I.

HISTORICAL BACKGROUND

A. Pre-Hispanic Period
 Datu (chieftain) –settles the disputes of his constituents, and his decisions
were accepted as having authority and finality.
 Elders and parents –acted as arbiters of family quarrels and their
decisions were binding upon the parties concerned.

B. Spanish Regime
 Codigo Civil of Spain- Was extended by a Royal Decree (1889) to the
Philippines.
-This Code specifically provided for arbitration in Book
IV, Title XII “De los Transacciones y
compromisos”
-The Provisions on compromises were made
applicable to arbitration.

 Ley Enjuicinamente de Civil –Some of its articles outlined the

procedure of amicable adjustment of controversies out of court.

Procedure:
1. The agreement or submission was executed before a notary
public, if not, then, it is void.

2. Arbitration was done before friendly adjusters (juicio de

amigables componedores).

 juicio de amigables componedores –requirements:

a. must be men who could read and write
b. the number had to be odd and could not exceed
five

3. An adjuster could be challenged

 Grounds:
a. If he had an interest in the subject-matter of the
suit or was manifestly antagonistic to either party;
and
b. the cause for challenge arose or came to the
knowledge of the party after appointment.

4. If the adjuster challenged refused to withdraw, the matter will

be tried in the Court of First Instance where the adjuster
resided.

5. The adjuster makes a decision and must be made before a

notary public (void if not made before a notary public).
 6. The aggrieved party may appeal the decision within sixty
days to the Supreme Court of Spain.
 Ground –the judgment was rendered outside of the
time limit therefor or that it decided questions not
submitted.
7. If no appeal was made, the judgment will be executed by the
Court of First Instance of the district where the decisions was
made.

C. American Regime

 Treaty of Paris in 1889- Spaniards ceded the Philippines to the Americans

 Code of Civil Procedure – enacted on August 7, 1901
- This code abrogated the Ley de Enjuicimiento Civil
- It did not mention arbitration as a mode of settling
disputes.

 Cases decided in relation to arbitration agreement

1. Cordoba V. Conde
 Supreme Court held that the plaintiff was at liberty to
resort to the court for the resolution of the dispute at
hand because the method agreed upon the parties
had been abolished by the civil code of procedure

2. Whal and Whal v. Donaldson, Sims & Co.,

 The Supreme Court invalidated the arbitral agreement
for being contrary to public policy as it ousted the
courts of their jurisdiction under the law.

3. Chang v. Royal Exchange Assurance Corporation of London

 The Supreme Court held that where the parties agree
that arbitration was a condition precedent to court
litigation, a court action that failed to comply with said
agreement must be dismissed for being premature.

4. Allen v. Province of Tayabas

 The Supreme Court held that, unless the arbitration
agreement absolutely closed the doors to judicial
review, it would be enforced by the court and only
with great reluctance would the court interfere with or
nullify the action of the arbitrator.

D. Post-American Regime
 I. Civil Code of the Philippines
 1950- The present Civil Code took effect.
 Arbitration was adopted by the Philippine Congress as part of the statutes
(Articles 2042 to 2046).
 Certain disputes are non-arbitrable, e.g. civil status of a person, future
support, jurisdiction of courts, and future legitime.

2. The Arbitration Law

 The Civil Code did not contain procedure to be followed in arbitration.
 Republic Act No. 876 (The Arbitration Law) was enacted in 1953
encouraging arbitration as a method of settling disputes.

3. New York Convention

 The United Nations adopted the New York Convention which binds the
Contracting States to recognize and enforce arbitral agreements and
awards rendered in another contracting State.
 The procedure for recognition and enforcement is summary in nature.

E. Marcos Regime
 July 9, 1973, Presidential Decree No. 242 –was issued by then President
Marcos, which provided arbitration as a mens of resolving disputes
between and among government agencies, instrumentalities, and
government-owned and controlled corporations.
 May 1, 1974, P.D. 442 (Labor Code of the Philippines –This decree
codified all labor laws for the country and provided for compulsory and
voluntary arbitration of labor disputes.
 1978, P.D. 1508 was issued –This system provided conciliation and
arbitration as a mode of settling disputes among residents of the same
barangay.
 1985, Executive Order No. 1008 (The Construction Industry Arbitration
Commission) was issued by President Marcos. The CIAC was vested with
the original and exclusive jurisdiction over disputes arising from or
connected with government or private construction contracts.

F. Post-EDSA Revolution
 No new arbitration law has been enacted, this period has seen the
growing acceptance of arbitration as mode of settling disputes.
 In 1992, The Philippine Clearing House Corporation, created an
Arbitration Committee to resolve disputes involving checks cleared
through PCHC.
 In 1996, Philippine Dispute Resolution Center, Inc. (PCRCI) was created
to provide dispute resolution services to the business community and the
public at large.
 In November 1998, The International Chamber of Commerce of the
Philippines (ICCP) was formed, to serve as the National committee under
the rules of arbitration of the International Chamber Commerce.
II. THE ARBITRATION

A. Arbitral Agreement

1. Consensual Nature –it is essential that two or more parties submit the
controversy to arbitration by, (a) agreeing, in the contract governing their
relationship, to settle by arbitration a controversy thereafter arising
between them of (b) submitting the dispute to arbitration after the dispute
has arisen.

2. Form –The arbitral agreement must be in writing and duly subscribed by the
parties.

 It is not necessary that the contract must itself contain an arbitral clause,
it is enough that it adopts or refers to a document containing an arbitration
clause.
 An Agreement to arbitrate maybe inferred from membership in
association whose rules prescribe arbitration as a mode for settling
dispute among its members.

3. Autonomy of the Arbitral Agreement –The validity of arbitral agreement must

be distinguished from the validity of the agreement within which an
arbitration clause is embodied.

 “The provision to submit to arbitration any dispute is itself a contract” (Del

Monte Corporation-USA v. Court of Appeals)

B. Arbitral Disputes –Generally, all disputes are arbitrable under Philippine law.

 Exception because of public policy; cases involving civil status of a

persons, validity of a marriage or legal separation, any ground for legal
separation, future support, jurisdiction of courts, future legitime, imposition
of legal penalty arising from offense, and labor disputes.

C. Scope of Arbitration – The scope of arbitration under this law depends on the
terms of the arbitral agreement by the parties. It may be as general as the
parties wish it to be.

 Arbitral agreement can be limited- The question whether a particular

dispute comes within the arbitral clause depends on the terms in the
arbitral agreement.
 Western Minolco Corporation v. Court of Appeals – In this case, the
arbitral agreement was limited to: (a) the meaning, application, and effect
of the agreement; and (b) the amount and computation of royalties,
deductions or other forms of expenses.
 -The Supreme Court held that a controversy relating to “breach of
faith” or “double dealing” by one of the parties is beyond the scope of the
arbitral agreement.

D. Enforcement of Arbitral Agreement

 When the parties agree to arbitrate their disputes, their agreement is

binding on them, and they are expected to abide in good faith. Presence
of third party does not render the arbitral agreement dysfunctional.
 The Regional Trial Court is mandated by the Arbitration Law to act on a
petition to compel arbitration in the event that a party to an arbitration
agreement refuses to proceed with the arbitration. The duty of the court in
this case is not to resolve the merits of the parties’ claims but only to
determine if they should proceed to arbitration or not.

E. Stay of Court Proceedings

 If a party to a contract with arbitration clause files an action in the regular

courts without first resorting to arbitration, the other party may apply for an
order to stay or suspend the court case (Section 7, R.A. No. 876).
 Stay – the act of temporarily stopping a judicial proceeding through the
order of a court.
 A court must suspend a suit before it even if there is no arbitral agreement
if one of the parties expressed his willingness to submit the controversy to
arbitration.
 The Supreme Court in few cases, dismissed a case where a party to an
arbitration agreement had by-passed the arbitration procedure instead of
staying the court action. If the court erroneously dismisses the case
instead of merely suspending it, it loses its jurisdiction over the case -it
has no power to confirm the arbitral award.
 What if the parties to arbitration in compliance with their arbitration
agreement if such reference will collide with the rule against the multiplicity
of suits under the Rules of Court?
- The Supreme Court held that the interest of justice would only be
served if the trial court hears and adjudicates the case in a single and
complete proceeding. Splitting of the proceedings to arbitration as to some
of the parties on the one hand and trial for the others on the other hand, or
the suspension of trial pending arbitration between some of the parties,
should not be allowed as it would, result in multiplicity of suits, duplicitous
procedure and unnecessary delay (Salas v. Laperal and Del Monte
Corporation v. Court of Appeals).

F. Interim/Conservatory Measures
  The arbitration law allows any party to the proceedings to petition the court
to take measures to safeguard and/or conserve any matter which is
subject of the dispute in arbitration.
 May a party go directly to a court for interim or conservatory measures
prior to the appointment of the arbitrator?
-Yes, despite an arbitration agreement, a request for interim
measures addressed to a judicial authority is not deemed incompatible
therewith. Arbitral agreements cannot shackle judicial authorities of their
inherent jurisdiction to prevent injustice and grave and irreparable injury to
parties prior to commencement of arbitration (Home Bankers Savings &
Trust Co. case).

G. The Arbitrators

I. Number of arbitrators –The number of one arbitrator or panel of at least three

arbitrators depends on the agreement of the parties.
 If there is no stipulated procedure for their
appointment, the Regional Trial court shall appoint
one or three arbitrators depending on the importance
of the case.
 Any clause that gives one of the parties the power to
choose more arbitrators than the other is void and of
no effect.

2. Qualifications/Disqualifications -The arbitrators must be of legal age, in full

enjoyment of their civil rights and must know how to read and write.

 Neutrality –The arbitrator is disqualified on account of

relationship or interest in the controversy.
 Arbitrators are disqualified if:
a. they are related by blood or marriage within the
sixth degree to either party to the controversy; and
b. they have a financial, fiduciary or other interest in
the controversy or cause to be decided or in the
result of the proceeding, or has personal bias,
which might prejudice the right of any party to a
fair and impartial award.
 An arbitral award may be vacated on the ground for
disqualification if the arbitrator possesses any of the
disqualifications and did not immediately disclose
them to the parties.
 If the challenged arbitrator will not yield to the
challenge brought before the arbitrators, the Regional
Trial Court may review and decide whether the
arbitrator is qualified or not.
 3. Jurisdiction and Competence –The arbitrators are empowered to resolve only
those issues that have been submitted to them under the
submission agreement clause.

 The arbitrator’s jurisdiction is decided by the

arbitration himself once the arbitration has
commenced, subject to review by the Regional Trial
Court upon petition by any party to vacate an award
on the ground that the arbitrators have exceeded their
powers.

H. The Arbitral Proceedings

1. Expedited Proceedings - The arbitrators must set the case for hearing not later
than fifteen days from their appointment, and must render arbitral
judgment within thirty days from the close of the hearings unless
otherwise stipulated by the parties.

2. Confidentiality of the Proceedings –Arbitration proceedings is confidential, only

parties to the arbitration, or persons authorized to appear at the hearings
by a party are allowed to attend the hearings. If a party desires to be
represented by a counsel, that party must notify the other party at least
five days prior to hearing.

3. Conduct of the Hearings –The arbitrator has full control of the proceedings,
and shall be the sole judge of the relevancy and materiality of the
evidence offered or produce. They may require the parties to produce
additional evidence as they deem necessary to an understanding and
determination of the dispute and not bound with the Rules of Court
provisions on evidence.

I. The Arbitral Award

1. Forms and Contents –The arbitrators may grant remedy or relief which they
deem just and equitable and within the scope of agreements by the
parties. The award must be in writing, signed, and acknowledged by a
majority of the arbitrators. The decision must comply with the basic
requirements of a court judgment, including the need to present facts and
the law on which the award is based.

2. Voting –An award by the majority of the arbitrators is valid unless

concurrence of all of them is expressly required in the submission or
contract to arbitrate.

3. Enforcing the Arbitral Award –The arbitrator has no authority to enforce the
arbitral award. Any party to the controversy may ask for the judicial
confirmation of the arbitral award within one month in the court specified in
 the arbitral agreement, if none, the Regional Trial Court where the parties
resides or is doing business on in which the arbitration was held.

 If the trial court, erroneously dismissed the case

based on non-compliance of an arbitral agreement,
the parties must file a new case to confirm an award.

4· Vacating the Arbitral Award –The following are grounds to vacate an arbitral
award (Section 24, R.A. No. 876):
a. The arbitral award was procured through corruption, fraud or other
undue means.
b. There is evidence of partiality or corruption in the arbitral tribunal or
any of its members.
c. The arbitral tribunal was guilty of misconduct or any form of
misbehavior that has materially prejudiced the rights of any party.
d. One or more of the arbitrators was disqualified to act as such under the
law and deliberately refrained from disclosing this disqualification.
e. The arbitral tribunal exceeded its powers, or imperfectly executed
them, so that a complete, final and definite award on the subject matter
submitted to them was not made.
f. The arbitration agreement did not exist, is invalid or is otherwise
unenforceable.
g. A party to arbitration is a minor or a person judicially declared to be
incompetent.

4. Modifying or Correcting the Arbitral Award –The following are grounds to file
petition to modify or correct the arbitral award (Section 25, R.A. No. 876):

a. Where there was an evident miscalculation of figures, or an evident

mistake in the description of any person, thing or property referred to in
the award; or

b. Where the arbitrators have awarded upon a matter not submitted to

them, not affecting the merits of the decision upon the matter
submitted; or

c. Where the award is imperfect in a matter of form not affecting the merits
of the controversy, and if it had been a commissioner's report, the
defect could have been amended or disregarded by the court.

5. Judicial Review –The decision of voluntary arbitrators as a general rule are

accorded a certain measure of finality ( Oceanic Bic Division et. Al. v.
Romero, et. Al. ) if supported by substantial evidence, even if the evidence is
not overwhelming or preponderant (National Steel Corporation, 304 SCRA).
  Judicial review will not be resorted to in order to overturn an award
unless there has been a very clear showing that the arbitral tribunal
in reaching its factual conclusions committed an egregious and
hurtful error to one party so as to amount to grave abuse of
discretion resulting to lack or loss of jurisdiction (Lim Kim Steel
Builders Inc. 228 SCRA 397).

III. CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN

ARBITRAL AWARDS

A. Philippine Reservations –In 1965, the Philippine senate, ratified the New York
Convention subject to the following reservations:

1. The Philippines will recognize and enforce arbitral awards made only in the
territory of another Contracting State; and
2. The New York Convention “will only apply to differences arising out of legal
relationships, whether contractual or not, which are considered as commercial
under the national law of the State making such decision.

B. Obligation if a Contracting State to Recognize a Written Agreement to Refer a

Dispute to Arbitration
 In the event that a court suit involving a contract containing
agreement to arbitrate, the court of a Contracting State where the
case is filed shall, at the request of one of the parties, refer the
parties to arbitration, unless the agreements is null and void,
inoperative or incapable of being performed.

C. Recognition and Enforcement if Arbitral Awards in a Contracting State

 Each contracting State shall recognize arbitral awards and enforce
the same in accordance with the rules of procedure of the territory
where the award is relied upon.
 The conditions to be imposed for the enforcement of a foreign
arbitral award shall not be more onerous as those impose for
domestic arbitral awards.

D. Grounds for Opposing the Recognition or Enforcement if a Foreign Arbitral

Award under the New York Convention:

1. Either of the parties were incapacitated to enter into the arbitration

agreement, the arbitration agreement is not valid under the law to which the
parties have subjected it, or the law of the country where the award was
made;
2. The party against whom the award was made was not given any proper
notice of the arbitration proceedings, or was unable to present his case;
 3. The award deals with a difference not contemplated by if not falling within the
terms of the arbitration agreement, or it contains decisions on matters beyond
the scope of the submission to arbitration;
4. The composition of the arbitral authority or the arbitral procedure was not in
accordance with the arbitration agreement, or in the absence thereof, the law
of the State where arbitration took place; and
5. The arbitral award is not yet final and executor or has been suspended or set
aside by a competent authority of the State where the award was rendered.

 In the Philippines, an arbitration agreement that is in violation of

Philippines laws or arbitration and is patently unfair to one party may
be valid and the award arising therefrom recognized and enforced (Oil
and Natural Gas Commission v. Court of Appeals).

E. No Implementing Local Legislation –Congress did not pass any law to implement
the Ney York Convention making it difficult to implement the provisions of the
convention in the Philippines.

IV.RECENT DEVELOPMENTS
 Senate Bill no. (SB) 422 was introduced by Senator Franklin Drilon in
the Congress to adopt, with modifications, the UNCITRAL Model Law
on Commercial Arbitration,
 The bill seeks to prescribe a new arbitration law which will address the
problems affecting business and to update Philippine arbitral system,
in keeping with the latest trends in world commercial transactions.

A. Arbitrable Disputes

B. The Arbitration Agreement

C. The Arbitral Proceedings
I. Request for Arbitration
2. Statement of Claims and Defenses
D. Making of Award and Termination of the Proceedings
I. The Applicable Rules
2. Form and Contents of the Award
3. Termination of Proceedings
4. Correction and Interpretation of the Award and Additional Awards
E. The Arbitral Tribunal
I. The Arbitrators
2. Challenge of an Arbitrator
F. Extent if Court Intervention
I. Referral to Arbitration
2. Interim Measures
3. Court Assistance in Taking Evidence
4· Appeals Regarding Preliminary Questions
5. Recognition and Enforcement
 6. Application for Setting Aside the Arbitral Award
G. Recognition and Enforcement of Awards
H. Arbitration by Court Reference and Stay of Court Proceedings
I. Waiver of rights to Object
J. Applicability to Domestic Commercial arbitration