Philippine Institute of Arbitrators

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COMPREHENDING COMMERCIAL ARBITRATION

By MARIO E. VALDERRAMA AB, LLB, FCIARb, FHKIArb, FPIArb
CIArb Approved Tutor CIAC Accredited Arbitrator 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 4114 594 E-mail <marval.law@gmail.com>

CLEARING THE CONFUSION: ARBITRATION AND STATUTE BASED ARBITRATIONS

There are several processes arbitration in the Philippines. Classes:

called

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.

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

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

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 grant, 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

Tribunal an Instrumentality of the Parties In 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: 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.

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

Consent

The Constituent Elements of an Arbitration

From the Contractual Element (cont)

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 (cont)

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 (cont)

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

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

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 procedures will show a combination of the precepts of agreement based arbitration and litigation.

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

Resultant award integrated into the legal system No need for confirmation for enforceability.

STATUTE BASED ARBITRATIONS

Award subject to appeal Rule 43 Section 1. Scope. This Rule shall apply to appeals from awards x x x. Among these agencies are the x x x Construction Industry Arbitration Commission.

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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