Arbitration after Haley: A v A (Arbitration: Guidance) [2021] EWHC 1889 (Fam)

Introduction

In this case Mostyn J (‘the judge’) dealt with an arbitral award made by Christopher Pocock QC (‘the arbitrator’) in December 2020. The judge took the opportunity to set down some procedural guidelines concerning arbitration as well as a pro forma order, following the Court of Appeal’s judgment in Haley v Haley [2020] EWCA Civ 1369. Following the arbitrator’s award, the parties both made competing applications to have the courts either uphold or change its terms, including:

• the wife’s (‘W’) notice to show cause application; and
• the husband’ (‘H’) challenges under ss. 68 and 69 of the Arbitration Act 1996, and his application for the court not to make an order in terms of the award.

The judge noted that the Family Court does not have jurisdiction to hear applications under the 1996 Act, and so the proceedings were transferred to the High Court.

Background

The parties are both aged 63. They had married in 1979 and separated in 2018; a long marriage of 39 years. In February 2019 they both signed the ARB1 form, agreeing to enter into binding arbitration to determine their finances following divorce.

The parties did not at that time issue financial remedies applications in the courts, instead simply issuing petitions (with W’s later withdrawn by consent). Decree Nisi was pronounced in March 2020 and Decree Absolute in November 2020.

There was some difficulty in arranging the arbitration. There was a directions hearing on the telephone in November 2019. This was meant to have been followed by a final hearing in May 2020. This was adjourned on H’s application until December 2020.

In the intervening period the parties reached a broad overall agreement. Of matrimonial assets of c. £17 million, H received 52% and W received 48%. The parties therefore asked the arbitrator to only determine some subsidiary outstanding issues at the final hearing.

The final hearing took place and the arbitrator handed down the award in the form of a 32-page document set out like a court judgment. Following receipt of the award W amended the working draft order to include the items resolved by the arbitrator and invited H to agree to it.

In January 2021 H applied under s.57 of the 1996 Act for the arbitrator to clarify and correct the award. The arbitrator dismissed that application. After this H simply did not agree for the draft order to be converted into a consent order.

Consequently, W filed a Form A and a D11 in which she made her notice to show cause application. H then made his applications in which he presented four grounds of challenge. H also applied in Part 18 for a sale of a property in which W was living (‘X Property’).

Challenge to an arbitral award: principles

The judge noted that the law on arbitral awards in family proceedings had been clarified following Haley. The effect of King LJ’s judgment was that a financial remedy arbitral award should be dealt with in broadly the same way as if it were an appeal in the Family Court from a district judge to a circuit judge. As a result, applications under ss. 68 or 69 of the 1996 Act are redundant in financial remedy proceedings.

In terms of the test to be applied, the judge noted from Haley that he had to decide if the arbitral award was “wrong”. If so, the judge would be able to make different provision to that set out within the arbitral award, exercising all of the same powers as the lower court under FPR r. 30.11(1) and (2).

Equally, the judge would be able to vary parts of an arbitral order if he considered that the judge fell into error without a respondent needing to seek and obtain permission to appeal.

The first ground of challenge

H sought to challenge the award by arguing that there was uncertainty or ambiguity as to the effect of the award in terms of what was meant by ‘capital costs’.

This issue related to payments in respect of X Property. In the original agreement in September 2020 H had agreed to pay W for a fixed period for the running costs of the property as well as £12,000 of ‘capital costs’. Effectively a dispute later arose as to who should pay any further capital costs above £12,000 during the period between the agreement and W ceasing to live in the property.

The judge noted that he suspected that H was more exercised by W remaining in the property than by the actual costs, since he had agreed to pay 50% of said costs, but only if W vacated. This was one of the outstanding issues left to the arbitrator to determine in December. The arbitrator determined that the capital costs would be shared equally – including any extra capital costs not budgeted for.

H’s case on this ground was that the arbitrator’s decision was ambiguous and uncertain, since he had failed to define what ‘saleable or lettable’ condition meant, as well as what ‘capital costs’ actually encompassed. The effect of this was that H would be bound to pay an uncertain amount for an indefinite period for a property which W could live in, to his exclusion, for as long as she pleased. W argued that in fact definitions had already been ‘virtually entirely agreed’ in the draft order. Moreover, W noted the irony that she had sought more definition on the meaning of ‘capital costs’ from the arbitrator, who was opposed in this by H.

What the arbitrator had in fact decided on this point was that decisions about capital costs should be decided in accordance with the advice of the estate agent dealing with the property, and he set out some examples of what were ‘running’ as opposed to ‘capital’ costs.

The judge ‘unhesitatingly’ rejected this ground on the basis that the arbitrator had done everything he could to reduce uncertainty and ambiguity in this area.

The second ground of challenge

H further argued that the arbitrator failed to provide a mechanism for the resolution of any dispute over future capital costs and of any liability to be borne by H. Specifically, H considered that the arbitrator was wrong not to direct that quotes be obtained for any work within the ‘capital costs’ bracket, including a letter from the marketing agent dealing setting out the necessity of such work.

W argued that H had not asked the arbitrator to direct there to be quotations, and that in any event this asserted flaw could not be said to render the arbitrator’s decision wrong.

The judge rejected this ground too.

The third ground of challenge

The third issue concerned documentation H asserted W had in her possession at X Property. These documents were said to be required by H to demonstrate to HMRC that no CGT would be payable by him on sale of his share of the property. H had asked W to provide an undertaking to deliver up these documents to him during negotiations. W would not agree because she asserted that she had already delivered up all of the relevant documents. The arbitrator determined that W should simply confirm that she had provided all documents and that if she discovered any new ones she would provide them.

H challenged this as being a failure to deal with the issue – which he characterised as rendering the award wrong and also as a serious irregularity under s.68(2)(d) of the 1996 Act. W’s position on this was that H had not argued for any additional provision in front of the arbitrator, and H had not asked for a finding that the W’s contention that she had already delivered the documents was false.

The judge again agreed with W, although he did note that W’s presentation should have been incorporated in an undertaking rather than an agreement, and a mandatory injunction were she to not agree to an undertaking.

The fourth ground of challenge

This challenge was that H considered it to have been wrong of the arbitrator to have decided that H should be liable for 50% of the capital costs after September 2020, budgeted and otherwise. H argued that he had only agreed in September for capital costs to be capped at £12,000. H contended that the judge had gone beyond his remit by imposing on H a continuing cost above this, and that the arbitrator should have left the parties to litigate this point.

W responded that there was no agreement in respect of the figure of £12,000, and in fact H had conceded this point at the final arbitration hearing. Further, W argued that the arbitrator had correctly applied S v S (Ancillary Relief) [2009] 1 FLR 254, it being part of a long line of authority for the proposition that a judge can make an award outwith the parties’ agreement.

The judge had to consider whether the arbitrator had had the power to make a determination in contradiction of the terms of an agreement, as a judge would. The judge considered that this was simply an agreement to litigate if the parties could not agree, and that the arbitrator should not have his hands bound by such an agreement. Accordingly, the judge held that it was lawful and proportionate for an arbitrator to exercise the powers of a judge by trying to fill gaps and make decisions about who should pay capital costs: “[I]t would have been folly …, faced with such intransigence and folly, not to have … devise[d] a scheme to avoid future litigation.” The judge bolstered his view with reference to Xydhias v Xydhias [1999] 1 FLR 683 and Kelley v Corston [1998] 1 FLR 986, both of which emphasised the duty of judges (and, impliedly, arbitrators exercising the powers of judges) to not simply rubber-stamp parties’ agreements, but to apply the s.25 factors independently.

The judge held that this ground also failed.

The fifth ground of challenge

The judge noted that although there was not officially a fifth ground of challenge, as such, H had criticised the award for having internal inconsistencies. The judge dealt with this matter discretely.

The apparent inconsistencies pointed to were characterised as ‘island-hopping’, with H jumping between paragraphs which appeared to not work in tandem. For instance, it appeared that one of the provisions had not been made with ‘liberty to apply’. However, the judge was persuaded that this sort of ‘narrow textual analysis’ was not appropriate in the context of a complete judgement with the contents intended to be read in context. He noted that it was always possible for a judgment to have been better expressed, but that this did not amount to an appealable point.

Conclusion on challenges to the award

The judge dismissed the challenges to the award. He did not certify any of the challenges as having been totally without merit but commented that some of them were ‘very close to the line’.

Appendix

To his substantive judgment the judge added a sizable appendix providing procedural guidance on litigating arbitral awards. This included the following points:

• A challenge to a financial remedy arbitral award should be put before a specialist circuit judge who can conduct a paper / triage exercise applying the permission to appeal (‘PTA’) test. If they take the view that the objections made would not pass that test, they can make an order in the terms of the award and penalise the appellant in costs.
• If the judge is satisfied at that stage that in fact the PTA test is passed, they will set it down for an inter partes hearing at which the court will decide whether or not the award is wrong. If so satisfied, the judge can make different provision to that of the award. The arbitral award will be left a relic, superseded by the court’s order.
• Challenges under the 1996 Act are redundant.
• Where the parties seek to turn the award into an order by consent, they should follow the normal path in FPR 9.26 and PD 9A para 7.1.
• One cannot initiate financial proceedings – e.g., a notice to show cause application – without having filed a Form A. Either a Form A may have been issued and stayed for the arbitral proceedings to ensue, or a Form A must be filed when an award is being enforced.
• There is no requirement to attend a MIAM in order to file a Form A in such circumstances, since arbitral awards have the character of an agreement, and per FPR PD 3A para 13(2)(b), the proceedings do not fall within FPR PD 3A para 11, to which the MIAM requirement applies.
• Once there is a Form A on the court file the application to challenge or enforce the award should be made using a D11 under the Part 18 procedure.

Challenging an award

A D11 application to challenge an award should be made no later than 21 days after the award has been made in its final form and should include:

• A statement that it is challenging an award, with grounds annexed.
• A statement that a stay is sought to be lifted (if there was already a Form A on file).
• Grounds of challenge should be set out in the same way as grounds of appeal – specifying whether the challenge is against a point of law, a finding of fact or a procedural irregularity.
• There should be a skeleton argument not exceeding 20 pages in length.
• The award.
• A draft of the initial gatekeeper’s order.

When a gatekeeper receives the D11 they should disapply the requirements to File a Form E and list a FDA and allow the respondent 14 days to file a skeleton argument in response and a draft order. Any stay on a Form A should be lifted. They should then put the documents before a circuit judge after 21 days from the issue of the application.

The circuit judge will then consider whether the permission to appeal test is met, and whether to have a hearing. If the test is not met the judge will make an order drawing on the draft order provided by the respondent.

Enforcing an award

Where a D11 application is made by a party seeking to enforce an arbitral award, the process is almost identical, save that there is no time limit after the award within which the person seeking to enforce the award must bring the application, since there will often be negotiations following a disputed award which will take time.

Allocation to High Court judge level

If a party to an arbitral award dispute seeks allocation to the High Court, a written request should be made at the time of the application. This will be considered by the gatekeeper and the papers can thereby be sent to the relevant High Court judge.

Conclusion

The judge concluded by noting that he intended that the procedure set out would further align challenges to arbitral awards with appeals in the Family Court, following Haley.

The judge considered that costs would normally follow the event, and that this should apply to litigation concerning an arbitral award and the general rule of no order as to costs in 28.3(5) will not apply to such an application.

The judge appended a pro forma initial gatekeeper’s order to the judgment.

Henry Pritchard, Pupil Barrister at 1 Hare Court