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THE ARBITRATION AGREEMENT
by

MARIO E. VALDERRAMA
AB, LLB, FCIArb, FHKIArb, FPIArb

CIAC Accredited Arbitrator

CIArb Approved Tutor
Resident Representative to the Regional Sub-Committee
The Chartered Institute of Arbitrators
East Asia Branch

Contact Details
Tel No 367 4001; Telefax 362 1867
Mobile 0917 411 4594
E-mail <marval.law@gmail.com>
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
jurisdiction’s 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 .
CHOICES: The place or seat of arbitration

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.
 CHOICES: Type of Arbitration
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 pre-
trial conference (Sec. 24).
 EFFECT OF VALID AND ENFORCEABLE
ARBITRATION AGREEMENT ON DISPUTE
BROUGHT TO LITIGATION
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.
 PATHOLOGICAL CLAUSES:
Examples
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).
 INCORPORATION CLAUSES
 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.
 INCORPORATION CLAUSES
 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).
 INCORPORATION CLAUSES
 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)
 INCORPORATION CLAUSES
 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).
 INCORPORATION CLAUSES
 Philippine Arbitration Law mutated in 2004
with the passage of R.A. 9285.

 Relevantly, R.A. 9285’s Chapter 4 Sec. 19

states:
“International commercial arbitration
shall be governed by the Model Law on
International Arbitration x x x.”
 INCORPORATION CLAUSES
 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).
INCORPORATION CLAUSES

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)
 INCORPORATION CLAUSES

 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).
 INCORPORATION CLAUSES
 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?
 WANT TO KNOW MORE?

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Philippine Institute of Arbitrators

c/o Atty. Mario E. Valderrama
Tel. No. (632) 367 4001
Telefax (632) 362 1867
E-mail: marval.law@gmail.com