Appeals from Arbitrations should be limited to point of law

The Court of Appeal held that the grounds of appeal following an arbitration awarded should identify which are the points of law that the appellant would like the Court of Appeal to decide upon.

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Malcolm Mifsud
9 October 2015, 1:56pm
The Court of Appeal in its judgment of 30 September 2015 held that the grounds of appeal following an arbitration awarded should identify which are the points of law that the appellant would like the Court of Appeal to decide upon. 

This was decided by Madame Justice Edwina Grima in Go Fuels Limited –v– Direttur Generali tal-Kuntratti u Gozo Channel Company Limited.

On 15 January 2014, an arbitration award was delivered, which concerned a dispute between Salvu Zammit & Sons Limited (today Go Fuels Limited) and Gozo Channel. Go Fuels had been awarded a tender in May 2011 to supply marine gas oil from the Department of Contracts, following a request by Gozo Channel. The company asked the Arbiter to allow the termination of the contract with Gozo Channel, since the latter change the method of payment and had unilaterally cancelled some payments. 

The case concerned a dispute on the contract both companies had signed. Go Fuels contend that Gozo Channel are effecting their payment late. They pay after 30 days after delivery of the bunkers on board of the vessels. Gozo Channel disagree as according to them payment may be made within 120 days. 

Clause 26.1 of the special conditions of the contract reads: “These payments are to be effected after 30 days after delivery of bunkers on board the vessel/s…”. Clause 28.1 then reads that “the Contractor may, within two months of late payment, claim late-payment interest at the rediscount rate applied by the issuing institution of the country of the Contracting Authority on the first day of the month in which the deadline expired.” 

Clause 28(3) of the General Conditions: “Any default in payment of more than 90 days from the expiry of the period laid down in Article 28.1, shall entitle the Contractor either not to perform the contract or to terminate it, with 30 days’ prior notice to the Contracting Authority, the Central Government Authority and the Project Manager.” 

Go Fuel’s complaint is that the payment should have arrived within 30 days, but was in fact being received within 90 days or else 120 days and as a result the 30-day period was extended unilaterally by the Gozo Channel Board due to liquidity problems. 

The fuel company held that it could terminate the contract as a breach of Gozo Channel’s obligations as stipulated in the contract. The arbiter held that this clause was sufficient to terminate the contract. 

Reference was made to Article 993 of the Civil Code which dictates that contract have to be executed in good faith and therefore, good faith must be presumed. It is the applicant that has to prove bad faith of the other contracting party. 

In fact, Go Fuel alleged that Gozo Channel never intended to pay within that stipulated time frame, because of its liquidity problems. Gozo Channel contested this because the financial position of the company was irrelevant, and interpreted the contract to allow them to effect payment within 90 days. 

This opinion was not shared by the Arbiter, since the company’s financial controller admitted that they were forced to pay late due financial constraints. The Arbiter held that financial problems do not exonerate the debtor from fulling its obligations. Good Faith was fundamental to all contracts. 

According to the Arbiter, it was clear that Gozo Channel had entered into the contract when it was not in a position to pay its supplier within 30 days. 

Furthermore, it was held in the Award that Gozo Channel failed to adopt the procedure outlined in the contract in respect to contested invoices. The Arbiter then moved to decide in favour of Go Fuels.

Gozo Channel then appealed, stating that the Arbiter interpreted the contract erroneously and that the contract could not have been terminated after the lapse of 30 days. Gozo Channel contested the decision that it was in bad faith in entering the contract, simply because it had financial difficulties.

Here the Court of Appeal held it is bound by Article 70A(3) of the Arbitration Act, in that an appeal can be lodged only on points of law and these points of law should be identified in the appeal application. In a previous judgement, Maryanne Scicluna –v– Dr Daniela Chetcuti decided on 14 March 2007, the same court held that there was no need to pin point the article of law, but listing the points of law in dispute was essential. In this case, the appeal is based on the Arbiter’s interpretation of the clauses of the contract and not the wrongful interpretation of the law.

The Court of Appeal should not interpret afresh the clauses of the contract. The Court cannot correct any interpretations of the clauses made by the arbiter. From the facts of the case, it results that the arbiter did not apply the law incorrectly. The Court indicated that the arbiter also interpreted correctly the facts of the case and is in agreement.

Madame Justice Grima then moved to turn down the appeal and confirmed the Award.

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Malcolm Mifsud is a partner at Mifsud & Associates.