Background
The background to the decision is a familiar story of congested courts and an overburdened judiciary. Having failed to reach agreement at an FDR, Kelly and Russell Haley were moving towards a final hearing when they were told that no judge was available to hear their case. Faced with the prospect of a long delay and further uncertainty, the parties decided to arbitrate.
Arbitration has become increasingly common in family proceedings. During lockdown, when court proceedings stalled across the country, many family litigants turned to arbitration as a way out of their predicament. There are several advantages; it is faster, cheaper, and the parties are able to exercise greater control over the process, not least by choosing their own arbitrator. The fly in the ointment from the perspective of the parties (and their advisers) has historically been the extremely limited grounds for challenging an arbitral award. Some have considered the uphill struggle to overturn an unfair outcome too great a risk to take.
The Haleys’ case almost turned into an advert for arbitration; away from the court system, the parties were able to benefit from a quick and convenient process. Mr Haley and his team, however, felt that the arbitrator’s award was unfair. They applied to the High Court to set the award aside under s68 of the Arbitration Act 1996, for permission to appeal under s69 of the Arbitration Act 1996, and for an order that the award should not be made into a final order under the Matrimonial Causes Act 1973.
At first instance, the near-impossibility of challenging an arbitral award was illustrated; Ambrose J dismissed all three arms of Mr Haley’s application. Permission to appeal was granted in relation to the third arm only.
Decision
The Court of Appeal had to consider the proper approach to take where a party challenges the making of an order under MCA 1973 in the terms of an arbitral award: should the stringent test under AA 1996 be applied, or should the test mirror the ‘appeals test’ under MCA 1973? Under the former, the award must be ‘obviously wrong’; under the latter, there must be a real prospect of the appellant satisfying the court that the award was merely ‘wrong’, with fairness being a key consideration.
The Court of Appeal concluded that, logically, the ‘appeals test’ should be used. Applying Radmacher, the judges noted that the court can decline to make an order where an injustice would be done by holding the parties to the terms of a prior agreement. The final order in financial remedy proceedings derives its authority from the court, not from the arbitration agreement, and the MCA 1973 imposes a fundamental and non-delegable statutory duty on the court to ensure the outcome is fair. The court concluded that Mr Haley had a real prospect of succeeding on appeal, and the matter was remitted to a circuit judge for a hearing.
Regardless of whether Mr Haley is ultimately successful in overturning the award, the bar has been lowered for future challenges and family arbitration now looks very different. For some, the draw of arbitration was the certainty of outcome; for others, the high hurdle for remedying a potentially unfair award was off-putting. The judiciary are keenly aware of this balancing act and the need to promote the institution of arbitration, especially in the current climate. With the courts facing more of a backlog than ever in the wake of the pandemic, attention is increasingly focused on the potential of ADR to ease the burden. It remains to be seen whether parties will find arbitration a more attractive prospect in the future.
Hannah Wise
Solicitor, Katz Partners