This article was first published in Arbitration 2013, 79(4), 367-372 and was authored by Dr Jotham Scerri Diacono and Timothy A. Bartolo.

 

1. Introduction

When in 1996 Malta took the step of revamping its arbitration law, it did this because Parliament recognised the advantages that arbitration presented as an alternative means to dispute resolution. At the time, amongst the advantages highlighted in the parliamentary debates were the element of privacy in the context of disputes, reasonable time frames for the resolution of disputes, reasonable litigation costs and the freedom of individuals to set their own rules of procedure and to nominate their own adjudicator. Moreover, it was also hoped that the new arbitration law would serve to make Malta a centre for commercial arbitration, domestic and international, to be reckoned with. Additionally, it was also hoped that the overhaul of Maltese arbitration law and the resultant birth of an active arbitration culture would ease the increasingly heavy burden of case law from the shoulders of our courts. All the advantages and benefits of arbitration were universally acclaimed and there was, in these islands, universal consensus. The new Arbitration Act(1) was applauded.

In 2004 the Arbitration Act came up for amendment. In an attempt to lessen the caseload burdening the courts, the idea of mandatory arbitration was introduced for certain defined categories of disputes. This was, in our view, a somewhat unfortunate development in Maltese arbitration law.

Although an easing of the courts’ workload is indeed a welcome advantage that is brought about as arbitration becomes part of the legal fabric, it surely should not serve as the sole reason that drives the culture change. In other words, arbitration does not exist simply because it is a means to decrease the courts’ workload and, for precisely this reason, it should not be pushed down the throats of litigants in order to achieve that aim. Arbitration must by its very nature remain the outcome of the litigants’ free choice, the easing of the workload of the courts of justice being only an indirect, if not unintended, bonus that naturally follows from a healthy arbitration culture.

Mandatory arbitration cannot but be a contradiction, a misfit that can only land the legislator in trouble. And indeed, it has. Litigants have doubted the constitutionality of mandatory arbitration and this has, over the last few years, led to copious litigation. In 2011 the Constitutional Court in Malta pronounced mandatory arbitration as anti-constitutional(2); we all thought that this decision laid the matter to rest. We were, however, very wrong. The question of the constitutionality of mandatory arbitration has, indeed, come back to haunt us.

Over the years a number of lawsuits have challenged the constitutional validity of mandatory arbitration. The experience has not been at all pleasant since the ensuing judgments have not presented a steady stream of useful lessons on the matter and there has been no evolution of teleological jurisprudence which tends towards certainty. Instead the Maltese courts have, as discussed in a previous contribution to this journal,(3) indulged in*Arbitration 368 somewhat contradictory conclusions, with the Constitutional Court itself giving two divergent judgments on the constitutionality of mandatory arbitration.(4) We shall, in this paper, review the most recent constitutional judgment.

The judgment was delivered in Untours Insurance Agency Ltd v Micallef (5) and is diametrically contrary to the preceding decision of the same court—albeit the court president in that case was different.(6) The Constitutional Court in Untours held that the institution of mandatory arbitration is not at odds with the Constitution art.39(2),(7) nor with the European Convention on Human Rights (ECHR) art.6(1),(8) both safeguarding the fundamental right to a fair hearing—and all that goes with it.

2. The Untours Case

Untours related to an appeal before the Constitutional Court instituted by the Attorney General of the Republic of Malta from a judgment given by the First Hall of the Civil Court sitting in its constitutional capacity. The First Hall, influenced by the findings of the Constitutional Court in H. Vassallo & Sons Ltd v Attorney General, had found that mandatory arbitration(9) was in breach of the plaintiff’s fundamental rights as found in the Constitution of Malta art.39(2) and the ECHR art.6(1).

The facts of Untours related to the recovery of damages suffered by the plaintiff as a result of a motor vehicle accident. Since motor traffic cases of this nature were subject to mandatory arbitration, the plaintiff, Untours Insurance Agency Ltd, commenced proceedings against Messrs Victor Micallef, Saviour Micallef, Anthony Theuma and Kevin Bartolo, the defendants, in arbitration. On May 28, 2009, the arbitrator found each of the co-defendants liable for their respective share of the damage suffered by the plaintiff.

Following the finding of the arbitrator, however, the defendants appealed to the Court of Appeal on the basis that, while the arbitration was being heard, the First Hall of the Civil Court sitting in its Constitutional Jurisdiction, had, in a separate case, delivered a judgment(10) that held that mandatory arbitration was unconstitutional and in breach of the fundamental right to a fair hearing.(11) This led the Court of Appeal to refer the question as to the constitutionality of mandatory arbitration to the First Hall of the Civil Court sitting in its Constitutional Jurisdiction.

The First Hall held that when the relevant legal provisions prescribing mandatory arbitrations were seen in light of the circumstances of this case there was indeed a violation of the Constitution art.39(2) and of the ECHR art.6(1).(12)

The First Hall took this position on the basis of three of its previous judgments, all of which had held that mandatory arbitration is in violation of one’s fundamental right to a fair trial.(13) In essence, the position taken by the First Hall absorbed that of previous courts,*Arbitration 369 all of which concluded that the manner in which the arbitration process was regulated and mandatory arbitration imposed constituted a violation of one’s human right to a fair trial. The courts came to this conclusion after considering a number of factors, including that the legal status quo made it possible for the chairman of the Arbitration Centre, himself a political appointee, to wield his administrative discretion in such a way as to cast doubts on the security of tenure of arbitrators. The First Hall, building on the previous case law, held that arbitration proceedings must enjoy the full confidence of the parties and must enjoy objective independence and impartiality as well as giving the appearance of the same; something which was not possible within the current legislative framework.

This judgment was, however, in turn appealed by the Attorney General(14) and the issue once again, therefore, landed before the Constitutional Court.

3. The Decision of the Constitutional Court in Untours

The need for consistency in the judgments of the Constitutional Court

In delivering judgment on the matter, the Constitutional Court began by recognising, sensibly in our view, that it is not desirable to have conflicting judgments delivered by the Constitutional Court, particularly when the judgments are delivered within a short time period and when any divergence could result from the views of whichever of the members of the judiciary happened to be presiding over the Constitutional Court at the time.(15)

The court continued by setting the framework in which the remainder of its judgment would be read, observing that in considering how to interpret the letter of the laws safeguarding our most fundamental rights, such rights should not be trivialised by granting them interpretations which are objectively detached from their context. Setting the tone for the thrust of the considerations which were to follow, the court stressed that the laws protecting fundamental rights are there to protect legitimate and genuine interests and not to serve as a remedy of last resort for parties losing their case.

With these premises made, the court held that in light of the various judgments which were being handed down declaring mandatory arbitration to be in breach of the right to a fair trial, and in light of the divergent position taken by the self-same court with a different president, it felt duty bound to examine the matter and settle it once and for all.

The plea that the First Court failed to consider the particular circumstances of the case

The Constitutional Court thus went on to consider the Attorney General’s appeal in virtue of which the latter argued that the First Hall had not given sufficient attention to the specific circumstances and merits of the case and had merely satisfied itself with considering previous judgments on the matter. The Constitutional Court agreed, in part, with this reasoning, going on to state that the First Hall had not attached enough importance to the fact that the defendants had tacitly acquiesced to the arbitration procedures by actively being involved in them without objection, defending their case on the merits and only objecting once they got wind of the judgment in Joseph Muscat v Prime Minister.(16) The court also held that the fact that the arbitrator who heard the case in question was nominated by the Malta Arbitration Centre and that the defendants did not object to the choice of arbitrator—going on to defend the case on the merits—was also in itself strong proof of their acquiescence to the proceedings.*Arbitration 370

The plea that the First Court failed to make an adequate assessment

The court then went on to consider the second plea submitted by the Attorney General: that the First Hall had not made an adequate assessment of the requirements necessary for the safeguarding of the right to a fair hearing in the context of arbitration proceedings.

In beginning to consider this plea, the Constitutional Court gave due attention to a point of contention which had featured prominently in some of the conflicting judgments herein referred to, i.e. the examination of the arbitrator’s independence and impartiality within the context of mandatory arbitration. This, it must be said, has been one of the major arguments put forward over the years by those of the view that the current legislative framework prescribing mandatory arbitration is in violation of the fundamental right to a fair hearing. They have long argued that it is precisely because the arbitrator does not enjoy complete independence that he is vulnerable to undue influence. With very limited grounds for appeal, they argue, the status quo endangers the fundamental right to a fair hearing.

The court’s considerations on the independence and impartiality of the chairman of the Arbitration Centre and on the independence and impartiality of arbitrators

In beginning its observations on the matter, the Constitutional Court pointed out that, as held in previous constitutional judgments, persons holding quasi-judicial offices had to benefit from security of tenure and be free of any fear or favour. This basic safeguard was therefore one of the primary elements that had to be proved to exist within the corpus of Malta’s arbitration legislation for mandatory arbitration to be found to be constitutional.

The court held, however, that in the particular case at hand it could not be said that the arbitrator chosen to preside over the case was partial or biased. The court arrived at this conclusion on the ratio that the appointment of the arbitrator was not made by a person having a direct financial interest in the outcome of the arbitration proceedings. The court observed that the categories of cases for which mandatory arbitration applied, in this case motor traffic disputes, were not ones where one would normally expect the person appointing the arbitrators, i.e. the chairman of the Arbitration Centre, to have a direct financial interest. Consequently there was no reason to believe that the arbitrators appointed, when not chosen by mutual agreement of the parties, were partial or biased.

The court also went on to argue that the rights of individuals can be protected in various ways and that diversity in the manner of protection did not in any way prejudice that same protection. It continued by holding that suspicions of the arbitrator’s partiality and bias were often exaggerated and completely at odds with objective reality. The court stated that the appearance of independence had to be evaluated according to the bona fide perceptions of the ordinary reasonable man and not according to the perspective of those harbouring exaggerated suspicions.

These observations having been made, the court went on to examine the laws prescribing the manner of appointment of the arbitrator to a dispute and of the chairman of the Arbitration Centre.(17) The latter was of particular importance, according to the court, in light of the fact that it is the chairman who appoints arbitrators whenever parties fail to mutually agree on an arbitrator.

After examining the relevant legislation, the court found that there were sufficient laws to ensure the independence and impartiality of the chairman of the Arbitration Centre. It arrived at this conclusion after observing that the chairman had to be appointed by the President of the Republic of Malta, acting on the advice of the Prime Minister, and must have practised as an advocate in Malta for at least 12 years. Furthermore, the appointment was for a term of six years during which time the chairman could only be removed from*Arbitration 371 office via a recommendation made by the Commission for the Administration of Justice and on the basis that the chairman was no longer suited to or capable of carrying out his functions. The court noted that the law also prescribed that the chairman had to exercise his functions in a manner which was completely independent of any person or authority. This led the court to conclude that the chairman of the Arbitration Centre was both subjectively and objectively independent and impartial and, importantly, also had the appearance of being so.

The Constitutional Court then went on to examine the manner of appointment of the individual arbitrator to a case. It observed that in the absence of mutual agreement between the parties, the arbitrator was chosen by the chairman of the Arbitration Centre. The court stated that the arbitrator is chosen from a group of arbitrators specially designated as having the necessary expertise for dealing with the particular matters in relation to which they will be acting as arbitrator. This, according to the court, had to be seen in a context where the chairman, when choosing a specific individual to act as arbitrator in relation to a particular matter, was legally obliged to consider each and every factor which was likely to ensure the appointment of an independent and impartial arbitrator. In the opinion of the court, these provisions were sufficient to ensure that arbitrators were not appointed arbitrarily but objectively and within pre-set parameters.

In support of this finding, the court also emphasised that the law even provided for the possibility that the parties might object to the appointment of a particular arbitrator.

Similarly, the Constitutional Court found that the mere fact that arbitrators were subject to the administrative direction of the chairman of the Arbitration Centre did not mean that they were subject to his influence in matters relating to the merits of the cases before them. According to the court, therefore, any power which the chairman exercised over the arbitrators was merely one of an administrative nature and was simply meant to enable efficient management of the entire arbitration process. In the court’s view, such administrative powers were not sufficient to threaten the impartiality and independence of the arbitrator.

On this point the court also remarked, perhaps somewhat boldly, that one could not operate under the assumption that the Arbitration Centre would act in bad faith and use its discretionary administrative powers for purposes which would diminish the independence and impartiality of its operation. The Constitutional Court further observed that arbitrators were adequately safeguarded against any abuse of administrative discretion, with remedies including the judicial review of any decision to disqualify a specific arbitrator from his or her functions.

Furthermore, the court dispelled any argument that an arbitrator’s impartiality could be threatened by the fear of not being appointed in subsequent cases if he or she decided a particular matter one way or the other. According to the court, given that the chairman of the Arbitration Centre is in no way interested in the outcome of arbitration cases, the decision arrived at by an arbitrator has no bearing on whether he or she is appointed again or not.

This being said, the Constitutional Court felt that there were sufficient safeguards to guarantee the independence and impartiality of arbitrators in arbitration proceedings. In its conclusions the court held that when one considered the benefits offered by arbitration in light of the duty of the state to provide reasonable and timely access to justice, when one considered all the safeguards which guaranteed the impartiality and independence of the arbitration process, when one considered the category of cases which were subject to mandatory arbitration and then weighed all this against the unrealistic and exaggerated fears of persons trying to cast doubt on the impartiality and independence of the entire process, the court could not but hold that there was no breach of the fundamental right to a fair hearing.

The court held that the principle of proportionality requires one to balance the genuine legitimate benefit granted by mandatory arbitration on the one hand against the hypothetical and exaggerated fears of the persons impeaching its constitutionality on the other.*Arbitration 372 Furthermore, one has to then place this balancing exercise in the context of the category of cases which attract obligatory arbitration. With this in mind, it was the view of the court, in this judgment, that mandatory arbitration presents no actual, real or realistic threat to the right to a fair hearing.

Conclusion of the court

The Constitutional Court, therefore, upheld the Attorney General’s appeal, stating that the procedures for mandatory arbitration(18) were not in breach of the Constitution of Malta art.39(2) or the ECHR art.6(1). The Constitutional Court therefore ordered that the case be sent back to the Court of Appeal for the latter court to hear and decide the case on the merits.

4. Authors’ Observations

Whether it is constitutional to allow the chairman of the Arbitration Centre to appoint an arbitrator to a dispute in the absence of the mutual agreement of the parties is a question which can be debated long and hard. In fact, both schools of thought may contribute valid points in relation to what could be considered a somewhat academic question.

We tend to agree with the last decision of the Constitutional Court in Untours. In this latest case the court concluded that when one considered the matter in an objective and realistic manner, one could not claim that the mechanism goes so far as to be in breach of the Constitution or the European Convention. We still, however, retain our quarrel with the previous political decision taken to mandate arbitration in given categories of dispute as a means to lessen the courts’ workload. Irrespective of the good intentions behind this decision, it is, in our view, a case of the wrong tool being used to find a remedy for Malta’s chronic problem of court delays.

Mandating arbitration is nothing more than attempting to fit a square peg into a round hole given that arbitration was never intended to function compulsorily. Arbitration was conceived as an alternative to the court system, liberally chosen by the litigants when the idiosyncrasies of arbitration suit them and their dispute better. Removing the ability of the parties to choose to opt in to arbitration proceedings, and replacing such capacity for free choice with a legal obligation, goes against the very raison d’être of the entire concept of arbitration. Forcing arbitration on to litigants denatures the institution of arbitration: the obligatory element of mandatory arbitration transmutes arbitration into something more akin to a “quasi-court”, forgoing the reason why arbitration came into being in the first place: as an alternative to the court.

It is the opinion of the authors that, because arbitration was not conceived to be used in compulsory settings, it will, as time has already shown, continue to raise doubts. These doubts are symptomatic of the fact that arbitration, when enforced, is not well suited as a means of dispute resolution. It is our view that the Government would be better advised to address the problem of court delays at source, rather than attempt to solve it by forcibly diverting cases to be dealt with by institutions that were never intended for that purpose.

5. Conclusion

Friedrich Nietzsche once said that one who fights monsters should see to it that in the process one does not also become a monster. Arbitration was introduced into Malta in the hope that it would help fight the monster which threatened the individual’s access to timely justice, namely, an increasing backlog of cases before our courts. The arbitration experience so far, however, has meant that we now have a new monster on our hands—one which threatens justice itself.

 

1. Arbitration Act Ch.387 of the Laws of Malta.

2. H. Vassallo & Sons Ltd v Attorney General Water Services Corp and Enemalta Corp September 30, 2011 Constitutional Court (App. No.31/2008/1).

3. J.S. Diacono, “Malta and the Anti-Constitutionality of Mandatory Arbitration: The Saga Continues” (2012) 78(3) Arbitration 226.

4. See Joseph Muscat v Prime Minister Minister of Justice and Attorney General September 6, 2010 Constitutional Court (App. No.41/2008/1) and H. Vassallo & Sons Ltd September 30, 2011 Constitutional Court (App. No.31/2008/1).

5. Untours Insurance Agency Ltd and Emanuel Gauci v Victor Micallef, Saviour Micallef, Anthony Theuma and Kevin Bartolo January 25, 2013 Constitutional Court (App. No.81/2011/1).

6. H. Vassallo & Sons Ltd September 30, 2011 Constitutional Court (App. No.31/2008/1).

7. Constitution of Malta.

8. European Convention for the Protection of Human Rights and Fundamental Freedoms 1950 (European Convention on Human Rights).

9. Under the Arbitration Act art.15(11) and under the regulations in Legal Notice 279 of 2005, amending the Fourth Schedule to the Act.

10. In Joseph Muscat v Prime Minister Minister of Justice and Attorney General May 29, 2009 First Hall Civil Court (Constitutional Jurisdiction) (Ref. No.41/2008).

11. Which judgment was subsequently overturned before the Constitutional Court in Joseph Muscat September 6, 2010 Constitutional Court (App. No.41/2008/1).

12. Untours Insurance Agency Ltd and Emanuel Gauci v Victor Micallef Saviour Micallef Anthony Theuma and Kevin Bartolo May 25, 2012 First Hall Civil Court (Constitutional Jurisdiction) (Ref. No.81/2011).

13. Anthony Grech v Claire Calleja and Attorney General October 19, 2007 First Hall Civil Court (Constitutional Jurisdiction) (Ref. No.11/2007), Joseph Muscat v Prime Minister, Minister of Justice and Attorney General, May 29, 2009 First Hall Civil Court (Constitutional Jurisdiction) (Ref. No.41/2008) and H. Vassallo & Sons Ltd v Attorney General Water Services Corp and Enemalta Corp March 11, 2010 First Hall Civil Court (Constitutional Jurisdiction) (Ref. No.31/2008).

14. The Attorney General typically sits as defendant in constitutional lawsuits of this nature.

15. Obiter dictum.

16. Joseph Muscat May 29, 2009 First Hall Civil Court (Constitutional Jurisdiction) (Ref. No.41/2008)

17. Arbitration Act Ch.387 of the Laws of Malta art.4.

18. Under the Arbitration Act art.15(11) and the regulations under Legal Notice 279 of 2005.