CHAPTER 4.

ARBITRATION IN GENERAL

CONCEPT OF ARBITRATION

Arbitration Defined
Voluntary dispute resolution process in which one or more arbitrators, appointed in
accordance with the agreement of the parties or rules pursuant to the ADR Act,
resolve a dispute by rendering an award.

Distinguish Arbitration and Court Trial System

ARBITRATION COURT TRIAL SYSTEM

Parties abide by the judgment of Parties bring disputed matter to

selected persons in some disputed established tribunals of justice
matter

Intended to avoid:
1. formalities
2. delay
3. expense and vexation of
ordinary litigation

Distinguish Arbitration and Mediation

ARBITRATION MEDIATION

ARBITRATOR decides on the dispute PARTIES themselves execute a

and renders an arbitral award mediated settlement agreement to
conclude the mediation proceeding

Evidence in arbitration.
Arbitration is a merit/evidence-based form of ADR.

Arbitral Award.
It is a partial or final decision by an arbitrator in resolving the issue in controversy.

Forms of arbitral award.

1. Award on agreed terms
2. Consent award
3. Award based on compromise

KINDS OF ARBITRATION
In General.

1. VOLUNTARY – involves reference of dispute to an impartial body whose members

are chosen by the parties themselves. The parties freely consent in advance to abide
by the arbitral award issued.

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2. COMPULSORY – process of settlement of disputes by government agency which
has authority to investigate and to make an award which is binding on all parties.
Here, the parties are compelled to accept the resolution of their dispute through
arbitration by a third party.

*ADR Act and its IRR only governs voluntary arbitration.

AS TO SEAT OF ARBITRATION AND PRESENCE OF FOREIGN ELEMENTS.

3. DOMESTIC - if components of parties’ place of business, place of arbitration,

place of performance of a substantial part of obligation, and where the subject matter
of the dispute is most closely connected, are ALL LOCATED IN THE PHILIPPINES.

*Governed by Arbitration Law (RA 876), Model Law and specific provisions of the
ADR Act

4. INTERNATIONAL - if the parties’ places of business, place of arbitration, place of

performance of a substantial part of obligation, OR place where the subject matter of
the dispute is most closely connected, is OUTSIDE THE PHILIPPINES

*INTERNATIONAL COMMERCIAL ARBITRATION - if it covers matters arising from

relationships of a commercial nature, whether contractual or not.

*International commercial arbitration whose seat is in Philippines is governed by

ADR Act and its IRR even if the place of arbitration is outside the Philippines

*SEAT - location selected by the parties as the legal place of arbitration, which
determines the procedural framework of arbitration

5. FOREIGN – international commercial arbitration whose seat is outside the

Philippines even if the place of arbitration is in the Philippines.

POLICY OF ARBITRATION

To actively promote party autonomy in the resolution of disputes or the freedom of

the party to make their own arrangements to resolve their disputes.

To encourage and actively promote the use of Alternative Dispute Resolution (ADR)
as an important means to achieve speedy and impartial justice and declog court
dockets.

Korea Technologies Co., Ltd. V Lerma

Being an inexpensive, speedy and amicable method of settling disputes, arbitration
is encouraged by the Supreme Court.

Koppel, Inc v. Makati Rotary Club Foundation, Inc.

In our jurisdiction, bona fide arbitration agreements are recognized as valid; and the
laws, rules and regulations do exist protecting and ensuring their enforcement as a
matter of state policy.

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OBJECTIVES OF ARBITRATION
The basic objective of arbitration is to provide a speedy and inexpensive method of
settling disputes by allowing the parties to avoid formalities, delay, expense and
aggravation which commonly accompany ordinary litigation, especially litigation
which goes through the hierarchy of courts.

ARBITRATOR
Is the person appointed to render an award, alone or with others, in a dispute that is
the subject of an arbitration agreement.

Voluntary arbitrators act in a quasi-judicial capacity, such that their decisions are
within the scope of judicial review.

ARBITRATOR ARBITER

Arbitrator means the person appointed Arbiter means the person who is bound
to render an award, alone or with by rules of law and equity in rendering
others, in a dispute that is the subject of an award.
an arbitration agreement.

● An independent, impartial third An arbiter summons the parties to a

party that works to settle a
dispute between two opposing
sides, often by making a decision
that they both agree to.
● May use his own discretion in the
performance of his function.
conference for the purpose of amicably
settling the dispute through a fair
compromise; for the determination of
the real parties, the issues, and
including the entering of admissions or
stipulations of relevant facts and other
preliminary matters necessary to thresh
out the relevant matters;

ARBITRATION AGREEMENT
An arbitration agreement is the agreement by the parties to submit to arbitration all
or certain disputes which have arisen or which may arise between them in respect of
a defined legal relationship. By nature, an arbitration agreement is contractual. It
should have the essential elements of a contract. The SC explained the contractual
nature of an arbitration agreement in the case ORMOC SUGARCANE PLANTERS’
ASSOCIATION VS. CA (596 SCRA 630, 2009) an agreement to arbitrate is a
contract, the relation of the parties is contractual and the rights and liabilities of the
parties are controlled by the law of contracts. In an agreement to arbitrate some
specific thing, and an agreement to abide by the award, either in express language
or by implication.

“In the case ORMOC SUGARCANE PLANTERS’ ASSOCIATION VS. CA, the
contractual nature of an arbitration agreement is explained:

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 xxxx An agreement to arbitrate is a contract, the relation of the parties
is contractual, and the rights and liabilities of the parties are controlled by the
law of contracts.11 In an agreement for arbitration, the ordinary elements of a
valid contract must appear, including an agreement to arbitrate some specific
thing, and an agreement to abide by the award, either in express language or
by implication.”

Also, in the case of CARGILL PHILIPPINES, INC. VS. SAN FERNANDO

REGALA TRADING, INC., the Supreme Court held:

xxxx A contract is required for arbitration to take place and to be

binding.20 Submission to arbitration is a contract 21 and a clause in a contract
providing that all matters in dispute between the parties shall be referred to
arbitration is a contract.22 The provision to submit to arbitration any dispute
arising therefrom and the relationship of the parties is part of the contract and
is itself a contract.23”

It can be seen likewise in the case of TUNA PROCESSING, INC. VS.

PHILIPPINE KINGFORD, INC., the Supreme Court held:

xxxx When a party enters into a contract containing a foreign arbitration

clause and, as in this case, in fact submits itself to arbitration, it becomes
bound by the contract, by the arbitration and by the result of arbitration,
conceding thereby the capacity of the other party to enter into the contract,
participate in the arbitration and cause the implementation of the result.”

Two (2) modes of submitting dispute or controversy to arbitration depending on the

existence or pendency of the dispute or controversy to be submitted for resolution

a. AGREEMENT TO SUBMIT TO b. A SUBMISSION AGREEMENT

ARBITRATION

Arbitration agreement is a formal contract; its validity is dependent on the contract

being executed in a particular form. An arbitration agreement shall be in writing and
subscribed by the parties charged or by his lawful agent. An arbitration agreement
may be included in the container contract in which case, it is referred to as an
arbitration clause or a compromissoire or may be constituted in a separate contract.

WHAT IS THE FORM OF ARBITRATION AGREEMENT?

A contract to arbitrate a controversy thereafter arising between the parties, as well as
a submission to arbitrate an existing controversy shall be in writing and subscribed
by the party sought to be charged, or by his lawful agent.

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 Character of the proceedings for the recognition and enforcement of an
arbitration agreement

Proceedings for recognition and enforcement of an arbitration agreement or for

vacation, setting aside, correction or modification of an arbitral award, and any
application with a court for arbitration assistance and supervision shall be deemed
as special proceedings.

An arbitration agreement is in writing if is contained in a document signed by the

parties; in an exchange of letters, telex, telegrams, or other means of
telecommunication; or in an exchange of statements of claims and defenses in which
the existence of an agreement is alleged by a party and not denied by the other.”

Arbitration clauses must be liberally construed consistent with the policy of

encouraging alternative dispute resolution methods. Provided 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.

Doctrine of Separability
The Doctrine of Separability, otherwise known as the “Doctrine of Severabilty,”
enunciates that the arbitration agreement be treated as a separate agreement. It is
independent of the main contract, even if it is contained in an arbitration clause.
Hence, the invalidity of the main contract does not affect the validity of the arbitration
agreement.

Gonzales v. Climax Mining Ltd. G.R. No. 161957, January 22, 2007
The arbitration agreement is to be treated as a separate agreement and the
arbitration agreement does not automatically terminate when the contract of which it
is part comes to an end. The separability of the arbitration agreement is especially
significant to the determination of whether the invalidity of the main contract also
nullifies the arbitration clause. Indeed, the doctrine denotes that the invalidity of the
main contract, also referred to as the “container” contract, does not affect the validity
of the arbitration agreement. Irrespective of the fact that the main contract is invalid,
the arbitration clause/agreement still remains valid and enforceable.

Hence, we now hold that the validity of the contract containing the agreement to
submit to arbitration does not affect the applicability of the arbitration clause itself. A
contrary ruling would suggest that a party’s mere repudiation of the main contract is
sufficient to avoid arbitration. That is exactly the situation that the separability
doctrine, as well as jurisprudence applying it, seeks to avoid.

Koppel, Inc. v. Makati Rotary Club Foundation, Inc., G.R. No. 175404, January
31, 2011

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Arbitration before the Panel of Arbitrators is proper only when there is a
disagreement between the parties as to some provisions of the contract between
them, which needs the interpretation and the application of that particular knowledge
and expertise possessed by members of that Panel. It is not proper when one of the
parties repudiates the existence or validity of such contract or agreement on the
ground of fraud or oppression as in this case. The validity of the contract cannot be
subject of arbitration proceedings. Allegations of fraud and duress in the execution of
a contract are matters within the jurisdiction of the ordinary courts of law. These
questions are legal in nature and require the application and interpretation of laws
and jurisprudence which is necessarily a judicial function.

Under the doctrine of separability, an arbitration agreement is considered as

independent of the main contract. Being a separate contract in itself, the arbitration
agreement may thus be invoked regardless of the possible nullity or invalidity of the
main contract. Once again instructive is Cargill, wherein this Court held that, as a
further consequence of the doctrine of separability, even the very party who
repudiates the main contract may invoke its arbitration clause.

Cargill Philippines, Inc. v. San Fernando Regala Trading, Inc. (641 SCRA 31)
A contract is required for arbitration to take place and to be binding. Submission to
arbitration is a contract and a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a contract. The provision to
submit to arbitration any dispute arising therefrom and the relationship of the parties
is part of the contract and is itself a contract.

Applying the Gonzales ruling, an arbitration agreement which forms part of the main
contract shall not be regarded as invalid or non-existent just because the main
contract is invalid or did not come into existence, since the arbitration agreement
shall be treated as a separate agreement independent of the main contract. To
reiterate a contrary ruling would suggest that a party’s mere repudiation of the main
contract is sufficient to avoid arbitration and that is exactly the situation that the
separability doctrine sought to avoid. Thus, we find that even the party who has
repudiated the main contract is not prevented from enforcing its arbitration clause.

Due Process in Arbitral Proceedings

The principles of administrative due process equally apply to arbitral proceedings.

Equitable PCI Banking Corporation vs. RCBC Capital Corporation (574 SCRA
585)
In administrative proceedings, the essence of due process is simply an opportunity
to be heard, or an opportunity to explain one’s side or opportunity to seek a
reconsideration of the action or ruling complained of. This constitutional mandate is
deemed satisfied if a person is granted an opportunity to seek reconsideration of an
action or a ruling. It does not require trial-type proceedings similar to those in the

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courts of justice. Where opportunity to be heard either through oral arguments or
through pleadings is accorded, there is no denial of procedural due process.

Judicial Review and Court Intervention

● · Three (3) Types of Judicial Intervention in Arbitration:

(1) Judicial assistance in arbitration

This allows the parties in an arbitration to secure from the courts orders or
processes that will aid in the conduct of the arbitration. These include
referral to arbitration, issuance of interim measures of protection,
assistance in taking evidence, and issuance of confidentiality and
protective orders.

(2) Judicial review of arbitral awards

This involves passing upon, to the extent allowed and on grounds provided
for by law, the propriety of the arbitral award.

(3) Judicial review of court decisions in ADR related cases.

This involves the remedies available from decisions or orders of the

Regional Trial Courts and the Court of Appeals rendered in the first two
types of judicial intervention.

● Limitations (Uniwide Sales Realty vs Titan-Ikeda)

"The parties here had recourse to arbitration and chose the arbitrators
themselves; they must have had confidence in such arbitrators. The
Court will not, therefore, permit the parties to re. litigate before it the
issues of facts previously presented and argued before the Arbitral
Tribunal, save only where a clear showing is made that, in reaching its
factual conclusions, the Arbitral Tribunal committed an error so egregious
and hurtful to one party as to constitute grave abuse of discretion
resulting in lack or loss of jurisdiction. xxx Any other, more relaxed rule
would result in setting at naught the basic objective of a voluntary
arbitration and would reduce arbitration to a largely inutile institution.”

● · Nature and Extent of Judicial Review

1. Asset Privatization Trust vs CA

Rule 19.36 Special ADR Rules

Review discretionary.- […] The following, while neither controlling nor

fully measuring the court's discretion, indicate the serious and

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 compelling, and necessarily, restrictive nature of the grounds that will
warrant the exercise of the Supreme Court's discretionary powers:

a. Failed to apply the applicable standard or test for judicial review

prescribed in these Special ADR Rules in arriving at its decision
resulting in substantial prejudice to the aggrieved party;

b. Erred in upholding a final order or decision despite the lack of

jurisdiction of the court that rendered such final order or decision;

c. Failed to apply any provision, principle, policy or rule contained in

these Special ADR Rules resulting in substantial prejudice to the
aggrieved party; and

d. Committed an error so egregious and harmful to a party as to

amount to an undeniable excess of jurisdiction.

2. Fruehauf Electronics Ph. Corp v. Technology Electronics Assembly..

(1) “As a rule, the award of an arbitrator cannot be set aside for
mere errors of judgment either as to the law or as to the facts.
Courts are without power to amend or overrule merely because
of disagreement with matters of law or facts determined by the
arbitrators.”

(2) ”They will not review the findings of law and fact contained in
an award, and will not undertake to substitute their judgment for
that of the arbitrators, since any other rule would make an award
the commencement, not the end, of litigation. Errors of law and fact,
or an erroneous decision of matters submitted to the judgment of the
arbitrators, are insufficient to invalidate an award fairly and honestly
made. Judicial review of an arbitration is, thus, more limited than
judicial review of a trial.”

3. Rule 19.10 of the Special ADR Rules

(by referring to Section 24 of the Arbitration Law and Article 34 of the 1985
UNCITRAL Model Law)

Arbitral award is not absolute and has very limited exceptions in terms
of its autonomy.
XXX

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 The court shall not set aside or vacate the award of the arbitral
tribunal merely on the ground that the arbitral tribunal committed
errors of fact, or of law, or of fact and law, as the court substitute its
judgment for that of the arbitral tribunal.
XXX
In other words, simple errors of fact, of law, or of fact and law
committed by the arbitral tribunal are not justiciable errors in this
jurisdiction.

4. Benguet Corporation v DENR-Mines Adjudication Board

“…In the event a case that should properly be the subject of

voluntary arbitration is erroneously filed with the courts or
quasi-judicial agencies, on motion for the defendant, the court or
quasi-judicial agency shall determine whether such contractual
provision for arbitration is sufficient and effective. If in the
affirmative, the court or quasi-judicial agency shall then order the
enforcement of said provision.

Prior to the ADR Act and its IRR, where the arbitration is multi-party,
and one or more of the parties but not all of them are parties to the
arbitration agreement, the court is given the discretion to refuse a
referral to ADR if arbitration will not be decisive and speedy or if it
will result to multiplicity of suits, duplicitous procedure and
unnecessary delay.”

5. Gerardo Lanuza, Jr. v. BF Corporation

“…Corporate representatives may be compelled to submit to

arbitration proceedings pursuant to a contract entered into by a
corporation they represent if there are allegations of bad faith or
malice in their acts warranting the piercing of the veil of corporate
fiction.

Under the Special Rules of Court on Alternative Dispute Resolution,

the court may issue an order directing the inclusion in the arbitration
of those parties who are not bound by the arbitration agreement but
who agree to such inclusion provided those originally bound by it do
not object to their inclusion.

6. Koppel, Inc. v. Makati Rotary Club Foundation

“…Noncompliance with the arbitration agreement renders null and

void all the judicial proceedings conducted beyond the point when

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 the case should have been referred to arbitration. Moreover,
whatever decision may have been rendered should be vacated and
set aside, and the case should be remanded to the court a quo,
and then be referred to arbitration pursuant. to the arbitration
agreement”

Interim Measures in Arbitration

● Transfield Philippines, Inc. v. Luzon Hydro Corporation:

- “…pendency of arbitral proceedings does not foreclose resort to the

courts for provisional reliefs…”

- Rules of the ICC: allows the application of a party to a judicial authority

for interim or conservatory measures.

- Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Law):

recognizes the rights of any party to petition the court to take measures
to safeguard and/or conserve any matter which is the subject of the
dispute in arbitration.

- R.A. No. 9285, otherwise known as the 'Alternative Dispute Resolution

Act of 2004: allows the filing of provisional or interim measures with the
regular courts whenever the arbitral tribunal has no power to act or to act
effectively.

● Interim Measures, defined

- Referred to in the ADR Act as "interim measures of protection" or

"provisional reliefs," are ancillary remedies intended for the protection of
the subject matter of the dispute.

- They are akin to the provisional remedies under the 1997 Rules of Civil
Procedure (Rules 57 to 61).

- They include but are not limited to preliminary injunction, appointment of

receivers, detention of property, preservation of property, and inspection of
property subject of the dispute."

● Exceptions in Granting Interim Measures

(1) When the arbitral tribunal is not yet constituted
(2) When the arbitral tribunal already constituted has no power to act or is
unable to act effectively.
(3)
● Interim Measures: Rules of Court vs Arbitral Tribunal

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- A court cannot refuse to grant, implement or enforce a petition for an
interim measure on the sole ground that the petition is merely an ancillary
relief and the principal action is pending with the arbitral tribunal.

- While interim measures are categorized in the ADR Act and IRR as
ancillary remedies, they are different from provisional remedies under the
Rules of Court in that the application for interim measures filed before the
regular courts can stand by themselves despite the pendency of the
arbitration of the principal action before the arbitral tribunal.

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