BC v BG [2019] EWFC 7, re-opening an arbitration award: can the court interfere?

Arbitration is a method of alternative dispute resolution. It is private and entirely voluntary. The parties both sign an arbitration agreement stating that either a barrister, a solicitor or a judge (not in a judicial capacity) – who has undergone specialist training – will be the arbitrator and decide how the parties’ assets will be divided. He or she then makes an award.

It is an award, rather than a judgment or an order, as the arbitrator does not make this decision with the authority of the court. Instead, the authority stems from the parties’ consent to the arbitration agreement. At this stage, it is a legally binding agreement between the parties. The award can then be presented to the family court and translated into an order as if the content of the award had been reached by agreement – even though at this point one party may be unhappy with the award and regret agreeing to arbitrate. It is not mandatory to obtain such an order. However, it may be necessary so that the award becomes binding on third parties (such as pension funds), and to make the enforcement process easier (although this can be done under civil law and the Arbitration Act 1996).

Parties may choose arbitration over the court process for many reasons: privacy, expediency, finality. In this case, BC v BG [2019] EWFC 7, Deputy High Court Judge Clare Ambrose sets out such reasons by citing Sir Peter Singer, in an article reported at [2012] Fam Law 1496, saying that arbitration is for parties who “wish their financial dispute to be dealt with as swiftly, cheaply, privately and with as little acrimony as is possible”.

In BC v BG the parties had attempted to have a final court hearing on two occasions, in February and July 2018. Neither hearing went ahead – the first due to court availability and the second because the allocated judge became ill. The parties signed an arbitration agreement (under the Institute of Family Law Arbitrators (IFLA) scheme) and the arbitration took place on 11^th and 12^th July 2018.

There was nothing unusual about the parties’ assets, described by the Judge, as “modest”. They totalled £1,096,542, with liquid assets of £497,287. The arbitrator, Mr Gavin Smith, made the following award: a 60/40 split of the capital in favour of the wife – to recognise greater childcare responsibilities and pre-marital contribution; a pension transfer from the husband to the wife; modest spousal maintenance paid by the husband to the wife with a step-down until the wife could draw the pension.

The wife was unhappy with the award. However, she did not raise this as an issue until September when she unilaterally contacted the arbitrator saying the award was “untenable”. As the arbitrator would not engage with her complaints, she then contacted the court with an ‘appeal’ letter setting out her concerns.

Mr Justice Mostyn, who dealt initially with her application, said it should not be treated as an appeal, as the applicant was not appealing a decision of the court. Instead, she was expressing her dissatisfaction with an arbitration award. Therefore, the wife was making an application that the award should not be converted into a court order, and Mostyn J listed the application for a hearing.

The wife's application, among other things, made substantive criticisms of the arbitrator’s “fundamental and material” application of the law. At the hearing, the wife gave four reasons why the award should not be converted into a court order:

-The wife at the time of her application had no mortgage capacity (this was new information);

-The husband’s non-disclosure about the voluntary element of his pension; and

-The arbitrator’s substantive error of law in two respects:

• Failure to attach proper weight to the wife’s ownership of the family home;
• Failure to take into account the husband’s spending and debts.

In assessing the law in the judgment, the Judge (Deputy High Court Judge Clare Ambrose) begins by reminding us that although parties agree to be bound by the arbitrator’s decision to determine the outcome of a party’s financial remedy application, this agreement does not entirely oust the jurisdiction of the court. However, the agreement of the parties is critical to the court when translating awards into orders.

The Judge reviews S v S [2014] EWHC 7 (Fam), another case about the court converting an arbitration award into an order. She notes that Sir James Munby, then President of the Family Division, confirms that the parties’ consent to the arbitration process is of “magnetic importance” in the court’s decision whether or not to: a) simply make the order; or b) investigate the content of the award. He confirmed that an arbitration award should be viewed as if the parties had agreed to the terms themselves:

“There is no conceptual difference between the parties making an agreement and agreeing to give an arbitrator the power to make the decision for them. Indeed, an arbitral award is surely of its nature even stronger than a simple agreement between the parties."

Munby J then confirms it is not the role of the judge to “play detective” unless something “leaps off the page”.

Building on this, the Judge next looks at DB v DLJ [2016] EWHC 324, a case where the wife challenged the conversion of an arbitration award into an order on the basis of supervening circumstances. Here Mostyn J goes through the cases where parties can ask for a change to the award: correction of a mistake, challenge or appeal under s69 of the Arbitration Act 1996. Clarifying a point made by Munby J in S v S, Mostyn J then stated that if after the arbitration new evidence arises that would have made the court set aside its own order on the grounds of mistake or a supervening event, then the court should consider re-opening the award. However, crucially, he states that asking the court to interfere with the arbitrator’s assessment of substantive law would be rare:

“An assertion that the award was "wrong" or "unjust" will almost never get off the ground: in such a case the error must be so blatant and extreme that it leaps off the page.”

He does note, however, that under the Arbitration Act 1996 the parties, when signing their arbitration agreement, can choose to include a clause which gives the potential for the award to be reviewed.

At §53 of BC v BG the Judge draws together her views on the relationship between arbitration awards and the court’s investigatory duties. First, she stresses that finality is important to parties agreeing to arbitration. Second, she confirms that matrimonial financial disputes are arbitrable. She says that although an arbitration award is binding on the parties without involving the family court it will often be more convenient for the parties, for example for enforcement purposes, to obtain a court order. Third, she repeats that the making of an arbitration award does not oust the jurisdiction of the court but it would be “exceptional” for a court to refuse to turn the award into an order. Fourth, the court can refuse to turn the award into an order and can re-open the investigation into its content, if there are supervening circumstances or mistake (DB v DLJ), although such circumstances are very narrow. Further, re-opening the award in respect of substantive law would be in direct contradiction to the parties’ original intention to arbitrate.

The Judge rejected all four arguments in the wife’s application. First, she found that the potential mortgage capacity issue had been considered. Second, the non-disclosure of the pension issue was neither dishonest nor would it have been significant had it been disclosed, and therefore it would not justify re-opening the award. Third, on the two criticisms of the substantive law, the Judge found that they did not amount to mistake and therefore the award could not be re-visited on that basis. Finally, she took the unusual step of ruling that the wife should pay the husband’s costs.

In conclusion, this decision confirms what is already known: despite the fact that arbitration does not oust the jurisdiction of the court, the court is extremely limited in its ability re-open an arbitration award.