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.

THE ARBITRATION AGREEMENT

by

MARIO E. VALDERRAMA
AB, LLB, FCIArb, FHKIArb, FPIArb
CIAC Accredited Arbitrator
CIArb Approved Tutor
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 411 4594
E-mail <marval.law@gmail.com>

Concept

Simply, it is an agreement between

two or more persons referring a
future or present controversy or
controversies to arbitration for
resolution

Types

Arbitration Clause a clause in a

wider contract, referring future
disputes to arbitration

Submission Agreements refer

existing disputes

Form
Must be in writing
- note that the meaning of in
writing has evolved

The Important Choices:

- The place or seat of arbitration
- The types of arbitration
- The governing law of the contract
- The number of arbitrators
- The language of arbitration

CHOICES: The place or seat of arbitration

The Model Law view is that an arbitration
must be juridically rooted in a particular
jurisdiction and must be conducted under
that jurisdictions arbitration law.
The
arbitration
law
provides
the
framework for arbitration, but not the
procedure which is left to the parties.
A delocalized arbitration, or one without
a seat, would most likely not be enforced .

CHOICES: The place or seat of arbitration

This choice will impact on three stages of the
arbitration:
1. recognition of the arbitration agreement a country
may
have entered into treaties involving arbitration.
The more successful is the New York Convention of 1958.
2. proceedings dependent on the law of the place
3. recognition of enforcement of the award same as
item one

CHOICES: Type of Arbitration

a. ad hoc do it yourself arbitration. The
parties will have to make their own rules
b. Institutional administered by an arbitral
institution, usually under its own rules
- fully administered. Example: ICC arbitration
- partly administered. Example: PDRCI &
HKIAC arbitrations.

CHOICES: Type of Arbitration

NOTES: HKIAC recently promulgated rules
for administered arbitration
PDRCI recently changed its administrative
guidelines to enable the counsel in charge of
the file to (a) intervene in an arbitration in
ease of manifest violation of the PDRCI
Rules; and (b) to assist the tribunal and the
parties in, 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
(Confusion here).

CHOICES: Governing Law of the Contract

and the Arbitration Agreement
- the laws are not necessarily the same
because the arbitration agreement is generally
treated as separate from the main contract
- the Model Law and the Convention have
default provisions re law governing the
arbitration agreement. But interpretation of
the Convention default provision varies,
depending on the operating concept of the
country involved, if parties stipulated on the
law of the contract.

CHOICES: The Number of Arbitrators

- the default provision is 3.

CHOICES: The Language of Arbitration

- in our country, the default
provision is English or arbitrator
discretion in international arbitration;
English or Filipino or arbitrator
discretion in domestic arbitration.

CHOICES: Others
- other choices shall be discussed
when we take-up the terms of
reference and the agenda items.

EFFECT OF VALID AND ENFORCEABLE

ARBITRATION AGREEMENT ON DISPUTE
BROUGHT TO LITIGATION
1. Any party may apply to the court for an
order to refer the parties to arbitration. With time
bar.
- Time bar under the Model Law: not later
than the time when the applicant submits his first
statement on the substance of the dispute (Art.
8.1.).
- Time bar under R.A. 9285: not later than the
pre-trial conference (Sec. 24).

EFFECT OF VALID AND ENFORCEABLE

ARBITRATION AGREEMENT ON DISPUTE
BROUGHT TO LITIGATION
2. Once a prima facie existence of the arbitration
agreement were established, the court has no
discretion except to refer the parties to arbitration
(Model Law Art. 8.1.; R.A. 9285 Sec. 24).
- Court may hear the matter if the court finds that
the arbitration agreement is null and void, or in
operative, or incapable of being performed (ibid).
NOTE: Initiating the court case/ its pendency is not
a ground to stop the initiation and continuation of
the arbitral proceedings as well as the rendition of
the award ( Model Law Art. 8.2.; made applicable
to domestic arbitration by R.A. 9285 Sec. 33).

PATHOLOGICAL CLAUSES
An agreement that will hamper or
defeat the constitution of the tribunal
or
invite
court
intervention
is
pathological.
- agreements that are muddled,
unclear or incomplete such that it is
not effective to cover all the disputes
that the parties intended to submit to
arbitration are pathological clauses.

PATHOLOGICAL CLAUSES:
Examples
1. The one-off clause in international
contracts
All disputes arising out of the present
contract shall be settled by way or
arbitration
There is no way for constitute the tribunal in
case of recalcitrance as there no indication
of the law that will apply to the arbitration
or any competent authority that may be
called upon to assist.

PATHOLOGICAL CLAUSES:
Examples
2. Imprecise or false designation of the arbitral
institution
Any dispute or contravention of the present contract
shall be submitted to the French Chamber of Commerce of
Sao Paolo.
In case of no amicable settlement, all disputes that
may arise shall be settled pursuant to the arbitration rules
of the International Chamber of Commerce of Singapore.
Any dispute arising out of the present contract shall
be submitted to arbitration to be administered by the
Philippine Chamber of Commerce and Industry under its
rules that are presently in force.

INCORPORATION CLAUSES

In the Philippines and by a 1990 jurisprudence, a

general incorporation clause in a contract will
suffice to incorporate an arbitration agreement
contained in another instrument.
Clearly, the Bill of Lading incorporates by
reference the terms of the Charter Party. x x x.
This should include the provision on arbitration
even without a specific stipulation to that
effect. (National Union Fire Insurance Company
of
Pittsburg,
PA/American
International
Underwriter
(Phil.)
Inc.,
vs.
Stolt-Nielsen
Philippines, Inc. and Court of Appeals, G.R. No.
87958, April 26, 1990, on page 2).

INCORPORATION CLAUSES

The rule outside the Philippines is different.

The liberal view is that a mere reference to a

contract containing an arbitration clause
would not of itself be sufficient to incorporate
and arbitration clause.

The strict view, said to be the prevalent view,

requires a specific reference to an arbitration
clause for an arbitration agreement to be
validly incorporated by reference.

INCORPORATION CLAUSES

Reasons for requiring specificity:

Autonomy of arbitration clauses

Arbitration clauses amount to a waiver of
the right to go court, hence the waiver must
be clear
Arbitration clauses are merely ancilliary or
collateral, hence not germane, to the main
contract
With respect to transferable documents of
title, the transferee could not reasonably be
assumed to know that the incorporated
instrument has an arbitration clause
(innumerable foreign cases).

INCORPORATION CLAUSES

Cases (some only; there are more)

Carob Ind. Pty. Ltd. v Simto Pty. Ltd (1996)
TW Thomas & Co. Ltd. V Portsea
Steamship Co. Ltd (1912)
Aughton Ltd. V MF Kent Services Ltd
(1991)
Roche Products Ltd v Freeman Process
Systems Ltd (1975)
Lexair Ltd v Edgar W. Taylor Ltd (1993)
Quantas Airways v Dillingham Corp (1985)

INCORPORATION CLAUSES

The strict view the incorporation must be

specific was uniformly applied to
documents of title and insurance contracts
with incorporation clauses
The liberal view is being applied, by
jurisprudence, to other contracts.
[I]t is (still) a matter of construing each
individual contract to determine whether
or not it was contractually agreed the
disputes should be resolved by way of
arbitration. (Carob Industries v Simto,
others).

INCORPORATION CLAUSES

Philippine Arbitration Law mutated in

2004 with the passage of R.A. 9285.

Relevantly, R.A. 9285s Chapter 4 Sec.

19 states:
International commercial arbitration
shall be governed by the Model Law
on International Arbitration x x x.

INCORPORATION CLAUSES

Model Law (1985) Chapter II Art. 7 (2)

states in its last sentence:
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. (Capitals provided).

INCORPORATION CLAUSES
With the change in the law, it is now
reasonable to assume that, at least in
international arbitration, there would be a
change in the prevailing jurisprudence
involving incorporation clauses.
In interpreting the Model law, regard shall
be had to its international origin and to the
need for uniformity in its interpretation x x
x. (Model Law Sec. 20)

INCORPORATION CLAUSES

Model Law Art. 7 was not one of the

provisions made applicable to our
domestic arbitration law.
Arts. 8, 10, 11, 12, 13, 14, 18 and 19 and
29 to 32 of the Model Law and Sections 22
to 31 of the preceding Chapter 4 shall
apply to domestic arbitration. (R.A. 9285
Sec. 33).

INCORPORATION CLAUSES

I submit that it would be absurd if we were

to retain the prevailing rule if the
arbitration were domestic, and adopt the
new rule as provided for in the Model law if
the arbitration were international.

Alternatively, are we to retain the

prevailing rule even if the arbitration were
international?

WANT TO KNOW MORE?

Attend our courses and seminars.
Contact us for schedules.
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