Arbitration Agreement

Definition: An agreement by the parties to submit to arbitration all or certain disputes which may have arise between them in respect of a defined legal relationship, contractual or not.Note: may be in a contract or in a separate agreement.

Form • In writing

Considered in writing if:a. Contained in a document signed by the parties;b. Any means of telecommunication which provide a record of agreement;c. Exchange of statements od claim and defence in which

the existence of an agreement is alleged by one party and not denied by the other.

Note: Art. 7 of the Model Law requires a written agreement exist. The absence of such can be cured by a party’s submission to the proceeding without a timely objection thereto .

Importance of an Arbitration Agreement

• An arbitration is a matter of contract, and the parties are bound by the arbitration award only if they agreed to arbitrate the matter.

• An agreement to submit a dispute to arbitration generally produces effect only upon the parties, their heirs and assigns

Coverage: Present or Future Controversy

• The definition of an arbitration agreement as one which the parties submit present or future disputes

• This accords with RA 876 which defines arbitration as “a contract to arbitrate a controversy arising between the parties or as a submission to arbitrate an existing controversy.”In both cases the law requires the agreement to be in writing

When the validity of an arbitration contract may be question

• 1. When a contract containing an arbitration clause is formed by one party sending written terms to the other, which performs it bargain under the contract without returning or making any other exchange in writing in relation to the terms of the contract.

• 2. A contract containing an arbitration clause is formed on the basis of the contract text proposed by one parte, which is not explicitly accepted in writing by the other party, but the other party refers in writing to that contract in subsequent correspondence, invoice or letter of credit by mentioning for example, its date or contract number.

• 3. A contract is concluded through the broker who issues the text evidencing what the parties have agreed upon, including the arbitration clause , without there being any direct written communications between the parties

• 4. Reference in an oral agreement to a written set of terms, which may be standard in form, containing an arbitration agreement

When an agreement exist although not signed by one or both parties

• A party is bound by an arbitration agreement although it has not been signed by him In circumstances where:

• 1. Under the applicable law, such party is estopped to assert the contrary.

Ex. When there is some form of assent to the agreement

2. When the party raising the issue of its existence engage in activities consistent with the terms of the arbitration agreement.3. Where it is a customary practice in a particular industry

ex. In the entertainment industry, actors perform under a written contact although the contract itself is unsigned.

Some Cases

• M&I Electric Industrial, Inc. v. Rapistan Demag Corp • “An unsigned purchase order containing an arbitration clause

was held to be binding upon a party who performed the work in the purchase order, it having been determined that the purchase order remains unsigned by the parties.”

• Hardin Constr. Group v. Strictly Painting, Inc.• “When a subcontractor performed work on previous projects

each under a subcontract containing an arbitration clause, in the last project after the subcontractor commenced work but

• before an arbitration clause was signed a dispute arose, the court held the parties are bound to submit their dispute to arbitration”

“The Halogaland Court of Appeals held that there was no expressed arbitration agreement signed between the parties. It expressed doubts as to whether e-mail transcripts satisfied the requirements of a signed arbitration clause as the contents of the e-mail appear obscure, incomplete and reflect only fragments of an agreement. The e-mails exchanged were between the brokers but no powers of attorney from their principals were presented.”

When an Arbitration Agreement is Unenforceable

An arbitration agrement is null and void when the competent arbitral tribunal is neither unambiguously determined nor unabiguously determinable.

When Third Parties are Bound

General Rule: Only parties, their heirs and assigns are bound by an arbitration agreement

Exception: Under the ADR Act, in a civil action involving parties who are bound by an arbitration agreement and those who are not, the Court is directed to refer to arbitration those who are bound to an arbitration agreement and to continue the suit as to those who are not

Rule 4.7 (Special Rules on ADR): The court may issue an order directing the inclusion of those who are not bound to an arbitration agreement PROVIDED they agree to be included and those originally bound by the arbitration agreement do not object to their inclusion.

Issues Whether a Third Person is Bound by An Arbitration Agreement

1. 3rdP rights and obligations under arbitration agreements in contracts which bestow benefits on 3rdP beneficiaries or stipulations in favor of 3rdP. ( stipulation pour autrui)

2. 3rdP rights and obligations under arbitration agreements or novation of the underlying contract to the 3rdp.

3. 3rdP rights and obligations where the 3rdP exercises subrogated rights.4. Rights and obligations under arbitration agreements where the interest

in contracts are asserted by successors to parties, following merger or demerger of companies, so that the companies entity is no longer the same

Incorporation by Reference“ The reference in the contract to a document containing an arbitration agreement constitutes an arbitration agreement PROVIDED THAT the contract is in writing and the reference is such as to make that clause part of the contract.” ( Last sentence Art. 7(2) Modal Law)

Incorporation by Reference Doctrine: For an arbitration agreement to be incorporated by reference in a contract, it is not required that it be make an explicit reference to the document to be incorporated. It is sufficient that the reference is such as to make the arbitration agreement part of the contract.

* for there to be incorporation by reference, the parties MUST HAVE INTENDED of the arbitration agreement to form part of the contract.

When Members of Associations are Bound by Association Rules

Issue: Whether a member of an association was bound by association rules providing for arbitration as means of settlement of disputes between the member and the association?

1. “By becoming a member of an association, a claimant MUST BE DEEMED to have consented to them, regardless of whether the claimant had seen the rules or had obtained a copy of such rules.”

2. “Only those who approve the amendment were bound by it. The fact the plaintiff remained a member of the association even after the amendment of its rules was not deemed an acquiescence to the amendment since the association was one in which the members are not free to decide to joi or to resign after joining.”

When condition Precedent is not Complied with

Westco Air Conditioning Ltd. V. Sui Chong Construction & Engineering Co. Ltd -Subcontract between the parties required certaqin disputes to be refered first to the architect and later to arbitration if either party disagreed with the conclusion of the architect.-Westco commenced an action against Sui Chong, the latter moved for a stay of the proceedings and prayed for an order of a reference to arbitration.-Westco alleged that the arbitration agreement was “inoperative” since it required prior referal to the achitectRuling: HK High Court held the dispute was referable to arbitration. Prior referal to the architect was a “first instance” procedure and not inconsistent with the concept of arbitration. The phrase “refer the parties to arbitration” may be construed not necessarily to arbitrators but to the process of arbitration the parties had agreed to undertake.

When a Party is Estopped to Assert the Contrary

“production of a written contract, although unsigned by the parties, coupled with letters of the defendant to the court in China (demurred and informed the court that the parties had an arbitration agreement) were sufficient to established the requirements of a written arbitration agreement. Moreover, the defendant was in estoppel and may not be allowed to assert a fact contrary to it own representation.” (Jiangxi Provincial Metal & Mineral Import & Export Corp. v. Sulanser Co., Ltd)

Enforcement of Settlement Agreement

Shanghai Foreign Trade Corp. v. Sigma Metallurgical Co. Pty. Ltd.-Parties entered into a2 contracts for the supply of scrap iron, each containing a clause for submission of disputes to arbitration.-Shanghai Foreign alleged that it and Sigma has settled a claim for damages for breach of contract and sought enforcement of settlement agreement in Australia. Sigma admitted the settlement agreement argued its consent was obtained thru coercion. It further argued the settlement should be decided by arbitration in accordance to the contract.-The settlement agreement did not contain an arbitration clause.Held: The Supreme Court of New South Wales, Commercial Division acknowledged that there was a connection between the supply contracts and the settlement agreement. Although the arbitration clause in the supply contracts provide for submission of disputes in connection with the contract or execution thereof, it should be understood as having reference to the making, validity and enforceability of each contract, and not go any further as to apply to disputes regarding the validity or enforcement of the settlement agreement reached by friendly negotiation.

Disputes Arising from Defined Legal Relationshipthe dispute submitted to arbitration must have arisen from a “defined legal relationship”

need not be contractual nor required to be considered commercial(Should be given to a wide interpretation)

The phrase “dispute…” must be interpreted to cover “ all non- contractual cases occurring in practice.NOTE: the ADR Law limits the application of the Modal Law ONLY to commercial disputes; Non-commecisal disputes may be submitted to arbitration under RA 876