I.

Introduction

What is Arbitration?
"Arbitration" means a voluntary dispute resolution process in which one or more arbitrators, appointed in accordance
with the agreement of the parties, or rules promulgated pursuant to this Act, resolve a dispute by rendering an
award. (Sec.3(d), RA 9285)
Arbitration is a process by which parties consensually submit a dispute to a non-government decision maker, selected
by or for the parties, to render a binding decision resolving a dispute in accordance with neutral adjudicatory
procedures affording each party an opportunity to present its case. (Born)

Sir: arbitration is a creature of contract. There has to be an agreement, otherwise, there is no arbitration.
You can agree on anything as long as it is not contrary to law, customs, public policy.

Elements
1. Consensual means to resolve disputes
2. Non-governmental decision maker selected by or for the parties
3. Final and binding decision
4. Use of adjudicatory procedures

When is an arbitration “international”?

(3) An arbitration is international if:
a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places
of business in different States; or
b) one of the following places is situated outside the State in which the parties have their places of business:
i. the place of arbitration if determined in, or pursuant to, the arbitration agreement;
ii. any place where a substantial part of the obligations of the commercial relationship is to be
performed or the place with which the subject-matter of the dispute is most closely connected; or
c) the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than
one country.
(4) For the purposes of paragraph (3) of this article: (a) if a party has more than one place of business, the place of
business is that which has the closest relationship to the arbitration agreement; (b) if a party does not have a place
of business, reference is to be made to his habitual residence. (Art.I, Model Law)

Importance of determining whether arbitration is international or not

Sir: to determine what law will govern the arbitration
As long as one of the enumeration is present, the arbitration is international.

When is an arbitration “commercial”?

 An arbitration is "commercial" if it covers matters arising from all relationships of a commercial nature,
whether contractual or not. Relationships of a transactions: any trade transaction for the supply or
exchange of goods or services; distribution agreements; construction of works; commercial representation
or agency; factoring; leasing, consulting; engineering; licensing; investment; financing; banking; insurance;
joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air,
sea, rail or road. (Sec.21, RA 9285) (Sec.3(g), RA 9285)
 The term “commercial” should be given a wide interpretation so as to cover matters arising from all
relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature
include, but are not limited to, the following transactions: any trade transaction for the supply or exchange
of goods or services; distribution agreement; commercial representation or agency; factoring; leasing;
construction of works; consulting; engineering; licensing; investment; financing; banking; insurance;
exploitation agreement or concession; joint venture and other forms of industrial or business cooperation;
carriage of goods or passengers by air, sea, rail or road. (footnote to Art.1 par.3, Model Law)

What “laws” govern International Commercial Arbitration?

International Both Domestic
Model Law RA 9285 RA 876
NY Convention* EO 1008
Applicable provisions of Model Law (Art. 8, 10,
11, 12, 13, 14, 18 and 19 and 29 to 32)
Special ADR Rules*

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Law governing international arbitration
 “International commercial arbitration shall be governed by the Model Law on International Commercial
Arbitration (the "Model Law") adopted by the United Nations Commission on International Trade Law on
June 21, 1985 (United Nations Document A/40/17) and recommended approved on December 11, 1985,
copy of which is hereto attached as Appendix "A".” (Sec.19, RA 9285)
 “(1) This Law applies to international commercial arbitration, subject to any agreement in force between this
State and any other State or States.” (Art.1, Model Law)

Law governing domestic arbitration

 “Domestic arbitration shall continue to be governed by Republic Act No. 876, otherwise known as "The
Arbitration Law" as amended by this Chapter. The term "domestic arbitration" as used herein shall mean an
arbitration that is not international as defined in Article (3) of the Model Law.” (Sec.32, RA 9285)
 “Article 8, 10, 11, 12, 13, 14, 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.” (Sec.33, RA 9285)

Laws governing international commercial arbitration (based on Born)

1. international arbitration conventions
2. national arbitration legislation
3. institutional arbitration rules incorporated by parties’ arbitration agreement
4. arbitration agreements

II. Different Modes of Alternative Dispute Resolution (ADR)

 Arbitration
A voluntary dispute resolution process in which one more arbitrators, appointed in accordance with the agreement of
the parties, or rules promulgated pursuant to this Act, resolve by a rendering an award (Sec. 3(d), RA 9285)

 Mediation
A voluntary process in which a mediator, selected by the disputing parties, facilities communication and negotiation,
and assist the parties in reaching a voluntary agreement regarding a dispute (Sec. 3(q), RA 9285)

 Conciliation
A process in which a neutral third party (conciliator) conveys information between the parties and attempts to
improve direct communication between them. The conciliator often prepares a report that describes the scope of
agreement and disagreement. The role of a conciliator is more passive than a mediator.
(http://pmc.judiciary.gov.ph/glossary-and-abbreviations.htm)

 Early Neutral Evaluation

An ADR process wherein parties and their lawyers are brough together in a pre-trial phrase to present summaries of
their cases and receive a nonbinding assessment by an experienced neutral person, with expertise in the subject in
the substance of the dispute (Sec. 3(n), RA 9285)

 Mini-Trial
A structured dispute resolution method in which the merits of a case are argued before a panel comprising senior
decision makers with or without the presence of a neutral third person after which the parties seek a negotiated
settlement (Sec. 3(u), RA 9285)

 Others
Court-Annexed Mediation
Any mediation process conducted under the auspices of the court, after has acquired jurisdiction of the dispute (Sec.
3(l), RA 9285)

Court-Referred Mediation
Mediation ordered by a court to be conducted in accordance with the Agreement of the Parties when an action is
prematurely commenced in violation of such agreement (Sec. 3(m), RA 9285)

Can you be compelled to go to Mediation?

Conceptually, you cannot be compelled. But this was bastardized by the Court-Annexed Mediation. Court-Annexed
Mediation is not law but a rule provided by the Supreme Court. You have to comply and the court may compel you.

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Mediation in the concept of an ADR
It arises from agreement. If parties settle, it would be the award. But parties are not required to settle. The award
will be the “compromise agreement.”

III. Why Arbitrate?

1. Neutrality
2. Centralized Dispute Resolution
- avoid jurisdictional disputes, choice-of-law debates and multiplicitous litigation in different national
courts
3. Enforceability of Agreements and Awards
- international arbitration conventions and arbitration legislation ensure that international arbitration
agreements are more readily, expeditiously enforced and more broadly interpreted than forum
selection clauses
- “key benefit” of arbitration
4. Commercial Competence and Expertise
- many national court systems are ill equipped to resolve international commercial disputes
o little experience in resolving complex international disputes
o face serious challenges in reliability resolving commercial disputes
5. Finality of Decisions
6. Party Autonomy and Procedural Flexibility
- dispense with technical formalities & tailor procedures to particular disputes
7. Cost and Speed
- not always true; sometimes slow & more expensive
8. Confidentiality and Privacy of Dispute Resolution
- reduces risks of aggravating dispute, limits collateral damage, focuses the parties on an amicable,
business-like resolution
9. Arbitration Involving States and State-Entities

IV. Types of Arbitration

 Domestic v. International
o International – See discussion on When Arbitration is “International”
o Domestic – The term “domestic arbitration” as under as used herein shall mean an arbitration
that is not international as defined in Article 3(3) of the Model Law. (Sec. 32, RA 9285)
 NOTES:
 It actually states “Article (3).” It is suggested that this is a mere typographical
error.
 Sec. 32 of RA 9285 adopts a negative definition. RA 9285 is not helpful but
sufficient for academic purposes.

 Ad hoc v. Institutional
o Institutional
 Administered by specialized arbitral institutions
 Conducted pursuant to institutional arbitration rules, which have been incorporated by the
parties arbitration agreement
 Conducted pursuant to institutional rules and in practice are almost always overseen by
an appointing authority with responsibility for constituting the arbitral tribunal, fixing the
arbitrators’ compensation and similar matters
 Advantages:
 Reduced risk of procedural breakdowns & technical defects in the arbitration
proceeding and award
 Institution’s involvement can be particularly constructive.
 Institutional rules contain provisions that make the arbitral process more
effective
 Predictable
 Disadvantage: Growing size and sophistication of international arbitration bar and the
efficacy of legal regimes for arbitration reduce its advantages
o Ad hoc

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  Conducted without the benefit of an appointing authority or (generally) pre-existing
arbitration rules, subject only to the parties’ arbitration agreement and applicable national
arbitration legislation
 Not conducted under the auspices or supervision of an arbitral institution
 Parties usually designate an appointing authority if parties fail to select, arbitration
statutes in many states permit national courts to appoint arbitrators
 Advantage: more flexible & potentially more confidential

Leading International Arbitral Institutions

1. International Chamber of Commerce
2. London Court of International Arbitration
3. American Arbitration Association
4. Singapore International Arbitral Centre
5. International Centre for Settlement of Investment Disputes
6. Permanent Court of Arbitration

What is the operative factor in determining whether an arbitration is ad hoc or institutional?

1. Naming the institution; or
2. Adopting the Rules of that institution

Why is it by adopting the Rules, one adopts the institution?

Because the institution made the Rules. The institution knows how to implement it.

What if you name one institution and adopt the rules of another?
This is still institutional.

Ogsimer:
 Favor institutional over ad hoc because parties do not mostly agree with each other.
 It is the arbitrator that renders the award, not the institution. Institution merely acts as a secretariat.

V. The Arbitration Agreement

What is an “arbitration agreement”?

 “Arbitration agreement” is an agreement by the parties to submit to arbitration all or certain disputes which
have arisen or which may arise between them in respect of a defined legal relationship, whether contractual
or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a
separate agreement. (Art.7 par.1, Model Law)
 an agreement in writing under which the parties undertake to submit to arbitration all or any differences
which have arisen or which may arise between them in respect of a defined legal relationship, whether
contractual or not, concerning a subject matter capable of settlement by arbitration. (Art.II, par.1, NY
Convention)

Arbitration clause v. Submission Agreement

 Arbitration clause provide that parties have agreed that any dispute which arises out of or in connection
with the contract will be referred to arbitration. It typically applies to future disputes related to the parties’
contract. It is usually included in commercial contracts.
 Submission agreement is an agreement to submit a dispute that has already arisen between the parties to
arbitration. It looks to the past.

Form
 International arbitration:
o An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of
a separate agreement.
o The arbitration agreement shall be in writing.
 An arbitration agreement is in writing if its content is recorded in any form, whether or
not the arbitration agreement or contract has been concluded orally, by conduct, or by
other means.
 The requirement that an arbitration agreement be in writing is met by an electronic
communication if the information contained therein is accessible so as to be useable for

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 subsequent reference; “electronic communication” means any communication that the
parties make by means of data messages; “data message” means information generated,
sent, received or stored by electronic, magnetic, optical or similar means, including, but
not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or
telecopy.
 Furthermore, an arbitration agreement is in writing if it is contained in an exchange of
statements of claim and defence in which the existence of an agreement is alleged by one
party and not denied by the other.
o The reference in a contract to any document containing an arbitration clause constitutes an
arbitration agreement in writing, provided that the reference is such as to make that clause part of
the contract. (Art.7, Model Law)

 Domestic arbitration:
o A contract to arbitrate a controversy thereafter arising between the parties, as well as a submission
to arbitrate an existing controversy shall be in writing and subscribed by the party sought to be
charged, or by his lawful agent. (Sec.4, RA 876)

BF Corporation v. CA
Facts: BF Corporation and Shangrila Properties entered into an agreement whereby BF will construct SPI’s shopping
mall complex. BF incurred delay in the construction work. The parties renegotiated and entered into a written
agreement (“Agreement”). According to SPI, BF failed to complete the work. This resulted in disagreements between
the parties as regards their liabilities under the contract. Having failed to come to agreement, BF filed with the RTC
Pasig a complaint for collection of the balance due under the construction agreement. SPI filed a motion to suspend
proceedings on the ground that the contract provided an arbitration clause requiring prior resort to arbitration before
judicial intervention. SPI submitted a copy of the Conditions of the Contract (“Conditions”) containing the arbitration
clause. BF opposed alleging that the Agreement did not provide for arbitration. RTC found an arbitration clause exists
but denied the motion because it was not binding on BF. The Articles of Agreement provided that the Contract
Documents therein listed shall be deemed an integral part of the Agreement, and one of the said documents is the
Conditions which contains the arbitration clause. The Conditions contain the signatures of BF’s representatives but
not those of SPI’s. Considering that the Conditions was not duly signed by the parties, there is doubt whether or not
the arbitration clause is binding upon the parties. CA reversed the RTC’s order.

Issue: WON the contract contains a valid and binding arbitration clause

Held: A valid and binding arbitration clause exists. RA 876 provides for the formal requisites of an arbitration
agreement: (1) it shall be in writing and (2) subscribed by the party sought to be charged, or by his lawful agent. To
“subscribe” means to write underneath, as one’s name; to sign at the end of the document. These requisites were
complied within in the contract in the case. The Articles which incorporates all the other contracts and agreements
between the parties was signed by representatives of both parties and duly notarized. The failure of SPI’s
representative to initial the Conditions would not affect compliance with the formal requisites for arbitration
agreement because that particular portion was included by reference in the Articles. A contract need not be
contained in a single writing. The subscription of the principal agreement effectively covered the other documents
incorporated by reference therein.

Elements of International Arbitration Agreements

1. Agreement to Arbitrate
- Arbitration clauses should treat arbitration as mandatory and ot a possible future option
2. Scope of Dispute(s) Submitted to Arbitration
- Categories of disputes that will be subject to arbitration
- General Rule: draft arbitration clauses broadly to avoid parallel proceedings (arbitration & litigation)
3. Applicable Arbitration Rules
- If institutional arbitration is desired, the parties’ arbitration agreement must select and refer to an
arbitral institution and rules
- If parties do not desire institutional arbitration, sometimes selec a pre-existing set of procedural
rules designed for ad hoc arbitrations
4. Seat of Arbitration or Arbitral Seat
- The State where the arbitration has its formal legal or judicial seat, and where the arbitral award
will formally be made

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 - Consequences:
o Selection of the procedural law of the arbitration and the national courts responsible for
applying that law
o National courts responsible for issues relating to constitution of the tribunal
o National courts responsible for (and arbitration law applicable to) annulment of arbitral
awards
- Place of arbitration under UNCITRAL Model Law
o The parties are free to agree on the place of arbitration. Failing such agreement, the place
of arbitration shall be determined by the arbitral tribunal having regard to the
circumstances of the case, including the convenience of the parties. (Art. 20(1))
o Notwithstanding the provisions of paragraph (1) of this article, the arbitral tribunal may,
unless otherwise agreed by the parties, meet at any place it considers appropriate for
consultation among its members, for hearing witnesses, experts or the parties, or for
inspection of goods, other property or documents. (Art. 20(2))
- Place of arbitration under RA 9285
o The parties are free to agree on the place of arbitration. Failing such agreement, the place
of arbitration shall be Metro Manila, unless the arbitral tribunal, having regard to the
circumstances of the case, including the convenience of the parties shall decide on a
different place of arbitration. (Sec. 30)
5. Arbitrators
a. Number
- UNCITRAL Model Law (Art. 10)
Number of arbitrators
(1) The parties are free to determine the number of arbitrators.
(2) Failing such determination, the number of arbitrators shall be three.
- RA 876 (Sec. 8, par.3)
The court shall, in its discretion appoint one or three arbitrators, according to the importance of the
controversy involved in any of the preceding cases in which the agreement is silent as to the
number of arbitrators
- Civil Code:
o The same persons who may enter into a compromise may submit their controversies to
one or more arbitrators for decision. (Art. 2042, Civil Code)
o Any clause giving one of the parties power to choose more arbitrators than the other is
void and of no effect. (Art. 2045, Civil Code)

b. Qualifications
- RA 876 (Sec. 10)
Qualifications of arbitrators. - Any person appointed to serve as an arbitrator must be of legal age,
in full-enjoyment of his civil rights and know how to read and write. No person appointed to served
as an arbitrator shall be related by blood or marriage within the sixth degree to either party to the
controversy. No person shall serve as an arbitrator in any proceeding if he has or has had financial,
fiduciary or other interest in the controversy or cause to be decided or in the result of the
proceeding, or has any personal bias, which might prejudice the right of any party to a fair and
impartial award.
No party shall select as an arbitrator any person to act as his champion or to advocate his cause.
If, after appointment but before or during hearing, a person appointed to serve as an arbitrator
shall discover any circumstances likely to create a presumption of bias, or which he believes might
disqualify him as an impartial arbitrator, the arbitrator shall immediately disclose such information
to the parties. Thereafter the parties may agree in writing:
(a) to waive the presumptive disqualifying circumstances; or
(b) to declare the office of such arbitrator vacant. Any such vacancy shall be filled in the same
manner as the original appointment was made.

c. Procedure for Appointment/Selection

- RA 876
Appointment of arbitrators. - If, in the contract for arbitration or in the submission described in
section two, provision is made for a method of naming or appointing an arbitrator or arbitrators,

6
 such method shall be followed; but if no method be provided therein the Court of First Instance
shall designate an arbitrator or arbitrators.
The Court of First Instance shall appoint an arbitrator or arbitrators, as the case may be, in the
following instances:
(a) If the parties to the contract or submission are unable to agree upon a single arbitrator;
or
(b) If an arbitrator appointed by the parties is unwilling or unable to serve, and his successor
has not been appointed in the manner in which he was appointed; or
(c) If either party to the contract fails or refuses to name his arbitrator within fifteen days
after receipt of the demand for arbitration; or
(d) If the arbitrators appointed by each party to the contract, or appointed by one party to
the contract and by the proper Court, shall fail to agree upon or to select the third
arbitrator.
(e) The court shall, in its discretion appoint one or three arbitrators, according to the
importance of the controversy involved in any of the preceding cases in which the
agreement is silent as to the number of arbitrators.
(f) Arbitrators appointed under this section shall either accept or decline their appointments
within seven days of the receipt of their appointments. In case of declination or the failure
of an arbitrator or arbitrators to duly accept their appointments the parties or the court,
as the case may be, shall proceed to appoint a substitute or substitutes for the arbitrator
or arbitrators who decline or failed to accept his or their appointments. (Sec. 8)

Appointment of additional arbitrators. - Where a submission or contract provides that two or more
arbitrators therein designated or to be thereafter appointed by the parties, may select or appoint a
person as an additional arbitrator, the selection or appointment must be in writing. Such additional
arbitrator must sit with the original arbitrators upon the hearing. (Sec. 9)

- UNCITRAL Model Law (Art. 11)

(1) No person shall be precluded by reason of his nationality from acting as an arbitrator, unless
otherwise agreed by the parties.
(2) The parties are free to agree on a procedure of appointing the arbitrator or arbitrators, subject
to the provisions of paragraphs (4) and (5) of this article.
(3) Failing such agreement,
(a) in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the
two arbitrators thus appointed shall appoint the third arbitrator; if a party fails to appoint
the arbitrator within thirty days of receipt of a request to do so from the other party, or if
the two arbitrators fail to agree on the third arbitrator within thirty days of their
appointment, the appointment shall be made, upon request of a party, by the court or
other authority specified in article 6;
(b) in an arbitration with a sole arbitrator, if the parties are unable to agree on the arbitrator,
he shall be appointed, upon request of a party, by the court or other authority specified in
article 6.
(4) Where, under an appointment procedure agreed upon by the parties,
(a) a party fails to act as required under such procedure, or
(b) the parties, or two arbitrators, are unable to reach an agreement expected of them under
such procedure, or
(c) a third party, including an institution, fails to perform any function entrusted to it under
such procedure, any party may request the court or other authority specified in article 6
to take the necessary measure, unless the agreement on the appointment procedure
provides other means for securing the appointment.
(5) A decision on a matter entrusted by paragraph (3) or (4) of this article to the court or other
authority specified in article 6 shall be subject to no appeal. The court or other authority, in
appointing an arbitrator, shall have due regard to any qualifications required of the arbitrator
by the agreement of the parties and to such considerations as are likely to secure the
appointment of an independent and impartial arbitrator and, in the case of a sole or third
arbitrator, shall take into account as well the advisability of appointing an arbitrator of a
nationality other than those of the parties.

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 - The appointment of arbitrators and the procedure for arbitration shall be governed by the
provisions of such rules of court as the Supreme Court shall promulgate. (Art. 2046, Civil Code)

d. Replacement
- Grounds for Challenge
(1) When a person is approached in connection with his possible appoint- ment as an arbitrator, he
shall disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or
independence. An arbitrator, from the time of his appointment and throughout the arbitral
proceedings, shall without delay disclose any such circumstances to the parties unless they have
already been informed of them by him.
(2) An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts
as to his impartiality or independence, or if he does not possess qualifications agreed to by the
parties. A party may challenge an arbitra- tor appointed by him, or in whose appointment he has
participated, only for reasons of which he becomes aware after the appointment has been made.
(Art. 12, UNCITRAL Model Law)

- Challenge Procedure
(1) The parties are free to agree on a procedure for challenging an arbitra- tor, subject to the
provisions of paragraph (3) of this article.
(2) Failing such agreement, a party who intends to challenge an arbitrator shall, within fifteen days
after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any
circumstance referred to in article 12(2), send a written statement of the reasons for the challenge
to the arbitral tribunal. Unless the challenged arbitrator withdraws from his office or the other party
agrees to the challenge, the arbitral tribunal shall decide on the challenge.
(3) If a challenge under any procedure agreed upon by the parties or under the procedure of
paragraph (2) of this article is not successful, the challeng- ing party may request, within thirty
days after having received notice of the decision rejecting the challenge, the court or other
authority specified in article 6 to decide on the challenge, which decision shall be subject to no
appeal; while such a request is pending, the arbitral tribunal, including the challenged arbitrator,
may continue the arbitral proceedings and make an award. (Art. 13, UNCITRAL Model Law)

- Failure or impossibility to act

(1) If an arbitrator becomes de jure or de facto unable to perform his func- tions or for other
reasons fails to act without undue delay, his mandate terminates if he withdraws from his office or
if the parties agree on the termination. Otherwise, if a controversy remains concerning any of
these grounds, any party may request the court or other authority specified in article 6 to decide
on the termination of the mandate, which decision shall be subject to no appeal.
(2) If, under this article or article 13(2), an arbitrator withdraws from his office or a party agrees to
the termination of the mandate of an arbitrator, this does not imply acceptance of the validity of
any ground referred to in this article or article 12(2). (Art. 14, UNCIRAL Model Law)
- Appointment of substitute arbitrator
Where the mandate of an arbitrator terminates under article 13 or 14 or because of his withdrawal
from office for any other reason or because of the revocation of his mandate by agreement of the
parties or in any other case of termination of his mandate, a substitute arbitrator shall be
appointed according to the rules that were applicable to the appointment of the arbitra- tor being
replaced. (Art. 15, UNCITRAL Model Law)
- Challenge of arbitrators. - The arbitrators may be challenged only for the reasons mentioned in the
preceding section which may have arisen after the arbitration agreement or were unknown at the
time of arbitration.
The challenge shall be made before them.
If they do not yield to the challenge, the challenging party may renew the challenge before the
Court of First Instance of the province or city in which the challenged arbitrator, or, any of them, if
there be more than one, resides. While the challenging incident is discussed before the court, the
hearing or arbitration shall be suspended, and it shall be continued immediately after the court has
delivered an order on the challenging incident. (Sec. 11, RA 876)

6. Language of Arbitration
- Language of the Arbitration. - The parties are free to agree on the language or languages to be
used in the arbitral proceedings. Failing such agreement, the language to be used shall be English

8
 in international arbitration, and English or Filipino for domestic arbitration, unless the arbitral
tribunal shall determine a different or another language or languages to be used in the
proceedings. This agreement or determination, unless otherwise specified therein, shall apply to
any written statement by a party, any hearing and any award, decision or other communication by
the arbitral tribunal.
The arbitral tribunal may order that any documentary evidence shall be accompanied by a
translation into the language or languages agreed upon by the parties or determined in accordance
with paragraph 1 of this section. (Sec. 31, RA 9285)
- (1) The parties are free to agree on the language or languages to be used in the arbitral
proceedings. Failing such agreement, the arbitral tribunal shall determine the language or
languages to be used in the proceedings. This agreement or determination, unless otherwise
specified therein, shall apply to any written statement by a party, any hearing and any award,
decision or other communication by the arbitral tribunal.
(2) The arbitral tribunal may order that any documentary evidence shall be accompanied by a
translation into the language or languages agreed upon by the parties or determined by the
arbitral tribunal. (Art. 22, UNCITRAL Model Law)

7. Governing Law
a. Governing Law of the Contract/Merits of Parties’ Dispute(s)
- Rules applicable to substance of dispute
(1) The arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen
by the parties as applicable to the substance of the dispute. Any designation of the law or legal
system of a given State shall be construed, unless otherwise expressed, as directly referring to the
substantive law of that State and not to its conflict of laws rules.
(2) Failing any designation by the parties, the arbitral tribunal shall apply the law determined by
the conflict of laws rules which it considers applicable.
(3) The arbitral tribunal shall decide ex aequo et bono or as amiable com- positeur only if the
parties have expressly authorized it to do so.
(4) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and
shall take into account the usages of the trade applicable to the transaction. (Art. 28, UNCITRAL
Model Law)

b. Governing Law of the Arbitration Agreement

- The parties’ arbitration agreement may be governed by different national law than that of the
underlying contract
- 5 options:
o law chosen by the parties to govern the arbitration agreement itself
o law of the arbitral seat
o law governing the parties’ underlying contract
o international principles , either applies as a substantive body of contract law or as rules of
non-discrimination

c. Procedural Law Governing the Arbitral Proceeding

- Also called the “procedural law of the arbitration,” the “curial law” or the “lex arbitri.”
- In most instances, the law governing the arbitral proceeding is the arbitration statute of the arbitral
seat

Scope of Arbitration Agreement

 An arbitration agreement confers a mandate upon an arbitral tribunal to decide any and all of the disputes
that come within the ambit of that agreement
 An arbitrator should not go beyond this mandate. If he does, there is a risk that his award will be refused
recognition and enforcement under the provisions of the New York Convention.
 An award may be set aside by the competent court (Art. 34(2)(a)(iii), UNCITRAL Model Law), as well as
being refused recognition and enforcement (Art. 36(1)(a)(iii), UNCITRAL Mode Law), if it: deals with a
dispute not contemplated by or not falling within the terms of the submission to arbitration or contains
decisions on matters beyond the scope of the submission to arbitration.

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Other Significant Clauses in an Arbitration Agreement
1. Sharing of costs
- UNCITRAL Mode law is silent regarding awards of legal costs incurred in arbitration.
o However, arbitrators are permitted to make awards of the costs of arbitration and the
legal costs (absent contrary agreement by parties)
- Arbitration agreements sometimes address the issue of costs in legal representation.
o This is true where the parties agree that the arbitrators shall have the power to make
such awards, or exclude the possibility of such
o An application of party autonomy
o Tribunals will give effect to the parties’ terms
- Most institutional rules grant tribunals the power to award the costs of legal representation.
o Common principle: the prevailing party will be entitled to its costs(found in UNCITRAL
Rules, LCIA Rules)
o ICC Rules – final award “shall fix the costs of the arbitration and decide which of the
parties shall bear them or in what proportion they shall be borne by the parties”

o Common theme of most institutional rules is to grant the tribunal broad powers to award
legal costs, largely according to standards established by the arbitrators; exercise of these
powers is left almost entirely to them.
o Most institutional rules also expressly confirm the arbitrators’ authority to “apportion” legal
costs, allowing awards of less than 100% of a party’s reasonable costs.
- In the absence of applicable institutional rules, arbitration agreements should be interpreted to
impliedly grant such authority
o Follows from the basic principle that the right to compensation for wrongful damage
includes the costs of righting that damage.
o A party who loses is, in principle, ordered to pay the costs.
o However, other criteria can be taken into account, notably the manner in which the case
was conducted and the costs caused by the reckless or abusive requests or delaying
tactics
- Most awards simply award a “reasonable” or “appropriate” amount.

2. Discovery
- Discovery in international arbitration is less extensive than in litigation
- There is no automatic right to disclosure in arbitration. Rather, parties must 
 seek leave from the
tribunal to obtain procedural orders allowing disclosure
- It is possible under some national laws for either the parties, or the tribunal, 
 to seek judicial
assistance in obtaining coercive discovery.

3. Currency of Award and Interests

- Most awards involve determination that a specified monetary sum is payable by one party to
another
- Most national laws grant tribunals the power to denominate an award in currency for which the
parties’ contract and/or governing law provides
- It depends on applicable legislative provisions or judicial practice
- Interests: most arbitration statutes are silent on awards of interests
o UNCITRAL Model Law is silent on this
o Some states provide for the award of interest in their legislations, and tribunals apply
them by analogy
o Alternatively, tribunals look to contractually-specified rates of interests or treat interest as
an element of contractual damages, looking to commercially-prevailing interest rates
during the period in question

4. Monetary Thresholds
- Compensatory damages are recognized. However, the award of punitive damages/exemplary
damages depend on the arbitral seat/jurisdiction involved.

5. Bifurcation of Proceedings
- “Bifurcation”: division of something into parts
- Efficiency of an arbitration may be improved by identifying preliminary or “cut-across” issues,
whose prompt resolution will avoid wasted expense

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 o Ex: jurisdictional issues, choice-of-law questions, and separation of liability and damages

6. Finality of Award
- Any stipulation that the arbitrators' award or decision shall be final, is valid, without prejudice to
Articles 2038, 2039, and 2040. (Art. 2044, Civil Code)
o Art. 2038. A compromise in which there is mistake, fraud, violence, intimidation, undue
influence, or falsity of documents, is subject to the provisions of Article 1330 of this Code.
However, one of parties cannot set up a mistake of fact as against the other if the latter,
by virtue of the compromise, has withdrawn from a litigation already commenced.
o Art. 2039. When the parties compromise generally on all differences which they might
have with each other, the discovery of documents referring to one or more but not to all
of the questions settled shall not itself be a cause for annulment or rescission of the
compromise, unless said documents have been concealed by one of the parties.
But the compromise may be annulled or rescinded if it refers only to one thing to which
one of the parties has no right, as shown by the newly-discovered documents.
o Art. 2040. If after a litigation has been decided by a final judgment, a compromise should
be agreed upon, either or both parties being unaware of the existence of the final
judgment, the compromise may be rescinded.
Ignorance of a judgment which may be revoked or set aside is not a valid ground for
attacking a compromise.

7. Confidentiality
- Confidential of Arbitration Proceedings. - The arbitration proceedings, including the records,
evidence and the arbitral award, shall be considered confidential and shall not be published except
(1) with the consent of the parties, or (2) for the limited purpose of disclosing to the court of
relevant documents in cases where resort to the court is allowed herein. Provided, however, that
the court in which the action or the appeal is pending may issue a protective order to prevent or
prohibit disclosure of documents or information containing secret processes, developments,
research and other information where it is shown that the applicant shall be materially prejudiced
by an authorized disclosure thereof. (Sec. 23, RA 9285)

Interpretation
 In favor of arbitration!
 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 party to make their own arrangements to resolve their
disputes. Towards this end, the State shall 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. (Sec. 2, RA 9285)
 Interpretation of the Act. - In interpreting the Act, the court shall have due regard to the policy of the law in
favor of arbitration. Where action is commenced by or against multiple parties, one or more of whom are
parties who are bound by the arbitration agreement although the civil action may continue as to those who
are not bound by such arbitration agreement. (Sec. 25, RA 9285)

Effects and Consequences of Arbitration Agreement

1. Positive obligation to arbitrate in good faith
o Has its source in the agreement itself; in agreeing to arbitrate, the parties not only negatively
waive their access to judicial remedies, but also affirmatively agree to participate in the resolution
of their disputes through arbitration.
o Remedies for breach: to dismiss or stay litigation brought in breach of an agreement to arbitrate

2. Negative obligation not to litigate

o “Each Contracting State shall recognize an agreement in writing under which the parties undertake
to submit to arbitration all or any differences which have arisen or which may arise between them
in respect of a defined legal relationship, whether contractual or not, concerning a subject matter
capable of settlement by arbitration.” (Art.II(1), NY Convention)
o “The court of a Contracting State, when seized of an action in a matter in respect of which the
parties have made an agreement within the meaning of this article, shall, at the request of one of
the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void,
inoperative or incapable of being performed.” (Art.II(3), NY Convention)

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  Art.II (1) and II(3) of the NY Convention provide for Contracting States to “recognize”
agreements to arbitrate and “refer the parties to arbitration.” These provisions enforce the
negative effects of an arbitration agreement by requiring either the stay or dismissal of
court litigation.
o “A court before which an action is brought in a matter which is the subject of an arbitration
agreement shall, if a party so requests not later than when submitting his first statement on the
substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null
and void, inoperative or incapable of being performed.” (Art.8(1), Model Law)
 Art.8(1) of the Model Law which requires courts to “refer the parties to arbitration”
impliedly precludes a national court from entertaining a dispute on the merits if the
parties have agreed to arbitrate it, and requires that the parties be referred to arbitration.
o Remedies for breach:
 Stay or dismiss litigation
 Anti-suit injunction – directed against the parties to prohibit litigation in a foreign forum
 Damages for breach of obligation not to litigate
 Non-recognition of judgments
 It would violate the NY Convention for a Contracting State to enforce a judgment
in breach of a valid agreement to arbitrate, which is subject to the Convention.
o Under RA 9285:
 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 that 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. (Sec.24)

Arbitrability

What cannot be arbitrated?*

1. labor disputes covered by the Labor Code
2. civil status of persons
3. validity of marriage
4. any ground for legal separation
5. jurisdiction of courts
6. future legitime
7. criminal liability
8. those which by law cannot be compromised (those contrary to law, morals, good customs, public policy –
cannot be subject of contract)

Examples: dispute in winnings from jueteng – not arbitrable

Q: 6 parties (1 buyer, 5 sellers) to a contract for a purchase of multiple objects for construction. Arbitration clause
provides that any or all disputes shall be settled by arbitration; each party will be allowed to nominate arbitrator. The
arbitration shall be administered by the ICC; the seat will be in Hongkong; the governing law is Philippine law.
A: Void according to Art.2045, CC.

Who determines arbitrability?

Competence to decide disputes over existence, validity and interpretation of international arbitration
agreement

Competence-competence doctrine
 An arbitral tribunal presumptively possesses jurisdiction to consider and decide on its own jurisdiction.
 “The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence
or validity of the arbitration agreement.” (Art.16(1), Model Law)

Allocation of competence to decide jurisdictional disputes

 Deals with the issue of whether, when a jurisdictional objection is raised, a national court must initially
decide the issue, or, whether an arbitral tribunal may initially decide, subject to subsequent (or no) judicial
review

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  Different views:
o View #1: Art.8(1) of the Model Law suggests that aside from referring the parties to arbitration,
the court shall also make a final determination whether or not the agreement is valid.
o View #2: Only “prima facie inquiry” into jurisdiction shall be conducted by a court before referring
parties to arbitration.

OTHER NOTES (from Born)

Presumptive validity of international arbitration agreements

 Under the NY Convention and/or Model Law, there is a mandatory obligation to “recognize” arbitration
agreement.
 Non-recognition is limited only in cases where the arbitration agreement is “null void, inoperative, or
incapable of being performed.” Also, where they concern “a subject matter not capable of settlement by
arbitration”

Presumption of separability of international arbitration agreements

 Arbitration clauses are presumptively “separable” or “severable” from the contract within which they are
found.
 Rationale: the parties’ agreement to arbitrate consists of promises that are independent from the underlying
contract; to insulate the arbitration agreement and the arbitrator’s jurisdiction from challenges to the
underlying contract
 “[a]n arbitration clause which forms part of a contract shall be treated as an agreement independent of the
other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not
entail ipso jure the invalidity of the arbitration clause.” (Art.16(1), Model Law)
 Consequences of separability:
o Invalidity/non-existence of the underlying contract does not necessarily mean invalidity/non-
existence of arbitration agreement
o Invalidity of arbitration agreement does not necessarily mean invalidity of underlying contract
o Law governing the main contract is not necessarily the same as law governing the arbitration
agreement
o Different form requirements for main contract and arbitration agreement

Law applicable to formation, validity and interpretation of international arbitration agreements

1. Law of the forum where judicial enforcement of the agreement is sought
2. Law chosen by the parties
o “An arbitral award may be set aside by the court specified in article 6 only if:
(a) the party making the application furnishes proof that:
(i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the
said agreement is not valid under the law to which the parties have subjected it or, failing any
indication thereon, under the law of this State; (Art.34(2), Model Law) (same for NY Convention)
o Most authorities apply this rule governing recognition of awards to disputes over recognition of
arbitration agreements.

3. Law of arbitral seat

o Recognition and enforcement of the award may be refused upon proof that “the parties to the
agreement referred to in article II were, under the law applicable to them, under some incapacity,
or the said agreement is not valid under the law to which the parties have subjected it or, failing
any indication thereon, under the law of the country where the award was made” (Art.V(1)(a), NY
Convention)

4. “validation” principle
o If the arbitration agreement is valid under any of several laws which are potentially applicable to it,
then the agreement will be upheld.

5. International law

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Frabelle Fishing Corp. v. The Philippine American Life Insurance Company
Facts: Respondents entered into a MOA whereby each agreed to contribute cash, property and services for the
construction and development of Philamlife Tower. Respondents executed a DOA wherein they assigned to Frabelle
their rights and obligation under the MOA with respect to the construction, development and subsequent ownership
of Unit No. 38-B. Frabelle, in turn, assigned to petitioner Frabelle Fishing its rights, obligation and interests over Unit
No. 38-B. Petitioner and respondents executed a MOA to fund the construction of designated office floors in
Philamlife Tower.

Petitioner found material concealment on the part of respondents regarding certain details in the DOA and the 2 nd
MOA and their gross violation of their contractual obligations as condominium developers. Dissatisfied with its
existing arrangement with respondents, petitioner referred the matter to the PDRCI for arbitration. Respondent
manifested their refusal to submit to PDRCI’s jurisdiction. Petitioner filed with the HLURB a complaint for reformation
of instrument, specific performance and damages against respondents. HLURB Arbiter issued an Order denying
respondents’ plea for the outright dismissal of the case. Respondents filed with the CA a petition for prohibition which
the CA granted.

Issue: Whether the parties should initially resort to arbitration

Held: The parties should initially resort to arbitration.

Paragraph 4.2 of the 1998 MOA mandates that any dispute between or among the parties shall finally be settled by
arbitration conducted in accordance with the Rules of Conciliation and Arbitration of the International Chamber of
Commerce. Petitioner referred the dispute to the PDRCI but respondents refused to submit to its jurisdiction.

Such arbitration agreement is the law between the parties. They are, therefore, expected to abide by it in good faith.
Arbitration is one of the alternative methods of dispute resolution that is now rightfully vaunted as the wave of the
future in international relations, and is recognized worldwide. To brush aside a contractual agreement calling for
arbitration in case of disagreement between the parties would therefore be a step backward.

Fiesta World Wall Corp. v. Linberg Philippines, Inc.

Facts: Fiesta owns and operates Fiesta Mall Corporation, while Linberg is a corporation that builds and operates
power plants. Linberg filed with the RTC Pasig a Complaint for a Sum of Money. The complaint alleges that the
parties executed a build-own-operate agreement whereby Linberg will construct, at its own cost, and operate as
owner a power plant, and to supply Fiesta power/electricity at its shopping mall in Lipa City. Fiesta, on the other
hand, will pay Linberg energy fees to be computed in accordance with the Seventh Schedule of the Contract. It also
alleged that Fiesta had unpaid obligations on the supply of power/electricity. Fiesta denied the allegations. It also
raised the special affirmative defense that the complaint is premature and should be dismissed on the ground of non-
compliance with paragraph 7.4 (arbitration clause). Respondent opposed claiming that paragraph 7.4 of the Contract
on arbitration is not the provision applicable; that since the parties failed to settle the dispute, then Linberg may
resort to court action pursuant to paragraph 17.2 of the same Contract.

Issue: Whether the filing with the trial court of Linberg’s complaint is premature

Held: Linberg’s filing of its complaint was premature.

Paragraph 7.4 of the Contract mandates that should petitioner dispute any amount of energy fees in the invoice
and billings made by respondent, the same shall be resolved by arbitration of three (3) persons, one (1) by mutual
choice, while the other two (2) to be each chosen by the parties themselves. The parties, in incorporating
such agreement in their Contract, expressly intended that the said matter in dispute must first be resolved by an
arbitration panel before it reaches the court. They made such arbitration mandatory.

Petitioner disputed the amount of energy fees demanded by respondent. However, respondent, without prior
recourse to arbitration as required in the Contract, filed directly with the trial court its complaint, thus violating the
arbitration clause in the Contract.

Such arbitration agreement is the law between the parties. Since that agreement is binding between them, they are
expected to abide by it in good faith. And because it covers the dispute between them in the present case, either of
them may compel the other to arbitrate. Thus, it is well within petitioners right to demand recourse to arbitration.

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The Court did not agree with respondent that it can directly seek judicial recourse by filing an action against
petitioner simply because both failed to settle their differences amicably. There is nothing in the
Contract providing that the parties may dispense with the arbitration clause. Article XXI on jurisdiction cited by
respondent, i.e., that the parties hereto submit to the exclusive jurisdiction of the proper courts of Pasig City merely
provides for the venue of any action arising out of or in connection with the stipulations of the parties in the
Contract.

The computation of the energy fees disputed by petitioner also involves technical matters that are better left to an
arbitration panel who has expertise in those areas. Alternative dispute resolution methods or ADRs like arbitration,
mediation, negotiation and conciliation are encouraged by this Court. By enabling the parties to resolve their disputes
amicably, they provide solutions that are less time-consuming, less tedious, less confrontational, and more productive
of goodwill and lasting relationships. To brush aside such agreement providing for arbitration in case of disputes
between the parties would be a step backward

Since respondent has already filed a complaint with the trial court without prior recourse to arbitration, the proper
procedure to enable an arbitration panel to resolve the parties dispute pursuant to their Contract is for the trial court
to stay the proceedings. After the arbitration proceeding has been pursued and completed, then the trial court may
confirm the award made by the arbitration panel.

Korea Technologies Co. Ltd. v. Lerma

Facts: KOGIES, a Korean corporation, is engaged in the supply and installation of LPG Cylinder manufacturing
plants, while PGSMC is a domestic corporation. PGSMC and KOGIES executed a Contract whereby KOGIES would set
up an LPG Cylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines. The
parties executed, in Korea, an Amendment for the Contract.

After the installation of the plant, the initial operation could not be conducted as PGSMC encountered financial
difficulties affecting the supply of materials, thus forcing the parties to agree that KOGIES would be deemed to have
completely complied with the terms and conditions of the contract. For the remaining balance of USD306,000 for the
installation and initial operation of the plant, PGSMC issued two postdated checks. When KOGIES deposited the
checks, these were dishonored for the reason PAYMENT STOPPED. Thus, KOGIES sent a demand letter to PGSMC
threatening criminal action for violation of Batas Pambansa Blg. 22 in case of nonpayment. PGSMC replied that the
two checks it issued KOGIES were fully funded but the payments were stopped for reasons previously made known
to KOGIES.

PGSMC informed KOGIES that PGSMC was canceling their Contract on the ground that KOGIES had altered the
quantity and lowered the quality of the machineries and equipment it delivered to PGSMC, and that PGSMC would
dismantle and transfer the machineries, equipment, and facilities installed in the Carmona plant. Five days later,
PGSMC filed before the Office of the Public Prosecutor an Affidavit-Complaint for Estafa against Mr. Dae Hyun Kang,
President of KOGIES.

KOGIES wrote PGSMC informing the latter that PGSMC could not unilaterally rescind their contract nor dismantle and
transfer the machineries and equipment on mere imagined violations by KOGIES. It also insisted that their disputes
should be settled by arbitration as agreed upon in Article 15, the arbitration clause of their contract. KOGIES
instituted an Application for Arbitration before the Korean Commercial Arbitration Board (KCAB) in Seoul, Korea
pursuant to Art. 15 of the Contract as amended.

KOGIES filed a Complaint for Specific Performance against PGSMC. KOGIES averred that PGSMC violated Art. 15 of
their Contract, as amended, by unilaterally rescinding the contract without resorting to arbitration. KOGIES also
asked that PGSMC be restrained from dismantling and transferring the machinery and equipment installed in the
plant which the latter threatened to do.

RTC held that Art. 15 of the Contract as amended was invalid as it tended to oust the trial court or any other court
jurisdiction over any dispute that may arise between the parties.

Issues:
1. Whether or not the arbitration clause is null and void
2. Whether or not PGSMC may unilaterally rescind the contract without first resorting to arbitration

15
Held:
1. The arbitration clause is valid
Art. 2044 of the Civil Code sanctions the validity of mutually agreed arbitral clause or the finality and binding effect of
an arbitral award. Art. 2044 provides, Any stipulation that the arbitrators award or decision shall be final, is valid,
without prejudice to Articles 2038, 2039 and 2040.

Arts. 2038, 2039and 2040 refer to instances where a compromise or an arbitral award, as applied to Art. 2044
pursuant to Art. 2043, may be voided, rescinded, or annulled, but these would not denigrate the finality of the
arbitral award.

The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not been shown to be contrary
to any law, or against morals, good customs, public order, or public policy. There has been no showing that the
parties have not dealt with each other on equal footing. There is no reason why the arbitration clause should not be
respected and complied with by both parties. In Gonzales v. Climax Mining Ltd., we held that submission to
arbitration is a contract and that a clause in a contract providing that all matters in dispute between the parties shall
be referred to arbitration is a contract. Again in Del Monte Corporation-USA v. Court of Appeals, we likewise ruled
that the provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of
that contract and is itself a contract.

RA 9285 incorporated the UNCITRAL Model Law to which we are a signatory

In case a foreign arbitral body is chosen by the parties, the arbitration rules of our domestic arbitration bodies would
not be applied. As signatory to the Arbitration Rules of the UNCITRAL Model Law on International Commercial
Arbitration of the United Nations Commission on International Trade Law (UNCITRAL) in the New York Convention
onJune 21, 1985, the Philippines committed itself to be bound by the Model Law. We have even incorporated the
Model Law in Republic Act No. (RA) 9285.

While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a procedural law which
has a retroactive effect. Likewise, KOGIES filed its application for arbitration before the KCAB on July 1, 1998 and it is
still pending because no arbitral award has yet been rendered. Well-settled is the rule that procedural laws are
construed to be applicable to actions pending and undetermined at the time of their passage, and are deemed
retroactive in that sense and to that extent. As a general rule, the retroactive application of procedural laws does not
violate any personal rights because no vested right has yet attached nor arisen from them.

Pertinent features of applying and incorporating the UNCITRAL Model Law

(1) The RTC must refer to arbitration in proper cases
Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the subject of arbitration pursuant
to an arbitration clause, and mandates the referral to arbitration in such cases.

(2) Foreign arbitral awards must be confirmed by the RTC

Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to be final and binding are
not immediately enforceable or cannot be implemented immediately. Sec. 35 of the UNCITRAL Model Law stipulates
the requirement for the arbitral award to be recognized by a competent court for enforcement, which court under
Sec. 36 of the UNCITRAL Model Law may refuse recognition or enforcement on the grounds provided for. RA 9285
incorporated these provisos to Secs. 42, 43, and 44 relative to Secs. 47 and 48.

Foreign arbitral awards when confirmed by the RTC are deemed not as a judgment of a foreign court but as a foreign
arbitral award, and when confirmed, are enforced as final and executory decisions of our courts of law.

The concept of a final and binding arbitral award is similar to judgments or awards given by some of our quasi-
judicial bodies, like the National Labor Relations Commission and Mines Adjudication Board, whose final judgments
are stipulated to be final and binding, but not immediately executory in the sense that they may still be judicially
reviewed, upon the instance of any party. Therefore, the final foreign arbitral awards are similarly situated in that
they need first to be confirmed by the RTC.

(3) The RTC has jurisdiction to review foreign arbitral awards

Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific authority and jurisdiction to set
aside, reject, or vacate a foreign arbitral award on grounds provided under Art. 34(2) of the UNCITRAL Model Law.

16
While the RTC does not have jurisdiction over disputes governed by arbitration mutually agreed upon by the parties,
still the foreign arbitral award is subject to judicial review by the RTC which can set aside, reject, or vacate it.

(4) Grounds for judicial review different in domestic and foreign arbitral awards
The differences between a final arbitral award from an international or foreign arbitral tribunal and an award given
by a local arbitral tribunal are the specific grounds or conditions that vest jurisdiction over our courts to review the
awards.

For foreign or international arbitral awards which must first 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.

For final domestic arbitral awards, which also need confirmation by the RTC pursuant to Sec. 23 of RA 876 and shall
be recognized as final and executory decisions of the RTC, they may only be assailed before the RTC and vacated on
the grounds provided under Sec. 25 of RA 876.

(5) RTC decision of assailed foreign arbitral award appealable

Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved party in cases where the
RTC sets aside, rejects, vacates, modifies, or corrects an arbitral award. Thereafter, the CA decision may further be
appealed or reviewed before this Court through a petition for review under Rule 45 of the Rules of Court.

Based on the foregoing features of RA 9285, PGSMC must submit to the foreign arbitration as it bound itself through
the subject contract. While it may have misgivings on the foreign arbitration done in Korea by the KCAB, it has
available remedies under RA 9285. Its interests are duly protected by the law which requires that the arbitral award
that may be rendered by KCAB must be confirmed here by the RTC before it can be enforced.

8. Being bound to the contract of arbitration, a party may not unilaterally rescind or terminate
the contract for whatever cause without first resorting to arbitration.

What this Court held in University of the Philippines v. De Los Angeles and reiterated in succeeding cases, that the
act of treating a contract as rescinded on account of infractions by the other contracting party is valid albeit
provisional as it can be judicially assailed, is not applicable to the instant case on account of a valid stipulation on
arbitration. Where an arbitration clause in a contract is availing, neither of the parties can unilaterally treat the
contract as rescinded since whatever infractions or breaches by a party or differences arising from the contract must
be brought first and resolved by arbitration, and not through an extrajudicial rescission or judicial action.

Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the way for PGSMC to dismantle
and transfer the equipment and machineries, we find it to be in order considering the factual milieu of the instant
case.

RTC has interim jurisdiction to protect the right of the parties

While the issue of the proper installation of the equipment and machineries might well be under the primary
jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction to hear and grant
interim measures to protect vested rights of the parties.

Considering that the equipment and machineries are in the possession of PGSMC, it has the right to protect and
preserve the equipment and machineries in the best way it can. Considering that the LPG plant was non-operational,
PGSMC has the right to dismantle and transfer the equipment and machineries either for their protection and
preservation or for the better way to make good use of them which is ineluctably within the management discretion
of PGSMC.

Maintaining the equipment and machineries in Worths property is not to the best interest of PGSMC due to the
prohibitive rent while the LPG plant as set-up is not operational.

While the KCAB can rule on motions or petitions relating to the preservation or transfer of the equipment and
machineries as an interim measure, yet on hindsight, the July 23, 1998 Order of the RTC allowing the transfer of the
equipment and machineries given the non-recognition by the lower courts of the arbitral clause, has accorded an
interim measure of protection to PGSMC which would otherwise been irreparably damaged.

17
KOGIES is not unjustly prejudiced as it has already been paid a substantial amount based on the
contract. Moreover, KOGIES is amply protected by the arbitral action it has instituted before the KCAB, the award of
which can be enforced in our jurisdiction through the RTC. Besides, by our decision, PGSMC is compelled to submit to
arbitration pursuant to the valid arbitration clause of its contract with KOGIES.

PGSMC to preserve the subject equipment and machineries

While PGSMC may have been granted the right to dismantle and transfer the subject equipment and machineries, it
does not have the right to convey or dispose of the same considering the pending arbitral proceedings to settle the
differences of the parties. PGSMC therefore must preserve and maintain the subject equipment and machineries with
the diligence of a good father of a family until final resolution of the arbitral proceedings and enforcement of the
award, if any.

Ogsimer: Note that the Court cited the amended version of the UNCITRAL in Footnote 21. This can be used as
authority that the amended version may be cited as legal basis.

Maria Luisa Park Ass’n Inc. v. Almendras

Facts: Respondents Almendras purchased from MRO Corporation a residential lot. After approval by MLPAI of their
application to construct a residential house, respondents commenced construction. Upon ocular inspection, MLPAI
discovered that respondents violated the prohibition against multi-dwelling. MLPAI demanded that respondents
rectify the structure otherwise it will be constrained to forfeit their construction bond. Respondents filed with the RTC
a complaint for injunction. MLPAI moved to dismiss on the ground of lack of jurisdiction and failure to comply with
the arbitration clause provided for in MLPAI’s by-laws. RTC dismissed the complaint and ruled that HLURB has
jurisdiction over the case. CA reversed and ruled that RTC has jurisdiction.

Issue: Whether or not the trial court has jurisdiction

Held: The case falls within the jurisdiction of HLURB. The parties failed to abide by the arbitration agreement in the
MLPAI by-laws. The terms of the by-laws clearly express the intention of the parties to bring first to the arbitration
process all disputes between them before a party can file the appropriate action. The agreement to submit all
disputes is a contract. As such, the arbitration agreement binds the parties thereto, as well as their assigns and heirs.
Respondents, being members of MLPAI, are bound by its by-laws, and are expected to abide by it in good faith.

Ormoc Sugarcane Planters Association, Inc. v. Court Of Appeals

Facts: Petitioners are associations organized by and whose members are individual sugar planters (Planters).
Respondents HIDECO and OSCO are sugar centrals engaged in grinding and milling sugarcane delivered to them by
numerous individual sugar planters, who may or may not be members of an association such as petitioners.
Petitioners assert that the relationship between respondents and the individual sugar planters is governed by milling
contracts. Article XX of the milling contract provides for an arbitration clause. Petitioners, without impleading any of
their individual members, filed twin petitions with the RTC for Arbitration under RA 875, Recovery of Equal Additional
Benefits, Attorneys Fees and Damages, against HIDECO and OSCO. Respondents filed a motion to dismiss on ground
of lack of cause of action because petitioners had no milling contract with respondents. According to respondents,
only some 80 Planters who mere members of OSPA, one of the petitioners, executed milling contracts. Respondents
and these 80 Planters were the signatories of the milling contracts. Thus, it was the individual Planters, and not
petitioners, who had legal standing to invoke the arbitration clause in the milling contracts. Petitioners, not being
privy to the milling contracts, had no legal standing whatsoever to demand or sue for arbitration. RTC denied the
motion to dismiss.

Issue: Whether or not petitioners are clothed with legal personality to file a suit against, or demand arbitration from,
respondents in their own name without impleading the individual Planters

Held: Petitioners cannot demand arbitration.

An agreement to arbitrate is a contract, the relation of the parties is contractual, and the rights and liabilities of the
parties are controlled by the law of contracts. In an agreement for arbitration, the ordinary elements of a valid
contract must appear, including an agreement to arbitrate some specific thing, and an agreement to abide by the
award, either in express language or by implication.

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In this case, none of the petitioners were parties or signatories to the milling contracts. This circumstance is fatal to
petitioners' cause since they anchor their right to demand arbitration from the respondent sugar centrals upon the
arbitration clause found in the milling contracts. There is no legal basis for petitioners' purported right to demand
arbitration when they are not parties to the milling contracts, especially when the language of the arbitration clause
expressly grants the right to demand arbitration only to the parties to the contract.

Petitioners do not have any agreement to arbitrate with respondents. Only 80 Planters who were all members of
OSPA were shown to have such an agreement to arbitrate, included as a stipulation in their individual milling
contracts. The other petitioners failed to prove that any of their members had milling contracts with respondents,
much less, that respondents had an agreement to arbitrate with the petitioner associations themselves.

Even assuming that all the petitioners were able to present milling contracts in favor of their members, it is
undeniable that under the arbitration clause in these contracts it is the parties thereto who have the right to submit a
controversy or dispute to arbitration.

Petitioners theorize that they could demand and sue for arbitration independently of the Planters because the milling
contract is a contract pour autrui under Article 1311 of the Civil Code.

Article VI of the Milling Contract cannot be considered as a stiputation pour autrui or for the benefit of the
petitioners. The primary rationale for the said stipulation is to ensure a just share in the proceeds of the harvest to
the Planters. In other words, it is a stipulation meant to benefit the Planters to be considered a pour autrui provision,
an incidental benefit or interest, which another person gains, is not sufficient. The contracting parties must have
clearly and deliberately conferred a favor upon a third person. The only interest of the association therein is that its
member Planter will not be put at a disadvantage vis a vis other Planters. Thus, the associations’ interest in these
milling contracts is only incidental to their avowed purpose of advancing the welfare and rights of their member
Planters.

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