Professional Documents
Culture Documents
INTRODUCTION
The above pronouncements of the Supreme Court reflect the current trend
in the resolution of disputes among parties who may otherwise find themselves at
loggerheads inside the courtroom. While arbitration as an alternative mode of
settling disputes is not a totally new concept in this jurisdiction somehow its
application has not had such degree of imprimatur from the courts as to have
been well entrenched in our legal system until the turn of the century. The same
especially holds true for maritime or admiralty cases where venues are almost
always stipulated to be abroad in the first place owing to the fact that our country
has not been relatively a major player, so to speak, in the shipping industry.
undertake to ferret out certain factors that will disclose some lingering doubts
about arbitration vis-a-vis the advantages or benefits that may be derived from it.
identified as well as the strengths and benefits that the country may claim for
itself to become a potential regular venue for arbitrating maritime disputes.
Accordingly, recommendations will also be advanced in order to fast track the
achievement of such status which will definitely bring about a boost to our
countrys image as a stable and growing economy in this part of the globe.
HISTORICAL BACKGROUND
initiatives or search for a better and more practicable means of dealing with
disputes which thus ultimately saw the resurgence of arbitration. Resurgence
may well be the more appropriate term to describe the emerging trend in
resolving disputes inasmuch as arbitration has been around through the ages
although with varying degrees of acceptability at certain points in time.
the charter fee, late return of the vessel or early collection of the ship); sale,
construction and ship repairs; matters relating to salvage at sea; and maritime
insurance. 3
3
4
5
At any rate, in the early 1920's, the Philippine Supreme Court began to lay
the basis for the recognition and acceptance of arbitration as a mode of settling
disputes in the following ruling6:
Vega vs. San Carlos Milling Co. Ltd., 51 Phil 908 (1924)
Fifty years after the enactment of the Philippine Arbitration Law, the
Philippine Congress enacted Republic Act No. 9285, otherwise known as the
Alternative Dispute Resolution Act of 2004. The enactment of Republic Act No.
9285 was the Philippines solution to making arbitration an efficient and effective
method in dispute resolution specially for international arbitration.
Prior to the enactment of Republic Act No. 9285, there were no laws
prescribing the mechanics for the conduct of international arbitration. Instead,
when dealing with disputes regarding international contracts, Philippine entities,
including the Government, are often required to agree to dispute settlement by
arbitration in the foreign country under the rules of foreign arbitral institutions.
Worse, notwithstanding the Philippines adherence to the New York Convention,
no legislation has been passed providing a specific procedure for the
enforcement of foreign arbitral awards. Thus, there have been instances in which
international arbitral awards have been treated by Philippine courts as akin to
foreign judgments for lack of specific invocation of the New York Convention. As
a consequence, foreign arbitral awards have sometimes been deemed only
presumptively valid, rather than conclusively valid, as required by the New York
Convention.
Under Republic Act No. 9285, the Philippines unequivocally declared that
it is 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 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.
by
the
United
Nations
Commission
in
International
Trade
observed that
despite lacking the drama of big court battles and political wars, the arbitration
forum has quietly developed into a very effective and accepted tool to resolve
international commercial disputes.
judicial systems are well known; that it is fast, cheap, flexible, and confidential.
Although these are compelling reasons to pursue arbitration, large corporations
will not sacrifice speed for injustice; therefore many forums and individual
arbitrators make extra efforts to promote their neutrality and skill.
Another
positive factor is the arbitrator and the forums traditional independence from the
national judicial system, but this last factor is subject to debate because each
country has ultimate control over the awards created in their territory. Countries
of the leading arbitration forums typically temper their judicial systems oversight
because hosting arbitration tribunals is itself a business and indirectly leads to
influencing international contractual legal doctrines, but the temptation to exert
more judicial or political pressure on the arbitrators may prove to be too tempting
for some.
Developments and Trends of the Lex Maritime from International Arbitration Jurisprudence
(March 2010)
Although the
substantive law was a mixture of the contract, local traditions, and imperial
decrees, the parties, backed by imperial force, were bound by the judges
decision.
contract law since it generally derives its authority to hear a case from the
arbitration agreement and the substantive laws of the land, while its procedure
comes from a mix of contractual or post-dispute agreements and host tribunal
rules. In any case, the parties have more freedom to influence the process and
venue than they would in traditional litigation. This is an enormous change in
perspective from the party participating in a court trial where he must request
every motion from a judge who may not be knowledgeable in the challenges of
the commercial maritime industry or even care what the parties are seeking
beyond a monetary award. 8
individual natural persons and it does not generally decide cases that require
protection of due process or personal rights.
cases are high financial contractual disputes between shipping companies and
experienced traders who are highly integrated into the maritime industry. The
very nature of long-range transportation requires exceptional cooperation and
8
Ibid
10
unyielding rule to keep the ships sailing or they do not make money at all. So
when the inevitable disputes arise, they must be handled quickly and efficiently
while maintaining the commercial relationship between the parties in order to
perform future business together. For these experienced parties, the speed and
confidentiality of arbitration significantly outweighs the lack of formal procedural
protection that a national judicial system ensures.
11
If the case had gone to federal court, it may have been mired in issues of
jurisdiction and choice of law for years before being heard on the merits. By
going to arbitration in New York, as per the contract, such issues were avoided
and the panel was able to focus on the facts of the case. Duferco did appeal the
award in federal court and it was reviewed by the district court in New York which
affirmed the result using the analysis of the Second Circuit.
and to make this determination a court must find both that (1) the arbitrators
knew of a governing legal principle yet refused to apply it or ignored it altogether,
and (2) the law ignored by the arbitrators was well defined, explicit, and clearly
applicable to the case.
powers of review, that even district courts will not reanalyze facts of the case that
the arbitrator has already heard.
11 148 F .3d 197, 202 (2
nd
Cir. 1998)
12
In a traditional judicial
Its simple
premise is that each signatory nation will enforce the arbitral award made in
another signatory nation. Its signatories include 141 of the 192 UN member
12 See note no.
13
The
convention has survived in its basic structure, despite the changes in commercial
technology and shift in geographic focus of maritime transportation to Southeast
Asia. To accommodate technological and economic changes since 1958, recent
signatories have altered the scope and interpretation of some of its provisions,
but have retained as its foundation the encouragement and enforcement of
international arbitration in the furtherance of international commerce.
The first seven (7) articles of the convention are substantive with the last
nine (9) articles dealing with a nations ratification and internal U.N.
administrative procedures. Since the Convention does not apply to domestic
arbitration awards, Article I defines the applicability of enforceable foreign and
non-domestic arbitral awards. A foreign award is one that is made in the territory
of a State other than the State where recognition and enforcement of such
awards are sought. In other words, the Convention applies to awards made by a
tribunal in one state and enforcement is sought in another state.
The
Convention states that it will also apply to arbitral awards not considered as
domestic awards in the State where their recognition and enforcement are
sought.
own citizens, not involving any foreign factors and enforced in the same nation
14
are exempt and local or national laws apply. However, there are cases where an
award is made in one state and enforcement is sought in another state still
comes under the New York Convention because the parties are not citizens or
foreign factors are involved. Some countries have specific rules to identify the
distinction between domestic and non-domestic awards and these can have
significant consequences on a party.
judicial and governmental oversight they are less attractive to business, and
companies involved in those countries need to be aware of those provisions
before they sign a contract that may subject them to a domestic forum.
Still, a significant benefit of the New York Convention is that it relieves the
increasing burden on the courts of volumes of commercial claims and complex
questions of jurisdiction, with the bulk of arbitral awards being adjudicated quietly
and quickly. Although awards are frequently challenged in courts, they are rarely
vacated. The ruling of the U.S. 2nd Circuit in Bergesen case13 makes the United
States a more hospitable forum for foreign parties intending to arbitrate within the
United States. Applying the Convention to an award between two foreign parties
grants federal jurisdiction to U.S. courts in enforcing the award which they would
not otherwise have due to a lack of the required diversity elements.
The
Bergesen decision has significant implications for U.S. maritime arbitrators. Had
the 2nd Circuit determined that U.S. courts had no right to enforce awards
between aliens, the U.S. maritime arbitration market would significantly diminish.
15
nd
Cir. 1983)
Likewise, under the New York convention an award between parties who
are both U.S. citizens shall be considered domestic unless the dispute involves
property located abroad, envisages performance or enforcement abroad, or has
some other reasonable relation with one or more foreign states. The 7th Circuit
in Lander Co. v. MMP Investments14 addressed this situation by interpreting FAA
202 literally, finding that the Convention applies to awards that fall within the
inclusion of commercial relationships and are not excluded by those made
between two U.S. parties with no foreign connection.
their holding conformed with the reasoning of Bergesen although the facts were
reversed and that Congress may have been contemplating future arbitration
business by broadly authorizing the Conventions reach.
This makes it
foreseeable that the countries of leading arbitration forums will also enact the
Convention in a way to obtain a home field advantage, opined Cortazzo, Jr.
nd
Cir. 1994)
16
In the U.S., the 2nd Circuit set a high standard with the
manifest disregard of the law test. The reason to limit the host nation judiciary
is to provide some finality in the award for the parties, yet still allow the host
nation to vacate an award if it is clearly unjust or unfair under their laws.
Commission on International Trade Law on June 21, 1985), but the parties retain
a degree of freedom to mutually alter the procedural rules, such as to ensure
confidentiality, speed the process, ease discovery, or alter the choice of law. In
fact, international tribunals typically promote their willingness to negotiate the
rules in order to attract business.
associations accept these model rules as their own, the large associations
typically publish their own customized rules.
17
Despite the emerging trend for arbitration in international stage there are
those who welcome the development with a certain degree of guarded optimism
especially if viewed from the vantage point of the courts. For instance Justice
Wilfred Feinberg, Chief Justice of the United States Court of Appeals for the
Second Circuit, observed in his speech at the opening session of the Fifth
International Congress of Maritime Arbitrators in New York City15 that while there
is no doubt that a well-developed practice of arbitration could go far toward
reducing the heavy burden of maritime cases it cannot however replace
adjudication of cases in every instance. There are certainly maritime matters that
raise questions of law and policy that properly belong in the courts, and that
judges must sooner or later resolve. But still, many of these cases can be
resolved more quickly, less expensively and just as responsibly, through the
machinery of maritime arbitration. The strengthening of this machinery is thus in
a very real sense a contribution to the efficiency of the courts as well as a benefit
to the maritime industry.
18
attained its current degree of popularity courts have not always been eager or
even willing to share responsibility for dispute resolution with arbitrators in any
field. Even though the U.S. Supreme Court itself gave a strong nod of approval to
labor arbitration, courts have not uniformly given the same "hospitable
acceptance" to arbitrators' awards.
He then
integrity
and
independence.
International
cooperation
and
19
practice, which are of acute importance in the maritime area. While it entails a
long process, and one that can never really be completed, great progress has
already been made.
Justice Feinberg further stressed that there are more deeply rooted
sources of judicial resistance to arbitration that may be more difficult to overcome
because they are harder to pin down. One basic factor is simply a sense of turf,
a kind of territorial instinct on the part of many, if not all, judges. Judges simply
find it difficult to accept the notion that someone other than a judge should
resolve the kind of disputes that judges deal with every day. Judges are reluctant
to turn over responsibility and power to decide such cases to a non-judge, or,
even, to a non-lawyer.
20
Citing the case of Andros Compania Maritima vs. Marc Rich & Co.16,
Justice Feinberg pointed out that when arbitrators explain their conclusions in
terms that offer even a barely colorable justification for the outcome reached,
16 579 F .2d 691 (2
nd
Cir. 1978)
21
Judges are not the only ones who must exercise restraint in order to
protect the finality of arbitration awards. It is even more important that the parties
who chose arbitration in the first place learn to live with the results, whether they
like them or not. They accepted the risk of an unhappy result when they agreed
to arbitrate as part of their overall bargain, and they must understand that the
terms of the bargain do not change simply because they lost their case. Mere
unhappiness with the result of an arbitration proceeding cannot be a sound basis
for running to court. In fact, in some cases recourse to court comes even earlier
as an effort to prevent the arbitration from taking place.
22
exercise care and restraint if the system is to survive. Lawyers, too, bear a
responsibility for the development of arbitration as an effective alternative, not a
supplement, to litigation. If litigation becomes the predictable by-product of the
arbitral process, the value of arbitration will inevitably disappear.
PHILIPPINE EXPERIENCE
As has been noted the wave of commercial arbitration has long reached
the Philippine shores. Although it has been gaining ground at a relatively lesser
magnitude the government has certainly been doing its share to sustain the
momentum. From an attitude of guarded optimism it has gone a long way from
the time the Congress enacted in 1953 Republic Act No. 876 (Arbitration Law)
23
and the country became a signatory to the United Nations Convention on the
Recognition and the Enforcement of Foreign Arbitral Awards in 1958.
The
enactment of Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004),
as well as the subsequent formulation by the Supreme Court of the Special Rules
of Court on Alternative Dispute Resolution to govern the procedure to be followed
when recourse is made on any matter which is subject of arbitration are concrete
steps towards leading the country to the mainstream of international commercial
arbitration.
Indeed, a brief survey of the local jurisprudence undeniably shows that the
Supreme Court has since then been consistently inclined to sustain a recourse to
arbitration in maritime or admiralty cases. Thus, in the case of National Union
Fire Insurance Company of Pittsburg, PA/American International Underwriter
(Phil.), Inc. vs. Stolt-Nielsen Philippines, Inc. and Court of Appeals17 a shipment
of distilled fatty acids arrived at its destination in a discolored and totally
contaminated state. After having paid the shipper and a subrogee the insurance
company sued the carrier for reimbursement, but the latter invoked the arbitration
provision in the bill of lading and sought for the dismissal of the case. By way of
opposition the insurer argued that it was not legally bound inasmuch as the
arbitration clause provided in the charter party was not incorporated into the bill
of lading and that the arbitration clause is void for being unreasonable and
unjust. Ruling that the insurer was bound by the terms of the charter party as
17 G.R. No. 87958, April 26, 1990
24
referred in the bill of lading and that therefore the claim or dispute was arbitrable
the high court declared as follows:
Clearly, the Bill of Lading incorporates by reference the
terms of the Charter Party. It is settled law that the charter
may be made part of the contract under which the goods are
carried by an appropriate reference in the Bill of Lading
(Wharton Poor, Charter Parties and Ocean Bills of Lading
(5th ed., p. 71). This should include the provision on
arbitration even without a specific stipulation to that effect.
The entire contract must be read together and its clauses
interpreted in relation to one another and not by parts.
x
Culled from the records of this case, the facts show that
petitioner, Puromines, Inc. (Puromines for brevity) and
Makati Agro Trading, Inc. (not a party in this case) entered
into a contract with private respondents Philipp Brothers
Oceanic, Inc. for the sale of prilled Urea in bulk. The Sales
Contract No. S151.8.01018 provided, among others an
arbitration clause which states, thus:
9.
Arbitration
26
Then came the case of Sealand Service, Inc. vs. Court of Appeals, et al. 19
where the court further emphasized on the mandatory character of arbitral clause
in the bill of lading, thus:
27
28
The United
Kingdom, France, Switzerland and the United States have always maintained the
status of classic aristocracy of arbitration seats. Recent years however, saw
additions to the usual big four to include Singapore, Mexico, Hongkong, Brazil,
Argentina, India and Japan. It is interesting to note that several Asian countries
have made it to the list of preferred arbitration seats although lamentably
Philippines concededly still has a long way to go in order to achieve the same
status. None among the countrys leading law firms was in fact featured in the
30
Asian Law Business (ALB) Leading Arbitration and Dispute Resolution Firms in
Asia wherein law firms from China, Hongkong, Singapore, Korea, Japan, Taiwan
and India were prominently cited in 2011.21 What precisely does it take in order
to attain such esteemed status in maritime arbitration, one may be tempted to
ask.
commendations22:
Hong Kong, on the other hand, has also the following sterling
attributions23:
31
CONCLUSION
Specifically, the
process the Supreme Court itself has consistently ruled in relevant cases that
arbitration constitutes a condition precedent before any resort to court litigation
may be availed of unless the provision itself for such purpose could prove unjust
as to be iniquitous. Mere allegation of inconvenience will definitely not hold water
to dodge prior recourse for arbitration.
32
Yet, despite the gains that have so far been achieved there remain more
challenges that lie ahead. In countries that are known as seats of arbitration
such as those in Europe, the United States and in Asia the process and outcome
of arbitration are known to be insulated from external influence. Likewise, these
countries are known for their sustained economic growth. The peace and order
situation cannot also be overlooked as a major factor in boosting the countrys
image and capacity to ensure security if it is to serve as another viable arbitral
seat in South East Asia. Observably, both Hong Kong and Singapore enjoy
relative peace and security in their turfs aside from political and economic
stability that have prevailed over time. The Philippines cannot expect to earn the
nod of other countries in its bid to join the circle of major players in shipping and
maritime business unless it can prove capable as well of maintaining
independence of the process from vested interests and in sustaining its
economic growth as well as peace and security.
collective and determined efforts from all concerned sectors to come into play
together with unconditional support from the government in order to realize the
prospect of having to sail smoothly towards such status in the near future.
33