Arbitration: a new dawn in family law – playing a game of chess?

“Divorce orders are only pieces of paper”.

I distinctly remember one of my lecturers saying that at Law College in Chester, as clearly as I remember all the games of table tennis that I used to play with my friends there.

That is, divorce cases are all about enforcement; about how you can do your best to ensure that your client actually gets the provision in the divorce order; that you can enforce it if you need to.

That’s particularly obvious in the international divorce cases we do, where so many of our clients either live abroad or have assets abroad.

The old days

Where our clients had assets in countries in the European Union, it was easy of course to rely on the enforcement that comes from being a member of the EU. 

But England and Wales are no longer part of the EU, following Brexit, and the transitional rules which allow for mutual enforcement of divorce orders expire on 31 December 2020.

So, what happens then?

An uncertain and potentially chaotic future

Despite the coronavirus epidemic, we keep hearing that the British government is not going to extend the time for negotiation of the post 31 December 2020 agreements with the EU.

Boris Johnson, the Prime Minister of this country, has got his hands full already with paternity leave and the priority that he will rightly accord to his new baby boy, and to his partner. It would be uncharitable for a family lawyer to expect that he would have plentiful time outside those priorities to devote to matters such as the enforcement of divorce orders post 31 December 2020.

Welcome to the uncertain world of the international family lawyers, and to the potentially chaotic position of any person getting divorced who is going to want to enforce orders after 31 December 2020.

Many, many of our clients will be scratching their heads with bemusement or worse at the prospect of the uncertainty that they will be able to enforce divorce awards after this year.

The smart role for arbitration - it’s all about enforcement

And that’s where arbitration comes in.

Because arbitration awards are definitely enforceable after 31 December 2020.

And family law now embraces arbitration awards. Many family lawyers would far prefer our clients’ claims to go to arbitration than anywhere near a divorce court.

Buyers’ market

There are some superb arbitrators around; it’s a buyers’ market during the coronavirus epidemic, and courts are currently operating at a tiny level of their capacity. And arbitration, if run the right way, can be much quicker and cheaper to go through than a court route. And it’s certainly a calmer, kinder option than the court route.

Hedging your bets

Hedging one’s bets and opting for arbitration rather than the court route may now be the smart way to go. And clients won’t thank you in seven months’ time if they end up with unenforceable orders.

Arbitration can be applied to money and children matters. Yes, there are various categories of case that cannot yet be arbitrated, and we can discuss those with you. But most divorce cases are now capable of arbitration.

The expert’s view

Hendrik Puschmann, one of our partners, is a global expert on arbitration. He’s written the book, Butterworths Challenges in Arbitration: Challenges Against Arbitrators, Awards and Enforcement in England and Wales (London: LexisNexis Butterworths, 2019) and regularly handles cases as both counsel and arbitrator.

What he draws attention to, in an article just written with - colleague Lucy Penn, is that now would be a smart time in our history and political development to opt for arbitration awards rather than court hearings.

Here is part of what they said.

“On 8 April 2020, the UK formally applied to remain part of the 2007 Lugano Convention (“Lugano”) once the Brexit transition period ends.

What does Lugano actually do?

Lugano governs issues of jurisdiction and enforcement of judgments between its signatories: the EU as well as Iceland, Norway and Switzerland. In essence, it determines which courts have jurisdiction in cross-border disputes and ensures that recognition and enforcement of judgments abroad is all but guaranteed as between signatory states.

The UK’s intended membership of Lugano is particularly important because the EU Regulation 1215/2012 (commonly known as the “Recast Brussels Regulation”) – which all but guarantees that judgments from an EU member state are recognised and enforced in other member states – will cease to apply once the transition period ends (and cannot then be re-joined by the UK).

The risks to enforcement if Lugano is rejected

Therefore, if the UK’s application to accede to Lugano is rejected, the harmonised system of civil justice and judicial co-operation that the UK and everyone who benefits from a UK order has gained by virtue of its membership of the EU will largely fall away.

Questions of jurisdiction and cross-border enforcement of judgments may fall to be determined by a mixture of the common law, various pre-EEC bilateral agreements (some of them very old) and the local laws of each country.

The position is far from clear, and – if the UK’s application to join Lugano is rejected – there is a risk that enforcement of foreign judgments abroad, absent a treaty between the relevant countries, could become an uphill struggle.

The role of arbitration in enforcement

For parties wishing to hedge against the risk of difficult or even impossible cross-border enforcement, arbitration is an attractive option.

Enforceability of arbitral awards falls outside the ambit of the Recast Brussels Regulation and Lugano, and is instead primarily covered by a UN convention, the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which ensures enforcement of awards between all contracting states (which include the UK, the EU27 and most other countries of the world).

So, in the event of a hard Brexit and a failure by the UK to accede to Lugano, choosing arbitration to resolve a dispute will be the only sure way to guarantee ongoing mutual enforceability between the UK and the EU27.

Amendment of existing contracts

If all parties agree, existing contracts that currently stipulate dispute resolution by the English or other EU courts can easily be amended to provide for arbitration instead.

Family lawyers, especially those with an international practice, should be embracing this arbitration opportunity. And more to the point, so should those whom we represent.

We should be shouting from the rooftops and during all zoom meetings about UK orders becoming unenforceable abroad.

It’s not just hedging our bets. It’s also playing safe for our clients - a delicious oxymoron.

If you require further information about anything covered in this blog, please contact Simon Bruce, Amy Radnor, Hendrik Puschmann or Lucy Penn, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, May 2020