Arbitration vs Court

Anyone who has been involved in financial proceedings as a result of divorce will tell you that the process is long, costly and sometimes intimidating. Months can go between court hearings, what seems like endless paperwork is required and all for the parties to come together to try and negotiate their own settlement before a judge even has the chance to make the decision on their behalf.

Some family practitioners have been championing the use of arbitration as an alternative to court proceedings. The Family Law Arbitration Scheme was launched in February 2012. Operating under the Arbitration Act 1996 procedure and rules, arbitration provides a quicker and more cost-effective way of resolving financial proceedings than the traditional court route. The use of arbitration allows parties the freedom to choose their arbitrator, decide what paperwork is required for their particular case and whether hearings need to be held in person or instead conducted over the phone or email.

When the arbitrator has made a decision, an arbitration award is made. This award is legally binding on the parties and is usually sent to the court to be sealed as part of the divorce proceedings. A recent decision in the High Court upholding a financial award made in arbitration confirms that it is difficult to appeal such awards and the court is prepared to support arbitration in financial proceedings.

The case involved a couple who started cohabiting in 1998, had two children and subsequently married in 2006. After a 10 year marriage the parties separated in 2008. The assets were approximately £1.1 million inclusive of pensions. The husband’s net salary amounted to approximately £63,000, including bonuses, and the wife earned a gross income of £6,500.

The parties started down the traditional route with the husband making an application to the court for financial provision in November 2016. The parties required a single joint expert to prepare a report as to the parties’ mortgage capacity. A three day hearing was initially listed for February 2018. The hearing was adjourned until July 2018 due to the court not being able to accommodate the case. In July 2018, however, the hearing did not go ahead due to the judge being ill.

The parties, frustrated with the delays from the court and unwilling to wait any longer for another new court date, decided to arbitrate. A two day arbitration hearing took place in July 2018 and a full and reasoned arbitration award was made a few weeks later in August 2018. The award provided that:

• the parties’ net capital be divided 60:40 with £315,000 going to the wife and £214,000 going to the husband. This was due to an imbalance in mortgage capacities
• the husband pay global maintenance initially at £1,600 per month, to reduce to £1,050 in July 2019, then to £650 in March 2022, and terminating upon his retirement, and
• a pension sharing order be made in favour of the wife (76%) in relation to the husband’s civil service pension

In October 2018 the wife told the husband that she would appeal the award to the family court unless he agreed to go back to arbitration. The husband did not agree and the wife made an application asking the court to refuse to give effect to the arbitral award. Her application was based on the fact that her own mortgage capacity was non-existent and this amounted to a superseding event. She also claimed that the husband had failed to fully disclose information regarding his pensions and the arbitrator had made errors in the law by failing to attach proper weight to the express declaration of trust relating to the family home and by failing to take into account the alleged excessive spending and debts incurred by the husband.

The court made it clear that the purpose of arbitration was to achieve finality in an award. In principle an Institute of Family Law Arbitrators (ILFA) Financial Scheme arbitration award is effective and binding between the parties without a further court order. This can then be made into an order by the family court. The judge noted that the primary means for challenging an arbitration award should be through the powers of the 1996 Act which has a firm and more predictable framework for appeal. Nevertheless the judge considered the wife’s arguments but ultimately found that the original arbitration award should be upheld. The wife’s mortgage capacity was not a supervening event and it was not unforeseen or unforeseeable. She also failed to establish that there was a deliberate or dishonest non-disclosure by the husband in relation to his pension.

With regards to her claims that the arbitrator had erred in law, the court found that there had been no errors regarding how the arbitrator has dealt with the declaration of trust since the true facts as to the declaration of trust were always known to all parties involved, and the husband’s alleged excessive spending was down to legal fees and the arbitrator found there was no basis for contending wanton and reckless dissipation and furthermore this had not been raised at the arbitration.

The parties in this case, like many others across the country, turned to arbitration as a way to speed up the process of settling financial affairs. However, any party entering into arbitration needs to understand they will be bound by the arbitrator’s ruling and challenging such awards is very difficult to succeed in.

Amanda Erskine is a solicitor in the Family department at Barker Gotelee Solicitors in Ipswich.

Ipswich Family Solicitors – for more information on our range of legal services, please call the team on 01473 611211 or email [email protected]