On 28 April 2025, the Court of Magistrates, presided over by Magistrate Dr Victor G. Axiak, delivered a partial judgment in the case of Nigel Scerri and Ennessee Ltd v. SR Environmental Solutions Ltd. This case raised significant issues on the operation of Article 15(3) of the Arbitration Act (Chapter 387 of the laws of Malta) and the impact of arbitration clauses on the jurisdiction of Maltese civil courts.

The case revolves around the correct interpretation of Article 15(3) of the Arbitration Act and the enforceability of arbitration clauses when raised at the preliminary stage but not by separate application.

Background and Facts

The dispute revolved around unpaid invoices totalling €5,692.21 issued by the plaintiffs: Mr. Nigel Scerri and his company Ennessee Ltd against SR Environmental Solutions Ltd. These invoices derived from two separate contractual arrangements:

1.                 an Engagement Letter dated 1 November 2019 between Mr. Scerri and SR Environmental, under which he was to render accountancy-related services; and

2.                 a Secondment Agreement dated 3 August 2022 between Ennessee Ltd and SR Environmental, under which the company was to second an employee for full-time services over a three-year period.

While the Engagement Letter contained a forum selection clause in favour of the Maltese civil courts, the Secondment Agreement included a detailed arbitration clause, referring all disputes to the Malta Arbitration Centre and expressly excluding appeals from the final arbitral tribunal awards.

Two of the three invoices in question stemmed from the secondment arrangement. The defendant raised several preliminary pleas, including a challenge to jurisdiction based on an arbitration clause in the Secondment Agreement and a claim that one of the invoices fell within the jurisdiction of the Small Claims Tribunal.

Preliminary Plea and Article 15(3) of the Arbitration Act

The procedural controversy arose because SR Environmental did not file a separate application to stay the proceedings under Article 15(3) of the Arbitration Act. Instead, it included the arbitration objection within its written defence.

The plaintiffs objected, arguing that the defendant had waived the right to arbitration by failing to follow the correct procedure: that is, by not filing a separate application before taking any other procedural steps.

Article 15(3) of the Arbitration Act provides that: "if any party to an arbitration agreement, or any person claiming through or under him, commences any legal proceedings in any court against any other party to the arbitration agreement or any person claiming through or under him, in respect of any matter agreed to be referred to arbitration, any party to such legal proceedings may at any time before delivering any pleadings or taking other steps in the proceedings, apply to that court to stay the proceedings..."

The Court extensively analysed the wording of this provision, drawing comparisons with its equivalents under the UNCITRAL Model Law and the UK Arbitration Act 1996. It observed that the Maltese approach significantly diverges from both, which permit a referral to arbitration provided the request is made no later than the party's first substantive statement in the proceedings.

By contrast, Malta's version requires that the application be made before any steps in the proceedings, including preliminary pleas. The Court acknowledged that this creates a stricter requirement, placing a procedural burden on the party invoking arbitration. Magistrate Axiak also referred to Article 742(3) of the Code of Organisation and Civil Procedure (Chapter 12 of the laws of Malta), which states that: "The jurisdiction of the courts of civil jurisdiction is not excluded by the fact that there exists among the parties any arbitration agreement, whether the arbitration proceedings have commenced or not, in which case the court, saving the provisions of any law governing arbitration, shall stay proceedings without prejudice to the provisions of sub-article (4) and to the right of the court to give any order of direction."

This Articles allows courts to stay proceedings but confirms that the procedural requirements under Chapter 387 of the laws of Malta take precedence as lex specialis.

Judicial Philosophy and Parliamentary Intent

One of the most insightful aspects of this judgment was the Court's detailed engagement with Parliamentary debates from 1995, when the Arbitration Act was first introduced. Quoting these 1995 debates, the Court noted:

"This is a law of utmost importance ... aimed at revitalising the use of arbitration in Malta. It is designed to create an efficient and modern framework to encourage parties and lawyers to refer disputes to arbitration and reduce the burden on our courts."

The judgment contextualised the adoption of Article 15(3) as part of this broader policy push to promote arbitration not only as an alternative to litigation but as a primary avenue for efficient dispute resolution.

Jurisprudential Divergence on Article 15(3)

Magistrate Axiak acknowledged that Maltese jurisprudence on this issue has been inconsistent, with two opposing interpretations of Article 15(3):

• The strict interpretation that arbitration must be invoked through a separate, pre-defence application. If not, the right to arbitration is forfeited. This interpretation favours legal certainty, procedural discipline, and protects the civil court's jurisdiction from casual challenge and it was followed in one line of decisions including AIS Environmental Ltd v. Transport Malta (02/02/2016) and Zamsul Contractors Ltd v. Pharmacare Premium Ltd (14/06/2012).
• The flexible more recent interpretation which allows the right to arbitration to be raised within the defence, particularly if it is the first statement on the substance. This approach favours party autonomy and the intention of the contracting parties as expressed in their agreement and it was followed in a contrasting more recent line of decisions, including Clentec Limited v. Ministry of Health (27/03/2019) and Glynn Gareth Clews v. Nadia Ahmad Costa et (15/07/2024).

The crux of the interpretive issue lay in the word "may" used in Article 15(3). According to one school of thought - rejected by the Court - this term allows a party to choose both whether and how to invoke arbitration. That is, the party could opt to file a separate application or raise the issue within the defence.

The Court endorsed a second, narrower view: the word "may" merely indicates that a party is not compelled to invoke arbitration. However, if it chooses to do so, it must follow the procedure strictly. The discretion lies only in the decision whether to arbitrate, not in how to go about it.

Still, in evaluating the specific facts of this case, the Court considered whether the plaintiffs had clearly and unequivocally preserved their right to arbitration, even if they had not followed the ideal procedural route. The Court said that it favours an argument put forward by the First Hall Civil Court in Glynn Gareth Clews v. Nadia Ahmad Costa et (15/07/2024) that a party who fails to file a separate application to stay proceedings cannot be deemed to have tacitly waived its right to invoke the arbitration clause when it has unequivocally shown its intention to preserve that right by raising it as a plea in its reply.

Court Decision

The Court's reasoning in this case was not limited to a mechanical application of Article 15(3) - it delved into the deeper legislative intent and interpretive principles surrounding the provision. The Court emphasised that unless it is shown otherwise, the interpretation of legislation must follow the traditional principle: ubi lex voluit, dixit; ubi noluit, tacuit (where the law wished to speak, it did; where it did not, it was silent). In the Court's view, the wording used in Article 15(3) - that a request to stay proceedings must be made "before submitting any pleas or taking any other step in the proceedings" was deliberate and precise, not an accidental departure from international norms.

At the same time, the Court made it all the more important to ensure that Article 15(3) was interpreted functionally and not restrictively, in order to maintain arbitration's accessibility and effectiveness in line with the legal purpose which the Arbitration Act seeks to fulfil. It maintained that recent case law had trended towards a more flexible, functional approach. The Court therefore confirmed that, where a party raises the arbitration clause at the earliest opportunity in its reply and unequivocally demonstrates its intent to preserve the right, there should be no automatic forfeiture of that right, even if a separate application was not filed.

The Court ruled that the claims based on the Secondment Agreement were governed by a valid and binding arbitration clause. The plea was raised at the first opportunity, and the defendant had demonstrated a clear intention to rely on arbitration. Therefore, the Court held that it lacked jurisdiction to hear those parts of the dispute and referred them to arbitration However, the invoice based on the Engagement Letter remained within the Court's jurisdiction, as that agreement contained a forum clause favouring the civil courts.

Legal and Practical Significance

This case is a landmark in clarifying how Maltese courts balance procedural discipline with respect for arbitration agreements. While the judgement confirms that a party can lose its right to arbitration if it delays or fails to follow proper procedure, it also recognises that form must not override substance when the party's intent to arbitrate is clear and timely.

In the author's view, this ruling underscores the importance of interpreting arbitration laws in light of their purpose and legislative history, that procedural flexibility, when used appropriately, serves to protect the legitimacy of arbitration and that legal certainty clearly requires a clarification of Article 15(3) of the Arbitration Act as the divergence in our case law creates unnecessary uncertainty. The Court's balanced approach reflects the evolution of arbitration jurisprudence in Malta, and its intent to position arbitration not as a mere alternative to litigation, but as a primary and respected form of dispute resolution.

Dr Ria Micallef is a Senior Associate at Ganado Advocates.

Disclaimer: Ganado Advocates is responsible for contributing to this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report.