Arbitration - Why It's Right For Your Client

Australians have lead the way in terms of utilising mediation as a means of resolving family law disputes but have been slow to embrace the arbitration of those disputes.

Whilst arbitration is significantly and successfully employed in commercial law jurisdictions to the extent that there is uniformity in commercial arbitration acts, family law clients appear reluctant to utlise this cost and time effective alternative dispute resolution model.

In case that reticence is due to us - the lawyers - this article seeks to outline the pros, cons and myths of arbitration. A failure to appreciate the real benefits that a well prepared arbitration can bring to a dispute (and dismissing arbitration immediately as a means of dispute resolution) is a failure to discharge an obligation contained in s12B of the Family Law Act 1975 (the Act). Arbitration is certainly listed on the Family Court's prescribed form Marriages, Separation and Divorce (Prescribed Form) as a non-court based family service.

Most of the analysis below is reinforced via the Court - see sections 13A to 13K. It is important that it is understood there are two forms of arbitration contained in section 10L, firstly Court ordered arbitration with the consent of the parties (sect 13E arbitration) and private arbitration. It is important to understand that under the Act only property matters can be arbitrated; parenting and probably also child support disputes fall outside the scope of an arbitration.

 

The Pros

In my view, the same reason that arbitration is preferred in construction matters should be the same reason why litigants in family law should be similarly attracted. Parties to a construction contract simply cannot afford to have a construction or payment suspended whilst waiting for their day in court – often many months or years away after many costly interim skirmishes. Sound familiar ?

We talk in mediations about the “worst case scenario” including tales of doom about the financial cost, emotional cost and delay in waiting for a court decision. How often does a litigant settle for these reasons rather than continuing to negotiate into a “range”.?

  • It's a consensual process: You can’t arbitrate unless both parties agree to arbitrate. In my view this is the most overriding consideration and should balance out most cons and dispel all myths. The agreement to arbitrate is entered into after the following matters are agreed upon by the parties which includes (see reg 67F);
    • the issues to be dealt with in the arbitration;
    • the estimated time needed for the arbitration;
    • how the arbitration will be conducted; including the information about exchange of documents, witness statements, scheduling and receiving expert evidence, written or oral submissions, "on the papers" determination etc.
    • the estimated costs

This is a real horse before the cart process (see reg 67G) - a party doesn't sign the arbitration agreement unless they are satisfied with the process, into which they have had significant input.)

  • Efficiency bringing time and cost savings; Arbitration is quicker, more efficient and ultimately more cost effective (sometimes significantly) than a court. Arbitrators are experienced at seeking ways to reduce unnecessary costs.
  • Hand pick your judge; Rent-a-judge / horses for courses, whatever you want to call it, whether its from a panel or a jointly agreed upon arbitrator the fact is you will most likely be selecting an arbitrator who has some background in the particular subject matter and is likely to deliver an award that is within a range of predicted outcomes.
  • Tailor make the process; The clients get to design how the arbitration will be conducted as there is no necessity to slavishly adhere to court forms and protocols. An arbitrator can also provide the clients with her or his experience in this process by developing precedent forms such as Outlines of Case, Chronologies and Agreed Statements of Fact. This self designed process in turn produces
    • Reduced expense;
    • More timely outcomes (when selecting a panel of arbitrator your first question can be – "when can you do it", your second question – "how quick can you get it done");
    • No restriction on when / where / how arbitration is done. Saturdays / after hours / Skype / telephone / venue convenient to parties;
    • Clients can determine "range of the decision" - ideal for discrete issues. For example, setting what is the only facts or issues in dispute;
    • Clients are more likely to comply with a process they have designed;
    • The design process leads to negotiations - minimising issues and sometimes the dispute itself
  • The award must be made or the arbitrator doesn’t get paid; See reg 67F(2)(d).
  • An arbitrator requires repeat business; Unlike a judge, an arbitrator who takes too long to provide awards, causes other delays, renders awards that are outside of a range of expected results is unlikely to receive repeat business. In simple terms, the arbitration is likely to get a result otherwise you won’t use them again;
  • No waiting lists; Because you can shop around for a panel of available arbitrators who can hear the dispute sooner rather than later, the likelihood of interim issues such as sale of property, maintenance or dissipation of assets are less likely to arise (another cost saving).
  • Confidential; There is no provision in the Act for the publishing of awards and the arbitration agreement otherwise provides for the arbitration to be confidential. Despite the use of pseudonyms in the Family Law Reports it is easy enough to find out about a matter by typing in key search terms. The foyer of most court buildings do little to protect anonymity either.
     
  • Awards are binding; See sect 13H. Once an award is made, either party may register the award and it takes effect as a decree of the Court. A Form 8 application to register the award is made pursuant to reg 67Q. This is not an order that is subject to any potential review or requisition by a Registrar. The Court's power to review or set aside the award are contained elsewhere.
  • Ideal for multi-party disputes; Only need to bring in grandma and grandpa in the discrete issue of monies lent rather than have their counsel sit through an entire trial. 
  • The rules of evidence apply; But this is also a matter that can be agreed upon by the parties (see reg 67O). 
  • Arbitrators are hands on; An arbitrator has, after all, a vested interest in the efficient use of his or her time and intellect. It is unlikely an arbitrator will facilitate or encourage a process whereby lengthy documentation, evidence and submissions are exchanged for her or him to later produce an award that meets the requirements of reg 67P(2). The hands on approach will usually be in the design process.
  • The arbitration can be suspended; That opportunity to negotiate (or even mediate) the dispute during or after the arbitration (but before the award) can occur without pressure from a judicial officer who has obligations toward the proper running of his or her list.
  • Why not two arbitrators ?; There is capacity to agree upon a panel of arbitrators (including an expert accountant or medical arbitrator) provided they also meet the prescribed requirements for an arbitrator contained in reg 67B.

Cons

Arbitration is an alternative dispute resolution process. There are many disputes that are simply not appropriate for arbitration. Disputes involving fraud or other financial misconduct are examples that immediately come to mind. It is difficult to envisage arbitrating a dispute that would automatically be counter-intuitive by virtue of the subject matter. Costs (due to length of hearing time), logistics in obtaining evidence etc, might mean that a court forum may be a more economic forum, but those instances are likely to be the exception. There are some other cons;

  • There are limitations as to what can be arbitrated; Probably for public policy reasons, but the an arbitrator (under the Act) can only arbitrate matters arising under Part VIII or VIIIAB (except BFA's) if court ordered pursuant to s13E. Private arbitration can include Part VIII, VIIIA, VIIIAB or VIIIB proceedings or sect 106A proceedings or any part or matter arising in such proceedings including issues of jurisdiction (see sect 10L). It is immediately obvious that parenting and child support disputes cannot be arbitrated. 
  • No costs orders; There is no power to make a cost award. However, the whole point of arbitration is to avoid the necessity of having to consider those matters in s117(2A) of the Act.
  • Limited authority of an arbitrator to compel compliance' Whilst strictly true, sect 13F does permit a party to make application for the effective conduct of "the arbitration". This may however be restricted to s13E arbitrations.
  • No jurisprudence; This is true in the sense of the judicial oversight of arbitrators under the Act however it is a myth to consider that there is no jurisprudence around arbitrations in general.
  • Cost of transcript; If the evidence is to be recorded and a transcript produce than this indeed is costly. This cost is normally borne by the Court unless there is an appeal. However, there is no requirement for a transcript and in this era of modern technology a digital recording only may be a viable alternative.
  • Arbitator's costs uncertain; The cost of the arbitrator is the subject of agreement. To reduce this issue, require a fixed fee ! (See my standard Arbitration Agreement - Schedule 1)

Myth

  • No right of appeal; Perhaps the predominant reason put forward for avoiding an arbitration is that there is no right of recourse. This "myth" might be fuelled by a concern that an arbitrator could hand down an award that was "outside of the range". What I find challenging about this is that not only is there a right of review (see sect 13J), there is the right to appeal the decision of the judicial officer reviewing the decision. Although expressed as a right to review "on a question of law", as most practioners are well aware, a failure to provide adequate reasons is an error of law.
  • Further debunking the previous myth is that your client (with your assistance) is hand picking the arbitrator. This is most likely to be someone you are familiar with, have seen or observed in Court or otherwise come recommended by your peers - compare that position to the alternative.
  • An arbitrator is not bound by the law; Nothing could be further from the truth ! As a corollary to the first myth there is probably some concern about palm tree or arbitrary justice being involved in an arbitration. However, by virtue of reg 67P (what the award must contain) and the combined effect of sections 13E and 13G inevitably mean that the process must follow the case law that has developed under the Act.
  • Not bound by rules of evidence; Actually the reverse is true. The rules of evidence apply unless the parties agreed not to have strict application of the rules of evidence. Part of the design process can require application of the rules of evidence only to discrete parts of the arbitration.
  • An arbitrator has divided loyalties; The myth (or misgiving) about arbitration is that an arbitrator who regularly receives briefs in Court matters from a particular firm is likely to hand down awards more favourable to that firm's clients. In reality that is a challenge to the independence of the arbitrator. See reg 67I and section 13K which make it clear that an arbitrator is bound by the same laws with regard to bias (both actual and apprehended) as a judicial officer.
  • But let's think about this. Firstly, any concern about the independence of an arbitrator is likely to be met at two gateways, initially the selection of the arbitrator and then during the preliminary meeting to design the arbitration. If there were such a concern, the client simply would not agree to participate in arbitration with such arbitrator.
  • Secondly, the myth seems to be founded on a presumption that a lawyer arbitrator lacks objectivity until he or she proves otherwise. The reverse is true. What we tend to forget is why the arbitrator has obtained a high degree of competence in the first place; professionalism. In my experience as a solicitor I only briefed those counsel who epitomised court etiquette and were of redoubtable independence. As a barrister I have also attempted to hold myself to those same high principles and have observed that most of my colleagues have been the same. I doubt a firm would engage an arbitrator that could not behave professionally, no matter how “favourable” they might perceive he or she will determine a matter. In my view, the fact that a firm regularly briefs or engages an arbitrator is nothing other than confidence in their professionalism.
  • No jurisprudence; There actually is, just not under the Family Law Act. Remember, most civil jurisdictions – particularly construction – have embraced arbitration. The body of law developed by our state Supreme Courts both under the UCPR and Commercial Arbitration Act are quite a useful resource.
  • A judge is free; Yes this is true (unless you need to spend $5,000 to $10,000 to appeal) but the savings in legal fees through the arbitration process well and truly outweigh this consideration to the extent that I call it a myth !
  • Can’t enforce; Yes you can. Once the award is registered by a party (it doesn't matter who) then pursuant to s13H it takes effect as if it were a decree of the Court and is therefore enforceable as all other orders of the Court can be enforced. More importantly, whilst a registrar might requisition a consent order because they don’ t consider it just and equitable an award is not simply reviewable by a Registrar upon his or her own volition and can only be reviewed pursuant to s13J or set aside pursuant to s13K.

So there you have it. I trust this outline has been useful to you and please feel free to contact me at bruce@adrqueensland.com.au if you have any other queries about arbitration in family law property matters.