In family law, parties litigating their divorce have the option to pay for a resolution out of court by using the Family Law Arbitration Financial Scheme. This is where the parties agree to appoint an independent third party, usually a practising barrister, to hear their case and make a binding decision (an award) which is then converted into a court order. This not only eases the burden on an overloaded Court system but usually allows for a much quicker and less stressful process which is kept private - an important advantage for high profile people who want to avoid making headlines with their personal affairs. A recent case, however, may have dramatically changed the nature of family arbitration.
In Haley v Haley  EWCA Civ 1369, Lady Justice King considered what the correct test is when one party challenges the outcome of the arbitration and refuses to consent to the arbitration award being made into a financial order. Should the test be under the Arbitration Act 1996, from which the Family Law Arbitration Scheme derives its authority, or the Matrimonial Causes Act 1973, under which the financial order is made?
If the correct test is under the AA 1996 then the circumstances in which the award can be challenged are extremely limited. A party would have to establish that:
a. the arbitrator had a lack of substantive jurisdiction (s67); or
b. there has been a serious irregularity affecting the tribunal, the proceedings or the award (s68); or
c. the award was [obviously] wrong on a question of law (s69).
There is no scope to challenge a finding of fact or to question the fairness of the award. It is very difficult to challenge an arbitration award on these grounds. This was an intentional outcome of the AA 1996 in order to promote certainty in commercial disputes.
If the correct test is under the MCA 1973, then award would be treated as if it had been made by a judge in the Family Court at a final hearing and the party appealing the decision would need to establish that the there is a real prospect that the award was:
a. wrong; or
b. unjust because of a serious procedural or other irregularity in the proceedings.
In applying this test, the court can consider the fairness of the award and whether the outcome is unjust. This provides a much wider scope for challenging an arbitration award.
In support of the test under the AA 1996, it was argued that the parties had agreed to the terms of arbitration under the AA 1996 and had therefore “[bought] the right to get a wrong answer”. In other words, they had agreed to be bound by the result of the arbitration even if they felt it was unfair or unjust. Lady Justice King disagreed. She found that the correct approach is the ‘appeals’ approach under the MCA 1973. In doing so she relied on the “fundamental tenet of fairness which has informed every decision made by the courts since the landmark case of White v White  UKHL 54.” (para 92)
So what does this mean?
It means that there is wider scope to challenge an arbitration award notwithstanding the fact that the parties had agreed to accept the award as being binding. The next question is whether this is a good thing or a bad thing for family arbitration?
On the one hand, the appeal system exists because sometimes, for whatever reason, the court does not come to a fair decision. The same must be true of arbitration awards, sometimes they will be unfair. Why should the party who decided to take their case out of the court system and arbitrate be denied the same right of appeal as someone who has their case heard before a judge? On the other hand, by using fairness rather than the strict terms of the AA 1996, the benefits of privacy and certainty, that arbitration promised, are now significantly diluted.
Where do we go from here?
As a result of Haley v Haley, some people may now be put off arbitration because it can no longer offer the privacy and finality of an equivalent commercial arbitration. On the other hand, others may be encouraged to arbitrate knowing that if they think the result is unfair, it can be challenged in the same way that a judgment at a final hearing can be challenged.
So, unlike football fans, who always run the risk that they might get a bad result when they pay to watch their team play, if you do pay for a result through family arbitration then you now have a better chance to challenge that result if you think it is unjust or unfair.
If nothing else, this case reminds us that if you are considering arbitration as an alternative to litigation, then it is essential that the clients understand exactly what they are signing up to.
The full judgment in Haley v Haley can be found on BAILII here.