Philippine Institute of Arbitrators

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.
 PARTY AUTONOMY: DISPUTE
RESOLUTION MECHANISMS
by

MARIO E. VALDERRAMA LLB, FCIARb, FHKIArb, FPIArb

General Counsel to the Construction Industry Arbitration Commission
CIArb Approved Tutor
CIAC, PDRCI & WESM Arbitrator
Contact Details
Tel No 367 4001; Telefax 362 1867
Mobile 0917 4114 594
E-mail <marval.law@gmail.com>
 PRELIMINARY: ASEAN INTEGRATION

 ASEAN MEMBERS: Brunei, Cambodia, Indonesia,

Laos, Malaysia, Myanmar, The Philippines,
Singapore, Thailand and Vietnam.
 Purpose of ASEAN: Basically focused on the
economic competitiveness of the Asean Nations.
 Means to achieve purpose: all the separate markets
of the Asean Nations to coalesce into one. (Creation
of an Asean Economic Community). Note, though,
that ASEAN does not operate like the WTO or the EU.
 PRELIMINARY: ASEAN INTEGRATION

 Free flow of goods, services, investment capital and

skilled labor (including professionals) within Asean.

 Competition among Asean members re inbound

investments and jobs expected, but the hope is that
the line between competition and collaboration will
be less clear in the future.

 It is reasonable to assume that disputes will arise.

 PRELIMINARY: ASEAN INTEGRATION

 Investors in choosing their point of entry would most

likely familiarize themselves with the dispute
resolution capability of the different ASEAN
countries.

 Investors would most likely shy away from the public

dispute resolution practices.
 The rather abnormal situation in the Philippines.

 The focus is expected to be in the private dispute

resolution practices.
PRELIMINARY: DUTERTENOMICS

 Build! Build! Build!

 Flagship projects to be implemented 24/7,

simultaneously.

 Per Report: P 300B investments await Clark. Billions

earmarked for others.

 International and domestic funding sources.

 Disputes are bound to arise.

FOCUS OF DISCUSSION

 Focus of Discussion: The Dispute Resolution

Practices that are based on consent / contract.

 R.A. 9285 Sec. 2. Declaration of Policy. – It is hereby

declared 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.
CHOICES

Parties can choose the mode of resolving

their disputes. Variety in the menu.
 The Dispute Resolution Spectrum

 Non-Jurisdictional and ADR

 Avoidance, violence, chance
 Negotiation
 Conciliation and Mediation
 Other ADR forms
 Special Mention: Adjudication / Dispute Boards
 Jurisdictional
 Arbitration
 Statutory Arbitration / Adjudication
 Litigation
CHOICES

 Basic general rule: if the parties have

their own agreed procedure, then that
procedure shall be followed.
CHOICES

 Parties only or involving third parties.

 “Peaceful” (voluntary) procedures or compulsory
procedures entailing binding or merely executory
decisions.
 Positional (derivative or compromising) or
integrative approaches.
 Facilitative, evaluative (focused on outcomes) or
transformative (focused on interaction)
approaches.
 Negotiated or adversary (adversarial or
inquisitorial) models.
CHOICES

 “Peaceful” (voluntary) procedures

 Goal is, simply, a workable solution. The

concern is not so much whether the agreement
is “fair” or in line with the parties’ legal rights. A
negotiated settlement has nothing to do with
justice and has everything to do with looking to
the future and not being hung up on the past.

 “Compulsory” procedures entailing binding or

merely executory decisions.
 CHOICES

 The procedures / approaches may be combined (see R.A. 9285

Sec. 18).

 Parties can create and innovate. They can dissect and analyze
the different dispute resolution practices, refine and combine
them, and create and design hybrid procedures to make them
suitable for particular relationships / needs. The spectrum of
processes that they can create will be limited only by the extent
of their imagination.

 Rule in hybrids: the rules corresponding to the combined

procedures will apply mutatis mutandis (see R.A. 9285 Sec. 18).
SIDELIGHT: THE HYBRIDS, EXAMPLES

 Mini Trials
 Non-binding arbitration
 Med-Arb
 Arb-Med
 Med-Arb-Med
 Early neutral evaluation
 Early expert evaluation
 Adjudication / Dispute Boards
APPLIED PARTY AUTONOMY: THE EVOLUTION OF
ADJUDICATION (NOW CALLED DISPUTE BOARDS) IN
THE CONSTRUCTION INDUSTRY
 Operating Concepts:
1. Disputes are better resolved as soon as they arise, rather than
wait until they pile-up and the amounts involved have bloated.
2. Cash flow is important.
3. In the executory award models: at the end of the construction
period there is still enough money to cover wrong payments.
 May be statutory or contractual.
 Models: The FIDIC Model, the World Bank Model. Variant is to
constitute the adjudication board at inception of contract.
 The variant evolved to also become a dispute prevention

mechanism; then application of other ADR mechanisms.

 Procedures’ record of success resulted to their application to
other contracts.
APPLIED PARTY AUTONOMY: THE EVOLUTION OF
ADJUDICATION (NOW CALLED DISPUTE BOARDS) IN
THE CONSTRUCTION INDUSTRY
 Statutory Models in Certain Countries (The Housing Grants,
Construction and Regeneration Act 1996, England; Securities
of Payments Acts in Other Countries)

 When a construction contract has no adjudication clause,

the law provides for a default scheme. The clause should
comply with the default scheme such that the default
scheme has been referred to as an “obligatory contractual
provision”.

 Note: No counterpart law in the Philippines. So, all

adjudication/DB schemes in the Philippines will have to
be contractual.
ADR AND ARBITRATION

 The parties make their own rules.

ADR AND ARBITRATION

 The processes are confidential by law in

the Philippines.
 R.A. 9285 Secs. 9 , 12 & 23

 Minimal, if at all, meddling from the

Government and the Court.
 Processes are private, not public.
 ADR Boards or Tribunals are instrumentalities
of the parties.
MAL Art. 5 in arbitration.
ADR AND ARBITRATION

 RE ARBITRATION: Arbitral Tribunal is an

instrumentality of the parties.
In arbitration the parties by contract create their own
tribunal. 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 (see UNCITRAL Model Law 1985 Provisions).
ADR AND ARBITRATION

 As a rule, parties set the qualifications

and disqualifications of their dispute
resolvers. Not dependent on ASEAN
agreed standards. No need to undergo
processes required for other
professionals to practice within ASEAN.

 ADR and Arbitration practitioners are

practitioners without borders.
ADR AND ARBITRATION

 Settlements and decisions of arbitral

tribunal enforceable by courts. And the
enforcement processes are, as a rule,
summary, hence speedy.
 R.A. 9285 Sec. 17, 18, and Chapter 7 provisions.

 International arbitral awards enforceable

under the New York Convention of 1958.
OTHER REASONS WHY WE SHOULD FAMILIARIZE
OURSELVES WITH PRIVATE DISPUTE RESOLUTION
PROCESSES

 International commercial parties tend to shy away

from public dispute resolution processes. Even local
parties have to contend with the rather abnormal
situation in our local Court.

 Treaty, FDI and state to state dispute resolution is

focused on party autonomy principles. Treaty
arbitrations, FDI (foreign direct investments)
arbitrations, state to state arbitrations etc. operate
substantially the same as commercial arbitration.
OTHER REASONS WHY WE SHOULD FAMILIARIZE
OURSELVES WITH PRIVATE DISPUTE RESOLUTION
PROCESSES

 Some statutes require the insertion of dispute

resolution clauses, including arbitration, in contracts
entered into by the Government. E.0. 78 requires
dispute resolution clauses in all PPP & BOT
contracts; also joint venture agreements between
the National Government and its contracting parties.

 Aid organizations (e.g. JICA, WB) have adopted the

dispute board concept. No DB, no loan.
SOME IMPORTANT POINTS: NEVER GO BLINDLY
WHEN GETTING INVOLVED IN DISPUTE
RESOLUTION PROCEDURES

 Re the Applicable Dispute Resolution Law and the

Applicable Rules

 General: The Enforceability of Dispute Resolution

Clauses/Settlements/Awards is Dependent on Law of the
Place
 Adjudication/DB Clauses

 Phl vs China
 ITLOS or Annex VII?

 Enforceability of the Award

SOME IMPORTANT POINTS: NEVER GO BLINDLY
WHEN GETTING INVOLVED IN DISPUTE
RESOLUTION PROCEDURES

 Re the Applicable Dispute Resolution Law

and the Applicable Rules

 Counterclaim in the PIATCO Case

SOME IMPORTANT POINTS: NEVER GO BLINDLY
WHEN GETTING INVOLVED IN DISPUTE
RESOLUTION PROCEDURES

 Re the Applicable Law on the Substance

 Westacre v Jugoimport
 CROSSROADS

 Developments

 “ADR” is now being referred to as “Appropriate Dispute

Resolution” (SG CJ Sundaresh Menon). It embraces not
only “ADR” as we know it, but also arbitration, statutory
adjudications (local examples are CIAC, labor and consumer
arbitrations) as well as litigation.

 Arbitration has become an indispensable part of

international commerce. However, it is said that the future is
towards a more inclusive and solid ADR framework.
 CROSSROADS

 Developments (con’t).

 We have read in the papers that Asia is now the

engine of growth. Here there is an exponential
growth in FDI. Asia is consistently outperforming
the global economy. It is said that Asia is expected
to record the fastest growth in any other region.

 We can reasonably expect disputes.

 CROSSROADS

 New Approach Re Legal Practitioners

 With that, our role is no longer limited to representation. We

have to include a more dynamic and proactive role.

 We have to adopt a “tool box” approach for ADR. We should

have new product lines in the services that we offer.

 Necessarily, this will require education, training, capacity

building and awareness of how ADR, arbitration and other
modes of dispute resolution work.
 CROSSROADS
 New Approach Re Legal Practitioners

 With all the changes going on around us, we need to re-skill

so as not to be left behind.

 It is in education and capacity building that Bar associations

and institutions will play pivotal roles. We, the lawyers,
remain as the gatekeepers. We draft contracts, relevantly
dispute resolution clauses. We play a role in proceedings to
enforce those clauses. We play a role in the enforcement
stage of settlements, decisions and awards. The premise of
all that is that we are, as we should be, the bearers of
knowledge.
 CROSSROADS
 Scope of Training and Capacity Building

 It should include not only practitioners but also the judiciary.

And users as well.
 CROSSROADS

 Paradigm Shift

 ADR is becoming part of the justice system and is no longer

being viewed as an aid to ease the problems of the judiciary.

 Internationally we have the UNCITRAL Model Law and the

New York Convention of 1958 working together to unify the
legal regime in arbitration.

 Work is in progress to have a Convention on the

enforcement of mediated settlements.
 CROSSROADS

 Paradigm Shift (con’t)

 In Singapore there is now an International

Commercial Court which functions just like a
court, but caters to international commercial
matters.
 WHERE ARE WE NOW?

 Comparison: ADR level of knowledge outside the country.

 In ADR: Phl still in “kindergarten” level.

 In Arbitration: there is a dearth of professors and teachers

who could handle arbitration.

 Some law schools not offering ADR/Arbitration. Lack of

professors; not a Bar subject; not core subject in JD

programs.
 There is practically no knowledge of dispute boards (or

adjudication). Note that aid orgs (JICA, WB) have adopted

the process: no DB, no loan.
 Probable level of local knowledge.
 Phl. still dependent on foreign tutors / trainors.
 WHERE ARE WE NOW?

 In mediation we only know the

facilitative kind. Some of us may not
even know the name of what we
practice.

 Our mediation law needs a lot of

fixing.
 WHERE ARE WE NOW?

 Problem with our mediation law: lack of

viable default provisions.
 Sample Clause: Any dispute arising out of
or in relation to this contract shall first be
referred to mediation before a party could
go to court (or to arbitration, as the case
may be).
 Proposed solution: Insert a time line. (ICC has
a variety of recommended clauses to address
the problem).
 WHERE ARE WE NOW?

 Arbitration: Experience in preliminary

conferences
 C T To: “Countries who have upgraded their arbitration law
pass through that phase when cowboys are arising and what
they do is to mess things up.
 Teresa Cheng: “Experience shows that, in arbitration and in
many cases, on the job training will not suffice. It is a recipe
for disaster.”

A rather sad note: Phl may be getting a

reputation of being a loser in arbitration.
 WHERE ARE WE NOW?

 Problem with our arbitration law:

 R.A. 876 has an unviable default provision
concerning fees.
- “The fees of the arbitrators shall be fifty pesos
per day unless parties agree otherwise in
writing prior to the arbitration”. (R.A. 876 Sec.
21).
 WHERE ARE WE NOW?

 Problem with our arbitration law:

 Domestic Arbitration Law Very Difficult to
Understand:
- “Domestic Arbitration shall continue to be
governed by Republic Act No. 876 x x x.
- “Articles 8, 10, 11, 12, 13, 14 and 18 and 19 and
29 to 32 of the Model Law and Section 22 to 31
of the preceding Chapter 4 shall apply to
domestic arbitration.” (R.A. 9285 Secs 32 and
33).
 WHERE ARE WE NOW?

 Problem with our arbitration law: Only In

the Philippines Provisions, Examples:

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 provision mixed-up the supervisory jurisdiction
of courts with its enforcement jurisdiction. Choice of
remedies, enshrined in the Model Law, disappeared.
 WHERE ARE WE NOW?

 Problem with our arbitration law: Only In the

Philippines Provisions, Examples:
“A court before which an action is brought in a
matter which is the subject matter of an arbitration
agreement shall, if at least one party so requests not
later than the pre-trial conference, or upon the
request of both parties thereafter, refer the parties to
arbitration unless it finds that the arbitration
agreement is null and void, inoperative or incapable
of being performed.” (R.A. 9285 Sec.24).
Rule on waiver ignored.
 WHERE ARE WE NOW?

 Problem with our arbitration law:

 Aside from (a) the confusing state of our
domestic arbitration law and (b) the only in the
Philippines provisions, other problems arise
from the fact that our arbitration law is in
several enactments, namely R.A. 9285, R.A.
876, some civil code provisions, the
UNCITRAL Model Law 1985, the New York
Convention, the SC’s Special Rules, the DOJ’s
IRR, and a several others. In certain instances
they do not provide the same rules.
 WHERE ARE WE NOW?

 Examples of Conflicting Provisions:

 R.A. 876 enumerates four (4) grounds to vacate a

domestic award. In contrast, Special Rules Rule

11.4 enumerates seven (7) grounds to vacate a
domestic award.
 IRR Art. 4.37 last paragraph is premised on the
proposition that local international awards are
appealable by providing that the right to appeal
may be waived. Such waiver, nevertheless, is
without prejudice to the application of the Rules of
Court Rule 65. Most of the other laws correctly
provide for the finality of arbitral awards.
 WHERE ARE WE NOW?

 Arbitration: RCBC V BDO G.R. No. 196171 10 Dec.

2012: two internationally known and well respected
arbitrators were said to be guilty of bias and
prejudgment. What they did was to do what they
were supposed to do, pursuant to general rules of
arbitration, to avoid using “secret evidence”.
 WHERE ARE WE NOW?

 Arbitration: Korea Technologies v Lerma, G.R.

143581 7 June 2008 – classic in the mistakes in its
obiter.

 “xxx as signatory to the Arbitration Rules of the

UNCITRAL Model Law on International Arbitration of
the United Nations Commission on International
Trade Law (UNCITRAL) in the New York Convention
on June 21, 1985, the Philippines committed itself to
be bound by the Model Law.”
 WHERE ARE WE NOW?

 Arbitration: Korea Technologies v Lerma

“xxx the foreign arbitral award is subject to

judicial review by the RTC which can set aside,
reject, or vacate it.”
“For foreign or international awards which first
must be confirmed by the RTC the grounds for
setting aside, rejecting or vacating the award by
the RTC are provided under Art. 34 (2) of the
UNCITRAL Model Law.”
 WHAT IS BEING DONE?
 The Good News
 DOJ’s OADR had established a technical working group to
look at our ADR and Arbitration laws to recommend the
necessary changes and amendments.
 The commercial people are extending their assistance.
 PDRC and PIArb are in the forefront of educating our
countrymen. We train, host, arrange and assist seminars,
courses, fellowships, lectures. We have connections with
foreign groups who assist in PDRC’s and PIArb’s activities.
 PDRC Course

 LPU-PIArb CARD and First MA Degree in ADR/Arbitration

 IBP’s PCA; La Salle’s plan to introduce MA Degree

 PIArb, CIArb and RAIF; PIArb Monthly Fellowships

 WHAT IS BEING DONE?
 The Good News

 Many individuals teach; speak during MCLE Seminars; give

lectures, some pro-bono; participate in mocks; go around
schools to give lectures.
 WHAT IS BEING DONE?
 PDRCI and PIArb Wish Re Judiciary

 The premise is that we are a Model Law

Country. So, the eyes of all Model Law
countries are on us because there should be
uniformity in the interpretation of the Model
Law Provisions.
 WHAT IS BEING DONE?
 Break Through: Fruehauf Electronics Etc vs.
Technology Electronics Etc, G.R. No. 204197, Nov.
23, 2016
 Deconstructed the view that arbitral tribunals are quasi-
judicial agencies.
 Ruled that certain obiters in previous cases committed the
classic fallacy of equivocation.
 Ruled that even the expanded certiorari jurisdiction of courts
cannot justify judicial intrusion into the merits of arbitral
awards.
 Ruled that simple errors of fact, of law, or of fact and law
committed by the arbitral tribunal are not justiciable errors.
 WHAT IS BEING DONE?

 What Some Countries are Additionally

Doing:
 Support their ADR/Arbitration Institutions.
 Roadshows.
 Give tax breaks to firms bringing in arbitration business.
 Re GST liability.
 Re Tax on Income.
 No need to secure work permits (but note Thailand incident).
 Others.
 WHAT WE NEED TO DO
 We need to be at par with our foreign counterparts if
we are to effectively compete.
 What we need to do:
 Raise level of awareness.
 Capability Building: train practitioners, train the trainors;
and train the trainors who will train other trainors.
 Have an inclusive, dynamic and innovative legal fraternity
that would move forward, keeping track of the new
improvements to avoid being left behind. This includes the
judiciary as, without its assistance and active participation,
it would be very difficult to achieve our goals.
APPLIED ADR: DISPUTE RESOLUTION APPROACHES
IN SOUTH CHINA SEA DISPUTE

Preliminaries: Given the available choices, which

approach is the better approach?

 “Peaceful” (voluntary) procedures

 Goal is, simply, a workable solution. The concern is not so

much whether the agreement is “fair” or in line with the parties’
legal rights. A negotiated settlement has nothing to do with
justice and has everything to do with looking to the future and
not being hung up on the past.

 “Compulsory” procedures entailing binding or merely

executory decisions.
 APPLIED ADR: THE WEST
PHILIPPINE SEA DISPUTE
PRELIMINARIES:

 Informed decisions require facts, not “fake news”.

 Zonal System in UNCLOS is focused on the
allocation of resources outside the territorial
boundaries of states, not allocation of territories.
Observe distinction between sovereign rights over
resources and territorial sovereignty.
 “Islands”, “rocks” and “reefs”.
 Ownership disputes over “rocks” not our focus of

discussion.
NOTE: UNCLOS

 “The United Nations Convention on the Law of the

Sea lays down a comprehensive regime of law and
order in the world’s oceans and seas establishing
rules governing all uses of the oceans and their
resources. It enshrines the notion that all problems
of the ocean space are closely interrelated and need
to be addressed as a whole” (From Overview
prepared by the Division for Ocean Affairs and the
Law of the Sea, UN).
NOTE: BASIS OF MARITIME
ENTITLEMENTS
Marine entitlements are attached to the land.

1. “Island”
 Can sustain habitual and economic life.

 Criteria; expansion of the concept of “in its natural

state” in the Itu Aba ruling; from capability to
actualities.
 Not part of the sea; can be acquired.

 Maritime entitlements.
NOTE: BASIS OF MARITIME
ENTITLEMENTS (con’t)
2. “Rock”
 Concept, hte.
 Not part of the sea; could be acquired.
 Maritime entitlement.

3. “Reef”
 Sunken bank or lte.
 Part of the sea (if outside the territorial sea of a state); can
not be acquired.
 Not entitled to any marine entitlement.
NOTE: Precursors
Coincidence or Related Events?

 The Scarborough Incident: Philippine forces

(Gregorio del Pilar, a military vessel) boarded
Chinese fishing boats.
 In another part of the SCS (Balintang Channel),
Philippine forces (Coast Guard) fired at an unarmed
Taiwanese fishing vessel, killing one fisherman.
 Issue with Taiwan settled.
 Phl lost control of Scarborough; Filipino fishermen
barred from fishing in Scarborough.
 APPLIED ADR
Approach of the Previous Administration

 The Positional Derivative Approach

 The never ending debate.

 Playing the Win-Lose (or Zero-Sum) Game.

 APPLIED ADR
Playing the Win-Lose Game

 Had the past administration impulsively jumped in

into the win-lose game?

 UNCLOS Art. 287: the choice of procedures. [1]

the choices and [3] Annex VII as the default.
 Phl initiated the arbitration in ITLOS. Wrong move.

 No end game strategy.

 APPLIED ADR
Playing the Win-Lose Game

 Reality check: the nature of the mandatory dispute

resolution procedure that may be available.
 The apparent purpose of the Award given that no

enforcement mechanism exists.

 China’s opt-out from the mandatory dispute
resolution procedures.
 Counterbalance re ruling on jurisdiction.
 APPLIED ADR
 Evaluative approach:

 The problem with playing the win-lose game in the

disputes.

 The Scarborough issue: the Philippines won, on

paper, but actually lost as a consequence.
 APPLIED ADR
Where Phl (Actually) Won
 Declaration that nine-dash line, as a claim on
resources beyond that allotted, has no legal basis.

 No traditional fishing rights in the EEZ’s.

 Declaration that certain features in the WPS are

“reefs”.

 China’s occupation/development violates Phl’s maritime

rights.
 APPLIED ADR
Where Phl Won (con’t)
 Others (all controversial; all were non-issues)

 Itu Aba is a “rock”, not an “island”.

 China is not an archipelagic state.

 Taiwan’s Government is the Taiwanese Authority

of China.
 Undermining China’s claims on “rocks” in SCS

Note: Some other “wins” are not material to our

discussion because both parties were declared in good
faith.
 APPLIED ADR
Where Phl (Actually) Lost

 No jurisdiction re blockade of Sierra Madre

 Declaration that certain features, including

Scarborough, are “rocks” and they happened to be
under China’s control.
 This “loss” was tempered by the declaration that
traditional fishing rights have to be respected in
Scarborough, another controversial ruling.
 APPLIED ADR
 Evaluative approach: Did Phl really win?
 No enforcement machinery. So, “counter measures” or
“diplomatic persuasion”?
 Arbitral award is now just a matter of academic discussion.

What may have happened had China participated in the

arbitration, at least up to the jurisdictional part.
 False assumptions: Shaming China? Reputational damage

to be suffered by China? Arbitration a weapon of the weak

against the strong? Help from other countries?
 Declaration of certain features as “rocks”.

 Re China’s violation in building on “reefs”; the U.S. FONOP.

 Present US stance; ASEAN stance; Phl stance; Mischief Reef.
 The “private” nature of Phl’s “victory” and the adverse
interests of other claimants.
 APPLIED ADR
 Other Consequences

 China’s taking over of uninhabited features

 Blockade of “Sierra Madre”
 Philippine fruit exports to China
 Tourism
 Lost opportunities for cooperation
 Protests
 Fishing ban; use of water cannons and seizure of catch
 Soured relationship; heightened tensions
 China’s militarization; tit for tat
NOTE: JURISDICTIONAL ISSUES

Issues of Jurisdiction are expected to linger with the award.

 Subject to certain exceptions disputes concerning the

interpretation and application of UNCLOS with regard to the
exercise by a coastal State of its sovereign rights or
jurisdiction are not subject to the procedures resulting to
binding decisions (UNCLOS Art. 297).
 UNCLOS allows an acceding State to opt out of the
procedures resulting to binding decisions (UNCLOS Art.
298) and China had opted out of all categories of disputes
from which it could opt out.
 Reason for expectation: A state cannot be sued without its
consent. There can be no arbitration without consent.
NOTE: JURISDICTIONAL ISSUES: China’s
Opt Out
“The Government of the People’s Republic of China
does not accept any of the procedures provided for in
Section 2 of Part XV of the Convention with respect to
all the categories of disputes referred to in paragraph
1(a) (b) and (c) of Article 298 of the Convention.”

 (a) (i) disputes concerning the interpretation or application of

articles 15, 74 and 83 relating to sea boundary delimitations, or
those involving historic bays or titles x x x
 (b) disputes concerning military activities x x x and disputes
concerning law enforcement activities in regard to the exercise
of sovereign rights or jurisdiction excluded x x x under article
297, paragraph 2 or 3.
ISSUES INVOLVING TRIBUNAL IMPARTIALITY AND
APPOINTING AUTHORITY INDEPENDENCE

Some say that the tribunal is made-up of men learned

in UNCLOS. That, however, is not the point.

 The Arctic Sunlight Case and the arbitrators Cot,

Pawlak and Wolfrum.

 Issue involving the ITLOS President, who was the

appointing authority.

 Issue involving possible prejudgment.

CONTROVERSIAL RULINGS INVOLVING COT,
PAWLAK AND WOLFRUM

 In the Artic Sunlight Case: Unless and

until the Tribunal ruled that it has no
jurisdiction an impleaded State has the
duty to participate in the proceedings.
 In the Phil. v China Arbitration: A
signatory state may not except itself
generally from the UNCLOS dispute
resolution mechanisms resulting to
binding decisions.
NOTE: FINALITY OF AWARD ON JURISDICTION AND
COUNTER BALANCE

The Tribunal has the jurisdiction to rule on its own jurisdiction

(see UNCLOS Art. 288.4). Any decision rendered by the Tribunal
having jurisdiction shall be final (see UNCLOS Art. 296).
Gary B. Born: “An award may, however, be considered a nullity
under certain circumstances”. “If x x x an arbitral tribunal exceeds
the jurisdiction granted to it, the resulting award may constitute a
nullity.”
Observation by Experts: The “nullity” characterization of an award
is normally used by non-complying states, usually accompanied
by complaints that the award is a violation of international law.
CHINA’S POSITION: No jurisdiction, no participation, no
recognition, no implimentation.
Note: While the Philippines is focused on the merits, China is
focused on the procedure. Both are invoking international law.
NOTE: FINALITY OF AWARD ON THE MERITS AND
COUNTER BALANCE

Annex VII Article 11: Finality of Award. “The

award shall be final and without appeal, unless
the parties to the dispute have agreed in
advance to an appellate procedure. It shall be
complied with by the parties to the dispute.”

Counterbalance: No enforcement authority.

The “winner” will have to rely on the voluntary
compliance by the “loser”.
NOTE: MODES OF ENFORCEMENT IN CASE OF
RECALCITRANCE

“In practice, the principal mechanism for enforcement

of state-to-state arbitral awards has been diplomatic
persuasion and counter-measures.” – Gary B. Born,
International Arbitration: Law and Practice, on page
443.
 Obviously and by itself, the Philippines has no capacity to
employ counter-measures against China. Arguably, it could
seek the help of other states.

 So, it has to be diplomatic persuasion, which could be a

euphemism for negotiation. It would seem incongruous that
after shunning negotiation and opting for arbitration, Phl at
the end of the day has to go back to negotiation.
NOTE: ARBITRATION IS CASE AND
PARTIES SPECIFIC

 UNCLOS Art. 296: “Any such decision shall have no

binding force except between the parties and in
respect of that particular dispute.” As bluntly stated
in the award, “as between the Philippines and China,
there was no legal basis for China to claim historic
rights to resources, in excess of the rights provided
for by the Convention, within the sea areas falling
within the ‘nine dash line”.
NOTE: RE PROPOSALS ON HOW TO
ENFORCE AWARD

 Proposals re how to enforce awards are unrealistic,

unworkable, impractical and/or based on wrong
premises.
 APPLIED ADR
Approach of the Current Administration a Combination
of the Different “Peaceful” Modes

 Avoidance under the Deng Xiaoping formula.

 Sidelight: The transformative approach: understanding the
position of the parties.

 Compromising Approach
 Scarborough
 Uninhabited features
 Sierra Madre (on Second Thomas Shoal)
 APPLIED ADR
 Other Consequences

 Blockade of “Sierra Madre” lifted

 Philippine fruit exports to China allowed
 Tourism
 Opportunities for cooperation in many fields
 Less protest
 Fishing in Scarborough allowed
 “Sweetened” relationship
 Less tension
 APPLIED ADR
Integrative Approach

 “Temporary” arrangements.

 Possible piece meal agreements here and there.

Agreements on other matters beneficial to both
made possible. Development loans. Aids and grants.

 Possible joint exploration and sharing of resources

in the disputed areas.
 APPLIED ADR
Possible Agreements Re Dispute Avoidance and/or
Future Dispute Resolution
 “Red lines” and both multilateral and bilateral platforms; bilateral
consultative meetings to discuss disputes and disagreements as well
as how to resolve different issues. (Note on Sandy Cay nr Pag-asa).
Hotlines on the operational lebel.
 Possible dispute board principles and tiered processes (if agreed
upon).
 Possibility of adversarial procedures as a last resort (if agreed upon).
 NOTE: DAB appears to be the favored procedure in Belt and Road.
 Note: Asean and China announced (first week of August 2018) that
they have agreed on a draft negotiating text as part of efforts to forge
a code of conduct to govern behavior in the South China Sea. Also,
held table top naval exercises that includes misencounters.
 APPLIED ADR
 Reality checks:

 Hurdling statutory and constitutional roadblocks:

what rules/law will apply to the resources
involved? UNCLOS provisions of Philippine
law/constitution?
 Resources involved are outside Phl’s territory.

 Right to resources not inherent, but granted.

Grant subject to UNCLOS provisions.
 UNCLOS is a take it or leave it (or full packaged)
treaty.
 APPLIED ADR
 Reality checks (con’t):

 Issues are private to the Philippines and very

difficult, if not highly impossible, to enforce
without agreement.

 Arbitration is case and parties specific.

 Some components may require multilateral

agreements.
NOTE: ARTICLE I OF THE
CONSTITUTION (National Territory)
 “The national territory comprises the Philippine
archipelago and all the islands and waters embraced
therein, and all other territories over which the
Philippines has sovereignty or jurisdiction,
consisting of its terrestrial, fluvial and aerial
domains, including its territorial sea, the seabed, the
subsoil, and insular shelves and other submarine
areas. The waters around, between and connecting
the islands of the archipelago, regardless of their
breadth and dimensions, form part of the internal
waters of the Philippines.”
 NOTE that Art. I did not mention the EEZ.
NOTE: ARTICLE XII SECTION 2 OF THE
CONSTITUTION (National Economy and Patrimony)

“All lands of the public domain, waters, minerals, coal,

petroleum and other mineral oils, all forces of potential energy,
fisheries … and other natural resources are owned by the State.
xxx The State may directly undertake such activities, or it may
enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations
at least 60 per centum of whose capital is owned by such citizens.

“The State shall protect the nation’s marine wealth in its

archipelagic waters, territorial sea and exclusive economic zone
and reserve its use and enjoyment exclusively to Filipino
citizens.”
UNCLOS AND ARTICLE XII SECTION 2 OF THE
CONSTITUTION (National Economy and Patrimony)

COMMENT: Art. XII Sec. 2 went extraterritorial when it

included the Philippine EEZ in its coverage.

CONTRASTS: The following are consistent with

UNCLOS with respect to the EEZ and continental shelf:
 Joint development of natural resources.

 Sharing of maritime resources.

 Joint protection of the resources as well as the

environment in the SCS (this is not inconsistent with
Art. XII Sec. 2).
The first two are not consistent with Art. XII Sec. 2.
UNCLOS AND ARTICLE XII SECTION 2 OF THE
CONSTITUTION (National Economy and Patrimony)

2. UNCLOS is a take-it-or-leave-it treaty. (Art. 309: “No

reservation or exceptions may be made to this Convention
unless expressly permitted by other articles of this
Convention”). An adhering state is not allowed to say that
its adherence is subject to its laws. UNCLOS Arts. 310 and
311 make it clear that there could be no exclusion or
modification to the legal application of the provisions to an
adhering state. And, while it may be that agreements
between two adhering states may modify their rights and
obligations, such agreements are only applicable between
them.
3. Note that, as a rule, as between the parties such
agreements prevail over UNCLOS provisions. (See UNCLOS
Art. 311).
UNCLOS AND ARTICLE XII SECTION 2 OF THE
CONSTITUTION (National Economy and Patrimony)

UNCLOS Art. 293: Applicable law (Re Court or Tribunal with

Jurisdiction Under UNCLOS) [1] Provisions of UNCLOS and [2]
other rules of international law that are not incompatible with
UNCLOS.

UNCLOS Art. 77: Other countries may exploit resources in the

continental shelf but only with the express consent of the
coastal state.

UNCLOS Art. 61.1. and 62.2. Coastal state to determine its

maximum allowable catch and allocate excess, giving
preference to disadvantaged states.
THE DENG XIAOPING FORMULA

The Deng Xiaoping Formula calls for the shelving of

disputes in the meantime and making temporary
agreements. Basically: let’s not talk about the
disputes; let us just make money.

 “x x x remain in dispute and that the two sides are

continuing to work for a peaceful and cordial
resolution of the dispute. In keeping with the abiding
ties of close friendship and cooperation between
xxx” (Preamble of an agreement between China and
another country).
OTHER POINTS

Agreement Re Dispute Resolution Mechanisms

UNCLOS Art. 280. Nothing in this part impairs the right

of any States Parties to agree at any time to settle a
dispute between them concerning the interpretation or
application of this Convention by any peaceful means
of their choice.

In Art. 282: Agreement of the parties prevail over

UNCLOS procedures that entails a binding decision.
OTHER POINTS

Law of the Contract

UNCLOS Art. 293, par.2. Court or Tribunal may decide a case ex

aequo et bono if the parties so agree.

See Art. 311 re agreements between the parties. Note, also, that
contracting parties to an international agreement are free to agree
on the law governing their conract.
 APPLIED ADR

Final Words: the Philippines must

strengthen itself, both economically
and militarily, whichever way the
disputes would go. Only then could
the Philippines assert and defend its
interests.
 DISPUTE RESOLUTION
MECHANISMS
QUESTIONS?
Comments and suggestions, critical,
adverse or otherwise, welcomed.
I would love to hear from you if you noticed
any error or omission, or if you have any
suggestion on how to improve, this
presentation.
E-mail to marval.law@gmail.com. Visit our
website at <www.philippinearbitrators.org>.
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