Courts may hear disputes, irrespective of arbitration clause

The courts may hear and decide upon disputes between parties of an agreement even though the agreement says that any dispute should be referred to arbitration.

This was stated in a judgment delivered on September 30, 2014 by Mr Justice Joseph Zammit McKeon in Mario Vella and Frances Vella -v- Malta Industrial Parks Limited.

The plaintiffs presented their lawsuit on April 16, 2014, explaining that they had entered into a promise of sale agreement on February 1, 2005 with the Commissioner of Lands, where they were to purchase a temporary emphyteusis of 65 years on a premises at the Crafts Village in Ta’ Qali.

The final contract had to take place in August, 2009, but was extended up to March 31, 2013. On March 15, 2013, the plaintiff filed judicial letters, however, that the contract was never signed. The Vellas are asking the court to order Malta Industrial Parks Limited (MIP) to sign the final contract.

MIP raised a number of pleas, among which was that the court lacked jurisdiction to hear this case, because the promise of sale mentioned that any dispute was to be decided by the Malta Arbitration Centre. This plea was dealt with in this preliminary judgment.

Mr Justice Zammit McKeon examined the facts of the case, where Mario Vella testified that in 2011 he had a meeting with representatives of MIP who told him that MIP was prepared to provide the land, but were not going to build the premises. Mr Vella explained that he threatened to take the matter to court, but did not mention arbitration.

The court in its judgement confirmed that the promise of sale agreement binds the parties to refer any dispute to the Malta Arbitration Centre.

MIP explained to the court that the judicial letters sent by the plaintiff were sent in terms of Article 1357(2) of the Civil Code. However, this article does not exclude that the action be taken in arbitration. Article 15(6) of the Arbitration Act excludes arbitration proceedings in the civil status of individuals such as separation, annulments and divorce. Furthermore, MIP argued that the plaintiffs did not raise any issue on the validity and enforceability of the arbitration clause.

The plaintiffs on the other hand argued that Article 742(3) of the Code of Organisation and Civil Procedure allows the courts to decide on any dispute and therefore, they chose the civil courts instead of arbitration. They argued further that MIP had a remedy in Article 15(3) of the Arbitration Act, by asking the court to suspend and commence the proceedings before arbitration. However, MIP failed to make use of it and therefore tacitly accepted the jurisdiction of the civil courts. 

Mr Justice Zammit McKeon quoted from a previous judgment, Beacom -v- Spiteri Stained of October 5, 1998 in which the Court of Appeal held that clauses in agreements have to be respected and the will of the parties must prevail. Prof V. Caruana Galizia in his notes held:

“Contracts entered into according to law have the force of law with respect to the parties. They bind the parties reciprocally in the same way as the law binds all citizens. This principle is based on the theory of the autonomy of the will, which on its own creates rights and obligations … (omissis).”

Therefore, the court took the view that arbitration clauses should be respected and acted upon.

The court then listed the issues at hand, the first being whether the plaintiff could have instituted the action before the civil courts, the second being, was it a correct procedure, and the third whether MIP accepted the court’s jurisdiction.

With regard to the first issue, the court confirmed that the will of the parties of an agreement should be respected, however, this does not block one of the parties applying to a court for a remedy. The court did not agree with the plaintiffs who argued that arbitration was limited to the validity of the promise of sale agreement. The clause was wide enough to include any dispute that arose about the agreement and certainly in this case there was a dispute and therefore, the plaintiffs should have first proceeded with arbitration and not with the court case. 

Then the court considered the second issue, in that once the court case was instituted, should MIP have asked the court to stop in order to enforce the arbitration clause. Article 742 of the Code of Organisation and Civil Procedure states that an arbitration clause does not exclude the jurisdiction of the courts.

The court quoted from a previous judgement, Camilleri -v- Zammit of May 4, 1998, that held that this article of the law is not intended to neutralise the arbitration clause but to regulate how the arbitration clause is to function. In fact Article 15(3) of the Arbitration Act, states that if court proceedings commence, an interested party before filing the pleas may ask the court by means of an application to stop and to refer the merits of the case to arbitration. In this particular case MIP failed to present this application to court.

Therefore, the court held that once this application was not filed, this failure equated to the MIP accepting that the courts have jurisdiction to hear the merits of the case.

The court concluded by turning down the plea of lack of jurisdiction and ordered the plaintiffs to present their evidence on the merits of the case.

Malcolm Mifsud, Partner, Mifsud & Mifsud Advocates

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