Philippine Institute of Arbitrators

Involved in Arbitration / ADR?

We know the different processes.

We can help you dissect and analyze them,

refine and combine them, and create hybrid
procedures to make them suitable for
particular relationships, as well as to develop
strategies and point you to the right direction.
PARTY AUTONOMY: DISPUTE RESOLUTION
MECHANISMS
by

MARIO E. VALDERRAMA LLB, FCIARb, FHKIArb, FPIArb

General Counsel to the Construction Industry Arbitration Commission
CIArb Approved Tutor
CIAC, PDRCI & WESM Arbitrator
Contact Details
Tel No 367 4001; Telefax 362 1867
Mobile 0917 4114 594
E-mail <marval.law@gmail.com>
FOCUS OF DISCUSSION

Focus of Discussion: The Dispute Resolution

Practices that are based on consent / contract.

R.A. 9285 Sec. 2. Declaration of Policy. – It is hereby

declared the policy of the State 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.
CHOICES

Parties can choose the mode of resolving

their disputes. Variety in the menu.
 The Dispute Resolution Spectrum

 Non-Jurisdictional and ADR

 Avoidance, violence, chance
 Negotiation
 Conciliation and Mediation
 Other ADR forms
 Special Mention: Adjudication / Dispute Boards
 Jurisdictional
 Arbitration
 Statutory Arbitration / Adjudication
 Litigation
CHOICES

 Basic general rule: if the parties have

their own agreed procedure, then that
procedure shall be followed.
CHOICES
 Parties only or involving third parties.
 “Peaceful” (voluntary) procedures or compulsory
procedures entailing binding or merely executory
decisions.
 Positional (derivative or compromising) or
integrative approaches.
 Facilitative, evaluative (focused on outcomes) or
transformative (focused on interaction)
approaches.
 Negotiated or adversary (adversarial or
inquisitorial) models.
CHOICES
 “Peaceful” (voluntary) procedures

 Goal is, simply, a workable solution. The

concern is not so much whether the agreement
is “fair” or in line with the parties’ legal rights. A
negotiated settlement has nothing to do with
justice and has everything to do with looking to
the future and not being hung up on the past.

 “Compulsory” procedures entailing binding or

merely executory decisions.
 CHOICES
 The procedures / approaches may be combined (see R.A. 9285
Sec. 18).

 Parties can create and innovate. They can dissect and analyze
the different dispute resolution practices, refine and combine
them, and create and design hybrid procedures to make them
suitable for particular relationships / needs. The spectrum of
processes that they can create will be limited only by the extent
of their imagination.

 Rule in hybrids: the rules corresponding to the combined

procedures will apply mutatis mutandis (see R.A. 9285 Sec. 18).
SIDELIGHT: THE HYBRIDS, EXAMPLES

 Mini Trial
 Non-binding arbitration
 Med-Arb
 Arb-Med
 Med-Arb-Med
 Early neutral evaluation
 Early expert evaluation
 Adjudication / Dispute Board
APPLIED PARTY AUTONOMY: THE EVOLUTION OF
ADJUDICATION (NOW CALLED DISPUTE BOARDS) IN
THE CONSTRUCTION INDUSTRY
 Operating Concepts:
1. Disputes are better resolved as soon as they arise, rather than wait until they
pile-up and the amounts involved have bloated.
2. Cash flow is important.
3. In the executory award models: at the end of the construction period there is
still enough money to cover wrong payments.
 May be statutory or contractual.
 Models: The FIDIC Model, the World Bank Model. Variant is to constitute the
adjudication board at inception of contract.
 The variant evolved to also become a dispute prevention mechanism; then
application of other ADR mechanisms.
 Procedures’ record of success resulted to their application to other contracts.
APPLIED PARTY AUTONOMY: THE EVOLUTION OF
ADJUDICATION (NOW CALLED DISPUTE BOARDS) IN
THE CONSTRUCTION INDUSTRY
 Statutory Models in Certain Countries (The Housing Grants,
Construction and Regeneration Act 1996, England; Securities of
Payments Acts in Other Countries)

 When a construction contract has no adjudication clause, the

law provides for a default scheme. The clause should comply
with the default scheme such that the default scheme has
been referred to as an “obligatory contractual provision”.

 Note: No counterpart law in the Philippines. So, all

adjudication/DB schemes in the Philippines will have to be
contractual.
ADR AND ARBITRATION

 The parties make their own rules.

ADR AND ARBITRATION

 The processes are confidential by law in

the Philippines.
 R.A. 9285 Secs. 9 , 12 & 23
 Minimal, if at all, meddling from the
Government and the Court.
 Processes are private, not public.
 ADR Boards or Tribunals are instrumentalities
of the parties.
MAL Art. 5 in arbitration.
ADR AND ARBITRATION
 RE ARBITRATION: Arbitral Tribunal is an instrumentality of
the parties.
In arbitration the parties by contract create their own
tribunal. They appoint their “judges”; craft the procedure;
agree on several categories of choice. As creators they own
the tribunal; as owners and creators they can shape the
tribunal to what they want it to be. As owners and creators
they pay the expenses of the tribunal that they created. The
arbitrators are akin to temporary employees whose job
description is to resolve the dispute between the parties
(see UNCITRAL Model Law 1985 Provisions).
ADR AND ARBITRATION
 As a rule, parties set the qualifications and
disqualifications of their dispute resolvers. Not
dependent on ASEAN agreed standards. No need to
undergo processes required for other professionals
to practice within ASEAN.

 ADR and Arbitration practitioners are practitioners

without borders.
ADR AND ARBITRATION
 Settlements and decisions of arbitral tribunal
enforceable by courts. And the enforcement
processes are, as a rule, summary, hence speedy.
 R.A. 9285 Sec. 17, 18, and Chapter 7 provisions.

 International arbitral awards enforceable under the

New York Convention of 1958.
 ADR AND ARBITRATION

 Paradigm Shift

ADR is becoming part of the justice system and is no longer

being viewed as an aid to ease the problems of the judiciary.

Internationally we have the UNCITRAL Model Law and the

New York Convention of 1958 working together to unify the
legal regime in arbitration.

There is now a Convention on the enforcement of mediated

settlements, the “Singapore Convention”.
PARTY AUTONOMY

END OF PART ONE

APPLIED ADR: DISPUTE RESOLUTION APPROACHES
IN SOUTH CHINA SEA DISPUTE

Preliminaries: Given the available choices, which

approach is the better approach?

“Peaceful” (voluntary) procedures

 Goal is, simply, a workable solution. The concern is not so

much whether the agreement is “fair” or in line with the parties’
legal rights. A negotiated settlement has nothing to do with
justice and has everything to do with looking to the future and
not being hung up on the past.

“Compulsory” procedures entailing binding or merely

executory decisions.
 APPLIED ADR: THE WEST
PHILIPPINE SEA DISPUTE
PRELIMINARIES:

Informed decisions require facts, not “fake news”.

Zonal System in UNCLOS is focused on the allocation of

resources outside the territorial boundaries of states, not

allocation of territories. Observe distinction between
sovereign rights over resources and territorial sovereignty.
“Islands”, “rocks” and “reefs”.

 Ownership disputes over “rocks” not our focus of

discussion.
NOTE: UNCLOS

 “The United Nations Convention on the Law of the

Sea lays down a comprehensive regime of law and
order in the world’s oceans and seas establishing
rules governing all uses of the oceans and their
resources. It enshrines the notion that all problems
of the ocean space are closely interrelated and need
to be addressed as a whole” (From Overview
prepared by the Division for Ocean Affairs and the
Law of the Sea, UN).
NOTE: BASIS OF MARITIME
ENTITLEMENTS

Marine entitlements are attached to the land.

The land formations in the disputed waters were

described as “[S]pecks of land, all of them except Itu
Aba, without its own source of water”.

The arbitral tribunal ruled that there is no island in the

disputed waters. Only “rocks” and “reefs”.
NOTE: BASIS OF MARITIME
ENTITLEMENTS
Marine entitlements are attached to the land.

1.“Island”
 Can sustain habitual and economic life.
 Criteria; expansion of the concept of “in its natural
state” in the Itu Aba ruling; from capability to
actualities.
 Not part of the sea; can be acquired.
 Maritime entitlements.
NOTE: BASIS OF MARITIME
ENTITLEMENTS (con’t)
2. “Rock”
 Concept, hte.
 Not part of the sea; could be acquired.
 Maritime entitlement.
 “Terra Nullius”.
 The Kalayaan Group of Islands: Do we own them or do we
only have a claim on them?
 Pugad Island and the Vietnamese.
 Consequences of the Philippine incursion into the Kalayaan
Group of Islands.
 Possessors are considered the administrators pending the
resolution of the issue as to ownership.
NOTE: BASIS OF MARITIME
ENTITLEMENTS (con’t)
3. “Reef”
 Sunken bank or lte.
 Part of the sea (if outside the territorial sea of a state); can
not be acquired.
 Not entitled to any marine entitlement.
 China “occupied” Mischief Reef in 1993, a year after the
shutdown of the US Military Bases. Construction of huts a
gray area because they are temporary structures. It’s just
that there are too many of them.
NOTE: Precursors
Coincidence or Related Events?

The Scarborough Incident: Philippine forces (Gregorio del Pilar, a

military vessel) boarded Chinese fishing boats.
In another part of the SCS (Balintang Channel), Philippine forces

(Coast Guard) fired at an unarmed Taiwanese fishing vessel, killing

one fisherman.
Issue with Taiwan settled.

Phl lost control of Scarborough; Filipino fishermen barred from

fishing in Scarborough.
Phl has no garrison in Scarborough. Did Phl bother to formally

claim Scarborough?
 APPLIED ADR
Approach of the Previous Administration

The Positional Derivative Approach

 The never ending debate.

Playing the Win-Lose (or Zero-Sum) Game.

 APPLIED ADR
Playing the Win-Lose Game

Hadthe past administration impulsively jumped in into the win-lose

game?

 UNCLOS Art. 287: the choice of procedures. [1] the choices and [3]
Annex VII as the default.
 Phl initiated the arbitration in ITLOS. Wrong move.

No end game strategy.

 APPLIED ADR
Playing the Win-Lose Game

Reality
check: the nature of the mandatory dispute resolution
procedure that may be available.
 The apparent purpose of the Award given that no

enforcement mechanism exists.

 China’s opt-out from the mandatory dispute resolution

procedures.
 Counterbalance re ruling on jurisdiction.
 APPLIED ADR
 Evaluative approach:

 The problem with playing the win-lose game in the

disputes.

 The Scarborough issue: the Philippines won, on

paper, but actually lost as a consequence.
 APPLIED ADR
Where Phl (Actually) Won
Declaration that nine-dash line, as a claim on

resources beyond that allotted, has no legal basis.

 No traditional fishing rights in the EEZ’s.

Declaration that certain features in the WPS are

“reefs”.

 China’s occupation/development violates Phl’s maritime

rights.
 APPLIED ADR
Where Phl Won (con’t)
Others (all controversial; all were non-issues)

 Itu Aba is a “rock”, not an “island”.

 China is not an archipelagic state.

 Taiwan’s Government is the Taiwanese Authority of

China.
 Undermining China’s claims on “rocks” in SCS.

Note: Some other “wins” are not material to our

discussion because both parties were declared in good
faith.
 APPLIED ADR
Where Phl (Actually) Lost

No jurisdiction re blockade of Sierra Madre

Declaration that certain features, including

Scarborough, are “rocks” and they happened to be
under China’s control.
 This “loss” was tempered by the declaration that

traditional fishing rights have to be respected in

Scarborough, another controversial ruling.
 APPLIED ADR
 Evaluative approach: Did Phl really win?
 No enforcement machinery. So, “counter measures” or “diplomatic
persuasion”?
 Arbitral award is now just a matter of academic discussion. What may have
happened had China participated in the arbitration, at least up to the
jurisdictional part.
 False assumptions: Shaming China? Reputational damage to be suffered by
China? Arbitration a weapon of the weak against the strong? Help from other
countries?
 Declaration of certain features as “rocks”.
 Re China’s violation in building on “reefs”; the U.S. FONOP.
 Present US stance; ASEAN stance; Phl stance; Mischief Reef.
 The “private” nature of Phl’s “victory” and the adverse interests of other
claimants.
 APPLIED ADR
 Other Consequences

 China’s taking over of uninhabited features.

 Blockade of “Sierra Madre”.
 Philippine fruit exports to China.
 Tourism.
 Lost opportunities for cooperation.
 Protests.
 Fishing ban; use of water cannons and seizure of catch.
 Soured relationship; heightened tensions.
 China’s militarization; (note ruling of Tribunal); tit for tat.
NOTE: JURISDICTIONAL ISSUES

Issues of Jurisdiction are expected to linger with the award.

 Subject to certain exceptions disputes concerning the interpretation

and application of UNCLOS with regard to the exercise by a coastal
State of its sovereign rights or jurisdiction are not subject to the
procedures resulting to binding decisions (UNCLOS Art. 297).
 UNCLOS allows an acceding State to opt out of the procedures
resulting to binding decisions (UNCLOS Art. 298) and China had
opted out of all categories of disputes from which it could opt out.
Reason for expectation: A state cannot be sued without its consent.

There can be no arbitration without consent.

NOTE: JURISDICTIONAL ISSUES: China’s
Opt Out
“The Government of the People’s Republic of China
does not accept any of the procedures provided for in
Section 2 of Part XV of the Convention with respect to
all the categories of disputes referred to in paragraph
1(a) (b) and (c) of Article 298 of the Convention.”

(a) (i) disputes concerning the interpretation or application of

articles 15, 74 and 83 relating to sea boundary delimitations, or
those involving historic bays or titles x x x
(b) disputes concerning military activities x x x and disputes

concerning law enforcement activities in regard to the exercise of

sovereign rights or jurisdiction excluded x x x under article 297,
paragraph 2 or 3.
ISSUES INVOLVING TRIBUNAL IMPARTIALITY AND
APPOINTING AUTHORITY INDEPENDENCE

Some say that the tribunal is made-up of men learned

in UNCLOS. That, however, is not the point.

The Arctic Sunlight Case and the arbitrators Cot,

Pawlak and Wolfrum.

Issue involving the ITLOS President, who was the

appointing authority.

Issue involving possible prejudgment.

CONTROVERSIAL RULINGS INVOLVING COT,
PAWLAK AND WOLFRUM

 In the Artic Sunlight Case: Unless and

until the Tribunal ruled that it has no
jurisdiction an impleaded State has the
duty to participate in the proceedings.
 In the Phil. v China Arbitration: A
signatory state may not except itself
generally from the UNCLOS dispute
resolution mechanisms resulting to
binding decisions.
NOTE: FINALITY OF AWARD ON JURISDICTION AND
COUNTER BALANCE

The Tribunal has the jurisdiction to rule on its own jurisdiction (see
UNCLOS Art. 288.4). Any decision rendered by the Tribunal having
jurisdiction shall be final (see UNCLOS Art. 296).
Gary B. Born: “An award may, however, be considered a nullity
under certain circumstances”. “If x x x an arbitral tribunal exceeds
the jurisdiction granted to it, the resulting award may constitute a
nullity.”
Observation by Experts: The “nullity” characterization of an award
is normally used by non-complying states, usually accompanied by
complaints that the award is a violation of international law.
CHINA’S POSITION: No jurisdiction, no participation, no
recognition, no implimentation.
Note: While the Philippines is focused on the merits, China is
focused on the procedure. Both are invoking international law.
NOTE: FINALITY OF AWARD ON THE MERITS AND
COUNTER BALANCE

Annex VII Article 11: Finality of Award. “The

award shall be final and without appeal, unless
the parties to the dispute have agreed in
advance to an appellate procedure. It shall be
complied with by the parties to the dispute.”

Counterbalance: No enforcement authority. The

“winner” will have to rely on the voluntary
compliance by the “loser”.
NOTE: MODES OF ENFORCEMENT IN CASE OF
RECALCITRANCE

“In practice, the principal mechanism for enforcement

of state-to-state arbitral awards has been diplomatic
persuasion and counter-measures.” – Gary B. Born,
International Arbitration: Law and Practice, on page
443.
 Obviously and by itself, the Philippines has no capacity to
employ counter-measures against China. Arguably, it could
seek the help of other states.

 So, it has to be diplomatic persuasion, which could be a

euphemism for negotiation. It would seem incongruous that
after shunning negotiation and opting for arbitration, Phl at
the end of the day has to go back to negotiation.
NOTE: ARBITRATION IS CASE AND
PARTIES SPECIFIC

 UNCLOS Art. 296: “Any such decision shall have no

binding force except between the parties and in
respect of that particular dispute.” As bluntly stated
in the award, “as between the Philippines and China,
there was no legal basis for China to claim historic
rights to resources, in excess of the rights provided
for by the Convention, within the sea areas falling
within the ‘nine dash line”.
NOTE: RE PROPOSALS ON HOW TO
ENFORCE AWARD

 Proposals re how to enforce awards are unrealistic,

unworkable, impractical and/or based on wrong
premises.
 APPLIED ADR
Approach of the Current Administration a Combination of the Different
“Peaceful” Modes

Avoidance under the Deng Xiaoping formula.

 Sidelight: The transformative approach: understanding the position of the
parties.
 Sidelight: Pugad Island (mentioned by Amb. Zhao Jianhua)
Compromising Approach
 Scarborough
 Uninhabited features
 Sierra Madre (on Second Thomas Shoal). Note: The vessel is no longer there. No
more Phl presence in Ayungin.
 APPLIED ADR
 Other Consequences
 Blockade of “Sierra Madre” lifted (matter academic. China

has not occupied Ayungin.)

 Philippine fruit exports to China allowed

 Tourism

 Opportunities for cooperation in many fields

 Less protest

 Fishing in Scarborough allowed

 “Sweetened” relationship

 Less tension
 APPLIED ADR
Integrative Approach

“Temporary” arrangements.

Possible piece meal agreements here and there. Agreements on other

matters beneficial to both made possible. Development loans. Aids and
grants.

Possible joint exploration and sharing of resources in the disputed areas.

 APPLIED ADR
Possible Agreements Re Dispute Avoidance and/or Future
Dispute Resolution
“Red lines” and both multilateral and bilateral platforms; bilateral consultative
meetings to discuss disputes and disagreements as well as how to resolve different
issues. (Note on Sandy Cay nr Pag-asa). Hotlines on the operational level.
Possible dispute board principles and tiered processes (if agreed upon).

Possibility of adversarial procedures as a last resort (if agreed upon).

NOTE: DAB appears to be the favored procedure in Belt and Road.

Note: Asean and China announced (first week of August 2018) that they have

agreed on a draft negotiating text as part of efforts to forge a code of conduct to

govern behavior in the South China Sea. Also, held table top naval exercises that
includes misencounters.
 APPLIED ADR
 Reality checks:

 Hurdling statutory and constitutional roadblocks: what

rules/law will apply to the resources involved? UNCLOS
provisions or Philippine law/constitution?
 Resources involved are outside Phl’s territory.
 Right to resources not inherent, but granted. Grant
subject to UNCLOS provisions.
 UNCLOS is a take it or leave it (or full packaged) treaty.
 APPLIED ADR
 Reality checks (con’t):

 Issues are private to the Philippines and very difficult, if

not highly impossible, to enforce without agreement.

 Arbitration is case and parties specific.

 Some components may require multilateral agreements.

NOTE: ARTICLE I OF THE
CONSTITUTION (National Territory)
 “The national territory comprises the Philippine
archipelago and all the islands and waters embraced
therein, and all other territories over which the
Philippines has sovereignty or jurisdiction,
consisting of its terrestrial, fluvial and aerial
domains, including its territorial sea, the seabed, the
subsoil, and insular shelves and other submarine
areas. The waters around, between and connecting
the islands of the archipelago, regardless of their
breadth and dimensions, form part of the internal
waters of the Philippines.”
 NOTE the rather wide definition.
NOTE: ARTICLE XII SECTION 2 OF THE
CONSTITUTION (National Economy and Patrimony)

“All lands of the public domain, waters, minerals, coal,

petroleum and other mineral oils, all forces of potential energy,
fisheries … and other natural resources are owned by the State.
xxx The State may directly undertake such activities, or it may
enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations
at least 60 per centum of whose capital is owned by such citizens.

“The State shall protect the nation’s marine wealth in its

archipelagic waters, territorial sea and exclusive economic zone
and reserve its use and enjoyment exclusively to Filipino
citizens.”
UNCLOS AND ARTICLE XII SECTION 2 OF THE
CONSTITUTION (National Economy and Patrimony)

COMMENT: Art. XII Sec. 2 went extraterritorial when it

included the Philippine EEZ in its coverage.

CONTRASTS: The following are consistent with

UNCLOS with respect to the EEZ and continental shelf:
Joint development of natural resources.

Sharing of maritime resources.

Joint protection of the resources as well as the

environment in the SCS (this is not inconsistent with

Art. XII Sec. 2).
The first two are not consistent with Art. XII Sec. 2.
UNCLOS AND ARTICLE XII SECTION 2 OF THE
CONSTITUTION (National Economy and Patrimony)

2. UNCLOS is a take-it-or-leave-it treaty. (Art. 309: “No

reservation or exceptions may be made to this Convention
unless expressly permitted by other articles of this
Convention”). An adhering state is not allowed to say that
its adherence is subject to its laws. UNCLOS Arts. 310 and
311 make it clear that there could be no exclusion or
modification to the legal application of the provisions to an
adhering state. And, while it may be that agreements
between two adhering states may modify their rights and
obligations, such agreements are only applicable between
them.
3. Note that, as a rule, as between the parties such
agreements prevail over UNCLOS provisions. (See
UNCLOS Art. 311).
UNCLOS AND ARTICLE XII SECTION 2 OF THE
CONSTITUTION (National Economy and Patrimony)

UNCLOS Art. 293: Applicable law (Re Court or Tribunal with

Jurisdiction Under UNCLOS) [1] Provisions of UNCLOS and [2]
other rules of international law that are not incompatible with
UNCLOS.

UNCLOS Art. 77: Other countries may exploit resources in the

continental shelf but only with the express consent of the
coastal state.

UNCLOS Art. 61.1. and 62.2. Coastal state to determine its

maximum allowable catch and allocate excess, giving
preference to disadvantaged states.
THE DENG XIAOPING FORMULA

The Deng Xiaoping Formula calls for the shelving of

disputes in the meantime and making temporary
agreements. Basically: let’s not talk about the
disputes; let us just make money.

“x x x remain in dispute and that the two sides are

continuing to work for a peaceful and cordial
resolution of the dispute. In keeping with the abiding
ties of close friendship and cooperation between xxx”
(Preamble of an agreement between China and another
country).
OTHER POINTS

Agreement Re Dispute Resolution Mechanisms

UNCLOS Art. 280. Nothing in this part impairs the right

of any States Parties to agree at any time to settle a
dispute between them concerning the interpretation or
application of this Convention by any peaceful means
of their choice.

In Art. 282: Agreement of the parties prevail over

UNCLOS procedures that entails a binding decision.
OTHER POINTS

Law of the Contract

UNCLOS Art. 293, par.2. Court or Tribunal may decide a case ex

aequo et bono if the parties so agree.

See Art. 311 re agreements between the parties. Note, also, that
contracting parties to an international agreement are free to agree
on the law governing their conract.
 APPLIED ADR

Final Words: the Philippines must

strengthen itself, both economically and
militarily, whichever way the disputes
would go. Only then could the Philippines
assert and defend its interests.
 DISPUTE RESOLUTION
MECHANISMS
QUESTIONS?
Comments and suggestions, critical, adverse or otherwise,
welcomed.
I would love to hear from you if you noticed any error or
omission, or if you have any suggestion on how to improve,
this presentation.
E-mail to marval.law@gmail.com. Visit our website at
<www.philippinearbitrators.org>.
 WANT TO KNOW MORE?
Attend our courses and seminars
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Philippine Institute of Arbitrators

c/o Atty. Mario E. Valderrama
Tel. No. (632) 367 4001
Mobile 0917 4114 594
E-mail: marval.law@gmail.com