13 MARCH 2002

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Arbitration as a dispute resolution mechanism

By Audrienne Spiteri Gonzi

As one travels from East to West the tendency to settle disputes and to get one’s point across in an adversarial and litigious fashion becomes more pronounced. Indeed, in many a situation, it is even considered weak to resolve without reference to force. For many years the law courts have been the "ideal" and one and only institution perceived to promote equity and justice in society. For this reason many of us are born and bred into a culture that promotes this belief. We tend to argue that to settle for anything less is hardly good enough an alternative.

The reality is somewhat different. Indeed there is a high price attached to this kind of worldview and dominant culture. The price of litigation is not only measured in terms of those legal costs that burden one’s pocket directly but more in that which is less direct. The most important factors for most people being speed and efficiency. Indeed time can save money. Entrenched in the conflict and this dominant mentality that surrounds us, we tend to forget that. Therefore we need to ask the question: is the legal system delivering a fast resolution to my dispute? Have business transactions suffered in the process? Has the traditional path of going to court escalated the dispute or made it less confidential? The answer is generally yes to all. Indeed a litigious approach to conflict does offer a costly and timely alternative. It generally does escalate the intensity of the conflict and it certainly makes for a more expensive settlement, particularly when one considers the end result: one that often leaves the parties powerless over maintaining confidentiality and over preserving existing and future relationships.

Arbitration offers an alternative to the business community, in that it seeks to handle disputes in a speedier and more cost-effective manner. Arbitration today is accepted as one of the world’s most effective mechanisms to resolving disputes. In Malta, the idea is still not entirely welcomed by our business community and many are still questioning the efforts advanced so far. Criticism tends to arise due to a lack of familiarity with the arbitration process itself, rather than out of fault with the system per se. The Arbitration process offers a number of advantages that far outweigh the advantages of litigious procedures. Unfortunately, the economic importance though highly significant, is often underestimated. The business community in Malta, needs to be confident that Arbitration may be the ideal alternative to settling their disputes and that inserting arbitration clauses within contractual agreements certainly serves to act as a risk management factor against future disputes.

Arbitration as a dispute resolution mechanism is gaining greater importance for the settlement of commercial disputes because its proceedings are less formal, more expedient and less costly than court proceedings while decisions remain just as enforceable. Moreover strict confidentiality is exercised throughout all stages of the arbitral process and parties have a right to appoint an arbitrator(s) of their own choice. The Malta Arbitration Act now stipulates that arbitrations are supervised by a national institution and regulated by rules and procedures to ensure expediency, accuracy and efficiency.

The newly set up regulatory authority for arbitration in Malta is the Malta Arbitration Centre. The Malta Arbitration Centre by means of its panel of domestic and international arbitrators commits to provide an expert service to parties interested in submitting an existing dispute to arbitration. As a risk management factor against future disputes, the Centre’s strategy is to encourage operators in key economic sectors to adopt arbitration as the method of dispute resolution, by inserting arbitration clauses in contractual agreements.

Costs in Arbitration have been a major focus of the Malta Arbitration Centre. The Centre believes that for arbitration to be widely used it has to be cost-effective. Consequently, the Board of the Centre has recently agreed to review the present tariffs in such as way as to make them even more competitive and attractive to parties. In this respect, with effect from, 1 November 2001, the Arbitration Centre's registry fees will amount to only 25% of those charged for similar cases brought before the Superiour Courts. Taking into consideration even the arbitrator's fee, the overall monetary costs, should still be considerably cheaper than litigation. Moreover, it is being proposed that, any lawsuits pending before the courts which are referred to the Malta Arbitration Centre, and for which court registry fees have already been paid, will not be charged registry fees by the Centre. When it comes to arbitrator’s fees, it is essential that the arbitrator agree his terms of appointment with the parties at the outset, and preferably before finally agreeing to accept the appointment, since in this manner, parties will be fully aware of all potential costs. Furthermore, agreement will provide certainty and serve to benefit both the arbitrator and the parties. When parties clearly know in advance what the costs incurred will amount to, they can budget to meet their timeframes and costs. The Malta Arbitration Centre will issue guidelines on the rules applicable to fees for arbitrators.

Therefore arbitration is the way forward today. Litigation, should not be considered as the only option to settlement of disputes. Due to the increasing globalisation of trade, industry and services and the concomitant internationalisation of disputes, arbitration has become viable, and in many respects a preferred mechanism of resolving disputes. Additionally, arbitration is being perceived as being a means by which the already burdened civil justice system might be capable of coping in the 21st Century. Viewed as a whole, arbitrators offer something, which is not necessarily already available. As a Maltese society, with a proactive vision, we need to keep abreast of current developments and to make it our business to take a keen interest and explore further how arbitration can be the vehicle to managing disputes in a faster and more cost-effective manner.

The Business Times, Network House, Vjal ir-Rihan San Gwann SGN 07
Tel: (356) 382741-3, 382745-6 | Fax: (356) 385075 | e-mail: editorial@networkpublications.com.mt