An arbitration clause is a contractual provision by which parties agree that, if a dispute arises between them, that dispute will be decided by arbitration rather than through the ordinary court process. In practical terms, the parties choose a private dispute-resolution mechanism, usually before an arbitrator, instead of immediately litigating before the courts. This does not mean that the courts become irrelevant. It means that, where the clause is valid and properly invoked, the court may stop its own proceedings so that the dispute is dealt with in the forum chosen by the parties.
The judgment of the Court of Appeal in Jennifer Farrugia et v Roy Steer Chethman et, decided on 26 May 2026, is useful because it explains the operation of such a clause in simple but important terms. The agreement in that case first required the parties to attempt an amicable settlement. If that failed, the dispute could be submitted for settlement under the arbitration clause. The difficulty arose because one part of the agreement used the word “may”, while the arbitration clause itself used the word “shall”. The First Court considered that arbitration was therefore optional. The Court of Appeal disagreed.
The Court said:
“Il-kelma ‘may’, fil-kuntest ta’ din il-klawsola, ma toħloqx forum alternattiv.”
[The word ‘may’, in the context of this clause, does not create an alternative forum.]
This is an important point of contractual interpretation. A clause is not read by isolating one word and giving it a detached meaning. It must be read in the context of the whole agreement. The Court emphasised that contractual clauses must be interpreted harmoniously, so that each part is given effect and no clause is reduced to useless language. Therefore, the word “may” did not mean that a party could choose freely between arbitration and court proceedings. Rather, it meant that either party had the procedural right to start the arbitration process once amicable settlement had failed. The compulsory nature of arbitration still came from the following clause, which stated that the matter “shall be settled” by an arbitrator.
The judgment also places arbitration within its proper legal setting. Arbitration is based on consent. The parties are not forced into it by accident; they agree to it. Referring to earlier authority, the Court recalled that arbitration rests on a voluntary relationship between parties who have chosen to refer their dispute to a third person trusted by them.
“hawn naraw ir-rapport volontarju ta’ bejn żewġ partijiet li jkollhom disputa bejniethom u dwar liema l-istess partijiet ikunu qablu li jirriferu l-kwistjoni għad-determinazzjoni quddiem arbitru u ċjoè terza persuna li jkollha l-fiduċja tagħhom.”
[Here we see the voluntary relationship between two parties who have a dispute between them and who have agreed to refer the matter for determination before an arbitrator, that is, a third person in whom they have trust.]
For that reason, an arbitration clause has procedural importance. It does not normally create the substantive obligations of the contract. Those obligations are found elsewhere in the agreement. The arbitration clause determines who is to decide disputes about those obligations. This is why the judgment refers to Heyman v Darwins Ltd, where the arbitration clause was treated as distinct from the other contractual clauses: the other clauses create duties; the arbitration clause identifies the tribunal that will decide disputes about those duties.
The judgment also confirms that an arbitration agreement must be in writing. This is not a minor evidential matter. The written form is required because agreeing to arbitration may involve giving up, at least for that dispute, the ordinary judicial route.
“il-forma skritta għall-kostituzzjoni tal-att ta’ arbitraġġ hija rikjesta ad validitatem jew ad solemnitatem u mhux sempliċement ad probationem.”
[The written form for the constitution of the arbitration act is required for validity or solemnity, and not merely for proof.]
The same reasoning explains why the courts are careful not to extend arbitration clauses beyond what the parties actually agreed. Arbitration is respected because it reflects party autonomy. But that autonomy must be clear. The Court referred to the principle that an arbitration clause binds only within the strict parameters in which it was stipulated. One cannot enlarge it merely because Maltese law gives serious weight to arbitration as a dispute-resolution mechanism.
At the same time, the existence of an arbitration clause does not automatically erase the court’s jurisdiction. The Court made it clear that the mere presence of such a clause does not mean that the court has no jurisdiction at all. What may happen is that the court stays, or suspends, its proceedings so that the arbitration process can take place.
“il-fatt waħdu li jkun hemm klawsola arbitrali bħal din fi ftehim ma jeskludix il-ġurisdizzjoni tal-Qrati.”
[The mere fact that there is such an arbitration clause in an agreement does not exclude the jurisdiction of the Courts.]
This distinction is very important. A party who wishes to rely on the arbitration clause must act promptly. The request to stop the court proceedings must be made at the beginning. It may be done by a separate application, or it may be raised as a preliminary plea in the sworn reply. The law is not interested in unnecessary formalism; what matters is that the arbitration point is raised before the party engages with the merits of the case.
As the Court explained through the cited jurisprudence:
“Dak li hu importanti allura, mhux li, qabel ma jressaq l-eċċezzjonijiet tiegħu, il-konvenut, b’talba ad hoc, jitlob riferenza għall-Arbitraġġ, iżda li din ir-riferenza tiġi mitluba l-ewwel ħaġa.”
[What is important, therefore, is not that before filing his pleas the defendant must, by an ad hoc application, request a reference to arbitration, but that this reference is requested as the first thing.]
In the Rod Stewart concert case, the defendants had raised the arbitration point, but they did not insist on having the court proceedings suspended. They allowed the case to continue for many years on the merits. The Court of Appeal held that such conduct amounted to a waiver of the arbitration clause. A party cannot keep the arbitration clause in reserve, participate in the case for years, and then try to revive the clause on appeal as a way of avoiding the result.
The practical message is clear. An arbitration clause can be powerful, but it must be treated seriously from the beginning. Those drafting contracts should use clear language, preferably stating that disputes “shall be referred to and finally resolved by arbitration”. Those relying on such a clause must raise it immediately and pursue it consistently. Those opposing it may still argue that the clause does not cover the dispute, that it was not properly agreed in writing, that it has become inoperative, or that the other party has waived it by conduct.
The value of the judgment lies in its balance. It respects arbitration as a legitimate choice made by contracting parties. It also protects the court process from tactical delay. Arbitration is therefore neither a casual contractual phrase nor an automatic escape from litigation. It is a binding procedural choice, but one that must be clear, written, properly invoked, and pursued without delay.
