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Private International Law - Contracts with Arbitration Clauses

Report By Bobby Johnson O. Sebastian

“Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often the real loser...in fees, expenses and waste of time.” Abraham Lincoln, 1850

DEFINITION

DEFINITION  "Alternative Dispute Resolution System" means any process or procedure used to resolve a dispute or controversy. other than by adjudication of a presiding judge of a court or an officer of a government agency.A. which includes arbitration. mediation. as defined in this Act. early neutral evaluation. Sec. or any combination thereof (R. in which a neutral third party participates to assist in the resolution of issues. 3(a)). . mini-trial. conciliation. 9285.

resolve a dispute by rendering an award (R. 9285.DEFINITION  "Arbitration" means a voluntary dispute resolution process in which one or more arbitrators. Sec. appointed in accordance with the agreement of the parties. 3(d)). or rules promulgated pursuant to this Act.A. .

 A third neutral party issues a decision that is binding for both parties. vs. speedy and amicable method of settling disputes and as a means of avoiding litigation should receive every encouragement from the courts..” [Lazatin.DEFINITION A method that allows two parties to settle a dispute without going to court. Juan Ysmael & Co. 1 (1957)] . citing Eastboard Navigation Ltd. 2.. Inc.   “Arbitration as an inexpensive. p. 102 Phil.

An arbitration is "commercial" if it covers matters arising from all relationships of a commercial nature. SEC.A. 21. . Commercial Arbitration. .DEFINITION  R. whether contractual or not. 9285.

HISTORY .

the use of arbitration as a mode of dispute resolution was discouraged by the tendency of some courts to nullify arbitration clauses on the ground that the clauses divested the judiciary of its jurisdiction (Lazatin. p. Despite the recognition accorded to arbitration by tradition and by provisions of the Civil Code. 2) .HISTORY  Early jurisprudence in the Philippines did not support arbitration.

by consent of the parties. p. so that they may not become the subject of future litigation between the parties (Id. Law Union and Rock Insurance Co. 42 Phil. in a speedy and inexpensive way. it is a substitution. 548). citing Chan Linte vs. of another tribunal for the tribunals provided by the ordinary processes of law. the Supreme Court..… Its object is the final disposition. 1... of the matters involved. In its broad sense. noted that: “[t]he settlement of controversies by arbitration is an ancient practice at common law. et al. applying common law.HISTORY  In 1921. .

which agreement would be void.HISTORY  In 1924.. citing Malcolm. the attitude of the courts toward arbitration agreements is slowly crystallizing into definite and workable form…. The rule now is that unless the agreement is such as to absolutely close the doors of the courts against the parties. the Court observed that: “In the Philippines fortunately. in Vega vs. p.. 908).. . San Carlos Milling Co. 2. the courts will look with favor upon such amicable agreements and will only with great reluctance interfere to anticipate or nullify the action of the arbitrator (Id. 51 Phil. J. dissenting.

enforceable and irrevocable. also known as the “Arbitration Law” “Two or more persons or parties may submit to the arbitration of one or more arbitrators any controversy existing between them at the time of the submission and which may be the subject of an action. 876. save upon such grounds as exist at law for the revocation of any contract. Such submission or contract shall be valid. or the parties to any contract may in such contract agree to settle by arbitration a controversy thereafter arising between them. .HISTORY  In 1953. the Philippine Congress enacted Republic Act No.

 . the said Convention was ratified.HISTORY In 10 June 1958.  On 6 July 1967. the Philippines became a signatory to the United Nations Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958 (“New York Convention”).

3. Explanatory Note.) . no legislation has been passed providing a specific procedure for the enforcement of foreign arbitral awards or the conduct of international arbitration. p. including the Government. p. when dealing with disputes regarding international contracts. were required to agree to dispute settlement by arbitration in the foreign country under the rules of foreign arbitral institutions (Lazatin. 3) Instead. (Lazatin. Philippine entities.HISTORY   For years. citing United Nations Commission in International Trade Law (“UNCITRAL”) Model Law Bill.

M. the Supreme Court issued A. otherwise known as the “Special Rules of Court on Alternative Dispute Resolution.HISTORY On April 20.” It took effect on October 30. 2009.  . Republic Act No. 2004. otherwise known as the Alternative Dispute Resolution Act of 2004 was enacted.  On September 1. 07-11-08-SC. 2009. No. 9285.

HISTORY  On December 4.A. 98. . the Implementing Rules and Regulations of R. 2009. 9285 was issued by the Department of Justice as Department Circular No.

A.R. 9285 – ADR Act of 2004 .

9285 – ADR Act of 2004  Declared Policy: “to actively promote party autonomy in the resolution of disputes or the freedom of the parties to make their own arrangements to resolve their disputes” and “encourage and actively promote the use of Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial justice and declog court dockets.” (Sec.A. 2) .R.

19-31). 9285. Secs. 9285 – ADR Act of 2004  To harmonize with developments in international trade. Republic Act No.R. 9285 ensured that international commercial arbitration would be governed by the United Nations Commission in International Trade (“UNCITRAL”) Model Law on International Arbitration adopted by the United Nations Commission on International Trade Law on June 21. .A. 1985 (Republic Act No.

R. 9285 – ADR Act of 2004  Republic Act No. 9285 also promoted the use and purpose of the New York Convention by specifically requiring that it shall govern the recognition and enforcement of arbitral awards covered by the said convention. while foreign arbitral awards not covered by the New York Convention shall be recognized and enforced in accordance with the procedural rules to be promulgated by the Supreme Court (Republic Act No. 9285.A. . Secs. 4243).

KINDS OF ARBITRATION .

KINDS OF ARBITRATION Ad hoc Arbitration  Institutionalized (or Institutional) Arbitration  Specialized Arbitration  .

including rules of arbitration institutions. morals. provided that the arbitration process is not "contrary to law. 4) .” (Lazatin p. the State allows the parties to conduct the arbitration in any manner they stipulate. good customs. So long as consent is present.KINDS OF ARBITRATION  Ad hoc Arbitration – the Parties select an arbitrator or arbitrators and choose procedures to govern the proceedings. public order or public policy.

and arbitration centers and institutes.KINDS OF ARBITRATION   Institutionalized (Institutional) . ("PDRCI"). 5). Examples:  Philippine Dispute Resolution Center Inc.is conducted through organized bodies such as courts of arbitration. each prescribing its own different arbitration procedure. . International Chamber of Commerce ("ICC")  Hongkong International Arbitration Centre ("HKIAC")  Singapore International Arbitration Centre ("SIAC") (Lazatin. trade associations. p.

involves particular industries or kinds of disputes.KINDS OF ARBITRATION Specialized Arbitration .  Examples:   Bankers' Association of the Philippines - disputes on check clearing  Construction Industry Arbitration Commission (“CIAC”) .

SOURCES OF LAW .

the primary statute used to supplement the parties‟ agreement in governing arbitration Title XIV of the New Civil Code (Articles 2028 to 2046) UNCITRAL Model Law New York Convention Other international conventions Philippine Jurisprudence .SOURCES OF LAW       Republic Act No. 9285 .

PROCEDURE .

p. 6).PROCEDURE The fundamental rule in international commercial arbitration is that the procedure will be dictated by the choice or agreement of the parties.  In the absence of any agreement of the parties.  . the law of the forum will apply (Lazatin.

is dependent on the existence of an agreement that is valid as to form and substance. much less render any decision binding on the parties or on States in which enforcement may be sought. the arbitrator or the arbitral tribunal are without jurisdiction to conduct any proceedings. p.”(Lazatin.PROCEDURE  “Arbitration. being essentially consensual in nature. 9) . Without an agreement that constitutes the basis of arbitral competence.

15). p. . both as to rules applicable to the substance of the dispute as well as with respect to the rules of procedure applicable to the arbitration proceedings (Lazatin.PROCEDURE  Under the Model Law. parties are free to stipulate on their choice of law.

PROCEDURE – BINDING EFFECT OF ARBITRAL AGREEMENTS .

which by definition are “those agreements of 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.” (Chapter II. Article 7 of the UNCITRAL Model Law) . whether contractual or not”. and may either be “in the form of an arbitration clause in a contract or in a separate agreement.PROCEDURE – BINDING EFFECT OF ARBITRAL AGREEMENTS  Parties may constitute arbitration agreements.

PROCEDURE – BINDING EFFECT OF ARBITRAL AGREEMENTS  The court must refer the parties to arbitration unless it finds that the agreement is “null and void. Article 8 of the UNCITRAL Model Law) . inoperative or incapable of being performed.” (Chapter II.

PROCEDURE – SCOPE OF THE ARBITRATION CLAUSE .

 “If arbitral tribunal rules as a preliminary question that it has jurisdiction. the arbitral tribunal may rule on its own jurisdiction. within thirty days after having received notice thereof.PROCEDURE – SCOPE OF THE ARBITRATION CLAUSE Under the UNCITRAL Model Law. any party may request [a Philippine court] to decide the matter.”  . which decision shall be subject to no appeal. including any objections with respect to the existence or validity of the arbitration agreement.

refer the parties to arbitration unless it finds that the arbitration agreement is null and void. or upon the request of both parties thereafter. . 24.PROCEDURE – SCOPE OF THE ARBITRATION CLAUSE  R. inoperative or incapable of being performed. 9285. SEC.A. – A court before which an action is brought in a matter which is the subject matter of an arbitration agreement shall. Referral to Arbitration. if at least one party so requests not later that the pretrial conference.

PROCEDURE – ESTABLISHMENT OF THE ARBITRAL TRIBUNAL .

Art. 21)  Civil Code. p. . Philippine law places a limit on the parties‟ freedom to choose arbitrators (Lazatin. 2045. Any clause giving one of the parties power to choose more arbitrators than the other is void and of no effect.PROCEDURE – ESTABLISHMENT OF THE ARBITRAL TRIBUNAL  While it is Philippine policy to actively promote party autonomy in the resolution of disputes and to give the parties freedom to make their own arrangements to resolve their disputes.

inoperative or incapable of being performed.PROCEDURE – ENFORCEMENT OF ARBITRATION AGREEMENTS  Philippine law treats an arbitration agreement as contract enforceable between the parties. .18). unless it is found to be void. p.  A party to an arbitration agreement may compel the other party to comply with the terms of thereof by instituting an action against him for specific performance with the courts and/or proceed ex parte with the arbitration proceedings without the defaulting party (Lazatin.

9285. – A court before which an action is brought in a matter which is the subject matter of an arbitration agreement shall.A.PROCEDURE – ENFORCEMENT OF ARBITRATION AGREEMENTS  R. SEC. or upon the request of both parties thereafter. . inoperative or incapable of being performed. 24. refer the parties to arbitration unless it finds that the arbitration agreement is null and void. if at least one party so requests not later that the pretrial conference. Referral to Arbitration.

A foreign arbitral award. 9285. shall be enforced as a foreign arbitral award and not as a judgment of a foreign court.A. Foreign Arbitral Award Not Foreign Judgment. SEC. . when confirmed by the regional trial court. shall be enforced in the same manner as final and executory decisions of courts of law of the Philippines. . shall be recognized and enforced as a foreign arbitral award and not a judgment of a foreign court. A foreign arbitral award. 44.A foreign arbitral award when confirmed by a court of a foreign country.FOREIGN ARBITRAL AWARD  R. when confirmed by the regional trial court.

JURISPRUDENCE .

. G.S. 143581. 1 (1972)  Puromines. No.. 7 January 2008  Tuna Processing. Ltd. Inc. Inc.R.R. vs. 220 SCRA 281 (1993)  Korea Technologies No.JURISPRUDENCE The Bremen. Philippine Kingford. 185582. 29 February 2012  . No. Zapata Off-Shore Company. vs. 407 U. Inc. G. et al. Lerma. vs. Court of Appeals. vs.

contracted with Unterweser. ZAPATA Zapata.S.”  The rig was lost in a storm while in tow. for the towing of the former‟s drilling rig. corporation. a German corporation.  . a U.JURISPRUDENCE – BREMEN V. The Contract contained a forum-selection clause that provides “any dispute must be treated before the London Court of Justice. Zapata sued Unterweser in US District Court of Tampa for damages.

It also held that Unterweser failed to prove that London would be a more convenient forum. pursuant to the forum clause.JURISPRUDENCE – BREMEN V. ZAPATA Unterweser invoked the forum clause and moved to dismiss the case. It also commenced action in the London Court of Justice. which is contrary to public policy.  .  The District Court and the Court of Appeals held that the forum selection clause was unenforceable because it ousts the court of jurisdiction.

Supreme Court disagreed.S. and concluded that the forum clause should control absent a strong showing that it should be set aside because of serious inconvenience. or contravention of public policy as declared by statute or judicial decision. ZAPATA  The U.JURISPRUDENCE – BREMEN V. .

JURISPRUDENCE – BREMEN V. ZAPATA
Zapara and Unterweser freely negotiated the contract, including the forum clause. It should therefore be incumbent upon the party trying to escape his contract to show that the contracted forum would be so gravely inconvenient as to deprive him of his day in court.  The Supreme Court remanded the case for further proceedings.

JURISPRUDENCE – PUROMINES V. CA.
Puromines and Makati Agro Trade, Inc. contracted with Philip Brothers Oceanic, Inc. for the resale of prilled Urea. The Contract had an arbitration clause requiring disputes to be settled by Arbitration in London. Much of the shipment was lost to spoilage while in transit on a ship chartered by Philip Brothers.  Puromines sued in Manila. Philip Brothers moved to dismiss, invoking the arbitration clause in the contract.

JURISPRUDENCE – PUROMINES V. CA.

Supreme Court: “The parties are nevertheless obligated to respect the arbitration provisions on the sales contract and/or the bill of lading. Petitioner being a signatory and party to the sales contract cannot escape from his obligation under the arbitration clause as stated therein.”

CA. which agreement would be void. The rule now is that unless the agreement is such as absolutely to close the doors of the courts against the parties.  “Arbitration has been held valid and constitutional.” . the courts will look with favor upon such amicable arrangements and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator. 876. this Court has countenanced the settlement of disputes through arbitration.JURISPRUDENCE – PUROMINES V. Even before the enactment of Republic Act No.

It also provided that awards therein shall be final and binding upon the parties. Korea Technologies contracted with Pacific General Steel Manufacturing Corp. LERMA In March 1997.JURISPRUDENCE – KOREA TECH V. whereby the former was to setup an LPG cylinder manufacturing plant for the latter.  . 15 of the Contract provided that disputes should be settled by arbitration in Seoul. Korea in accordance with Korean Commercial Arbitration Board Rules.  Art.

it was unable to supply necessary materials for the initial operation of the plant. 1998. Consequently. forcing the parties to agree that Korea Tech shall be deemed to have completely complied with its obligations in the contract. LERMA Pacific General started experiencing financial difficulties.  The checks paid by Pacific General to Korea Tech were dishonored due to stop payment.JURISPRUDENCE – KOREA TECH V.  . causing the latter company to send a demand letter on May 8.

JURISPRUDENCE – KOREA TECH V.  . LERMA On the same day.  Thereafter. It also filed an estafa case the president of Korea Tech. the wife of Pacific General‟s president complained in a faxed letter to the president of Korea Tech that the latter delivered substandard hydraulic press and failed to deliver other parts fully paid for. Pacific General informed Korea Tech that it was cancelling their contract and dismantle the plant.

JURISPRUDENCE – KOREA TECH V.  . on the other hand filed a complaint for specific performance against Pacific General. invoking the Arbitration clause. claiming full compliance with its obligations under the contract.  Trial Court held that Article 15 of the Contract as amended was invalid as it tended to oust the trial court or any other court jurisdiction over any dispute that may arise between the parties. It also prayed for a TRO against Pacific General. LERMA Korea Tech. The CA affirmed.

2039 and 2040. „Any stipulation that the arbitrators‟ award or decision shall be final. LERMA  The Supreme Court disagreed: “Established in this jurisdiction is the rule that the law of the place where the contract is made governs. Therefore. 2044 of the Civil Code sanctions the validity of mutually agreed arbitral clause or the finality and binding effect of an arbitral award.JURISPRUDENCE – KOREA TECH V. Lex loci contractus. Nonetheless. without prejudice to Articles 2038. Art. Art. The contract in this case was perfected here in the Philippines.‟” . 2044 provides. is valid. our laws ought to govern.

we held that submission to arbitration is a contract and that a clause in a contract providing that all matters in dispute between the parties shall be referred to arbitration is a contract. There has been no showing that the parties have not dealt with each other on equal footing. We find no reason why the arbitration clause should not be respected and complied with by both parties. (512 SCRA 148). In Gonzales v.” .JURISPRUDENCE – KOREA TECH V. It has not been shown to be contrary to any law. or public policy. or against morals. LERMA  “The arbitration clause was mutually and voluntarily agreed upon by the parties. good customs. Climax Mining Ltd. public order.

9258).JURISPRUDENCE – KOREA TECH V. Foreign Arbitral Awards must be confirmed by the RTC. . 876) and foreign arbitral awards (R. LERMA      The RTC must refer to arbitration in proper cases. RTC Decision of assailed foreign arbitral award appealable.A.A. The RTC has jurisdiction to review foreign arbitral awards Grounds for Judicial Review different in domestic (R.

. Foreign Arbitral Awards must be confirmed by the RTC. The RTC has jurisdiction to review foreign arbitral awards Grounds for Judicial Review different in domestic (R.A. 9258).JURISPRUDENCE – KOREA TECH V.A. LERMA      The RTC must refer to arbitration in proper cases. 876) and foreign arbitral awards (R. RTC Decision of assailed foreign arbitral award appealable.

. Inc.JURISPRUDENCE – TPI V. including Kingford. entered into a Memorandum of Agreement with Kanemitsu Yamaoka. For reasons not stated in the pleadings. whereby the latter as licensor will grant the use of his processes to the former as licensees in exchange for royalties. along with 4 other tuna processors. The parties also agreed to establish Tuna Processing. KINGFORD   Philippine Kingford. licensees. (TPI) under California laws for the purpose of enforcing the MOA. withdrew from petitioner TPI and correspondingly reneged on their obligations.

United States and won the case against Kingford. being a foreign corporation without license to do business in the Philippines.  Kingford moved to dismiss on the ground that TPI. petitioner TPI filed a Petition for Confirmation.JURISPRUDENCE – TPI V.  . lacks legal capacity to sue. To enforce the award. Recognition. KINGFORD TPI then submitted the matter to International Centre for Dispute Resolution in the State of California. and Enforcement of Foreign Arbitral Award before the RTC of Makati.

as general law. Supreme Court reversed and ruled that the Corporation Code. Sec. KINGFORD    The RTC agreed with Kingford and dismissed the case. . known as the ADR Act of 2004.A. Capacity to sue is not one. which is a special law.JURISPRUDENCE – TPI V. 9258. should yield to R. 45 of the ADR Act of 2004 provides that the opposing party in an application for recognition and enforcement of the arbitral award may raise only those grounds that were enumerated under Article V of the New York Convention.

and Progalidad. 07-11-08-SC. 98.pdf> Date Retrieved: 3 February 2014 United Nations Commission in International Trade (“UNCITRAL”) Model Law on International Arbitration adopted by the United Nations Commission on International Trade Law on June 21. 9285 A. Implementing Rules and Regulations of R. No..aseanlawassociation. Arbitration in the Philippines. 1985 United Nations Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958 Republic Act No. Patricia Ann T. Special Rules of Court on Alternative Dispute Resolution. Victor P. DOJ Department Circular No. <http://www.org/9GAdocs/w4_Philipines.M.THE END Works cited:       Lazatin.A. 9285 .