LITIGATION & ALTERNATIVE DISPUTE RESOLUTION

The Constitutionality of Mandatory Arbitration Proceedings in Malta in light of recent case-law developments.  

 

On the 25th May, 2012 a judgment was delivered by the First Hall Civil Court, acting in its constitutional competence, which has once again shed light upon the thorny and controversial issue regarding the imposition of mandatory arbitration proceedings, and whether such proceedings in their current form, are in line with the Constitution of Malta. In ‘Untours Insurance Agency Limited Et vs. Micallef Victor Et’ (the ‘Untours’ Ruling) the Court ruled that mandatory arbitration procedures prescribed in terms of Article 15(11) of the Arbitration Act - Chapter 387 of the Laws of Malta (the ‘Act’) failed to satisfy the constitutional guarantees enshrined under Article 39(2) of the Maltese Constitution (‘the Constitution’) and under Article 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (the ‘Convention’) – the right to a fair hearing before an independent and impartial adjudicating body. This article shall set out the principles expounded by the court in this recent judgment and shall explore its potential impact on the future application of mandatory arbitration procedures under Maltese Law.  

 

1. The Facts of the Case 

 

Following a motor traffic accident which occurred on the 31st July, 2006 the plaintiffs instituted mandatory arbitration proceedings in terms of Article 15(11) of the Act against defendant Victor Micallef. During the course of the arbitral proceedings three additional defendants were included in the case. On the 28th May, 2009 the arbitral award was delivered in favour of plaintiff’s claim. Consequently, all defendants were held liable, albeit to varying degrees, and condemned to pay for the damages sustained by the plaintiffs. All defendants exercised their right of appeal to the Court of Appeal, as presided over by a single Judge. Before the Appellate Court, the defendants argued that the arbitral award should be declared null and without effect since the mandatory arbitration procedures prescribed under the Act infringed the twin principles of 1) a right to a fair hearing within a reasonable time and 2) the right to be heard before an independent and impartial adjudicating authority as enshrined under Article 39(2) of the Constitution and Article 6(1) of the Convention. They invoked various decisions to substantiate their claim, amongst them the groundbreaking judgement of the Maltese Constitutional Court delivered on the 30th September, 2011 in the names ‘H.Vassallo and Sons Ltd vs. Avukat Generali Et’ (Case Citation Number: 31/2008/1) (the ‘H.Vassallo and Sons’ Ruling) which ruled such mandatory arbitration procedures to be unconstitutional since they infringed the afore-mentioned provisions of the Constitution and the Convention. Accordingly, they sought authorisation from the Appellate Court to refer the matter for a decision on the claim of unconstitutionality to the First Hall Civil Court acting in its constitutional competence. On the 29th November, 2011 the Appellate Court upheld the request for a constitutional referral and ordered that the case be heard before the First Hall Civil Court in its constitutional competence. In bringing forth their claim of unconstitutionality, the appellants failed to specify which aspects of the mandatory arbitral procedure, in their view, contravened the relevant provisions of Constitution and the Convention. In the absence of a specific indication, the First Hall Civil Court was essentially being asked to conduct a rigorous evaluation of the mandatory arbitral procedure in its entirety and rule as to whether such procedure was capable of guaranteeing litigants the constitutional safeguards, traditionally available to parties whose disputes are entertained before the ordinary courts.  

 

Whilst an examination of the relevant case-law regarding the requisites of independence and impartiality on the part of the adjudicating court or tribunal is beyond the scope of this article, a brief account of the distinction between the two principles would be advisable, in order for the reader to fully appreciate the extent to which an arbitral tribunal is expected to satisfy these principles. A fine distinction between the dual principles of judicial independence and judicial impartiality was provided by the Supreme Court of Canada in the landmark judgment ‘Valente vs. The Queen’ delivered on the 19th December,1985. The Supreme Court held: ‘Although there is obviously a close relationship between independence and impartiality, they are nevertheless separate and distinct values or requirements. Impartiality refers to a state of mind or attitude of the tribunal in relation to the issues and the parties in a particular case. The word ‘independence’ however connotes not merely a state of mind or attitude in the actual exercise of judicial functions, but a status or relationship to others, particularly to the executive branch of government.’  

 

2. The ‘Untours’ Ruling - Arguments put forth in favour of a finding of unconstitutionality  

 

Micallef et al argued that following the decision of the Constitutional Court in the ‘H. Vassallo and Sons’ ruling, the contentious matter regarding the institute of mandatory arbitration under Maltese Law had been supposedly permanently crystallised – namely that in its current form mandatory arbitration procedures, prescribed under Article 15 (11) of the Act, failed to afford parties with sufficient constitutional safeguards, thereby such procedures were deemed to be unworthy of constitutional approval.  

 

In the ‘H.Vassallo and Sons’ ruling case, the appellant’s claim of unconstitutionality was based upon three distinct grounds – 1) the procedure adopted in order for an arbitrator to be appointed allegedly fell short of ensuring a fair hearing before an independent and impartial adjudicator 2) the imposition upon the parties of mandatory arbitration procedures by the Legislator prevented the parties from having their rights and civil obligations from being determined before a judicial organ forming part of the State’s traditional judicial machinery and 3) the parties were being prevented from exercising their right to a full and complete appeal. Since the appellants in the ‘Untours’ ruling did not qualify their complaints in terms of some particular aspect or feature inherent in the mandatory arbitral procedure, the presiding Judge resorted to the same set of grievances put forth in the ‘H.Vassallo and Sons’ ruling in determining whether mandatory arbitration procedures operated counter to the constitutional safeguards under review.  

 

3. The ‘Untours’ Ruling - The Attorney General’s Defence of Mandatory Arbitration  

 

The Attorney General pleaded that, contrary to Micallef et al’s contention, mandatory arbitration procedures prescribed under Article 15(11) of the Act did not act counter to the guaranteed right to a fair hearing before an independent and impartial adjudicating body as enshrined under the Constitution or the Convention. They argued that as a jurisprudential guide the Court should resist the temptation to embrace the ruling delivered in ‘H.Vassallo and Sons’ but rather adopt in its entirety the view delivered by the Constitutional Court in the previous ‘Joseph Muscat vs. Prim Ministru Et’ judgment (the ‘Muscat’ ruling) decided on the 6th September, 2010 whereby the Constitutional Court granted its seal of approval to mandatory arbitration procedures, thereby overruling a previous finding of unconstitutionality by the First Hall Civil Court, acting in its constitutional competence.  

 

Without prejudice to its insistence that the Court adopt the reasoning of the Constitutional Court in the Muscat ruling, the Attorney General also argued that following the ‘H.Vassallo and Sons’ ruling, numerous amendments had been introduced by virtue of Act IX of 2010 which, in the Attorney General’s opinion, succeeded in bringing Malta’s mandatory arbitral framework in line with the Constitutional Court’s ruling.  

 

4. The ‘Untours’ Ruling - The Court’s Decision 

 

In reaching his verdict, Honourable Justice Tonio Mallia made extensive references to both the ‘Muscat’ and the ‘H.Vassallo and Son’ rulings. The Court confirmed the principles espoused in the latter ruling whilst offering a stern criticism of the former. In his critique of the ‘Muscat’ ruling, Justice Mallia held that the Constitutional Court had erred when it attributed an inferior characterization to disputes falling within the ambit of mandatory arbitration. Where motor traffic disputes (similar to the dispute in question) are concerned, the Fourth Schedule to the Act stipulates that all such disputes, provided they are not accompanied by a claim for damages sustained in terms of personal injuries, and provided further that the value thereof does not exceed the amount of €11, 646.87, are to be settled by means of mandatory arbitration. In the Court’s view, such disputes could not be regarded as being only ones of modest importance, especially when viewed from the perspective of the parties involved.  

 

In ‘Muscat’ ruling, the Constitutional Court did confirm that all disputes falling within the ambit of mandatory arbitration merited resolution before a tribunal or adjudicating body capable of offering a guarantee of full independence and impartiality in a similar manner as that guaranteed before a court of law. However, the Constitutional Court did appear to hint that given the regularity which with traffic disputes arise and given that usually modest sums of monies are at stake, it is reasonable to reserve such class of disputes to fall specifically within the purview of a special tribunal such as a mandatory arbitral tribunal. This reasoning, perhaps perfectly valid in practice, can hardly been deemed to be reflective of the Legislator’s intention in reserving these types of disputes for mandatory arbitration. Rather than acting out of some perception as to the limited or reduced importance which such disputes tended to be given, it constituted better policy to subject such disputes to an alternative mode of dispute resolution. It would ideally achieve the two-fold objective of 1) granting the parties access to a form of dispute resolution traditionally considered to be cheaper, more expedient and more informal then traditional litigation whilst at the same time 2) alleviating and streamlining the court’s already bloated docket.  

 

The Court, in ‘Untours’ ruling, was also dismissive of the suggestion that a claim of unconstitutionality could not succeed as long as the parties were guaranteed the right to appeal from the arbitral decision before the ordinary Courts. The Constitutional Court in ‘Muscat’ had held that since a decision adopted by the Malta Arbitration Centre would constitute an administrative decision, any party aggrieved by such decision may to seek the conduct of a judicial review into the validity of such a decision under Article 469A of the Code of Organisation and Civil Procedure – Chapter 12 of the Laws of Malta. In ‘Untours’ this approach was heavily criticized. The Presiding Judge held that once it was sufficiently established that mandatory arbitral procedures are held before a ‘tribunal’ then such tribunal must be objectively independent and impartial, and not merely be capable of surviving a subjective judicial review.  

 

Justice Mallia held that the emphasis was not on the ability of the Arbitration Centre to abuse of its position as an Authority ultimately falling under the contral of the Ministry of Justice, but rather the manner in which the arbitral ‘tribunal’ itself is composed and organised. Once it is affirmed that the arbitration is conducted before a ‘Tribunal’ then such a tribunal is expected to embrace, in its entirety, the twin principles of independence and impartiality to such a degree that it is manifestly apparent and that there is no visible reason to question the tribunal’s capacity to be independent and impartial in the delivery of its award. The Court drew inspiration from various foreign decisions, particularly the European case Wettstein v Switzerland decided by the European Court of Human Rights (Second Section) on the 21st December, 2000 (Case Application No: 33958/96), where it was held: ‘it must be determined whether, quite apart from the Judge’s conduct, there are ascertainable facts which may raise doubts as to his impartiality. In this respect even appearances may be of a certain importance.’  

 

After re-assessing the regulatory framework within which mandatory arbitration proceedings are held, the Court re-iterated its support for the ‘H.Vassallo and Sons’ ruling and consequently, held that mandatory arbitration procedures, in the format used during the time the proceedings were instituted against the defendants, breached the defendants’ rights enshrined under Article 39(2) of the Constitution and Article 6(1) of the Convention.  

 

Interestingly, the Court intentionally avoided examining the amendments brought about through the enactment of Act IX of 2010, which amendments were brought into effect in November, 2011 and therefore had no legal force during the time the mandatory arbitration proceedings appealed from were instituted. By way of observation, the Presiding Judge did concede that such amendments could have potentially remedied all previous defects within the mandatory arbitral procedure highlighted throughout previous case-law. It remains to be seen whether Act IX of 2010 overhauled the institute of mandatory arbitration effectively enough to shield from any future constitutional challenge.  

 

On the 6th June, 2012 the Attorney General’s Office filed an appeal against this ruling, which appeal shall be heard before the Constitutional Court in the near future. In a 19-page appeal the Attorney General once again defended the constitutional nature of mandatory arbitration proceedings, as applied during the time in which the arbitration in question was instituted and ergo prior to the November, 2011 amendments. In the application of appeal, the Attorney General argued that the Court failed to take into consideration numerous important safeguards aimed at securing the level of independence and impartiality on the part of the arbitrator, as envisaged under our Constitution as well as under the Convention, most notably the right, competent to any party to a mandatory arbitration, to challenge the arbitrator in the event of existing justifiable doubts impinging upon his independence and/or impartiality a procedure known in Maltese as ‘ir-Rikuża ta’ Arbitru’ (challenging the arbitrator). This procedure is embodied under Article 24 of the Act which stipulates: ‘Any arbitrator may be challenged if circumstances exist that give rise to justifiable doubt as to the arbitrator’s declaration of impartiality or independence.’  

 

Interestingly, regardless whether the Constitutional Court decides to back or overturn, the ‘Untours’ ruling, the decision will only have direct bearing upon the validity of mandatory arbitrations procedures instituted prior to the enactment of Act IX of 2010. In order for mandatory arbitration proceedings to be declared unconstitutional post-November 2011, a fresh challenge to the latest wave of reforms to the Maltese arbitral structure must be instituted.