Defendant who litigates for years waives arbitration

The Court of Appeal, composed of Chief Justice Mark Chetcuti, Mr Justice Robert G. Mangion and Madam Justice Simone Grech, ruled on 26 May 2026 that defendants who let a case run on the merits for 12 years had waived an arbitration clause. It also held that a spouse not involved in the other spouse's business answers for the resulting debt with her share of the community of acquests, but not with her paraphernal property. In F.J. vs S.C. the court reduced the damages to €409,199.25 after finding that the investors shared responsibility for their loss.

The facts

Three investors engaged S.C. to provide marketing and management services for an international concert held in 2010. Their written agreement provided that disputes "shall be settled by an arbitrator appointed by all parties". The concert took place but made a heavy loss.

In 2012 the investors sued the manager and his wife for damages. On 31 October 2024 the First Hall of the Civil Court rejected the plea that it lacked jurisdiction. It found the manager negligent, careless and lacking in skill, though not fraudulent, and ordered both spouses to pay €545,599. Both spouses appealed.

What the court held

The court disagreed with the First Hall's reading of the arbitration clause. The word "may" in the clause on submitting disputes gave either party the procedural power to start arbitration once amicable settlement failed. It did not make arbitration optional, and a valid arbitration clause limits the jurisdiction of the ordinary courts.

A defendant need not file a separate application under article 15(3) of the Arbitration Act (Chapter 387 of the Laws of Malta) before its sworn reply. A preliminary plea in the reply is enough. But the court held that the party must press the point at the start and at least insist that the hearing on the merits be stayed.

Here the defendants raised the plea and then let the case run for 12 years on the evidence. The wife did not mention it in her submissions and raised it only as her second grievance on appeal. The court described this as conduct "li jekwivali b’mod evidenti għal rinunzja għall-eċċezzjoni mressqa minnha dwar nuqqas ta’ ġurisdizzjoni u għal rinunzja tal-applikazzjoni tal-klawsoli arbitrali" (which evidently amounts to a waiver of her plea of lack of jurisdiction and of the arbitration clauses).

On the wife's liability, the court held that her lack of involvement did not release her from the suit. Only the acts listed in article 1322(3) of the Civil Code (Chapter 16 of the Laws of Malta) are acts of extraordinary administration, and the husband's contract was not among them. In any event, article 1324 lets one spouse alone perform normal acts of a trade, business or profession.

A spouse who did not consent may seek annulment under article 1326(1), or require the other spouse to restore the community or pay damages under article 1326(5). The wife had done neither. Under article 1330, a creditor of such a debt reaches the community property and then the paraphernal property, meaning the separate property, of the spouse who traded, not that of the other spouse.

On liability, the court agreed that the manager had breached the management and escrow agreements. He showed projections of substantial profits, concealed poor sales, gave out more complimentary tickets than agreed and authorised payments without the investors' consent. The court found a direct causal link between that conduct and the loss.

The court found that the loss also had other causes. The concert coincided with the football World Cup and with other concerts, and the singer appealed to a limited audience. The manager had warned the investors about the World Cup, and they had done no research of their own.

The court held the defendants liable for three-quarters of the €545,599 assessed by the First Hall. It split the costs of both instances in the same proportion.

Why it matters

A defendant who wants arbitration must raise it at the outset and keep pressing for a stay. Taking part in years of evidence on the merits will be read as a waiver.

A spouse sued over the other spouse's business debt should not rely on non-involvement as a defence. The exposure can be limited to the community share, and paraphernal property stays out of reach.

Where it sits

Arbitration rests on written consent under the Arbitration Act. Article 742(3) of the Code of Organization and Civil Procedure (Chapter 12 of the Laws of Malta) keeps the court's jurisdiction but lets it stay proceedings where an arbitration clause exists. Waiver of the clause may be express or tacit. The rules on the community of acquests in articles 1320 to 1330 of the Civil Code decide which assets answer for a debt one spouse incurs.

On arbitration the court cited Clentec Limited vs Il-Ministru tas-Saħħa (Court of Appeal, 27 March 2020), Panta Marketing and Services Limited vs AX Construction Limited (Court of Appeal, 3 December 2010) and Trasporti e Movimenti Terra Limited vs Schembri Infrastructures Limited (Court of Appeal, 7 December 2023).

On one spouse's business acts it cited the Court of Appeal, Inferior Jurisdiction (10 January 2007) and the First Hall (4 December 2014 and 27 September 2024). On paraphernal property it cited the Court of Appeal (6 July 2007).

Source

Court of Appeal (Superior Jurisdiction), 783/2012/1, 26 May 2026.