CHAPTER 4

ARBITRATION IN GENERAL 2. Compulsory

o The process of settlement of labor
Concept of Arbitration: disputes by a government agency
which has the authority to investigate
Arbitration is a voluntary dispute resolution and to make an award which is binding
process in which one or more arbitrators, pointed on all the parties, and as a mode of
in accordance with the agreement of the parties, arbitration where the parties are
or rules promulgated pursuant to this ADR Act, compelled to accept the resolution of
resolve a dispute by rendering an award. (Sec. their dispute through arbitration by a
3(d), ADR Act) third party.

Arbitration has been defined and distinguished NOTE: ADR Act and its IRR govern voluntary
from the trial system: arbitration but not compulsory arbitration.
"An arrangement for taking and abiding by the
judgment of selected persons in some disputed Based on seat of arbitration and presence of
matter, instead of carrying it to established foreign elements:
tribunals of justice, and is intended to avoid the
formalities, the delay, the expense and vexation 1. Domestic
of ordinary litigation." (Uniwide Sake Realty vs. o It is domestic if it is not international
Titan-Ikeda Construction) in character.
o If the components of parties’ places of
Distinction between arbitration & mediation: business, place of arbitration, place of
performance of a substantial part of
Arbitration Mediation the obligation, and where the subject
Arbitrator decides the Parties themselves matter of the dispute is most closely
dispute and renders an who enter into and connected, are all located in the PH.
arbitral award (partial execute a mediated o Governed by Arbitration Law, Model
or final) to conclude settlement agreement Law, and specific provisions of ADR
arbitral proceeding. to conclude mediation. Act.

Arbitration is a merit/evidence form of ADR. 2. Foreign

Arbitral Award may come in the form of:
1. Award on agreed terms
2. Consent of award
3. Award based on compromise
-­‐ if the parties settled their dispute
amicably.
Kinds of Arbitration:
General:
1. Voluntary
o Involves reference of a dispute to an
impartial body, the members of which
are chosen by the parties themselves,
which parties freely consent in
advance to abide by the arbitral award
issued after proceedings where both
parties had the opportunity to be
heard. (Uniwide Sales Realty vs. Titan-
Ikeda Construction)
o If its seat is outside PH even if the
place of arbitration is in the
Philippines.
o ADR Act and its IRR govern the
recognition and enforcement of foreign
arbitral awards.
3. International
o It is international if any of the ff
instances occur:
§ Parties’ place of business,
which at the time of the
conclusion of the arbitration
agreement, is in different
states;
§ Place of arbitration provided in
the arbitration agreement and
in which the parties have their
places of business, is outside
PH;
§ Place where a substantial part
of the obligation is to be
performed or the place with
which the subject matter of the

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 dispute is most closely
connected, and in which the
parties have their places of
business, is outside the
Philippines; or
§ Parties have expressly agreed
that the subject matter of the
arbitration agreement relates to
more than one country.
International Commercial Arbitration
o Wherein an international arbitration is at
the same time commercial. In such case it
covers matters arising from all
relationships of a commercial nature,
whether contractual or not.
o Governed by ADR Act and its IRR even if
the place of arbitration is outside
Philippines.
o An international commercial arbitration
whose seat is outside Philippines is a
foreign arbitration. This is true even if the
place of arbitration is in the Philippines as
long as the seat of arbitration is not the
Philippines.
Foreign ICA ICA or Philippine ICA
Seat is outside PH ICA with the PH as its
seat
Policy on Arbitration
Judicial Policy on Arbitration
Being an inexpensive, speedy and amicable
method of settling disputes, arbitration––along
with mediation, conciliation and negotiation––is
encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also
hastens the resolution of disputes, especially of
the commercial kind. It is thus regarded as the
"wave of the future" in international civil and
commercial disputes. Brushing aside a functions.
contractual agreement calling for arbitration
between the parties would be a step backward.
(Korea Technologies vs. Lerma)
In Koppel, Inc. vs. Makati Rotary Club
Foundation, Inc., the Supreme Court after
declaring null and void all proceedings conducted
by courts in violation of arbitration agreements,
including the decisions rendered therein, went on
sustain the state policy of encouraging alternative
dispute resolution notwithstanding the harsh
legal implications that the policy may create,
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The Supreme Court said:
x x x in our jurisdiction, bona fide arbitration
agreements are recognized as valid; and that
laws, rules and regulations do exist protecting
and ensuring their enforcement as a matter of
state policy. (Koppel, inc. vs. Makati Rotary Club
Foundation)
Objectives of Arbitration
To provide 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
o Person appointed to render an award,
alone, or with others, in a dispute that is
the subject if an arbitration agreement.
o Must be of legal age, with full civil rights,
and able to read and write.
Arbitration is conducted by an arbitrator or an
arbitral tribunal composed of two (2) or more
arbitrators.
Arbitrators and arbitral tribunals are not quasi-
judicial instrumentalities whose awards are
reviewable under Rule 43 of Rule 65 of ROC.
When appointment if an arbitrator cannot be
secured despite the procedure agreed upon by
the parties or the default procedure prescribed by
law and the rules, appointment shall be made by
appointing authority upon application of a party.
Arbitrator Arbiter
May use his own Bound by the rules of
discretion in the law and equity in
performance of his rendering an award.
Ex: Labor Arbiters
Arbitration Agreement
(Articles 4.7 to 4.9, IRR)
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, whether contractual or not.
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By nature, an arbitration agreement is An arbitration agreement is a formal contract;
contractual. As such, it should have the essential hence, its validity is dependent on the contract
elements of a contract. being executed in a particular form.
The SC explained the contractual nature of an
arbitration agreement: Formal Requirements of an agreement to
arbitrate
An agreement to arbitrate is a contract, the
relation of the parties is contractual, and the 1. It must be in writing and
rights and liabilities of the parties are controlled 2. It must be subscribed by the parties or their
by the law of contracts. In an agreement for representatives.
arbitration, the ordinary elements of a valid
contract must appear, including an agreement to An arbitration agreement is in writing if:
arbitrate some specific thing, and an agreement
to abide by the award, either in express language 1. If it is contained in a document signed by the
or by implication. (Ormoc Sugarcane Planter’s parties;
Association vs. CA) 2. In an exchange letters, telex, telegrams or
other means of telecommunication; or
A contract is required for arbitration to take place 3. In an exchange of statements of claims and
and to be binding. Submission to arbitration is a defenses in which the existence of an agreement
contract and a clause in a contract providing that is alleged by a party and not denied by the other.
all matters in dispute between the parties shall
be referred to arbitration is a contract. The An arbitration agreement may be:
provision to submit to arbitration any dispute
arising therefrom and the relationship of the 1. Included in the container contract in which
parties is part of the contract and is itself a case it is referred to as an arbitration clause or a
contract. (Cargill Philippines vs. San Fernando compromissoire.
Regala Trading, Inc) 2. Constituted in a separate contract;
3. Come in the form of a reference in a written
When a party enters into a contract containing a contract to a document containing an arbitration
foreign arbitration clause and, in fact submits clause such as to make that close part of the
itself to arbitration, it becomes bound by the contract.
contract, by the arbitration and by the result of
arbitration, conceding thereby the capacity of the Arbitration clauses must be liberally construed
other party to enter into the contract, participate consistent with the policy of encouraging
in the arbitration and cause the implementation alternative dispute resolution method. Provided
of the result. (Tuna Processing, Inc. vs. Philippine such clause is susceptible of an interpretation
Kingford Inc.) that covers the asserted dispute, an order to
arbitrate should be granted. Any doubt should be
2 Modes of submitting a dispute or controversy to resolved in favor of arbitration.
arbitration depending on the existence or
pendency of the dispute or controversy to be Doctrine of Separability
submitted to arbitration
Otherwise known as Doctrine of Severability, it
Agreement to submit Submission enunciates that an arbitration agreement is
to arbitration agreement independent of the main contract even if it is
An agreement to An agreement contained in an arbitration clause.
submit to arbitration submitting an existing
some future dispute, matter of difference to The arbitration agreement or clause is to be
usually stipulated upon arbitrators, termed the treated as a separate agreement such that, even
in a civil contract submission agreement. if the validity of the main contract is challenged,
between the parties. the arbitration agreement or clause remains valid
Made in anticipation of and enforceable.
a dispute that might
arise between the The doctrine denotes that the invalidity of the
parties after the main contract, also referred to as the "container"
contract's execution. contract, does not affect the validity of the

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arbitration agreement. Irrespective of the fact
that the main contract is invalid, the arbitration
clause/agreement still remains valid and
enforceable. (Gonzales vs. Climax Mining Ltd)
The Court in Gonzales did not simply base its
rejection of the complaint for arbitration on the
ground that the issue raised therein, i.e., the
validity of contracts, is per se non-arbitrable. The
real consideration behind the ruling was the
limitation that was placed by RA No. 7982
upon the jurisdiction of the PA-MGB as an
arbitral body. Gonzales rejected the
complaint for arbitration because the issue
raised therein is not a mining dispute per RA
No. 7942 and it is for this reason, and only
for this reason, that such issue is rendered
non-arbitrable before the PA-MGB.
NOTE: Even the party who repudiates the main
contract may invoke its arbitration clause.
Due Process in Arbitral Proceedings
The principles of administrative due process
equally apply to arbitral proceedings.
Judicial Review and Court Intervention
3 Types of Judicial Intervention in Arbitration
Judicial Assistance in Allow the parties in an
Arbitration arbitration to secure
from the courts orders
or processes that will
aid in the conduct of
the arbitration.
It includes referral to
arbitration, issuance of
interim measures of
protection, assistance
in taking evidence, &
issuance of
confidentiality and
protective orders.
Judicial Review of Involves passing upon,
Arbitral Awards to the extent allowed
and on grounds
provided for by law, the
propriety of the arbitral
award.
Judicial Review of Involves the remedies
Courts decisions in available from decisions
ADR related cases or orders of the
Regional Trial Courts
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and the CA rendered in
the first two types of
judicial intervention.
The decisions of an arbitral tribunal are subject to
judicial review. 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 awards are still judicially
reviewable under certain conditions.
However, not every question of fact is reviewable
by the courts. The review of factual issues by the
SC on matters arising from arbitration has been
held limited. Thus:
The Court will not review the factual findings of
an arbitral tribunal upon the artful allegation that
such body had "misapprehended facts" and will
not pass upon issues which are, at bottom, issues
of fact, no matter how cleverly disguised they
might be as "legal questions." 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 relitigate 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 a grave abuse of
discretion resulting in lack or loss of jurisdiction.
Prototypical examples would be factual
conclusions of the Tribunal which resulted in
deprivation of one or the other party of a fair
opportunity to present its position before the
Arbitral Tribunal, and an award obtained through
fraud or the corruption of arbitrators. 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. (Uniwide Sales Realty
vs. Titan-Ikeda)
The Nature and Extent of Judicial Review under
the Special ADR Rules:
Rule 19.36.Review discretionary.—A review by
the Supreme Court is not a matter of right, but of
sound judicial discretion, which will be granted
only for serious and compelling reasons
resulting in grave prejudice to the aggrieved
party. The following, while neither controlling nor
fully measuring the court’s discretion, indicate
the serious and compelling, and necessarily,
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restrictive nature of the grounds that will warrant
the exercise of the Supreme Court’s discretionary
powers, when the Court of Appeals:
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.
The mere fact that the petitioner disagrees with
the Court of Appeals’ determination of questions
of fact, of law or both questions of fact and law,
shall not warrant the exercise of the Supreme
Court’s discretionary power. The error imputed
to the Court of Appeals must be grounded
upon any of the above prescribed grounds
for review or be closely analogous thereto.
Courts are without power to amend or overrule
merely because of disagreement with matters of
law or facts determined by the arbitrators. They
will not undertake to substitute their judgment
for that of the arbitrators. 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.
Rule 19.10. Rule on judicial review on
arbitration in the Philippines. - As a general
rule, the court can only vacate or set aside the
decision of an arbitral tribunal upon a clear
showing that the award suffers from any of the
infirmities or grounds for vacating an arbitral
award under Section 24 of Republic Act No.
876 or under Rule 34 of the Model Law in a
domestic arbitration, or for setting aside an
award in an international arbitration under Article
34 of the Model Law, or for such other grounds
provided under these Special Rules.
If the Regional Trial Court is asked to set aside
an arbitral award in a domestic or international
arbitration on any ground other than those
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provided in the Special ADR Rules, the court
shall entertain such ground for the setting aside
or non-recognition of the arbitral award only if
the same amounts to a violation of public
policy.
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 cannot substitute its judgment
for that of the arbitral tribunal.
(Fruehauf Electronics Philippines Corporation vs.
Technology Electronics Assembly and
Management Pacific Corporation)
Indeed, arbitration and court action are not
incompatible. They may proceed at the same
time and independently of each other.
A court before which an action is brought on a
matter which is the subject of an arbitration
agreement shall, if t least one party so requests
not later that the pre-trial conference, or upon
the request of both parties thereafter, refer the
parties to arbitration unless it finds that the
arbitration agreement is null and void,
inoperative or incapable of being performed. The
court does not lose its jurisdiction over the case,
and the judicial proceeding is merely stayed until
after the completion of the arbitral process in
which case the court may then confirm the award
of the arbitrator.
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. Under the ADR Act and its,
IRR, the Court is directed to refer to arbitration
those parties who agreed to submit a controversy
to arbitration may be compelled to submit to
arbitration, including heirs and assignees.
However, the Supreme Court held that Corporate
representatives may be compelled to submit to
arbitration proceedings pursuant to a contract
entered into by the corporation they represent if
there are allegations of bad faith or malice in
their acts warranting the piecing of the veil of
corporate fiction.
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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.
The policy of party autonomy was recognized in
delimiting court intervention in arbitration. No
court shall intervene in arbitration proceedings
except in the instances provided under the ADR
Act. This rule, while acknowledging the freedom
of the parties to determine the procedure for the
settlement of their dispute, also recognizes that
there are aspects of arbitration that require the
participation of the courts. For instance, the
parties may apply with courts for protective
measures and enforcement thereof; assistance in
taking evidence; arbitration assistance and
supervision; determination of jurisdiction of the
arbitral tribunal; recognition, enforcement, and
implementation of an arbitral award; setting
aside of an arbitral award; appointment of and
challenge to arbitrators; and court intervention in
case of failure or impossibility of the arbitral
tribunal to act.
Non-compliance with the arbitration agreement
renders null and void all the judicial proceedings
conducted beyond the point when the case
should have been referred to arbitration.
Moreover, whatever the 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. (Koppel , Inc. vs.
Makati Rotary Club)
Interim Measures in Arbitration
Recognizing the inter-dependency of arbitral
tribunals and courts, as well as their processes,
the SC held that:
“As a fundamental point, the pendency of arbitral
proceedings does not foreclose resort to the
courts for provisional reliefs. The Rules of the
ICC, which governs the parties' arbitral dispute,
allows the application of a party to a judicial
authority for interim or conservatory
measures. Likewise, 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
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matter which is the subject of the dispute in
arbitration. In addition, R.A. 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.” (Transfield Philippines,
Inc. vs. Luzon Hydro Corporation)
Interim Measures
Complementation between arbitration and court
action is best exemplified in the area of interim
measures.
It is otherwise referred to in the ADR Act as
“interim measures of protection” or “provisional
reliefs” 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. 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.
Interim measures are applied with and secured
from the arbitral tribunal. However, there are
instances when the arbitral tribunal cannot grant
the interim measure such as when the arbitral
tribunal is not yet constituted, or when the
arbitral tribunal already constituted has no power
to act or is unable to act effectively. In these
instances, a party may apply for the interim
measures with a court which may grant them.
The petition for this purpose shall be governed by
the Special ADR Rules.
In the case of interim measures, a court cannot
refuse to grant, implement or enforce 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 the 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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