R v K: Husband fails to have arbitration award set aside
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The judgment in R v K is, I would suggest, essential reading for anyone interested in the use of arbitration to resolve financial remedy disputes. It concerned a challenge by a husband against an arbitration award made last October by Mr Howard Shaw QC.
The case was heard by Ms Clare Ambrose, sitting as a Deputy High Court Judge. As she stated, the case raised some questions of general principle as to the grounds upon which parties can challenge an arbitration award dealing with financial disputes following divorce, and upon which a court can refuse to make an order in terms of the Award.
The specific issues, she said, related to whether:
1. Permission to appeal is to be given under s.69 of the Arbitration Act 1996?
2. The Award should be set aside for serious irregularity under s.68 of the 1996 Act?
3. An order under s.25 MCA should be made in the terms of the Award?
The background to the case can be stated quite shortly.
The parties began cohabiting in 2003, and married in 2005. They have one son, now aged 11. In June 2018 W petitioned for divorce, and in August 2018 they agreed to share care of their son equally.
H is 51, has always worked in the financial industry, and has been very successful. His current net income was found to be £175k per annum.
W is 45. She is currently not working, but the arbitrator placed her earning capacity at £35k gross per annum within 2 to 3 months.
H had owned properties prior to the marriage, and one of these was the parties' first home. The parties sold the former matrimonial home in 2018 and the net proceeds of sale were £319,000. Beyond that lump sum, the main assets were the parties' pensions, with H having much greater pension provision.
W issued a financial remedies claim. An FDR took place and a two-day final hearing was listed to commence on the 19th of September 2019, However, the parties were informed on around the 12th of September that the hearing was adjourned, due to judicial unavailability (where have we heard this before?).
Accordingly, the parties agreed to go to arbitration, and signed an arbitration agreement under the IFLA scheme the very next day.
The arbitrator found that this was a needs case, and that as the child was to spend equal time with each parent then the parties' housing needs were the same - he assessed them at £350,000. W was awarded £298,000 from the proceeds of the former matrimonial home, in the light of H's much higher mortgage capacity.
H was to pay periodical payments of £3,500 per month until the son leaves tertiary education.
On pensions, the arbitrator adopted the view of the single joint expert report, namely that the simplest way to implement a sharing order for equal income was to share 35.94% of H's large Aegon UK pension with W.
On the 22nd of November H applied to have the Award set aside under s.68 or s.69 of the 1996 Act, and that a hearing be listed in the Family Court for determination of W's financial remedy claim. H also asked the Court to exercise its discretion under s.25 MCA not to approve a consent order in the terms of the Award.
Should permission to appeal be given?
Perhaps the primary issue here was whether, as argued on behalf of H, the test for granting permission to appeal in an IFLA Scheme arbitration should be the same as the test applying to an appeal from a judge's decision under Part 30 of the Family Procedure Rules. Ms Ambrose rejected that argument: "Parties who have chosen to arbitrate have not simply contracted out the hearing to an arbitrator. They are contracting into a different regime although the same substantive law applies to the allocation of assets." (See paragraph 29 of the judgment.)
Her overall conclusion was as follows:
"I decline permission to appeal. The short answer to the application was that the questions (and errors) of law raised by H were all questions of mixed fact and law as to how the discretionary exercise of sharing assets under the 1973 Act should be made as between these parties. In such a case the ordinary test under s69 applies. Permission is only available if the decision was one which no reasonable arbitrator could reach when applying the law properly. On the facts found (and even taking into account H's submissions as to the facts not found) the arbitrator's exercise of his discretion under s25 was within the range of that which a reasonable (sometimes called rational) arbitrator could make. The arbitrator had identified the right legal test and his exercise of discretion was not obviously wrong, and indeed not even open to serious doubt. Even applying the simple test of "wrong" under Part 30 of FPR permission to appeal would have been refused."
Should the Award be set aside for serious irregularity?
H argued that the arbitrator had failed to take into account the s.25 factors, that he had decided the pension sharing in a manner which neither party sought, and that he had failed to give reasons.
Ms Ambrose rejected all three arguments.
As to s.25, she said:
"Two important and linked points are worth keeping in mind. First, section 68 relates to the process, it is not designed to address whether the tribunal reached the right result. Secondly, powers under section 68 are only to be exercised as a longstop where "the tribunal has gone so wrong in its conduct that justice calls out for it to be corrected"."
Even if failure to take proper consideration of evidence engaged s.68, she said, the arbitrator's approach did not amount to a serious irregularity.
On pensions, W had asked for an order to achieve equality. The arbitrator's conclusion in giving her 35.94% was based on the key evidence on quantifying the pension share and the expert's view as to what would best achieve equality.
As to reasons, it was alleged (inter alia) that the arbitrator failed to give adequate consideration to H's non-matrimonial property, and that he had failed to give reasons as to his treatment of such property. Ms Ambrose rejected this, as the arbitrator had expressly explained that given the parties' case was "very much a needs case" there should be no separate treatment of H's pension that had accrued prior to the marriage.
Should the award not be made an order of the court?
Ms Ambrose drew together a number of threads relevant to the court's discretion to make an order reflecting the award, and found that:
"Taking all these threads together the practical impact is that the court's discretion under s25 will usually be exercised in a similar way to the court's discretion to grant relief on a challenge to an award under the 1996 Act. The tests for intervention are closely aligned and similarly robust ... In signing up to arbitration a party is protected by the framework laid down under the 1996 Act including relief for errors of law and procedural irregularity. Both parties are expected to comply with it, and seek all available relief within the statutory time limits."
She went on:
"It would be rare to find a situation where a party who has not succeeded in challenging an award under the 1996 Act can persuade the court to refuse to make that award into an order by reason of its discretion under s25. If a party has failed to challenge the award under the 1996 Act (or been unsuccessful in doing so) then as a matter of statute (s58 of the 1996 Act) the award is final and binding."
"...having already considered relief available under the 1996 Act, I put to one side the 1996 Act and consider whether the arbitrator's decision would be consistent with the court's discretion under s25, and whether the court should make an order reflecting his decision. Here, I am satisfied that the Award was not wrong. It reflects a fair allocation of assets taking account of the relevant considerations and is firmly within the range of right outcomes. Another tribunal may have been more generous to the husband on some points but it could also have gone in the other direction (for example by taking more account of the benefit of his units). I am satisfied that I should approve the order attached to the Award."
Ms Ambrose declined permission to appeal under s.69 and dismissed the application under s.68 of the 1996 Act. W was entitled to an order giving effect to the Award in the terms of the order provided.
The full report of the judgment can be found here.