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RELATIONSHIP PROPERTY ARBITRATION- A TURN-OFF FOR RETICENT TYCOONS?
Robert Fisher
Why would a multi-millionaire agree to have his or her commercial empire carved up by an arbitrator? Answer: it will usually be the least of theevils.
When a couple separates, each is entitled to his or her share. Neither can stop that from happening. The only question is how long it will take.So the least painful course for everyone is toadopt a process that is quick, confidential,just and legally binding.
Of course the ideal is to come to an agreement without the need for proceedings of any kind. Some couples are able to agree quickly and painlessly. But curiously, the quickest path to agreement is often to negotiate within a mandatory framework.
Negotiating within a mandatory framework is not the oxymoron that it sounds. Agreement over relationship property usually occurs when both parties understand the issues and have all the facts. By issuing some form of proceedings, the couple are effectively hiring a neutral third party to manage that process for them. The third party can ensure that each provides adequate disclosure to the other, and identifies the claims that are being made, in a way that is relevant, economical, and prompt. That alone will usually produce agreement. And if it does not, the couple will at least be well down the track towards a decision over their respective rights.
Procedures common to court and arbitration
Whatever the forum, the core steps required in relationship property proceedings are to identify the relevant assets and liabilities; place values on each; identify the issues; provide each party with the opportunity to adduce evidence and submissions in relation to those issues; assist each party to obtain any further information required; and arrive at a decision.
Those requirements must be met whether the dispute is submitted to the courts or to arbitration. Both forums are capable of offering formal pleadings, further particulars, discovery, interrogatories, non-party discovery, orders for security, interim injunctions, preservation and inspection orders (the last four referred to as “interim measures”in arbitration), witness summonses, and directions as to mode of evidence (Arb Act sch 1 arts 17A to 17J, 19(2) 23, 24, 27 and sch 2 cl 3; for the wide power to issue interim awards see s 2(1) and art 35).
When might arbitration be better?
Up to this point there is little practical difference between court and arbitration. Where the difference comes is speed and procedural flexibility. In court the sheer quantity of cases makes standardised rules unavoidable.By contrast, all an arbitrator must do is comply with the requirements of natural justice and any express stipulations in the arbitration agreement or the Act. In practicethat leaves the arbitrator largely free to conduct the arbitration “in such manner as the arbitral tribunal considers appropriate” (art 19 of sch 1 to the Arbitration Act)- subject, obviously, to the best interests of the parties.
This procedural flexibility can be exploited to tailor the procedure to the particular case. What is vital is to keep the cost of the exercise proportional to the sums at stake. At one extreme it may be enough to ask the parties to bring all relevant documents to a meeting in the living room of their house, hear from both sides, and then issue a short written award. At the other extreme the process may need to pass through a number of stages:
(a)Preliminary conference at which the procedural sequence is discussed and settled;
(b)Sequential filing and service of affidavits, requests for particulars and documents from the other party (pleadings normally being unnecessary);
(c)Issues conference to identify issues, explore settlement , and if necessary resolve the way in which further information is to be gathered;
(d)Implementation of the information-gathering process;
(e)Sequential filing and service of final affidavits and opening submissions;
(f)Hearing with cross-examination and submissions;
(g)Award.
In that process the key steps are information-gathering and the exploration of settlement. The rest of this article will be confined to information-gathering.
Information-gathering
Any delay in the case overall will almost certainly be due to difficulty in clarifying property details. All assets and liabilities of the parties need to be established along with their values, their classification as relationship or separate property or as personal or relationship debts, and other details affecting their division.
This is an area in which arbitrators can be of particular help. Active assistance in identifying property details is best provided at one or more issues conferences. Ideally the first issues conference will be held after the initial exchange of affidavits and requests for discovery and particulars. Those attending normally include the parties, and often their accountants, as well as counsel. If the parties have already identified all relevant details in their affidavits, nothing more is required. More commonly, some form of further information-gathering is necessary.
Nothing useful can be proposed about information-gathering until some attempt has been made to identify the real issues. Relationship property cases can be legally complex. There is no point in discovery in the abstract. When the real issues are ultimately traversed at trial, conventional discovery is often shown to have been unnecessary in some respects and incomplete in others. So the parties and the arbitrator must start to grapple with the merits of the case at an early stage. That is best done at a conference.
Once the issues have been defined, missing information can be sought through directions for targeted discovery, inspection of computer systems, interrogatories, oral questioning and/or reports by arbitrator-appointed experts such as independent accountants, valuers orIT experts. Among those, the two warranting further mention are preliminary questioning and independent accountant reports.
As to the first, an arbitrator can swear in the parties and their accountants as witnesses, and record their answers,at an issues conference. While final answers may not be possible at the first conference, the process will at least establish where and how the necessary further details can be ascertained. When the relevance of the required information is explained to the parties, it will usually result in a set of directions by consent. If necessary the same process can be followed at subsequent conferences or interim hearings.
The appointment of an independent accountant to investigate and report is another way of cutting through wrangling over the adequacy of discovery, particularly in cases of commercial complexity. The parties need to have full input into the choice of accountant and the issues on which the accountant is to report. In the writer’s experience the report that emerges frequently produces a settlement without more.
Normally those and similar procedures can be adopted by agreement in a cooperative atmosphere. Where necessary, however, there is an iron hand in the velvet glove. An arbitrator’s powers include the power to direct one or more hearings for any purpose conducive to resolution of the dispute (see generally art 19 sch 1), to require a party to answer questions in an inquisitorial setting (cl 3(1)(a)) and to order any party to do all such things as may be reasonably needed (cl 3(1)(j)).
Those who may be questioned in this way include not only the parties but also accountants, company officers, employees and other witnesses. They can be brought before an arbitrator to give evidence, or to produce documents, at the instigation of either the arbitrator or one of the parties (art 27(2)(a) sch 1). Given the power to direct that there be a series of hearings, that avenue can be used during the information-gathering phase or at the substantive hearing.
It is similarly open to an arbitrator to direct investigation and report by an independent accountant, and to require the parties to assist in that process, whether or not a party agrees (art 26 sch 1; PRA s 38). It will sometimes be useful to combine this with the appointment of an IT expert to assist the accountant.
A turn-off for reticent tycoons?
Given the investigative powers of an arbitrator, one might ask why a party with something to hide would agree to arbitration in the first place.
Some suggestions may be offered in response. First, very few litigants see themselves as having something to hide. If business tycoons are less than forthcoming with documents and details, it is usually because they are too busy to comply, regard the process as tedious and unnecessary, or fail to understand the relevance of the details sought. An arbitrator should be able to explain the relevance and reasonableness of discovery in a cooperative atmosphere.
Secondly, proceedings in some form cannot be avoided, whether in court or arbitration. A busy tycoon might well prefer to opt into an information-gathering process that will resolve the dispute quickly and efficiently if the only alternative is a series of formal interlocutory hearings in a courtroom.
Thirdly, most tycoons shun publicity about their personal affairs. Relationship property judgments can now be reported in the media. Relationship property awards cannot.
Fourthly, early disentanglement has heightened importance ina dispute over acommercial entity that is still actively trading.Expedition is the aim in any relationship property dispute given the price the parties pay in cost, uncertainty, friction, and stress while it continues. But speed and finality is even more importantwhere active commercial assets are involved. For the tycoon,delay means budgeting uncertainty, a disincentive against fresh business initiatives, and the ongoingneed to sharecommercially sensitive information. Delay also exposes the tycoon to various forms of freezing order andattempts at back-seat drivingfrom the other party. For the claimant party,delay perpetuates the sharing of commercial risk, the increasing risk that wealth will be diverted or concealed, and lack of access to the capital to which that party is entitled. For both, delay means a growing difficulty in distinguishing between relationship property and property created by the post-separation efforts of the tycoon.These are all reasons for the expedition that arbitration alone can offer, particularly if the parties are sensible enough to exclude any right of appeal in their arbitration agreement.
Finally, philosophical objections to direct questioning by an arbitrator are almost certainly concerned with form rather than substance. However tempting the prospect, arbitrators would be very unwise to see themselves as modern Star Chambers. An arbitral examination can be conducted as a round-table discussion in an atmosphere that is unthreatening, private and informal. And whatever course is adopted, both parties must be required to submit to the same disclosure obligations in the interests of even-handedness.
Conclusion
Arbitration has much to offer for all relationship property disputes but two features will be of peculiar significance for the wealthy. One is confidentiality. The other is early disentanglement of commercial assets.
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Hon Robert Fisher QC, LLD is an arbitrator, mediator and consultant based in Auckland. The legal foundations for this article are outlined in Robert Fisher “Relationship Property Arbitration” (2014) 8 NZ Family Law Journal Issue 2 (forthcoming).