Arbitration Definitions

8/19/2019 Arbitration Definitions

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Special Problems in Arbitration

I. Introduction

A. Definition of Terms – RA 9285, Sec. and IRR!RA 9285, Art. ".#

1. Arbitration means a voluntary dispute resolution process in which one or more arbitrators,appointed in accordance with the agreement of the parties, or rules promulgated pursuant to this Act,

resolve a dispute by rendering an award.

2. International Arbitration means arbitration where:

A. the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different states; or

B. one of the following places is situated outside the hilippines in which the parties have their places

of business:

I. the place of arbitration if determined in, or pursuant to, the arbitration agreement;

II. any place where a substantial part of the obligations of the commercial relationship I to be performed or the place with which the sub!ect matter of the dispute is most closely connected;

or

". the parties have e#pressly agreed that the sub!ect mater of the arbitration agreement relates to more

than one country.

$or this purpose:

A. if a party has more than one place of business, the place of business is that which has the closest

relationship to the arbitration agreement;

B. if the party does not have a place of business, reference is to be made to hise%her habitual residence.

&. Domestic Arbitration means arbitration that is not international as defined in Art 1'&( of the )odel

*aw.

+. Institutional Arbitration means arbitration administered by an entity, which is registered as a

domestic corporation with the ecurities and -#change "ommission '-"( and engaged in, among

others, arbitration of disputes in the hilippines on a regular and permanent basis.

. Ad $oc Arbitration means an arbitration administered by an arbitrator and%or the parties themselves.

An arbitration administered by an institution shall be regarded as an ad hoc arbitration if such

institution is not a permanent or regular arbitration institution in the hilippines.

/. Arbitrator means the person appointed to render an award, alone or with others, in a dispute that is

the sub!ect of an arbitration agreement.

0. Arbitral Tribunal means a sole arbitrator or a panel of arbitrators.


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. A%ard means any partial or final decision by an arbitrator in resolving the issue in a controversy.

. &ommercial Arbitration An arbitration is commercial if it covers matter arising from all

relationships of a commercial nature, whether contractual or not.

13. &on'ention A%ard means a foreign arbitral award made in a "onvention tate.

11. &on'ention State means a state that is a member of the 4ew 5or6 "onvention.

12. (odel )a% means the )odel *aw on International "ommercial Arbitration adopted by the 7nited 4ations "ommission on International 8rade *aw on 21 9une 1.

1&. *e% +or &on'ention means the 7nited 4ations "onvention on the ecognition and -nforcementof $oreign Arbitral Awards approved in 1 and ratified by the hilippine enate under enate

esolution 4o. 01.

1+. *on!&on'ention A%ard means a foreign arbitral award made in a tate which is not a "onventiontate.

1. *on!&on'ention State means a tate that is not a member of the 4ew 5or6 "onvention.

B. State Polic- on Arbitration

". RA 9285, Sec. 2 A( as animportant means to achieve speedy and impartial !ustice and to declog court doc6ets; , * ? ?

'c( 8o provide means for the use of A


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'd( 8o enlist active private sector participation in the settlement of disputes through A


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of an arbitral tribunal in a dispute brought before it, either before or after the arbitral tribunal is

constituted, the court must e#ercise !udicial restraint and defer to the competence or !urisdiction

of the arbitral tribunal by allowing the arbitral tribunal the first opportunity to rule upon such

issues.

=here the court is as6ed to ma6e a determination of whether the arbitration agreement is null and void,

inoperative or incapable of being performed, under this policy of !udicial restraint, the court must ma6eno more than a prima facie determination of that issue.

7nless the court, pursuant to such prima facie determination, concludes that the arbitration agreementis null and void, inoperative or incapable of being performed, the court must suspend the action before

it and refer the parties to arbitration pursuant to the arbitration agreement.

1. A.(. *o. 01!""!08!S&, Rule "." pirit and intent of the pecial A


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1. =hether or not there e#ists a controversy%dispute between etitioner and espondent regarding

the interpretation and implementation of the ubcontract Agreement that reuires prior recourse

to voluntary arbitrationL;

2. In the affirmative, whether or not there is a need to file a reuest first with the "IA" in order tovest it with !urisdiction to decide a construction disputeL

A@7)-48:1.

etitioner claims that there is no conflict regarding the interpretation or the implementation of the

Agreement. 8hus, without having to resort to prior arbitration, it is entitled to collect the value of theservices it rendered through an ordinary action for the collection of a sum of money from espondent.

n the other hand, espondent contends that there is a need for prior arbitration as provided in theAgreement. 8his is because there are some disparities between the parties positions regarding the

e#tent of the wor6 done, the amount of advances and billable accomplishments, and the set off of

e#penses incurred by espondent in its ta6eover of etitioners wor6.

2.

According to etitioner, assuming arguendo that the dispute is arbitrable, the failure to file a formal

reuest for arbitration with the"IA" precluded the latter from acuiring !urisdiction over the uestion.

7*I4@:

8he etition is unmeritorious; hence,


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Being an ine#pensive, speedy and amicable method of settling disputes, arbitration H along with

mediation, conciliation and negotiation H is encouraged by the ". Aside from unclogging !udicial

doc6ets, arbitration also hastens the resolution of disputes, especially of the commercial 6ind. It is thusregarded as the Ewave of the futureF in international civil and commercial disputes. Brushing aside a

contractual agreement calling for arbitration between the parties would be a step bac6ward.

"onsistent with the abovementioned policy of encouraging alternative dispute resolution methods,

courts should liberally construe arbitration clauses. rovided 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.

2.ection 1 of Article III of the 4-= ules of rocedure @overning "onstruction Arbitration provides:

E-"8I4 1. ubmission to "IA" 9urisdiction H An arbitration clause in a construction contract or a

submission to arbitration of a construction dispute shall be deemed an agreement to submit an e#isting

or future controversy to "IA" !urisdiction, notwithstanding the reference to a different arbitrationinstitution or arbitral body in such contract or submission. =hen a contract contains a clause for the

submission of a future controversy to arbitration, it is not necessary for the parties to enter into a

submission agreement before the claimant may invo6e the !urisdiction of "IA".F

As clearly e#plained in "hina "hang 9iang -nergy "orporation 'hilippines( v. osal Infrastructure

Builders et al. 'an e#tended unsigned esolution( and reiterated in 4ational Irrigation Administration v."ourt of Appeals M1N, from which " uote thus:

E7nder the present ules of rocedure, for a particular construction contract to fall within the

!urisdiction of "IA", it is merely reuired that the parties agree to submit the same to voluntary

arbitration unli6e in the original version of ection 1, as applied in the 8esco case, the law as it nowstands does not provide that the parties should agree to submit disputes arising from their agreement

specifically to the "IA" for the latter to acuire !urisdiction over the same. ather, it is plain and clear

that as long as the parties agree to submit to voluntary arbitration, regardless of what forum they maychoose, their agreement will fall within the !urisdiction of the "IA", such that, even if they specifically

choose another forum, the parties will not be precluded from electing to submit their dispute before the

"IA" because this right has been vested upon each party by law, i.e., -.. 4o. 133.F

"learly, there is no more need to file a reuest with the "IA" in order to vest it with !urisdiction to

decide a construction dispute.8he arbitral clause in the Agreement is a commitment on the part of the parties to submit to arbitration

the disputes covered therein. Because that clause is binding, they are e#pected to abide by it in good

faith. And because it covers the dispute between the parties in the present case, either of them may

compel the other to arbitrate.

9. Korean Technologies Co. Ltd. Vs Hon. Alberto Lerma

A&TS

Jorea 8echnologies "o., *td. MJorea 8echN, a Jorean corporation, entered into a contract with

acific @eneral teel )anufacturing "orporation Macific @eneralN, a domestic corporation,

whereby Jorea 8ech undertoo6 to ship and install in acific @enerals site in "armona, "avite themachinery and facilities necessary for manufacturing *@ cylinders, and to initially operate the

plant after it is installed. 8he plant, after completion of installation, could not be operated by acific


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@eneral due to its financial difficulties affecting the supply of materials. 8he last payments made by

acific @eneral to Jorea 8ech consisted of postdated chec6s which were dishonored upon

presentment. According to acific @eneral, it stopped payment because Jorea 8ech had delivered a

hydraulic press which was different in 6ind and of lower uality than that agreed upon. Jorea 8echalso failed to deliver euipment parts already paid for by it. It threatened to cancel the contract with

Jorea 8ech and dismantle the "armona plant. Jorea 8ech initiated arbitration before the Jorea

"ommercial Arbitration Board MJ"ABN in eoul, Jorea and, at the same time, commenced a civilaction before the egional 8rial "ourt Mthe Etrial courtFN where it prayed that acific @eneral be

restrained from dismantling the plant and euipment. acific @eneral opposed the application and

argued that the arbitration clause was null and void, being contrary to public policy as it ousts thelocal court of !urisdiction. It also alleged that Jorea 8ech was not entitled to the payment of the

amount covered by the two chec6s, and that Jorea 8ech was liable for damages.

8he trial court denied the application for preliminary in!unction and declared the arbitration

agreement null and void. Jorea 8ech moved to dismiss the counterclaims for damages.

)eanwhile, acific @eneral filed a motion Efor inspection of thingsF to determine whether therewas indeed alteration of the uantity and lowering of uality of the machineries and euipment and

whether these were properly installed. Jorea 8ech opposed the motion arguing that these issues

were proper for determination in the arbitration proceeding.

8he court denied the motion to dismiss and granted the motion for inspection of things. 8he court

also directed the Branch heriff to proceed with the inspection of the machineries and euipment inthe plant. 8he Branch heriff later reported his finding that the enumerated machineries and

euipment were not fully and properly installed.

Jorea 8ech filed a petition for certiorari before the "ourt of Appeals M"AN. 8he court dismissed the petition and held that an arbitration clause which provided for a final determination of the legal

rights of the parties to the contract by arbitration was against public policy.

ISS74 =hether or not the arbitration clause stated in Article 1 of the contract is to be deemed

null and void

:4)D;Ratio

8he arbitration clause is valid. It has not been shown to be contrary to any law, or against morals,

good customs, public order or public policy. 8he arbitration clause stipulates that the arbitration

must be done in eoul, Jorea in accordance with the "ommercial Arbitration ules of the J"AB,and that the award is final and binding. 8his is not contrary to public policy. 8he court finds no

reason why the arbitration clause should not be respected and complied with by both parties.F

8his ruling, the "ourt said, is consonant with the declared policy in ection 2 of the A


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"ourt said the trial court had prematurely e#ercised its !urisdiction over the case.

8he "ourt further emphasiCed that a submission to arbitration is a contract. As a rule, contracts are

respected as the law between the contracting parties and produce effect between them, their assigns

and heirs. "ourts should liberally review arbitration clauses. Any doubt should be resolved in favor

of arbitration.

=ith regard the 8ermination of contract with arbitration clause, A party may not unilaterallyrescind or terminate the contract 'that contains an arbitration clause( for whatever cause without first

resorting to arbitration. 8he rule allowing e#tra!udicial rescission of a contract in case of breachdoes

not apply when the contract contains a valid arbitration clause as the issues arising from such alleged breaches of the contract by a party must be brought first and resolved by arbitration. 8hus, the issues

arising from the contract between Jorea 8ech and acific @eneral on whether the euipment and

machineries delivered and installed were properly installed and operational in "armona and otherissues related thereto are proper for arbitration. acific @enerals counterclaim for damages =here the

issue of validity of the arbitration clause or of its proper scope is submitted to a trial court in a petition

to compel arbitration, the Arbitration *aw confines the courts authority to pass uponissue such in a

summary proceeding. 8he trial court must refrain from ta6ing up the claim of the contending parties for damages which may be ventilated in a separate proceeding at the appropriate time and venue.

8he -nforcement of award in a domestic or international arbitration manifests that an arbitral

award in a domestic or international arbitration is sub!ect to enforcement by a court upon application of

the prevailing party for the confirmation or recognition and enforcement of an award. 7nder ection +2

of the A


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agreement, as defined in Article 1./ A+, shall be in writing. An agreement is in writing if it is contained

in a document signed by the parties or in an e#change of letters, tele#, telegrams or other means of

telecommunication which provide a record of the agreement, or in an e#change of statements of claim

and defense in which the e#istence of an agreement is alleged by one party and not denied by another.8he reference in a contract to a document containing an arbitration clause constitutes an arbitration

agreement provided that the contract is in writing and the reference is such as to ma6e that clause part

of the contract.

$orm of Arbitration Agreement. An arbitration agreement shall be in writing. An agreement is in

writing if it is contained in a document signed by the parties or in an e#change of letters, tele#,telegrams or other means of telecommunication which provide a record of the agreement, or in an

e#change of statements of claim and defense in which the e#istence of an agreement is alleged by one

party and not denied by the other. 8he reference in a contract to a document containing an arbitrationclause constitutes an arbitration agreement provided that the contract is in writing and the reference is

such as to ma6e that clause part of the contract.

". RA 81#, Sec. 2 - ersons and matters sub!ect to arbitration. 8wo or more persons or parties maysubmit to the arbitration of one or more arbitrators any controversy e#isting between them at the time

of the submission and which may be the sub!ect of an action, or the parties to any contract may in such

contract agree to settle by arbitration a controversy thereafter arising between them. uch submissionor contract shall be valid, enforceable and irrevocable, save upon such grounds as e#ist at law for the

revocation of any contract.

uch submission or contract may include uestion arising out of valuations, appraisals or other

controversies which may be collateral, incidental, precedent or subseuent to any issue between the

parties.

A controversy cannot be arbitrated where one of the parties to the controversy is an infant, or a person

!udicially declared to be incompetent, unless the appropriate court having !urisdiction approve a

petition for permission to submit such controversy to arbitration made by the general guardian orguardian ad litem of the infant or of the incompetent.

But where a person capable of entering into a submission or contract has 6nowingly entered into the

same with a person incapable of so doing, the ob!ection on the ground of incapacity can be ta6en onlyin behalf of the person so incapacitated.


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nevertheless be commenced or continued, and an award may be made, while the issue is pending before

the court.

'c( =here the action is commenced by or against multiple parties, one or more of whom are parties to

an arbitration agreement, the court shall refer to arbitration those parties who are bound by thearbitration agreement although the civil action may continue as to those who are not bound by such

arbitration agreement.

Arbitration Agreement and ubstantive "laim Before "ourt.

'a( A party to an action may reuest the court before which it is pending to stay the action and to refer

the dispute to arbitration in accordance with their arbitration agreement not later than the pretrialconference. 8hereafter, both parties may ma6e a similar reuest with the court. 8he parties shall be

referred to arbitration unless the court finds that the arbitration agreement is null and void, inoperative

or incapable of being performed.'b( =here an action referred to in paragraph 'a( of this Article has been brought, arbitral proceedings

may nevertheless be commenced or continued, and an award may be made, while the issue is pending

before the court.

'c( =here the action is commenced by or against multiple parties, one or more of whom are parties toan arbitration agreement, the court shall refer to arbitration those parties who are bound by the

arbitration agreement although the civil action may continue as to those who are not bound by such

arbitration agreement.

$. Points to consider in draftin< arbitration clauses

@. Pat$olo

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Arbitration Definitions