In a landmark judgment that should be widely welcomed by the family arbitration community, the Court of Appeal has clarified the approach to be taken by a court faced with a challenge to an IFLA financial remedy arbitration award. The court also made observations strongly supportive of the IFLA scheme.
In Haley v Haley  EWCA Civ 1369 (23 October 2020), an appeal from the decision of Deputy High Court Judge Clare Ambrose in R v K  EWHC 841 (Fam), the Court of Appeal (King, Moylan, Popplewell LJJ) has ruled unanimously that, by virtue of its inquisitorial role, the court can decline to make an order reflecting an arbitration award where there are good and substantial reasons for concluding that an injustice would be done were an order to be so made. The correct test to be applied in such cases is the appellate test governing appeals against a judge’s decision under FPR 30.12(3)(a): the party challenging the award must show that the award was ‘wrong’.
The Court of Appeal rejected dicta in previous case law (see J v B (family law arbitration: award)  EWHC 324 (Fam) and BC v BG  EWFC 7) imposing a stricter test, that, for the court to intervene, the arbitrator’s error had to ‘leap off the page’ or be seriously or obviously wrong.
The court also held that the party challenging the award is not required to invoke the remedies available under the Arbitration Act 1996 (AA 1996) (lack of jurisdiction (s67), serious irregularity (s68) or an appeal on a point of law (s69)) before asking the Family Court to decline to make an order in terms of the award. (A challenge based on mistake or a supervening event remains available: see J v B, above.)
The facts of Haley and the details of the award are set out in R v K and are not material to the Court of Appeal’s decision on the applicable law. In short, the husband was dissatisfied with the award and made applications to the court under ss68 and 69, AA 1996 and for an order that the award should not be made into a final order by the court under the MCA 1973. DHCJ Ambrose dismissed all three applications.
The husband did not appeal the decisions in relation to his AA 1996 challenges. Thus, the issue of law that the Court of Appeal had to decide was the test to be applied where, on unfairness grounds, one party declines to consent to or challenges the making of an order under the MCA 1973 reflecting the arbitration award.
The Court of Appeal’s reasoning
The essence of the Court of Appeal’s reasoning was:
- By contrast with consent orders in civil proceedings, a consent order made under MCA 1973 derives its authority from the court and not from the parties’ agreement.
- The court’s inquisitorial jurisdiction in scrutinising agreements and proposed consent orders cannot be ousted, although the court will be heavily influenced by the parties’ agreement: Sharland  UKSC 60. An agreement may be rejected as unfair: Radmacher  UKSC 42.
- The agreement to arbitrate does not carry more weight than that given to an agreement which the parties themselves have reached. The agreement to arbitrate is an agreement that a third party will determine the terms. It is not, at the time at which the agreement is reached, an agreement to any particular terms.
- The court can decline to make an 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.
- Challenges to arbitral awards are not limited to the statutory challenges under AA 1996 or to mistake and supervening event, and S v S  EWHC 7 (Fam) and J v B were wrong in that regard.
- Likewise, there is no requirement for the discontented party to make applications under the AA 1996 before asking the Family Court to decline to make an order in the terms of the award.
- That said, parties must enter the arbitration process in the knowledge that, all other things being equal, the award made at the end of the process will thereafter be incorporated into a consent order.
- The correct test where the award is asserted to be unfair is the test for appeals (the ‘wrong’ test), not the higher tests set out in earlier case law.
- It follows from the above that the wording in the ARB1 FS (Application for family arbitration) italicised below is wrong and goes too far:
‘Arbitration is a process whose outcome is generally final. There are very limited bases for raising a challenge or appeal, and it is only in exceptional circumstances that a court will exercise its own discretion in substitution for the award.‘
The Court of Appeal also gave useful procedural guidance:
- A challenge to an arbitral award will be referred to a specialist financial remedy Circuit Judge or High Court Judge. It is not necessary for such cases to be put before a High Court Judge as a matter of course.
- The court must undertake a triage exercise, the resiling party being required to ‘show cause’ on paper why an order should not be made in the terms of the award.
- The test at this stage is the test governing an application for permission to appeal under FPR 30.3(7)(a). That is, the challenge must demonstrate a ‘real prospect of success’, which means a prospect of success that is realistic, not fanciful: see CR v SR (financial remedies: permission to appeal)  EWHC 1155 (Fam) [approved more recently by the Court of Appeal itself in Re A (a child)  EWCA Civ 895].
- If the challenge does not meet the test, the court will make an order in terms of the award and penalise the resiling party in costs.
- If the challenge does meet the test, it will be listed for a review hearing and not a rehearing, subject to any case management decision to the contrary and to directions for updating or further evidence.
- The court will substitute its own order if it decides that the arbitrator’s award was wrong (not seriously or obviously wrong, or so wrong that it leaps off the page).
The Court of Appeal concluded that the judge had not applied the correct test and that there was a real prospect that the husband’s challenge might succeed. Accordingly, his application was remitted for case management by a ‘ticketed’ Circuit Judge.
Anecdotal evidence suggests that the rigour of the test governing challenges to arbitral awards, and the primacy hitherto accorded to routes of challenge available under the AA 1996, have been deterrents to financial arbitration. Some parties and their lawyers have been reluctant to engage in a process where the hurdle to remedying an unfair decision has been set so high. (It is true that there may be some who have embraced the stricter test, as being more likely to ensure finality of outcome. However, they are judged to be a minority.)
The Court of Appeal’s test has the great merit of simplicity, by aligning the arbitral and judicial tests for a successful challenge. Family lawyers are familiar with the judicial test and are comfortable explaining it to their clients. By contrast, no family arbitration award has been successfully challenged under the higher test and it has thus been difficult for lawyers to advise their clients how unfair an award would have to be in order to meet the test. Moreover, most family lawyers are not specialists in arbitration law or procedure and will be relieved that the AA 1996 routes of challenge have been, effectively, demoted. On the other hand, parties for whom finality is a key aim in the arbitration process should be reassured by the knowledge that the ‘wrong’ test is far from being a free pass to a successful challenge, and that the filter of permission to appeal in effect applies, by means of the ‘notice to show cause’ triage process.
Finally, in a passage strongly supportive of family arbitration, King LJ observed, at paras 5 and 6:
“5. 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”.
6. 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.”
This important judgment both simplifies the law and, it is suggested, strikes the right balance between the interests of certainty and fairness referred to in paragraph 6, quoted above.
Gavin Smith, MCIArb
The opinions expressed in this blog piece are those of the author and may not necessarily be shared by other members of FamilyArbitrator.