Arbitration: an alternative to court proceedings

Arbitration is an ‘Alternative Dispute Resolution’ method where parties reach a financial settlement outside of formal Court proceedings. Both parties choose an arbiter who will adjudicate and ultimately make a decision known as an ‘award’.Arbitration can also be used in disputes between parents about child arrangements or exercise of elements of parental responsibility.The new Children Arbitration scheme was launched on 18^th July 2016 and is said to provide a rapid, cost effective and less stressful solution to resolving children disputes.The main difference between Arbitration and Mediation is that in Mediation, parties reach an agreement with an independent third party present to help resolve the dispute whereas in Arbitration, the Arbiter makes the final decision.Arbitration can lead to a speedier resolution than going to court. For this reason, it can be cheaper as well.One of the biggest reservations that parties have about Arbitration is uncertainty if the award will be legally binding and this is discussed in two cases:

• S v S [2014] EWHC 7 (Fam)

• DB v DLJ [2016] EWHC 324 (Fam)

In S v S, the parties had been married for 26 years and had one child, aged 19. The assets were recorded as being between £1.5m and £2m. In June 2013, the parties signed up to binding arbitration and the final award was made in November 2013. The application had been transferred up to the President of the Family Division of the High Court at his own direction. In approving the consent order, Sir James Munby offered guidance as to the proper approach of the court to such applications. Sir James Munby held that there are usually two scenarios in Arbitration applications 1) where both parties sought an order reflecting the award 2) where one party wants to resile from the award.

The first scenario applied in S v S were Sir James Munby held that when an application is consensual; it was almost inconceivable that the Court would do anything other than to make the Order. Sir James Munby stated that ‘the Judge is not a rubber stamp, he is entitled, not obliged to play detective, he is a watchdog but he is not a bloodhound or ferret’. Sir James Munby added that the award through Arbitration is regarded by the Court as a ‘single magnetic factor by determinative importance’.The second scenario applied in DB v DLJ. This was a husband's application for a wife to show cause as to why an arbitral award should not be made an order of Court. The wife contended (a) that the award was vitiated by mistake in relation to the true value of a property, and (b) in the alternative, that events had occurred since the making of the award that invalidated the finding of the arbiter about the value of the property. During the Arbitration process, a joint expert was instructed and his evidence was accepted by parties as to the value of the property. However, after arbitration, certain planning consents were not granted. Separately, the wife was awarded periodical payments until such time as she was to receive a share in the proceeds of sale of her husband’s business. There was no end date on the duration of maintenance payments so as to allow the wife to apply for an extension of the term should the sum received from the share of sale of proceeds of the business fall foul of meeting her needs. The Court viewed this as a safety net for the wife. Mr Justice Mostyn in his Judgement held that when seeking to challenge any award made in Arbitration, the assertion that the award was wrong or unjust will almost never get off the ground as in such a case the error must be so blatant and extreme that it leaps off the page. Mostyn J held that there is a real obligation on the claimant (wife in this case) to exercise due diligence and that it could not be said to be unforeseeable that the planning application (which was pending at the time of the arbitration) might be refused. Mostyn J considered that he did have a discretion to refuse to incorporate an award in a court order or to set it aside and instead make a different order, if the facts were such that it would have the grounds to do so in relation to a court order (including mistake and supervening event). Its primary conclusion was that it should not do so because the terms of the arbitral award afforded the wife a 'safety net' for her needs to be met now and in the future. The Court therefore decided not to interfere with the award and made the Order in the terms set out in the award.

Case note by Rachel Wood Wilson Solicitors LLP. If you need legal advice on any of the issues raised in this case note please contact Mavis on 0208 885 7986 who can provide further information, or arrange a mutually convenient consultation.