ADR Dandy Myrel Shan

8/3/2019 ADR Dandy Myrel Shan

1/23

Republic Act 876: Arbitration Law

What is arbitration?

Arbitration has been defined under the ADR Act as a voluntary disputeresolution process in which one or more arbitrators appointed in accordancewith the agreement of the parties resolve a dispute by rendering an award.It is a non-adversarial settlement wherein the parties are free to choose thearbitrators that will compose the tribunal, the procedure to be followed in theproceedings, the venue of arbitration, and the substantive law that willgovern the proceedings.

Benefits of Arbitration

a. Fast, quick and easy :The number-one benefit of arbitration is that it serves as a forumto resolve disputes outside of the judicial system. Arbitration can befast, quick and easy, whereas lawsuits can drag on for years andyears. Since the rules of evidence and procedure are usuallyrelaxed in arbitration proceedings, the parties are also in a betterposition to represent themselves without having to get lawyersinvolved.

b. Less expensive:

It naturally follows that arbitration also tends to be less

expensive than pursuing a lawsuit. While the parties will usually endup having to pay the arbitrator, his or her fees will inevitably be lessthan the attorneys' fees that they may have to pay to take thesame case to trial.

c. Gives parties glimpse of where things are headed:

Even in non-binding arbitration, a benefit can be that it serves tobridge the gap in an adversarial proceeding so that the parties canget a better glimpse of where things are headed if they are unableto resolve their differences. Most cases settle, but many times it is

not until the parties are "on the courthouse steps." Non-bindingarbitration may help to facilitate a settlement sooner rather thanlater.

d. Not bound by strict rules of procedure:

Another good thing about arbitration is that an arbitrator istypically not bound by the strict rules of procedure in reaching a

1 | P a g e


2/23

decision. He or she can consider a lot more facts and circumstancesthan a judge or jury. Arbitrators typically try to be practical andoftentimes look at compromise as being inherently fair. Thus, thelikelihood is that an arbitrator's decision will award something to atleast one of the parties. However, you would not expect that

damages would be awarded that were anywhere near what a jurymight have awarded if (and that is a big if) the matter were to havebeen tried before a jury.

e. Brings finality:

Arbitration can also bring finality. Sometimes for the better, adecision on a binding arbitration cannot be appealed or overturnedin the absence of a showing of extraordinary circumstances (forexample, fraud, bias or other inappropriate actions on the part ofthe arbitrator). Thus, once a decision is rendered, the case is over.The losing party will typically not be able to appeal (which can make

the matter drag on for years and years).

f. Privacy and confidentiality:

Unlike in court litigation, greater confidentiality can be enjoyedby the parties.

g. Levels the playing field.

Arbitration proceedings are designed to level the playing fieldamong the parties in pursuit of mutually acceptable solution to theirconflicting claims, and any arrangements or scheme that would give

undue advantage to a party in negotiating table is anathema to thevery purpose of arbitration and should be resisted.

Policy to promote arbitration

The constitution, in Article VIII section 5 par 5, mandates the SupremeCourt to promulgate rules that shall provide a simplified and inexpensiveprocedure for the speedy disposition of cases.

In Home Bankers Savings and Trust Company Vs CA (318 SCRA 558),

the Supreme Court emphasized that arbitration as an alternative method ofdispute resolution is encouraged. Aside from unclogging judicial dockets, italso hastens solutions especially of commercial disputes. The Court lookswith favor upon amicable arrangement and will only interfere with greatreluctance to anticipate or nullify the action of the arbitrator.

2 | P a g e


3/23

Case:

LM Power Engineering Corporation Vs Capitol Industrial ConstructionGroups, Inc, 399 SCRA 562

Facts: LM Power Engineering Corporation and respondent Capitol

Industrial Construction Groups, Inc entered into a subcontract agreementinvolving electrical work at the Third Port of Zamboanga. Capitol took oversome of the work contracted to petitioner which the latter failed to finish.Upon completion, LM Power billed Capitol P6.7 M. Capitol refused to pay andinvoked the termination clause of the agreement allowing setoff of theamount Capitol owed LM Powers and the cost of the completion of theproject by Capitol. LM Powers filed a complaint before the RTC for thecollection of the alleged balance. Capitol filed a motion to dismiss on theground of lack of prior recourse to arbitration.

RTC ruled that the takeover of Capitol to finish the contract was nottermination of the agreement. Thus Capitol must pay LM powers on the workdone

CA reversed RTC and ordered referral of the case to arbitration.

Issue: Whether or not the controversy or dispute on the termination ofthe contract is intended to be a termination of the original contract underletter K of the subcontract whose interpretation and implementation requiresprior recourse to voluntary arbitration.

Ruling: The court sided with the respondent. In the arbitration clause,the parties agreed that any dispute or conflict as regards to interpretation

and implementation of the agreement which cannot be settled betweenCapitol and LM Powers amicably shall be settled by means of arbitration.Essentially, the dispute arose out of technical discrepancies which are betterleft to an arbitral body that has expertise in those areas. Arbitration is aninexpensive, speedy and amicable method of settling disputes.Along with mediation, conciliation and negotiation, it is encouragedby the Supreme Court. Aside from unclogging judicial dockets, it hastensthe resolution of disputes and is thus regarded as the wave of the future ininternational civil and commercial disputes. Consistent with the abovementioned policy of encouraging dispute resolution methods, courtsshould liberally construe arbitration clauses. Provided that the clause is

susceptible of an interpretation that covers the asserted dispute, an order toarbitrate should be granted. Any doubt should be resolved in favor ofarbitration.

Kinds of arbitration

3 | P a g e


4/23

There are two types of Arbitration:

1. Voluntary Arbitration2. Compulsory Arbitration

Voluntary Arbitration is a binding, adversarial dispute resolutionprocess in which the disputing parties choose one or more arbitratorsto hear their dispute and to render a final decision or award after anexpedited hearing

Voluntary arbitration implies that the two contending parties,unable to compromise their differences by themselves or with the helpof mediator or conciliator, agree to submit the conflict/ dispute to animpartial authority, whose decisions they are ready to accept. In otherwords, under voluntary arbitration the parties to the dispute can refer

voluntarily to arbitration before it is referred for adjudication. This typeof reference is known as voluntary reference, for the partiesthemselves volunteer to come to a settlement though an arbitrationmachinery.

The essential elements in voluntary arbitration are :

1. The voluntary submission of dispute to an arbitrator.2. The subsequent attendance of witnesses and investigations.3. The enforcement of an award may not be necessary and bindingbecause there is no compulsion.4. Voluntary arbitration may be specially needed for disputes arisingunder agreements.

Compulsory Arbitration is a non-binding, adversarial disputeresolution process in which one or more arbitrators hear arguments,weigh evidence and issue a non-binding judgment on the merits afteran expedited hearing. The arbitrator's decision addresses only thedisputed legal issues and applies legal standards. Either party mayreject the ruling and request a trial de novo in court.

Compulsory arbitration is one where the parties are required toaccept arbitration without any willingness on their part. When one ofthe parties to an industrial dispute feels aggrieved by an act of theother, it may apply to the appropriate government to refer the disputeto adjudication machinery. Such reference of a dispute is known ascompulsory or involuntary reference, because reference in suchcircumstances does not depend on the sweet will of either thecontending parties or any party to the dispute. It is entirely the

4 | P a g e


5/23

discretion of the appropriate govt. based on the question of existingdispute, or on the apprehension that industrial dispute will emerge inparticular establishment.

Under compulsory arbitration, the parties are forced to arbitration by

the state when:

1. The parties fail to arrive at a settlement by a voluntary method2. When there is a national emergency which requires that the wheelsof production should not be obstructed by frequent work-stoppage3. The country is passing through a grave economic crisis4. There is a grave public dissatisfaction with the existing industrialrelations5. Public interest and the working conditions have to be safeguardedand regulated by the state.

Form of Arbitration Agreement

Requisites: Section 4 RA 876

a. It shall be in writing

b. Subscribed by the party sought to be charged or by his lawfulagent

In BF Corporation Vs Court of Appeals, 288 SCRA 267, the Court heldthat there was a validly existing arbitration clause, where the articles ofagreement provides that Contract Documents listed shall form an integralpart of the Agreement and one of the said documents is the Conditions of thecontract which contains an arbitration clause but is not signed by the partieson any page thereof although it bears the initials of BFs representativeswithout the initials of any of the Shangrila Properties, Inc.

The Court emphasized that the formal requirements of an agreement toarbitrate are:

- It must be in writing and

- It must be subscribed by the parties or their representatives.There was no denying that the parties entered into a written contract thatwas submitted in evidence. To subscribe means to write underneath, asones name; to sign at the end of a document. That word maysometimes be construed to mean to give consent to or to attest. Since theArticles of Agreement, incorporating the arbitration clause wassigned by the representatives of both parties and duly notarized,

5 | P a g e


6/23

failure to initial the Conditions of the contract would not affectcompliance with the formal requirements for arbitrationagreements.

Who may be parties

a. Two or more persons or parties to any controversy existing betweenthem at the time of submission which may be the subject of an action

b. Parties to a contract with an agreement in such contract to settle byarbitration any controversy thereafter arising between them.

Exceptions:

a. One of the parties to the controversy is:

a.1. infant

a.2. person judicially declared to be incompetent

Exception to exception:

a. Submission to controversy was made by a general guardian orguardian adlitem of the infant or incompetent and courtapproved such petition for permission to submit to

arbitration

Case:

In Del Monte Corporation USA Vs Court of Appeals 351 SCRA373, A contract was entered into between DMC USA and MMI makingthe latter the sole and exclusive distributor of Del Monte products. Thecontract provided for an arbitration agreement. MMI with the consentof DMC-USA appointed SFI as its marketing arm to concentrate of theselling of the products. MMI subsequently suffered embarrassment andsubstantial damage due to existence of parallel imported fake DelMonte products. DMC-USA terminated the distributorship agreementwith MMI. As a result, MMI, SFI filed a complaint for damages againstDMC-USA. DMC-USA sought suspension of the proceedings due to the

existence of the arbitration agreement. The Court in denying DMC-USAs petition said that the agreement between the petitioner DMC-USA and private respondent MMI is a contract. As a rule, contracts arerespected as the law between the contracting parties and producteffect between them, their assigns and heirs. Clearly, only parties tothe agreement (DMC-USA and MMI) are bound by the agreement andits arbitration clause as they are the only signatories thereto. SFI andother petitioners are not parties to the agreements nor are they

6 | P a g e


7/23

considered assigns, or heirs. Consequently, arbitration before the Stateof California could be called for but only between the signatories andnot as to other parties. The object of arbitration is to allow theexpeditious determination of a dispute. Clearly, the isssuebefore us could not be speedily and efficiently resolved in its

entirety if we allow simultaneously arbitration proceedings andtrial or suspension of trial pending arbitration. Accordingly,the interest of justice would only be served if the trial courthears and adjudicates the case in a single completeproceeding.

What matters are subject of arbitration

a. Controversy arising from contract with arbitration clause

b. Any controversy between two or more persons which may be thesubject of an action

c. Includes valuation, appraisals or other controveries which maybe collateral, incidental, precedent, subsequent to any issuebetween the parties.

Exceptions:

a. Cases subject to jurisdiction of CIR (Court of IndustrialRelations)

Case:In National Steel Corporation Vs Regional Trial Court of Lanao del

Norte 304 SCRA 595, the Court ruled that a stipulation to refer all futuredisputes or to submit an ongoing dispute to an arbitrator is valid.

Institution of Arbitration of a dispute how made

a. In case of a contract to arbitrate future controversies by theservice of the other party upon the other of a demand for arbitrationin accordance with the contract( in person or by registered mail).

Contents of demand:

a. Nature of controversy

b. Amount involved

c. Relief sought

d. True copy of the contract providing for arbitration

7 | P a g e


8/23

In case the contract between the parties provides for appointment of asingle arbitrator demand shall set forth a specific time within which theparties shall agree upon such arbitrator

In case the contract between the parties provides for the appointment ofthree arbitrators, one to be selected by each party demand shall name the

arbitrator appointed by the party making the demand and shall require thatthe party upon whom the demand is made shall within fifteen days after thereceipt thereof advise in writing the party making such demand of the nameof the person appointed by the second party. Two arbitrators shall appointthe third within 10 days from such date or notice.

b. In case of an existing controversy to be submitted to arbitration byfiling with the clerk of court of CFI having jurisdiction of thesubmission agreement setting forth nature of cont, amountinvolved. may be filed by any party

If in the contract for arbitration or in the submission to arbitration, aprovision is made for a method of naming or appointing an arbitrator orarbitrators such method shall be followed. Otherwise, the CFI shalldesignate an arbitrator or arbitrators.

The CFI shall appoint an arbitrator or arbitrators in the followinginstances:

a) If the parties are unable to agree upon a single arbitrator

b) If an arbitrator appointed by the parties is unwilling or unable toserve, and his successor has not been appointed in the manner in

which he was appointedc) If either party to the contract fails or refuses to name his arbitrator

within 15 days after receipt of the demand for arbitration

d) If the arbitrators appointed by each party to the contract orappointed by one party to the contract and by the proper Court,shall fail to agree upon or to select the third arbitrator

e) Where the agreement is silent as to number of arbitrators in theproceeding cases, the court shall appoint the third arbitrator

Arbitrators appointed under this section shall either accept or decline theirappointments within seven days of the receipts of their appointments. In

case of declination or the failure of an arbitrators to duly accept theirappointment the parties or court shall appoint their substitute

Procedure in administered arbitration

8 | P a g e


9/23

Institutionalized arbitration is conducted through organized bodiessuch as courts of arbitration, trade associations, and arbitration centers andinstitutes, each prescribing its own different arbitration procedure. Foremostamong these institutions in the Philippines is the Philippine DisputeResolution Center Inc. ("PDRCI"). These institutions do not actually

participate in settling the dispute but help administer the arbitration andprovide a set of rules to govern the proceedings. For internationalarbitration, the popular institutional rules referred to are those of theInternational Chamber of Commerce ("ICC"), the Hongkong InternationalArbitration Centre ("HKIAC") and the Singapore International ArbitrationCentre ("SIAC").

Special proceeding to compel arbitration

In the event that one party defaults in answering the demand aggrieved party may file with the clerk of court of CFI having jurisdiction overthe parties a copy of the demand for arbitration under the contract toarbitrate with a notice that the original demand was sent by registered mailor delivered in person to the party against whom the claim is asserted.

Demand shall set forth:

a. Nature of controversy

Amount involved

Relied sought

Attach true copy of the contract providing for arbitration

Remedy for failure or refusal to arbitrate

In the event that one party neglects, fails or refuses to arbitrate undera submission agreement the aggrieved party shall serve the other by ademand for arbitration and in case of default file a copy with the clerk ofcourt.

When court may be involved

Sec 6 of RA 876 provides: Failure, neglect or refusal of another toperform under an agreement in writing providing for arbitration gives a rightto the aggrieved party to petition the court for an order directing that sucharbitration may proceed in the manner set forth in the agreement.

9 | P a g e


10/23

-5 days notice of the hearing of such application shall be served to theparty in default.

-Court shall hear the parties

-Court shall order the parties to proceed to arbitration upon beingsatisfied that the making of the agreement is not an issue

- if the making of the agreement is in issue, court shall summarilyhear such issue

- if the finding is that there is no written arbitration agreement courtshall dismiss the proceeding

- court has 10 days to resolve motions, petitions heard by it.

Case:

In MagellanCapital Management Corporation Vs Zosa, 355 SCRA157, the court ruled that the illegality or legality of an EmploymentAgreements Arbitration clause initially invoked by Zosa in seeking his

termination benefits under Section 8 of the employment contract iswithin the jurisdiction of the Regional Trial Court.

In LM Power Engineering Corp. Vs CICG, inc 399SCRA 562, thecourt ruled that the inclusion of an arbitration clause in a contract doesnot ipso facto divest the courts of jurisdiction to pass upon the findingsof arbitral bodies, because the awards are still judicially reviewableunder certain conditions.

Enforcement of arbitration agreement

Sec 4 par 2 of RA 876 provides that the making of the contract orsubmission for arbitration of any controversy shall be deemed a consent ofthe parties to the jurisdiction of the Court of First Instance of the province orCity where any of the parties resides, to enforce such contract or submission.

Existence of arbitration agreement

In case of a suit arising out of an agreement with arbitration clause,

the court in which the suit is pending, upon being satisfied that the suit isreferable to arbitration shall stay the action or proceeding until an arbitrationhas been had. Provided: the applicant for stay is not in default in arbitrationproceeding.

10 | P a g e


11/23

Definition. Arbitration agreement, arbitration clause andsubmission agreement

Arbitration agreement

provides the basis for arbitration.

Is an agreement to submit present or future disputes to arbitration.

Two basic types:

a. A clause in a contract, by which the parties to a contractundertake to submit to arbitration the disputes that may arise inrelation to that contract (arbitration clause); or

b. An agreement by which the parties to a dispute that has alreadyarisen submit the dispute to arbitration (submission agreement).

Arbitration clauseIt refers to disputes not existing when the agreement isexecuted. Such disputes might never arise. That is why the partiesmay define the subject matter of the arbitration by reference to therelationship out of which it derives.

Submission agreement

It refers to conflicts that have already arisen. It can include anaccurate description of the subject matters to be arbitrated. Somenational laws require the execution of a submission agreementregardless of the existence of a previous arbitration clause. In such

cases, one of the purposes of the submission agreement is tocomplement the generic reference to disputes by a detaileddescription of the issues to be resolved.

Form of arbitration agreement.

R.A. 876 Section 4. Form of arbitration agreement. - Acontract to arbitrate a controversy thereafter arising between theparties, as well as a submission to arbitrate an existing controversyshall be in writing and subscribed by the party sought to be charged,

or by his lawful agent.The making of a contract or submission for arbitration described

in section two hereof, providing for arbitration of any controversy, shallbe deemed a consent of the parties to the jurisdiction of the Court ofFirst Instance of the province or city where any of the parties resides,to enforce such contract or submission.

11 | P a g e


12/23

DOJ Circular No. 98Article 5.6. Form of ArbitrationAgreement.

An arbitration agreement shall be in writing. An agreement is inwriting if it is contained in a document signed by the parties or in anexchange of letters, telex, telegrams or other means of

telecommunication which provide a record of the agreement, or in anexchange of statements of claim and defense in which the existence ofan agreement is alleged by one party and not denied by the other. Thereference in a contract to a document containing an arbitration clauseconstitutes an arbitration agreement provided that the contract is inwriting and the reference is such as to make that clause part of thecontract.

Grounds to Challenge the Validity of the Arbitration

Agreement

The New York Convention adopts, to a greater extent than does theModel Law, the principle that the parties are free to determine a law differentfrom the law of the place of arbitration as the law applicable to thearbitration agreement.

The question of the existence and validity of the arbitration agreementmay arise in two different situations:

a. Initially, when one of the parties requests a court to recognize thearbitration agreement (for instance, by requesting the court to declineits jurisdiction or to appoint an arbitrator); or

b. At the end of the arbitration, when it is raised as a defense tochallenge recognition or enforcement of the arbitral award.

The New York Convention provides rules of conflicts of law for this lastsituation, but is silent about the first case.

When a dispute regarding the existence or validity of the arbitrationagreement arises at the stage of enforcing an award, Article V.1 providesthat

recognition and enforcement of the award may be refused, at the request ofthe party against whom it is invoked, only if that party furnishes to thecompetent authority where the recognition and enforcement is sought, proofthat: (a) The parties to the agreement referred to in Article II were, under thelaw applicable to them, under some incapacity, or the said agreement is notvalid under the law to which the parties have subjected it or, failing any

12 | P a g e


13/23

indication thereon, under the law of the country where the award wasmade.

Under this provision, the parties are free to determine the rules towhich they submit the validity and scope of the arbitration agreement. The

parties free will in this sense, however, is not unlimited, since it is generallyrequired that the rule of law chosen must have some connection with someof the elements (the legal transaction or the controversy). If nothing hasbeen agreed upon by the parties, the Convention refers to the local rules ofthe country where the award was made. Thus, the determination of the placeof arbitration becomes particularly important inasmuch as the award isconsidered made at that place.

Interpretation of Arbitration Agreement

For the situation described in a) above, Article II.3 of the Conventionestablishes:

The court of a Contracting State, when seized of an action in a matterin respect of which the parties have made an agreement within the meaningof this Article, shall, at the request of one of the parties, refer the parties toarbitration, unless it finds that the said agreement is null and void,inoperative or incapable of being performed.

As Article II does not contain any choice-of-law directive, as does articleV.1.a, opinions by commentators on the Convention vary:

For some, the same choice-of-law rules that govern at the award-enforcement stage under article V should apply as well at the earlieragreement enforcement stage under article II.

For others, an autonomous interpretation of article II is possible.

What is meant by autonomous interpretation?

The formal requirements for the validity of an arbitration agreement,laid down in article II.2, should supersede national law.

As the applicable law is not indicated, courts may under this wordingbe allowed some latitude: they may find an agreement incapable ofperformance if it offends the law or the public policy of the forum.

13 | P a g e


14/23

The standards that the Convention intends to establish for determiningenforcement or arbitral agreements are international standards.

Waiver

Implied waiver operates when one of the parties files a lawsuit aboutmatters contained in the arbitration agreement, and the other does nottimely object to the courts lack of jurisdiction.

As an example, the Spanish arbitration law provides that thearbitration agreement shall be deemed discharged if a complaint is filed andthe defendant does not raise lack of jurisdiction as a defense.

Application of Validity of Arbitration Clauses in DownloadingSoftware in the Internet

CASE: Ontario Superior Court of Justice, July 29, 1999, NetSys

Technology Group AB v. Open Text Corp.26

NetSys is a Swedish corporation that provides internet-related servicesto customers in Scandinavia. Open Text is an Ontario corporation thatdevelops, owns, licenses, and sells computer software products andprograms for creating, hosting and using searchable indexes on the internet.

The parties entered into a series of written agreements that includedprovisions for arbitration. After the agreements broke down, NetSys begancourt proceedings in Ontario against Open Text, which then institutedarbitral proceedings. NetSys objected that some of the matters brought toarbitration were not within the scope of the arbitration agreement, whileOpen Text sought a stay of all court proceedings. In resisting the stay,NetSys argued that since Open Text was claiming that the agreements werenull and void in the arbitration claim, it could not rely on article 8 of theModel Law and force arbitration. The Court rejected this argument. It reliedon article 16 of the Model Law to conclude that the arbitrator was competentto determine the validity of the contract and that this competence wasindependent of the validity of the arbitration agreement that wascontemplated in article 8. On the question of the scope of the arbitrationclause, the Court considered whether it should remit the issue to the arbitraltribunal as provided by article 16(3) of the Model Law. In concluding that itshould, the Court noted that the adoption of the Model Law in Ontariosignalled a significant trend to circumscribe judicial intervention in arbitralproceedings. The Court thus ordered a stay of judicial proceedings to remain

14 | P a g e


15/23

in force until the final disposition of the jurisdictional issue by the arbitraltribunal, whether as a preliminary decision or in the final award.

When a nonsignatory is bound by the Arbitration Agreement:

DOJ Circular No. 98

Article 5.44. Multi-Party Arbitration. (a)When a single arbitrationinvolves more than two parties, these Rules, to the extent possible, shall beused subject to such modifications consistent with Articles 5.17 (EqualTreatment of Parties) and 5.18 (Determination of Rules of Procedure) as thearbitral tribunal shall deem appropriate to address possible complexities of amulti-party arbitration. (b) When a claimant includes persons who are notparties to or otherwise bound by the arbitration agreement , directly or by

reference, between him/her and the respondent as additional claimants orthe additional respondents unless not later than the date communicatinghis/her answer to the request for arbitration, either by motion or by a specialdefense in his answer, he objects, on jurisdictional grounds, to the inclusionof such additional respondents. The additional respondents shall be deemedto have consented to their inclusion in the arbitration unless, not later thanthe date of communicating their answer to the request for arbitration, witherby motion or a special defense in their answer, they object, on jurisdictionalgrounds, to their inclusion.

Incorporation by Reference

Can arbitration be agreed upon by reference?

The Model Law admits a third form equivalent to a written arbitrationagreement: the reference in a contract to a document containing anarbitration clause, provided that the contract is in writing and the referenceis such as to make that clause part of the contract. The provision does notrequire the existence of a specific reference to the arbitration clause. If theother two requirements are fulfilled (i.e., the contract has been made inwriting and the reference unequivocally states that the clause is part of it), it

is enough for the clause to make a general reference to the document.

In ad hoc arbitrations, the parties must create their procedures. Thesecan be accomplished either by: laying down specific rules for that procedureor referring to a set of already existing rules. Even if the parties do notsubmit to arbitration administered by an institution, they may still

15 | P a g e


16/23

incorporate its regulatory provisions by reference, which shall be followed byboth the parties and the arbitrators.

Judicial Review of Arbitration Agreement

The law applicable to the arbitration agreement governs the formation,validity, enforcement and termination of the arbitration agreement. It dealswith such aspects as the formal requirements of the arbitration agreement,the arbitrability of its subject matter, its autonomy in relation to the contractin which it is contained, the arbitrators capacity to rule on their own jurisdiction and the extent to which judicial review is admissible. Theapplicable law also determines whether or not the submission agreement isrequired.

There are different criteria for determining the law applicable to thearbitration agreement. We shall focus on the most common ones:

The law chosen by the parties

Some laws allow the parties to choose the law applicable to thearbitration agreement, irrespective of the law governing other questionrelating to the arbitration.

The law applicable to the contract

Some authors claim that the law applicable to the arbitration

agreement is usually the law applicable to the contract that containsthe clause.

These authors nevertheless admit that the law applicable to theagreement could be different, since the arbitration agreement isseparable from the main contract.

The procedural law applicable to the arbitration

Another criterion consists of applying to the arbitration agreement theprocedural law that governs the arbitration. As shall be discussed, inthe absence of an agreement the procedural law is in principle the law

of the place of arbitration. Although rare in practice, the parties havethe right to choose a procedural law other than the law of the place ofarbitration.

The law of the place of the arbitration

16 | P a g e


17/23

Parties seldom indicate either a special law applicable to thearbitration agreement or a specific procedural law. Consequently, theplace of arbitration becomes important because it will then determinethe law applicable to the arbitration agreement

Stay of Civil Action

If any suit or proceeding be brought upon an issue arising out of anagreement providing for the arbitration thereof, the court in which such suitor proceeding is pending, upon being satisfied that the issue involved in suchsuit or proceeding is referable to arbitration, shall stay the action orproceeding until an arbitration has been had in accordance with the terms ofthe agreement: Provided, That the applicant, for the stay is not in default inproceeding with such arbitration.

Qualifications/Disqualifications of Arbitrators

Any person appointed to serve as an arbitrator must be of legal age,in full-enjoyment of his civil rights and know how to read and write. Noperson appointed to served as an arbitrator shall be related by blood ormarriage within the sixth degree to either party to the controversy. Noperson shall serve as an arbitrator in any proceeding if he has or has hadfinancial, fiduciary or other interest in the controversy or cause to be decided

or in the result of the proceeding, or has any personal bias, which mightprejudice the right of any party to a fair and impartial award.

No party shall select as an arbitrator any person to act as his champion or toadvocate his cause.

If, after appointment but before or during hearing, a person appointed toserve as an arbitrator shall discover any circumstances likely to create apresumption of bias, or which he believes might disqualify him as animpartial arbitrator, the arbitrator shall immediately disclose suchinformation to the parties. Thereafter the parties may agree in writing:

a. to waive the presumptive disqualifying circumstances; or

b. to declare the office of such arbitrator vacant. Any such vacancy

shall be filled in the same manner as the original appointmentwas made.

Appointment of Additional Arbitrators

17 | P a g e


18/23

Where a submission or contract provides that two or more arbitratorstherein designated or to be thereafter appointed by the parties, may selector appoint a person as an additional arbitrator, the selection or appointmentmust be in writing. Such additional arbitrator must sit with the originalarbitrators upon the hearing.

Inhibitions and Challenge

The arbitrators may be challenged only for the reasons mentioned inthe preceding section which may have arisen after the arbitration agreementor were unknown at the time of arbitration.

The challenge shall be made before them.

If they do not yield to the challenge, the challenging party may renew thechallenge before the Court of First Instance of the province or city in whichthe challenged arbitrator, or, any of them, if there be more than one, resides.

While the challenging incident is discussed before the court, the hearing orarbitration shall be suspended, and it shall be continued immediately afterthe court has delivered an order on the challenging incident.

Rules to govern proceedings

The terms of the submission or the contract between the parties asagreed upon shall govern the arbitration proceedings. Those who are notparties to a contract with an arbitration clause cannot be compelled tosubmit to arbitration proceedings. (Agan Jr. vs. Philippine International AirTerminal Co. Inc. 402 SCRA 612)

Setting the case for hearing

If the parties reside within the same city or province, theselected arbitrators must set a time and place for the hearing,within 5 days after appointment. Otherwise, i.e. parties reside indifferent cities or provinces, hearing shall be set within 15 days.

Notice must be given also to each of the parties involved.

Adjournment

The hearing can be postponed or adjourned by the arbitrators,only by agreement of the parties.

18 | P a g e


19/23

If there is no agreement between the parties, adjournment maybe ordered by the arbitrators upon their own motion only at thehearing and for good and sufficient cause.

No adjournment shall extend the hearing beyond the day fixed inthe submission or contract for rendering the award.

Exception:

When the time so fixed is extended by the writtenagreement of the parties.

Parties have continued with the arbitration withoutthe objection to such adjournment.

Right of Representation

No one other than the following shall be permitted by the arbitrators torepresent any party to the arbitration:

a. The party himself to the arbitration

b. Person in the regular employ of such party, dulyauthorized in writing by said party.

c. Practicing attorney at law.

Any party desiring to be represented by counsel shall notify the otherparty or parties of such intention at least five days prior to the hearing.

Privacy of proceedings.

Only the persons who have direct interest in the subject matter of thecontroversy shall have the right to attend any hearing. Attendance of anyother person shall be at the discretion of the arbitrators.

Effect of absence of oath.

a. No arbitrator shall hear any testimony without being sworn by any

officer authorized to administer an oath. Arbitrator shall swear thathe shall faithfully and fairly hear and examine the matters incontroversy and that he shall render a just award according to the

best of his ability and understanding.

b. No testimony of a witness shall be heard in the absence of an oath.The arbitrators shall have the power to administer the oaths to all

19 | P a g e


20/23

witnesses . Witnesses shall swear that they shall tell the wholetruth and nothing but the truth in any testimony.

Subpoena and subpoena duces tecum

Powers of the arbitrators:

a. Require any person to attend a hearing as a witness.

b. Subpoena witnesses and documents when the relevancy ofthe testimony and the materiality thereof has beendemonstrated to the arbitrators.

c. They may require the retirement of any witness during thetestimony of any other witness.

Hearing by arbitrators

Procedure

a. At the commencement of the hearing, arbitrators may askboth parties for brief statements of the issues in controversyand/or an agreed statement of facts.

b. Parties may offer such evidence as they desire and shallproduce such additional evidence as the arbitrators shallrequire.

c. Arbitrators shall be the sole judge of the relevancy andmateriality of evidence offered or produced.

d. At the close of the hearings, the arbitrators shall specificallyinquire of all parties whether they have any further proof orwitnesses to present; upon the receipt of a negative replyfrom all parties, the arbitrators shall declare the hearingclosed unless the parties have signified an intention to filebriefs.

e. The hearing shall ten be closed by the arbitrators after thereceipt of briefs and/or reply briefs.

f. Definite time limit for the filing of such briefs must be fixed nythe arbitrators at the close of the hearing. Briefs may be filedby the parties within fifteen days after the close of the oral

hearings. The reply briefs if any shall be filed within 5 daysfollowing such fifteen day period.

g. The hearing may be reopened by the arbitrators on their ownmotion or upon request of any party, upon good cause, shownat any time before the ward is rendered. When hearings arethus reopened the effective date for the closing of thehearings shall be the date of the closing of the reopenedhearing.

20 | P a g e


21/23

Proceeding in lieu of hearing.

The parties to a submission or contract to arbitrate may bywritten agreement submit their dispute to arbitration other

than by oral hearing.

a. The parties may submit an agreed statement of facts.They may also submit their respective contentions to theduly appointed arbitrators in writing; this shall includestatement of facts, together with all documentary proofs.

b. Parties may also submit a written argument. Each partyshall have an opportunity reply in writing to any otherpartys statement and proofs. If such party fails to do so

within seven days after receipt of such statements andproofs, he shall be deemed to have waived his right toreply. Upon delivery to the arbitrators of all statementsand documents, together with any reply statements, thearbitrators shall declare the proceedings in lieu of hearingclosed.

Voluntary arbitrators by the nature of their functions act in quasi-judicialcapacity. Their decision therefore is within the scope of judicial review.

( Philrock Inc. vs. Construction Industry Arbitration Commission 359 SCRA632)

Right to due process.

Notice shall be given to each party before the hearing by thearbitrators. However, hearing may proceed in the absence of any party who,after due notice fails to be present at such hearing or fails to obtain anadjournment thereof.

An award shall not be made solely on the default of a party. Thearbitrators shall require the other party to submit such evidence as they mayrequire for making an award.

Case: Unicraft Industries International Corporation vs. CA 355 SCRA233

Facts:

Petitioners failed to appear at a hearing scheduled on March 3, 1997 at3:00 o clock in the afternoon. The voluntary arbitrator rendered judgment

21 | P a g e


22/23

against them. In a motion for another hearing, the petitioner manifested tothe Voluntary Arbitrator that the reason why they failed to appear at thehearing was because they received notice of the said hearing only at 4:00oclock in the afternoon of that day. The motion was denied.

Issue: Is the decision of the arbitrator valid?

Ruling:

The omission to afford the petitioners a chance to presentevidence on their behalf is a clear violation of a partys constitutional rightand has the effect of rendering the arbitrators judgment null and void. It isa cardinal rule in law that a decision or judgment is fatally defective ifrendered in violation of a party litigants right to due process. In its mostbasic sense, the right to due process is simply that every man is accorded areasonable opportunity to be heard. Its very concept contemplates freedom

from arbitrariness, as what is required is fairness or justice.

Applicability of Rules of Evidence

Arbitrators shall not be bound to conform to the rules of courtpertaining to evidence. Arbitrators shall receive as exhibits in evidence anydocument which the parties may wish to submit and the exhibits shall beproperly identified at the time of submission. All exhibits shall remain in thecustody of the Clerk of Court during the course of the arbitration and shall bereturned to the parties at the time the award is made. The arbitrators maymake an ocular inspection of any matter or premises which are in dispute,but such inspection shall be made only in the presence of all parties to thearbitration, unless any party who shall have received notice thereof fails toappear, in which event such inspection shall be made in the absence of suchparty.

Interim Relief

Any party has the right to petition the court to take measures tosafeguard and/or conserve any matter which is the subject of the dispute inarbitration.

Case: Home bankers Savings and Trust Company vs. Court of Appeals318 SCRA 558

Facts:

Tancuan issued one Home Bankers Savings And Trust Company(HBSTC) check amounting to P25,250,000.00 while Arriesgado issued threeFar East Bank and Trust Company (FEBTC) checks amounting to a total of

22 | P a g e


23/23

25,250,000.00.. Tancuan and Arriesgado exchanged each others checksand deposited them with their respective banks for collection. When FEBTCpresented Tancuans HBSTC check for clearing, HBSTC dishonored it forbeuing drawn against insufficient funds. HBSTC received notice ofdishonor but refused to accept the checks and returned them to FEBTC

through the Philippine Clearing House Corporation (PCHC). FEBTC demandedreimbursement for the returned checks but HBSTC refused. Thus FEBTCsubmitted the dispute for arbitration to the PCHC Arbitration Committee.While arbitration proceeding was still pending, FEBTC filed an action for sumof money and damages with preliminary attachment against HBSTCsproperty. HBSTC filed a motion to dismiss arguing that the complaints seeksto enforce an arbitral reward that does not yet exist.

Issue:

Does FEBTC have cause of action to file the case in court consideringthat it has already submitted the issue for arbitration?

Ruling:

FEBTC can reiterate its cause of action before the courts which it hadalready raised in arbitration case since FEBTC seeks to collect a sum ofmoney from HBSTC and not to confirm an arbitral award. The court, citingSec 14 of RA 876 maintained that necessarily FEBTC has to reiterate its maincause of action for sum of money against HBSTC and that the prayer forconservatory relief (writ of preliminary attachment) satisfies therequirements of cause of action. Section 14 allows any party to thearbitration proceeding to petition the court to take measures to safeguard

and/or conserve any matter which is the subject of the dispute in arbitration.

Prepared by:Dandy L. CruzShantle Taciana P. FabicoMayvelyn P. Tajon

If someone brings a lawsuit against you, settle with your opponent quickly before you go tocourt. Otherwise, he will turn you over to the judge, who will turn you over to the police,who will put you in jail. There you will stay until you have paid the last penny. Mt 5:25

23 | P a g e