Arbitration: Are Divorcing Couples Loathe To Arbitrate About Financial Matters Because It Lacks Certainty?

The recent decision in DB v DLJ (more below) led me to consider whether the relatively low take-up of arbitration as a means to resolving Family Financial issues between divorcing couples is as the result of a concern as to whether arbitration decisions have sufficient certainty to provide the divorcing parties with enough confidence in the process.  Lack of such certainty is likely to lead to a fear of additional costs arising from litigation in the courts following one party being disgruntled about an arbitration award.   As I will demonstrate the High Court has done much to support arbitration by making awards arguably more certain than court orders.


The essence of arbitration is that the parties agree that their dispute will be resolved by a third party whom they have chosen: the arbitrator.    The decision of the arbitrator then binds the parties and is enforceable through the courts like a judgement.   Modern arbitration originated in certain specialised trades where the nature of the dispute meant that it was more efficient for it to be decided by a commercial person who was familiar with the language and customs of that trade.   Consequently arbitration is frequently used in contexts such as insurance, shipping construction and commodity trading.

A significant difference between arbitration and litigation is that many aspects of the arbitration process are governed or influenced by the agreement of the parties.    Thus the parties may choose their arbitrator, the rules governing the arbitration, the type of procedure to be followed and where the arbitration is to be conducted.    If the parties cooperate and make sensible choices arbitration can be tailored to the requirements of a particular dispute and so work efficiently and rapidly.   A significant advantage to arbitration is that it is a private process with hearings being held in private and awards being confidential.

The English procedural law relating to arbitration is set out in the Arbitration Act 1996 and its main principles are that:

  • The object of the arbitration is to obtain a fair resolution of disputes by an impartial tribunal without unnecessary delay or expense.
  • Parties should be free to agree how their disputes are resolved subject to such safeguards as are necessary in the public interests.
  • The court should not be able to intervene except as provided by the Act.

Parties to an arbitration will sign an arbitration agreement which is defined by the Act as an agreement to submit to arbitration to resolve present or future disputes.    In family financial remedies it is generally the case that the parties agree to arbitrate after the dispute has arisen and in England and Wales this is done using the Institute of Family Arbitrators (IFLA) scheme whereby an ad hoc arbitration agreement is entered into by signing the form ARB1 which concludes with the words “We agree to the arbitration of the dispute in accordance with the rules of the scheme.”   By the  signing of the ARB1 the parties are committed to  the arbitration and to adopting the IFLA rules.

IFLA contends that the benefits of arbitration can be summarised as follows:

  • The ability to choose the tribunal
  • A degree of autonomy in the process
  • As the arbitration can be tailored to the dispute it is arguably cheaper, more efficient and speedier.
  • Confidentiality
  • Certainty and finality at least as much as in litigation and perhaps more so.

Despite these benefits it is surprising that there have been relatively few completed arbitrations even though the scheme has been running since 2012

The High Court has done much to support the arbitration process and in particular there have been 2 cases which make it clear that the court will treat arbitration awards as binding save in highly exceptional circumstances.

The Case of S v S [2014] 1 FLR 1257.  

The seal of approval of the court was given to arbitration by the President of the Family Division, Sir James Munby, in the case of S v S [2014] 1 FLR 1257.   The brief facts were that the husband and wife were married for 26 years and had a 19-year-old child together. When the marriage broke down in order to settle their respective financial claims they entered into an arbitration agreement with the Institute of Family Law Arbitrators (IFLA). The parties applied to the county court for approval of the final award.    The President transferred proceedings to the High Court and took the opportunity to provide guidance on judicial approval of arbitral awards.

Held – approving the consent order –

(1)        Where parties had bound themselves, as by signing a Form ARB1, to accept an arbitral award of the kind provided for by the IFLA Scheme, this generated a single magnetic factor of determinative importance. In the absence of very compelling countervailing factors, the arbitral award should be determinative of the order the court made.

(2)        There was no conceptual difference between the parties making an agreement and agreeing to give an arbitrator the power to make the decision for them. An arbitral award was of its nature even stronger than a simple agreement between the parties.

(3)        Where the consent order which the judge was being asked to approve was founded on an arbitral award under the IFLA Scheme or something similar (and the judge would need to check that the order did give effect to the arbitral award and was workable), the judge’s role was simple. The judge would not need to play the detective unless something leapt off the page to indicate that something had gone so seriously wrong in the arbitral process as fundamentally to vitiate the arbitral award. Although recognising that the judge was not a rubber stamp, the combination of: (a) the fact that the parties had agreed to be bound by the arbitral award; (b) the fact of the arbitral award; and (c) the fact that the parties were putting the matter before the court by consent, meant that it could only be in the rarest of cases that it would 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 was difficult to contemplate such a case.

(4)        In every case the parties should, as they did here, lodge with the court both the agreed submission to arbitration (in the case of an arbitration in accordance with the IFLA Scheme, the completed Form ARB1) and the arbitrator’s award. The order should contain recitals setting out the documents which had been lodged with the court and stating that the parties had agreed to arbitration and that they now sought approval by the court.

(5)        Where a party sought to resile from the arbitral award, the other party’s remedy was to apply to the court using the ‘notice to show cause’ procedure. The court would adopt a robust approach, both to the procedure it adopted in dealing with such a challenge and to the test it applied in deciding the outcome. In accordance with the reasoning in cases such as Xydhias v Xydhias [1999] 1 FLR 683, the parties would almost invariably forfeit the right to anything other than a most abbreviated hearing and only in highly exceptional circumstances was the court likely to permit anything more.

The case of DB v DLJ [2016] EWHC 324 (Fam)

For  any family finance practitioners who attended one or our family finance  seminars earlier in the year  you will be wondering if I have an obsession with Mr Justice Mostyn for here I am referring to yet another of his decisions.   This is essential reading for anyone that is considering using arbitration.   This case demonstrates how arbitration, which should be the end of the case, can sometimes be challenged although a successful challenge will only be allowed rarely.    The brief facts are that the parties were married in 1999.    A decree nisi was pronounced in 2014. The wife commenced her claim for financial remedies in 2014. The parties had signed an ARB1 and the financial remedy proceedings were stayed to allow the arbitration to proceed.     The arbitrator heard evidence and made an award in 2 parts.   The award was described by Mostyn J as “a thorough, conscientious and clear piece of work”.  The arbitrator decided that the parties’ property and cash (including the wife’s property in Portugal “QP”) should be shared equally. In order to achieve equality this required the husband to pay a lump sum of £158,142. This had been paid. The arbitrator decided that the pensions should be shared equally. This would require a court order. He decided that the husband’s business (in which he was a 70% shareholder) should be shared 60:40 to reflect the fact that it was well established at the time that the parties commenced their relationship. The wife would receive her 40% share on the sale by the husband of his shareholding in the business. No end date was provided for that, so the wife might have to wait a long time before she received that further payment, and of course the actual amount could only be speculated about. Pending payment the wife was to receive periodical payments of £36,000 a year. Those would end when she received her payment from the business. The periodical payments were specifically made extendable, as the arbitrator could not foresee whether at the point of payment of her share of the business the wife could adjust without undue hardship to termination. Therefore, it was open to the wife to apply for an extension if she perceived that her payment from the business would not represent an adequate replacement for her loss of periodical payments. In fact, she has already applied for just such an extension.   The net figure for QP taken by the arbitrator was £375,797. The wife had a subsequent valuation and contended that the correct figure at the time of the award was in fact £152,306, a fall of £223,491. Thus, based on her new figures, the wife sought an additional lump sum award of £111,746

The husband applied to the court for the wife to  show cause why the award should not be made an order of the court. The wife resisted that application and the matter was transferred to the High Court . She submitted that the award was vitiated by a mistake about the true value of QP.   Alternatively, she submitted that events had occurred since the award which invalidated the finding made by the arbitrator as to the value of that property.

Mostyn J’s judgment is very lengthy and ranges over many areas of law but limiting my comments to how the judgment affects arbitration Mostyn J confirmed:

There are very limited ways in which an arbitral award can be challenged under ss 67, 68 and 69, Arbitration Act 1996; ie correction, challenge or appeal on a question of law.
In family law potential challenges are slightly extended given the family court’s overriding discretion (see s 33A of the Matrimonial Causes Act 1973), These may include a challenge on the basis of a supervening event that invalidates the basis of the award (Barder v Barder (Caluori intervening) [1987] 2 FLR 480, paras [14]-[27]).
A court may, on the grounds of mistake or supervening event  refuse to incorporate the arbitral award in its order and instead, make a different order reflecting the new evidence. Other than 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’ (my emphasis).

In fact in this case the court did not find the wife’s case as to supervening event or mistake made out.   Furthermore, the existence of the safety net that permitted the wife to apply for an extension of the periodical payments inevitably meant  there would be refusal to interfere with the arbitrator’s award, even if the threshold requirements for proof of mistake or supervening event had been demonstrated.   The husband’s application was therefore granted and the order as drafted by the arbitrator would be made. The husband would also be allowed to make absolute the decree nisi so that the order could take immediate effect.   Finally Mostyn J indicated that any future 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.


What can be gleaned from the above is that that only in exceptional cases will the court interfere with an arbitral award.   Whilst the circumstances in which a family law arbitral award can be challenged are wider than in a civil arbitration, due to the need to seek the family court’s approval of most orders it will still be extremely rare for a court to interfere.   Whilst the grounds for interfering may include a supervening event or mistake this would be the same in cases decided by the court.   Arbitral awards will not be interfered with on the basis that the tribunal was wrong or its decision is unfair.