Commercial Arbitration in the Philippines

The Republic of the Philippines has a strong and categorical government policy of
promoting alternative modes of dispute resolution, including mediation and arbitration,
and a government-initiated mandate to include arbitration clauses in government
contracts. With this and the Supreme Court's recent issuance of procedural rules
clarifying and limiting court intervention in disputes with arbitration agreements,
commercial arbitration is gaining ground in the mainstream Philippine dispute resolution
arena. In particular, the construction industry is the sector that commonly uses arbitration,
due to the established presence of the Philippine Construction Industry Arbitration
Commission (CIAC).
The Philippines has long appreciated the importance and utility of the concept of
arbitration. Despite this history of supporting alternative modes of dispute resolution,
arbitration, and most especially international arbitration, has not taken off in the manner
that it has in most countries. International arbitration in the Philippines enjoys strong
support from the law and the rules already in place, as well as jurisprudence and general
state policy
There is no doubt that the Philippines is in favor of arbitration as a means of avoiding
litigation and settling disputes amicably and expeditiously. Thus, arbitration clauses are
liberally construed to favor arbitration, meaning that if there was an interpretation that
would render an arbitration clause effective so as to avoid litigation and speed up the
resolution of the dispute, that interpretation will be adopted. Unless an arbitration
agreement is such as to absolutely deprive parties of their recourse to courts, the courts
should look with favor upon such amicable agreements. To ignore contractual
agreements calling for arbitration is considered a step backward.
 Setting Aside of Arbitral Award Due to Improper Constitution of the Tribunal

This article discusses the successful challenge of a unanimous arbitral award on

the grounds that the arbitral tribunal was improperly constituted due to the bias of
one of the three arbitrators. The challenge was successful before the Higher
Regional Court of Munich (Decision of Feb. 2nd 2014, Case 34 Sch 7/13). The
German Supreme Court, Bundesgerichtshof, dealing with the appeal of this
decision strongly backed the decision of the Higher Regional Court.
The parties cannot appeal against an arbitral award as to its merits and the court cannot
interfere on its merits. The Supreme Court has observed “an arbitrator is a judge
appointed by the parties and as such an award passed by him is not to be lightly interfered
with.” But this does not mean that there is no check on the arbitrator’s conduct. In order
to assure proper conduct of the proceeding, the law allows certain remedies against an
award.
This judgement of the Court is a well-reasoned decision and reflects upon an important
aspect, the inter-dependence of arbitral proceedings on the Courts of the lex arbitri. Had
the decision of the Court been handed down in time, the Chairperson would have had to
recuse himself and the Tribunal may have reached a different decision. The fact that the
Court reached a decision regarding the challenge of the Chairperson after a unanimous
award had been rendered, cannot lead to a situation wherein the protection of Section
1059(2)(d) is nullified. However, it would be interesting to see how this matter proceeds
now since the German law is silent on whether or not the re-constituted Tribunal shall
commence proceedings from the beginning. In this regard even the UNCITRAL Model
law does not provide any guidance unlike Rules of certain arbitral institution like the ICC
which provide that the arbitral tribunal, on re-constitution shall determine if and to what
extent prior proceedings shall be repeated. Ultimately, the parties will have to reach an
agreement on how to proceed in this matter.
 Jurisdiction of the Arbitral Tribunal: Current Jurisprudence and Problem Areas
under the UNCITRAL Model Law.

The subject of this article is various issues connected to the jurisdiction of the arbitral
tribunal, as defined in the cases collected from various countries that have adopted
UNCITRAL Model Law on International Commercial Arbitration (MAL). Yet this text will
not deal with the arbitration agreement in general, but primarily with the procedural issues
of the determination of the jurisdiction (or lack of the jurisdiction) of the arbitral tribunal.
To the extent that some substantive issues, such as the existence or scope of the arbitral
jurisdiction, were invoked as a ground substantiating jurisdictional pleas, these issues will
also be taken into account. Further on, the consequences of the arbitral jurisdiction, such
as its impact on the court proceedings regarding the same claims, will also be assessed.
Finally, within the general topic of the jurisdiction of the arbitral tribunal, a separate subset
of question that relate to the topical subject of the authority of the arbitrators to issue
interim measures of protection will also be presented.
As opposed to some other articles of the MAL where case law is scarce, a considerable
number of cases have so far occurred on the issues of the arbitral jurisdiction and the
other related issues. Just in the CLOUT database1 there are 35 reported decisions on
MAL 8(1)—by far the largest number of reported cases on any of the provisions of the
MAL. However, the proportion of decisions from various jurisdictions is rather different,
and a number of MAL jurisdictions have still to be covered.
 Interim Measures in International Commercial Arbitration: Past, Present and
Future

This work is a comparative study of the availability and handling of interim measures in
international commercial arbitration in different legal systems. It studies the difference in
handling of interim measures and the need for a harmonized structure. It also contains a
review of the proposed draft amendment to the UNCITRAL Model Law and further
suggests a different version for the amendment.
Availability of interim measures largely depends on international conventions, national
legislations and institutional rules. Though, interim measures are being used frequently
in the recent times in arbitration, none of the conventions have provisions to regulate its
handling. But the many nations have amended their legislations to provide for interim
measures. Many nations like Swiss, Germany, Argentina, have either amended the
specific provisions or have repealed the old law and enacted new legislations. In common
law countries, including United States, United Kingdom and India, courts have dealt with
this issue and have set precedents one way or the other on this subject. Likewise the third
set of procedures that have a direct bearing on this issue is the institutional rules. Most of
the institutional rules in their current form, address the subject of interim measures.
The current position on interim measures available in international arbitration in different
legal systems, including the national legislations, court ruling, international institutions and
international conventions have been analyzed in the preceding chapters. Though, the
conditions more or less seem to be favorable for interim measures of protection, it is felt
that there is a lot of confusion surrounding this issue. In spite of the criticism for court
intervention and specific legislations regulating tribunal ordered interim measure, there is
an urgent need for a more favorable and harmonized international structure to support
arbitration for arbitration to adapt itself to the changing circumstances and remain as an
alternative dispute resolution method in international commerce. For example, the
position on interim measures in United States is still in great confusion. A party before
agreeing to arbitration has to know the exact position of different circuits on this important
issue. The courts have taken differing views in both their authority to grant interim
measures and that of the arbitrators. So when a party signs an arbitration agreement
involving a United States party, it has a daunting task of finding out the circuit court that
they will have to approach and the position that the court is most likely to take in enforcing
the interim measures. Probably the time has come for the Federal Arbitration Act to be
amended to meet the realities of the current international setup.
 The Scope of the Arbitral Award, Binding Effect

Modern business international transactions are multiparty and complicated. Such

contracts are usually composed of several contracts which can contain bilateral dispute
resolution arrangements. According to the principle of parties autonomy dispute arising
between two persons bound by an arbitration agreement in connection with a multiparty
project will be resolved by arbitration exclusively between these two parties. Other parties
cannot participate in the resolution of the dispute through arbitration, even if they have
played an active role in the actual project. Notwithstanding any legitimate interest, they
might have the outcome of the dispute; these parties will remain alien both to the
arbitration proceedings and an arbitral award. Their interests are not taken into
consideration and left unprotected. Arbitration proceedings, unlike litigation, usually do
not bear any intervention or joinder of parties, which is explained by the contractual nature
of arbitration. Thus, the binding power of an arbitral award extends only over parties of
an arbitration agreement. Meanwhile, an arbitral award can affect interests of third parties.
How can these parties defend their interests in arbitration proceedings and during
recognition and enforcement proceedings in national courts? There are two ways of
resolving such problem in state court litigation. The first one is the compulsory
participation of any third party with any legitimate interest in litigation through intervention,
joinder of parties, and consolidation of cases. A court ex officio has to gather all parties
that can have any legitimate interest in resolving the dispute. If judgment affects any
interest of a party that was not involved in the proceedings judgment should be reversed
in appellate court. The second way is also the solution against parallel proceedings. This
way is to harmonize the outcome of parallel proceedings by the principle of lis pendens
and res judicata. The paper examines the binding and res judicata effects of the arbitral
award towards third parties through the Russian and international experience of
defending of interests of third parties in international arbitration and litigation.
The problem of the participating of the third parties in arbitration is not new to the legal
science. It is obvious that as a general rule an arbitral award has binding effect only for
the parties to the arbitral agreement. This rule originates from the main principle of
arbitration – the principle of the party autonomy. But modern business transactions
especially in an international context are extremely complicated and meant the
participation of several parties. Also, the complicated structure of many multinational
groups and companies requires several affiliates, subsidiary companies, directors or even
stockholders of the same group to become actively involved in the execution of the
contract.
 The Judicial Review of Arbitral Awards in the Philippines: A Look into the
Application of the Public Policy Exception under the New York Convention
Applying United States Precedents

As commercial transactions become increasingly complex with the expansion of

international trade, it became practical to include dispute resolution mechanisms in
contracts. Arbitration is one such mechanism. By agreeing to arbitrate, parties submit
their dispute to a private tribunal, under substantive and procedural laws chosen by the
parties, resulting in a binding and final award reviewable only on limited grounds; it is a
private dispute resolution process that produces legal force and effect through an award
that courts of most countries will likely enforce. Arbitration is considered domestic if it has
no international element and deemed international when it does have an international
element, e.g. the agreement relates to more than one country.
Parties to international trade need their transactions to be unhampered by disputes;
should a dispute arise they want such to be resolved speedily, with outcomes that are
predictable and certain. Resorting to the national courts of one country or another may
defeat speed, predictability and certainty as parties may be unfamiliar with the vagaries
of the rules of domestic court systems. By utilizing the autonomous process of
international arbitration, the uncertainty brought on by a foreign law and forum to resolve
disputes may be lessened if not altogether avoided. Thereafter, enforcement of an arbitral
award is greatly facilitated by the 1958 United Nations Convention on the Recognition
and Enforcement of Foreign Arbitral Awards (New York Convention), with the growing
liberality of judicial interpretation favoring enforcement. An arbitral award is generally
easier to enforce than a court judgment, largely due to most states’ accession to the New
York Convention. The Convention has become a primary instrument providing for a
uniform standard by which an international arbitral award may be enforced, i.e.
institutionalizing a system where an arbitral award issued in one signatory state may be
recognized in another signatory state. To date, the New York Convention is in force in
143 countries, including the Philippines. However, to protect “fundamental interests of the
parties, society and the rule of law,” the Convention recognizes certain grounds that may
be raised before the courts to oppose enforcement of an arbitral award.
 Judicial Review of International Arbitral Awards: Preserving Independence in
International Commercial Arbitrations

The resolution of potential disputes is of great concern to parties involved in international

business transactions. Due to the high cost of overseas litigation and the uncertainty of
relying upon a foreign legal system, such disputes are often difficult to resolve. It is
essential to the maintenance of international trade relationships that businesses feel
confident in the methods by which they resolve commercial disputes.
In long-term commercial relationships, the details of an agreement to arbitrate, including
the applicable law, standards, and procedures to be followed, are generally established
in the initial contract between the parties. Ironically, the contractual nature of international
arbitration brings about many drawbacks. Although the possibility of an arbitrator abusing
an unchecked process may jeopardize its integrity, interference in a private agreement is
contrary to the fundamental goals of international arbitration. As noted by one
commentator, "the effectiveness of international commercial arbitration depends on the
predictable enforcement of arbitral agreements and awards.
With the explosive globalization of trade and investment, there has been a corresponding
increase in commercial disputes between parties across national boundaries.
International arbitration is being increasingly sought after as the best mode of alternative
dispute resolution in such commercial disputes.
In sum, it is clear that judicial standards of review, like judicial precedents, are not the
property of private litigants. That said, federal appellate courts must continue to develop
predictable precedents involving statutory grounds for judicial review. They also should
take a more uniform approach to the manifest disregard doctrine. When they do so,
parties and their counsel may be able to recognize the likelihood of success on appeal of
most arbitration awards. Arbitration's goals are unquestionably best served by ensuring
the finality of arbitration awards.
 Taming the Unruly Horse: Philippine Public Policy and New York Convention

The public policy exception under Article V(2)(b) of the New York Convention is well
recognized as the amorphous exception. To the extent it has been capable of definition,
it has been found to embrace nebulous concepts such as a state’s most basic notions of
morality and justice. No doubt it is for this reason that it was described by an English
judge almost two centuries ago as an unruly horse which carries its rider to unpredictable
destinations. While more established arbitration friendly jurisdictions have developed a
restrictive approach to the public policy, elsewhere it has remained the refuge of last
resort for the dissatisfied party to an arbitral award.
It is certainly a welcome development but it does not entirely resolve the fears that sprung
up after the decisions of Saw Pipes and Venture Capital. The allegation in Penn Racquet
Sports was that the award was contrary to public policy because the arbitral tribunal had
incorrectly interpreted a term of the contract which was itself governed by Austrian law. It
was therefore not an award to which it could be easily argued that it fell within the
provisions of the Indian Arbitration Act which relate to domestic arbitral awards (as was
the case with the award in Venture Capital). That risk may still remain for foreign awards
where there is a connection with India and the scope of the Indian Arbitration Act has not
been restricted to exclude a challenge to the award on the grounds it is a domestic award.
Public Policy being a concept of res publica, collides with private legal matters on a daily
basis in the legal field. Though it can be described as a last resort for litigators and
arbitrators, when argued with facts on valid grounds it can operate as a crucial deciding
factor in matters regarding contracts, arbitrations and foreign judgements. The growing
interests of individual states and legal concepts have made Public Policy a complex legal
theory which serves a unique role in legal systems. This complexity is what made Public
Policy masquerade as “an unruly horse” in the eyes of judicial decision makers, even after
two centuries.
 The Enforcement of International Arbitral Awards

While arbitration can resolve various kinds of disputes it hardly can be more important to
any other form dispute resolution other than commercial dispute resolution; especially in
a further globalized world where international trade and commerce forces parties to be
spread across a multiplicity of jurisdictions and various forms of dispute resolution.
Effective international dispute resolution requires a legal structure that recognizes and
enforces finality and enforceability of international arbitral awards.
A foreign arbitral award is rendered by an arbitrator or panel of arbitrators in a foreign
country. The grounds for its recognition and enforcement in the Philippines are those
exclusively found in Article V of the New York Convention and the procedural details are
set out in Rule 13 of the Special ADR Rules.
An international commercial arbitral award is rendered by an arbitrator or panel of
arbitrators in the Philippines, the mechanics of which is largely governed by the Model
Law on International Commercial Arbitration (the “Model Law”)6 . The award is rendered
pursuant to an international commercial arbitration conducted in the Philippines. The
recognition and enforcement or setting aside of an international commercial arbitration
award is largely governed by Rule 12 of the Special ADR Rules.
the recognition and enforcement of a foreign arbitral award in this jurisdiction appears to
be relatively simple, but in practice, the proceedings may still be hampered not only by
ingenious legal issues raised by the adverse party but also by the Regional Trial Courts’
and the parties’ lack of familiarity with R.A. 9285, the Rules, and the Special ADR Rules.
It thus remains to be seen whether the challenges facing litigants in a proceeding for the
recognition and enforcement of a foreign arbitral award in the Philippines will eventually
be overcome.