With the court system under ever greater pressure and media interest in HNW litigation, the following insight written by Catherine Wood KC MCIArb; Mediator and Nicola Wallace, Barrister; Mediator; Head of NCDR for 4PB, considers arbitration and mediation as two alternative dispute resolution processes that can help individuals privately navigate the complexities of divorce, separation or family breakdown. In the following article, Catherine and Nicola also highlight ways in which independent financial advisers can help.
Arbitration and mediation both aim to resolve conflicts outside of court. They are both voluntary processes but they differ significantly in their structure, the role of the professionals involved, and the final outcomes.
For those untangling their financial relationship or unable to reach agreement about the arrangements for any children post separation, these processes can offer faster, more cost-effective, and less stressful ways to reach a final settlement. An independent financial advisor often plays a crucial role in guiding clients through the important discussions regarding future financial options.
Arbitration: A More Formal, Binding Process
Arbitration is often likened to a court proceeding, but with more flexibility and privacy. In arbitration, parties jointly agree to submit their dispute to an arbitrator (typically a senior barrister and/or a part-time family judge), as a neutral third party who has the authority to make a legally binding decision (referred to as an ‘award’ in finance cases and a ‘determination’ in children cases). There is a set process for submitting each party’s evidence and the arbitrator’s role is to consider the evidence, listen to and review the arguments presented by both parties, most often made through their legal advisers, and issue a decision. The award or determination made, can be converted into a court order. Appeals from arbitral decisions are dealt with by the courts and follow the same procedure as if a judge had heard the case within the court system.
One of the main benefits of arbitration is that it offers a speedier progression to final resolution compared to the court system. There is far greater accessibility to the arbitrator, who can make decisions promptly, as and when the need arises, before the final arbitration hearing. Another major advantage is that arbitration proceedings are entirely confidential which is likely to be a significant factor for any HNW family or families in the public eye. The choice of the arbitrator, the location of the arbitration and the timings are all matters to be agreed upon by the parties. If the parties are unable to agree who should be the arbitrator, then the Institute of Family Law Arbitrators can be asked to appoint one.
There is a cost involved in terms of solicitors, barristers and any experts appointed, much in the same way that there would be costs incurred if the matter was litigated at court. The parties also share the cost of the arbitrator.
In financial cases, an independent financial advisor can help clients prepare by analysing their assets, liabilities, and income to provide a clear picture of their financial situation before their case is presented to the arbitrator.
Mediation: A facilitated, non-binding process – until terms drawn into an agreed order.
Mediation provides an alternative option for HNW individuals where the focus is on the parties themselves reaching terms of settlement. Like arbitration, it is entirely confidential. It is however a more collaborative and flexible process that focuses on facilitating communication and cooperation between the parties involved. A mediator, who is a skilled neutral third party, helps both individuals progress to a settlement by guiding discussions and suggesting potential solutions. Unlike arbitration, the mediator does not make any decisions for the parties but helps them reach an agreement that a court is likely to support, through constructive dialogue and negotiation. The parties can be supported by solicitors and counsel if they so wish, but they can equally work towards an agreement themselves, with their legal teams in the background.
Mediation can be particularly valuable in family law cases because it allows both parties to discuss their needs and concerns in a confidential, safe and structured environment. It also tends to be less adversarial than arbitration or litigation, making it ideal for couples who are looking to preserve a working relationship after the divorce, especially when children are involved. The costs for mediation are generally lower than for arbitration.
For financial matters, mediation offers the opportunity for both individuals to openly discuss their assets, income, and financial needs. An independent financial advisor can play a crucial role in this process by providing financial clarity and helping clients understand their financial options. The advisor can assist in valuing assets, estimating future needs, and exploring possible financial settlements. Since mediation is non-binding, the couple is free to negotiate and revise proposals until they find an outcome that works for both sides. Their agreement can be filed at court and made into a court order, without them needing to attend.
Key Differences Between Arbitration and Mediation
| Aspect | Arbitration | Mediation |
| Decision-Making Power | The arbitrator makes the final, binding decision. Once made, it is legally enforceable, similar to a court ruling. | The mediator facilitates discussion, but the final decision rests with the individuals involved. The agreement can be made binding if both parties agree. |
| Formality | More formal and structured, often resembling a mini-trial. Evidence is presented, and the arbitrator follows specific guidelines. | Less formal and flexible. The mediator facilitates constructive discussions, to progress matters to settlement and guides negotiations without making decisions for the parties. |
| Finality | The decision of the arbitrator is final and binding and can be converted into a court order. Appeals process is identical to the court’s appeals process. | Any agreement reached is subject to the parties’ approval, and no final decision is made unless both parties agree to a binding contract. An appeal is unlikely as the parties themselves have signed off on the terms. |
| Control | The parties have less control over the final outcome, as the arbitrator decides. | The parties retain complete control over the outcome, as they make the final terms of settlement. |
| Cost and Time | It is likely to be more expensive than mediation due to the extent of the documents needed and arbitrator’s fees, but it is quicker and is typically less expensive than litigation. | Usually less expensive than both arbitration and litigation. The process is quicker due to its flexibility and informality. |
The Role of an Independent Financial Advisor
For both arbitration and mediation, an independent financial advisor can be instrumental in helping individuals understand the financial implications of their decisions. In both processes, the financial advisor can:
- Assess Assets and Liabilities: An advisor can help provide a clear picture of the couple’s financial situation, ensuring that both parties have accurate information about their assets, debts, and future capital and income needs.
- Evaluate Settlement Proposals: In mediation, the financial advisor can help evaluate proposed settlements, consider long-term financial stability and assist parties to reach arrangements that they both agree are workable and realistic. In financial arbitration, the advisor can provide expert testimony or reports that help inform the arbitrator’s final decision.
- Offer Tax and Investment Guidance: Divorce often involves the division of assets that have long-term tax implications. A financial advisor can help clients understand the tax consequences of different settlement options, such as dividing retirement accounts, selling property.
In conclusion, both arbitration and mediation offer valuable alternatives to traditional court proceedings, with key differences in formality, control, and routes to finality. For those going through a divorce or family breakdown, an independent financial advisor can provide critical support by ensuring that financial issues are properly understood and addressed as parties navigate these non-court dispute resolution processes.
