Philippine Institute of Arbitrators

Involved in Arbitration / ADR?

We know the different processes.
We can help you dissect and analyze them,
refine and combine them, and create hybrid
procedures to make them suitable for
particular relationships, as well as to develop
strategies and point you to the right direction.

COMPREHENDING PARTY
AUTONOMY IN THE RESOLUTION
OF PRIVATEbyDISPUTES
MARIO E. VALDERRAMA LLB, FCIARb, FHKIArb, FPIArb
CIArb Approved Tutor
CIAC, PDRCI & WESM Accredited Arbitrator
Member (co-opted) of the Branch Main Committee of
The Chartered Institute of Arbitrators
East Asia Branch
Contact Details
Tel No 367 4001; Telefax 362 1867
Mobile 0917 4114 594
E-mail <[email protected]>

PRELIMINARY: ASEAN
INTEGRATION 2015

ASEAN MEMBERS: Brunei, Cambodia, Indonesia, Laos,

Malaysia, Myanmar, The Philippines, Singapore,
Thailand and Vietnam.

Purpose of Asean 2015: Basically focused on the

economic competitiveness of the Asean Nations.

Means to achieve purpose: all the separate markets of

the Asean Nations will coalesce into one. (Creation of an
Asean Economic Community).

PRELIMINARY: ASEAN
INTEGRATION 2015

Free flow of goods, services, investment capital and

skilled labor within Asean.

Competition among Asean members re inbound

investments and jobs expected, but the hope is that the
line between competition and collaboration will be less
clear in the future.

Private dispute resolution practices would most likely be

the preferred mode, but there is now some movement in
the public processes.

TOPIC PROPER

PARTY AUTONOMY IN THE RESOLUTION

OF PRIVATE DISPUTES

CONCEPT AND NATURE

R.A. 9285 defined it as the freedom of the

party (should be parties) to make their own
arrangements to resolve their disputes (see
Sec. 2).

It is contractual by nature.

INHERENT OR GRANTED
RIGHT?

It is an inherent right. Parties entered into

contracts even before governments and
courts came into being.

Accordingly, the law affirmed, rather than

granted, the right or freedom.

BASIS

The basis is the underlying concept behind

the freedom to contract: a party who reached
the age of majority is an adult, and is
presumed to have sufficient discretion to
make informed decisions.
He may, therefore, create legal relations by
contract.
In the same manner, he also has the freedom
to make his own arrangements in resolving
his private disputes.

TEST OF VALIDITY OF
DISPUTE RESOLUTION

CLAUSES
Again, contractual.
It is valid if valid as a contract.
Note: Most of the grounds to challenge the
jurisdiction of an arbitral tribunal and many of
the grounds to challenge an award are
grounds to attack a contract or based on
contractual precepts. The other grounds are
based on the judicial constituent element of
an arbitration.

THE PROPER APPROACH:

Clearing-Up the Confusion

The proper approach is to apply contractual

precepts rather than be legalistic.

The wrong approach will result to the wrong

conclusions.

THE WRONG APPROACH:

EXAMPLE

On the availability of a merits review of

arbitral awards (in agreement based
arbitration), for example, one may conclude
that it is available if he were to look at the law
first and the stipulation thereafter.

Note: Law is in Rule 43 Sec.1 re appealability

of awards of arbitrators authorized by law.

THE CORRECT
APPROACH

The correct approach is to look at the

contract first, and thereafter determine if the
contract contravened mandatory provisions
of law.

In agreement based arbitration, our example,

the contract is to abide by the decision of the
arbitral tribunal. The conclusion, therefore, is
that a merits review is not available.

THE CORRECT
APPROACH

Principle of Finality of Award is Contractual

x x x arbitrators are judges chosen by the
parties to decide the matters submitted to .
them, finally and without appeal x x x (Burchell
v Marsh, 58 U.S.. 344, 15 L.Ed. 96 (1854).

The essence of the arbitration process is that an

arbitral award shall put the dispute to rest x x x.
Arbitral finality is a core component of the
parties agreement to submit to arbitration. Thus,
an arbitration decision is final and conclusive
because the parties have agreed that it be so x x
x. (Stasz v Schwab).

THE APPLICABLE RULES

The applicable rules are the contractual

precepts.
So, our interest, as a general proposition,
should be on:

The age of consent, rule on capacity to act and the

circumstances modifying/limiting capacity to act
The principle of the autonomy of contracts
The rule that contractual stipulations are the law
between the parties
The general limitation on contractual autonomy
The other limitations on contractual autonomy

CORRELATIONS

Age of consent: formerly 21, but reduced

to 18 by R.A. 6809.

Capacity to act and circumstances

limiting capacity to act see NCC Arts. 37
and 39. Note the rules involving
corporations, government entities, the
rule on agency. Note also that capacities
are governed by the national/domiciliary
law of the party involved.

CORRELATIONS

The
autonomy
of
contracts

contracting parties may freely stipulate,

and as a general proposition their
stipulation is the law between them.
(see NCC Arts. 1159 and 1306).

CORRELATIONS

Just like contractual autonomy, party

autonomy in the resolution of disputes is
also not absolute.

Correlation:
autonomy
contrary to
public order,
1306).

The limits of contractual

The stipulation must not be
law, morals, good customs,
and public policy (See NCC Art.

Limitations on Party
Autonomy

As a general proposition, the limitation refers to

matters that are not subject to contract, e.g.
most criminal (but not civil) liability, matrimonial
disputes other than those involving property and
custody of children, civil status of persons, the
jurisdiction of courts, and future legitime (see
R.A. No. 9285 Sec. 6).
In certain instances, it may arise from the public
policy to protect classes with weak bargaining
positions, e.g., the labor contracts exception if
covered by our Labor Code (ibid).

Limitations on Party
Autonomy

Consumer arbitration under the Consumers Act

also limits party autonomy as consumers are
classes with weak bargaining positions. This
public policy may also prevent arbitration of
disputes falling under the HLURB and DAR
jurisdictions.
The limitation may also arise from public policy
declarations, such as in CIAC arbitration.

SIDELIGHT: Public Policy in

Creating the CIAC

There is hereby declared to be the policy of the

State to encourage the early and expeditious
settlement of disputes in the Philippine
Construction Industry (E.O. 1008, Sec. 2,
Declaration of Policy)

CONTRACTUAL PRECEPTS:
DYNAMICS

Agreements cannot contravene mandatory

provisions of law.
The stipulation between the parties is the law
between them as long as the stipulation does
not contravene any mandatory provision of
law.
Many provisions in contract law are default
provisions. They apply in the absence or
deficiency of agreement.

CONTRACTUAL PRECEPTS:
DYNAMICS

NOTE: There are two types of mandatory

provisions in contract law.

One type renders a violating stipulation void but does

not impose any other obligation on the parties.
Example: the not less than 1 yr. limitation re
prescriptive period applicable to insurance contracts.
The other type imposes additional obligations on the
parties. Example: the provision granting CIAC
exclusive and primary jurisdiction over domestic
construction disputes if an arbitration clause were
present. (But see China Chiang Jiang).

CONTRACTUAL PRECEPTS:
DYNAMICS

NOTE: In local text books, distinctions are

drawn between mandatory and directory
provisions.
Directory provisions have a broader concept
than default provisions.
The concept of default provisions is included
within the concept of directory provisions.

CONTRACTUAL PRECEPTS:
DYNAMICS

In agreement based arbitrations, UNCITRAL

Model Law 1985 Art. 19.2 introduced the
concept of arbitrator discretion.
Note that arbitrator discretion is available
only if (1) its exercise will not contravene any
mandatory provision of law; (2) there is no
agreement on the matter; and (3) there is no
default provision of law.

CONTRACTUAL PRECEPTS:
DYNAMICS

UNCITRAL Model Law 1985 Art. 19.2:

Failing such agreement (re agreement of the
parties as to the procedure), the arbitral
tribunal may, subject to the provisions of this
Law, conduct the arbitration in such manner
as it considers appropriate. xxx

CONTRACTUAL PRECEPTS:
DYNAMICS

Order of Preference in Crafting the Procedure in

Agreement Based Arbitrations:

Mandatory provisions/rules

Agreement

Default provisions/rules

Arbitrator discretion

Contractual Precepts:
Dynamics; Order of
WARNING: The IRRs Art. 523 applicable to Domestic
Preference

Arbitration (but not to International Arbitration) provided

procedures in default of agreement by the parties. Most,
in fact almost all, of them have no statutory support and
could even be said as not in accordance with law, that is,
against MAL Arts. 18 and 19 which are also applicable to
domestic arbitration.

The better provision, perhaps, is to suggest the

procedures as agenda items rather than imply that they
are default provisions or rules

SIDELIGHT: HOW
INSTITUTIONS PRESERVE

PARTY
AUTONOMY
Mandatory
provisions
in
arbitral
institutions are few and far between. In
ICC Rules the provisions concerning the
fees and those involving the award, which
should be reasoned, are mandatory.

UNCITRAL Rules 1976 has a mandatory

provisions clause in its Section I Article
1.2.

SIDELIGHT: HOW
INSTITUTIONS PRESERVE

PARTY
AUTONOMY
UNCITRAL
Rules 1976 Section I Article
1.2.
These Rules shall govern the arbitration
except that where any of these Rules is in
conflict with a provision of law applicable
to the arbitration from which the parties
cannot derogate, that provision shall
prevail.

SIDELIGHT: HOW
INSTITUTIONS PRESERVE

PARTY
AUTONOMY
Arbitral institutions
make use of default

provisions those with the phrases

unless otherwise agreed upon by the
parties, subject to the agreement
between the parties, and similar words.
ICC Rules has several default provisions.
UNCITRAL Rules 1976 has a general
default provisions clause in its Sec. I Art.
1.1. (also called opt-out provision).

SIDELIGHT: HOW
INSTITUTIONS PRESERVE

PARTY
AUTONOMY
UNCITRAL
Rules 1976 Sec. I Art. 1.1.
Where the parties to a contract have agreed
in writing that disputes in relation to that
contract shall be referred to arbitration under
the UNCITRAL Arbitration Rules, then such
disputes shall be settled in accordance with
these Rules subject to such modification as
the parties may agree in writing.

DYNAMICS: ILLUSTRATION

In their arbitration agreement, the parties

agreed that one of them can appoint two out
of the three arbitrators. Valid?
Answer: No. This contravenes the principle of
equality between the parties, a mandatory
rule see MAL Art. 18, also NCC Art. 2045.
(Magellan Capital Management Corporation
vs. Zosa, 355 SCRA 157 [2001])

DYNAMICS: ILLUSTRATION

In an arbitration, the parties cannot agree on

whether or not the award shall be a reasoned
award. May the arbitrator in the exercise of
his discretion insist that the award shall be
without reason?
Answer: No. The default legal provision is
that the award should be with reasons. see
MAL Art. 31.2; also R.A. 9285 Sec. 33.

DYNAMICS: ILLUSTRATION

In an ICC arbitration, the parties agreed that

the award shall be without reason. Valid?

Answer: No. Under ICC Rules the rule that

the award should be with reasons is
mandatory. see ICC Rule Art. 31.2.

Steps in Exercising Party

Autonomy

Choose the
resolution

mode

of

dispute

Agree on the rules and procedures

that will govern the chosen mode.

FIRST STEP

The first step involves making a choice from

among the different modes of dispute resolution.
Note that the choices involve varying degrees of
party control, from almost unlimited to almost
none.
Note also that, in certain instances, the parties
have limited choices or no choice at all.

FIRST STEP: The Dispute

Resolution Spectrum

Non-Jurisdictional and ADR

Avoidance, violence, chance

Negotiation
Conciliation and Mediation

Other ADR forms

Special Mention: Adjudication

Jurisdictional

Arbitration

Statutory Arbitration

Litigation

SIDELIGHT: NEGOTIATION

Only the disputing parties are involved in

attempting to reach a settlement of their
differences; a verbal or written interactive
process where the decision is made by the
parties.

SIDELIGHT: MEDIATION

A third party assisted negotiation; the

process is voluntary and collaborative in that
the disputing parties are not required to
negotiate; if they agree to negotiate they
themselves have to make decisions on the
outcome to which each of them can assent;
and the third party has no stake the outcome
because his role is only to assist the
negotiators in the process of negotiation and
decision making.

SIDELIGHT: THE HYBRIDS,

EXAMPLES

Mini Trials
Non-binding arbitration
Med-Arb
Arb-Med
Early neutral evaluation
Early expert evaluation
The Hire-a-Judge Concept

SIDELIGHT: ADJUDICATION IN
THE CONSTRUCTION INDUSTY

Operating Concepts:
1.

2.

3.

Disputes are better resolved as soon as they arise, rather than

wait until they pile up and the amounts involved have bloated.
Cash flow is important.
In the executory award models: at the end of the construction
period there is still enough money to cover wrong payments.

May be statutory or contractual.

Models: the Fidic Model, the World Bank Model. Variant is to
constitute the adjudication board at inception of contract.

SECOND STEP

The
second
complicated.

Sample Clause:

Any

step

is

more

dispute arising out of or

relation to this contract shall first
referred to mediation before any
the parties could go to court (or
arbitration, as the case maybe).

in
be
of
to

SAMPLE CLAUSE:
MEDIATION

The clause left many unanswered questions that

may become bones of contention once a dispute
arises. It could in fact be used by a recalcitrant to
delay the resolution of the dispute.

It is actually worse in Phl because of the definition of

court referred mediation in R.A. 9285 Sec. 3.m.

Note: There is an attempt in the IRR to cure the

problem.

SAMPLE CLAUSE:
ARBITRATION

Is the following clause in

international contract workable?

an

Dispute resolution: arbitration in the

Philippines.

SAMPLE CLAUSE:
ARBITRATION

The clause also left

unanswered questions.

several

The difference is that, this time, our

arbitration law provided default
provisions.

Role of Law Proposing to

Promote
Party Autonomy

The default provisions are the rules

that will apply in the absence or in
case of deficiency of agreement
between the parties. They the
default provisions fill-in the blanks
to make the choice of the parties
workable.

Role of the Law

Examples of default provisions:

English as the default language in

international arbitration; English or Filipino
in domestic arbitration; in both cases also
giving the arbitral tribunal some leeway by
providing it with discretion to designate the
language of arbitration (R.A. 9285, Sec. 31
and 33).

Role of the Law

Examples of default provisions:

Metro Manila as the default place of

arbitration but giving the arbitral tribunal
some leeway by providing it with discretion
to designate the place (R.A. 9285 Secs. 30
and 33).

Role of the Law

Examples of default provisions:

The number of arbitrators (3); the manner

of appointment (each party appoints one,
and the appointed arbitrators to appoint
the third); the institution of the appointing
authority who will appoint the arbitrator for
a recalcitrant or the third or sole arbitrator
in default of agreement (Model Law Arts. 10
and 11; also RA 9285 Sec 33).

Role of the Law

Examples of default provisions:

Awards in international arbitrations

are law based (Model Law Art. 28.1);
R.A. 876 implies that awards in
domestic arbitrations are equity
based (see RA 876 Secs 13 and 20).

Role of the Law

And
thus,
the
unanswered
questions in the sample clause
were answered by the default
provisions of law.

Role of the Law

Role of a law proposing to promote party
autonomy

To allow viable choices

To provide the rules, called default rules,

that will apply should the agreement be
deficient in the important categories of
choice so as to make the choice of the
parties workable.

REQUIREMENT FOR
DEFAULT RULE/PROCEDURE

The default rule or procedure must

be viable.

REQUIREMENT FOR
DEFAULT RULE/PROCEDURE
Is the following arbitration clause in a
domestic contract pathological?
Any dispute arising out of or in connection
with this contract shall be referred to
arbitration.

REQUIREMENT FOR
DEFAULT RULE/PROCEDURE
R.A. 876 Sec. 21. Fees of arbitration.
The fees of the arbitrators shall be fifty
pesos per day unless the parties agree
otherwise in writing prior to the
arbitration.
Note: There is an attempt in the IRR to
cure the problem.

COUNTERPART OF PARTY
AUTONOMY

Freedom
seldom
comes
without responsibility.

PARTY AUTONOMY AND THE

PROBLEMS OF THE
JUDICIARY

Party autonomy has more to do with

rights of choice, less with the problems
of the judiciary. It is not intended to
solve the problems of the judiciary.
Private disputes between private
parties ought to be resolved through
private means.

PARTY AUTONOMY AND THE

PROBLEMS OF THE

JUDICIARY
The connection is indirect and consequential,
rather than direct.
To the extent that parties would avail of
dispute resolution methods other than
litigation in resolving their disputes, to that
extent also will courts have time for their
more proper function, which is to resolve
disputes involving public policy and interest.

BIBLIOGRAPHY

CIArb Teaching Manual (culled from various

sources)
PIArb Teaching Manual (culled from various
sources)
R.A. 876; UNCITRAL Model Law 1985;
UNCITRAL RULES 1976; New ICC Rules;
R.A. 9285; New Civil Code; E.O. 1008

WANT TO KNOW MORE?

Attend our courses and
seminars
Contact us for schedules.
Visit us at
[www.philippinearbitrators.org]
Philippine Institute of Arbitrators
c/o Atty. Mario E. Valderrama
Tel. No. (632) 367 4001
Telefax (632) 362 1867
E-mail: [email protected]