ADR

Alternative Dispute Resolution

Arthur P. Autea
Alternative Dispute Resolution

The law provides that two or more persons

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, or the parties
to any contract may in such contract agree to
settle by arbitration a controversy thereafter
arising between them.
Alternative Dispute Resolution
Philippine law makes a distinction between (1) arbitration
agreement and (2) submission agreement.

There is a submission agreement when two or more

persons or parties submit to the arbitration of one or
more arbitrators any controversy existing between them
at the time of the submission.

On the other hand, it is an arbitration agreement when

the parties to any contract agree to settle by arbitration a
controversy thereafter arising between them.
Alternative Dispute Resolution

What determines whether an agreement

is a submission agreement or an
arbitration agreement;

is the time when the controversy arises

or when it is expected to arise (if it will
ever arise).
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If the controversy or dispute exists at the

time that the parties have no agreement to
arbitrate the controversy or dispute,

and it is only when the controversy or

dispute is already existing that the parties
agree to submit the dispute to arbitration,
that agreement is a submission agreement.
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An illustration of a submission agreement may be found in the case of
Asset Privatization Trust v. Court of Appeals, where the dispute
between the parties arose without any arbitration agreement in place.

Hence, the dispute was already existing, but there was no pre-existing
arbitration agreement.

One of the parties filed an action before the RTC for the resolution of the
dispute. While the action was pending in court, the parties decided to a
“Compromise and Arbitration Agreement” in which they agreed to
withdraw their claims from the court and to submit to arbitration for the
resolution of their claims. The dispute existed ahead of the arbitration
agreement.
Alternative Dispute Resolution

There are more illustrations of an arbitration agreement as

compared to a submission agreement in Philippine
jurisprudence.

One may be found in the case of Mindanao Portland Cement

Corporation v. McDonough Construction Co. of Florida, in
which the contracting parties agreed in the contract that “in the
event of disagreement”, the parties shall submit the matter to
arbitration.

Here, the arbitration agreement existed ahead of the dispute.

Alternative Dispute Resolution

An agreement to arbitrate a controversy or dispute whether it is

a submission agreement, or an arbitration agreement is valid,
enforceable and irrevocable, save upon such grounds as exist at
law for the revocation of any contract.

It is the law between the parties. They are, therefore, expected

to abide by it in good faith.

This is consistent with Article 1159 of the Civil Code which

provides that “obligations arising from contracts have the force
of law between the contracting parties and should be complied
with in good faith.”
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In domestic arbitration, an arbitration

agreement or a submission agreement shall be in
writing and subscribed by the party sought to be
charged, or by his lawful agent.

The formal requirements of an agreement to

arbitrate are therefore the following: (a) it must be
in writing and (b) it must be subscribed/signed by
the parties or their representatives.
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In the case of BF Corporation v. Court of Appeal,

the Court confronted the issue of whether or not an
arbitration clause, signed by only one party, existed in
legal contemplation.

The case of Ormoc Sugarcane Planters’

Association, Inc. v. Court of Appeals, provides an
illustration when a person may or may not be
considered a lawful agent of a principal who has a
right to invoke an arbitration clause.
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In international commercial arbitration, it is similarly required that the

arbitration agreement shall be in writing.

An agreement is in writing if it is contained: (1) in a document signed

by the parties, or (2) in an exchange of letters, telex, telegrams or other
means of telecommunication which provides a record of the agreement, or
(3) in an exchange of statements of claim and defense in which the
existence of an agreement is alleged by one party and not denied by
another.

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.
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The principle of separability of the arbitration clause

applies to both domestic arbitration and international arbitration.

It means that the arbitration clause shall be treated as an

agreement independent of the other terms of the contract of
which it forms a part. A decision that the container contract is
null and void shall not entail ipso jure the invalidity of the
arbitration clause.

This is an appropriate occasion to recall the concept of container

contract. The contract which contains an arbitration clause is the
container contract.
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A clause in a contract providing that all matters in dispute between

the parties shall be referred to arbitration is a contract, and the
provision to submit to arbitration any dispute arising from the
contract and the relationship of the parties is part of that contract and
is itself a contract.

As a rule, contracts are respected as the law between the contracting

parties and produce effect as between them, their assigns and heirs.

The case of Gonzales v. Climax Mining Ltd., provides an

instructive application of the principle of separability of arbitration
agreements or clauses.
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In gist, the Supreme Court ruled that an arbitration

agreement is independent of the main contract. It is to be
treated as a separate agreement and it does not
automatically terminate when the contract of which it is part
comes to an end.

The doctrine of separability denotes that the invalidity of

the main contract, also referred to as the container contract,
does not affect the validity of the arbitration agreement.

Irrespective of the fact that the main contract is invalid, the

arbitration clause/agreement still remains valid and
enforceable.