29 September 2015

Divorce settlements: private adjudication a better way to settle financial issues

Sharon A Ser
Partner | Hong Kong

Matrimonial law specialists have long been aware that when divorcing couples decide to take their disputes to court, such litigation can take an extraordinary toll on personal finances and well-being. The Financial Dispute Resolution (FDR) and Children's Dispute Resolution (CDR) procedures were introduced in 2003 and 2013 to offer a form of judiciary-facilitated mediation in court as part of the process.

These reforms have been enormously helpful. Yet, cost management and the willingness to settle continue to be a problem with highly conflicted couples. In a recent case before the District Court, the judge lamented that 60 per cent of the net family assets had been spent in legal costs. Over the past 20 years, people in Hong Kong have taken to engaging a retired judge or senior lawyer to conduct a private FDR. This has proved very successful. The nature of mediation is that the parties themselves must try to reach settlement – usually through a series of compromises. Unlike litigation, no decision is imposed upon them by a judge.

It doesn't work for everyone, as neither approach produces a binding decision without a judge's approval. But since January this year, there is a further alternative available to couples to resolve financial issues in matrimonial and family disputes: private adjudication.

This means divorcing couples can, by agreement, choose their judge (many retired judges are willing to take on this role) and can then establish their own timetable for resolving issues.

Private adjudication is only available for financial matters, not those involving child custody or the divorce itself. Yet, many things fall into place when financial issues are resolved.

What makes private adjudication special is that the parties agree to be bound by the decision of the private adjudicator. But it is very early days for this new procedure in Hong Kong. Anecdotally, there have been very few takers so far.

There seems be some nervousness about the idea, so it may be helpful to look at the arbitration scheme in England and Wales to see how it has flourished and how we in Hong Kong may perhaps follow suit.

In England and Wales, the arbitration scheme was launched in 2012 and has gone from strength to strength. The parties enter into an agreement under which they appoint a suitable person to adjudicate their dispute and produce a binding agreement. Arbitrators there tend to be retired judges, barristers or senior family law practitioners.

There are many advantages of arbitration:

  • The hearing is private – this is increasingly important in England, where the courts are moving towards greater transparency, and in Hong Kong, where high-profile divorces are covered in the media in minute detail.
  • The matter can be dealt with within the parties' own time frame and is not dictated by busy court schedules.
  • Many cases can be dealt with on paper, through email and conference calls, which may reduce costs.
  • The arbitrator has wide powers to make decisions about case management or on substantive issues.

In Hong Kong, private financial adjudication would still involve essential procedural steps such as the exchange of financial disclosure. The court retains discretion as to whether, and under what terms, to make the order embodying the decision, but it is specifically stated that the parties' agreement, “properly and fairly arrived at with competent legal advice, will be respected unless there are good and substantial reasons for concluding that an injustice would be done by holding the parties to it”.

Nothing comes cheap with any legal argument, and there will be joint liability for the adjudicator's fees. But with private adjudication, it's clear that there could be significant savings for the client as well as a shorter, more contained process. Lawyers are likely to be assisting clients and the adjudicator so there will, in the early days at least, be some of the formality of court, but the aim of the adjudication is to facilitate settlement.

The article was originally published in South China Morning Post on 29 September 2015.

Sharon A Ser Partner | Hong Kong

Category: Article