28 June - 4 July 2001

Alternative solutions

Dr Max Ganado, Chairman of the Malta Arbitration Centre, talks to Blanche Gatt about the importance of encouraging the further use of this method of dispute resolution

A litigious culture and a general aversion to compromise born of the trials of operating in a too-small business world has left our law courts groaning under the weight of thousands of commercial cases that remain unsettled for years. Add to that the element of stubborn refusal to accept defeat that results in hundreds of appeal cases dragging out proceedings for years on end, and the result is a blockage of epic proportions that nothing is able to shift.
The setting up of the Malta Centre for Arbitration was intended to address this problem by introducing a new mechanism for dispute resolution, one that promises speedier, more efficient decisions with the full backing of purpose-built legislation and the support of the law courts behind it.
Dr Max Ganado is chairman of the Malta Arbitration Centre, which has just organised its second course of lectures and seminars for prospective arbitrators, as the Centre prepares the way for arbitration to take on a much greater role in local dispute settlement. “The Maltese Arbitration Law was passed in 1996 and came into effect in 1998, and then the Centre was opened in late 2000,” he explained. “Since then we have been very involved in the process of setting up the Centre and organising training courses to prepare future arbitrators for their roles.”
Though arbitration has existed in all developed legal systems, including Malta’s, for hundreds of years, the Arbitration Act now ensures that the procedure is
regularised, and supervised by a national institution that is also responsible for developing the concept as well as organising it. “Before this,” explained Dr Gan-ado, “arbitration tended to be slightly unregulated and private arbitrations were taking too long to come to conclusions. The new laws now provide the solution to the problem of delays, as the infrastructure ensures that processes are monitored for efficiency, and to the problem of informality, by creating rules and procedure.”
Arbitration has become a widespread means of resolving disputes throughout the world. The process is simplified, but the focus specialised, and the over-riding consideration is to reach a fast and final decision within conditions of strict confidentiality. People involved in a dispute decide by mutual consent to settle their conflict through arbitration. Arbitrators are selected by consensus between the two sides, bureaucracy of any sort is limited to the bare minimum and arbitration awards are legally binding and carry the force of a court judgment. Awards are final and not subject to appeal, costs are contained and arbitrators of the parties’ choice may be appointed. All these elements add up to make arbitration an attractive option for those to whom a long drawn-out and public case would be damaging.
“The main purpose of arbitration is to offer dispute settlements to commercial entities,” commented Dr Ganado. “The Maritime sector and construction and property related issues are traditionally prone to using arbitration, but, excluding family, marriage and personal civil status cases, there is no limit to the type of problems that can be referred to arbitration.”
But despite the internationally tried and tested efficiency of arbitration, Maltese people seem reluctant to adopt it. In fact, very few cases, less than 10 in all, have been referred to arbitration since the set up of the Centre around a year ago. “There seems to be a cultural antagonism to the concept of arbitration,” said Dr Ganado. “As well as a legal concern. The legal profession is not particularly supportive for a number of reasons, and some people are concerned about the lack of appeal. But it’s important to remember that the lack of appeal means the decision of the arbitrator is final, which is one of the great strengths of arbitration. However, my personal view is that we could give the parties the right to agree on a methodology of appeal to a further panel of arbitrators if they agree to do so in advance.”
The cost of taking a dispute to arbitration instead of court is traditionally cheaper, but so far this benefit has had limited effect in Malta. “As things are,” said Dr Ganado, “the costs, of paying a registry fee and the arbitrators, could actually work out higher than the courts. The cost is always relative to the value of a case, and so on a Lm3,000 case, costs are Lm150 on registry fees plus Lm180 to the arbitrator. On an Lm80,000 case it is more cost effective, and would rise to only Lm2,000, assuming only one arbitrator is used.”
The Centre has recognised this anomaly and is working on a solution that would guarantee that arbitration really is a cheaper alternative to the law courts. “There is a very active debate going on at the Centre about revising the whole fee structure, to arrive at a cost that is based on a principle that arbitration fees should be no more than 50 per
cent of any court fees,” said Dr Ganado.
In fact, the economic aspect of arbitration is one that carries a great deal of significance. Even discounting the lower cost ideal the Centre is aiming for, parties involved in arbitration are able to solve their conflicts without delay, which also means they can continue to operate without loss of time or profits.
“I’ll give you an example of this,” offered Dr Ganado. “Say there’s a hotel being built and the owner runs into a dispute with the main contractor. All the work stops and the two parties go to court – nothing can progress until a decision is given, which could be a serious threat to the owner’s investment. On the other hand, arbitration can offer a speedy decision, and ultimately what is the cost of registry fees compared to the interest on investment or lack of profits that both parties risk in a long court battle? So the cost effectiveness of arbitration does not only refer to the actual fees levied, but also to these economic matters that have a much broader influence on a company.”
The confidentiality aspect of arbitration is an advantage that business people the world over have come to value. None of the cases are ever discussed with the public or reported to the press, and no details of disputes concerning industries where the parties still have to work together after the conclusion of the case are ever revealed.
“This is a critical factor in achieving another merit of arbitration,” explained Dr Ganado. “The maintenance of commercial relationships is important for the future of these companies – Court cases can destroy relationships between litigants, and the proceedings are too aggressive to maintain good relations in most cases. The whole idea of arbitration is that you sit around a table with a third party, sort out the dispute and move on. You cannot move on to any sort of productive relationship with a person or company you have been fighting a frustrating court battle against for years.”
Arbitration works along two fundamental principles. The independence and impartiality of the arbitrators, and equal opportunities for both sides to present their cases. To ensure these principles are not compromised, the Malta Arbitration centre has drawn up a the Rules of Ethics for arbitrators, any breach of which can be challenged in the Court of Appeal, constituting the only exception to the no-appeals rule.
“Anyone can act as an arbitrator,” commented Dr Ganado. “So long as the person enjoys the trust of both parties. In order to be able to offer people a wider choice of potential arbitrators, the Centre has started compiling panels of arbitrators, all experts in their own fields. All the arbitrators on our panels are highly qualified, with a minimum of seven years experience in their field and specially trained for arbitration duties. At the moment we are running the second set of lectures and seminars and we will soon have over 150 people who are eligible to act as arbitrators on our panels. And while this is a natural domain for lawyers, there has been interest from a great many people in other sectors. While 37 per cent of people following the arbitration training courses are lawyers, the remainder are made up of (15 per cent) architects, (17 per cent) accountants and (12 per cent) engineers.”
Dr Ganado agrees that for arbitration to become more significant in Maltese dispute settlement cases, the Centre will have to actively market the idea throughout the island. A widespread marketing campaign is planned to begin around October, but in the meantime, the Centre also aims to reach agreements with a number of organisations committing them to including arbitration clauses into new contracts.
“With the insurance sector we have already done this specifically on Motor Claims,” Dr Ganado said, “and we are actively working to achieve the same kind of agreement with other entities. We see great opportunities in the new Condominium Act, for example, and various of our board members are conducting meetings with hundreds of representatives from the Maritime sector, the IT and Internet arena and the industrial community to encourage them to start using arbitration clauses in their contracts.”
While the Malta Arbitration Centre sets up its ambitious plans for the future, including an on-line dispute settlement service over the Internet, and the promotion of Malta as a centre for international arbitration, as well as to build relationships with other international and national arbitration centres, Max Ganado is convinced that arbitration will become an essential component in Malta’s domestic dispute resolution mechanisms.
Considering the minuscule number of cases that have been registered this year, his assurance may seem misplaced. But as the powerful advantages arbitration offers are noted and registered, the Maltese business community may well be persuaded to set aside traditional, long-drawn out litigation for a swifter, more cost-effective and non-destructive alternative.