1.1 Prevalence of Arbitration
Arbitration is a frequently used and broadly accepted method of dispute resolution in Malta for both general and sector-specific commercial disputes. It is particularly prevalent in certain sectors such as construction, maritime and information technology, where most domestic parties engaged in international contracts have recourse to institutional or ad hoc international arbitrations as the preferred method of dispute resolution. Arbitration clauses also feature regularly on a more generic level across various other industries. Institutional arbitration clauses are increasingly featuring in commercial contracts governed by Maltese law or involving a Maltabased entity.
There has been a discernible uptake in the use of international arbitration in relation to contracts involving public and private entities, shipping, insurance, as well as financial services disputes. Various factors such as geographical location, legal framework and cost-to-quality ratio, may incentivise parties into resorting to arbitration as opposed to court litigation in Malta.
The principal advantages of arbitration in Malta are flexibility of procedure, the value added brought by arbitrators, as well as the relative ease of enforceability of awards. The jurisdiction is generally supportive of arbitration, and the courts have extensive powers of support (including interim relief) for both domestic and international arbitrations having their seat in Malta.
On a purely domestic level, litigation remains the predominant method of dispute resolution in Malta amongst local market players. Litigation costs in Malta are generally low and, in domestic disputes, arbitration, although there is a discernible upward trend, has not yet managed to break through as the prevalent method of dispute resolution.
1.2 Impact of COVID-19
Following the initial disruption of proceedings in the second quarter of 2020 caused by COVID-19, the efficient adaptation to the new reality in international arbitrations having Malta as the seat of arbitration was very much a direct reflection of the experience of the arbitration tribunals. More experienced arbitrators have adapted to the new reality quite easily and have readjusted procedural timetables very efficiently, promoting an increased use of technology by the parties. There has been a largely seamless transition to remote hearings and use of secure platforms for data and document exchanges.
In international arbitrations managed by the Malta Arbitration Centre (MAC), which is the designated institution under the Arbitration Act (the "Act") for domestic arbitrations but is often also designated as the institution managing international arbitrations with Malta as their seat of arbitration and not referring to institutional rules, the MAC has invited tribunals and parties to conduct proceedings electronically through various technology platforms and in so doing, proceedings have been unaffected and uninterrupted on account of the pandemic. Both arbitrators and the parties to the dispute have proven willing to adopt this manner of proceedings.
1.3 Key Industries
The use of arbitration in Malta has been increasing steadily. In particular, due to the increased number of large-scale infrastructure projects, the construction industry has seen a significant increase in arbitration, especially since International Federation of Consulting Engineers (FIDIC) contracts have become the prevalent construction contract in Malta for medium-to-large-scale developments. Accordingly, a number of claims have been arbitrated. Arbitration clauses are increasingly being incorporated in contracts which are the subject of public procurement processes with public authorities clearly indicating to the market the preference to refer disputes to arbitration.
Moreover, a marked increase in arbitrations relating to areas which were hitherto the exclusive domain of the Maltese courts has been witnessed. This includes shareholder's disputes and certain intellectual property disputes, largely due to the flexibility afforded by arbitration as well as an expert's focus on the subject matter. In this context, it appears that the COVID-19 pandemic has had little effect on the incidence of disputes being referred to arbitration.
1.4 Arbitral Institutions
The MAC is the principal institution that oversees the conduct of domestic arbitrations and a slowly increasing number of international arbitrations having Malta as their seat of arbitration. It is run by a publicly appointed board of governors that is responsible for the policy and general administration of the affairs and business of the Centre. The MAC offers basic facilities for the conduct of arbitration, may act as the default appointing authority with a choice of arbitrator(s) from panels of professionals practising different areas of law.
Malta also is regularly designated as the seat of ad hoc international arbitrations, as well as the seat of institutional arbitrations under the rules of leading arbitration institutions, most commonly, the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA).
No new institutions have been established over the past year.
1.5 National Courts
The superior courts (First Hall of the Civil Courts and the Court of Appeal) are vested with the powers to stay arbitration proceedings, grant interim relief, hear procedural challenges and make recognition orders. The specific division of powers and jurisdiction of the particular courts depends on the nature of the relief sought. They are regulated by the Act and the Code of Organisation and Civil Procedure (Chapter 12 of the Laws of Malta) and will be addressed in more detail in the following sections of this chapter.
2. GOVERNING LEGISLATION
2.1 Governing Law
The Act and the Arbitration Rules (Subsidiary Legislation 387.01) (the "Rules") are the principal legislative instruments regulating arbitration in Malta. The Act is modelled on the 1985 UNCITRAL Model Law, and the Rules are likewise modelled on the UNCITRAL Arbitration Rules 1976 (revised in 2010). The Act also incorporates the New York Convention, the Geneva Protocol on Arbitration Clauses of 1923, the Convention on the Execution of Foreign Arbitral Awards 1927 (Geneva Convention) and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965.
The 1985 Model Law is annexed to the Act as the First Schedule of the Act and forms an integral part thereof in its entiret
The Act has not yet been amended to reflect the later versions of the UNCITRAL Model Law.
2.2 Changes to National Law
Until the most recent amendment in August of 2020, the MAC was the designated court for recognition and enforcement purposes under the New York Convention. The decisions of the Chairman of the Centre were final and could not be appealed therefrom, although nothing barred a party from subsequently bringing fresh proceedings for recognition and enforcement in case recognition proceedings were initially not accepted by the Chairman.
One significant amendment is the introduction of a right of appeal before the Court of Appeal against a decision by the Chairman of the MAC on the registration of a foreign award. An appeal by an aggrieved party must be filed within 20 days from the date on which the determination of the Chairman of the MAC on the registration of the foreign award is communicated to the parties. Such appeals are to be lodged to the Court of Appeal in its Inferior Jurisdiction.
Through this substantial amendment, the recognition court is effectively no longer just the MAC but there is a second instance proceeding in front of the Court of Appeal. Notwithstanding the inclusion of a second tier, there has been a marked increase in the efficiency of the process leading to the recognition of foreign arbitral awards in Malta over the past years. The two-tier process will, however, in the longer term delay the process of exequatur of international awards although it is expected to produce a greater level of consistency and predictability of outcome.
3. THE ARBITRATION AGREEMENT
Insofar as the formal requirements of an arbitration agreement are concerned, Maltese arbitration law follows the UNCITRAL Model Law and the New York Convention, which are reproduced in the First Schedule and Part III of the Second Schedule respectively, both forming part of the Act. An arbitration agreement must be in writing and may be drawn up in the form of an arbitration clause in a contract or in the form of a separate agreement. Domestic law requires that an arbitration agreement be made in writing as provided under Article 7(2) of the UNCITRAL Model Law.
For the purposes of Maltese law, an agreement is considered to have been made in writing solely in the following circumstances:
- if it is contained in a document that is transferred from one party to the other party or by a third party to both parties, provided no objection was raised within 30 days from receipt thereof;
- if reference is made in a written contract to a document containing an arbitration clause, insofar as that reference operates to make such clause part of the contract; or
- through the issuance of a bill of lading, provided the latter contains an express reference to an arbitration clause in a charter party, in which case the bill of lading is – in and of itself – deemed to constitute a written arbitration agreement.
The Model Law further elaborates in this respect, and confirms that the "in writing" requirement is also satisfied if it is contained in:
- a document signed by the parties;
- an exchange of telecommunication which provide for a record of the agreement; or
- an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other.
Naturally, the references in the 1985 UNCITRAL Model Law and the 1958 New York Convention to an instrument "in writing" have to be interpreted in the light of more recent laws establishing equivalence between traditional written instruments and electronic communications
Over the past few years, there has been an increasing expansion in the scope of what types of dispute are considered by arbitration tribunals and the courts of law as "arbitrable", both in terms of subjective as well as objective arbitrability. The general provision contained in Article 15 of the Act (under the part dedicated to domestic arbitration but equally applicable to international commercial arbitration having Malta as its seat) states that disputes, concerning questions of personal civil status including those relating to personal separation, divorce or annulment of marriage, are not capable of settlement by arbitration. Equally, public law matters including competition law claims, registration of intellectual property, criminal law matters are generally regarded as not arbitrable.
However, even in traditionally non-arbitrable areas of law like disputes concerning personal status, purely patrimonial or monetary claims arising from such traditionally not arbitrable disputes can still be referred to arbitration including disputes relating to the division of property between spouses and damages arising out of intellectual property disputes or public law disputes.
3.3 National Courts' Approach
As a signatory of the New York Convention, and having modelled the Arbitration Act on the UNCITRAL Model Law, Malta is a jurisdiction which supports the arbitration process.
National courts are less likely to interfere with international arbitrations that have Malta as their seat of arbitration than they are with domestic arbitrations, where they still have residual powers. In general, and with some notable exceptions in recent judgments, Maltese courts look with disfavour at parties attempting to circumvent or frustrate arbitration proceedings through court actions. When this happens, the Maltese courts have generally (with some notable exceptions in a limited number of judgments, which are largely recognised by the legal profession to be outliers) shown themselves to be supportive of arbitration and unsympathetic to such claims and tend to recognise the arbitrator's jurisdiction to rule on its competence.
There is no significant case law to report in the last year on the approach taken by the Maltese courts on matters relating to the applicable law to the arbitration agreement. Typically, the arbitration agreement will be deemed to be governed by the law of contract
Recently, Maltese courts have refused to lift local precautionary measures in support of pending recognition and execution proceedings of an international arbitration award in Malta, despite the existence of security in another member state of the European Union in support of foreign exequatur proceedings of that same award.
On a more general note, it is safe to state that arbitration agreements are, for the most part, immediately recognised and enforced by the Courts and the courts regularly stay proceedings in favour of arbitration proceedings when there faced with what on the face of the record would look like a valid arbitration agreement.
When the court seised with proceedings so stays proceedings in favour of the arbitral jurisdiction, it does not automatically decline all residual jurisdiction, but merely stays until the arbitration tribunal ascertains jurisdiction on the matter and proceeds with the decision on the case.
In terms of Article 16 of the UNCITRAL Model Law, an arbitral clause shall be considered valid even if the rest of the contract in which it is included is determined to be invalid. This applies to both domestic and international arbitrations.
There can be little doubt that Maltese courts may consider an arbitral clause to be valid even if the rest of the contract in which it is contained is invalid in full application of the doctrine of separability that is contained in statutory provisions.
4. THE ARBITRAL TRIBUNAL
4.1 Limits on Selection
In accordance with the Model Law, the Act allows the parties to an arbitration agreement the faculty of determining any matters relating to the choice, as well as numbers, of arbitrators. Failing a determination, the default number of arbitrators is three. In addition, the MAC (the Chairman of the Centre being established as the default appointing authority) has set up various specialised panels for domestic, as well as international, arbitration which may be resorted to in order to appoint accredited arbitrators. To name a few, these panels include:
- the Maritime Panel;
- the General/Civil Commercial Panel;
- the Banking, Finance, Accounting and Taxation Panel;
- the Building Construction Panel; and
- the Medical Panel.
There is no restriction at law forcing either the parties or the default appointing authority to restrict their choices of arbitrators from the said panels.
4.2 Default Procedures
In default of any agreement on the procedure for the appointment of arbitrators, the Act provides that, in the case of an arbitration with three arbitrators, each party will appoint one arbitrator, then the two party-nominated arbitrators will appoint the third arbitrator, who shall act as the chairman of the arbitration tribunal. However, if a party fails to either appoint the arbitrator within 30 days of receipt of a request to do so from the other party or if the two arbitrators fail to agree on the third arbitrator within 30 days of their appointment, the appointment shall be made, upon request of a party, by the Chairman of the MAC.
In an arbitration with a sole arbitrator, where the parties fail to agree on the arbitrator, that arbitrator shall be appointed, upon request of a party, by the Chairman of the MAC. In the context of international arbitration, the MAC chairman fills the role of default appointing authority and the functions mentioned in Articles 11(3), 11(4), 13(3) and 14 of the UNCITRAL Model Law. Therefore, if the parties do not agree on the arbitrator(s), at one of the parties' request the Chairman shall appoint the arbitrator(s).
4.3 Court Intervention
Outside the parameters of the procedures for challenge or removal of arbitrators described in 4.4 Challenge and Removal of Arbitrators, there is no room for court intervention in the selection of arbitrators. This answer excludes the possibility of extraordinary remedies including constitutional challenges on matters like due process which are exceptional and outside the scope of the current review.
4.4 Challenge and Removal of Arbitrators
The Act expressly provides that arbitrators are to be independent and impartial. Accordingly, prospective arbitrators are obliged to disclose any conflict of interest as soon as possible. An arbitrator may only be challenged if circumstances exist that give rise to justifiable doubts in relation to an arbitrator's impartiality or independence. However, a party may only challenge an arbitrator appointed by them for reasons that it becomes aware of after the appointment had been made. While the UNCITRAL Model Law adopts a similar approach, in the context of international arbitration a party may also challenge the appointment of an arbitrator when that arbitrator does not possess the qualities previously agreed to between the parties.
The parties are free to agree on a procedure for challenging an arbitrator. Failing such agreement, a party who intends to challenge an arbitrator shall:
- within 15 days after becoming aware of the constitution of the arbitral tribunal; or
- after becoming aware of any circumstances giving rise the challenge, send a written statement of the reasons for the challenge to the arbitral tribunal.
Unless the challenged arbitrator withdraws from their office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. If a challenge is not successful, the challenging party may request, within 30 days after having received notice of the decision rejecting the challenge, the Chairman of the MAC to decide on the challenge, which decision shall be subject to no appeal. While a request is pending, the arbitral tribunal, including the challenged arbitrator, may continue the arbitral proceedings and make an award.
4.5 Arbitrator Requirements
See 4.4 Challenge and Removal of Arbitrators. Maltese law adopts both tests of independence and impartiality which are qualities that have to be assessed at appointment stage and throughout the procedure leading to the expiry of the jurisdiction of the arbitrators.
In matters relating to the assessment of such qualities, regular use is made of the IBA Guidelines on Conflict of Interest in international arbitration and publications issued by the leading arbitration institutions in Europe and beyond.
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