Divorce and the Increasing Use of Arbitration – Court of Appeal Test Case

Amidst the COVID-19 pandemic it has become even more popular to seek resolution of financial issues arising from divorce via private arbitration rather than formal court proceedings – but to what extent are arbitration awards binding and enforceable? The Court of Appeal confronted that issue in a guideline case.

A divorcing couple who, due to the pressure on judicial time, faced a potentially long delay in receiving a court hearing instead took the quicker route of submitting their financial differences to arbitration. That procedure had the added advantage of being conducted away from the eyes of the media. They signed an agreement whereby they accepted that the arbitrator’s award would be final and binding.

The husband was dissatisfied with aspects of the arbitration award concerning his housing needs, the distribution of pensions and the amount of maintenance he was required to pay his ex-wife. He applied to a judge either for permission to appeal against the award or for a direction that it should not be given effect by an order under the Matrimonial Causes Act 1973. In rejecting his application, however, the judge emphasised the importance of arbitration awards being treated as final.

In ruling on the husband’s challenge to that outcome, the Court noted that the case raised an important point of principle. It was a common misconception that arbitration as an alternative to court process is the purview of the rich in search of privacy. The backlog of cases arising from the pandemic meant that arbitrations were likely to become a prevalent means of resolving even modest-value cases.

It was of the utmost importance that potential users of the arbitration process were not deterred from doing so by, on the one hand, doubts as to the certainty and enforceability of awards or, on the other, concerns that the consequences of mistaken or unfair awards may be inescapable.

In ruling that the husband’s application could succeed only if he were able to show that the arbitrator’s decision was seriously or obviously wrong, or that it was based on a fundamental error or errors that leapt from the page, the judge had applied too high a test. Noting that the overriding objective of arbitration is to achieve fairness, the Court found that the husband was entitled to relief if he could establish that the arbitrator’s award was simply wrong.

The husband’s application was sent back for redetermination by another judge. Noting the impact that growing legal costs was likely to have on the modest marital pot, the Court implored the couple to seek a negotiated settlement rather than engaging in further litigation.