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THE ARBITRATION AGREEMENT

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 place or seat of arbitration
- The types of arbitration
- The governing law of the contract
- The number of arbitrators
- The 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 jurisdictions 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 .
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.
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).
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 one-off clause in international contracts
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
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).
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.
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).
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)
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).
Philippine Arbitration Law mutated in 2004 with the passage of R.A. 9285.
Relevantly, R.A. 9285s Chapter 4 Sec. 19 states:
International commercial arbitration shall be governed by the Model Law on
International Arbitration x x x.
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).
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)
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).
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?