CHAPTER 4

ARBITRATION IN GENERAL 2. Compulsory

o The process of settlement of labor
Concept of Arbitration: disputes by a government agency
which has the authority to investigate
Arbitration is a voluntary dispute resolution and to make an award which is binding
process in which one or more arbitrators, pointed on all the parties, and as a mode of
in accordance with the agreement of the parties, arbitration where the parties are
or rules promulgated pursuant to this ADR Act, compelled to accept the resolution of
resolve a dispute by rendering an award. (Sec. their dispute through arbitration by a
3(d), ADR Act) third party.

Arbitration has been defined and distinguished NOTE: ADR Act and its IRR govern voluntary
from the trial system: arbitration but not compulsory arbitration.
"An arrangement for taking and abiding by the
judgment of selected persons in some disputed Based on seat of arbitration and presence of
matter, instead of carrying it to established foreign elements:
tribunals of justice, and is intended to avoid the
formalities, the delay, the expense and vexation 1. Domestic
of ordinary litigation." (Uniwide Sake Realty vs. o It is domestic if it is not international
Titan-Ikeda Construction) in character.
o If the components of parties’ places of
Distinction between arbitration & mediation: business, place of arbitration, place of
performance of a substantial part of
Arbitration Mediation the obligation, and where the subject
Arbitrator decides the Parties themselves matter of the dispute is most closely
dispute and renders an who enter into and connected, are all located in the PH.
arbitral award (partial execute a mediated o Governed by Arbitration Law, Model
or final) to conclude settlement agreement Law, and specific provisions of ADR
arbitral proceeding. to conclude mediation. Act.

Arbitration is a merit/evidence form of ADR. 2. Foreign

o If its seat is outside PH even if the
Arbitral Award may come in the form of: place of arbitration is in the
Philippines.
1. Award on agreed terms o ADR Act and its IRR govern the
2. Consent of award recognition and enforcement of foreign
3. Award based on compromise arbitral awards.
-­‐ if the parties settled their dispute
amicably. 3. International
o It is international if any of the ff
Kinds of Arbitration: instances occur:
§ Parties’ place of business,
General: which at the time of the
conclusion of the arbitration
1. Voluntary agreement, is in different
o Involves reference of a dispute to an states;
impartial body, the members of which § Place of arbitration provided in
are chosen by the parties themselves, the arbitration agreement and
which parties freely consent in in which the parties have their
advance to abide by the arbitral award places of business, is outside
issued after proceedings where both PH;
parties had the opportunity to be § Place where a substantial part
heard. (Uniwide Sales Realty vs. Titan- of the obligation is to be
Ikeda Construction) performed or the place with
which the subject matter of the

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 dispute is most closely
connected, and in which the The Supreme Court said:
parties have their places of x x x in our jurisdiction, bona fide arbitration
business, is outside the agreements are recognized as valid; and that
Philippines; or laws, rules and regulations do exist protecting
§ Parties have expressly agreed and ensuring their enforcement as a matter of
that the subject matter of the state policy. (Koppel, inc. vs. Makati Rotary Club
arbitration agreement relates to Foundation)
more than one country.
Objectives of Arbitration
International Commercial Arbitration
To provide speedy and inexpensive method of
o Wherein an international arbitration is at settling disputes by allowing the parties to avoid
the same time commercial. In such case it formalities, delay, expense, and aggravation
covers matters arising from all which commonly accompany ordinary litigation,
relationships of a commercial nature, especially litigation which goes through the
whether contractual or not. hierarchy of courts
o Governed by ADR Act and its IRR even if
the place of arbitration is outside Arbitrator
Philippines. o Person appointed to render an award,
o An international commercial arbitration alone, or with others, in a dispute that is
whose seat is outside Philippines is a the subject if an arbitration agreement.
foreign arbitration. This is true even if the o Must be of legal age, with full civil rights,
place of arbitration is in the Philippines as and able to read and write.
long as the seat of arbitration is not the
Philippines. Arbitration is conducted by an arbitrator or an
arbitral tribunal composed of two (2) or more
Foreign ICA ICA or Philippine ICA arbitrators.
Seat is outside PH ICA with the PH as its
seat Arbitrators and arbitral tribunals are not quasi-
judicial instrumentalities whose awards are
Policy on Arbitration reviewable under Rule 43 of Rule 65 of ROC.

Judicial Policy on Arbitration When appointment if an arbitrator cannot be

secured despite the procedure agreed upon by
Being an inexpensive, speedy and amicable the parties or the default procedure prescribed by
method of settling disputes, arbitration––along law and the rules, appointment shall be made by
with mediation, conciliation and negotiation––is appointing authority upon application of a party.
encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also Arbitrator Arbiter
hastens the resolution of disputes, especially of May use his own Bound by the rules of
the commercial kind. It is thus regarded as the discretion in the law and equity in
"wave of the future" in international civil and performance of his rendering an award.
commercial disputes. Brushing aside a functions. Ex: Labor Arbiters
contractual agreement calling for arbitration
between the parties would be a step backward. Arbitration Agreement
(Korea Technologies vs. Lerma) (Articles 4.7 to 4.9, IRR)

In Koppel, Inc. vs. Makati Rotary Club Arbitration agreement is the agreement by the
Foundation, Inc., the Supreme Court after parties to submit to arbitration all or certain
declaring null and void all proceedings conducted disputes which have arisen or which may arise
by courts in violation of arbitration agreements, between them in respect of a defined legal
including the decisions rendered therein, went on relationship, whether contractual or not.
sustain the state policy of encouraging alternative
dispute resolution notwithstanding the harsh
legal implications that the policy may create,

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By nature, an arbitration agreement is An arbitration agreement is a formal contract;
contractual. As such, it should have the essential hence, its validity is dependent on the contract
elements of a contract. being executed in a particular form.
The SC explained the contractual nature of an
arbitration agreement: Formal Requirements of an agreement to
arbitrate
An agreement to arbitrate is a contract, the
relation of the parties is contractual, and the 1. It must be in writing and
rights and liabilities of the parties are controlled 2. It must be subscribed by the parties or their
by the law of contracts. In an agreement for representatives.
arbitration, the ordinary elements of a valid
contract must appear, including an agreement to An arbitration agreement is in writing if:
arbitrate some specific thing, and an agreement
to abide by the award, either in express language 1. If it is contained in a document signed by the
or by implication. (Ormoc Sugarcane Planter’s parties;
Association vs. CA) 2. In an exchange letters, telex, telegrams or
other means of telecommunication; or
A contract is required for arbitration to take place 3. In an exchange of statements of claims and
and to be binding. Submission to arbitration is a defenses in which the existence of an agreement
contract and a clause in a contract providing that is alleged by a party and not denied by the other.
all matters in dispute between the parties shall
be referred to arbitration is a contract. The An arbitration agreement may be:
provision to submit to arbitration any dispute
arising therefrom and the relationship of the 1. Included in the container contract in which
parties is part of the contract and is itself a case it is referred to as an arbitration clause or a
contract. (Cargill Philippines vs. San Fernando compromissoire.
Regala Trading, Inc) 2. Constituted in a separate contract;
3. Come in the form of a reference in a written
When a party enters into a contract containing a contract to a document containing an arbitration
foreign arbitration clause and, in fact submits clause such as to make that close part of the
itself to arbitration, it becomes bound by the contract.
contract, by the arbitration and by the result of
arbitration, conceding thereby the capacity of the Arbitration clauses must be liberally construed
other party to enter into the contract, participate consistent with the policy of encouraging
in the arbitration and cause the implementation alternative dispute resolution method. Provided
of the result. (Tuna Processing, Inc. vs. Philippine such clause is susceptible of an interpretation
Kingford Inc.) that covers the asserted dispute, an order to
arbitrate should be granted. Any doubt should be
2 Modes of submitting a dispute or controversy to resolved in favor of arbitration.
arbitration depending on the existence or
pendency of the dispute or controversy to be Doctrine of Separability
submitted to arbitration
Otherwise known as Doctrine of Severability, it
Agreement to submit Submission enunciates that an arbitration agreement is
to arbitration agreement independent of the main contract even if it is
An agreement to An agreement contained in an arbitration clause.
submit to arbitration submitting an existing
some future dispute, matter of difference to The arbitration agreement or clause is to be
usually stipulated upon arbitrators, termed the treated as a separate agreement such that, even
in a civil contract submission agreement. if the validity of the main contract is challenged,
between the parties. the arbitration agreement or clause remains valid
Made in anticipation of and enforceable.
a dispute that might
arise between the The doctrine denotes that the invalidity of the
parties after the main contract, also referred to as the "container"
contract's execution. contract, does not affect the validity of the

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arbitration agreement. Irrespective of the fact and the CA rendered in
that the main contract is invalid, the arbitration the first two types of
clause/agreement still remains valid and judicial intervention.
enforceable. (Gonzales vs. Climax Mining Ltd)
The decisions of an arbitral tribunal are subject to
The Court in Gonzales did not simply base its judicial review. The inclusion of an arbitration
rejection of the complaint for arbitration on the clause in a contract does not ipso facto divest the
ground that the issue raised therein, i.e., the courts of jurisdiction to pass upon the findings of
validity of contracts, is per se non-arbitrable. The arbitral bodies because awards are still judicially
real consideration behind the ruling was the reviewable under certain conditions.
limitation that was placed by RA No. 7982
upon the jurisdiction of the PA-MGB as an However, not every question of fact is reviewable
arbitral body. Gonzales rejected the by the courts. The review of factual issues by the
complaint for arbitration because the issue SC on matters arising from arbitration has been
raised therein is not a mining dispute per RA held limited. Thus:
No. 7942 and it is for this reason, and only
for this reason, that such issue is rendered The Court will not review the factual findings of
non-arbitrable before the PA-MGB. an arbitral tribunal upon the artful allegation that
such body had "misapprehended facts" and will
NOTE: Even the party who repudiates the main not pass upon issues which are, at bottom, issues
contract may invoke its arbitration clause. of fact, no matter how cleverly disguised they
might be as "legal questions." The parties here
Due Process in Arbitral Proceedings had recourse to arbitration and chose the
arbitrators themselves; they must have had
The principles of administrative due process confidence in such arbitrators. The Court will not,
equally apply to arbitral proceedings. therefore, permit the parties to relitigate before it
the issues of facts previously presented and
Judicial Review and Court Intervention argued before the Arbitral Tribunal, save only
where a clear showing is made that, in reaching
3 Types of Judicial Intervention in Arbitration its factual conclusions, the Arbitral Tribunal
committed an error so egregious and hurtful to
Judicial Assistance in Allow the parties in an one party as to constitute a grave abuse of
Arbitration arbitration to secure discretion resulting in lack or loss of jurisdiction.
from the courts orders Prototypical examples would be factual
or processes that will conclusions of the Tribunal which resulted in
aid in the conduct of deprivation of one or the other party of a fair
the arbitration. opportunity to present its position before the
Arbitral Tribunal, and an award obtained through
It includes referral to fraud or the corruption of arbitrators. Any other,
arbitration, issuance of more relaxed rule would result in setting at
interim measures of naught the basic objective of a voluntary
protection, assistance arbitration and would reduce arbitration to a
in taking evidence, & largely inutile institution. (Uniwide Sales Realty
issuance of vs. Titan-Ikeda)
confidentiality and
protective orders. The Nature and Extent of Judicial Review under
Judicial Review of Involves passing upon, the Special ADR Rules:
Arbitral Awards to the extent allowed
and on grounds Rule 19.36.Review discretionary.—A review by
provided for by law, the the Supreme Court is not a matter of right, but of
propriety of the arbitral sound judicial discretion, which will be granted
award. only for serious and compelling reasons
Judicial Review of Involves the remedies resulting in grave prejudice to the aggrieved
Courts decisions in available from decisions party. The following, while neither controlling nor
ADR related cases or orders of the fully measuring the court’s discretion, indicate
Regional Trial Courts the serious and compelling, and necessarily,

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restrictive nature of the grounds that will warrant provided in the Special ADR Rules, the court
the exercise of the Supreme Court’s discretionary shall entertain such ground for the setting aside
powers, when the Court of Appeals: or non-recognition of the arbitral award only if
the same amounts to a violation of public
a. Failed to apply the applicable standard or policy.
test for judicial review prescribed in these
Special ADR Rules in arriving at its decision The court shall not set aside or vacate the
resulting in substantial prejudice to the aggrieved award of the arbitral tribunal merely on the
party; ground that the arbitral tribunal committed
b. Erred in upholding a final order or decision errors of fact, or of law, or of fact and law,
despite the lack of jurisdiction of the court that as the court cannot substitute its judgment
rendered such final order or decision; for that of the arbitral tribunal.
c. Failed to apply any provision, principle, policy
or rule contained in these Special ADR Rules (Fruehauf Electronics Philippines Corporation vs.
resulting in substantial prejudice to the aggrieved Technology Electronics Assembly and
party; and Management Pacific Corporation)
d. Committed an error so egregious and harmful
to a party as to amount to an undeniable excess Indeed, arbitration and court action are not
of jurisdiction. incompatible. They may proceed at the same
time and independently of each other.
The mere fact that the petitioner disagrees with
the Court of Appeals’ determination of questions A court before which an action is brought on a
of fact, of law or both questions of fact and law, matter which is the subject of an arbitration
shall not warrant the exercise of the Supreme agreement shall, if t least one party so requests
Court’s discretionary power. The error imputed not later that the pre-trial conference, or upon
to the Court of Appeals must be grounded the request of both parties thereafter, refer the
upon any of the above prescribed grounds parties to arbitration unless it finds that the
for review or be closely analogous thereto. arbitration agreement is null and void,
inoperative or incapable of being performed. The
Courts are without power to amend or overrule court does not lose its jurisdiction over the case,
merely because of disagreement with matters of and the judicial proceeding is merely stayed until
law or facts determined by the arbitrators. They after the completion of the arbitral process in
will not undertake to substitute their judgment which case the court may then confirm the award
for that of the arbitrators. Errors of law and fact, of the arbitrator.
or an erroneous decision of matters submitted to
the judgment of the arbitrators, are insufficient Prior to the ADR Act and its IRR, where the
to invalidate an award fairly and honestly arbitration is multi-party, and one or more of the
made. Judicial review of an arbitration is, thus, parties but not all of them are parties to the
more limited than judicial review of a trial. arbitration agreement, the court is given the
discretion to refuse a referral to ADR if arbitration
Rule 19.10. Rule on judicial review on will not be decisive and speedy or if it will result
arbitration in the Philippines. - As a general to multiplicity of suits, duplicitous procedure and
rule, the court can only vacate or set aside the unnecessary delay. Under the ADR Act and its,
decision of an arbitral tribunal upon a clear IRR, the Court is directed to refer to arbitration
showing that the award suffers from any of the those parties who agreed to submit a controversy
infirmities or grounds for vacating an arbitral to arbitration may be compelled to submit to
award under Section 24 of Republic Act No. arbitration, including heirs and assignees.
876 or under Rule 34 of the Model Law in a
domestic arbitration, or for setting aside an However, the Supreme Court held that Corporate
award in an international arbitration under Article representatives may be compelled to submit to
34 of the Model Law, or for such other grounds arbitration proceedings pursuant to a contract
provided under these Special Rules. entered into by the corporation they represent if
there are allegations of bad faith or malice in
If the Regional Trial Court is asked to set aside their acts warranting the piecing of the veil of
an arbitral award in a domestic or international corporate fiction.
arbitration on any ground other than those

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Under the Special Rules of Court on Alternative matter which is the subject of the dispute in
Dispute Resolution, the court may issue an order arbitration. In addition, R.A. 9285, otherwise
directing the inclusion in the arbitration of those known as the "Alternative Dispute Resolution Act
parties who are not bound by the arbitration of 2004," allows the filing of provisional or
agreement but who agree to such inclusion interim measures with the regular courts
provided those originally bound by it do not whenever the arbitral tribunal has no power to
object to their inclusion. act or to act effectively.” (Transfield Philippines,
Inc. vs. Luzon Hydro Corporation)
The policy of party autonomy was recognized in
delimiting court intervention in arbitration. No Interim Measures
court shall intervene in arbitration proceedings
except in the instances provided under the ADR Complementation between arbitration and court
Act. This rule, while acknowledging the freedom action is best exemplified in the area of interim
of the parties to determine the procedure for the measures.
settlement of their dispute, also recognizes that
there are aspects of arbitration that require the It is otherwise referred to in the ADR Act as
participation of the courts. For instance, the “interim measures of protection” or “provisional
parties may apply with courts for protective reliefs” or “provisional reliefs”, are ancillary
measures and enforcement thereof; assistance in remedies intended for the protection of the
taking evidence; arbitration assistance and subject matter of the dispute.
supervision; determination of jurisdiction of the
arbitral tribunal; recognition, enforcement, and They are akin to the provisional remedies under
implementation of an arbitral award; setting the 1997 Rules of Civil Procedure. They include
aside of an arbitral award; appointment of and but are not limited to preliminary injunction,
challenge to arbitrators; and court intervention in appointment of receivers, detention of property,
case of failure or impossibility of the arbitral preservation of property, and inspection of
tribunal to act. property subject of the dispute.

Non-compliance with the arbitration agreement Interim measures are applied with and secured
renders null and void all the judicial proceedings from the arbitral tribunal. However, there are
conducted beyond the point when the case instances when the arbitral tribunal cannot grant
should have been referred to arbitration. the interim measure such as when the arbitral
Moreover, whatever the decision may have been tribunal is not yet constituted, or when the
rendered should be vacated and set aside, and arbitral tribunal already constituted has no power
the case should be remanded to the court a quo, to act or is unable to act effectively. In these
and then be referred to arbitration pursuant to instances, a party may apply for the interim
the arbitration agreement. (Koppel , Inc. vs. measures with a court which may grant them.
Makati Rotary Club) The petition for this purpose shall be governed by
the Special ADR Rules.
Interim Measures in Arbitration
In the case of interim measures, a court cannot
Recognizing the inter-dependency of arbitral refuse to grant, implement or enforce petition for
tribunals and courts, as well as their processes, an interim measure on the sole ground that the
the SC held that: petition is merely an ancillary relief and the
principal action is pending with the arbitral
“As a fundamental point, the pendency of arbitral tribunal. While interim measures are categorized
proceedings does not foreclose resort to the in the ADR Act and IRR as ancillary remedies,
courts for provisional reliefs. The Rules of the they are different from provisional remedies
ICC, which governs the parties' arbitral dispute, under the Rules of Court in that the application
allows the application of a party to a judicial for the interim measures filed before the regular
authority for interim or conservatory courts can stand by themselves despite the
measures. Likewise, Section 14 of Republic Act pendency of the arbitration of the principal action
(R.A.) No. 876 (The Arbitration Law) recognizes before the arbitral tribunal.
the rights of any party to petition the court to
take measures to safeguard and/or conserve any

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