Letting the cat out of the bag? What are the implications of Haley v Haley for the arbitration of TOLATA disputes, 1975 Act claims and Schedule 1 matters?

The decision of the Court of Appeal last week in Haley v Haley [2020] EWCA Civ 1369 represents a fundamental shift in the approach to be taken to challenges to financial remedy arbitration awards, made upon divorce or dissolution of civil partnerships pursuant to the provisions of the Matrimonial Causes Act 1973 (“MCA 1973”) (or the equivalent provisions under the Civil Partnership Act 2004).

Arbitration is a relatively new development in the family context, although it is progressively gaining traction. It has a range of advantages to litigation through the courts; chiefly, greater control over the process, speed, choice of tribunal, and anonymity.

The circumstances that led Mr and Mrs Haley to elect to arbitrate will be familiar to all practitioners. The case had been listed for a final hearing to take place before a District Judge. Due to lack of judicial availability, the case was pulled a week before the hearing date, at a juncture when the matter was ready for trail and, it may be assumed, the parties had incurred the costs of preparing for trial.

What happened next, demonstrates the flexibility and appeal of the arbitration process. The parties were able to identify a specialist financial remedy arbitrator, Howard Shaw QC, and speedily put in place arrangements to proceed by way of arbitration. The arbitration took place on the same days that had been set aside by the parties and their legal teams for the trial.

Unfortunately, Mr Haley was dissatisfied with the outcome. He issued an application challenging the award under section 68 (serious irregularity) and section 69 (appeal on a point of law) of the Arbitration Act 1996 and also for an order that the award should not be made into a final order by the court.

At first instance, before Clare Ambrose sitting as a Deputy High Court Judge, those applications were unsuccessful (cited as R v K [2020] EWHC 841 (Fam)) and Mr Haley appealed to the Court of Appeal.

The question for the Court of Appeal was what the correct test should be where one party refuses to consent to, or challenges, the making of an order under the MCA 1973 in the terms of the arbitral award.

In a nutshell, the decision in Haley v Haley is that, rather than the more limited grounds for challenging an arbitral award under the AA 1996 applying, the general test for appealing judgments of a first instance court will apply in financial remedy cases where one party wishes to challenge the award.

The consequence of the decision is that it will now be easier to challenge a financial remedy arbitral award in the courts. This may be unwelcome to the rich and famous for whom the anonymity of the arbitration process is a particular draw.

In other quarters, however, the decision is viewed as a positive development. Some parties may have been put off arbitration by the risk of an outcome that they perceive to be unfair but which could only be challenged on very stringent grounds. Aligning the tests for challenges to decisions made by judges in the courts and challenges to decisions made by arbitrators may make arbitration more appealing to many couples. This is perhaps particularly so in the more ordinary sorts of cases where anonymity is of little concern and the parties lack the resources to weather the risk of being stuck with a potentially unfair award.

The decision may not have come to the attention of practitioners outside the financial remedy sphere. However, the judgment could have ramifications outside of the context of the financial remedy arbitration which the appeal concerned. This article takes a look at what the judgment means for arbitrated disputes concerning Trusts of Land and Appointment of Trustees Act 1996 (“TOLATA”) matters and claims under the Inheritance (Provision for Family and Dependants) Act 1975 (“1975 Act”) and Schedule 1 of the Children Act 1989.

For those who would prefer to skip the analysis, my tentative conclusions are, respectively, “no” (TOLATA) and “probably” (1975 Act and Schedule 1).

 

Challenging arbitral awards – the IFLA Scheme and the provisions of Arbitration Act 1996

Most family finance arbitrations proceed, as Mr and Mrs Haley did, under the scheme established by the Institute of Family Law Arbitrators (“the IFLA”).

However, it is important to appreciate that the IFLA scheme derives its authority from the Arbitration Act 1996 (“AA 1996”). The AA 1996 contains both mandatory and non-mandatory provisions; the former cannot be modified or ousted by the agreement of the parties but the later can. The IFLA scheme sits within that framework and provides rules that govern the conduct of the arbitration, which in certain instances modify, exclude, or replace the non-mandatory provisions of the AA 1996. The scheme rules themselves can also in many instances be further varied by agreement between the parties.

Where the parties agree to arbitrate under the IFLA scheme, they are contracting to arbitrate under the provisions of the AA 1996, as modified by the IFLA scheme rules or by the further agreement of the parties.

One of the key features of the AA 1996, is that arbitration awards can generally only be challenged in very limited circumstances. Sections 67 to 69 deal with the basis upon which an award can be challenged. In summary, an award can be challenged:

  • Where the tribunal did not have substantive jurisdiction in relation to the matter that it purported to decide (Section 67);
  • On the grounds of serious irregularity affecting the tribunal, the proceedings or the award (Section 68);
  • On a point of law, where either the decision is “obviously wrong” or the question is one of general public importance and the decision of the tribunal is at least open to serious doubt (Section 69).

The “obviously wrong” test is higher than the threshold that applies where an appeal is made to an appellate court from a court of first instance. On appeal from a court, the question is whether the decision of the lower court was, merely, “wrong” or, otherwise, “unjust because of a serious procedural or other irregularity” (FPR 30.12). Findings of fact cannot generally be challenged following the making of an arbitration award and the courts are vigilant in weeding out attempts to dress up challenges to factual findings as points of law.

Sir Bernard Eder in a passage from a lecture quoted in the Court of Appeal’s judgment, summarised the position in the arbitration context as follows:

“the general approach of the Court is one which strongly supports the arbitral process. By way of anecdote, it is perhaps interesting to recall what I was once told many years ago by Michael Kerr, a former judge in the Court of Appeal and one of the leading figures in the recent development of the law of arbitration in England, when I was complaining about an arbitration that I had just lost and the difficulties in the way of challenging the award. I told him that the award was wrong and unjust. He looked baffled and said: “Remember, when parties agree arbitration they buy the right to get the wrong answer”. So, the mere fact that an award is “wrong” or even “unjust” does not, of itself, provide any basis for challenging the award or intervention by the Court.”

 

Challenging family finance arbitral awards

In order to achieve a clean break and dismissals of the parties’ respective claims against one another or to deal with matters such as the sharing of pensions, the arbitral award must be converted into an order of the court.

The conundrum in the family context is how the very limited grounds of challenge under the AA 1996 sit with the comparatively paternalistic approach taken by the family courts to attempts by the parties to a marriage or civil partnership to reach terms between themselves as to the division of their assets, either by way of a pre-nuptial agreement or following separation. The cardinal principle of financial remedy law is that the court’s jurisdiction under the MCA 1973 cannot be ousted and the court may decline to make an order in the terms proposed, whether reached pre-nuptially or ante-nuptially by the parties.

Prior to the decision of the Court of Appeal in Haley v Haley, the received wisdom was that the court retains a very limited overriding discretion, outside the strict confines of the provisions of the AA 1996, as to whether or not to make orders under MCA 1973 so as to give effect to the award.

The earlier case law had established that court may decline to make an order giving effect to the arbitral award on the grounds of a vitiating mistake or a supervening Barder event. The view in the earlier case law was that, in the arbitration context, the court should only intervene and refuse to make orders implementing an arbitration award where something has gone so seriously wrong that it “leaps off the page” (per Mostyn J in DB v DJ  [2016] 2 FLR 1308 at [28]). It is this approach that Clare Ambrose, sitting as Deputy High Court Judge, applied in Haley in refusing to uphold Mr Haley’s challenge to the award and holding that the award would be given effect to by the court.

The Court of Appeal has abandoned the previous jurisprudence on this point in holding that financial remedy awards made by an arbitrator can be challenged on the same basis as appeals from a court of first instance. The Court of Appeal was satisfied, applying the general test for appealing first instance decisions, that the permission to appeal threshold was surmounted and that Mr Haley had a real prospect of succeeding on an appeal to the award. For the parties in Haley, the consequence is that the matter will be remitted back to a circuit judge to review the arbitrator’s decision on the same basis as if it was a decision from a district judge. 

 

The Court of Appeal’s reasoning in Haley

The decision of the Court of Appeal turns on three intertwined strands of thinking:

  • First, the Court of Appeal noted the inquisitorial jurisdiction of the courts in financial remedy matters, which cannot be ousted by agreement between the parties as a matter of public policy. Here, the Court of Appeal pointed to the court’s discretion to refuse to approve a consent order and the principle that an agreement to compromise an ancillary relief application does not give rise to a contract enforceable in law. In addition, the court considered the approach taken to pre-nuptial agreements which, whilst no longer being regarded as offending public policy, the court may decline to give effect to in certain circumstances.
  • The second key strand of the Court’s judgment emphasised the special status of financial remedy proceedings, where the court is concerned to achieve a fair outcome.
  • Finally, the Court placed emphasis on the fact that the enforceable order following family arbitration ultimately derives its authority from the court, and not from the arbitration agreement.

The Court concluded that, on these grounds, the logical approach was to apply the general test for appeals from a decision of the court (although the judgment does not elucidate why this was the logical approach).

For my part, I find the Court of Appeal’s reasoning somewhat unconvincing. The decision of the Court of Appeal represents a radical parting of the ways in a short judgment that engages fairly superficially with the previous jurisprudence in this area. Dealing briefly with the Court of Appeal’s analysis:

  • There are important distinctions between consent orders, Radmacher agreements, and arbitral awards. The Court of Appeal was not moved by the view in the previous authorities that arbitral awards should attract lesser scrutiny than agreements struck directly between the parties (indeed the Court’s view appears to be that arbitral awards should attract greater scrutiny). However, that principle strikes me as a sound one. Whereas there are a range of reasons why there may be inequality of bargaining power between negotiating parties or as to why one party may decide to accept less than their due, the arbitrator is an independent third party, selected by the parties for the suitability to determine the case and will have assessed the evidence in detail, considered the parties’ arguments, and applied the law to reach a reasoned decision as to the appropriate division of the assets.
  • Why should a jurisdiction founded in considerations of ‘fairness’ necessitate special treatment as compared, say, to that endemic concept in English law, ‘reasonableness’, or the cornerstone of equity, ‘unconscionability’? There are other areas where the substantive law is concerned to a greater or lesser degree with questions of fairness or unfairness – consumer contracts, dealings between trustees and beneficiaries, unfair prejudice, quantum meruit claims and employment claims spring to mind. Why should ‘fairness’ in the family context attract special treatment? This feels something of a reductive argument that family law just is special. That kind of thinking has previously led the family courts into error; for example in the approach taken to piercing the corporate veil where, until the Supreme Court’s clarified the matter in Petrodel v Prest [2013] UKSC 34, the Family Court had previously taken a different (and far more permissive) approach to the Chancery courts. The Court of Appeal suggests that civil cases are simply different to family cases, but the boundaries between civil and family law are extremely permeable. Many financial remedy cases, particularly the higher value and more complex ones, will involve issues relating to companies, trusts, or other property rights. Likewise, there are matters that can be characterised as civil or commercial disputes which have a family element or which are going to have a significant impact upon the fortunes of the individuals concerned. Family finance matters are either arbitrable, or they are not. The decision of the Court of Appeal appears to be something of a fudge; retaining the bits of the arbitration process that the courts approve of but importing a judge-made exception to the clear provisions of the AA 1996.
  • There are other areas where an arbitrator’s award will need to be converted to a judgment of the court in order to be fully implemented and enforced e.g. real property matters where the award may necessitate seeking orders to bring the Land Register up to date. In such cases, even in the civil and commercial context, the court does retain a discretion when it comes to the enforcement of an arbitral award. In the civil and commercial context that discretion will be rarely exercised so as to refuse enforcement of the award. See, for example, Sterling v Rand [2019] EWHC 2560 (Ch) where the High Court declined to enforce an unchallenged arbitral award where new evidence emerged demonstrating that the tribunal had been misled. The fact that an award in a financial remedy case will need to be converted into an order of the court, does not lead inevitably to the conclusion that a more permissive approach to challenges to the award should be taken.

 

Does Haley apply to challenges to TOLATA, 1975 Act and Schedule 1 awards?

The IFLA financial scheme encompasses not only financial remedy disputes, with which the Court of Appeal was concerned, but also disputes under TOLATA and the 1975 Act and Schedule 1. Does the judgment in Haley mean that the general appeals test should apply to challenges to TOLATA and 1975 Act arbitral awards?

In my view, we can be reasonably confident that notwithstanding the fact that there may be a family aspect in some TOLATA cases, the Haley approach will not apply to challenges to such awards. Constructive and resulting trust principles arise in all sorts of commercial contexts, and, as I put it to clients, TOLATA cases are primarily concerned with ‘cold, hard property rights’ rather than explicit considerations of fairness. The concept of fairness has crept into co-ownership disputes under the guise of ‘imputation’ (a topic for another day), but in my view it is highly unlikely that this will afford sufficient basis for importing the more permissive general appeals test when it comes to attempts to enforce TOLATA awards or to challenge them.

There is no doubt that capacitous adults are free to contractually rearrange their rights in respect of real property and no public policy considerations in a pure TOLATA dispute preventing them from doing so. Many TOLATA cases do not need to be converted into court orders at all and can be settled by way of a Tomlin order, which the court will not hesitate to convert into a judgment of the court if it becomes necessary for the purposes of enforcement. A TOLATA arbitration award can be enforced pursuant to the summary procedure under section 66 AA 1996 which provides that arbitral awards can, with the court’s permission, be enforced in the same way as a judgment or order of the court to the same effect. There does remain a residual discretion on the part of the court to decline performance (as in Sterling v Rand), however this is sparingly exercised and I do not anticipate the decision in Haley to herald a more permissive approach. Note that this means that a different test is likely to be applied to aspects of arbitral award dealing with intervenor claims where trusts of land principles apply and aspects of an award dealing with the exercise of the MCA jurisdiction. 

The position in relation to 1975 Act claims is less clear cut. 1975 Act claims are not, strictly speaking, family claims, at least in so far as they must be issued in the High Court or the County Court, rather than the Family Court, where the Civil Procedure Rules rather than the Family Procedure Rules apply. Nonetheless, there are broad parallels between 1975 Act claims and MCA 1973 matters; not least the range of orders available to the court including the power to award periodical payments. Moreover, there are similar policy considerations at play. Including, in particular, the public interest, noted by the Court of Appeal in Haley in the context of financial remedy claims, of ensuring that proper provision is made for dependent family member. It has also been suggested that 1975 Act proceedings are inquisitorial in nature, just as with MCA 1973 proceedings: W v M (TOLATA Proceedings: Anonymity) [2012] EWHC 1679 (Fam), per Mostyn J at [52].

But there are also distinctions between matrimonial finance and 1975 Act matters. There are other public policy interests at play in 1975 Act claims, including the interests of personal representatives in getting on and distributing claims and the principle of testamentary freedom. Claims under the 1975 Act are often settled without a court order, by entering into a deed of variation altering the distribution of the estate. Whilst strictly, such agreements may not oust the jurisdiction of the court, it is highly likely that, unless there were some vitiating factor such as undue influence or fraud or a supervening event, a court would uphold such an agreement.

It is tax considerations that generally lead parties to seek to reduce terms of settlement to an order of the court. My experience, certainly in the Chancery Division and County Court, is that, unless the compromise involves minors or unborn or unascertained beneficiaries (in which instance a dispute will probably not be arbitrable, at least not without permission of the court and the appointment of representatives to act for such parties) upon whose behalf the court must approve the compromise, consent orders in 1975 Act claims receive nothing approaching the sort of avuncular scrutiny to which matrimonial financial remedy orders are subjected. Section 33A of the MCA 1973 expressly deals with the extent of the information that must be put before the court for the approval of a consent order and provides the the court may make an order on the basis of that information only, unless “it has reason to think that there are other circumstances into which it ought to inquire”. There is no equivalent to section 33A of the MCA 1973 in the 1975 Act, however this is not a decisive point in favour of distinguishing Haley in circumstances where the procedure for initiating a 1975 Act claim requires that the claim form is accompanied by a statement providing certain information and defendant personal representatives must also provide certain information.

I would anticipate that arguments about party autonomy would find greater favour in the Chancery Division than they have received in courts exercising family law jurisdictions. There are enough points of distinction between matrimonial cases and 1975 Act cases, that a court in a 1975 Act matter persuaded that the Court of Appeal has taken a wrong turn in Haley may seek to distinguish the decision. On balance, however, I am of the view that, unless and until we have a decision from the Supreme Court on the subject, a court faced with an argument as to whether or not a 1975 Act arbitral award should be reduced to a court order will most likely follow Haley and apply the general appeals test. Perhaps the strongest argument in favour of that approach is the undesireability of taking a different approach to spousal claims that follow divorce and spousal claims that follow the death of one of the parties.

Schedule 1 applications often arise together with TOLATA issues. I am inclined to think that challenges to Schedule 1 arbitral awards will also be approached on the same basis as Haley, if challenged, even though in most cases they can be settled without a court order and Schedule 1 does not contain any equivalent provisions to section 33A of the MCA 1973. Schedule 1 matters are family claims, to which the Family Procedure Rules apply. This is another area where the court is exercising an inquisitorial jurisdiction and where the jurisdiction of the court cannot strictly speaking be ousted. Again, the public policy considerations prayed in aid in Haley of ensuring that parties do not evade their obligations to provide for their dependants apply. 

Whilst the decision in Haley may make arbitration more attractive to some, I cannot help but feel that it has created some uncertainties and that it is unfortunate that the Court of Appeal did not consider the wider implications of its decision. Haley v Haley is very unlikely to be the last word on the issue of financial remedy arbitration and the role of the courts. This is a new and developing area of jurisprudence, so watch this space.

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