CHAPTER 4

ARBITRATION

PREPARED AND REPORTED BY:

APALE
ALBAY
CHAN
COMIA

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CHAPTER 4 - ARBITRATION

I. Concept of Arbitration

A. What is Arbitration?
- a voluntary dispute resolution process in which one or more arbitrators,
appointed in accordance with the agreement of the partiesor rules
promulgated pursuant to the ADR Act of 2004, to resolve a dispute by
rendering an award.

B. Distiction : Arbitration vs. Mediation

1. Arbitration
- It is a merit/evidence based form of ADR
- An Arbitrator decides the dispute and renders an Arbitral Award
to conclude the proceedings.
- It is concluded by an Arbitral Award consisting the partial or final
decision by an arbitrator in resolving the issue.
- Kinds of Arbitral Awards
i. Award on Agreed Terms
ii. Consent Award
iii. Award based on Compromise
2. Mediation
- the parties themselves who enter into process and executed a
mediated settlement agreeement to conclude the proceedings
guided by a mediator.

II. Kinds of Arbitration

A. In General
1. Voluntary
- When the arbitration which is submitted to an impartial body
whose members are chosen by the parties themselves and the
parties freely consent in advance to abide by the arbitral award
issued after the proceedings after both parties have been heard.

2. Compulsary
- The process of settlement of disputes by a government agency
which has to authority to investigate and to make an award which
is binding on all parties, where parties are compelled to accept the
resolution of their dispute through arbitration by a third party.

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 B. Based on the Seat of Arbitration
1. Domestic
- if none of its components are international in character and all are
located in the Philippines.
- Proceedings are governed by the ADR Act of 2004.

2. International (requisites)
a. The parties' place of business at the moment of the conclusion
of the arbitration agreement is in different states or;
b. The place of arbitration provided for in the arbitration
agreement and the parties' places of business is outside the
philippines or;
c. The place where the substantial part of the obligation is to be
performed or the place with which the subject matter of the
dispute is mostly connected and in which the parties' places of
business is outside the philippines or;
d. The parties have expressly agreed that the subject matter of the
arbitration agreement relates to more than one country.

3. International Commercial Arbitration

- it includes a requisite of International Arbitration
- It also covers matters arising from all relationships of a
comemrcial nature, whether contractual or not
- If the Seat of Arbitration of the International Commercial
Arbitration is the Philippines, the arbitration is governed by the
ADR Act of 2004 and it's IRR even if the palce of arbitration is
outside the Philippines.

4. Foreign
- The Seat of it's arbitration is outside the Philippines even if the
place or arbitration is outside the Philippines
- The ADR Act and its IRR govern the recognition and enforcement
of foreign arbitral awards.

Note: By providing for a system of arbitration of an international and

commercial character, the ADR Act of 2004 opened the Philippines as a
venue for International Commercial Arbitration.

III. Policy of Arbitration

A. Judical Policy on Arbitration

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 - Arbitration is encouraged by the Supreme Court. Aside from unclogging
Judicial dockets, it also hastens the resolution of disputes, especially of
the commercial kind. It is thus regarded as the wave of the future in
international civil and commercial disputes. Brushing aside a contract
agreement between the parties would be a step back. (Korea
Technologies Co., Ltd. v. Lerma)

B. Recognition of Arbitration
- In our jurisdiction, bonafide arbitration agreements are recognized as
valid; and the laws, rules, and regulations do exist protecting and
ensuring their enforcement as a matter of state policy. (Koppel, Inc. vs.
Makati Rotary Club Foundation, Inc.)

IV. Objectives of Arbitration

- To provide a speedy and inexpensive method of settling disputes by allowing
the parties to avoid the formalities, delay, expense, and aggravation which
commonly accompany ordinary litigation, especially litigation which goes
through the hierarchy of courts.

V. Arbitrator
A. What/Who is an Arbitrator
- Arbitration is conducted by an arbitrator or an arbitral composed of two
or more arbitrators.
- An arbitrator is the person appointed to render an award in a dispute
that is the subject of an arbitration agreement.

B. Arbiter and Arbitrator, distinguished

1. Arbiter – bound by rules of law and equity in rendering an award, e.g.,

Labor Arbiters

2. Arbitrator – may use his own discretion in the performance of his

functions

C. Voluntary arbitrators as a quasi-judicial instrumentality

- Voluntary arbitrators, by the nature of their functions, act in a quasi-
judicial capacity, such that their decisions are within the scope of judicial
review; they are comprehended within the concept of a ‘quasi-judicial
instrumentality.’

VI. Arbitration Agreement

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A. What is an Arbitration Agreement?
- It is the agreement of the parties to submit to arbitration all or certain
disputes which have arisen or which may arise between them in respect of
a defined legal relationship, whether contractual or not.
- By nature, it is contractual; hence, it should have the essential elements
of a contract:
1. consent of the parties
2. the cause or consideration
3. lawful object.
- In the agreement, the ordinary elements of a valid contract
must appear, including an agreement to arbitrate some specific thing,
and an agreement to abide by the reward, either expressed or implied.
- A contract is required for arbitration to take place and to be binding.
- When a party enters into a contract containing a foreign arbitration
clause in fact submits itself to arbitration. It becomes bound by the
contract, by the arbitration and by the result of the arbitration, conceding
thereby the capacity of the other party to enter into the contract,
participate in the arbitration and cause the implementation of the result.

B. Modes of submitting a dispute or controversy to arbitration

1. Agreement to submit to arbitration

– an agreement to submit to arbitration some future dispute
usually stipulated upon in a civil contract between the parties
2. Submission agreement
– an agreement to submit an existing matter of difference to
arbitrators

C. Requirements of an arbitration agreement as a form of contract

1. it must be in writing and;
2. it must be subscribed by the parties or their representatives.

D. How is an arbitration agreement constituted

1. It may be included in the container contract in which case, it is
referred to as an arbitration clause or compromissoire;
2. It may be constituted in a separate contract; or,
3. It may also come in the form of a reference in a written contract to
a document containing an arbitration clause such as to make that
clause part of the contract

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 Notes: Arbitration clauses must be liberally construed consistent with the
policy of encouraging ADR methods. Provided such clause is susceptible
of an interpretation that covers the asserted dispute, an order to arbitrate
should be granted. Any doubt should be resolved in favor of arbitration.

VII. Doctrine of Separability

- It is also known as the doctrine of severability
- It enunciates that an arbitration agreement is independent of the main contact
even if it is contained in an arbitration clause.
- The doctrine denotes that the invalidity of the main contract does not affect
the validity of the arbitration agreement. Irrespective of the fact that the main
contract is invalid, the arbitration clause/agreement still remains valid and
enforceable. (Gonzales v. Climax Mining Ltd.)

VIII. Due Process in Arbitral Proceedings

- ADR providers and practitioners, including arbitrators, act in quasi-judicial
capacity, and they are quasi-judicial agencies or instrumentalities.
- The principle of administrative due process equally apply to arbitral
proceedings. (Notice and Hearing)

IX. Judicial Review on Arbitration

A. Three types of Judicial Intervention

1. Judicial Assistance in Arbitration

- allows the parties to secure from courts orders or processes that

will aid in the Arbitration.

- these include Referral to arbitration, Issuance of interim measures

of protection, Assistance in taking evidence, Issuance of
confidentiality and Protective orders.

2. Judicial Review of Arbitration

- This involves passing upon the propriety of the arbitral award to

the extent allowed and on grounds provided by law.

3. Judicial Review of Court Decisions in ADR Related questions

- Involves the remedies available from decisions or orders of the

RTC and CA rendered in the two types of judicial interventions.

B. Judicial Review

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 - The decisions of an Arbitral Tribunal are subject to judicial review

- Jurisdiction of courts are not lost just by an arbitration clause in a

contract and arbitral awards are surely reviewable under certain
conditions. (RTC, then CA, then the Supreme Court)

- It is not a matter of right, however, but at the discretion of the Supreme

Court only on cases of serious and compelling reasons resulting in grave
prejudice to and aggrieved party in an Arbitral proceeding.

- As a general rule, the court can only vacate or set aside the decision of
an arbitral tribunal upon a clear showing that the award suffers from any
of the infirmities or grounds for vacating an arbitral award under Section
24 of Republic Act No. 876 or under Rule 34 of the Model Law in a
domestic arbitration, or for setting aside an award in an international
arbitration under Article 34 of the Model Law, or for such other grounds
provided under these Special Rules. (Rule 19.10, Special ADR Rules)

C. Jurisdiction of the Court in ADR Proceedings

- Arbitration and court action are complementary and may proceed at the
same time and independently of each other.

- The Court, during the action is brought on a matter which is the subject
of an arbitration agreement may refer the parties to arbitration if:

1. If requested by at least one of the parties not later than the

pre-trial conference

2. Unless it finds that the arbitration agreement is null and

void, inoperative or incapable of being performed.

- The judicial preceding is stayed until the completion of the arbitral

process and the court does not lose jurisdiction.

- Parties are compelled by the court to abide by the Arbitration

Agreement and Proceedings in Good faith, and setting it aside will
declare the Judicial Proceedings conducted after the case which should
have been referred to arbitration in the first place.

Notes: The policy of party autonomy is recognized in delimiting court

intervention in arbitration. No court shall intervene in Arbitration proceedings
except in instances provided for under the ADR Act.

X. Interim Measures in Arbitration

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A. Measure in General

- Also called Interim Measures of Protection or Provisional Reliefs

- Ancillary remedies intended for the protection of the subject matter of

the dispute.

- These measures includes but not limited to:

1. Appointment of receivers

2. Detentions of Property

3. Preservation of Property

4. Inspection of Property subject of the dispute

B. Where to secure Interim Measures:

1. The Arbitral Tribunal

2. The Court

-if not yet constituted or has no power to act or unable to act

effectively

- it cannot refuse to grant, implement or enforce a petition for an

interim measure on the sole ground that the petition is merely an
ancillary relief and the principal action is pending with an arbitral
tribunal.

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