26 FEB 2016
Alexander ChandlerBarrister and ArbitratorOne of the reservations that has been expressed about family law arbitration is not knowing if the arbitral award will be binding.
In the recent Practice Guidance – Arbitration in the Family Court (23 November 2015), Sir James Munby P notes that, while not every award will need to be brought before the Family Court:
‘ In order to be effective, elements of some arbitral awards (by comprehensive dismissal of claims to create a clean break, or so as to bind the provider to a pension split, for example) will require their terms to be reflected in a Family Court order. If enforcement of the award becomes necessary, doing so via Family Court processes will be available only if orders reflecting the award are obtained’.
Since a judge cannot be compelled to approve a draft ancillary relief consent order (‘… he is no mere rubber stamp’: Tommey v Tommey  Fam 15, per Balcombe J at para ), what is the risk of a ‘slip twixt cup and lip’, where the court refuses to approve an order reflecting the arbitrator’s award, or otherwise interferes with it?
In S v S (Financial Remedies: Arbitral Awards)  EWHC 7 (Fam),  1 FLR 1257, Sir James Munby P considered two scenarios: (1) where both parties sought an order reflecting the arbitral award; and (2) where one party sought to resile from it.
Where the application was consensual, Sir James Munby P held that it was almost inconceivable that a court would do anything other than make the order:
‘ … the judge will not need to play the detective unless something leaps off the page to indicate that something has gone so seriously wrong in the arbitral award as fundamentally to vitiate the arbitral award .., it can only be in the rarest of cases that it will be appropriate for the judge to do other than approve the order. With a process as sophisticated as that embodied in the IFLA Scheme it is difficult to contemplate such a case’.
Where one party sought to resile, the other should issue a ‘notice to show cause’, which would lead to a ‘most abbreviated hearing’ in which the court would only interfere in ‘highly exceptional circumstances’:
‘ … The court will no doubt adopt an appropriately robust approach, both to the procedure it adopts in dealing with such a challenge and to the test it applies in deciding the outcome … The parties will almost invariably forfeit the right to anything other than a most abbreviated hearing … only in highly exceptional circumstances is the court likely to permit anything more than a very abbreviated hearing’.
In DB v DLJ  EWHC 324 (Fam), the court was faced with this second scenario: where the wife (‘W’) resisted the husband’s (‘H’) show cause application, on the basis that:
‘ … the award is vitiated by a mistake about the true value of the property in Portugal. Alternatively … events have occurred since the award which invalidate the finding made by the arbitrator as to the value of that property’.
DB v DLJ involved assets of £2.5m. The arbitral award of Mr Gavin Smith was promulgated on 2 July 2015: the non-business assets of £1.36m were to be divided equally, and the business assets split 60:40 upon sale, in H’s favour, thereby achieving an overall split of 55:45 in H’s favour. Maintenance was to be paid until the sale of the business, on an extendable term basis.
W’s share of the assets included her home in Portugal, which had an underlying value of €660,000 or, after the deduction of certain expenses, £375,797 net. The underlying assumption of the expert valuation used in the arbitration was that planning would be retrospectively granted for an annex and extension that had been added to the property in the 1970s and 1980s.
Barely 2 weeks after the arbitral award, planing permission was refused. As a result, the value of the Portuguese property had (W asserted) plummeted to €225,000 or £152,306 net whereby her financial position had been ‘decimated’. W sought to recover an additional lump sum of £111,746 from H, representing half of the lost value in the property of £223,491.
H issued a ‘show cause’ application which was transferred to the High Court, and the judgment of Mr Justice Mostyn was handed down on 24 February 2016 following a hearing at which both parties were represented by leading and junior counsel.
Anyone who had the pleasure of being taught Land law by Professor Edward Burn will recall the dramatic and succinct way in which he summarised often-perplexing cases: ‘Held … An easement!’.
Applying the same economy of analysis to DB v DLJ; the outcome was as that H’s application was granted and the order drafted by the arbitrator was approved. W’s case failed, both on the grounds of mistake and supervening event. If a headline point is to be drawn, it is that DB v DLJ confirms that a court will make an order in terms of an arbitral award in all but the most exceptional circumstances.
Article continues below…
Judgment of Mostyn J
However, this executive summary does little justice to the extraordinary judgment of Mostyn J, which in its first 57 paragraphs ranges over the following areas of law:
(1) The extremely narrow ways in which an arbitral award can be challenged under ss 67, 68 and 69, Arbitration Act 199; ie correction, challenge or appeal on a question of law (paras -).
(2) The additional challenges that are available in family law arbitration given the family court’s overriding discretion (see s 33A of the Matrimonial Causes Act 1973), and which are not possible in civil arbitration where an award would be final and binding (s 58(1) of the Arbitration Act 1996). These may include a challenge on the basis of a supervening event that invalidates the basis of the award (Barder v Barder (Caluori intervening)  2 FLR 480, paras -).
(3) Mostyn J concludes that a court may ‘ … on the grounds of mistake of supervening event … refuse to incorporate the arbitral award in its order and instead to make a different order reflecting the new evidence. Outside the heads of correction, challenge or appeal within the 1996 Act … An assertion that the award was “wrong” or “unjust” will almost never get off the ground’.
(4) A review of the principles in Barder/supervening event cases (paras -).
(5) A consideration of the concept of ‘unforseeability’, as applied in the law of contract and tort; in particular in the cases of The Wagon Mound (No 2)  1 AC 617 and The Heron II (Czarnikov Ltd v Koufos)  1 AC 350 where Lord Reid contrasted the probability of drawing a diamond card from a well-shuffled pack (ie probability of 1:3) and drawing the nine of diamonds (1:51) (paras -).
(6) At para  Mostyn J returns to the leitmotif of a number of decisions of Sir James Munby P that the Family Division applies exactly the same law as the other branches of the High Court. Just as issues of beneficial ownership and sham should be considered applying the same principles if heard in the Family or Chancery Division (A v A  2 FLR 467), so ‘… “unforseeability” cannot mean one thing in the Queen’s Bench Division and another in the Family Division’.
(7) Whether a number of undecided Barder cases have been wrongly decided because the concept of unforeseeability has been misapplied, eg the recent Court of Appeal decision in Critchell v Critchell  EWCA Civ 436 (‘… The death of an elderly man cannot be regarded as anything other than foreseeable and unremarkable’, paras [41-).
Pausing at this stage, one might question how the judicial pyramid has been inverted so that decisions of the Court of Appeal can be disapproved or disapplied by a High Court judge (see also L v K (Freezing Orders: Principles and Safeguards)  Fam 35). The answer may lie in the application of the concept of ‘per incuriam‘, eg that the superior court had not been fully appraised of all relevant authorities.
(8) Distinguishing the line of Barder cases that related to ‘known unknowns’, ie ‘… where at the time of the order a thing is known and assumed but in fact eventuates to an extent that is not expected’, which ought (in Mostyn J’s view) to more properly be framed as cases of ‘mistake’ (paras -).
(9) Reviewing the applicable principles of mistake, at para .
Over 20 authorities are referred to within these first 57 paragraphs, together with a handful of academic articles, papers and practice directions. As the proverb relates, mighty oaks from little acorns grow; given that the basic issue before the court in DB v DLJ was whether an arbitral award should be adjusted by £111,746.
The going becomes decidedly easier in from para  of the judgment, where the court turns to the facts of this case and the reasons why the court allowed H’s application and rejected W’s claim for additional sums. The following reasons can be extracted:
(a) Firstly, the arbitral award of Gavin Smith (‘… a thorough, conscientious and clear piece of work’) already contained the safety net of an extendable provision for periodical payments. Mr Smith decided not to impose a s 28(1A) bar ‘… to provide a safety net in case the wife’s share [of the business] is substantially less than the current value would suggest and does not meet her needs’);
(b) Secondly, in the event that that first ground is not sufficient to dismiss W’s claim, the facts relief on did not amount to a supervening event: ‘ … The application was pending and although everyone was confident that it would be granted it must have been recognised that it might be refused. To my mind the decision, albeit unwelcome, was eminently foreseeable in the sense described by the House of Lords and the Privy Council in the cases to which I have referred … Even if the decision was unforeseeable I do not agree that it “invalidated” the arbitrator’s decision in circumstances where the scale of the loss … would reduce the wife’s overall share from 45% to 40% …’
(c) Thirdly, W’s alternative case on mistake failed (‘I am not satisfied on the evidence that the wife with due diligence could not have discovered that the council might well adopt a much harder line about unauthorised building developments’).
By way of drawing together the many threads contained in DB v DLJ:
(i) The decision confirms that only in exceptional cases will court interfere with an arbitral award.
(ii) The circumstances in which a family law arbitral award can be challenged are wider than in a civil arbitration, due in part to the need to seek the family court’s approval of most orders.
(iii) The grounds may include a supervening event or mistake but almost entirely will not be allowed on the basis that the tribunal was wrong or its decision is unfair (cf. route of appeal against a court decision).
(iv) The following practice guidance is given:
(a) The Form ARB1 should be modified to clarify the possible routes of challege (para );
(b) Any notice to show cause why an arbitral award should not be made should be issued in the Royal Courts of Justice and heard by a High Court judge (para );
(c) Mostyn J expresses the obiter view that a Barder application can be made to the original court and need not be by way of appeal (cf. CS v ACS  EWHC 1005 (Fam), para );
(v) As to the view that many Barder cases have been wrongly decided because an overly generous view of unforeseeability has been applied, or that some Barder should revert to being considered under the law of ‘mistake’, it will be interesting to see if these views are as enthusiastically adopted as Mostyn J’s have in cases such as TL v ML  1 FLR 1263 and UK v BK (Freezing Orders: Safeguards: Standard Examples)  EWHC 1735 (Fam).