How Arbitration Works in Divorce

Tamsin speaks to Rhys Taylor about how arbitration works in divorce cases as an alternative to court. With courts under pressure, would arbitration be a smoother, more amicable way to settle your differences to resolve your divorce?

Director of Financial Planning and Chartered Financial Planner Tamsin Caine has a strong background of over 15 years within the financial services profession. She began Smart Divorce following her own experience with divorce; she now advises people in the same situation as she once was, enabling them to take back control of their life and finances. Smart Divorce website is www.smartdivorce.co.uk. Contact her by email tamsin@smartdivorce.co.uk.

Rhys Taylor specialises in money and property disputes following family relationship breakdown.

In the field of financial remedies he has a noted and sought after specialism dealing with pensions on divorce. He is very well versed with cohabitant disputes or disputes involving third party rights in financial remedy cases.

As a "family law" barrister with significant experience of contested civil trials, he is well placed to assist family lawyers with substantive and procedural advice in either conducting or resolving disputes arising under the Trusts of Land and Appointment of Trustees Act 1996.

Rhys is both an IFLA appointed arbitrator and civil mediator. He also offers Early Neutral Evaluation (private FDRs) for both TOLATA and financial remedy disputes.

He was voted “Family Law Commentator of the Year” in the 2015 Jordans' Family Law Awards. He is a co-author of the third edition of “Pensions on Divorce: A Practitioner’s Handbook” (LexisNexis/Jordans) and a member of the Pension Advisory Group. Rhys lectures on his areas of interest, including at the Judicial College on the subject of pensions on divorce.

Contact Rhys at rtaylor@36family.co.uk.

Transcript

Tamsin
Hello and welcome to the Smart Divorce podcast. This podcast is for you if you're thinking of separating, already separated or going through divorce. My name is Tamsin Caine, and I'm a chartered financial planner. We'll speak to some fantastic specialists who can help you to get through your divorce, hopefully amicably and start your new chapter positively. Now over to today's guest!

Tamsin
Hello and welcome to the Smart Divorce Podcast! I'm delighted to be joined again today by Rhys Taylor. Rhys joined us  last time we launched a podcast to talk about private financial dispute resolutions.  And today we're going to be chatting about arbitration. For those of you who don't know, Rhys is a barrister and mediator and arbitrator based in the 36 Group in London. Thank you for joining me again today, Rhys!

Rhys
Hi! Good afternoon!

Tamsin
So we're going to talk about arbitration this afternoon. So can you tell us a bit about what arbitration is and how it came about?

Rhys
Sure. Well, arbitration has been a way of resolving disputes in the commercial context for many, many years, and it's been very successful. And the idea behind it is, that in particular industries, people have particular specialisms and knowledge about that industry. And rather than taking your dispute to the public court where they might not know anything about your sector, people in different commercial sectors appoint arbitrators who can make decisions where there is a dispute about that sector. And in the commercial world, it's worked very well for many years. An arbitrator, in a sense, is like a private judge. They can make a decision, which the parties have agreed they will be bound by and because they say to an arbitrator: "We'd like you to make this decision, please." And they sign a contract giving the arbitrator the authority to make the decision and they can then do that. Family Law was looking at arbitration for a long time, one of the fundamental principles in family law - because there are issues of personal welfare, there's issues of status, and there's issues of protecting vulnerable people - is that the family court should have the last say and financial settlements are not approved, until they are approved by the court. So even if part of these come to an agreement, that agreement is subject to a final agreement from the court. And there was a thought that it would be very difficult to have a family arbitration, because how would it be possible for a family arbitrator to make a binding decision, if subsequently a court needed to rubber stamp that? So there was this tension between how it works in the commercial field and the possibilities for how it might work in family field. A number of practitioners got something called the Institute for Family Law Arbitration off the ground in about 2012 and the idea behind that was to provide a set of rules which would allow the arbitration act to apply in the family context. And there were discussions between the profession and the judiciary as to how this might work. As is often the way with these things, because there was a compromise it was agreed that the form of words the parties would agree to when entering into an arbitration is that they would agree that the arbitrator's decision would be final and binding upon them, subject to the approval of the court. And then there was a procedure provided for it to be approved by the court and the thinking was back then, that courts will be very supportive of arbitral decisions. And unless something had gone horribly wrong, the judge would approve the arbitrator's decision. And so it's proved to be. There have been a number of arbitrations conducted since 2012. A tiny handful of them have come before the courts, and those are largely held / upheld by the courts saying that the parties chose to enter into arbitration and having made that decision, then they can expect the decision to be binding upon them. So what we've got now in 2020 effectively is a functioning arbitration system for family finance cases. Those can be disputes between divorcing parties and also be disputes between unmarried parties about property issues and then also, more recently, a set of rules has been issued for arbitrations to take place concerning decisions about children. There are certain decisions which, for very obvious welfare reasons, have to be reserved to the courts but many decisions where  a child is going to live in this country - how long home contact is going to be, where the pick-ups are going to be and things like that - are all things that don't need to trouble the courts, and they can be dealt with through arbitration. So now, as I say, we have a functioning family arbitration system with the court, the family court overseeing it.

Tamsin
You mentioned before that a number of the arbitrations that have taken place in family law have gone in front of a judge, all be it that the judges then ruled: well, you know, you must abide by the arbitrator's decision... What is it that happens that then - at the end of the arbitration, - that means that they end up in court?

Rhys
Okay, so if you were... just taking a step back: you said that there were lots of cases who have come before the courts. It's in fact, a tiny handful.

Tamsin
Sorry. I thought a certain number.

Rhys
Oh, it's only about half a dozen out of about 135-150, I'm not sure of the exact numbers of arbitrations, which have actually taken place. An arbitraitor will hear evidence from the parties and will hear submissions from the advocates, just like you would in a court. And then we'll write what is called an award. That is a reasoned decision as to why the arbitrator has made a particular decision. And on the back of that, an order will be prepared. And in the same way as somebody might be really disappointed with a decision which is made by a judge in court, sometimes people are very disappointed by a decision, which is made by an arbitrator, and for that reason disappointed parties want to do something about it. So they may, at the point at which the parties are supposed to apply to court for approval of the arbitral awards to be converted into a court order, they may say: "Well, we don't agree to this, and this is why we don't, we think the arbitrator got it wrong. " And it's at that point that the court steps in and reviews the decision that has been made and as I say, the general approach is - unless somebody has taken complete and utter leave of their mind - general policy is to support those decisions.

Tamsin
Do the applicants have the same... or the divorcing couple have the same rights to apply back to the court if they don't agree with what judge has  said?

Rhys
So if you're in, if you're in the court and a decision is made that somebody's very unhappy with and then you can ask for permission to appeal and you can only... you're only granted permission to appeal if the decision is basically regarded to be plain wrong. It's very similar to the: "Did the judge do something that was completely mad?" So there's a limited right of challenge in the court system. It's not exactly the same as in relation to an arbitration, but it's a sort of similar approach that the decision which has been made is one which will stand unless it can be shown that the person who's made it has has really, really gone horribly off-piste.

Tamsin
Okay, so what are the advantages of arbitration above going through the traditional court routes?

Rhys
Well, Tamsin, I think it would be really interesting if you came with me for a week's work experience. Because if you came for a week's work experience and you would see, I'm afraid,  the sorry state of the courts. It's well known and that since austerity courts have being horribly underfunded and it's really showing when one goes to many courts up and down the country often the facilities are very poor. Often there won't be a room in which you can have a private consultation, and there are very few facilities, most cafes have been closed down. There might not even be a drinks machine. There may not be enough judges. So that the judges who are there have overburdened lists. I regularly hear of colleagues complaining of situations where they've prepared for a case, where their clients had paid for them to prepare for the case. They turn up, or perhaps even the night before and the court system says that no judges are available. So this isn't any criticism of the judiciary at all. They are in a very difficult position. But the sad fact is that the court system is not providing a particularly good service. Many people who are simply trying to resolve a private dispute with their former spouse as to how to divide their assets. So I think the environment is a big thing, I think. Secondly, the assurance that you will have a tribunal when you've invested in the day, and you can also choose your own tribunal. The parties have to agree on an arbitrator. If they can't agree, then there's this process under the rules by which the parties... one party can put up three names and the other one can choose one. And if they're not even prepared to do that, then the Institute of Family Law Arbitrators will simply select an arbitrator on the parties' behalf. But many people want to be able to choose on a specialist tribunal. So, for instance, some people may want to appoint somebody who's very knowledgeable in a particular area of law, and really readily understand their dispute, so you may want somebody who's very knowledgeable about company valuation or trusts or pensions or something like that. And again, this is no criticism of the judiciary generally, but there's no guarantee of what kind of judge you'll get if you go to your local court. Sometimes you have a very seasoned and experienced family law practitioner, who has been a family judge for many years, and they are on some excellent tribunals to have your case judged by. But on other occasions it may be that you go before a judge who... he may be very, very eminent in their particular field, might be personal injury or something to do with credit hire or something like that. But really, they've got no feel for how family law works. So they've got to make a decision, and it's well known that judges have to deal with things across jurisdictions. So for parties who want to be sure, that their tribunal will be one who really understands the nitty gritty off their dispute and the intricacies of it, and that's another benefit of arbitration over courts. You could also guarantee a quick decision. Again, no criticism of individual judges, but because of the way in which our judges are overburdened, if you bring a difficult call before... a difficult case before the courts, you could be waiting weeks or months for decision to be provided to you. Where as with an arbitrator, in your arbitration agreement, you will have a contractual period of time during which that decision will be delivered. That could be anywhere between seven or 28 days. But essentially it will be delivered quickly.

Tamsin
Can I ask you about that? I didn't realise that there was a delay in reaching it.. in having a decision reached. So if you go into court with your divorce - you have complex case - you won't necessarily receive a judgement from the judge on that day. Is that right?

Rhys
That's very often the case. Anything that's other than the most straightforward cases, judges often need to reserve their decisions to provide written reasons. And if it's complicated, it's just finding the time to sit down, and write those up. So, yes, it can take many, many weeks. And of course, the longer the delay goes on, the more stressful it is for the parties and also with the best will in the world, the harder it is to... for the tribunal to remember what on earth the case was all about.

Tamsin
Absolutely, I didn't realise that was the case at all. case at all.

Rhys
Yeah, well, there you go. There's a further issue which is coming over the horizon, and it doesn't affect finance cases to any significant extent, but that may change over the next few years. It's appreciated by many, that many family cases are heard in private, and there is a tension between keeping people's private affairs private, but also the general public have an interest in knowing what's going on in family courts and knowing what is being done in their name. So there's a been a move over the last few years for greater transparency, and that has in some circumstances provided for the press being able to come into a private hearing and to report on certain aspects of the decision or of the proceedings. And there's even one particular judge in London who admittedly, he interprets the rules in a way very differently to how all the other judges do. But he insists on hearing all of his money cases in public and most people don't want to have their dirty linen aired in public, and it can be embarrassing. It can end up in the papers and things like that. So the reassurance with arbitration is that you're guaranteed a private tribunal in convenient circumstances at the time of your choosing, where you can have an expert tribunal deliver a judgement within a reasonable and agreed period of time. So, I would suggest there's a number of advantages that arbitration for money disputes has over the current court system.

Tamsin
Yeah, it certainly sounds that way. I can't imagine any of the clients that I discuss their financial circumstances with wanting that broadcast to anyone at all, really, it's always approached very privately.

Rhys
Yes, and to give you another example about the lists. I was aware of a case last year where the parties were due a 4-day hearing. That didn't take place and it was relisted for another 4-day hearing and they'd instructed their barristers to appear in that and then, only a couple of days before the second relisting of hearing it was taken out of the list again, bumped off by several months, and at that point the parties decided that they've had it with the court system and decided to have an arbitration instead.

Tamsin
I don't blame them. That sounds absolutely ridiculous. So how does arbitration normally come about? Would it be something that's suggested by their family lawyers?

Rhys
Yes. So it's been around long enough that most people know about it. Some family lawyers are a little bit nervous about it. Perhaps they haven't done one before, but it is a relatively straightforward process. There's a form you can fill out, which is pretty self-explanatory. You can set out on the form what you want to give your arbitrator the jurisdiction to determine. Both parties sign that, there are very clear warnings on that agreement, that by signing the agreement they're agreeing to give the arbitrator the power to make a decision over the dispute that they can't resolve themselves. Then the arbitrator will be sent that form. And, it's essentially an invitation to arbitrate, and the arbitrator will consider it. Consider whether or not there's time in their diary to accept that instruction and whether there's any other reason why it might not be appropriate to accept the instruction. But if there's no conflicts of interest, then you can expect the arbitrator to be in touch very shortly in order to start to make arrangements to set up a hearing. In my chambers at the 36 Group in London, we have a ADR wing. We have a room dedicated for hearings, conference rooms, which are near the hearing room. It's all set up to be very convenient to the parties. Unlike court, there's printing facilities, which are available.  Endless refreshments and facilities and also the arbitrator will be more flexible than the court hours. Again, no criticism of judges individually, but if the judge is engaged until about 4.30 in the afternoon, often they say: "Well, that's the end of the court day. We're not going to sit any later." There other court staff that need to be taken into account. An arbitrator has more flexibility, and if the case needs resolving that day, then they may well be able to sit on untill later on in the day. They can also - again subject to agreement in advance, have an arbitration at the time which is convenient to the parties, perhaps even at the weekend.

Tamsin
Crikey, it seems, to me, from all the advantages that you've described around arbitration that it might come at a significant cost. Is it actually more expensive to arbitrate? Or is it - if you take into consideration the potential delays et cetera of going through the court system - does it actually not make a huge amount of difference?

Rhys
Well, undoubtedly, there is more expense up front within arbitration, because rather than just paying for your lawyer, you're paying to the arbitrator as well. So although you got the costs of this additional lawyer, the advantage is that they can bring about a conclusion far more quickly rather than the case, which I spoke about a moment ago, where they got ready for one hearing and that had gone off, and then there was going to be another one and another one... The arbitrator will be far more efficient in their dispatch of the case. And that means that it can be brought to an end for more quickly and litigation is expensive. Litigation isn't just about appearing in court. Whilst the litigation is alive, the solicitors simply have to correspond with another one another about various things. And the longer it goes on on, the longer the  correspondence goes on, attendances upon the parties goes on and inevitably, a longer dispute is... can be more expensive and usually is than a shorter dispute. So I'm not going to pretend that an arbitration up front is cheaper. It's not. You have to pay for your private tribunal, but looked at in a round there's every reason to think that you can actually make a saving by avoiding all the problems of delay. A lot of people will only get divorced once, they don't understand the world they're stepping into. But once they've been through some of these abortive hearings, what I'm saying would have some real resonance..

Tamsin
Yeah, absolutely. It's certainly not the first time that I've hear talk similarly to that in the case of court hearings, where lawyers and barristers have arrived at court ready for their hearing, and the judge has been unable to hear their case on that day, and it's been delayed. So it certainly seems to be a fairly common occurrence.

Rhys
Can I mention one more thing?

Tamsin
Yeah, of course!

Rhys
So within the court process as well, there is an appointment that happens in all cases called a 'financial dispute resolution appointment'. Now that is successful in resolving many, many cases. And I'm not going to denigrate FDR hearings. They are one of the main ways in which cases get resolved. We've spoken recently about the advantages of having a private financial dispute resolution hearing, but there is a small, hard core of cases which have perhaps a profound factual dispute at the heart of them. Or the parties are simply never going to be able to agree on. And by having an arbitration, you can jump straight to your final hearing without having to go through that additional court hearing, the FDR hearing, which the parties have to spend a lot of money on.

Tamsin
Okay, so they could - because we talked about this last time we spoke - the financial dispute resolution could be avoided entirely if it was clear that that was not going to resolve things in this particular case and move straight to arbitration, which is not an option in traditional court process, is that right?

Rhys
Yes, so if you came to a court and you say: "The parties are miles apart. There's not a hope of the parties coming to an agreement, can we just go to a final hearing?" And the the courts will say no. The courts will say "we expect you to try and resolve things at an FDR hearing." Now in fairness, many cases will resolve at an FDR or a private FDR, but there are, as I say, a hard core of cases which simply have so much factual dispute in them as towards what has happened, or as to the valuation of assets, that it's simply not going to be possible to come to an agreement. The case absolutely must have an adjudication. In those cases, there's an advantage in being able to go straight to an arbitration. There are some cases where parties will have been to a FDR or possibly a private FDR, and then make the decision after that, that rather than waiting for the final hearing, they will go for an arbitration

Tamsin
And is arbitration becoming more popular? Are you seeing more cases go down this route due to the delays in courts at the moment?

Rhys
Yeah, it's still in its relative infancy. They... I'm not sure of the precise numbers, but say there's been 150 odd arbitrations or something like that. So it's not a main way that people resolve their disputes, but it's becoming more popular in those cases where people know they need an adjudication and where they're being messed around by the courts.

Tamsin
Okay, that's brilliant! That's been really interesting to find out about this. Is there anything else you want to add to what you've said?

Rhys
I think there are some cases which aren't suitable for arbitration. There are some cases where it's essential to have a judge in court with the full force of their enforcement with powers behind them. So if somebody is seriously refusing to disclose their assets, if somebody is violent and those kinds of cases, you may say: "well, those are better in the court environment than in an arbitration" but those are rarer cases. In the usual case there are many advantages in arbitration over the court system.

Tamsin
That's fantastic! It's been really lovely to talk to you again today, Rhys! Thank you for joining me.

Rhys
That's my pleasure!

Tamsin
Thank you for listening to the Smart Divorce podcast. If you'd like details of our guest today or of myself so you can get in touch, please check out the programme notes! Many thanks, see you again soon!