Involved in arbitration / ADR?

We know the different processes.

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

THE ARBITRATION AGREEMENT

by

MARIO E. VALDERRAMA
AB, LLB, FCIArb, FHKIArb, FPIArb
CIAC Accredited Arbitrator
CIArb Approved Tutor
Resident Representative to the Regional Sub-Committee
The Chartered Institute of Arbitrators
East Asia Branch
Contact Details
Tel No 367 4001; Telefax 362 1867
Mobile 0917 411 4594
E-mail <marval.law@gmail.com>

Concept
!

Simply, it is an agreement between two or

more persons referring a future or present
controversy or controversies to arbitration
for resolution

Types
!

Arbitration Clause a clause in a wider

contract, referring future disputes to
arbitration
Submission Agreements refer existing
disputes

Form
Must be in writing
- note that the meaning of in writing has
evolved

The Important Choices:

-

The
The
The
The
The

place or seat of arbitration

types of arbitration
governing law of the contract
number of arbitrators
language of arbitration

CHOICES: The place or seat of arbitration

The Model Law view is that an arbitration
must be juridically rooted in a particular
jurisdiction and must be conducted under
that jurisdiction s arbitration law.
The arbitration law provides the
framework for arbitration, but not the
procedure which is left to the parties.
A delocalized arbitration, or one without
a seat, would most likely not be enforced .

CHOICES: The place or seat of arbitration

This choice will impact on three stages of the arbitration:
1. recognition of the arbitration agreement a country may
have entered into treaties involving arbitration. The more
successful is the New York Convention of 1958.
2. proceedings dependent on the law of the place
3. recognition of enforcement of the award same as item one

CHOICES: Type of Arbitration

a. ad hoc do it yourself arbitration. The
parties will have to make their own rules
b. Institutional administered by an arbitral
institution, usually under its own rules
- fully administered. Example: ICC arbitration
- partly administered. Example: PDRCI &
HKIAC arbitrations.

CHOICES: Type of Arbitration

NOTES: HKIAC recently promulgated rules
for administered arbitration
PDRCI recently changed its administrative
guidelines to enable the counsel in charge of the
file to (a) intervene in an arbitration in ease of
manifest violation of the PDRCI Rules; and (b) to
assist the tribunal and the parties in, among
others, the procedure to be followed; presenting
arguments and evidence; and making awards, but
with the caveat that there is a limit to assistance
(Confusion here).

CHOICES: Governing Law of the Contract

and the Arbitration Agreement
- the laws are not necessarily the same
because the arbitration agreement is generally
treated as separate from the main contract
- the Model Law and the Convention have
default provisions re law governing the
arbitration agreement. But interpretation of the
Convention default provision varies, depending
on the operating concept of the country
involved, if parties stipulated on the law of the
contract.

CHOICES: The Number of Arbitrators

- the default provision is 3.

CHOICES: The Language of Arbitration

- in our country, the default provision is
English or arbitrator discretion in
international arbitration; English or Filipino
or arbitrator discretion in domestic
arbitration.

CHOICES: Others
- other choices shall be discussed when
we take-up the terms of reference and the
agenda items.

EFFECT OF VALID AND ENFORCEABLE

ARBITRATION AGREEMENT ON DISPUTE
BROUGHT TO LITIGATION
1. Any party may apply to the court for an order to
refer the parties to arbitration. With time bar.
- Time bar under the Model Law: not later than the
time when the applicant submits his first statement on
the substance of the dispute (Art. 8.1.).
- Time bar under R.A. 9285: not later than the pretrial conference (Sec. 24).

EFFECT OF VALID AND ENFORCEABLE

ARBITRATION AGREEMENT ON DISPUTE
BROUGHT TO LITIGATION
2. Once a prima facie existence of the arbitration
agreement were established, the court has no discretion
except to refer the parties to arbitration (Model Law Art.
8.1.; R.A. 9285 Sec. 24).
- Court may hear the matter if the court finds that
the arbitration agreement is null and void, or in
operative, or incapable of being performed (ibid).
NOTE: Initiating the court case/ its pendency is not a
ground to stop the initiation and continuation of the
arbitral proceedings as well as the rendition of the award
( Model Law Art. 8.2.; made applicable to domestic
arbitration by R.A. 9285 Sec. 33).

PATHOLOGICAL CLAUSES
An agreement that will hamper or
defeat the constitution of the tribunal or
invite court intervention is pathological.
- agreements that are muddled,
unclear or incomplete such that it is not
effective to cover all the disputes that
the parties intended to submit to
arbitration are pathological clauses.

PATHOLOGICAL CLAUSES:
Examples
1. The
contracts

one-off

clause in international

All disputes arising out of the present

contract shall be settled by way or arbitration
There is no way for constitute the tribunal in
case of recalcitrance as there no indication of
the law that will apply to the arbitration or any
competent authority that may be called upon to
assist.

PATHOLOGICAL CLAUSES:
Examples
2. Imprecise or false designation of the arbitral institution
Any dispute or contravention of the present contract shall be
submitted to the French Chamber of Commerce of Sao Paolo.
In case of no amicable settlement, all disputes that may arise
shall be settled pursuant to the arbitration rules of the International
Chamber of Commerce of Singapore.
Any dispute arising out of the present contract shall be
submitted to arbitration to be administered by the Philippine
Chamber of Commerce and Industry under its rules that are
presently in force.

INCORPORATION CLAUSES
!

In the Philippines and by a 1990 jurisprudence, a general

incorporation clause in a contract will suffice to
incorporate an arbitration agreement contained in
another instrument.
Clearly, the Bill of Lading incorporates by reference
the terms of the Charter Party. x x x. This should
include the provision on arbitration even without a
specific stipulation to that effect. (National Union Fire
Insurance Company of Pittsburg, PA/American
International Underwriter (Phil.) Inc., vs. Stolt-Nielsen
Philippines, Inc. and Court of Appeals, G.R. No. 87958,
April 26, 1990, on page 2).

INCORPORATION CLAUSES
!

The rule outside the Philippines is different.

!

The liberal view is that a mere reference to a

contract containing an arbitration clause would
not of itself be sufficient to incorporate and
arbitration clause.
The strict view, said to be the prevalent view,
requires a specific reference to an arbitration
clause for an arbitration agreement to be
validly incorporated by reference.

INCORPORATION CLAUSES
!

Reasons for requiring specificity:

!
!

Autonomy of arbitration clauses

Arbitration clauses amount to a waiver of the
right to go court, hence the waiver must be
clear
Arbitration clauses are merely ancilliary or
collateral, hence not germane, to the main
contract
With respect to transferable documents of title,
the transferee could not reasonably be
assumed to know that the incorporated
instrument has an arbitration clause
(innumerable foreign cases).

INCORPORATION CLAUSES
!

Cases (some only; there are more)

Carob Ind. Pty. Ltd. v Simto Pty. Ltd (1996)
TW Thomas & Co. Ltd. V Portsea Steamship Co.
Ltd (1912)
Aughton Ltd. V MF Kent Services Ltd (1991)
Roche Products Ltd v Freeman Process Systems
Ltd (1975)
Lexair Ltd v Edgar W. Taylor Ltd (1993)
Quantas Airways v Dillingham Corp (1985)

INCORPORATION CLAUSES
!

The strict view the incorporation must be

specific was uniformly applied to documents of
title and insurance contracts with incorporation
clauses
The liberal view is being applied, by
jurisprudence, to other contracts.

[I]t is (still) a matter of construing each

individual contract to determine whether or not
it was contractually agreed the disputes should
be resolved by way of arbitration. (Carob
Industries v Simto, others).

INCORPORATION CLAUSES
!

Philippine Arbitration Law mutated in 2004

with the passage of R.A. 9285.
Relevantly, R.A. 9285 s Chapter 4 Sec. 19
states:
International commercial arbitration
shall be governed by the Model Law on
International Arbitration x x x.

INCORPORATION CLAUSES
!

Model Law (1985) Chapter II Art. 7 (2) states in

its last sentence:
The 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 MAKE THAT CLAUSE PART OF THE
CONTRACT. (Capitals provided).

INCORPORATION CLAUSES
With the change in the law, it is now reasonable
to assume that, at least in international
arbitration, there would be a change in the
prevailing jurisprudence involving incorporation
clauses.
In interpreting the Model law, regard shall
be had to its international origin and to the need
for uniformity in its interpretation x x x. (Model
Law Sec. 20)

INCORPORATION CLAUSES
!

Model Law Art. 7 was not one of the provisions

made applicable to our domestic arbitration law.
Arts. 8, 10, 11, 12, 13, 14, 18 and 19 and 29 to
32 of the Model Law and Sections 22 to 31 of
the preceding Chapter 4 shall apply to domestic
arbitration. (R.A. 9285 Sec. 33).

INCORPORATION CLAUSES
!

I submit that it would be absurd if we were to

retain the prevailing rule if the arbitration were
domestic, and adopt the new rule as provided
for in the Model law if the arbitration were
international.
Alternatively, are we to retain the prevailing rule
even if the arbitration were international?

Attend our courses and seminars.

Contact us for schedules.

Philippine Institute of Arbitrators

c/o Atty. Mario E. Valderrama
Tel. No. (632) 367 4001
Telefax (632) 362 1867
E-mail: marval.law@gmail.com