Is ‘private judging’ by way of arbitration to become the preferred route for resolving financial disputes on divorce and separation?  The Financial Times suggested as much on 28 October 2013 when reporting that the Young v Young divorce dispute starting in the London High Court on that day could be the last big money divorce in the courts as wealthy separating parties turned towards arbitration rather than the courts.  In one of the first family law decisions of 2014 the President of the Family Division, Sir James Munby, gave family arbitration a ringing endorsement by declaring that the courts would give an arbitrator’s award the same status as a settlement agreement reached between the parties[2]. As this article explains, family arbitration is not just for the super wealthy and it has particular advantages for those who are living outside England or who have demands on their time which make conventional litigation through the courts very inconvenient.

In many areas of business and commerce the default method for resolving disputes is arbitration.  Why?  It allows the parties to control the process of dispute resolution in a way which the ‘one size fits all’ court system does not usually allow.  There are many reasons why businesses choose arbitration in preference to the courts.  They include:

·      Dealing with disputes disrupts the ongoing business so a quick resolution is desirable. The courts can be slow and inconvenient but an arbitration can be arranged and conducted at the time, the place and the speed the parties demand.

·      The judge allocated to the case by the court may not have the expertise required to resolve often very technical and nuanced complexities.  An arbitrator can be appointed by the parties who is an expert in the subject matter of the dispute.

·      The courts are very public and the parties are unlikely to want to air their dispute where the media and public can report it.  Arbitration is entirely private and confidential.

Family disputes, whether arising from divorce or the breakdown of an unmarried relationship, are no less complex than those which arise in the commercial world.  Untangling complex financial affairs, often involving companies, trusts and a web of international property and investments, is a complex task requiring highly specialist skills and experience on the part of the lawyers.  This is compounded where cultural or religious factors specific to the parties also come into the equation. When a hearing comes before the court there is no guarantee that the judge allocated will have the necessary experience.  Furthermore, in many courts in England and Wales the delays in waiting for a court hearing in even a relatively simple case can run to a year or more.  In the meantime the parties legal costs rise and neither is able to move forward with their life.

In 2012 came a significant development.  In a joint venture between the world renowned Chartered Institute of Arbitrators, the Family Law Bar Association and Resolution, the Institute of Family Law Arbitrators was formed.  IFLA trains family lawyers to become arbitrators. Further information about the scope of the IFLA arbitration scheme, the applicable rules and a list of qualified arbitrators can be found at www.ifla.org.uk.

In simple terms, the IFLA scheme operates on the basis that once the parties agree to refer their dispute to arbitration they select their arbitrator (or ask IFLA to appoint one in the event they cannot agree).  The parties then sign an arbitration agreement which sets out the issue or issues for the arbitrator to decide.  The parties may wish their whole dispute to be arbitrator or they may only wish the arbitrator to determine a single issue.  Once the agreement with the arbitrator is signed the arbitration commences.  The arbitration follows the procedure the parties have agreed upon and this may be quite different from the normal court process.  Once the arbitration is heard the arbitrator makes his or her decision, called the Award, in writing.  The parties having agreed to be bound by the decision of the arbitrator then submit an order to the court in the terms of the Award (to the extent that a court order is required to finalise matters between them).

Once the parties choose their arbitrator there is considerable scope to customise the procedure for the arbitration to suit the parties and the particular subject matter of he dispute.  The hearings can be conducted in whatever way the parties and arbitrator agree.  Where distance is an issue hearings can be dealt with by way of telephone conference call, video-conferencing, Skype or FaceTime.  The parties can choose the date when the arbitration will be heard, according to the arbitrator’s availability, rather than having a hearing date imposed as the courts do.  The arbitration hearing can take place anywhere in the world which is convenient to the parties. Where the issues permit it, the arbitration can be conducted entirely on paper without any face to face hearing.  This flexibility and ability to tailor the procedure to the needs of the parties is unique to the arbitration process.  This flexibility is likely to be particularly attractive for parties who are living abroad but having their proceedings dealt with in England or Wales.  It saves on the need to travel to England for hearings (hearings which are often cancelled at short notice in any event).  The arbitrator can even travel to where the parties are and hear the arbitration there.

Mediation and arbitration are increasingly seen as the better option compared to going to the courts. These options lie in a broad spectrum. At 36Family we have 9 family mediators and 3 family arbitrators[3].  We also have a team of 11 CEDR accredited mediators able to conduct mediations with the parties' lawyers present, whether the dispute concerns a family matter or a civil dispute.  For those who are looking for a non-binding neutral evaluation of their dispute several of the team offer private FDRs and other neutral evaluation.

More information about family arbitration can be found on the excellent Family Arbitrator website.

[1] This article was first published in 36 Bedford Row’s special international newsletter circulated to clients in Dubai and the Middle East in November 2013.


[2] S v S [2014] EWHC 7 (Fam).  This case is the subject of a separate article in this newsletter by Rebecca Rothwell in the 36Family newsletter.


[3] The author amongst them, and he conducted one of the very first family arbitrations in England, during which the flexibility of the arbitration process was fully utilised by the parties to reach a rapid and cost effective conclusion to a complicated but relatively low value dispute.

London is regularly referred to as the ‘divorce capital of the world’, principally because the law in England and Wales is felt to favour the economically weaker spouse.  It is generally felt that the wife of a rich man is likely to be better off getting the divorce resolved in England than elsewhere.  If possible, London is the obvious place to go for such a spouse.  (I have written here before about the ‘race to divorce’ this can create.)

We have seen another phenomenon in recent years too: domestic forum shopping.  That is when a divorcing party who lives in England or Wales, but outside London, brings his or her case in London or another distant court in the hope of a better outcome.  Often parties choose to have their divorce dealt with in the Principal Registry of the Family Division rather than at their local County Court.  Sometimes this is because they have decided to instruct London based lawyers, and the London court is cheaper and more convenient for the lawyers to get to than a County Court far from London.  Other times, the parties have lawyers in their hometown but one of those lawyers decides to issue the proceedings in London.  Increasingly we have seen firms traditionally based outside London, opening offices in London to serve the work they are issuing here.  In very high value or complex cases, especially those with an international element, this is understandable.  Those cases need the expertise of a High Court judge.  But quite often the cases do not meet those criteria.  They are often not ‘big-money’ cases involving millions, but what I call ‘middle-money’ cases which could be dealt with just as easily by a local District Judge in a local court.  The reason for issuing in London?  Generally, a perception that the judges in London are more willing to make larger provision for the wife than in provincial courts.  The consequences?  The London court is extremely busy and the waiting times for hearings are very long.  The costs are often higher too.

Is this going to change?  I think there is a reasonable prospect that it will, for three main reasons. 

First, the recent Law Commission report on Matrimonial Property, Needs and Agreements, has noted that there is an unacceptable difference in approach to the assessment of ‘needs’ in courts around the country, especially in the Principal Registry and High Court in London compared to other courts.  The Law Commission has proposed that the Family Justice Council prepare clear guidance to judges as to how needs should be assessed.  Once this is done it is hoped that this will be adopted in a way similar to the Judicial Studies Board’s Guidelines for the Assessment of Damages in personal injury claims.  The brackets set by those guidelines are rarely strayed from.  Once the family guidelines are in place it might be expected that the current regional variations in approach to quantifying financial settlements might diminish to the point that there is no advantage to choosing one court in favour of another.

The second factor is a clear policy on the part of the judiciary to move more work to specialist court centres outside London, and to encourage more litigation generally to be conducted by lawyers and by judges based outside London.  In October 2013 the Lord Chief Justice, Lord Thomas, spoke about this in the Birkenhead Lecture a Gray’s Inn.  He noted the extent to which litigation in all areas of work seemed to gravitate towards London despite the presence of specialist courts around the country.  The effect on this on fees was noted.  In a recent Divisional Court case he had sat on the parties included the Coal Authority and Welsh local government authorities.  The Coal Authority instructed the Sheffield branch of a national law firm.  The hourly rates charged by that office were partner £198.12, solicitor grade C £170.69, trainee £96.52.  The local authorities instructed the London office of the same solicitors.  The hourly rates of the London officer were partner £510, solicitor grade C £221, trainee £148.75.  The court noted that ‘we have seen their work and the work is of exactly the same standard; indeed the Sheffield one can be said to be a little better.’  Ouch!  It seems likely that parties in civil cases who unreasonably instruct London lawyers or unreasonably issue proceedings in London may fail to recover the extra costs this incurs.  In financial remedy proceedings after divorce, however, costs are rarely awarded against the other party, so this may be more difficult for the courts to control.  Nevertheless, it is a factor where pressure is likely to be brought to bear.

Third, from April 2014 (assuming everything comes together in time) there will be a single Family Court for England and Wales. No longer will each area have its own family county court, with the Principal Registry and Family Division of the High Court being separate courts in London.  These courts will all be unified, theoretically making it easier to ensure that cases are heard and administered in the court centre which is most appropriate for the parties.

I expect there to be less tolerance of ‘forum shopping’ within England and Wales in the future.  It might be time to remind yourself where the local County Court is based!

With more and more married couples having connections to more than one country it is becoming common to see disputes over which country should hear the divorce.  The case of the former Miss Malaysia, Pauline Chai, is just one such high-profile example:

http://www.telegraph.co.uk/news/uknews/law-and-order/10161462/Former-Miss-Malaysia-asks-London-court-to-settle-500-million-divorce.html

The greater the assets the parties have at stake the more likely it is that once the marriage looks to be failing they will look into their options in different countries.  ’Forum shopping’ as it has become known is now routine.  Generally speaking a high earning, large asset holding spouse will want to avoid proceedings in England and Wales.  By the same measure, the spouse who is looking to share in the other’s wealth is more likely to favour England and Wales.

So how does this ‘forum shopping’ work?

Where the couples have connections with another member state of the European Union (other than Denmark, which has opted out of the relevant EU laws) the position is a simple case of the country in which proceedings are validly issued first will have jurisdiction over the divorce.  A divorce petition can be issued in a relevant country only if the qualifying conditions are met.  These conditions, so far as relevant to a contested set of proceedings are as follows:

(a) the spouses are both habitually resident in that country;

(b) the spouses were last habitually resident there and one of them still resides there;

(c)  the respondent is habitually resident there;

(d) the applicant is habitually resident there and has been so resident for at least a year immediately before the application was made;

(e) the applicant is habitually resident there and has been so resident for at least 6 months immediately before the application was made AND is a national of the country or, in the case of the UK or Ireland, domiciled there (‘domicile’ has a technical meaning in law which is not the same as living there); or

(f) the country is that where both parties have their nationality or ‘domicile’.

Once proceedings have been validly commenced in a relevant EU state no other EU state is permitted to entertain the proceedings.  Hence the ‘race’ to be first to issue.

Where non-EU countries are involved the position is more unpredictable.  The courts in England will need to consider whether the English proceedings should continue or whether they should be halted, or ‘stayed’ in the jargon, to allow proceedings in another country to continue.  The court has to consider which jurisdiction is the most appropriate one to hear the case based on all the circumstances and the parties’ connections with both countries (this is called determining the ‘forum conveniens’ or ‘forum non conveniens’).  The foreign court will carry out a similar process according to its own law.  Sometimes the law to determine jurisdiction applied in the England and the other country is the same (e.g. Hong Kong) but often is is slightly different, with the risk that there will be inconsistent decisions in the two countries.

Usually the courts of different jurisdictions respect each other’s decisions as to jurisdiction but this is not always so and it is possible for proceedings to continue in two jurisdictions in which case it becomes a race against time to see which jurisdiction brings the marriage to an end first.  Sometimes, however, the English High Court may issue an injunction preventing the other party from pursuing the proceedings in the other jurisdiction but such an injunction only has teeth of the other party or his or her assets are within the control of the English High Court.

These sorts of disputes will continue to take place more and more often.  In many cases the parties will have the choice of two and sometimes even three or four different potential jurisdictions to choose from.  If the parties have sufficient wealth at stake they will look at their options in the different jurisdictions to see which is most favourable to them.

If your family has international connections it is well worth taking expert advice as to your options well before the race for divorce jurisdiction begins.  I am regularly instructed by individuals in England on such issues but particularly by those based overseas who are trying to decide whether to bring proceedings in England or elsewhere.

Contact me if you want to discuss this further on an entirely confidential basis.