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Republic Act 876: Arbitration Law

What is arbitration?
Arbitration has been defined under the ADR Act as a voluntary dispute resolution process in which one or more arbitrators appointed in accordance with the agreement of the parties resolve a dispute by rendering an award. It is a non-adversarial settlement wherein the parties are free to choose the arbitrators that will compose the tribunal, the procedure to be followed in the proceedings, the venue of arbitration, and the substantive law that will govern the proceedings.

Benefits of Arbitration
a. Fast, quick and easy : The number-one benefit of arbitration is that it serves as a forum to resolve disputes outside of the judicial system. Arbitration can be fast, quick and easy, whereas lawsuits can drag on for years and years. Since the rules of evidence and procedure are usually relaxed in arbitration proceedings, the parties are also in a better position to represent themselves without having to get lawyers involved. b. Less expensive: It naturally follows that arbitration also tends to be less expensive than pursuing a lawsuit. While the parties will usually end up having to pay the arbitrator, his or her fees will inevitably be less than the attorneys' fees that they may have to pay to take the same case to trial. c. Gives parties glimpse of where things are headed: Even in non-binding arbitration, a benefit can be that it serves to bridge the gap in an adversarial proceeding so that the parties can get a better glimpse of where things are headed if they are unable to resolve their differences. Most cases settle, but many times it is not until the parties are "on the courthouse steps." Non-binding arbitration may help to facilitate a settlement sooner rather than later. d. Not bound by strict rules of procedure: Another good thing about arbitration is that an arbitrator is typically not bound by the strict rules of procedure in reaching a
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decision. He or she can consider a lot more facts and circumstances than a judge or jury. Arbitrators typically try to be practical and oftentimes look at compromise as being inherently fair. Thus, the likelihood is that an arbitrator's decision will award something to at least one of the parties. However, you would not expect that damages would be awarded that were anywhere near what a jury might have awarded if (and that is a big if) the matter were to have been tried before a jury. e. Brings finality: Arbitration can also bring finality. Sometimes for the better, a decision on a binding arbitration cannot be appealed or overturned in the absence of a showing of extraordinary circumstances (for example, fraud, bias or other inappropriate actions on the part of the arbitrator). Thus, once a decision is rendered, the case is over. The losing party will typically not be able to appeal (which can make the matter drag on for years and years). f. Privacy and confidentiality: Unlike in court litigation, greater confidentiality can be enjoyed by the parties. g. Levels the playing field. Arbitration proceedings are designed to level the playing field among the parties in pursuit of mutually acceptable solution to their conflicting claims, and any arrangements or scheme that would give undue advantage to a party in negotiating table is anathema to the very purpose of arbitration and should be resisted.

Policy to promote arbitration


The constitution, in Article VIII section 5 par 5, mandates the Supreme Court to promulgate rules that shall provide a simplified and inexpensive procedure for the speedy disposition of cases. In Home Bankers Savings and Trust Company Vs CA (318 SCRA 558), the Supreme Court emphasized that arbitration as an alternative method of dispute resolution is encouraged. Aside from unclogging judicial dockets, it also hastens solutions especially of commercial disputes. The Court looks with favor upon amicable arrangement and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator.

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Case: LM Power Engineering Corporation Vs Capitol Industrial Construction Groups, Inc, 399 SCRA 562 Facts: LM Power Engineering Corporation and respondent Capitol Industrial Construction Groups, Inc entered into a subcontract agreement involving electrical work at the Third Port of Zamboanga. Capitol took over some of the work contracted to petitioner which the latter failed to finish. Upon completion, LM Power billed Capitol P6.7 M. Capitol refused to pay and invoked the termination clause of the agreement allowing setoff of the amount Capitol owed LM Powers and the cost of the completion of the project by Capitol. LM Powers filed a complaint before the RTC for the collection of the alleged balance. Capitol filed a motion to dismiss on the ground of lack of prior recourse to arbitration. RTC ruled that the takeover of Capitol to finish the contract was not termination of the agreement. Thus Capitol must pay LM powers on the work done CA reversed RTC and ordered referral of the case to arbitration. Issue: Whether or not the controversy or dispute on the termination of the contract is intended to be a termination of the original contract under letter K of the subcontract whose interpretation and implementation requires prior recourse to voluntary arbitration. Ruling: The court sided with the respondent. In the arbitration clause, the parties agreed that any dispute or conflict as regards to interpretation and implementation of the agreement which cannot be settled between Capitol and LM Powers amicably shall be settled by means of arbitration. Essentially, the dispute arose out of technical discrepancies which are better left to an arbitral body that has expertise in those areas. Arbitration is an inexpensive, speedy and amicable method of settling disputes. Along with mediation, conciliation and negotiation, it is encouraged by the Supreme Court. Aside from unclogging judicial dockets, it hastens the resolution of disputes and is thus regarded as the wave of the future in international civil and commercial disputes. Consistent with the above mentioned policy of encouraging dispute resolution methods, courts should liberally construe arbitration clauses. Provided that the 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.

Kinds of arbitration
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There are two types of Arbitration: 1. Voluntary Arbitration 2. Compulsory Arbitration Voluntary Arbitration is a binding, adversarial dispute resolution process in which the disputing parties choose one or more arbitrators to hear their dispute and to render a final decision or award after an expedited hearing Voluntary arbitration implies that the two contending parties, unable to compromise their differences by themselves or with the help of mediator or conciliator, agree to submit the conflict/ dispute to an impartial authority, whose decisions they are ready to accept. In other words, under voluntary arbitration the parties to the dispute can refer voluntarily to arbitration before it is referred for adjudication. This type of reference is known as voluntary reference, for the parties themselves volunteer to come to a settlement though an arbitration machinery. The essential elements in voluntary arbitration are : 1. The voluntary submission of dispute to an arbitrator. 2. The subsequent attendance of witnesses and investigations. 3. The enforcement of an award may not be necessary and binding because there is no compulsion. 4. Voluntary arbitration may be specially needed for disputes arising under agreements. Compulsory Arbitration is a non-binding, adversarial dispute resolution process in which one or more arbitrators hear arguments, weigh evidence and issue a non-binding judgment on the merits after an expedited hearing. The arbitrator's decision addresses only the disputed legal issues and applies legal standards. Either party may reject the ruling and request a trial de novo in court. Compulsory arbitration is one where the parties are required to accept arbitration without any willingness on their part. When one of the parties to an industrial dispute feels aggrieved by an act of the other, it may apply to the appropriate government to refer the dispute to adjudication machinery. Such reference of a dispute is known as compulsory or involuntary reference, because reference in such circumstances does not depend on the sweet will of either the contending parties or any party to the dispute. It is entirely the
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discretion of the appropriate govt. based on the question of existing dispute, or on the apprehension that industrial dispute will emerge in particular establishment. Under compulsory arbitration, the parties are forced to arbitration by the state when: 1. The parties fail to arrive at a settlement by a voluntary method 2. When there is a national emergency which requires that the wheels of production should not be obstructed by frequent work-stoppage 3. The country is passing through a grave economic crisis 4. There is a grave public dissatisfaction with the existing industrial relations 5. Public interest and the working conditions have to be safeguarded and regulated by the state.

Form of Arbitration Agreement


Requisites: Section 4 RA 876 a. It shall be in writing b. Subscribed by the party sought to be charged or by his lawful agent

In BF Corporation Vs Court of Appeals, 288 SCRA 267, the Court held that there was a validly existing arbitration clause, where the articles of agreement provides that Contract Documents listed shall form an integral part of the Agreement and one of the said documents is the Conditions of the contract which contains an arbitration clause but is not signed by the parties on any page thereof although it bears the initials of BFs representatives without the initials of any of the Shangrila Properties, Inc. The Court emphasized that the formal requirements of an agreement to arbitrate are: - It must be in writing and - It must be subscribed by the parties or their representatives. There was no denying that the parties entered into a written contract that was submitted in evidence. To subscribe means to write underneath, as ones name; to sign at the end of a document. That word may sometimes be construed to mean to give consent to or to attest. Since the Articles of Agreement, incorporating the arbitration clause was signed by the representatives of both parties and duly notarized,
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failure to initial the Conditions of the contract would not affect compliance with the formal requirements for arbitration agreements.

Who may be parties


a. Two or more persons or parties to any controversy existing between them at the time of submission which may be the subject of an action b. Parties to a contract with an agreement in such contract to settle by arbitration any controversy thereafter arising between them. Exceptions: a. One of the parties to the controversy is: a.1. infant a.2. person judicially declared to be incompetent Exception to exception: a. Submission to controversy was made by a general guardian or guardian adlitem of the infant or incompetent and court approved such petition for permission to submit to arbitration Case: In Del Monte Corporation USA Vs Court of Appeals 351 SCRA 373, A contract was entered into between DMC USA and MMI making the latter the sole and exclusive distributor of Del Monte products. The contract provided for an arbitration agreement. MMI with the consent of DMC-USA appointed SFI as its marketing arm to concentrate of the selling of the products. MMI subsequently suffered embarrassment and substantial damage due to existence of parallel imported fake Del Monte products. DMC-USA terminated the distributorship agreement with MMI. As a result, MMI, SFI filed a complaint for damages against DMC-USA. DMC-USA sought suspension of the proceedings due to the existence of the arbitration agreement. The Court in denying DMCUSAs petition said that the agreement between the petitioner DMCUSA and private respondent MMI is a contract. As a rule, contracts are respected as the law between the contracting parties and product effect between them, their assigns and heirs. Clearly, only parties to the agreement (DMC-USA and MMI) are bound by the agreement and its arbitration clause as they are the only signatories thereto. SFI and other petitioners are not parties to the agreements nor are they
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considered assigns, or heirs. Consequently, arbitration before the State of California could be called for but only between the signatories and not as to other parties. The object of arbitration is to allow the expeditious determination of a dispute. Clearly, the isssue before us could not be speedily and efficiently resolved in its entirety if we allow simultaneously arbitration proceedings and trial or suspension of trial pending arbitration. Accordingly, the interest of justice would only be served if the trial court hears and adjudicates the case in a single complete proceeding.

What matters are subject of arbitration


a. Controversy arising from contract with arbitration clause b. Any controversy between two or more persons which may be the subject of an action c. Includes valuation, appraisals or other controveries which may be collateral, incidental, precedent, subsequent to any issue between the parties. Exceptions: a. Cases subject to jurisdiction of CIR (Court of Industrial Relations) Case: In National Steel Corporation Vs Regional Trial Court of Lanao del Norte 304 SCRA 595, the Court ruled that a stipulation to refer all future disputes or to submit an ongoing dispute to an arbitrator is valid.

Institution of Arbitration of a dispute how made


a. In case of a contract to arbitrate future controversies by the

service of the other party upon the other of a demand for arbitration in accordance with the contract( in person or by registered mail). Contents of demand: a. Nature of controversy b. Amount involved c. Relief sought d. True copy of the contract providing for arbitration
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In case the contract between the parties provides for appointment of a single arbitrator demand shall set forth a specific time within which the parties shall agree upon such arbitrator In case the contract between the parties provides for the appointment of three arbitrators, one to be selected by each party demand shall name the arbitrator appointed by the party making the demand and shall require that the party upon whom the demand is made shall within fifteen days after the receipt thereof advise in writing the party making such demand of the name of the person appointed by the second party. Two arbitrators shall appoint the third within 10 days from such date or notice. b. In case of an existing controversy to be submitted to arbitration by filing with the clerk of court of CFI having jurisdiction of the submission agreement setting forth nature of cont, amount involved. may be filed by any party If in the contract for arbitration or in the submission to arbitration, a provision is made for a method of naming or appointing an arbitrator or arbitrators such method shall be followed. Otherwise, the CFI shall designate an arbitrator or arbitrators. The CFI shall appoint an arbitrator or arbitrators in the following instances: a) If the parties are unable to agree upon a single arbitrator b) If an arbitrator appointed by the parties is unwilling or unable to serve, and his successor has not been appointed in the manner in which he was appointed c) If either party to the contract fails or refuses to name his arbitrator within 15 days after receipt of the demand for arbitration d) If the arbitrators appointed by each party to the contract or appointed by one party to the contract and by the proper Court, shall fail to agree upon or to select the third arbitrator e) Where the agreement is silent as to number of arbitrators in the proceeding cases, the court shall appoint the third arbitrator Arbitrators appointed under this section shall either accept or decline their appointments within seven days of the receipts of their appointments. In case of declination or the failure of an arbitrators to duly accept their appointment the parties or court shall appoint their substitute

Procedure in administered arbitration

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Institutionalized arbitration is conducted through organized bodies such as courts of arbitration, trade associations, and arbitration centers and institutes, each prescribing its own different arbitration procedure. Foremost among these institutions in the Philippines is the Philippine Dispute Resolution Center Inc. ("PDRCI"). These institutions do not actually participate in settling the dispute but help administer the arbitration and provide a set of rules to govern the proceedings. For international arbitration, the popular institutional rules referred to are those of the International Chamber of Commerce ("ICC"), the Hongkong International Arbitration Centre ("HKIAC") and the Singapore International Arbitration Centre ("SIAC").

Special proceeding to compel arbitration


In the event that one party defaults in answering the demand aggrieved party may file with the clerk of court of CFI having jurisdiction over the parties a copy of the demand for arbitration under the contract to arbitrate with a notice that the original demand was sent by registered mail or delivered in person to the party against whom the claim is asserted. Demand shall set forth: a. Nature of controversy Amount involved Relied sought Attach true copy of the contract providing for arbitration

b. c.
d.

Remedy for failure or refusal to arbitrate


In the event that one party neglects, fails or refuses to arbitrate under a submission agreement the aggrieved party shall serve the other by a demand for arbitration and in case of default file a copy with the clerk of court.

When court may be involved


Sec 6 of RA 876 provides: Failure, neglect or refusal of another to perform under an agreement in writing providing for arbitration gives a right to the aggrieved party to petition the court for an order directing that such arbitration may proceed in the manner set forth in the agreement.
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-5 days notice of the hearing of such application shall be served to the party in default. -Court shall hear the parties -Court shall order the parties to proceed to arbitration upon being satisfied that the making of the agreement is not an issue - if the making of the agreement is in issue, court shall summarily hear such issue - if the finding is that there is no written arbitration agreement court shall dismiss the proceeding - court has 10 days to resolve motions, petitions heard by it. Case: In Magellan Capital Management Corporation Vs Zosa, 355 SCRA 157, the court ruled that the illegality or legality of an Employment Agreements Arbitration clause initially invoked by Zosa in seeking his termination benefits under Section 8 of the employment contract is within the jurisdiction of the Regional Trial Court. In LM Power Engineering Corp. Vs CICG, inc 399SCRA 562, the court ruled that the inclusion of an arbitration clause in a contract does not ipso facto divest the courts of jurisdiction to pass upon the findings of arbitral bodies, because the awards are still judicially reviewable under certain conditions.

Enforcement of arbitration agreement


Sec 4 par 2 of RA 876 provides that the making of the contract or submission for arbitration of any controversy shall be deemed a consent of the parties to the jurisdiction of the Court of First Instance of the province or City where any of the parties resides, to enforce such contract or submission.

Existence of arbitration agreement


In case of a suit arising out of an agreement with arbitration clause, the court in which the suit is pending, upon being satisfied that the suit is referable to arbitration shall stay the action or proceeding until an arbitration has been had. Provided: the applicant for stay is not in default in arbitration proceeding.

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Definition. Arbitration submission agreement

agreement,

arbitration

clause

and

Arbitration agreement provides the basis for arbitration. Is an agreement to submit present or future disputes to arbitration. Two basic types: a. A clause in a contract, by which the parties to a contract undertake to submit to arbitration the disputes that may arise in relation to that contract (arbitration clause); or b. An agreement by which the parties to a dispute that has already arisen submit the dispute to arbitration (submission agreement). Arbitration clause It refers to disputes not existing when the agreement is executed. Such disputes might never arise. That is why the parties may define the subject matter of the arbitration by reference to the relationship out of which it derives. Submission agreement It refers to conflicts that have already arisen. It can include an accurate description of the subject matters to be arbitrated. Some national laws require the execution of a submission agreement regardless of the existence of a previous arbitration clause. In such cases, one of the purposes of the submission agreement is to complement the generic reference to disputes by a detailed description of the issues to be resolved.

Form of arbitration agreement.


R.A. 876 Section 4. 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. The making of a contract or submission for arbitration described in section two hereof, providing for arbitration of any controversy, shall be deemed a consent of the parties to the jurisdiction of the Court of First Instance of the province or city where any of the parties resides, to enforce such contract or submission.
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DOJ Circular No. 98Article 5.6. Form 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 exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defense in which the existence of an agreement is alleged by one party and not denied by the other. 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.

Grounds to Agreement

Challenge

the

Validity

of

the

Arbitration

The New York Convention adopts, to a greater extent than does the Model Law, the principle that the parties are free to determine a law different from the law of the place of arbitration as the law applicable to the arbitration agreement. The question of the existence and validity of the arbitration agreement may arise in two different situations: a. Initially, when one of the parties requests a court to recognize the arbitration agreement (for instance, by requesting the court to decline its jurisdiction or to appoint an arbitrator); or b. At the end of the arbitration, when it is raised as a defense to challenge recognition or enforcement of the arbitral award. The New York Convention provides rules of conflicts of law for this last situation, but is silent about the first case. When a dispute regarding the existence or validity of the arbitration agreement arises at the stage of enforcing an award, Article V.1 provides that recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (a) The parties to the agreement referred to in Article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any
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indication thereon, under the law of the country where the award was made. Under this provision, the parties are free to determine the rules to which they submit the validity and scope of the arbitration agreement. The parties free will in this sense, however, is not unlimited, since it is generally required that the rule of law chosen must have some connection with some of the elements (the legal transaction or the controversy). If nothing has been agreed upon by the parties, the Convention refers to the local rules of the country where the award was made. Thus, the determination of the place of arbitration becomes particularly important inasmuch as the award is considered made at that place.

Interpretation of Arbitration Agreement


For the situation described in a) above, Article II.3 of the Convention establishes: The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this Article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. As Article II does not contain any choice-of-law directive, as does article V.1.a, opinions by commentators on the Convention vary: For some, the same choice-of-law rules that govern at the awardenforcement stage under article V should apply as well at the earlier agreement enforcement stage under article II. For others, an autonomous interpretation of article II is possible.

What is meant by autonomous interpretation?


The formal requirements for the validity of an arbitration agreement, laid down in article II.2, should supersede national law. As the applicable law is not indicated, courts may under this wording be allowed some latitude: they may find an agreement incapable of performance if it offends the law or the public policy of the forum.
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The standards that the Convention intends to establish for determining enforcement or arbitral agreements are international standards.

Waiver
Implied waiver operates when one of the parties files a lawsuit about matters contained in the arbitration agreement, and the other does not timely object to the courts lack of jurisdiction. As an example, the Spanish arbitration law provides that the arbitration agreement shall be deemed discharged if a complaint is filed and the defendant does not raise lack of jurisdiction as a defense.

Application of Validity Software in the Internet

of

Arbitration

Clauses

in

Downloading

CASE: Ontario Superior Court of Justice, July 29, 1999, NetSys Technology Group AB v. Open Text Corp.26 NetSys is a Swedish corporation that provides internet-related services to customers in Scandinavia. Open Text is an Ontario corporation that develops, owns, licenses, and sells computer software products and programs for creating, hosting and using searchable indexes on the internet. The parties entered into a series of written agreements that included provisions for arbitration. After the agreements broke down, NetSys began court proceedings in Ontario against Open Text, which then instituted arbitral proceedings. NetSys objected that some of the matters brought to arbitration were not within the scope of the arbitration agreement, while Open Text sought a stay of all court proceedings. In resisting the stay, NetSys argued that since Open Text was claiming that the agreements were null and void in the arbitration claim, it could not rely on article 8 of the Model Law and force arbitration. The Court rejected this argument. It relied on article 16 of the Model Law to conclude that the arbitrator was competent to determine the validity of the contract and that this competence was independent of the validity of the arbitration agreement that was contemplated in article 8. On the question of the scope of the arbitration clause, the Court considered whether it should remit the issue to the arbitral tribunal as provided by article 16(3) of the Model Law. In concluding that it should, the Court noted that the adoption of the Model Law in Ontario signalled a significant trend to circumscribe judicial intervention in arbitral proceedings. The Court thus ordered a stay of judicial proceedings to remain
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in force until the final disposition of the jurisdictional issue by the arbitral tribunal, whether as a preliminary decision or in the final award.

When a nonsignatory is bound by the Arbitration Agreement:


DOJ Circular No. 98 Article 5.44. Multi-Party Arbitration. (a)When a single arbitration involves more than two parties, these Rules, to the extent possible, shall be used subject to such modifications consistent with Articles 5.17 (Equal Treatment of Parties) and 5.18 (Determination of Rules of Procedure) as the arbitral tribunal shall deem appropriate to address possible complexities of a multi-party arbitration. (b) When a claimant includes persons who are not parties to or otherwise bound by the arbitration agreement , directly or by reference, between him/her and the respondent as additional claimants or the additional respondents unless not later than the date communicating his/her answer to the request for arbitration, either by motion or by a special defense in his answer, he objects, on jurisdictional grounds, to the inclusion of such additional respondents. The additional respondents shall be deemed to have consented to their inclusion in the arbitration unless, not later than the date of communicating their answer to the request for arbitration, wither by motion or a special defense in their answer, they object, on jurisdictional grounds, to their inclusion.

Incorporation by Reference Can arbitration be agreed upon by reference? The Model Law admits a third form equivalent to a written arbitration agreement: the reference in a contract to a document containing an arbitration clause, provided that the contract is in writing and the reference is such as to make that clause part of the contract. The provision does not require the existence of a specific reference to the arbitration clause. If the other two requirements are fulfilled (i.e., the contract has been made in writing and the reference unequivocally states that the clause is part of it), it is enough for the clause to make a general reference to the document. In ad hoc arbitrations, the parties must create their procedures. These can be accomplished either by: laying down specific rules for that procedure or referring to a set of already existing rules. Even if the parties do not submit to arbitration administered by an institution, they may still
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incorporate its regulatory provisions by reference, which shall be followed by both the parties and the arbitrators.

Judicial Review of Arbitration Agreement


The law applicable to the arbitration agreement governs the formation, validity, enforcement and termination of the arbitration agreement. It deals with such aspects as the formal requirements of the arbitration agreement, the arbitrability of its subject matter, its autonomy in relation to the contract in which it is contained, the arbitrators capacity to rule on their own jurisdiction and the extent to which judicial review is admissible. The applicable law also determines whether or not the submission agreement is required. There are different criteria for determining the law applicable to the arbitration agreement. We shall focus on the most common ones: The law chosen by the parties Some laws allow the parties to choose the law applicable to the arbitration agreement, irrespective of the law governing other question relating to the arbitration. The law applicable to the contract Some authors claim that the law applicable to the arbitration agreement is usually the law applicable to the contract that contains the clause. These authors nevertheless admit that the law applicable to the agreement could be different, since the arbitration agreement is separable from the main contract. The procedural law applicable to the arbitration Another criterion consists of applying to the arbitration agreement the procedural law that governs the arbitration. As shall be discussed, in the absence of an agreement the procedural law is in principle the law of the place of arbitration. Although rare in practice, the parties have the right to choose a procedural law other than the law of the place of arbitration.

The law of the place of the arbitration


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Parties seldom indicate either a special law applicable to the arbitration agreement or a specific procedural law. Consequently, the place of arbitration becomes important because it will then determine the law applicable to the arbitration agreement

Stay of Civil Action


If any suit or proceeding be brought upon an issue arising out of an agreement providing for the arbitration thereof, the court in which such suit or proceeding is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration, shall stay the action or proceeding until an arbitration has been had in accordance with the terms of the agreement: Provided, That the applicant, for the stay is not in default in proceeding with such arbitration.

Qualifications/Disqualifications of Arbitrators
Any person appointed to serve as an arbitrator must be of legal age, in full-enjoyment of his civil rights and know how to read and write. No person appointed to served as an arbitrator shall be related by blood or marriage within the sixth degree to either party to the controversy. No person shall serve as an arbitrator in any proceeding if he has or has had financial, fiduciary or other interest in the controversy or cause to be decided or in the result of the proceeding, or has any personal bias, which might prejudice the right of any party to a fair and impartial award. No party shall select as an arbitrator any person to act as his champion or to advocate his cause. If, after appointment but before or during hearing, a person appointed to serve as an arbitrator shall discover any circumstances likely to create a presumption of bias, or which he believes might disqualify him as an impartial arbitrator, the arbitrator shall immediately disclose such information to the parties. Thereafter the parties may agree in writing: a. to waive the presumptive disqualifying circumstances; or b. to declare the office of such arbitrator vacant. Any such vacancy shall be filled in the same manner as the original appointment was made.

Appointment of Additional Arbitrators

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Where a submission or contract provides that two or more arbitrators therein designated or to be thereafter appointed by the parties, may select or appoint a person as an additional arbitrator, the selection or appointment must be in writing. Such additional arbitrator must sit with the original arbitrators upon the hearing.

Inhibitions and Challenge


The arbitrators may be challenged only for the reasons mentioned in the preceding section which may have arisen after the arbitration agreement or were unknown at the time of arbitration. The challenge shall be made before them. If they do not yield to the challenge, the challenging party may renew the challenge before the Court of First Instance of the province or city in which the challenged arbitrator, or, any of them, if there be more than one, resides. While the challenging incident is discussed before the court, the hearing or arbitration shall be suspended, and it shall be continued immediately after the court has delivered an order on the challenging incident.

Rules to govern proceedings


The terms of the submission or the contract between the parties as agreed upon shall govern the arbitration proceedings. Those who are not parties to a contract with an arbitration clause cannot be compelled to submit to arbitration proceedings. (Agan Jr. vs. Philippine International Air Terminal Co. Inc. 402 SCRA 612)

Setting the case for hearing


If the parties reside within the same city or province, the selected arbitrators must set a time and place for the hearing, within 5 days after appointment. Otherwise, i.e. parties reside in different cities or provinces, hearing shall be set within 15 days. Notice must be given also to each of the parties involved.

Adjournment
The hearing can be postponed or adjourned by the arbitrators, only by agreement of the parties.
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If there is no agreement between the parties, adjournment may be ordered by the arbitrators upon their own motion only at the hearing and for good and sufficient cause. No adjournment shall extend the hearing beyond the day fixed in the submission or contract for rendering the award. Exception: When the time so fixed is extended by the written agreement of the parties. Parties have continued with the arbitration without the objection to such adjournment.

Right of Representation
No one other than the following shall be permitted by the arbitrators to represent any party to the arbitration: a. The party himself to the arbitration b. Person in the regular employ of such party, duly authorized in writing by said party. c. Practicing attorney at law. Any party desiring to be represented by counsel shall notify the other party or parties of such intention at least five days prior to the hearing.

Privacy of proceedings.
Only the persons who have direct interest in the subject matter of the controversy shall have the right to attend any hearing. Attendance of any other person shall be at the discretion of the arbitrators.

Effect of absence of oath.


a. No arbitrator shall hear any testimony without being sworn by any officer authorized to administer an oath. Arbitrator shall swear that he shall faithfully and fairly hear and examine the matters in controversy and that he shall render a just award according to the best of his ability and understanding. b. No testimony of a witness shall be heard in the absence of an oath. The arbitrators shall have the power to administer the oaths to all
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witnesses . Witnesses shall swear that they shall tell the whole truth and nothing but the truth in any testimony.

Subpoena and subpoena duces tecum


Powers of the arbitrators: a. Require any person to attend a hearing as a witness. b. Subpoena witnesses and documents when the relevancy of the testimony and the materiality thereof has been demonstrated to the arbitrators. c. They may require the retirement of any witness during the testimony of any other witness.

Hearing by arbitrators
Procedure a. At the commencement of the hearing, arbitrators may ask both parties for brief statements of the issues in controversy and/or an agreed statement of facts. b. Parties may offer such evidence as they desire and shall produce such additional evidence as the arbitrators shall require. c. Arbitrators shall be the sole judge of the relevancy and materiality of evidence offered or produced. d. At the close of the hearings, the arbitrators shall specifically inquire of all parties whether they have any further proof or witnesses to present; upon the receipt of a negative reply from all parties, the arbitrators shall declare the hearing closed unless the parties have signified an intention to file briefs. e. The hearing shall ten be closed by the arbitrators after the receipt of briefs and/or reply briefs. f. Definite time limit for the filing of such briefs must be fixed ny the arbitrators at the close of the hearing. Briefs may be filed by the parties within fifteen days after the close of the oral hearings. The reply briefs if any shall be filed within 5 days following such fifteen day period. g. The hearing may be reopened by the arbitrators on their own motion or upon request of any party, upon good cause, shown at any time before the ward is rendered. When hearings are thus reopened the effective date for the closing of the hearings shall be the date of the closing of the reopened hearing.
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Proceeding in lieu of hearing. The parties to a submission or contract to arbitrate may by written agreement submit their dispute to arbitration other than by oral hearing.
a. The parties may submit an agreed statement of facts.

They may also submit their respective contentions to the duly appointed arbitrators in writing; this shall include statement of facts, together with all documentary proofs. b. Parties may also submit a written argument. Each party shall have an opportunity reply in writing to any other partys statement and proofs. If such party fails to do so within seven days after receipt of such statements and proofs, he shall be deemed to have waived his right to reply. Upon delivery to the arbitrators of all statements and documents, together with any reply statements, the arbitrators shall declare the proceedings in lieu of hearing closed. Voluntary arbitrators by the nature of their functions act in quasi-judicial capacity. Their decision therefore is within the scope of judicial review. ( Philrock Inc. vs. Construction Industry Arbitration Commission 359 SCRA 632)

Right to due process.


Notice shall be given to each party before the hearing by the arbitrators. However, hearing may proceed in the absence of any party who, after due notice fails to be present at such hearing or fails to obtain an adjournment thereof. An award shall not be made solely on the default of a party. The arbitrators shall require the other party to submit such evidence as they may require for making an award. Case: Unicraft Industries International Corporation vs. CA 355 SCRA 233 Facts: Petitioners failed to appear at a hearing scheduled on March 3, 1997 at 3:00 o clock in the afternoon. The voluntary arbitrator rendered judgment
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against them. In a motion for another hearing, the petitioner manifested to the Voluntary Arbitrator that the reason why they failed to appear at the hearing was because they received notice of the said hearing only at 4:00 oclock in the afternoon of that day. The motion was denied. Issue: Is the decision of the arbitrator valid? Ruling: The omission to afford the petitioners a chance to present evidence on their behalf is a clear violation of a partys constitutional right and has the effect of rendering the arbitrators judgment null and void. It is a cardinal rule in law that a decision or judgment is fatally defective if rendered in violation of a party litigants right to due process. In its most basic sense, the right to due process is simply that every man is accorded a reasonable opportunity to be heard. Its very concept contemplates freedom from arbitrariness, as what is required is fairness or justice.

Applicability of Rules of Evidence


Arbitrators shall not be bound to conform to the rules of court pertaining to evidence. Arbitrators shall receive as exhibits in evidence any document which the parties may wish to submit and the exhibits shall be properly identified at the time of submission. All exhibits shall remain in the custody of the Clerk of Court during the course of the arbitration and shall be returned to the parties at the time the award is made. The arbitrators may make an ocular inspection of any matter or premises which are in dispute, but such inspection shall be made only in the presence of all parties to the arbitration, unless any party who shall have received notice thereof fails to appear, in which event such inspection shall be made in the absence of such party.

Interim Relief
Any party has the right to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration. Case: Home bankers Savings and Trust Company vs. Court of Appeals 318 SCRA 558 Facts: Tancuan issued one Home Bankers Savings And Trust Company (HBSTC) check amounting to P25,250,000.00 while Arriesgado issued three Far East Bank and Trust Company (FEBTC) checks amounting to a total of
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25,250,000.00.. Tancuan and Arriesgado exchanged each others checks and deposited them with their respective banks for collection. When FEBTC presented Tancuans HBSTC check for clearing, HBSTC dishonored it for beuing drawn against insufficient funds. HBSTC received notice of dishonor but refused to accept the checks and returned them to FEBTC through the Philippine Clearing House Corporation (PCHC). FEBTC demanded reimbursement for the returned checks but HBSTC refused. Thus FEBTC submitted the dispute for arbitration to the PCHC Arbitration Committee. While arbitration proceeding was still pending, FEBTC filed an action for sum of money and damages with preliminary attachment against HBSTCs property. HBSTC filed a motion to dismiss arguing that the complaints seeks to enforce an arbitral reward that does not yet exist. Issue: Does FEBTC have cause of action to file the case in court considering that it has already submitted the issue for arbitration? Ruling: FEBTC can reiterate its cause of action before the courts which it had already raised in arbitration case since FEBTC seeks to collect a sum of money from HBSTC and not to confirm an arbitral award. The court, citing Sec 14 of RA 876 maintained that necessarily FEBTC has to reiterate its main cause of action for sum of money against HBSTC and that the prayer for conservatory relief (writ of preliminary attachment) satisfies the requirements of cause of action. Section 14 allows any party to the arbitration proceeding to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration.

Prepared by:
Dandy L. Cruz Shantle Taciana P. Fabico Mayvelyn P. Tajon
If someone brings a lawsuit against you, settle with your opponent quickly before you go to court. Otherwise, he will turn you over to the judge, who will turn you over to the police, who will put you in jail. There you will stay until you have paid the last penny. Mt 5:25

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