The Court of Appeal, composed of Chief Justice Silvio Camilleri, Mr Justice Raymond C. Pace and Mr Justice Tonio Mallia, on November 9, 2012, in the case ‘Malta Shipyards Limited vs VPJ Limited, held among other things, that it was amply clear that VPJ Ltd demonstrated no intention to refer the dispute to arbitration for a period of approximately two years before this lawsuit was filed. This passiveness indicated that VPJ Limited had tacitly renounced to its right to arbitration.
The facts in this case were as follows.
The court felt that VPJ Limited only raised the plea on the lack of jurisdiction of the Maltese courts in order to prevent Malta Shipyards from suing it in Malta
VPJ Limited engaged Malta Shipyards to carry out repairs on the vessels Michael III and Żebbuġ. After the works, repairs and services of Malta Shipyards were completed, VPJ Limited paid €150,000, leaving an unpaid balance of Lm8,191 (€18,840); Lm7,902 (€18,175) in respect of Michael III and Lm289 (€665) in respect of the vessel Żebbuġ.
While Malta Shipyards chased for payment, VPJ Limited on the other side claimed to have suffered damages, owing to the alleged poor quality of the works. Over a period of two years, from the completion of the works in 2005 until the presentation of this lawsuit, both parties intimated each other with judicial letters, through the Maltese courts.
During this time, VPJ Limited never invoked the arbitration clause in the contract nor did it initiate steps to commence arbitration proceedings. Although both parties were Maltese and the contract had to be performed in Malta, clause 21.3 of the contract stipulated:
“Arbitration. Any dispute, difference or claim arising out of or in connection with this contract, other than any difference which is successfully determined in accordance with clause 21.2 above, shall be referred to arbitration. The seat of arbitration shall be London, England. The arbitration proceedings shall be in the English language and shall be governed by the Arbitration Act 1996 or any statutory re-enactment of variation thereof in force at the time of the reference to arbitration.”
The Malta Shipyards used a standard contract which it normally used in its international practice, where it made practical sense to include an arbitration clause in a contract. The contract between the parties was signed on June 28, 2005.
Faced with this situation, Malta Shipyards filed legal proceedings to recover the outstanding balance. It claimed that, as its debt was certainly liquid and due and VPJ Limited had no defence to its action, the court should proceed to give judgment by special summary proceedings.
In reply, VPJ Ltd contested the jurisdiction of these courts and contended that the dispute should be determined by arbitration in London as agreed in the contract.
The Malta Shipyards argued however, that it was more convenient for the dispute to be decided by the Maltese courts:
• The parties were Maltese;
• The contract was performed in Malta;
• There was no connection with London as a forum.
It was submitted that VPJ Ltd had tacitly renounced to arbitration and accepted the jurisdiction of the Maltese courts. Reference was made to “I. Gatt vs Franco Facetti et” (CA) dated October 10, 2003.
On May 20, 2009, the First Hall of the Civil Courts accepted VPJ Ltd’s jurisdiction plea. It held the arbitration clause in the contract to be valid and binding upon the parties and accordingly ordered the cessation of these proceedings.
Reference was made to case law on the recognition, validity and binding effect of an arbitration clause: “Calibre Ltd vs Slipfoam Engineering Ltd” (PA), dated November 19, 2007. In “Dr Renato Cefai noe vs Valletta Freight Services Ltd” (PA) dated March 30, 2001, it was held that an arbitration clause in a contract should be respected even in cases where the Maltese courts had concurrent jurisdiction.
Article 742 (3) of chapter 12 provides: “The jurisdiction of the courts of civil jurisdiction is not excluded by the fact that there exists among the parties any arbitration agreement, whether arbitration proceedings have commenced or not, in which case the court, saving the provisions of any law governing arbitration, shall stay proceedings, without prejudice to the provisions of subsection (4) of this section, and to the right of the court to give any order of direction.”
In “George Camilleri vs Hugh P. Zammit”, dated May 4, 1998, the Court of Appeal maintained that the courts’ jurisdiction was not excluded by an arbitration clause. The courts had the authority to review the validity of the arbitration proceedings and permit the enforcement of an award. Article 742(3) of chapter 12 was not intended to neutralise the efficacy of an arbitration clause. The court had the authority to monitor the application of the arbitration clause in a contract. It had the power to give directives to resolve any lacunae or problems in referring a dispute to arbitration.
An arbitration clause was not rendered ineffective by one party applying to the courts. It only meant that the courts had original and overriding jurisdiction to review the application of an arbitration clause: “J. Micallef et vs J. Rausi” (PA), dated October 27, 2004.
The court held that renunciation had to be clear and unequivocal, although it could be given tacitly. The First Hall of the Civil Court said that VPJ Ltd had not renounced arbitration by sending judicial letters. The judicial letters left open the possibility of arbitration.
Aggrieved by the decision of the court of first instance, Malta Shipyards entered an appeal, calling for its revocation. It asked the court to assume jurisdiction and to remit the case to the First Hall of the Civil Court for continuation.
Malta Shipyards put forward the argument that:
• VPJ Ltd had renounced arbitration;
• The arbitration clause in the contract was not operative, as the dispute was between two Maltese companies in relation to a vessel which was in Malta. The Maltese courts in addition had jurisdiction under article 742 of chapter 12 of the Laws of Malta.
On November 9, 2012, the Court of Appeal gave judgment by accepting Malta Shipyards’ appeal and by revoking the decision of the First Hall of the Civil Court, dated May 20, 2009.
The following reasons were given for the court’s decision.
The court said that it was amply clear that VPJ Ltd demonstrated no intention to refer the dispute to arbitration for a period of approximately two years before this lawsuit was filed. This passiveness indicated that it had tacitly renounced to its right to arbitration. Reference was made to “Calibre Industries Ltd vs Muscat Motors” (CA) dated February 25, 2005.
Its failure to raise the issue of arbitration at an early stage as well as its failure to commence arbitration proceedings even after the works were completed in 2005 was proof of its tacit renunciation to refer the dispute to arbitration. The court felt that it only raised the plea on the lack of jurisdiction of the Maltese courts in order to prevent Malta Shipyards from suing it in Malta. The principle was that contracts should be performed in good faith, pointed out the courts.
The court expressed no doubts on the validity of the arbitration clause in the contract. It said that article 742 (3) of chapter 12 did not exclude the jurisdiction of the Maltese courts.
Dr Karl Grech Orr is a partner at Ganado & Associates.