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Haley v Haley [2020] EWCA Civ 1369

Equalising the balance between certainty and fairness in arbitration proceedings?

One week before the trial of Mrs Haley's financial remedy application, Mr and Mrs Haley were told no judge would be available to hear the case, and that their two-day hearing would be re-listed at an unspecified date in the future. This was in September 2019, before the Covid-19 pandemic and its effects upon the Family Justice System. The circumstances prompting Mr and Mrs Haley's decision to enter into an agreement to arbitrate therefore will be familiar to family practitioners; if anything stories of delay in the Family Justice System are a reality that existed long before the current health crisis.

Over the last year, all the signs have pointed to a widening of the use of arbitration as a more expeditious alternative to court based dispute resolution. The numbers of arbitrations, both financial and children, continue to rise. From 6 April 2020, the scope of the Children Arbitration Scheme was expanded to include both relocation – temporary and permanent—to certain foreign jurisdictions. In "The Family Court and Covid-19: The Road Ahead" (9 June 2020), the President of the Family Division emphasised the need has never been greater to have regard to alternative means of dispute resolution, including arbitration (paragraph 37). As the Court of Appeal notes in Haley, the

"common misconception that the use of arbitration […] is the purview only of the rich who seek privacy away from the courts and eyes of the media […] is no more […] it is widely anticipated that parties in modest asset cases (including litigants in person) will increasingly use the arbitration process in the aftermath of the Covid-19 crisis as the courts cope with the backlog of cases, which is the inevitable consequence of "lockdown."" (paragraph 5).

As the country and Family Justice System continue to grapple with the effects of the virus, Haley comes at something of a crucial juncture therefore. On the one hand, despite all its protestations that it does not seek to be deter parties from opting for arbitration, it appears at first blush to do just that by opening up the route to challenge the determination. Perhaps therefore it can be said that the outcome of Haley reduces the attractiveness of arguments that arbitration nearly always provides a certain and binding decision for the parties involved. However, from another perspective, the judgment provides a different sort of certainty: parties can be sure when entering into an arbitration agreement that the court's supervisory jurisdiction will remain firmly in place to correct an unjust outcome. This will reassure many who wonder what their remedy is if they do like the outcome of the arbitration. Arguably, when entering into an agreement which will decide serious issues such as your level financial security, or whether your child is to relocate with your ex-partner to their native country, this is a welcome reassurance.

The Judgment
In summary, Mr Haley believed the arbitrator's award was unfair. He made an application to High Court seeking either to appeal the award, or an order to be made by which the court would decline to make an order under the Matrimonial Causes Act 1973 ("MCA 1973") in the terms of the award, and would instead exercise its discretion anew. The appeal was dismissed by Deputy High Court Judge Ambrose, who refused to interfere with the award and made an order in its terms. Mr Haley appealed to the Court of Appeal.

The appeal was primarily concerned with the test to be applied where one party declines consent to or challenges the making of an order under the MCA 1973 in the terms of the arbitral award following family arbitration under the Institute of Family Law Arbitrators (IFLA) Scheme. In particular, the Court of Appeal had to determine whether the test that had been applied by the High Court – effectively the one applied when challenging an award on a question of law pursuant to s.69 of the Arbitration Act 1996 ("AA 1996")—was the correct test. The test under s.69 is applied on the basis of the facts as found by the arbitrator. The party challenging the reward requires leave, and must show the decision on the question of law was "obviously wrong" (unless the question is one of general public importance, in which case it must be shown to be at least open to serious doubt). The Court of Appeal noted that: "Fairness as a concept has no place in a challenge to an arbitral award; arbitration being a procedure designed to provide certainty across the international commercial world" (paragraph 14).

If it was the wrong test, the Court of Appeal had to then determine what the correct test was. In particular the court needed to consider whether the correct test was in fact the 'appeals test' applicable under the MCA 1973. Permission is, of course, also required when appealing a decision made as a result of a court-based contested financial remedy trial, however, it will be given if the judge concludes there is a real prospect the proposed appellant can satisfy the appeal court that the order made was: (a) "wrong" (i.e. not "obviously wrong"), or (b) unjust because of a serious or other procedural irregularity in the proceedings in the lower court. Fairness is by contrast "central to the court's determination" (paragraph 15).

Deputy High Court Judge Ambrose had held that the proper test, where the challenge is in respect of a family arbitration under the terms of the IFLA Scheme is "closely aligned" to that provided under the stringent terms of the AA 1996, save where there has been a supervening event or mistake.

The Court of Appeal considered a number of family court authorities in determining what test should be applied. King LJ notes the test has "become increasingly strict, and the basis for challenge correspondingly narrow"; Sir James Munby's comment in S v S (Arbitral Award: Approval) [2014] EWHC 7 (Fam) (paragraph 21) that the court would only interfere if an error "leapt off the page" has "now developed to the extent that the phrase 'leapt off the page' has become some sort of a measure […] of how wrong a decision has to be in order to invoke the jurisdiction of the court; not only in cases where a consent order is sought, but equally when one party submits that the arbitral award is unfair" (paragraph 64).

The Court of Appeal ultimately concluded "the logical approach by which to determine whether the court should decline to make an order in the terms of the award, is by reference to the appeal procedure and approach found in the FPR 2010" (paragraph 73). The court held that it would only substitute its own order for that of the arbitrator's "if the judge decides that the arbitrator's award was wrong; not seriously or obviously wrong, or so wrong that it leaps off the page, but just wrong" (paragraph 74).

When presented with a refusal on the part of one party to agree to the conversion of an arbitral award into a consent order, the Court of Appeal suggested it would be logical for the court to 'triage' the case, with the reluctant party having to 'show cause' why such an order should not be made (paragraph 73).

The biggest implication is that parties now only have to persuade a court that an award is "just wrong" in order to appeal an arbitral award that they disagree with. This is a lower threshold than previously thought, and means the same test is applied when challenging both a court-based judgment and arbitral award. It is yet to become clear whether Haley will lead to a greater number of challenges to arbitral awards in the family law sphere (and beyond); the scope to do so certainly seems wider.

Further, the Court of Appeal held that an agreement to arbitrate does not carry more weight than that given by a court to an agreement reached by the parties themselves. King LJ noted rather that: "The agreement to arbitrate is an agreement that a third party will determine the terms […] [i]t is not, at the time the agreement is reached, an agreement to any particular terms" (paragraph 67). Even if King LJ was wrong about this, she points out that:

"68. […] [T]he fact remains […] that family cases are different from civil cases. Court orders embodying the terms of commercial and civil arbitrations awards derive their authority from the arbitration agreement, and the enforcement of that agreement under the mandatory provisions of the AA 1996. The enforceable order following family arbitration ultimately derives its authority from the court and not from the arbitration agreement as is recognised on the face of the ARB1 FS.

69. A court can decline to make an order in the terms of an agreement negotiated by, or on their behalf, in circumstances where (to borrow the words of Lord Philips in Radmacher) there are "good and substantial grounds for concluding that an injustice will be done by holding the parties to the terms of their agreement"; or where "it would not be fair to hold them to their agreement". It must, in my view, equally follow that where the agreement, albeit contractual, is for a third party to decide the terms that are in dispute, the court can decline to make the order where there are good and substantial grounds for concluding that an injustice will be done if an order is made in the terms of the arbitral award."

In other words, the court is not a rubber stamp. In considering a pre-nuptial agreement or reviewing a financial remedy consent order, the court has the list of factors it is required by s.25 MCA 1973 to keep at the forefront of its judicial mind. Similarly, when deciding whether to make the terms of an arbitral award into an order, the court retains a residual discretionary jurisdiction. This was crucial to King LJ's assessment that the challenges to an arbitral award in family cases should not be limited to the statutory challenges found under AA 1996, mistakes or supervening events. Although this was an appeal arising from a financial arbitration, the same principles readily apply to the children scheme.

Indeed, this is equally true of private children cases as it is of financial remedy work. Practice Direction 12B, paragraph 14.13 notes in respect to consent orders: "where agreement is reached at any hearing or submitted in writing to the court, no order will be made without scrutiny by the court." This scrutiny in particular includes considering whether any safeguarding checks or risk assessment work remains outstanding, but is also a wider supervisory jurisdiction. The court is necessitated by statute to ensure the child's welfare is its paramount consideration (s.1(1) Children Act 1989, "CA 1989"), and must have regard to the welfare checklist (s.1(3) CA 1989) in making an order under s.8 CA 1989. 'Welfare' is the lodestar that 'fairness' is in financial remedy work. Whilst the Court of Appeal is not explicitly clear on the applicability to other family arbitrations, such as private children work, the sensible conclusion seems that the conclusions in Haley are equally significant.

What is clear is that the wording at the foot of Form ARB1 FS (and presumably also Form ARB1 CS) goes too far and will have to be amended accordingly – it can no longer be said that "it is only in exceptional circumstances that a court will exercise its own discretion in substitution for the award" (paragraph 75). As the King LJ points out: "parties must go into arbitration with their eyes wide open with the understanding that, all things being equal, the award made at the end of the process will thereafter be incorporated into a consent order" (paragraph 72). However, they can now also do so comforted with the knowledges that if a decision is reached which is not fair or by analogy wrong in respect of the children's welfare, there is greater scope for asking the court to decline to make an order in the terms of the award, and exercise its discretion anew.

Summary by Alex Verdan QC and Frankie Shama legal assistant, 4PB

Read the full judgment of Haley v Haley [2020] EWCA Civ 1369 on BAILII