Should Hong Kong Consider Arbitration in Family Disputes?

The Courts have been the primary forum for resolving disputes between divorcing couples. Whilst mediation and collaborative practice are useful supplementary methods for helping parties achieve resolution, there remain some disputes that are not amenable to mediation. These may require a third-party decision maker that would also keep disputes out of the court system.

Arbitration is now available to meet this need in England & Wales; Australia; Ontario, Canada; and Scotland. Hong Kong too should adopt arbitration for family disputes as another tool to assist divorcing couples promptly, confidentially, and in certain circumstances, cost-effectively, resolve their disputes.

The past decade has seen an increasing trend in the application of alternate dispute resolution techniques and methods to family disputes. Family law solicitors now routinely advise on methods such as mediation and collaborative practice as alternative means to resolve disputes following the breakdown of the family and that litigation should always be the last resort. This development may have arisen from a reaction to a hostile and unnecessarily aggressive and expensive procedure, which can often arise in a court-based resolution system.

With Hong Kong’s introduction of the Financial Dispute Resolution scheme and more recently, in October last year, the Children’s Dispute Resolution scheme, it is clear that the Courts too are keen to facilitate an amicable resolution of matters where possible.

However, one alternate dispute resolution method, which has not yet been implemented in Hong Kong for resolving family matters, is arbitration. This is unfortunate since arbitration has the potential to address particular types of cases that may not be suitable for mediation or collaborative practice and yet can be resolved without resort to the court process.

Arbitration is particularly suited for resolving the financial aspects of a marriage breakdown, where the parties wish for swift resolution of their dispute and yet are unable to agree between themselves on how to achieve this.

Arbitration is clearly not suitable for matters that involve disputes concerning children, which require the oversight of the Courts as in the absence of agreement between the parents, only the Courts have the powers to make life changing decisions regarding access to children, custody, care and control. However, even in these cases, there exists the possibility of resolving the financial aspects through arbitration and only resorting to the Courts to resolve child-related matters.

What is arbitration?

At its simplest, arbitration is a confidential, consensual form of alternate dispute resolution through which the parties have a high degree of control over both the process and the selection of the decision maker, the arbitrator. After a decision has been made and an arbitral award issued, it is binding on the parties and is then often recognised and converted into an Order of the Court, which can thereafter be enforced in the usual way.

Features of family arbitration

Arbitration of the financial aspects of a family dispute is very similar to regular arbitration in the commercial context, whereby the arbitration procedure is underpinned by an agreement between the arbitrator and the parties, in this case the spouses. The first task is for parties to agree on the appointment of the arbitrator, the scope of the arbitrator’s jurisdiction, the timetable for exchange of evidence and submissions, the procedure that is to be adopted, the evidence to be adduced, and the arbitrator’s fee. The last point is important since, it is the parties who are responsible for the costs of the arbitrator unlike litigation in which the cost of the judge is publicly funded.

An arbitration is deemed to have commenced upon the appointment of the arbitrator and the process can be tailored to encompass a variety of arbitration methods. For example, the parties may elect a paper only arbitration by which they agree to the timetable for the filing of evidence or affidavits and submissions, but dispense with the need to attend an oral hearing. In certain cases this is particularly attractive to parties who wish to avoid the stress of attending a hearing and being cross-examined. Other cases, however, may require a full oral hearing, with cross-examination, and the arbitration process is sufficiently flexible to allow for this possibility.

It is suggested that to be able to reap the benefits of using arbitration to determine a family dispute, the case should be dealt with in a relatively simple manner such as “on the papers” with an agreed statement of facts, written submissions and possibly a short hearing to address the written submissions.

Currently, some parties in Hong Kong are resorting to private Financial Dispute Resolution (“FDR”) hearings instead of a Court-appointed FDR in order to resolve matters. This raises the question whether and when parties should turn to arbitration to finalise their matter if the FDR fails; should arbitration be engaged before the FDR (private or otherwise) or should arbitration be adopted only after the parties have tried to resolve matters themselves through FDR. Undoubtedly this will depend on the level of funding available to the parties, and whether the parties wish to be afforded the opportunity to work out matters between themselves first before handing over the matter to the arbitrator.

It must be borne in mind, however, that there is nothing to prevent parties seeking “time out” from the arbitration so as to pursue settlement prospects which may be then emerge, and the arbitrator would no doubt pause proceedings for that purpose.

Suitability of arbitration in certain cases

Currently, family proceedings are conducted in chambers and are not open to the public. However, there may be family disputes that deal with issues of significant public importance that would allow either party to apply for the hearing to be open to the public. Decisions that go on appeal are also open to the public. Confidentiality is a key advantage of arbitration and is one likely to be welcomed by high profile individuals who would prefer that their matter be kept away from the Courts and the public domain.

Arbitration is also suitable for both litigants in person and those cases that require legal representation. Since the rules of evidence are not applied stringently, parties may feel more comfortable in the arbitration process as opposed to using the Court process where there is a high degree of formality and a large number of rules with which parties are not familiar, while being expensive and in some situations disproportionate.

The right of the parties to select the arbitrator is also an advantage. Parties often feel more reassured by the fact that they have some control over who will make the final decision in their matter,

As noted above, whilst not suitable for children’s matters, arbitration is particularly suited for resolving all or even part of the financial issues between the parties. As an example, there may be an agreement between the parties as to the percentage division or “split” of the matrimonial pool or a particular asset, but there is no agreement on the valuation of the asset or the quantum of the matrimonial pool of assets to be divided.

These discrete issues could well be amenable to arbitration with an arbitral decision on them leading to a significant reduction in the number of outstanding questions to be resolved by the Court. This has advantages in significantly reducing the length of time required to finalise the matters between the parties.

A significant advantage of arbitration is that awards are final and can only be appealed in certain limited cases (usually on points of law or where the arbitrator has exceeded the ambit of their appointment). This aspect of finality provides parties with a higher level of certainty and allows the parties to “move on”. This is not always present in the standard Court process, with the spectre of an appeal often being present.

Applications to vary existing maintenance orders and freestanding applications for child maintenance are other examples of cases where a more tailored approach to discovery can pay dividends, as compared to the formal discovery requirements required by the Court.

Whilst arbitration provides many advantages to a divorcing couple it is not all things to all people. Arbitration, whilst potentially fast and efficient, can be a costly option. Parties are responsible for their respective lawyers’ fees and the arbitrators’ fees and this may put the process beyond the reach of some families. In some respects this is similar to private mediation where the parties pay for everything. One disadvantage of arbitration is that parties nonetheless have a decision imposed on them, similar to a judgment after trial and feelings of animosity and hostility may remain unresolved. However, it is suggested that the very fact the parties have agreed on the process and the arbitrator, (and in particular that they agree to be bound by the decision) will help the parties accept the arbitrator’s decision, more readily, than accepting a decision by a judge at Court.

Matters that have complex issues or asset pools, non-disclosure or possible third party claims against property, may not find arbitration to be a suitable dispute resolution option.

On balance however, arbitration offers several advantages to divorcing couples and it is suggested that it should be an option available to divorcing couples in Hong Kong. In cases in which the parties are ready to move on with their lives and/ or have overcome the emotional trauma of a separation, arbitration can be ideal, particularly if the parties are keen to resolve matters expeditiously. Furthermore, there is no place for tactical delays, which result in excessive legal fees. Arbitration provides an alternative route for parties who seek an early resolution but who cannot work together to resolve matters by themselves in mediation or through collaborative practice; a middle ground between Court and mediation.

With a burdened Family Court system, return dates for hearings are usually several months away even when issues would benefit from being determined on a more urgent basis. Arbitration provides the parties with the option of having their matter determined within their agreed timeframe and, potentially, the procedure being commenced and an arbitral award given within a matter of months rather than years. If more matters were decided by way of arbitration, the Court system would be freed up and would have more capacity to deal with the more urgent or pressing applications.

UK and Australian schemes

Whilst arbitration is not yet a part of the legal landscape for resolving family disputes in Hong Kong, where is has been used in other jurisdictions it has been successful for many years. Those jurisdictions with an established family law arbitration scheme include Australia, Canada, Scotland and England & Wales.

Australia has arguably the lengthiest experience in applying arbitration to family disputes, commencing in 1991 with amendments to the Family Law Act 1975 to allow for the arbitration of family matters. Whilst Australia was an early adopter of family arbitration, it was little used in its first decade, partially due to the fact that there was no mechanism that allowed for the award to be readily and automatically enforceable; parties would receive an award, but to have it recognised by the Court a consent summons was required – something that a dissatisfied party was often unwilling to sign.

To address this issue, the Family Law Regulations were amended in 2001 to regulate the registration of awards. Other issues addressed by the 2001 Regulations were the required qualifications of arbitrators, the terms of the arbitration agreements and the conduct and procedure of arbitrations.

Unfortunately, despite an extensive set of Rules and a long history of applying arbitration to family matters, it appears that, in practice, the Australian arbitration scheme has had lukewarm success. It is suggested, however, that this is due, at least in part, to the limited success in promoting arbitration amongst practitioners as a viable option for alternative dispute resolution.

More recently, England & Wales has launched the Family Law Arbitration Scheme (the “IFLA Scheme”), an initiative that has received support and training from the Chartered Institute of Arbitrators. The Institute of Family Law Arbitrators (“IFLA”) was specifically set up to both draft and apply the Scheme. The English procedure is similar to arbitration in a commercial matter and there appears to be widespread support for the Scheme within the legal fraternity, both from practitioners and the judiciary, as an alternative for resolving family disputes. A number of retired judges are now qualified as arbitrators having being trained and included on the panel of accredited arbitrators. Considerable interest in arbitration is building among practitioners as they realise the potential of this as a viable alternative to litigation.

Some of the key features of the IFLA Scheme - it has been suggested that Hong Kong should consider it when it sets up its own scheme - include setting out a clear and concise procedure that the arbitrator will adopt. This includes a user-friendly format familiar to family lawyers; identifying that the applicable law is of that jurisdiction, and that this is the only law that the arbitrators can apply in resolving substantive issues (unlike commercial matters where parties have freedom in their choice of the seat of the arbitration); defining the powers of the arbitrator and the scope of available remedies; and defining the issues that then come under the Scheme (such as financial disputes for married couples, maintenance for children of unmarried parents, ownership of property for co-habitees).

Hong Kong – the way forward

Hong Kong has a well-developed arbitration “mindset” and Hong Kong is often marketed internationally as a leading arbitration centre for commercial disputes. Most practitioners and the judiciary understand the very real advantages that arbitration presents for the parties and the author believes that this “pro-arbitration mindset” will be a great advantage in facilitating the adoption of the use of arbitration to resolve family matters in Hong Kong.

That said, Family Law practitioners generally have little experience of and no background in arbitration. Accordingly, if family arbitration is to be introduced in Hong Kong, resources would need to be allocated to the education and training of practitioners. A scheme for training and recognising suitably-qualified arbitrators would also need to be put into place. Institutions such as the Hong Kong International Arbitration Centre and the Chartered Institute of Arbitrators could potentially fill an important role in this regard.

As to substantive rules and regulations, Hong Kong would need to adopt a set of specific family arbitration rules (likely modelled on the IFLA Scheme rules) and amend certain elements of its arbitration legislation to ensure that the arbitral award is enforceable by leave of the Court in the same manner as a regular Order. Should leave be granted, the Order should be in terms equivalent to the arbitral award.

This aspect of recognition and enforcement of arbitral awards is crucial to the success of any family arbitration scheme. If family arbitration awards are readily enforceable or easily converted into Court orders, then there is reason for this process to be considered by families (and practitioners) as a viable and cost-effective alternative.

Conclusion

Arbitration in commercial matters has a long and successful history in Hong Kong and while it may not be suitable for resolving every type of family dispute, there is no reason why arbitration cannot be applied successfully to financial disputes in a matrimonial context. This is especially the case in matters where the need for confidentiality, speed and certainty, are decisive factors to the parties. In such cases, arbitration would likely be an ideal option for many divorcing couples in Hong Kong.
 

By

Sasha Allison, Solicitor Hampton Winter & Glynn, with acknowledgment to

Jain Brown, Partner Hampton Winter & Glynn

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