by virtue of the parties agreement?

b. If I have the power to do this

i. how should I be exercising the power in accordance with s.33?

Expect the arbitrator (well, at least this one) to play a proactive and enabling role in assisting the parties and their representatives to understand the options available, as to how they might decide to conduct the arbitration. The arbitration is meant to be more informal than being in court.

Arbitration clauses in prenuptial agreements?
A future issue which will have to be grappled with is the wording and status of an arbitration clause in a pre-nuptial agreement. Whilst not having the status of a Form ARB1, it would be a contractual agreement which may have a bearing on any application to stay legal proceedings issued in defiance of such a pre-nup clause. Indeed it might specify that in the event of separation or divorce and absent agreement as to financial issues the parties bind themselves to apply for the nomination of an arbitrator in accordance with the IFLA scheme rules then in force.

Some guidance, borrowed from a commercial context, is available in Bernstein's Handbook of Arbitration and Dispute Resolution Practice 8

a. "The distinction between existing and future disputes 9 only has relevance in one context. That is where:

ii. The seat of the arbitration is England; and
iii. The parties have agreed that the costs are to be paid in a particular manner.

In that situation the agreement as to the sharing of costs is invalid and unenforceable if the agreement was made before the dispute arose." [2-016] (see s.60 of the Act)

b. "The late Professor Schmitthof once said that to draft an arbitration agreement clause without specifying the venue or seat of the arbitration was an act of professional negligence. It is clearly desirable to specify a seat, thereby indicating the juridical seat of the arbitration, the supportive and supervising regime of the courts which is available to the parties and the mandatory requirements to which the arbitration will be subject. Specification of the venue, if no seat is specified will, in most jurisdictions, and absent of strong indications that the parties intended otherwise, be treated as a specification of the seat with the like consequences." [2-135]

There are family arbitration schemes in Australia, Canada and now Scotland 10, so the need not to confuse the venue of a possible arbitration with its seat is readily apparent.

c. "There is also a trend towards undue complexity in the drafting of arbitration clauses. The draftsman might do well to remember tha[t] an arbitration clause which simply says 'arbitration, London' is an effective clause under English law." [2-142]

Quite how the courts will treat such a clause in a pre-nup remains to be seen. Pending clarification from the courts, which may be some years away, one would have to question whether such a clause would have the status of a Form ARB1 agreement  entered into in full knowledge of the dispute which has come to pass and rationally chosen as an alternative to court proceedings.

Securing an impartial family arbitrator
A practical issue which may well have to be confronted in cases is the impartiality of the tribunal. Clearly, a partner in a firm of solicitors cannot arbitrate upon a dispute brought by a fellow partner because the partners are financially connected. But what about a barrister appearing before a fellow member of chambers who are not, in any way, financially connected or a solicitor appearing before a barrister whom they frequently instruct, or indeed a barrister appearing before a solicitor from whom they regularly receive instructions?

The well known test for judicial bias is, "The question is whether the fair minded and informed observer, having considered the facts, would conclude there was a real possibility 11 that the tribunal was biased." See for example, Porter v Magill [2002] 2 AC 357 at [102] – [103]. The attributes of the fair minded informed observer are described further in Gillies v Secretary of State for Work and Pensions [2006] 1 WLR 781 at [39] and Helow v Secretary of State for the Home Department [2008] 1 WLR 2416 at [1] – [3]. Being a member of the same chambers as a fee paid judge is not indicative of bias (Birmingham City Council v Yardley (2004) Times, 9 December, where the recorder in that case had informed the parties of this fact at the outset.)

However, if members of the same chambers intend to appear as both advocate and tribunal in the case, great care needs to be taken to ensure that this is brought to the parties' attention at the earliest opportunity and fully explained, with options clearly outlined (Peter Smith v Kvaerner Cementation Foundations Ltd [2006] EWCA Civ 242, [2007] 1 WLR 370.)

In the arbitration-specific context there is no impediment to the arbitrator and advocate being members of the same chambers (Laker Airways v FLS Aerospace Ltd and Stanley Burnton [2000] 1 WLR 113. The authorities have also recently been considered in the case of A and others v B and another [2011] EWHC 2345 (Comm) where there was no bias in circumstances where the arbitrator only disclosed towards the end of the arbitration that he was being instructed in a wholly unrelated matter by one of the solicitors who were before him in the arbitration. However, it would have been far better had the matter been disclosed earlier.

Conclusion
Arbitration works well in many spheres of dispute resolution. It is hoped that family arbitration will be no exception. The Rules are a thoughtful application of the Act into the family context. The tension between the contractual nature of an award and the court's formal approval (in the matrimonial context only and not civil disputes determined in accordance with the Rules, unless enforcement is in issue e.g. cohabitation dispute), by very definition, has yet to be teased out. However, Radmacher provides an indication of the likely way such awards may be treated.

I would like to extend particular thanks to Sir Peter Singer who kindly commented upon a draft of this article. Sir Peter is a family arbitrator and member of the ADR department at 1 Hare Court.

_______________________

1. The seat is the juridical basis for the determination of the arbitration. By article 3 of the Rules all family arbitrations are to be determined in accordance with the Law of England and Wales.

2. Given that the route into arbitration is via the Form ARB1 which clearly confers a jurisdiction, and that by virtue of Art 3 the case must be decided in accordance with the law of England and Wales, it remains to be seen how relevant this provision will be to family lawyers.

3. Note also the provision available under s.65 of the Act to place a cap on the recoverable costs of arbitral proceedings.

4. But not "other financial arrangements"

5. Which is not a rubber stamp, but also not a blood hound or ferret, per Munby J (as he then was) in L v L [2008] 1 FLR 26 at [73]

6. see White Book 2011, 40.6.2

7. The Law and Practice of Compromise, Seventh edition.

8. Fourth edition. Lord Phillips of Worth Matravers states in the Foreword, "The only question that I was left with was why the title had not been changed to the Encyclopaedia of Arbitration and Dispute Resolution Practice."

9. At the time of signing the pre-nup there is no dispute.

10. See, in respect of Scotland, "Agreeing to Disagree" The Journal Online – Scottish Law Society Journal 13 December 2010, Morag Wise QC.

11. Note that authorities prior to Porter formulated the test differently, being, was there a 'real danger of bias' and the earlier authorities, such as the leading case of Locabail (LJ) Ltd v Bayfield Properties Ltd [2000] QB 451, (see esp. para [25] for a commonly quote passage) need to be read in light of the refinement to the test made in Porter.