Arbitration in Malta:
The Prerequisites of a Valid Arbitration under Maltese Law

Arbitration has been defined as a means of settling a dispute by referring it to a tribunal of the parties’ own choice without these having to resort to a court of law.  This alternative means of dispute resolution is not alien to Maltese law. The aim of successive governments has always been to reduce the case-load of the Maltese Courts by striving to find a substitute for the customary mode of dispute settlement – litigation. Yet, the development of the institute of arbitration in our country has been less rapid than in its European counterparts.

Possible reasons for the slow pace of the implementation programme for arbitration include the inadequacy of the domestic legal regime regulating the institute and the absence of a body dedicated to promoting arbitration and supporting litigants in the conduct of arbitral proceedings. These deficiencies have been addressed by the Arbitration Act of 1996. This Act established the legal framework for arbitration and set up the necessary overseeing body.

This article discusses the importance of two of the legal prerequisites for a valid arbitration: the arbitration agreement and the notice of arbitration filed with the Malta Arbitration Centre.

An Arbitration Agreement

An arbitration agreement is defined in the Malta Arbitration Act as “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.  An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.”

Thus, arbitration agreements are generally divided into two types. The first type is the pre-dispute form known as an arbitration clause. This is a clause inserted in a contract whereby the parties consent to submit to arbitration any future disputes arising under that particular contract. It is a fact that Malta is a litigious nation and it is believed that the courts are the only adequate means to settle a dispute. However, this mentality is gradually changing. Arbitration is being appreciated as an alternative method for settlement outside the courts and is regarded as equally binding. The efficiency and expediency of the whole process are its most attractive features. However, all depends on the inclusion of arbitration clauses in commercial contracts.

The second type of arbitration agreement is one in which the parties to an existing dispute agree to submit such dispute to arbitration. This post-dispute form of arbitration agreement is sometimes referred to as a ‘submission agreement’ or an ‘ad hoc’ submission. In this situation, the parties have to negotiate the agreement and a common accord is not always easy to achieve. Hence, it is recommended that the arbitration clause be inserted upon the drafting of the original commercial agreement rather than after a dispute arises.

The law requires the arbitration agreement to be in writing. An arbitration agreement denotes a renunciation of one’s right to normal recourse to the Courts of Law. Arbitral agreements concluded verbally are more difficult to prove than an arbitration agreement in writing.  Thus, the written form is essential not so much as a condition for the validity of the agreement but as proof of the obligation itself. The law also considers references to arbitration clauses contained in other documents as constituting a valid arbitration agreement.

Article 7 of the UNCITRAL Model law gives a wide interpretation to the concept of an arbitration agreement.  It includes a wide variety of advanced communication devices – “an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement”. The phrase “other means of telecommunication” seems to include any electronic recording, even computer recordings. However, it is important that the entire agreement be contained in that same communication.

The parties to the contract must also accept the arbitration agreement by means of a positive act. An exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by another constitutes a confirmation of the existence of an arbitration agreement.  Therefore if the respondent fails to refer to the arbitration agreement when responding to a claim and he fails to deny the arbitration agreement, then such agreement is deemed to be valid.

As in any other contract, the parties signing the arbitration agreement must have the capacity to enter such deed, otherwise the agreement would be void. Also, one should note that matters of personal civil status comprising questions of personal separation and the annulment of marriage cannot be settled by means of arbitration.

Filing of the Notice with the Centre

The Act creates an institution vested with a number of powers and responsibilities relating to the running of arbitrations, the Malta Arbitration Centre (MAC). The Centre has defined powers which are vital to a proper functioning of the whole arbitral process. An arbitration in Malta will not be valid if it is not carried out under the auspices of the MAC. The introduction of this requisite in our law has resulted in the ‘institutionalisation’ of the arbitral process. Prior to the enactment of the present Act, it was sufficient to register an arbitral award in Court for the arbitration process to be deemed binding.

This legal provision bestows upon the MAC its status as an overseeing authority. The law requires the initiator of an arbitration, i.e., the claimant,  to file  the relative notice of arbitration with the registrar of the MAC and this same notice shall be transmitted to the other party, the respondent. It is of the utmost importance to comply with this requirement.  Failure to submit such notice to the MAC would render the whole process and any arbitral award pursuant thereto, null and void and unenforceable. Upon the filing of the notice, the Registrar of the MAC issues a time-schedule for the filing of the claim and the defence and fixes a time limit for the filing of such documents which will run even whilst the parties are choosing the arbitrator. This ensures that when the arbitrator is chosen, the required documents would have been already filed and available for use by the arbitrator in the decision-making process. This makes the institutionalised arbitration procedure more speedy and efficient … this being the raison d’être behind this alternative method of dispute resolution.

© 2002 Dr Maria Chetcuti Cauchi. All Rights Reserved.

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