A and B (Schedule 1: Arbitral Award: Appeal), Re

This judgment sets out my reasoned conclusions for allowing an appeal against an order of Her Honour Judge Evans-Gordon (‘the Judge’), sitting in the Central Family Court, dated 6 October 2023 (Footnote: ¹). By her order, the Judge had declined to convert an arbitral award into a substantive court order. The arbitral award had been made by Duncan Brooks KC in August 2022 within financial remedy proceedings brought by the Appellant (‘the mother’) under Schedule 1 of the Children Act 1989 (‘CA 1989’).

The judgment under review in this appeal is reported as LT v ZU [2023] EWFC 179; an earlier judgment dealing with an interlocutory case management issue in the same case was reported as LT v ZU [2022] EWFC 206 (Footnote: ²). I have used the same anonymisation where relevant (Footnote: ³). The mother invites this court, in allowing the appeal, to confirm the arbitral award as a final court order. The Respondent (‘the father’) opposes the appeal, and the outcome proposed by the mother.

The mother is represented on this appeal by Tim Amos KC and Samantha Singer. They, together with their solicitors Keystone Law (Ms Charlotte Cuevas), appear pro bono; I am grateful to them for taking on the instructions from the mother in this way. The father is represented by Michael Glaser KC and Sophia Gonella; neither counsel, nor their instructing solicitor, represented the father in the arbitration.

Within this appeal, a cross-application was issued by the father on 14 December 2023. By this application he sought the dismissal of the appeal, “without the need for a hearing”, on the basis that he had lost his employment since the hearing before the Judge:

The father’s application was presented to the court with a request that it be determined ‘without a hearing’, and initially without notice to the mother. I nonetheless gave directions on the father’s application on the papers, permitting the father (pursuant to rule 30.12(2)(b) Family Procedure Rules 2010: ‘FPR 2010’) to file evidence to support this application, and gave a direction permitting the mother to reply if so advised. The mother replied, by a statement from her solicitor.

For the purposes of the appeal, I received detailed oral and written representations of counsel, including further written submissions (5 April 2024) on disposal of the appeal following circulation of the draft judgment. I was provided with two substantial bundles of documents (an appeal bundle, and the bundle of documents which had been before the Judge), and an extensive authorities bundle. I was taken to a number of key documents within all of these bundles. Following the hearing, while the judgment was in preparation, the father’s solicitors drew my attention to a judgment of HHJ Hess in SP v QR [2024] EWFC 57(B); in that case, HHJ Hess had relied on the Judge’s substantive decision in this case ([2023] EWFC 179). I invited brief written submissions on this recently reported decision, and in light of those submissions I am satisfied that SP v QR provides no material assistance to me. I do not need to rehearse the highly persuasive substantive arguments of Ms Singer in this regard, for it is effectively conceded by Mr Glaser that this is not a decision on which I can or should place reliance (Practice Direction (Citation of Authorities) [2001] 1 WLR 1001, and Practice Direction (Citation of Authorities) [2012] 1 WLR 780).

The background facts can be shortly stated.

The mother and father, both now in their early forties, met in or around 2007, and formed a relationship which lasted a few (on the material before me somewhere between three and five) years. Their relationship resumed again in 2015, and they separated for the final time in 2019. Within this second phase of their relationship, two children were born to the couple, A (a boy) who is 7 (born in 2016), and B (a girl) who is 5 (born in 2018). Post-separation litigation concerning the welfare of the children began in 2019.

The mother and two children currently live in a two-bedroom apartment in London (“Thames House” (Footnote: ⁴)); this property is owned by the father and was said to be worth c.£935k at the time of the arbitration. The father lives in a 4-bedroom property nearby, which he purchased for £1.28m in 2021, and had a similar value at the time of the arbitration. The Thames House apartment had been the parties’ home during the second phase of their relationship. Both properties are heavily mortgaged; the mortgage repayments are made by the father. These post-separation arrangements were made by agreement between the parties some time ago.

At the time of the arbitration in June 2022, and at the time of the hearing before the Judge in June 2023, both parties were working. The father was a founding (albeit minority) partner and an executional trader of a hedge fund. His remuneration package comprised regular (albeit not guaranteed) monthly drawings (£100,000 gross p.a.), a 5% share of management fees and a 5% share of performance fees. The mother, a former professional tennis player, has worked part-time for some years for a charity (of which she is the CEO); she also undertakes some additional freelance work.

Within the last few months, since the hearing before the Judge, the father’s hedge fund has been wound up, and since October 2023 he has, he says (see §4 above), been out of work.

Following the separation of the parties, the mother made an application for child arrangements orders, including a specific issue order under section 8 of the CA 1989, requesting permission to relocate the children to Kent, so that she and the children could live closer to her own family. Within those welfare proceedings, independent reports (social work and psychiatric) were prepared; the authors of these reports did not support the application for relocation, and the mother resolved not to pursue it. In January 2022, HHJ Roberts made child arrangements orders in relation to A and B, providing for the children to spend exactly equal time with both parents.

Given the equal split of the children’s time pursuant to HHJ Roberts’ order, the Child Maintenance Service made a nil assessment of the father (pursuant to regulation 50(1)/(2) of the Child Support Maintenance Calculation Regulation 2012); this was made on 23 November 2022 and was backdated to 17 January 2022.

It is relevant to note, for the purposes of this appeal, that within the section 8 proceedings, leading counsel for the father had produced a document in September 2021 setting out a proposed property budget for the mother and children in the event that they were to remain living in London (i.e., not relocating to Kent); the budget was accompanied by the comment: “he [i.e., the father] provides his assurance that the housing fund is protected from any financial liabilities he holds”. This led HHJ Roberts to observe in her judgment in January 2022 (on the evidence before her):

At the conclusion of the section 8 proceedings, HHJ Roberts made a costs order (described by the Judge as ‘swingeing’) against the mother. Within this order, the mother was to repay part of a Legal Services Payment Order (‘LSPO’) from the father of £41,000 within 28 days; payment of the balance of the costs order was to await the Schedule 1 process. The mother sought permission to appeal this order, unsuccessfully. On or about Christmas Eve 2022, the mother was served with County Court proceedings brought by the father for the recovery of £1,870.36, namely the shortfall of the LSPO element of the costs order which by then remained unpaid. This, perhaps, illustrates the depth of the antipathy which had by then developed between these parties.

On 21 May 2021, during the section 8 proceedings, the mother had issued her application under Schedule 1 CA 1989. In early 2022, the parties agreed to refer the Schedule 1 claim to arbitration, and Duncan Brooks (“the Arbitrator”) was chosen; he is a barrister specialising in complex matrimonial finance proceedings, and has considerable experience in family finance arbitrations.

By the time of the arbitration, the parties had already spent approximately £1m on legal fees; the father’s expenditure was said to be “significantly greater” than the mother’s. I was told at the hearing before me that since the arbitration the father has spent a further £260,000 in legal fees. Had these sums (or even a fraction of them) been applied to housing provision for the mother and children (which is at the heart of this financial dispute), the Schedule 1 proceedings would have been considerably less complex; indeed, they may well not have been required at all.

The case has a somewhat complex litigation history. Rather than rehearse it within the body of this judgment, I have prepared an outline chronology of the key steps in the litigation, which is attached as Appendix 1 to this judgment.

In preparation for the arbitration on Schedule 1 matters, the parties exchanged statements of evidence. Significantly, they instructed a single joint expert (‘SJE’) (Oliver Fare of Fox Davidson) to advise on the mortgage capacity of the parties applying various different scenarios. Both parties completed the ‘mortgage fact-find’ document for the SJE, setting out their relevant financial situations so that he could advise.

The parties prepared a joint statement of issues for the arbitration. For present purposes it is relevant to note that it was agreed, inter alia, that:

As the date for the arbitration approached, both parties made open written offers to settle their dispute. The father’s offer is dated 22 June 2022. It is material to note that he predicated his offer on the basis that he would continue to pay the mortgage on the Thames House apartment and/or an equivalent mortgage on another property. Specifically he proposed (referencing the point agreed at §20(iii) above) that:

The mother’s revised open offer (28 June 2022) reflected advice received from the SJE; in her offer, she made clear that she:

Thus, it was absolutely clear, and indeed agreed between the parties, that the settlement of property for the mother and children going forward would be dependent upon a financial contribution from a lender by way of mortgage which would be serviced by the father. Given the way in which the father was presenting his case (i.e., with mention of a 90% mortgage), it was at least possible, if not likely, that the loan would be a significant one.

At the arbitration on 30 June 2022, both parties gave oral evidence under affirmation. Extensive documentary evidence was presented to the Arbitrator too.

The arbitral award is a detailed and lengthy document running to thirty-six pages (ninety-nine paragraphs). I have extracted from the award a number of key findings or records of fact/evidence which are relevant to the issues before me on the appeal. I have placed them into Appendix 2 to this judgment for reference.

The award makes clear that the parties had by then agreed that the Thames House apartment should be sold; the father agreed to place the gross value of the Thames House apartment towards a new property, including the mortgage capacity which he had previously utilised. The mother had expressed herself willing to put her own resources additionally towards the new property. It was held that the mother’s housing need for herself and the children in London during their minority was c.£1.1m to c.£1.13m inclusive of costs of purchase, removal and redecoration. A joint mortgage of £870,000 was to be raised to achieve this. A fund (comprising capital from both and the joint mortgage) would be used to purchase a property in the parties’ joint names on a trust for sale. The choice of property was to be agreed by both parties; the choice of mortgage product was also to be agreed. The father was to meet all instalments due in respect of the mortgage as and when they fall due. The Arbitrator reflected his challenge in this case in delivering an outcome which was “effectively to juggle debt and mortgage capacities. My decision would have been far easier if the parties had not spent so much money on legal fees”.

The award was buttressed by a number of undertakings and agreements offered by the parties.

Neither party argued before the Arbitrator that he did not have the statutory or other power (and/or that the court would not have the statutory or other power) to make an award/order which was predicated on one or other or both parties borrowing money by way of mortgage in order to settle property under Schedule 1 CA 1989 for the purposes of housing the children in substitution for the Thames House apartment.

The Arbitrator’s draft written award was circulated to the parties on 11 July. Both parties submitted comments on the draft. In his comments, the father notified the arbitrator of a recent significant redemption from the hedge fund for which he worked, thereby reducing its value. Of this, the Arbitrator said:

The final award was issued on 12 August 2022.

On 11 October 2022, the Arbitrator issued a costs award. In this award he made a number of findings critical of the father’s conduct of the arbitration. He found that the father’s disclosure in relation to his tax liabilities had been “unclear”. He further found that the father had not been “full, frank and clear” in relation to a family company and its relevance as a potential resource. He found that the father’s stance in relation to the payment of child maintenance (namely an opposition to paying any child maintenance at all) was “unreasonable”. He ordered the father to pay 25% of the mother’s costs of the arbitration.

By notice of challenge dated 2 September, the father objected to the arbitral award, and to a number of the Arbitrator’s key findings. He raised altogether twelve grounds of challenge.

The first challenge was articulated thus:

By his further grounds of challenge (Grounds 2-12), the father disputed a range of findings of fact made by the Arbitrator; he underpinned his complaints by contending that the award was wrong and/or unfair in that it failed to take properly into account the father’s own financial needs, liabilities, and his ability to pay.

The father’s final challenge to the award (i.e., not included in the twelve grounds referenced in §33 and §34 above) was that his financial circumstances had deteriorated significantly since the arbitration, indeed to such an extent that it would be unfair to convert the arbitral award into an order.

On 15 September 2022, the mother issued a cross-application to the court, requiring the father to show cause why a court order should not be made in the terms of the arbitral award.

Following representations from the parties, on 27 October 2022 HHJ Hess granted the father permission to pursue his challenge.

On 10 March 2023, the Judge gave leave for the father to adduce fresh evidence of his allegedly changed circumstances since the arbitration; the statement setting out those changes is dated 24 October 2022 supported by a statement from the Chief Financial Officer (‘CFO’) of the hedge fund dated 3 October 2022. The father asserted that there had been such a significant change of circumstances since June 2022 that it would now be wrong to make the award an order of the court. Specifically, he deposed to:

The mother challenged the father’s fresh evidence (in her own witness statement dated 31 March 2023). She pointed out the various overly pessimistic predictions of the hedge fund’s performance provided by its CFO in the past, and the incongruity between his previous gloomy prognoses and the father’s liberal spending, including his purchase of an expensive home with large (£880,000) mortgage and the significant outlay to his lawyers on this and related litigation.

The parties exchanged open offers. The mother offered to vary the arbitral award by pushing back the date on which the capital award would increase by CPI (January 2024), effectively giving the father more time to raise funds for the settlement of property. It was in the father’s open offer in May 2023 that it became clear for the first time that he was withdrawing his agreement to take out a mortgage in order to settle a property for the mother and children; instead, he proposed that upon the sale of the Thames House apartment, the mother should move into her own modest (Footnote: ⁶) investment property with the children.

The substantive hearing of the cross-applications took place before the Judge on 22 and 23 June 2023. Further submissions were delivered in writing on 28 June 2023. Judgment was delivered on 6 October 2023.

Before looking at the judgment under review, it is convenient to summarise here the established legal principles relevant to the status of the arbitration award, and the procedure for challenge.

I can take this shortly, because the essential point of reference in this regard is the judgment of King LJ in Haley v Haley [2020] EWCA Civ 1369 (Footnote: ⁷) (Haley). In her judgment, King LJ usefully encapsulated the key principles applicable to an appeal at [49] (I shall not reproduce those here, but have had regard to them), before observing that:

At [69] King LJ said this:

She continued:

The seminal decision in Haley has been followed by Mostyn J in A v A (Arbitration Guidance) [2021] EWHC 1889 (Fam), and by Peel J in G v G [2022] EWFC 151 (which followed an arbitration on children’s welfare issues).

In accordance with the procedure and legal principles outlined above, the hearing before the Judge took the form of a quasi-appeal; the Judge was invited (following Haley) to approach the issue of challenge to the arbitral award broadly in the same way, and subject to the same principles, as a financial remedy appeal in the Family Court from a district judge to a circuit judge; the Judge herself accepted this describing it ([14]) thus: “the process following a challenged award is akin to an appeal rather than a true appeal”.

The Judge articulated the primary issue before her as to whether:

In her judgment, the Judge fairly summarised the essential background facts, and the parties’ positions; in a section headed ‘the law’, she appropriately referenced Haley. In this section, she went on to direct herself as to the test to be applied on the application before her as follows:

The Judge outlined the essential ingredients of Schedule 1 sub-paragraph 1(1) which permits the court to make any or all of the orders set out in sub-paragraph 1(2); in this regard, she extracted the statutory prohibition on the court making more than one order requiring a parent to make a settlement or to transfer property for the benefit of a child (sub-paragraph 1(5)(b)). She turned then to the proposals of the parties. Specifically, she addressed the mother’s argument that the settlement of property would in this case take place in stages: the payment of a lump sum, the provision of borrowed funds, then the settlement of the property. In this regard, and at Mr Glaser’s invitation, the Judge considered Singer J’s judgment in Phillips v Peace [2005] 2 FLR 1212 (‘Phillips v Peace’). In Phillips v Peace, Singer J had considered whether sub-paragraph 1(5)(b) of Schedule 1 was conjunctive or disjunctive. Having isolated the issue, the Judge observed:

Crucially, at [25] of the judgment she said that:

At [34] of the judgment, drawing on her comments from [25]-[27] (above) she set out her key conclusion:

The Judge was clear that she did not regard it as relevant that the father had “offered to borrow monies” by way of mortgage ([35]) to purchase a new home for the mother and children. Her essential view was that it would not be:

On this basis, Ground 1 of the challenge succeeded. She added:

The Judge took the remaining eleven grounds of challenge collectively and relatively shortly ([37]-[45]). After an outline review of the Arbitrators’ findings as to the parties’ respective finances, the Judge said at [43]:

The Judge then turned to the father’s alleged ‘change of circumstances’ between June 2022 (the date of the arbitration) and June 2023 (the date of the hearing). The Judge had, in the opening paragraph of her judgment, identified the alleged change of circumstances (“… a continued fall in the [father’s] net income and a significant increase in interest rates which were unforeseen at the date of the award”: [1]). At [16] of her judgment she had addressed the approach on the law:

The Judge made clear that, in light of her finding on Ground 1, it was “not necessary” to address the father’s alleged change of circumstances ([46]). Nonetheless, she went on to say that:

The Judge concluded her judgment as follows:

The effect of the judgment was that the parties were back to ‘square one’ with the mother’s Schedule 1 claim.

By the Notice of Appeal dated 27 October 2023, the mother seeks “an order upholding the arbitral award, with adjustments if necessary if the Court sees fit.” Mr Amos clarified that he sought an order on this appeal which replaced the Judge’s order, and embodied the arbitral award in its entirety. The possible ‘adjustments’ referred to in his Notice of Appeal would be (he argued) no more than alternative/updated undertakings, or minor corrections of that nature.

There are four Grounds of Appeal, as follows (I have adapted the wording a little):

On 20 November 2023, the mother set out in open correspondence an offer to resolve the appeal (and the Schedule 1 claim) on the basis that she would accept the gross sale proceeds of the Thames House apartment, including the existing mortgage, for the purposes of her housing fund (with no further top up payment from the father), with a reduction to that fund in the event that the family were to live in a less expensive area. This proposal was rejected; the parties discussed non-court dispute resolution albeit to no avail.

Mr Amos and Ms Singer launched a root and branch assault on the judgment; they pointed to only one of the Judge’s conclusions with which they agree, namely that by setting aside the arbitral award, “…this is the worst of all possible outcomes for both parties” (see §58 above).

They argued that the Judge was wrong to conclude that there was no power in the court to make a property adjustment or settlement order under Schedule 1 sub-paragraph 1(2)(d) by reference to an obligation on one or both parties to raise a mortgage. They cited a number of relevant authorities to support this contention, some of which I have discussed below.

They contended that the Judge was wrong to allow the father to resile from his ‘agreement’, freely given, that he would provide suitable accommodation for the mother and children in London; this ‘agreement’, they contend, had been recorded in HHJ Roberts’ judgment in the earlier section 8 proceedings (see §14 above) and in the ‘open’ documents prepared in advance of the arbitration (see §20(iii)/(iv) above).

They further maintained that the Judge was wrong to interfere with the Arbitrator’s findings of fact, which had been underpinned to some extent by a finding that the father had not been “full, frank and clear” in his disclosure. They observed that the Judge had failed to consider that the father had spent £230,000 in costs between the arbitration and the appeal, notwithstanding his protestations of relative poverty. It cannot be said, they suggested, that the minor adjustments which the Judge made to the figures which the father himself had proposed in the arbitration (see the table at §115 below), could justify an interference with the award in this quasi-appeal. They cited the judgment of Lewison LJ in FAGE UK Limited, FAGE Dairy Industry S.A. v Chobani UK Limited, Chobani, Inc. [2014] EWCA Civ 5, suggesting that the father had treated the arbitration as a ‘dress rehearsal’, whereas of course (per FAGE [114](ii)), that should really have been regarded as “… the first and last night of the show”. They suggested that the Judge had indulged in unwarranted ‘island hopping’ of the evidence whereas the arbitrator “will have regard to the whole of the sea of evidence presented to him” (FAGE at [114](iv)).

They further suggested that the Judge was approaching the property division as if it were a matrimonial case, seeking to achieve a ‘fair division’. In this regard they pointed to [15] of her judgment in which she had said:

They denounced the father’s habit of ‘drip-feeding’ new information to the Judge, not previously before the Arbitrator, much (they argued) as he had tried to do before me.

In answering Mr Glaser’s reliance on Phillips v Peace, they argued that Phillips v Peace does not address the point raised by Ground 1 of this appeal (i.e., that there is no jurisdiction to make a housing award under Schedule 1 which relies on mortgage borrowing beyond any amount conceded by the payer). That the mother had proposed the payment of a lump sum, followed by the settlement, was merely a practical, stepped, way of achieving a single outcome, it was not her attempt to achieve two different forms of relief.

They referred to the arbitral award as an ‘exemplary account’ of a financial remedy process, in which the Arbitrator had conscientiously balanced debt and income in a low capital case. By contrast, the Judge appeared to set herself the wrong test ([16] “I must be satisfied that the arbitral award is not wrong. The applicant must persuade me that it is”), and had undertaken nothing like the same level of care in the analysis of the figures.

Mr Amos argued that the Judge was wrong (at [12], [21], [27] and [32] of the judgment) to declare that a ‘settlement’ under Schedule 1 has to take place, as a matter of form, in a single transaction. In this submission he relied on the judgment of Francis J in A v V [2022] EWHC 3501 (Fam) at [56] and [57], wherein the Judge plainly contemplated a two-stage process to achieve a Schedule 1 settlement: namely, of funds being provided to the mother for the purchase of the property, and then separately the creation of the settlement of trust and the transfer of the property to the trustees.

I was taken to the standard template orders (May 2023 edition), which have been drafted (and signed off by the President of the Family Division) on the basis that mortgages may well be involved in the settlement of property: see for instance Order 2.2 ([58](h)(iii)):

Finally, Mr Amos argued that if it is not possible for paying parties, generally fathers, to raise funds by way of mortgage to achieve settlements of property, the Schedule 1 jurisdiction would be, or would become, ‘heavily discriminatory’ against payees (mothers) for whom suitable property may not otherwise be achievable.

For the father, Mr Glaser and Ms Gonella disputed the power in the court to include a mortgage requirement in any award under Schedule 1 paragraph 1(2)(d). Mr Glaser argued that the Arbitrator did not have the power to order a ‘joint mortgage’; he submitted that while Baron J (in DE v AB) may have contemplated that the mother may take out a mortgage to top up a capital payment by the father, this was not a precondition of the order.

Mr Glaser told me that it is the father’s view that the Thames House apartment and the father’s own home should now be sold. The parties should move (separately) into rental accommodation. Mr Glaser added that the mother could, should she wish to do so, move into her own investment property.

The father’s case was that he had only ever intended to “port” the existing mortgage on Thames House to any new property; he asserts (without evidence from his mortgagee) that this would not have involved any increased borrowing, nor any new mortgage deal. Mr Glaser pointed out that the father’s offer in the section 8 proceedings to ensure “that the housing fund is protected from any financial liabilities he holds” (9 September 2021: see again §14 above) was conditional upon the section 8 proceedings concluding without significant additional cost. They did not conclude until January 2022, with material additional cost.

Mr Glaser highlighted the ways in which the Arbitrator had obviously fallen into error. Included among these errors were: (a) having identified the tax liabilities, he failed to explain how they could be satisfied; (b) in predicting with optimism not realism the father’s likely income; and (c) failing to acknowledge the extent of the father’s indebtedness. He supported strongly the Judge’s conclusion that the arbitral award was or had become “unaffordable” for the father (judgment: [45]).

Mr Glaser relied again on Phillips v Peace, as the Judge had done, in attempting to demonstrate that the Arbitrator’s approach had offended against the prohibition against more than one payment under Schedule 1 sub-paragraph 1(2)(d).

Mr Glaser argued that before an arbitral award could be converted into an order, the court has to be satisfied that it is ‘fair’. In this regard, he pointed to the alleged change of circumstances of the father before the hearing in June 2023, and the yet further change of circumstances since that hearing. He submitted that the appeal is ‘pointless’, a ‘waste of time and money’ given the father’s changed situation, and the fact of the nil assessment by the CMS (see above and §80 below). He submitted that the arbitral award needs to be ‘consigned to history’ and the mother’s application for a Schedule 1 order now needs to be considered on its merits in the light of current information. He pointed to the Judge’s comment (in her e-mail of the 7 December 2023 which accompanied the sealed order of 6 October 2023) that the mother “simply does not accept the reality of [the father]’s [financial] position”. Mr Glaser used the phrase ‘busted flush’ to describe the father’s current situation – a formerly successful executional trader at a hedge fund who is now unemployed. In these circumstances, he argued that it is wholly unrealistic to seek to adhere to the arbitral award, and have it imposed at this stage, as Mr Amos proposes.

Mr Glaser emphasised that the nil assessment of the father by the Child Maintenance Service had denied the court the power to make any ‘top up’ award of maintenance to take account of mortgage repayments: see section 8(6) Child Support Act 1991. Therefore, in the absence of agreement as to child support, there was no mechanism for facilitating the mortgage payments by the parties, or either of them, or at all.

It is necessary for me now to turn to the substantive law. Paragraph 1 of Schedule 1 CA 1989 provides that on an application by a parent of a child (and other potential applicants, though not relevant here), the court “may make one or more of the orders mentioned in sub-paragraph (2)”.

Sub-paragraph 1(2) of Schedule 1 reads as follows:

Further provisions within Schedule 1 make clear that the periodical payments orders under sub-paragraph 1(2)(a) and (b) can be “varied or discharged by a subsequent order made on the application of any person by or to whom payments were required to be made” (Schedule 1 sub-paragraph 1(4)). While more than one order under Schedule 1 sub-paragraph 1(2)(a)-(c) is contemplated by the CA 1989, it is clear that a court “may not make more than one order under sub-paragraph (2)(d) or (e) against the same person in respect of the same child” (Schedule 1, sub-paragraph 1(5)).

Schedule 1, paragraph 4 sets out the matters to which the court must have regard when deciding whether to exercise its powers under paragraph 1, and if so in what manner, as follows:

There is no definition in the CA 1989 of the term ‘property’ nor of the term ‘settlement’; Schedule 1 paragraph 16 (the interpretation paragraph of Schedule 1) is, in both respects, silent.

Section 24 of the Matrimonial Causes Act 1973 (‘MCA 1973’) contains similar provisions to achieve the settlement of property by way of court order following divorce, nullity, or judicial separation:

Assistance in defining the term ‘property’ can be found in quasi-matrimonial legislation (not specifically in focus in this appeal), namely the Matrimonial Causes (Property and Maintenance) Act 1958 (‘MC(PM)A 1958’). As it happens, there are only very limited provisions of the MC(PM)A 1958 still in force, but by section 7, the Act extends the court’s powers under section 17 of the Married Women’s Property Act 1882. Section 8(1) (the definition section), also still in force, gives the term ‘property’ a wide definition in these circumstances as:

Long-established case law supports the broad interpretation of the term ‘property’ set out in the legislation to which I have just referred (§87), without apparently implying any restrictions from the words ‘whether in possession or reversion’ which sometimes follow it. For a historic perspective, I was taken to Jones v Skinner (1835) 5 LJ 87, in which Lord Langdale MR said that:

More recent discussion of this topic is to be found in the judgments of the Supreme Court in Prest v Petrodel Resources [2013] UKSC 34; [2013] AC 415. This was a matrimonial dispute decided under the MCA 1973; although the case on appeal focused on altogether different property issues from those arising here, the common theme between that appeal and this is what is meant by property ‘ownership’ for the purposes of making orders for financial relief. In his judgment at [37], Lord Sumption JC described the provisions of section 24 MCA 1973 as follows:

To illustrate further the breadth of judicial interpretation of the term ‘property’ in post-separation legislation, Mr Amos took me to the decision of the Court of Appeal in K v K (Minors: Property Transfer) [1992] 1 WLR 530; in this case, the court considered the transfer of a council tenancy under section 11B of the Guardianship of Minors Act 1971 (‘GoMA 1971’). Section 11B GoMA 1971 contained provision for the making of an order requiring either parent to transfer to the other parent for the benefit of the child, or to the child, “such property” as may be so specified, being “property” to which the first-mentioned parent is entitled, either in possession or reversion. Nourse LJ observed that section 11B(2)(d) is in broadly similar terms to the terms of section 24(1)(a) of the MCA 1973.  It was held that the joint tenancy of the formerly co-shared home is “property” for the purposes of section 11B(2)(d).

The power of the court to ‘settle’ property is, as I have referenced above, a common feature of Schedule 1 sub-paragraph 1(2)(d) CA 1989 and section 24(1)(b) MCA 1973. In its interpretation under the MCA 1973, a consistently broad meaning has been given by the courts to the term ‘settlement’. In this regard, reliance was placed by Mr Amos on Brooks v Brooks [1996] AC 375, in which the issue was whether a pension fund scheme could be regarded as a post-nuptial ‘settlement’. The judgment of Lord Nicholls contains this useful commentary at p.391:

I turn to the primary ground of appeal (see §61(i) above): namely, that the Judge was wrong to hold that there is no power in the court to settle property for the benefit of a child of unmarried parents pursuant to Schedule 1 which requires (in part) mortgage borrowing for its funding. It is surprising that this point has apparently never arisen for determination before now.

Borrowing capacity by way of mortgage is, in my judgment, plainly a ‘resource’ of one or both of the parties under Schedule 1 paragraph 4, just as it would be under section 25(2)(a) of the MCA 1973. In this regard, I regret that this experienced Judge misdirected herself when she said that “it did not seem right” to “order” a parent to borrow money “when whether or not anyone will lend money is not in that parent’s control” ([34]: see §52 above). In this regard she appeared wrongly to be contemplating that the financial ‘resources’ of the parties are only those to which the parties have a clear and inalienable right. This is not so. In the assessment of ‘resources’ for the purposes of Schedule 1 paragraph 4, the court is considering not just the existing resources of the party but also the likelihood of the party acquiring such resources (“the income, earning capacity, property and other financial resources which each person mentioned in sub-paragraph (4) has or is likely to have in the foreseeable future”). This is made clear from the judgments of the Court of Appeal in the matrimonial finance case of Whaley v Whaley [2012] 1 FLR 735, in which Lewison J (as he then was) at [113] said:

In this case, the Arbitrator was equipped with a detailed SJE report on mortgage borrowing, to which both parties had contributed their financial information, which was relevant to assist in the quantification of mortgage capacity. This expert opinion represented reliable evidence of the parties’ ‘likely’ resources.

As I have illustrated above, ‘property’ is broadly defined in both statute and caselaw. It can be mere ‘property rights’ (section 24 MCA 1973), or the interest in property to which a mortgage can attach (see the MC(PM)A 1958). It can include ‘proprietary rights’ both legal and equitable (Prest, at §89 above) and/or beneficial interests (ibid.). Beneficial entitlement to property extends beyond the equity and, most pertinently here, includes occupation of the whole. In this regard it is relevant to note the provisions of Family Law Act 1996, section 54 which specifically considers that the ‘estate or interest’ of the person entitled to occupy exists irrespective of the mortgagee’s rights. The expectation that the settlement is made “to the satisfaction of the court” introduces the court’s powers to give effect to its intention. It seems to me that the Judge’s interpretation of the statutory language wrongly required entitlement to the relevant property to be absolute and unencumbered; this does not in my judgment accord with the statutory wording, or the authorities which have considered similar provisions. Just as a settlement of property in the matrimonial context can be made even if it is mortgaged as per Mesher v Mesher (see §96 below), so can property in the Schedule 1 context in these circumstances.

I turn next to consider whether settlements of property under Schedule 1 CA 1989 can be made subject to mortgage. Settlements under Schedule 1 are a form of property adjustment order, and in relation to children of unmarried parents the court is exercising a similar power to the parallel property adjustment power in matrimonial proceedings (see section 24 of the MCA 1973 set out at §86 above). A good example of a settlement in the matrimonial jurisdiction is the Mesher order (Mesher v Mesher and Hall [1980] 1 All ER 126); under such an order, property (often the family home) is settled on trust for one party’s occupation with the children until the happening of a certain trigger event. It is clear from case law that Mesher orders may settle property subject to mortgages, and MCA 1973 property adjustment orders are generally drafted to be ‘subject’ to any mortgage borrowing.

Birch v Birch [2017] UKSC 53 is another example of a settlement of property under the matrimonial jurisdiction. The central issue on that appeal was whether a wife who wished to cease to be bound by her undertaking (in this case to use her best endeavours to secure the husband’s release from the mortgage on the former matrimonial home where she lived with the two children of the family) could apply for a release from it, or for discharge of it. It is clear from the opening paragraph of Lord Wilson’s judgment that the settlement of the property was properly and indisputably undertaken “subject to the mortgage”.

The Family Court has power, in a financial remedy dispute, also to release parties from a mortgage and/or to indemnify the other against liability. This was considered, and confirmed, in CH v WH [2017] EWHC 2379 (Fam). Mostyn J (in a judgment explicitly approved by the President of the Family Division: see para.[11])) drew specific attention to the fact that in any proceedings in the Family Court, the court may make any order which could be made by the High Court if the proceedings were in the High Court (per section 31E(1)(a) of the Matrimonial and Family Proceedings Act 1984). He authenticated (at [5] and [9] of his judgment) the view of the Financial Remedies Working Group that:

While acknowledging (CH v WH at [8]) that the court cannot make orders outside its powers, he continued:

Furthermore, he observed that the powers of the court are not “confined to the four corners of the Matrimonial Causes Act” ([9]), and continued:

Picking up Mostyn J’s remarks about the statutory powers of conveyancing counsel under section 30 of the MCA 1973 to settle a proper instrument to be executed by all necessary parties, it is to be noted that equivalent powers are available to the Family Court in a Schedule 1 case: see Schedule 1 sub-paragraph (13), which reads:

It is undeniable that there is no express power within Schedule 1(1) to order a sale of property (i.e., to assemble the sum to settle); nor is there express power to direct that a new property be purchased on trust. But that is overwhelmingly the way in which Schedule 1 housing provision is interpreted and routinely carried into effect – that is to say, a sum of money is paid over from one party to the other (usually in one tranche) to purchase a property on trust terms; after the property is purchased – at the point when the payer is then “entitled” to the property “in possession or reversion” – it is settled on Schedule 1 terms. The statutory power (Schedule 1 sub-paragraph 1(2)(d)) is phrased as “requiring a settlement to be made…to the satisfaction of the court”; the statute addresses what is to happen going forward. This supports the practice, illustrated by MT v OT [2019] 1 FLR 93 (to which the Arbitrator referred in his award at [24e]), for a settlement to include provision for a replacement (substitute) property to be acquired for the benefit of the child without offending against the one-settlement only/Phillips v Peace limitation (see Cohen J at [18-19]: “The replacement of one property by another does not amount to a new settlement of property. It is simply the substitution of one property for another”). In this case, the Judge appeared to accept (at [32] of her judgment) that the ‘settlement’ could provide for a future replacement property (as originally agreed between these parties and accepted also by the Arbitrator); the acquisition of a future property would on these facts very possibly (indeed probably) involve new mortgage borrowing rather than the ‘continuing’ mortgage borrowing. The Judge seemed to reject the former, but accept the latter. Furthermore, it should be borne in mind that while ‘porting’ (suggested by Mr Glaser in this case as a straightforward solution: see §76 above) is a flexible feature of some mortgages, there are no guarantees that a lender will permit it; almost always the mortgagor has to reapply for the same or a similar mortgage deal creating a new contract.

As the authors of Rayden & Jackson (Relationship Breakdown Finances and Children: current edition) at [17.65] make clear, the mechanism of a trust is merely “a device” for the performance of the court's objective under Schedule 1 CA 1989. Referencing the pedantic ingenuity which characterised the litigation in G v A (financial remedy: enforcement) (No 1) [2011] EWHC 2380 (Fam), [2012] 1 FLR 389 (and its three sequels), the authors go on at [17.65]:

In some Schedule 1 CA 1989 cases, the paying parent has extraordinary wealth, and outright settlements of unencumbered property are perfectly achievable; two recent examples of such cases are Re Z (No.4) [2023] EWFC 25 and Y v Z [2024] EWFC 4. However, a great many more cases come before the court under Schedule 1, like this one, where the financial resources of the parties are more limited. Parties of young children are likely to need to borrow funds by way of mortgage in order to help them to acquire and/or settle domestic property. In those cases, it is likely in my judgment that either or both parties will be expected to use their own funds and/or use their mortgage capacity/ies in supplementing the housing fund. Albeit now more than a decade old, a good illustration of this is found in DE v AB [2011] EWHC 3792 (Fam), [2012] 2 FLR 1396, a Schedule 1 case to which I have already referred. The parties in that case had been in a short relationship producing one child; Baron J made an order based on the father providing £250,000 towards a housing fund, with the mother being expected to raise the same amount by way of mortgage:

In my judgment, the Judge in the instant case wrongly limited her evaluation to the ‘four corners’ of Schedule 1, and ignored the essential purpose of Schedule 1, and the ancillary steps which can be taken to give effect to an order made under its provisions. As Mr Amos argued, and I agree, in proceedings of this kind a parent can be compelled into a joint property purchase, into an insurance contract and to discharge or indemnify for debt for which they are not contractually responsible. These are essential ancillary powers for carrying property adjustment into effect, though none are expressly set out within the statute.

Thus, for the reasons set out above, I am of the view that the Judge was wrong in her interpretation of Schedule 1 sub-paragraph 1(2)(d) CA 1989 and its application to the facts of this case. Given that this was what she herself described as the ‘central plank’ on which her decision was based, I am left with no alternative but to allow the appeal.

Importantly, I must add that while the Judge was, in my judgment, wrong in her approach to Schedule 1 sub-paragraph 1(2)(d) CA 1989 as a matter of jurisdiction, I consider that the arbitral award in relation to the settlement of property for the mother and children looked, by June 2023 (on the father’s asserted change of income position), ambitious, and perhaps the more so now. I wish to make clear that I am not saying that the Arbitrator was wrong on the facts as they were presented to him, but I consider that his objective took the parties close to the limits of their likely resources. The Arbitrator himself recognised that he was juggling debt and borrowing (see §26 above); such cases are undoubtedly the hardest financial remedy cases. But the extent of the proposed borrowing under the arbitral award was to be colossal by many standards, and would have required an extremely high level of financial servicing, which on the evidence before the Judge in June 2023 looked somewhat more uncertain.

I turn to the further grounds of appeal, which I can address more briefly.

The second ground of appeal (§61(ii) above) is that the Judge was wrong to ignore the fact that the father had expressly confirmed that he would be financially responsible for housing the children while they are in the care of the mother, partly through mortgage borrowing by him. On this point, the Judge had said:

While the father had indeed offered, albeit in a qualified way in some contexts, to fund borrowing by way of mortgage to settle property for the mother and children, this ‘agreement’ (if ever there was one) was never confirmed by way of court order or undertaking (Footnote: ¹¹) and the Judge was powerless, as she confirms, to hold him to such a deal.

While I accept that courts should, and indeed will, give significant weight to agreements reached between autonomous adults in financial remedy disputes even if the agreement is one which may not, when seen through a different lens, seem entirely fair (see Granatino v Radmacher [2010] 1 AC 534 at [75]), the father had never signed on the dotted line in relation to his proposal. I was unpersuaded by Mr Amos that the mother had acted to her detriment in withdrawing her relocation application on the assurance of secure housing financed by the father in London; it seems more likely that she was discouraged from pursuing that application once she had seen the very strongly worded reports from the independent experts opposing the children’s move from London. The father’s earlier agreement to fund mortgaged property for the mother and children could be considered as one of the general “circumstances” of the case, and possibly as a reflection of the father’s greater confidence in his likely available resources (Schedule 1 paragraph 4(1)), but in no more specific way than that. Overall, I was unpersuaded by this ground of appeal.

By her third ground of appeal (§61(iii) above), the mother contends that the Judge was wrong to substitute her own conclusions of fact on the affordability for the father of the Arbitrator’s award, given the range of factual findings which the Arbitrator had made after hearing oral evidence from both parties. While my comments on the third ground of appeal make no impact on the overall result, I must record my grave misgivings about the Judge’s substitution of her own findings of fact on the affordability for the father of the Arbitrator’s award for the factual findings which the Arbitrator had made after hearing oral evidence of the parties.

In this regard, any judge considering a challenge to an arbitral award must remember that “arbitrators are the masters of the facts” (Geogas S.A v Trammo Gas Ltd. [1993] 1 Lloyds Rep 215).  An appellate court should be correspondingly slow to interfere with the findings, particularly if the judge applies the guidance set out by Lewison LJ in Volpi & Delta v Volpi [2022] EWCA Civ 464 at [2]. For present purposes I draw attention to what he said at [2](ii)/(v):

The Judge identified little, if any, fault with the Arbitrator’s computation of resources or other findings. She did not, for example, tabulate her assessment of affordability compared with the Arbitrator’s. There is, therefore, no clear and obvious basis for the Judge to have substituted her finding of ‘unaffordability’ for the Arbitrator’s own finding of ‘affordability’. That the Arbitrator had formed the view that the father would be able to afford a larger mortgage was likely to have been informed by the SJE report, augmented by his finding that in some respects the father’s evidence had been “unclear” (reference his tax liabilities), that the father had not been “full, frank and clear” in relation to the family company, and had taken an “unreasonable” stance in relation to the payment of child maintenance. It was not, in my judgment, open to the Judge to reach contrary findings of fact following her quasi-appellate review. She had not heard any evidence.

As it happens, the Arbitrator’s award was not significantly different from the father’s open proposal; this strongly suggests that the Arbitrator’s award was not materially ‘wrong’. I reproduce the table usefully set out in Mr Amos’ submissions:

Finally, and by her fourth ground (§61(iv) above), the mother complains that the Judge was wrong to conclude that a foreseeable ‘change of circumstances’ is a ground for overturning a property adjustment order. She was further wrong to find that there had in fact been a qualifying change of circumstances.

The father raised two relevant ‘changes of circumstances’ in his statement for the hearing before the Judge, namely (a) the proposed reduction in his income and (b) post-arbitration mortgage interest rate rises. It is clear from authority (including Birch v Birch, citation above, at [11] and [15]) that a “significant” change in circumstances needs to be demonstrated before a party can be released from an undertaking or agreement, or an order varied or discharged. In Tibbles v SIG Plc (Trading as Asphaltic Roofing Supplies) [2012] EWCA Civ 518 it was suggested that the change of circumstances needs to be “material”; at [39(vii)] in Tibbles, Rix LJ added:

At the time of the hearing before the Judge in June 2023 the father’s asserted change in income position was not a fact, it was a prediction. It was a possibility to which the Arbitrator was himself alive :

There are many benefits of arbitration in the resolution of post-separation financial and child welfare disputes; speed of decision, reduced conflict, and lower cost are among them. Moreover, the parties to the dispute are able to exercise choice in the identity of the decision-maker. Arbitration is a procedure designed to provide certainty. These potential benefits of arbitration have been entirely forfeited in this case by what has turned out to be intense, combative, legally complex and protracted post-arbitration litigation before the courts.

As I have indicated above, this experienced Judge erred, I find, in her application of Schedule 1 sub-paragraph 1(2)(d) on the facts of this case. Mr Amos makes good his case that to treat the provisions of Schedule 1 sub-paragraph 1(2)(d) CA 1989 materially differently from the provisions of section 24 MCA 1973 (where for example a Mesher order would be available to achieve a settlement) and where fresh borrowing to achieve property adjustment is not unconventional, is not only wrong but is also potentially discriminatory against the children of unmarried parents. It will be remembered (§54 above) that the Judge had taken the view that the property settlement based on obtaining a mortgage was the “central plank” of the arbitral award, and that once it had fallen away (i.e., namely the facility for the parties to raise money from a mortgagee to achieve a settlement of property) “the whole award must fail”.

It is possible that the Judge had misunderstood the mother’s argument in relation to how the funds were to be raised for the property to be settled on trust (see [6]/[26] at §51 above); the mother’s case is that it was not necessary for there to be two settlements (which she rightly identified would be prohibited by statute) to achieve this. The Judge did not appear to have the benefit of focused legal argument on the construction of the statute, but, for the reasons which I have discussed at §85 – 91 above, and contrary to the view expressed by the Judge, I am satisfied that the terms ‘property’ and ‘settlement’ are sufficiently widely defined as to include the sort of arrangement contemplated here.

Drawing the threads together of the points discussed above:

As I have indicated above, the Judge granted the father’s application (i.e., his challenge to the arbitral award) on the basis of his Ground 1 challenge alone; accordingly, she provided only abbreviated discussion and analysis of Grounds 2-12, and of the alleged change of the father’s circumstances. She limited herself in this way quite deliberately and explicitly, and in so doing, she did not address in any particular detail the arguments of the mother on those points. Notable among the mother’s arguments, which remained largely unaddressed, were (a) that information produced in the hearing before the Judge demonstrated that the father’s financial circumstances were in some respects rather better than the Arbitrator had understood; and (b) that the Arbitrator had made adverse findings (in the costs judgment) about the father’s litigation conduct and specifically his less than frank disclosure. In the latter respect, it appears from the extract of the transcript which I have seen that during the hearing in June 2023 the Judge raised with Mr Glaser a significant question mark about at least one other alleged “deception” by the father of the Arbitrator, though no finding or conclusion was reached about this; it did not find its way into the judgment, and I have therefore ignored it.

It is difficult to discern from the Judge’s judgment whether she had gone as far as holding that some or all of the Arbitrator’s findings were “rationally insupportable” (per Volpi above); indeed, in some respects she appears to have relied on the Arbitrator’s findings, and in other respects wrongly relied on evidence which the mother had not had the chance materially to challenge (i.e., the CFO evidence). The Judge referenced the eye-watering sums which the father had spent on the costs of litigation, but failed to consider this expenditure in the context of the father’s claims of relative penury. It is not clear that the Judge had addressed herself adequately to the need to find (particularly in the context of mortgage interest rate rises) that any alleged change of circumstances needed to be ‘something out of the ordinary’ (Tibbles: see §117 above).

The Judge’s approach on these supplementary points (discussed in §123-124 above) would not in itself have been objectionable but for the fact that she went on explicitly to hold that the father succeeded in his challenge to the arbitral award on every one of them (i.e., Grounds 2-12, and separately on his alleged change of circumstances). This approach was in my judgment, and for the reasons outlined above, unsound.

For the reasons set out above, I allow the appeal.

I am however unable to accede to the submission of Mr Amos (see §60 above) that I should simply substitute the Arbitrator’s award in place of the Judge’s order (per rule 30.11(1) FPR 2010); I am equally unpersuaded (per his most recent submission: 5 April 2024) that it would be right to substitute the Arbitrator’s award and then ‘suspend’ the order for a limited period pending any variation application by either party. Nearly two years have passed since the arbitration; I have already found that the arbitral award looked ‘ambitious’ in its terms (§107) by the time of the hearing before the Judge in June 2023. From the information available to me now, it appears that the father’s financial situation may well have significantly and materially further deteriorated in the last nine months. I make clear that I have not been able to make any determination of the alleged change in the father’s circumstances, nor its alleged impact on the arbitral award; however, I note his recent statement which includes the following passages:

In my judgment the appropriate course is therefore for me to remit the parties’ cross-applications (i.e., those referenced at §32 and §36 above) for re-hearing.

Having liaised with Peel J (the National Lead for the Financial Remedies Court) and HHJ Hess (the lead judge at the London Financial Remedies Court) I propose to determine the substantive cross-applications myself, sitting as a judge of the Family Court; I will list the applications for an urgent case management hearing once the parties have considered this judgment, and had the chance to discuss the directions they seek.

In the meantime, Mr Amos further proposes that I should settle Thames House on the mother “on Schedule 1 terms” at least to protect her position there. I am not prepared, on the information available to me at this stage, to make this or any substantive order.

I can only express my despair, which I suspect is shared by all those in this case, that the remittance of the cross-applications for re-hearing will inevitably lead to further cost and delay in the resolution of these already long-drawn-out proceedings. Within the time now available to the parties, and before any further step is taken, they may like once again to consider non-court dispute resolution (Footnote: ¹³) in a final effort to resolve this painful and destructive dispute.

Appendix 1: Litigation Chronology