The Constitutional Court, composed of Mr Justice Albert J. Magri (Acting President), Mr Justice Geoffrey Valenzia and Mr Justice Tonio Mallia in the case “H. Vassallo & Sons Ltd vs Attorney General, Water Services Corporation and Enemalta” on September 30, 2011, held, among other things, that mandatory arbitration as imposed by the Arbitration Act, Chapter 387 of the Laws of Malta was in breach of Article 39 of the Constitution and Article 6(1) of the European Convention on Human Rights. The court concluded that the “arbitrators” did not enjoy the necessary independence and security of tenure.

The facts in this case were as follows.

At issue was whether mandatory arbitration under our Arbitration Act, Chapter 387 of the Laws of Malta, was in breach of the fundamental human right to a fair hearing as guaranteed by Article 39 of our Constitution and Article 6(i) of the European Convention of Human Rights.

In this case, the Water Services Corporation and Enemalta filed arbitration proceedings against the company H. Vassallo & Sons Ltd to recover amounts due for electricity and water in terms of the Arbitration Act, Article 1.3, of the Fourth Schedule and Article 15(11).

The company disputed the legality of mandatory arbitration. It claimed:

1. That it was contrary to human rights (the right to a fair hearing by an independent and impartial tribunal);

2. that the arbitrators were not independent and impartial;

3. that they were denied access to the ordinary courts as well as the right to appeal on all issues from the award.

The argument put forward was that arbitrators did not enjoy security of tenure. This was evident they said from the manner and method of their appointment and removal and the supervision and interference possibly exercised by the centre.

For this reason, the company proceeded by filing this human rights action requesting the Constitutional Court

1. To declare mandatory arbitration unlawful, in violation of the human right to a fair hearing under Article 39 of the Constitution, and Article 6(1) of the European Convention of Human Rights;

2. to declare the award null;

3. to give such remedies and to order compensation.

In reply, the Attorney General defended the validity of mandatory arbitration, saying it contained all the requisites for a fair trial. It was stated that the arbitration tribunal was independent and impartial, that arbitrators enjoyed security of tenure and that it was lawful to restrict the right to appeal without infringing the right to a fair hearing.

Enemalta, as well as the Water Services Corporation, claimed to have acted according to law. They also contested being the legitimate defendants in the proceedings.

On March 11, 2010, the First Hall of the Civil Court declared that mandatory arbitration, in the manner imposed by Chapter 387 (Arbitration Act), violated the right to a fair hearing, in terms of Article 39 of the Constitution and the European Convention of Human Rights, Article 6(1),

The First Hall of the Civil Court declared the award to be null and void.

The court considered Article 39 (2) of the Constitution and Article 6 (1) of the European Convention of Human Rights.

“In determining whether a body can be considered to be independent – notably of the executive and of the parties to the case – the court has had regard to the manner of appointment of its members and the duration of their term of office, the existence of guarantees against outside pressures and the question whether the body presents an appearance of independence” (re: Campbell and Fell vs United Kingdom A80 (1984) 7 EHRR).

It was important for there to be an appearance of independence and impartiality. Justice not only had to be done, pointed out the court.

In view of the manner of appointment of arbitration, their removal, the control and possible supervision by the executive, the court was of the opinion that arbitration did not have security of office.

As regards “impartiality” of a court or tribunal, there were both objective and subjective tests,

“The existence of impartiality for the purpose of Article 6 (1) must be determined according to a subjective test that is on the basis of the personal conviction of a particular judge in a given case and also according to an objective test, that is ascertaining whether the judge offered guarantees sufficient to exclude any illegitimate doubts in this respect.”

In addition, the court noted whether the exercise of different functions within the judicial process by the same person or higher article or other links with another actor in the proceedings raised a legitimate doubt as the court’s objective impartiality. In the case of the latter it was whether a judge’s personal conduct raised such a doubt or indicated actual bias thus going to both objective and subjective impartiality. As the subjective test, the question is whether it can be shown on the facts that a member of the court acted with personal bias against the applicant. In this connection there is a presumption that a judge is impartial until there is no proof to the contrary. Given this presumption and the need to prove actual bias, it is not surprising that a breach of the subjective test is difficult to establish.”

The First Hall of the Civil Court had serious doubts on the objective impartiality of an arbitration tribunal, in particular, considering how it was organised, composed and how arbitration was appointed and removed.

Further, the First Hall of the Civil Court concluded that the restriction to appeal and all points constituted a violation of Human Rights.

Aggrieved by the decision of the First Hall of the Civil Court, the defendants, the Attorney General, Enemalta and the Water Services Corporation, all appealed calling for its revocation.

On September 30, the Court of Appeal gave judgement by dismissing the appeal and by confirming as decided by the First Hall of the Civil Court that mandatory arbitration as contemplated by our Arbitration Act to be in breach of the fundamental human right to a fair hearing, Article 39 of the Constitution and Article 6 (1) of the European Convention on Human Rights.

The court ordered that a copy of its decision be delivered to the speaker of the House of Representatives. The following reasons were given for the court’s decision.

The Arbitration Act: It aimed to promote the settlement of disputes in Malta through arbitration, and to decrease the work-load of the courts.

The court noted that in 2004, amendments were introduced to provide for mandatory arbitration in certain cases mentioned in the Fourth Schedule to the Arbitration Act, which included disputes relating to the payment of water and electricity. The parties were to be deemed to be bound by an arbitration agreement in these cases.

Legitimate defendants: The court said that the Attorney General represented the government owing to the nature of the claim, where legal proceedings could not be taken against any particular department. However, once it was evident that both Enemalta and the Water Services Corporation were directly interested, their presence was necessary in these proceedings. In this respect the court said they were correctly included as defendants.

Fair hearing: In the case of mandatory arbitration, a person was denied the right to the ordinary courts. A person had a right to have a fair hearing as guaranteed by the Constitution and the European Convention on Human Rights. The arbitration tribunal had to be independent and impartial.

The European Court of Human Rights held in le compte that in determining whether a body can be considered to be “independent” – notably of the executive and of the parties to the case – the court had to have regard to the manner of appointment of its members and the duration of their term of office, the existence of guarantees against outside pressures and the question whether the body presented an appearance of independence.

Reference was made to an address of Chief Justice Emeritus, Dr J. Said Pullicino to the Vienna Commission of the Council of Europe on the independence of the judicature:

“Under Maltese law judges are appointed by the President acting in accordance with the advice of the Prime Minister (Article 96). However, this does not mean that a judge’s independence is tainted and appointment by the executive is permissible, indeed normal. Once a judge is appointed he enjoys security of tenure till the age of 65, and may only be removed by the President upon an address of the House of Representatives supported by the votes of not less than two-thirds of all the members. Removal from office is restricted on the ground of proved inability to perform the functions of his office (infirmity of body or mind or any other cause) or proved misbehaviour. This provision serves as a guarantee against outside pressures. The law ensures that the court can base its decisions on its own free opinion about facts and legal grounds, without any commitment to the parties or the public authorities. Furthermore, its decision is subject to review by an authority which is independent in the same sense.”

Appointment of arbitrators: The court considered the manner of appointment of arbitrators. Reference was made to the Court of Appeal decision of September 6, 2010 in J. Muscat vs Hon. Prime Minister, where the court concluded that an arbitration tribunal was independent and impartial. This court considered the reasons of the court in the J. Muscat case.

This court, however, agreed with the decision of the First Hall of the Civil Court, that mandatory arbitration did not provide adequate guarantees to safeguard the independence of “arbitrators”.

Reference was made to the decision of the Constitutional Court in “Dr R. Frendo Randon et vs Commissioner of Lands” dated July 10, 2009, where the court reached a different conclusion from the Muscat case.

The court made reference to the decisions of the European Court of Human Rights in Campbell & Fell vs UK .

In the Frendo Randon case, the court said that a member of the arbitration board, did not enjoy security of tenure: He was appointed and removed by the Administration and was subject to external pressures particularly from the executive.

Applying these considerations to this case mutatis mutandis, the court concluded that “arbitrators” did not appear to be ‘’independent’’ from the executive.

A notable relevant factor was that in this case, the state who was a party in these proceedings, was also involved in the appointment/removal of arbitrators and could possibly interfere in the arbitration process.

The court said that it was not necessary to examine the element of impartiality as well as the impact of the lack of access to the courts to the ordinary courts and the limitation of the right to appeal save on a point of law; this was amended by Act of 2010 and it was now possible to appeal on a point of fact.

• This case conflicts with the decision of the Constitutional Court in “Joseph Muscat vs Hon Prime Minister et” dated September 6, 2010, and with the decision of the First Hall of the Civil Court in “Anthony Grech vs Claire Calleja”, dated May 29, 2009.

Dr Grech Orr is a partner at Ganado & Associates.