On arbitration as dispute resolution

On 14 January 2014, the President of the Family Division, Sir James Munby, handed down judgment in the case of S v S EWHC 7 (Fam), which delivered a powerful endorsement of the use of arbitration as a means of dispute resolution.

In the case, the President approved a consent order produced as a result of arbitration conducted by Mr Gavin Smith, of 1 Hare Court, under the IFLA (Institute of Family Law Arbitrators) Scheme, and provided valuable advice as to how the courts should approach such applications in the future.

Background

The parties married in 1986 and separated in 2012. They had one child, who is now 19 years of age. A decree nisi on the wife’s petition was granted early in 2013.

In June 2013, the parties signed IFLA’s Form ARB1, agreeing to arbitration by Mr Smith, in relation to their claims for financial remedies, and thereby binding themselves to accept his award. Mr Smith’s Final Award was dated 7 November 2013. On 9th December 2013, the parties applied to the Guildford Country Court seeking approval of the consent order.

In keeping with Article 16 of the IFLA Scheme, the President determined that the facts relevant to the subject matter of the arbitration were set out clearly in the Final Award. He was satisfied that they only concerned the parties, so did not feel the need to provide further explanation and commentary, other than to note that the matrimonial assets were to be worth in excess of £1.5, but less than £2million.

The legal context

The President acknowledged that since the judgment of Lord Justice Ormrod in Edgar v Edgar 1 WLR, there have been many significant developments in this area of law.

Of particular note, he described that the court can, of its own motion, use its case management powers to limit the ambit of issues to be heard at a hearing, as was seen in both Crossley v Crossley EWCA CIV 1491, 1 FLR 1467, and S v S (Ancillary Relief) EWHC 2038 (Fam), 1 FLR 254. In doing so, he referred to Lord Justice Thorpe’s concept of the ’magnetic factor’: “the feature(s) or factor(s) which in the particular case are of ‘magnetic importance’ in influencing or even determining the outcome”.

It is further noted that this autonomous decision and approach, though not the label, was employed in the following statement of principle by the Supreme Court in Radmacher (formerly Granatino) v Granatino UKSC 42, 1 AC534:

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.

Further, the President notes that mediation and other forms of alternative dispute resolution have become established means of resolving financial disputes concerning divorce. He highlighted that, significantly, “there is nothing in the Arbitration Act 1996 which on the face of it would preclude arbitration as a permissible process for the resolution of disputes rooted in family life or a relationship breakdown”.

What’s next?

In determining what approach should be taken where there has been an arbitration award under the IFLA scheme, or similar, the President considered there to be two situations that needed to be examined:

• Where the parties come before the court seeking a consent order.
• Where a party is seeking to resile from the arbitrator’s award.

For the purposes of the present case, he was concerned only with the first, but considered comments of the latter could be helpful in addition.

The President referred to the description of the scheme by Sir Peter Singer in ’Arbitration in Family Financial Proceedings: the IFLA Scheme part 2’ Fam Law 1496, 1503, to be the starting point in every case, in that the “‘magnetic factor’ perspective provides an appropriate analogy and illuminates how applications (whether or not by consent) for orders to reflect an IFLA award should be viewed by the court: through the wrong end of a telescope rather than a wide-angle lens”.

Remembering the function of the judge when he or she is invited to make a consent order in a financial remedy case, the President considered this issue at some length in L v L EWHC 956 (Fam), 1 FLR 26, commenting that “the judge is not a rubber stamp. He is entitled but is not obliged to play the detective. He is a watchdog, but he is not a bloodhound or a ferret”.

Where the consent order that the judge is being asked to approve is founded on an arbitral award under the IFLA Scheme, or something similar, the President determined the judge’s role to be “simple”. He commented:

"the judge will not need to play the detective unless something leaps off the page to indicate that something has gone seriously wrong in the arbitral process as fundamentally to vitiate the arbitral award. Although recognising that the judge is not a rubber stamp, the combination of (a) the fact that the parties have agreed to be bound by the arbitral award, (b) the fact of the arbitral award (which the judge will of course be able to study) and (c) the fact that the parties are putting the matter before the court by consent, means that it can only be in the rarest of cases that it will be appropriate for the judge to do other than approve the order. With a process as sophisticated as that embodied in the IFLA Scheme it is difficult to contemplate such a case".

In addition, the President implied that the “streamlined” process outlined by Mr Justice Coleridge in S v P (Settlement by Collaborative Law Process) 2 FLR 2040 could be used in arbitration cases. As a point of procedure, the President added that, as in the present case, the parties should lodge both the agreed submission to the arbitration (ARB1) and the arbitrator’s award. In addition, recitals to the order should be included setting out the parties’ agreement to the arbitration process, their Form(s) D81, the arbitrator’s award and the order requested of the court.

If in the former situation, where a party seeks to resile from the arbitrator’s award, the “notice to show cause” procedure should be adopted. As described Xydhias v Xydhias 1 FLR 254, only an abbreviated hearing would be permitted, save for in exceptional circumstances. The case will focus on whether the party seeking to resile can establish one of the limited grounds of challenge or appeal permitted within the boundaries of the Arbitration Act 1996. If they cannot, it may well be that the court will again feel able to proceed without more to make an order reflecting the award, and if needed, providing for its enforcement.

On a final note, the President invited the Family Procedure Rules committee urgently to consider putting in place suitable procedures to deal with applications to stay financial proceedings pending the outcome of arbitration and for applications seeking relief under the Arbitration Act 1996. It will be interesting to see what action this resounding endorsement prompts for the future of arbitration.