A v A (Arbitration: Guidance)

In July, in the form of an appendix to his judgment in A v A (Arbitration: Guidance) [2021] EWHC 1889 (Fam), Mostyn J issued guidance, agreed and approved by the President of the Family Division, for the correct procedure to follow when challenging or seeking to implement an arbitral award.

The case itself concerned a 39 year marriage with capital assets in the region of £17 million. The parties had agreed to go to arbitration, completed and signed an ARB1 and had attended an initial directions hearing. Following that appointment, and some three months before a rearranged final arbitration hearing was due to take place, the parties had reached what was described by the judge as a ‘broad overall agreement’ that had been reduced to a working draft order. There was to be a capital split of 52% to H and 48% to W. Some ancillary issues remained, however, and the parties agreed to use the final arbitration hearing and allow the arbitrator to determine the outstanding issues. Following determination of those issues by the arbitrator, H made an application under section 57 of the 1996 Act which the arbitrator dismissed. Perhaps unsurprisingly, H would not agree to sign a final consent order.

W proceeded to file a Form A and an application for notice to show cause against the Husband. She had issued that application in the Family Court. H, for his part, proceeded to challenge the award under sections 68 and 69 of the Arbitration Act 1996. Those applications were made in the Business and Property Court. They were transferred to the Family Division to be heard by Mostyn J who, sitting in the High Court, had jurisdiction to hear H’s applications as well as those of W. It was this rather messy litigation history that prompted the guidance.

As for the appeal itself, H’s challenges were dismissed. These were in large part due to the specifics of the award in question. For one, Mostyn J held that there was no ambiguity or uncertainty in the award. Of broader application was Mostyn J’s analysis of an arbitral tribunal’s ability, shared with the Court, to “fill in the gaps left open in an agreement.” Citing Thorpe LJ in Xhydias, he reiterated “the long-established principle that the court (or arbitral tribunal) is not bound by parties’ agreements, but must consider the s.25 factors in determining whether or not an agreement is fair.” Further, in determining the challenge on the ground broadly grouped as alleged “internal inconsistencies” within the arbitral award, Mostyn J emphasised the importance of a judgment/award being read in full and warned against the “island-hopping” approach. That is, an approach which looks at individual paragraphs in a judgment and ignores the fact that an award is written to be read in full from start to finish (para 64). He reiterated the criticism of Lord Hoffmann in Piglowska v Piglowski [1999] 1 WLR 1360 which had faulted an approach that had relied on a narrow textual analysis. Such an approach, reasoned Mostyn J, fails to take into account the “exigencies of daily court room life.”

In considering the appeal in the round, the Judge applied the principles set out by King LJ in Haley v Haley [2020] EWCA Civ 1369. Haley, specifically paras 73 and 96, established that a challenge to a financial remedy arbitral award should be dealt with in broadly the same way and, according to the same principles, as the most usual route of appeal in financial remedy proceedings in the Family Court. Namely, an appeal to a Circuit Judge from the decision of a District Judge after a final hearing in financial remedy proceedings.

As such, as Mostyn J observed at para 15 of his judgment, the “effect of the judgment of King LJ (i.e. by aligning an arbitral challenge to a financial remedy appeal) is to make a challenge to a financial remedy arbitral award under s.68 of the 1996 Act, or an appeal against such an award under s.69, entirely redundant”.

It followed that Mostyn J had to decide whether the arbitral award before him was wrong (and, in the words of King LJ at para 74 of Haley, “not seriously or obviously wrong, or so wrong that it leaps off the page, but just wrong”): .in other words, the same decision as a Circuit Judge would have on appeal. Accordingly, he had the same wide range of powers as a Circuit Judge would have had at an appeal by way of FPR 30.11(1) and FPR 30.11(2) ( that is set aside, vary any order or judgement, refer any application or issue and so forth.).

Taking into account the confused route that the case before him had taken, and using Haley as its basis, the Appendix to the judgment sets out new guidance for contested cases. To be clear, the guidance is for contested cases only: where the parties are jointly applying for a consent order to implement the award, as is most common, then they should still follow the usual route of FPR 9.26 and PD 9A para 7.1.

In contested cases, however, where there is a challenge to an arbitral award, there is a new procedure to follow.

A specialist Circuit Judge (or High Court Judge, if so allocated) who hears financial remedy appeals will conduct a triage exercise on paper, applying the permission to appeal test.

If the challenge fails at that hurdle then the Judge can make an order in the terms of the award and, indeed, penalise the party who has made the unsuccessful challenge in costs.

If the first hurdle is surmounted (i.e. there is “leave to appeal”) then further directions will be set down, a contested hearing between the parties will be listed and at that hearing the Judge will determine whether the arbitral award is wrong. If the Court so determines, the order of the Court will supersede any arbitral award that is confined to history as “a mere relic”.

It is said, “For the future all challenges to a financial remedy arbitral award should be undertaken in accordance with the new procedure” (para 4 of Appendix). There is no scope for applications under section 68 and 69 of the Arbitration Act 1996 (such being the effect of Haley).

In the present case, W had also made an application for a notice to show cause. There was undoubted good authority for this course of action. In S v S (Arbitral Award: Approval) [2014] EWHC 7 (Fam), [2014] 1 WLR 2299 Sir James Munby P held at [25] that “where a party seeks to resile from the arbitral award, the other party’s remedy is to apply to the court using the ‘notice to show cause’ procedure”. In BC v BG [2019] EWFC 7, Mostyn J himself had directed that an ambiguous application be treated as “an application that the award is not made an order of the court” (.please note the wording of that particular direction and what it does and does not say).

In Haley itself, King LJ had stated that ‘a party who believes the arbitral award which follows an arbitration hearing is wrong can, through the ‘notice to show cause’ process put their objections before the court.’ (96)

Mostyn J observed,

“An issue with the “notice to show cause” procedure is that it presupposes that D will make the running by applying to the court. This is the opposite of what would happen on an appeal. On an appeal the dissatisfied party, the appellant, applies to the court for permission to appeal, and if permission is granted advances the appeal. The notice to show cause procedure is not literally apt where it is P who wishes to mount a challenge to the award, although I accept that efforts have been made to adapt it so that P can proactively challenge an award.
A further issue with a “notice to show cause” application is that no rule or practice direction within the FPR allows a financial remedy claim to be initiated in this way. It is a judicial invention which has not been reproduced in the rules. FPR 9.9B(2) and FPR PD 9A paras 1.2 and 1.2A mandatorily state that an application for a financial remedy must be dealt with under the standard procedure unless it is for periodical payments, variation of periodical payments (but not capitalisation) or for relief under Schedule 1 of the Children Act 1989 (or under the Domestic Proceedings and Magistrates’ Courts Act 1978, or under article 10 of the 2007 Hague Convention), in which case it must be dealt with under the fast-track procedure. Neither track allows a financial remedy claim to be initiated by a “notice to show cause”. FPR 5.1(1) and PD 5A Tables 1 and 2 stipulate that an application for a financial order must be made in Form A.”

As such, “It is therefore axiomatic that a Form A needs to be filed. It may be that a Form A was filed previously and stayed pending arbitral proceedings. But before an application can be made by …[a party] challenging an award, or by [a party] seeking to implement an award, there must be a Form A on the file.”

With a Form A issued or otherwise already on the Court file, an application to challenge or seeking to implement the award should be made in Form D11 (standard application notice) using the Part 18 procedure.

Once there is a validly issued Form A on the court file the application to challenge or implement the award should be made in Form D11 – the standard application notice – using the Part 18 procedure.

Significantly, there is no requirement to attend a MIAM. Arbitral awards have the character of an agreement and, therefore, pursuant to FPR PD 3A para 13 (2) (b), the proceedings do not fall within FPR PD 3A para 11 and there is no requirement to attend a MIAM.

The guidance sets out in detail what needs to be set out in all such applications in forms D11, both applications to challenge and applications to implement the award. An application to challenge an award D11 should be filed within 21 days of the date of the arbitral award in its final form. There is no time limit in circumstances where an application is made to implement an award.

The grounds of challenge should be set out succinctly, as if they were pleaded grounds of appeal. Each ground should specify whether it amounts to a challenge in law, against a finding or an allegation of procedural irregularity. Any application (challenge or application to implement) requires a skeleton argument.

On the issue of the Form D11 where an arbitral award is challenged, the gatekeeper should immediately issue an order:

i) disapplying the procedural requirements in FPR 9.12 and 9.14 (including, but not limited to, the requirement for each party to file a Form E and to attend a first appointment) which would otherwise have been triggered by the filing, or un-staying, of the Form A;

ii) disapplying the service requirements in FPR 18.8 and providing that on service of the application and accompanying papers, the other party may within 14 days of such service file a short skeleton argument in response (c.f. CPR PD 52C paras 19 and 20(1)) and a draft order which the party wishes the court to make in the event that it determines that the permission to appeal test is not passed;

iii) lifting any stay on an existing Form A; and

iv) directing that the application and the accompanying documents will be considered by a circuit judge without a hearing no sooner than 21 days after issue of the application.

Where a party is seeking to implement an award, the directions will be largely identical save that any party responding to an application will also need to include their own grounds of challenge together with the skeleton argument in response and within 14 days of service.

Any representations about allocation to a High Court Judge should be made in writing at the time of application and will be considered at gatekeeping. If granted at gatekeeping then the papers will be sent to Mostyn J for cases in London or on the South-Eastern circuit, or the relevant FDLJ for cases elsewhere, who will assign a specific High Court Judge to conduct the triage exercise on paper.

As to costs, they will usually follow the event whether it is an application to challenge or implement an award. The general rule of no order as to costs in FPR 28.3 (5) will not apply (as per BC v BG [2019] EWFC 7)).

Accordingly, the guidance gives a procedural framework for the conclusion of Haley that challenges to arbitral awards should be aligned to financial remedy appeals.

Whilst the facts of each individual cases will make their own demands on the guidance and may demand variations of the guidance, “the process should be followed as far as possible.”

In summary, it is envisaged that the usual course (whether a party is seeking to challenge or implement an award) will be (i) issuing a Form A if a Form A is not already on the Court file, (ii) issuing an application in form D11 using the Part 18 procedure; such application setting out the grounds in support with skeleton arguments in support. Where a Form A was previously issued and stayed, the application should seek an order that the stay be lifted. Any application which challenges the award needs to be made within 21 days of the arbitral award in its final form. The application will then be considered at (iii) gatekeeping where an initial order setting out directions will be made, including provision for any stay on a Form A being lifted, provision for a skeleton in response etc. (the pro forma to be used at gatekeeping has now been added to the compendium of standard orders). Subsequently, (iv) a Circuit Judge (or High Court Judge) will conduct a triage exercise on paper and will apply the same test as they would when considering leave to appeal. If this test is not passed, then the Court will make an order in the terms of the arbitral award (plus, any further costs order). If it is passed, then the Judge will make further directions and list the matter for (v) a contested hearing for the Circuit Judge (or High Court Judge) to determine whether the arbitral award was wrong. At that hearing the Judge will have their usual powers as they would if it were a financial remedies’ appeal and, as with an appeal, (vi) the usual order for costs will be that they follow the event.

Edward Kenny