On April 9, the Times of Malta carried an article entitled ‘Some rebalancing at last!’, in response to mine of April 2 concerning the Arbiter for Financial Services Act.
It is unfortunate that the author of the April 9 article was more interested in addressing me personally than in dealing dispassionately with any of the issues raised in my article, that remained largely unaddressed and, at times, specifically misconstrued.
The original article was written fully aware of the EU initiatives taken in the alternative dispute resolution space as well as other legislation, particularly in the UK relating to the financial ombudsman. In fact, while it is true that the new law is modelled on the EU directive, it is also true that the local law contains a number of home-grown provisions, which were, and indeed still are the focus of my criticism.
Just to place it in perspective, the EU directive requires that such system is characterised by fairness, impartiality and independence, but of course falls short of dictating the exact manner in which this is to be achieved.
The directive allows each member state to develop and create such a system and the processes to support it – it is here that the home-grown provisions come in, and it is exactly here that the law fails the test of creating the innate balance of the divergent interests in a dispute.
The conflicting roles of the arbiter, a principal criticism of the law are, for instance, completely home-grown. The defence proffered to this criticism is that it is not the arbiter that runs the mediation process but another person appointed by the board.
This is the least disturbing of the conflicts that arise from these roles, although the level and extent of independence of the mediator from the arbiter is not clear in the law.
What is more concerning is whether the arbiter, in deciding a matter following a failed mediation process, will actually have access to the records of mediation meetings held, that would render any attempt at mediation completely futile; and secondly the inherent conflict of having the same person running the investigation of a complaint and then deciding the complaint, particularly where that person can run the investigation privately.
This is not modelled on the EU directive but is simply one of the home-grown provisions which we have simply got wrong.
What is important is that the process is transparent – but privately undertaken investigations patently militate against this; and that the mechanisms respect the principles of natural justice – when an investigator and judge is one and the same person, this principle is clearly under significant threat. The current state of the law fails both tests.
The required qualifications of the arbiter, the basis on which the arbiter is to decide and the jurisdiction/competence of the arbiter to award compensation are, in my view, intrinsically linked and need to be reviewed together.
The April 9 article defends the current state of the law, as follows: that the decisions of the arbiter are to be made on the basis of what is considered by the arbiter as equitable and reasonable in the circumstances, is taken from the UK counterpart (and not from the EU directive); and that the required qualifications of the arbiter are taken from article 6 of the EU directive.
As to the first point this is yet another home-grown provision, which, for convenience, has been copied from UK law, but without taking into account the other safeguards in that law.
The conflicting roles of the arbiter, a principal criticism of the law, are completely home-grown
It is copying á la carte. Regrettably, this is where a little knowledge becomes dangerous when copying legislative provisions from jurisdictions that have a legal culture, which is different to our own.
It is simply not enough to state that this is the way that the UK have done it, so might as well do it in the same way ourselves, when there is an abyss of cultural incongruity in the manner in which the two systems work.
What therefore becomes precarious in this system is that we do not have the proper forma mentis to apply it.
The qualifications of the arbiter (or similar figure) do not, as the article of April 9 suggests, exactly reflect the requirements under the EU directive, which in article 6 requires that the arbiter possesses the required knowledge and skills in the field of “alternative or judicial resolution of consumer disputes, as well as a general understanding of the law”.
A very quick reading of the local law clearly discloses the difference. The requirement (in article 14) is that the arbiter has expertise in “consumer related issues, including a general understanding of the law” and not in alternative or judicial resolution of consumer disputes and a general understanding of the law. There is a world of difference between the two requirements.
This is further exacerbated when one considers the competence of the arbiter to award compensation, particularly in the context of the general system in Malta of mandatory dispute resolution, in judicial fora.The article of April 9 does not make any reference in defence of the law to the glaringly disproportionate powers of an arbiter, unqualified in the law or dispute resolution (as required in the directive) to award up to €250,000 in compensation when compared to the judicial system where a magistrate, who is required to have at least seven years’ practice of law has the competence to decide disputes up to €15,000.
Neither does that article try to provide any explanation why the law, out of nowhere, provides the arbitrator with retroactive powers to determine complaints on occurrences that happened as far back as May 2004 – I am sure that this provision has not been taken from either the UK financial ombudsman legislation, nor the EU directive – this is beyond any doubt a home-grown provision, which remains unexplained and inexplicable, for any reasonable person, indeed no reasonable explanation exists and none has been offered, but if credibility is of any value, one is still necessary.
The financial services industry in Malta has been a huge and important driver of economic growth in this country and has, overall, served its clients and customers excellently. Trying to “demonise” the industry by alleging that the financial services consumer has been dealt one bad deal after the other simply does not reflect the general experience of the last 10 years.
The industry in all its areas, whether it’s banking, insurance, or investment services generally strives to provide its customers with the best possible service and indeed would have no problem in being subjected to a fair and balanced system of expedited dispute resolution.
It is in no one’s interest, least of all the industry, to have long protracted judicial proceedings in disputes with its own customers – but any alternative dispute resolution system must be properly balanced and geared to ensure fair outcomes, populated by qualified and competent people who have the right level of experience and skill in determining and deciding disputes. The law in its current status does not give comfort to the industry that this is the case.
The April 9 article does absolutely nothing to allay any of the concerns of the industry with respect to the new law. It simply proves that none of the concerns raised in the original article are beyond the realm of being addressed through amendments in the law, as none of them are a product of the EU directive itself.
They are simply home-grown solutions and can be addressed to ensure a law which is more balanced, respects the principles of due process and still be in line with the requirements of the directive, on which it is modelled.
Louis de Gabriele is a lawyer and heads the corporate and finance practice group at Camilleri Preziosi Advocates.