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THE ARBITRATION AGREEMENTby

MARIO E. VALDERRAMA AB, LLB, FCIArb, FHKIArb, FPIArb

CIAC Accredited ArbitratorCIArb Approved Tutor Resident Representative to the Regional Sub-CommitteeThe Chartered Institute of ArbitratorsEast Asia Branch

Contact DetailsTel No 367 4001; Telefax 362 1867Mobile 0917 411 4594E-mail

Concept Simply, it is an agreement between two or more persons referring a future or present controversy or controversies to arbitration for resolution

TypesArbitration Clause a clause in a wider contract, referring future disputes to arbitration

Submission Agreements refer existing disputes

FormMust be in writing

- note that the meaning of in writing has evolved

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

CHOICES: The place or seat of arbitration The Model Law view is that an arbitration must be juridically rooted in a particular jurisdiction and must be conducted under that jurisdictions arbitration law.

The arbitration law provides the framework for arbitration, but not the procedure which is left to the parties.

A delocalized arbitration, or one without a seat, would most likely not be enforced .

CHOICES: The place or seat of arbitrationThis choice will impact on three stages of the arbitration:

1. recognition of the arbitration agreement a country may have entered into treaties involving arbitration. The more successful is the New York Convention of 1958.

2. proceedings dependent on the law of the place

3. recognition of enforcement of the award same as item one

CHOICES: Type of Arbitration a. ad hoc do it yourself arbitration. The parties will have to make their own rules

b. Institutional administered by an arbitral institution, usually under its own rules

- fully administered. Example: ICC arbitration - partly administered. Example: PDRCI & HKIAC arbitrations.

CHOICES: Type of ArbitrationNOTES: HKIAC recently promulgated rules for administered arbitration

PDRCI recently changed its administrative guidelines to enable the counsel in charge of the file to (a) intervene in an arbitration in ease of manifest violation of the PDRCI Rules; and (b) to assist the tribunal and the parties in, among others, the procedure to be followed; presenting arguments and evidence; and making awards, but with the caveat that there is a limit to assistance (Confusion here).

CHOICES: Governing Law of the Contract and the Arbitration Agreement - the laws are not necessarily the same because the arbitration agreement is generally treated as separate from the main contract

- the Model Law and the Convention have default provisions re law governing the arbitration agreement. But interpretation of the Convention default provision varies, depending on the operating concept of the country involved, if parties stipulated on the law of the contract.

CHOICES: The Number of Arbitrators - the default provision is 3.

CHOICES: The Language of Arbitration - in our country, the default provision is English or arbitrator discretion in international arbitration; English or Filipino or arbitrator discretion in domestic arbitration.

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

EFFECT OF VALID AND ENFORCEABLE ARBITRATION AGREEMENT ON DISPUTE BROUGHT TO LITIGATION 1. Any party may apply to the court for an order to refer the parties to arbitration. With time bar.

- Time bar under the Model Law: not later than the time when the applicant submits his first statement on the substance of the dispute (Art. 8.1.).

- Time bar under R.A. 9285: not later than the pre-trial conference (Sec. 24).

EFFECT OF VALID AND ENFORCEABLE ARBITRATION AGREEMENT ON DISPUTE BROUGHT TO LITIGATION2. Once a prima facie existence of the arbitration agreement were established, the court has no discretion except to refer the parties to arbitration (Model Law Art. 8.1.; R.A. 9285 Sec. 24).

- Court may hear the matter if the court finds that the arbitration agreement is null and void, or in operative, or incapable of being performed (ibid).

NOTE: Initiating the court case/ its pendency is not a ground to stop the initiation and continuation of the arbitral proceedings as well as the rendition of the award ( Model Law Art. 8.2.; made applicable to domestic arbitration by R.A. 9285 Sec. 33).

PATHOLOGICAL CLAUSESAn agreement that will hamper or defeat the constitution of the tribunal or invite court intervention is pathological.

- agreements that are muddled, unclear or incomplete such that it is not effective to cover all the disputes that the parties intended to submit to arbitration are pathological clauses.

PATHOLOGICAL CLAUSES: Examples1. The one-off clause in international contracts

All disputes arising out of the present contract shall be settled by way or arbitration

There is no way for constitute the tribunal in case of recalcitrance as there no indication of the law that will apply to the arbitration or any competent authority that may be called upon to assist.

PATHOLOGICAL CLAUSES: Examples2. Imprecise or false designation of the arbitral institution

Any dispute or contravention of the present contract shall be submitted to the French Chamber of Commerce of Sao Paolo.

In case of no amicable settlement, all disputes that may arise shall be settled pursuant to the arbitration rules of the International Chamber of Commerce of Singapore.

Any dispute arising out of the present contract shall be submitted to arbitration to be administered by the Philippine Chamber of Commerce and Industry under its rules that are presently in force.

INCORPORATION CLAUSES In the Philippines and by a 1990 jurisprudence, a general incorporation clause in a contract will suffice to incorporate an arbitration agreement contained in another instrument.

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

INCORPORATION CLAUSESThe rule outside the Philippines is different.

The liberal view is that a mere reference to a contract containing an arbitration clause would not of itself be sufficient to incorporate and arbitration clause.

The strict view, said to be the prevalent view, requires a specific reference to an arbitration clause for an arbitration agreement to be validly incorporated by reference.

INCORPORATION CLAUSESReasons for requiring specificity:

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

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

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

INCORPORATION CLAUSESPhilippine Arbitration Law mutated in 2004 with the passage of R.A. 9285.

Relevantly, R.A. 9285s Chapter 4 Sec. 19 states:International commercial arbitration shall be governed by the Model Law on International Arbitration x x x.

INCORPORATION CLAUSESModel Law (1985) Chapter II Art. 7 (2) states in its last sentence:

The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and THE REFERENCE IS SUCH AS TO MAKE THAT CLAUSE PART OF THE CONTRACT. (Capitals provided).

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

INCORPORATION CLAUSES

Model Law Art. 7 was not one of the provisions made applicable to our domestic arbitration law.

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

INCORPORATION CLAUSESI submit that it would be absurd if we were to retain the prevailing rule if the arbitration were domestic, and adopt the new rule as provided for in the Model law if the arbitration were international.

Alternatively, are we to retain the prevailing rule even if the arbitration were international?

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