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Philippine Institute of Arbitrators

COMPREHENDING ARBITRATIONS

by

MARIO E. VALDERRAMA LLB, FCIARb, FHKIArb, FPIArbCIArb Approved Tutor

CIAC, PDRCI and WESM Accredited Arbitrator

Member (co-opted) of the Branch Main Committee of

The Chartered Institute of Arbitrators

East Asia Branch

Contact Details

Tel No 367 4001; Telefax 362 1867

Mobile 0917 4114 594

E-mail <marval.law@gmail.com>

CLEARING THE CONFUSION: ARBITRATION AND STATUTE BASED ARBITRATIONS There are several processes called

“arbitration” in the Philippines.

Classes:

a. Arbitration (traditional/agreement based)

b. Statute based arbitrations – based on law

CLEARING THE CONFUSION

CONCEPT OF ARBITRATION (AGREEMENT BASED)

Arbitration is a device whereby the settlement of a question, which is of interest for two or more persons, is entrusted to one or more other persons – the arbitrator or arbitrators- who derive their powers from a private agreement, not from the authorities of a State, and who are to proceed and decide the case on the basis of such an agreement – Fouchard, Gaillard, Goldman on International Commercial Arbitration para 7 citing several authors.

AGREEMENT BASED ARBITRATION

Elements:

A consensual mode of dispute resolution by a third party neutral chosen by the parties leading to a final and binding award. – from Guillard.

It is not “true” arbitration if any of the elements is not present.

AGREEMENT BASED ARBITRATION

Classification

Ad Hoc – do it yourself arbitration

Institutional – administered by an arbitral institution, usually under its own rules.

AGREEMENT BASED ARBITRATION

Sub Classification: Institutional Arbitration

Fully administered. Example: ICC arbitrations

Partly administered.

AGREEMENT BASED ARBITRATION

Note: PDRCI Arbitration

Under PDRCI Rules, the counsel in charge of the file is empowered to (a) intervene in an arbitration in case of manifest violation of the PDRCI Rules and (b) to assist the tribunal and the parties to, 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.

Agreement Based ArbitrationClassification as to applicable lawForeign – jurisdictional seat is a country other than the Philippines. Applicable law of arbitration is the arbitration law of the seat.

If a foreign award were being enforced in the Philippines, the applicable law is the New York Convention of 1958.

Note: Classification of relative application.

Agreement Based ArbitrationClassification as to applicable lawLocal - Philippines is the jurisdictional seat

Domestic – without foreign element; defined in the negative. Applicable law is R.A. 876 and Civil Code Title XIV as amended/modified by R.A. 9285.

International – with foreign element. Governing law is the UNCITRAL Model Law (1985) as modified by R.A. 9285.

Note: Classification of relative application.

Agreement Based Arbitration: When Arbitration is International (Model Law 1(3)) Re parties’ places of business; Re agreed seat of arbitration in re places of

business; Re place where a substantial part of the

obligations is to be performed; place with which the subject matter of the dispute is most closely connected in re places of business;

Re agreement that the subject matter of the arbitration relates to more than one county.

CLEARING THE CONFUSION: STATUTE BASED ARBITRATIONS

Sub Classification

Optional - needs stipulation to arbitrate, e.g. CIAC and voluntary labor arbitrations

Imposed – does not require agreement to arbitrate, e.g. consumer and compulsory labor arbitrations

FOCUS OF DISCUSSION

Our focus is on agreement based arbitration.

This is “true” arbitration, based on consent and not on law. “Consensual justice”.

In arbitration the parties craft the procedure. Those who do not know what to do have no recourse except to rely on the arbitrator.

CLEARING THE CONFUSION: AGREEMENT BASED ARBITRATION

Contractual; synonymous with the concept of party autonomy in the resolution of disputes

Tribunal an instrumentality of the parties Award is product of private dispute resolution processes,

hence the need for judicial recognition of confirmation Principle of finality of awards is based on contract & core

component of the process Validity issues: award treated just like a contractual stipulation International awards enforceable under New York Convention

of 1958

ARBITRATION

Contractual Nature

Arbitration is a creature of contract, not of law. It is based on the contract principle of party autonomy or the will of the parties, expressed as the freedom to contract.

Hence, the governing law affirmed, rather than granted, the right to choose arbitration.

ARBITRATION

Contractual Nature: Basis

An adult is presumed to have sufficient discretion hence capable of making informed decisions.

He can, therefore, make arrangements with his counterpart to resolve their disputes in the same manner that he and his counterpart can create legal relations by contract.

ARBITRATION

Contractual Nature:

The process is governed more by contractual precepts, less by law.

Age of majority

Autonomy of contracts

Limitations on the freedom to contract

ARBITRATION

Contractual Nature:

A common mistake is to look at the law first instead of applying contractual precepts.

Doing so – taking the legal approach – will most likely result to the wrong ideas.

ARBITRATION

Contractual Nature: Rule of Preference in Crafting the Procedure Mandatory Rules – the rules from which the parties

cannot derogate; public policy safeguards Agreement Default Rules – rules that apply in the absence or

deficiency of agreement; rules from which the parties may derogate

Arbitrator Discretion – added by arbitration law (see MAL Art 19). Only possible if there are no mandatory rules, no agreement, and no default rules.

ARBITRATION

Notes Re Adopting Institutional Rules Institutions may have mandatory rules. In ICC, for

example, the rule that the award should be reasoned and the provisions re arbitrator fees are mandatory.

Nevertheless, institutions preserve party autonomy by also providing for default rules, e.g. those rules with the statement “unless if the parties agree otherwise” or similar wordings.

ARBITRATION

Tribunal an Instrumentality of the PartiesIn arbitration the parties by contract create their own tribunal (see Model Law provisions). 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.

ARBITRATION

Award a Product of Private Dispute Resolution Process; Need for Confirmation/Recognition

“A vacated award “x x x was an international award which was not integrated in the legal system of that State x x x” (Hilmarton v OTV, 1994 BULL CIV. A, No. 104, Court de Cassation, March 23, 1994. From Carbonneu).

ARBITRATION

Principle of Finality of Award is Contractual“x x x arbitrators are judges chosen by the parties to decide the matters submitted to them, finally and without appeal x x x” (Burchell v Marsh, 58 U.S.. 344, 15 L.Ed. 96 (1854).

“The essence of the arbitration process is that an arbitral award shall put the dispute to rest x x x. Arbitral finality is a core component of the parties’ agreement to submit to arbitration. Thus, an arbitration decision is final and conclusive because the parties have agreed that it be so x x x.” (Stasz v Schwab).

ARBITRATION

Validity Issues: Summary Nature of Enforcement/Recognition Processes

The syllogism: The contract between the parties is to abide by the award or decision of the Tribunal; the subject of the petition is the award; ergo the award must be enforced.

Cautionary Note: segregate from the merits of the award the grounds to vacate the /refuse recognition of the award where issues of fact and law may arise.

ARBITRATION

Validity Issues: Following the syllogism and the need for an enforcement court to understand the arbitration agreement/award, the Model Law set the following maximum standards re accompanying papers in applying for enforcement: The duly authenticated original award or a duly certified

copy thereof; The original arbitration agreement or a duly certified copy

thereof; and If the award is not made in an official language of the

enforcement court, the applicant shall supply a duly certified translation thereof into such language (MAL Art 35.2; see also Convention Art 4).

ARBITRATION

WARNING: Local Requirement Re Accompanying Papers – see Rule 11.6. re attachments. In addition to the maximum standards stated in the

Model Law/Convention, the Special Rules added the following: A certification against forum shopping; and An authentic copy or authentic copies of the

appointment of an arbitral tribunal. The additional requirements are an only in the

Philippines requirements. The first may be acceptable; issues may be raised against the second.

ARBITRATION

Validity Issues: Award is Treated Just Like a Contractual Stipulation

An award is ignored or vacated if bad; recognized or confirmed and enforced if good; subject to the principle of separability.

An added saving grace is referral back to the Tribunal which was introduced by arbitration laws.

ARBITRATION

Grounds To Vacate/Refuse Recognition are mainly based on the two constituent elements of an arbitration, namely:

Contractual

Judicial

The Constituent Elements of an Arbitration Judicial – The arbitral tribunal decides the

dispute/s like a judge or collective judges, as the case may be. This distinguishes “consensual” arbitration from mediation and other ADR forms.

Contractual – The power of the tribunal arises from contract. This distinguishes “consensual” arbitration from litigation and statutory arbitration.

(From Carbonneu).

The Constituent Elements of an Arbitration From the Judicial Element flows the following:

Requirement to observe due process

Equality of the parties

Reasonable opportunity to be heard

Impartiality of arbitrators

Arbitral Ethics

The Constituent Elements of an Arbitration From the Contractual Element

Capacity of the Parties Correlation: The New Civil Code provisions on

capacity to act and rules involving agency Consent

No consent, no arbitration Consent may be vitiated by the vices of consent

The Constituent Elements of an Arbitration From the Contractual Element (con’t)

Form

Must be in writing.

NOTE: The law has since evolved to have an expanded definition of “in writing”.

The Constituent Elements of an Arbitration From the Contractual Element (con’t)

Jurisdiction of the Arbitral Tribunal

Contractual arbitrability, meaning that the tribunal should not go beyond the jurisdiction granted to it by the parties.

But note that the law may grant additional powers to the tribunal, e.g., power to issue interim measures of protection

The Constituent Elements of an Arbitration From the Contractual Element (con’t)

The Rules and Procedure Parties make their own rules and procedure. [Note: The terms of reference is more akin to

the Rules of Court rather than a Pre-Trial Order.]

Legal Arbitrability (limitations arising from law that affect the freedom to contract)

Principle of separability

ARBITRATION

The New York Convention of 1958 The New York Convention of 1958 is the United

Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (10 June 1958).

The Convention obliges adhered states not only to recognize and enforce international arbitration awards rendered in adhered states but also to recognize written arbitration agreements.

It is one of the more successful conventions.

STATUTE BASED ARBITRATIONS Established by statute Hybrid processes Freedom of parties to select arbitrators and

craft procedure heavily curtailed Tribunal an instrumentality of Government Resultant award deemed integrated into the

legal system No agreement exists that the award is final,

hence a merits review is available Not enforceable under NY convention even if

arbitration is internationalNOTE: CIAC to be used as an example.

STATUTE BASED ARBITRATIONS Created by statute:

“There is hereby established in the CIAP a body to be known as the Construction Industry Arbitration Commission” (E.O. 1008 Section 3).

STATUTE BASED ARBITRATIONS Hybrid Processes

A perusal of the CIAC procedures will show a combination of the precepts of agreement based arbitration and litigation. Many provisions of the Rules of Court were “imported” into CIAC rules.

STATUTE BASED ARBITRATIONS Curtailment of freedom to choose

arbitrators:

Generally, only CIAC accredited arbitrators may be appointed in CIAC panels.

STATUTE BASED ARBITRATIONS Curtailment of freedom to craft procedure:

“The Arbitral Tribunal shall at all times adopt the most expeditious procedure for the introduction and reception of evidence, and SHALL HAVE COMPLETE CONTROL OVER THE PROCEEDINGS, but in any case shall afford full and equal opportunity to all parties to present relevant evidence” (CIAC Rules Sec. 13.4).

STATUTE BASED ARBITRATIONS Tribunal an instrumentality of the

Government

Obviously, as CIAC was created by statute in implementation of a public interest declaration.

STATUTE BASED ARBITRATIONS

No need for confirmation for enforceability as resultant award is already integrated into the legal system.

STATUTE BASED ARBITRATIONS

Award subject to appeal:

“Rule 43 Section 1. Scope. – This Rule shall apply to appeals from awards x x x. Among those agencies are the x x x Construction Industry Arbitration Commission.”

STATUTE BASED ARBITRATIONS Award Even if International is Not Enforceable Under the

New York Convention

The Institution and its Rules is normally not the choice of the parties.

Even if the parties were to voluntarily agree that CIAC is the administering institution and the application of CIAC Rules, still the award is not final – it is appealable.

THE ROLES OF COURT IN INTERNATIONAL ARBITRATION

Preliminaries

Courts Curial court – the court in the seat of

arbitration Non curial court – the court in a jurisdiction

other than in the seat of arbitration

Basic Rule: “In matters governed by this Law, no court shall intervene except where so provided by this Law.” (MAL Art. 5).

THE ROLES OF COURTS IN INTERNATIONAL ARBITRATION

General The Roles of Courts

1. Assistive Role – referral to arbitration; issuance of and enforcement of interim measures in aid of arbitration; enforcement of interim measures issued by the tribunal; assistance in taking evidence; performance of the functions of a defaulting appointing authority

2. Supervisory Role

3. Enforcement Role

Note: The functions are clearly delineated by law and should not intrude into each other.

THE ROLES OF COURT IN INTERNATIONAL ARBITRATION

THE CURIAL COURT

In proper cases, the curial court could be:An assistive courtA supervising courtAn enforcement court

THE ROLES OF COURTS IN INTERNATIONAL ARBITRATION

THE CURIAL COURT AS SUPERVISING COURT (MAL ART 34) In proper cases, the curial court in the exercise of its

supervisory jurisdiction can:

Vacate or set-aside an award rendered in the jurisdiction where the curial court is located

Suspend the setting aside proceedings for a period determined by it to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.

THE ROLES OF COURTS IN INTERNATIONAL ARBITRATION

THE CURIAL COURT AS A SUPERVISING COURT (MAL Art 34) Time Bar to Invoke the Supervisory Jurisdiction of

the Curial Court:

Not after three months have elapsed from the date the applicant had received the award; or

Not after three months have elapsed from the date that the arbitral tribunal had disposed of an application for correction or interpretation of an award or the issuance of an additional award.

THE ROLES OF COURTS IN INTERNATIONAL ARBITRATION

THE CURIAL COURT AS AN ENFORCEMENT COURT

The curial court as an enforcement court may, in the proper cases:

Confirm or confirm and enforce an award (MAL Art 35); or

Refuse confirmation or refuse confirmation and enforcement of an award (MAL Art 36).

THE ROLES OF COURTS IN INTERNATIOAL ARBITRATION

THE NON-CURIAL COURT

A Non-Curial Court could be:

An assistive court

A court of enforcement

THE ROLES OF COURTS IN INTERNATIONAL ARBITRATION

THE NON-CURIAL COURT AS ENFORCEMENT COURT The non-curial in the proper cases may:

Recognize and enforce an award (Convention Art 3; see also MAL Art 35); or

Refuse recognition or enforcement of an award (Convention Art 5; see also MAL Art 36).

If a petition to vacate were filed in the curial court, the non-curial court may: Enforce the award; or Suspend the enforcement proceedings with or without bond

filed by the party resisting enforcement (Convention Art 6; see also MAL Art 36.2).

Note: The standard used is “the probability of success test”.

THE ROLES OF COURTS IN INTERNATIONAL ARBITRATION

THE NON-CURIAL COURT AS AN ENFORCEMENT COURT NOTE: The non-curial court has no power to

vacate the award. This power is reserved to the curial court in the exercise of its supervisory jurisdiction.

NOTE: There is no prohibition against filing in different jurisdictions simultaneous petitions for enforcement, subject to the rule that the applicant cannot recover more than what was awarded.

THE ROLES OF COURT IN INTERNATIONAL ARBITRATION

THE COURT AS AN ENFORCEMENT COURT

TIME BARS

Petitions to Enforce: no express provision in the Model Law and the Convention. Opinion is to follow contractual precepts of the seat unless if expressly provided by law/agreement.

Raising Grounds to Resist Enforcement: the global rule (except in the Philippines) is to “wait and wait and wait” until a petition for enforcement were filed.

THE ROLES OF COURTS IN INTERNATIONAL ARBITRATION

THE COURT AS AN ENFORCEMENT COURT

“No Second Bite at the Cherry”

Some jurisdictions follow the principle that if a party had already filed a petition to vacate and it failed, the party will no longer be allowed to raise the same grounds to resist enforcement. Accordingly, only public policy issues of the place of enforcement will be allowed to resist enforcement.

THE ROLLS OF COURTS IN INTERNATIONAL ARBITRATION

THE COURT AS AN ENFORCEMENT COURT WARNING: In Special Rules Rule 12.2 (B) last sentence:

“Failure to file a petition to set aside shall preclude a party from raising grounds to resist enforcement of the award.”

The quoted provision is an “only in the Philippines provision”. The provision, based on the supervisory jurisdiction of a curial court, had effectively intruded into the enforcement jurisdictions of both the curial and non-curial courts not only under the Model Law but also the New York Convention.

The reason for the provision is unknown. Several issues may be raised against the provision, and it is most likely against the law considering that the grounds to resist enforcement may involve public policy issues.

THE ROLES OF COURTS IN INTERNATIONAL ARBITRATION

ANOTHER CLASSIFICATION OF COURTS

1. Court of Primary Jurisdiction – the supervising court.

2. Court of Secondary Jurisdiction – the enforcement court.

3. Court of Eventual Enforcement – a court who intervenes in an arbitration neither as a supervising court nor as an enforcement court.

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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