The Court of Appeal fully endorses IFLA Arbitrations

At the end of October 2020 the Court of Appeal in the case of Hayley v Hayley [2020] EWCA Civ 1369 unanimously endorsed the Family Law Arbitration Financial Scheme operated under the Institute of Family Law Arbitrators (IFLA) Rules. This decision is not only important for the bright green light it gives to family arbitration in this country, but, at the present time, to the recovery of the Family Courts from the impact of the pandemic.

As Lady Justice King said near the start of her judgment:

There is a common misconception that the use of arbitration, as an alternative to the court process in financial remedy cases, is the purview only of the rich who seek privacy away from the courts and the eyes of the media. If that was ever the position, it is no more. The court was told during the course of argument, that 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".

It goes without saying that it is of the utmost importance that potential users of the arbitration process are not deterred from using this valuable service; either, on the one hand, because the outcome is not seen as sufficiently certain or, on the other, because arbitration is regarded as providing no adequate remedy in circumstances where one of the parties believes there to have been an unjust outcome.

The Background of the IFLA Scheme

IFLA was founded by CIArb in conjunction with the Family Law Bar Association, Resolution and the Centre for Child and Family Law of City University in 2012. CIArb is key to its success. It provides its initial training and continuing regulation. IFLA arbitrators must pass the course’s assessment and become members of CIArb before they are then admitted to the IFLA panel.

CIArb as a stakeholder in IFLA remains closely involved with it, having seats on its Board and Advisory Committee where the IFLA arbitration rules were created and continue to be developed as the law evolves. The decision in the Hayley case is a major landmark in that evolution.

The IFLA scheme was launched without a specific legislative framework, but the zeitgeist was right amongst the senior Family Judiciary, practitioners and commentators. It was becoming ever more clearly recognised that family disputes are not helped by the court’s adversarial and formal procedures. Delay is endemic. Judicial continuity is inconsistent and, since developments in recent years, confidentiality in financial case is by no means assured. Delay in family cases is bad for everyone except the lawyers, because peoples’ lives, and thus the factual matrix of any case, are constantly changing and stimulating more issues, more correspondence and more evidence.

In nearly all cases where the parties have chosen to arbitrate under the IFLA scheme those problems have been avoided, and there is an added benefit, one which cannot be guaranteed, but is found in many cases, namely that the total cost, even after the arbitrator is paid a proper fee, are no more and often less. Generally, family arbitrations are much speedier than court hearings and the cost of the arbitrator has to be set off against the cost of lawyers as the case drags on. The matrix frequently changes and further costs are incurred by additional correspondence and the preparation of fresh evidence and responding to it from the other side. Ongoing advice and additional client care costs mount inevitably. Costs in family cases can be eye-watering and the longer they drag on the worse it gets. Unlike civil and criminal cases, it is never a question of getting the case trial-ready and waiting for a hearing. The engagement of a competent arbitrator at an early stage shortens things and generally saves money

Hayley’s Case: Reconciling the Legislation

In the absence of a specific legislative framework, lawyers advising their clients have had to explain to their clients the interrelationship between the Arbitration Act 1996 and the relevant Family and other statutes. In some arbitrations under the IFLA Financial Scheme, primarily TOLATA disputes, the Arbitration Act 1996 clearly provides the relevant procedural and enforcement routes. However, the great majority of arbitrations under the scheme deal with post divorce issues, and there the problem arises when advising on the enforcement stage.

The Family Courts have been charged with a specific jurisdiction which they cannot abrogate. Within that the Matrimonial Causes Act 1973 requires them to use their discretion in a way guided by the statute. The Court’s duty is multi-faceted and includes safeguarding the financially more vulnerable party from undue pressure at a time of emotional, as well as financial, vulnerability. The legitimate interests of the children of the family are always important to the Family Courts and when considering financial orders under the Matrimonial Cause Act 1973 they are expressly required to be the Courts first consideration.

It is also often the case that orders enforcing an arbitral award dealing with post divorce issues, for example pension sharing orders or orders establishing a home for the children, affect the rights of third parties. There can be no real argument that the correct route must be to invite the Family Court to make the appropriate orders under its 1973 Act jurisdiction. Obviously, that is very unlikely to be problematic if both parties wish to obtain orders which give effect to the award, but what happens if one party is aggrieved by the award and refuses to join with the other in seeking a consent order?

The Conundrum

This gives rise to what King LJ in the Hayley case characterised as a conundrum. She put it thus:

The question, therefore, is what is the test to be applied by the court in those cases where the parties have agreed to arbitration but are dissatisfied with the award?

i) Is it limited to those matters in the AA 1996, save where there has been a supervening event or mistake (per Mostyn J in J v B, see below); or,
ii) Is it the appeals test under the MCA 1973?

The High Court had visited the question in a short series of cases, most fully in decisions of Mr Justice Mostyn and Clare Ambrose, sitting as a Deputy High Court Judge. The decisions of the Deputy High Court Judge in particular had given ascendancy to the regime of the Arbitration Act 1996 which effectively imposed the highly constrained appellate regime of that Act.

Many Family practitioners had found that difficult, partly, perhaps, because the appellate regime of the 1996 Act was terra incognita for them, but mostly because their clients, were reluctant to place their and their children’s future in the hands of an arbitrator whose decision could not be appealed, or so it seemed. The problem had been identified by Sir Hugh Bennett, an arbitrator and one of the most respected Family judges of his generation, in his lecture to the Worshipful Company of Arbitrators in 2016, were he set out is disagreement with the developing jurisprudence, but it was not until the Case of Hayley that Court of Appeal was able to provide a definitive decision and clear the path forward.

In the Hayley’s case the Court of Appeal, which included the former Commercial Court judge, Lord Justice Popplewell, unanimously reversed the decision of the Deputy High Court Judge. They held that when an application was made to the Family Court for a financial order under the Matrimonial Causes Act 1973, that court had a statutory duty found in s25 MCA 1973 to use its own discretion guided by the provisions of the statute, and for that duty to operate appropriately, a party had to be able to put before the court the reasons why he or she believed an order giving effect to an arbitral award would be unjust.

The Family Court has an overriding duty to be satisfied that an order it is being asked to make is just. Justice would be easy enough to be seen if both parties agreed the order sought was just and there was nothing obvious to obscure that view, but if one party sought to argue that the award was clearly unjust, different considerations arose and the court’s duty to achieve justice would be stimulated.

King LJ, with whom the rest of the court agreed, said;

91. Similarly, where one party says, as here, that the proposed order does not meet his or her needs, how can a judge exercising his or her jurisdiction under the MCA 1973 metaphorically shrug his or her shoulders and say that the disgruntled party has "[bought] the right to get the wrong answer", and that (failing mistake, or a supervening event) the potentially unfair order that fails to meet the needs of one of the parties will nevertheless be made?

92. In my judgment, such an approach [limiting the court’s role] cuts across the fundamental tenet of "fairness", which has informed every decision made by the courts since the landmark case of White v White [2000] UKHL 54. In his opening remarks, Lord Nicholls said:

"Everyone would accept that the outcome on these matters, whether by agreement or court order, should be fair. More realistically, the outcome ought to be as fair as is possible in all the circumstances. But everyone's life is different. Features which are important when assessing fairness differ in each case. And, sometimes, different minds can reach different conclusions on what fairness requires. Then fairness, like beauty, lies in the eye of the beholder."

93. "Fairness" is the constant reprise of Lord Nicholls; a concept, which he refers to as, "the underlying objective of securing fair financial arrangements". Fairness continues to be the lodestar by which all financial remedy hearings are guided (see H v T (Judicial Change of Mind) [2018] EWHC 3962).

94. In my judgment, such an approach cuts across the fundamental tenet of "fairness", which has informed every decision made by the courts since the landmark case of White v White [2000] UKHL 54.”

The Court of Appeal concluded that a party who believes an arbitral award is wrong can, through the 'notice to show cause' process put their objections before the court. If the court at the triage/paper stage takes the view that the objection made to the award by one of the parties would not pass the permission to appeal test, it can make an order in the terms of the arbitral award without more ado and penalise the reluctant party in costs.

The decision in Hayley’s case removes this last area of uncertainty attached to the IFLA scheme. Parties and their advisers can more confidently forward in the full knowledge, to echo King LJ, that the outcome is seen as sufficiently certain and, that there is an adequate remedy through the court in circumstances where one of the parties believes there to have been an unjust outcome.

His Honour Donald Cryan (Hon) LL.D.
Chair of the IFLA Advisory Committee.
November 2020