The First Hall of the Civil Court, presided over by Mr Justice Joseph Zammit McKeon in the case, ‘Mario Vella & Frances Vella v Malta Industrial Parks Ltd’ as administrator of the government assets under Chapter 169 and legal notices 360/04 and 361/04, on September 30, 2014, held, among other things, that the company tacitly renounced its right to enforce an arbitration clause in a promise of sale agreement, due to its failure to invoke such arbitration clause in the court proceedings and to exercise its rights under article 15(3) of Chapter 387.

On February 1, 2005, the parties to the proceedings entered into a promise of sale agreement (konvenju). Malta Industrial Parks obliged to transfer a property under the title of temporary emphyteusis for 65 years.

The contract had to be concluded by August 20, 2009. However, the company requested extensions up to March 31, 2013.

On March 15, 2013, Mario and Frances Vella sent a judicial letter to the company, asking them to appear for the final contract but the company failed to appear.

Faced with this situation, Mario and Frances Vella advanced to file legal proceedings against the company.

The company Malta Industrial Parks, in reply contested the action against it. It raised the plea that the courts lacked jurisdiction in face of an arbitration clause under the promise-of-sale agreement, where it was agreed that any dispute had to be referred to arbitration according to the rules of the Malta Centre of Arbitration.

The court reiterated that the main principle, regulating contracts, was “pacta sunt servanda” (that an agreement was binding upon the parties).

Reference was made to Victor Caruana Galizia’s notes on civil law, where it was stated that contracts entered in accordance with the law had the force of law between the parties. In addition, once a contract was binding upon the parties, it was also possible to derogate from ordinary law provided law, public policy or morality did not prohibit the derogation.

If the company wished to stop the court proceedings, it was its responsibility to proceed in accordance with article 15(3)

The court considered that Maltese courts have always accepted the validity of arbitration clauses when it was certain that this clause was agreed upon between the parties to a contract. In this case, the validity of the arbitration clause was never in question; however, the court had to determine the following three issues:

1) If the plaintiffs could resort to the ordinary courts notwithstanding an arbitration clause in the agreement;

2) If the company was procedurally correct on whether courts should suspend court proceedings to permit arbitration; and

3) if the failure of the company to invoke the arbitration clause meant renunciation on its part.

Although the parties were free to agree on arbitration, in certain instances when the behaviour of one of the parties stultified the possibility of the other party to seek arbitration, the other party could resort to the ordinary courts.

The court maintained that the arbitration clause was wide enough to encompass any dispute arising under the konvenju.

This does not necessarily mean, pointed out the court, that it will accede to the plea of lack of jurisdiction raised by the company. There were other factors to be considered before the court could decide whether or not it had jurisdiction to hear the case: re article 742(3) of chapter 12 of the Laws of Malta and article 15(3) of chapter 387 of the Laws of Malta.

Article 742(3) states that the jurisdiction of the ordinary civil courts was not excluded by the fact that there was an arbitration agreement between the parties irrespective of whether arbitration had commenced or otherwise and in any case the court had to stay proceedings saving article 742(4) and the power of the court to give any order or direction.

Reference was made to the case ‘Malta Shipyards v VPJ Ltd’ (CA ) on November 9, 2012, where it was held that article 742(3) intended to ensure that the jurisdiction of the ordinary civil courts was not excluded as a result of an arbitration clause in a contract. The courts continued to have authority to consider the validity of an agreement, to regulate proceedings according to law and also to enforce arbitration decisions by way of precautionary warrants and executive warrants.

The court also considered article 15(3) of chapter 387, which stipulated that notwithstanding the provisions of the Code of Organisation and Civil Procedure, where a party subject to an arbitration agreement commenced proceedings before the ordinary courts, any of the parties to the proceedings could request the court, before presenting any pleas, to stay the proceedings before it and, if satisfied, the judge will stay proceedings for the arbitration to commence.

It noted that in this case the Arbitration Act was the lex specialis. If the company wished to stop the court proceedings, it was its responsibility to proceed in accordance with article 15(3) and not plead lack of jurisdiction under the COCP which in this case was the lex generalis.

The court felt that the company had tacitly renounced by not exercising its rights under the Arbitration Act. By submitting the lack of jurisdiction of the court, instead of following article 15(3) of the Arbitration Act, the court concluded that the company renounced, albeit tacitly, to its right of enforcing the arbitration clause under the konvenju.

The court declared that it was competent to hear and decide the case.

For these reasons, on September 30, 2014, the First Hall of the Civil Court gave judgment (which was confirmed on appeal on June 26, 2015) by rejecting the company’s plea that the courts lacked jurisdiction. The case was now pending before the ordinary courts.

Dr Karl Grech Orr is a partner at Ganado Adovates.