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BC v BG - Cementing the future of arbitration

Julie Stather, barrister, Crown Office Row, Brighton considers the role of arbitration and what the future holds for the scheme.

















Julie Stather, barrister, 1 Crown Office Row, Brighton

Arbitration in family proceedings has now been available and used for seven years in relation to financial matters. The scheme was, as Sir Peter Singer wrote, for parties who "wish their financial dispute to be dealt with as swiftly, cheaply, privately and with as little acrimony as is possible" ([2012] Fam Law 1496).

When the scheme was extended to Children Act matters three years ago the same considerations applied with, of course, the benefits of rapid resolution of the matter being all the more beneficial to the welfare of the children.

This article examines the recent case of BC v BG [2019] EWFC 7 and its implications for the arbitration scheme. It will then go on to consider what the future holds for the scheme in more general terms.

BC v BG

This is an unusual case in which an arbitration award (the "Award") had been made under the financial scheme and the wife effectively wanted to appeal. The fact that cases such as this are vanishingly rare is a tribute both to the design of the arbitration scheme and its supporting Rules, and to the skill and judgment of the arbitrators who operate under its auspices.

The chronology

The parties had agreed on arbitration in response, it appears, to extensive delays in reaching a final hearing through the court system. An abbreviated chronology of the case makes for depressing reading:

18.11.16 Husband's application for ancillary relief
4.4.17  Decree Nisi
2017/2018 First Appointment and FDR
Feb 2018 3 day final hearing vacated by the court because the case could not be accommodated by the court
10.7.18  3 day final hearing vacated by the court due to the Judge being ill.

At this stage, some 20 months after the issue of proceedings, the parties were facing another adjournment of potentially months. The matter then picks up the pace to an astonishing degree when the parties decide to arbitrate rather than wait for a further court listing.

11.7.18  ARB1 FS (agreement to arbitrate) signed by both parties
11.7.18  Arbitration takes place the very same day
2.8.18  Arbitration Award with reasoned judgment announced just 21 days after the     arbitration agreement was signed.

Once the wife made an application to the court matters again slowed down:

5.10.18  W contacts the court regarding her 'appeal'/application
26.10.18 Directions hearing before Mostyn J setting the matter down for hearing
17.1.19  Hearing before Deputy HCJ Ambrose
28.1.19  Judgment handed down almost 4 months after the application was issued

Even a cursory glance at these dates makes it plain that, as was observed in the judgment of Deputy HCJ Ambrose, the decision to arbitrate was because "a prompt conclusion to the case was chosen in favour of waiting several months for a court hearing". In making her decision to appeal the Award the wife accepted that this "will be a costly process and will inevitably cause a long delay to the resolution of the matter".

This chronology alone stands as testament to the speed of the arbitration scheme which resulted in a decision in just 22 days whereas the initial application to the court was unresolved after 20 months with no end in sight.

The material facts

The arbitration had been undertaken by someone described by the court as very experienced and respected. The Award made by the arbitrator was well thought out and gave thorough reasons for the departure from equality.

The husband and wife were aged 61 and 56 respectively. Their relationship had lasted for 18 years, ten of those as a married couple. They had two children, one starting sixth form and the other being over 18, who it was agreed would live with their mother for a number of years to come but would require accommodation at their father's when they spent time with him. The wife's position statement for the arbitration put total assets at £1,096,542 (including pensions) with liquid assets of £497,287. The parties' incomes were described by the courts as "not large" with the husband's salary totalling £63,384 net (with an additional contribution to his pension) and the wife's income being £6,500 gross. The case was, as the judge said, "a common one where the tribunal... is faced with distributing a relatively small pool of assets and where the former matrimonial home will have to be sold...".

The arbitrator heard the case over two days and a fortnight later announced the arbitration Award. He departed from equality, awarding the wife 60% of the net assets as the parties had unequal mortgage capacities and the Award allowed each of them to rehouse to a similar standard. Other features of the Award included reducing spousal maintenance payable by the husband and a pension sharing order in favour of the wife.

Dealing with the disputed Award

The wife was not content with the Award and attempted to get the arbitrator to reconsider on four separate grounds.  The arbitrator correctly refused unless he was requested by both parties to do so, and the husband did not agree to the award being reconsidered. The wife then applied to the court in what was basically an attempt to appeal the award, but which Mostyn J allowed to be issued as an application that the Award not be made into an Order pursuant to DB v DLJ [2016] EWHC 324 (Fam).

The matter proceeded to a directions hearing and on to a final hearing listed for one day before Ms Clare Ambrose sitting as a Deputy High Court Judge. At that hearing the wife's complaints were distilled into an agreed list of issues for the court to determine in deciding whether or not the Award should be converted into an Order:

1. Does the wife's assertion that she has no mortgage capacity amount to a supervening event? The mortgage expert had provided (after the Award had been made) an indication that the wife would not after all have any mortgage capacity due to reducing maintenance. The court concluded that this was not a supervening event within the meaning of Barder v Barder as it was neither unforeseen not unforeseeable. The arbitrator's assessment had balanced the potential variables that could affect mortgage capacity, including the wife's Award of more than 50% proceeds of the sale of the home and the future income from pension sharing, and he concluded that in any event the calculation of mortgage capacity was not an exact science. 

2. Does the husband's alleged non-disclosure that his pension contributions are voluntary and not obligatory provide a further reason not to convert the Award into an Order? The court concluded that the wife had failed to prove deliberate or dishonest non-disclosure, and in any event even if it had been known that the contributions were voluntary, the award was unlikely to have been materially different.

3. Did the arbitrator fall into error in his application of the law by failing to attach proper weight to the express declaration of trust relating to the family home? The wife here was attempting to prove that the arbitrator had made a mistake of the type set out by Mostyn J in BD v DLJ, namely "the true facts on which it (the Award) was based...were not known by either the parties or the court at the time the order was made". The court rejected this argument on the grounds that the court and the parties knew about the existence of the trust. In addition, the court reflected that the arbitrator had taken the parties' contributions to the purchase of the family home into account as being relevant, but concluded that they did not affect the distribution of assets.

4. Did the arbitrator fall into error by failing to take into account the excessive spending and debts incurred by the respondent, as alleged by the applicant? Again, the court took the view that no mistake had been made as the arbitrator was aware of the husband's debts (in excess of £100,000) and took them into account in his deliberations. It was noteworthy both to the arbitrator and to the court that the majority of the debt was attributable to legal expenses and was therefore not 'reckless and extravagant spending' of the nature set out in Vaughan v Vaughan [2007] EWCA 1085.

Therefore, the wife's attempt to appeal the arbitration failed on all counts.


The procedural issues in the case

This case is important mainly for the procedural issues which it tackles. The judgment goes to great lengths to make it clear that arbitration decisions should be appealed only very rarely, and that when they are, steps should be taken under the Arbitration Act 1996.

The judgment sets out the guidance given by Munby P, as he then was, in S v S (Arbitral Award) (Practice Note) [2014] EWHC 7 (Fam): "Where the parties have bound themselves, as by signing a form ARB1, to accept an arbitral Award of the kind provided for by the IFLA Scheme, this generates, as it seems to me, a single magnetic factor of determinative importance". It then goes on to set out that where parties do seek to resile from the arbitrator's decision it requires to meet "one of the limited grounds of challenge or appeal permitted by the Arbitration Act 1996". Those limited grounds are set out in the 1996 Act as (1) challenging Award as to its substantive jurisdiction under s67; (2) challenging the Award on the ground of serious irregularity under s68; and (3) an appeal on a question of law under s69.

In DB v DLJ [2016] EWHC 324 Mostyn J examined the role of the court where it is asked to make an Award into an Order having been made aware that there are supervening events (which meet the test in Barder v Barder (Calouri intervening) [1988] AC 20,) or that the arbitration Award had been based on a mistake. His judgment set out that in those two narrow circumstances it would be plainly wrong for the court to exercise its jurisdiction to incorporate the Award being aware of those circumstances.

In BC v BG the judge set out her view of the law as follows:

A. Finality is an agreed priority for parties using the ILFA Financial Scheme and this agreement will be respected.

B. It is clear from S v S and DB v DLJ that financial disputes are arbitrable and the 1996 Act applies to arbitration under the ILFA Financial Scheme and Awards produced under that scheme.

C. In principle an ILFA Financial Scheme arbitration Award is effective and binding as between the parties without further court order. An order of the court is not a pre-condition for the binding effect of an Award on the parties.

D. However, in the context of financial disputes it will usually be appropriate for the parties to ask the original family court in which the proceedings were started to incorporate the Award into a consent order. This will ordinarily be more convenient than enforcing an Award under s66 of the 1996 Act but that procedure is also available. Obtaining an order is necessary for the Award to be relied upon against third parties (such as pension providers) and for achieving a clean break.

E. The making of an arbitration agreement (or an Award) does not oust the court's jurisdiction under Part II of the MCA 1973 to make an order, and does not exclude its duty to investigate the parties' circumstances. However, the exercise of the court's discretion must take account of the Award, the agreement to arbitrate, and the scope of the court's grounds for setting aside, varying or declaring an Award to be of no effect under the 1996 Act.

F. For the reasons set out in DB v DLJ it would be exceptional for a court to refuse to approve a consent order containing an Award.

G. As laid down in DB v DLJ, the court can refuse to make an order giving effect to an Award where there are supervening circumstances within the principles laid down in Barder v Barder [1988] AC 20. These have always been regarded as exceptional cases and the bar is set high. The emergence of fundamental new circumstances justifies re-opening the case because it gives rise to a new dispute upon which there are no findings, and which is not covered by the arbitration agreement, and accordingly the parties are not precluded from asking the court to deal with it.

H. The ground of mistake justifying a re-opening of facts in DB v DLJ is narrowly defined in that case. It will only exceptionally justify an Award not being upheld. Again, the emergence of new evidence only triggers relief if it gives rise to a new and materially different dispute.

I. To allow an application that the Award is not made an order under DB v DLJ (or an application to show cause) to confer a broader jurisdiction to re-open findings in an Award, for example because the arbitrator has made an error of law falling outside s69 or a mistaken evaluation of the facts, or a party has a new argument or some useful new evidence has emerged would run directly counter to the 1996 Act and the parties' intentions in agreeing to arbitrate. I am not satisfied that the wording of ARB1FS supports such wide powers to vary the effect of an Award."

Having set out the law the Judge then gave guidance that the primary remedy for any party seeking to resile from an Award would be through the Arbitration Act rather than the Notice to Show Cause. The advantages of proceeding in line with the Arbitration Act are listed as:

1. The Arbitrator has a right to answer challenges of misconduct, irregularity or mistake

2. The Act confers a right a rehearing on the issue of jurisdiction under s.67

3. The statutory framework within the Act gives a more predictable framework

4. The Act allows for challenges based on irregularities to be dealt with before the Award is made as well as afterwards (whereas the Court process only allows such challenges afterwards as an appeal)

5. The Act allows for matters to be remitted back to the Arbitrator whereas the court procedure will result in the challenges being heard by an unknown Judge


What wider lessons can be taken from this case?

The obvious point is that people entering into arbitration should do so in the expectation that the Award (in financial proceedings) or Determination (in children proceedings) will be binding and will be very difficult indeed to go behind. That, following on from the endorsement of Munby P (as he then was) in S v S marks arbitration out as a system on which parties can rely to give them a decision which has the same degree of finality as a court order.

This case sets out for all to see the saving of time that the arbitration system offers over the court system. Our courts are overburdened and there is no sign of that abating. The latest published MOJ figures are for April to June 2018 and they indicate that it took an average of 26 weeks for a private law case to reach a final order, that being a continuation of what is described as an "upward trend since the middle of 2016". Anecdotal evidence from local courts and from practitioners across the country is that private law cases relating to money and to children are regularly taken out of the list to accommodate public law children cases.

Delay, both in financial and children proceedings, often leads to a 'double whammy' of negative effect. The delay gives time for tension to increase and for parties to become entrenched in their positions. It is widely acknowledged that delay is detrimental to the welfare of children. In addition, the longer the matter goes on the more money is spent on letters and phone calls between legal representatives.

Sadly, it is apparent that the parties to this case spent huge sums of money working through the court process initially and then returning to it later. The court pointed out that the spending on legal fees up to the conclusion of the arbitration had been £145,000, and the 'appeal' process itself cost the wife around £21,000 (the husband's costs were not known). Had they entered into arbitration from the outset one can only wonder at how much money they would have saved in a case where the parties and the children were having to "make a change downwards in their standard of housing" (to use the words of the Court). Saving is not the only consideration; with arbitration the fees are usually fixed in advance giving the parties certainty in planning their finances.

It is becoming increasingly clear that arbitration is setting down firm foundations for the future and should rightly take its place as a real choice in family dispute resolution.

8.2.19