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ARBITRATION IN THE PHILIPPINES Parties have the option of resorting to arbitration to resolve their disputes in the Philippines.

Arbitration, which is steadily growing in popularity as an alternative mode of dispute settlement, may be more attractive than court litigation for several reasons. 1. Advantages of arbitration compared with court litigation 1 . 1 Speed Despite the efforts of the Supreme Court to streamline the judiciary, the dockets of Philippine courts remain clogged. Consequently, it usually takes several years for the trial courts to hear and resolve the cases filed with them. In contrast, disputes submitted to arbitration are more speedily resolved. Unlike judges, arbitrators do not have to contend with heavy caseloads. The parties can choose arbitrators whose schedules can accommodate the long hours necessary to hear and decide a case. 1.2 Flexibility of the rules Foreign investors who are not familiar with local court procedures may prefer a more neutral process. Arbitration allows the parties to choose or craft the rules that will govern the arbitration proceedings. Since the procedure is mutually agreed upon,the parties have more faith in the integrity of the process. Also, the parties need notbe bound by the strict rules of evidence. 1.3 Choice of arbitrators The parties are free to choose the arbitrators. The parties are expected to appoint arbitrators whom they regard as honest and competent. The ability to choose the arbitrator is especially attractive to a foreign party who may harbor reservations about the neutrality of a home court judge. Since the parties are given a free handin choosing their arbitrator(s), the outcome becomes more acceptable. Doing Business in Philippines 2009

b. investment in a new insurance company incorporated in the Philippines (i.e., a subsidiary); or c. establishment of a branch. To be allowed entry, the foreign insurance company must be among: 31 Quisumbing Torres

32 On the part of the arbitrators, they have an added incentive to build and nurture a reputation for competence and integrity. The greater their reputation for competence and integrity, the higher will be the demand for their services. 1.4 Finality of the award Philippine law recognizes as valid a stipulation that an arbitral award shall be final. However, final does not mean that an arbitral award is beyond judicial review. Final means that an arbitral award cannot be modified or reversed except on limited grounds. 1.5 Arbitrators as experts Parties usually appoint arbitrators who are knowledgeable in the subject matter of the dispute. 1.6 Confidentiality

Whereas court proceedings are open to the public, arbitration proceedings are confidential. 2. Definition of arbitration Arbitration is formally defined as 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 law, resolve a dispute by rendering an award. 3. Arbitration as contract Arbitration is a creature of contract. There can be no arbitration unless the parties agree to submit their dispute to arbitration. If there is no agreement to submit a dispute to arbitration, the remedy of the aggrieved party is to file a case in court. An aggrieved party cannot compel the other party to arbitrate. The parties may agree to submit a dispute to arbitration either before or after a dispute arises. 4. Disputes that may be referred to arbitration All types of commercial disputes may be referred to arbitration. The word commercial is broadly defined as matters arising from all relationships of a commercial nature, whether contractual or not. 5. Disputes that are not arbitrable The following disputes cannot be submitted to arbitration: (a) labor disputes covered by Presidential Decree No. 442, otherwise known as the Labor Code of the Philippines, as amended, and its Implementing Rules and Regulations; (b) the civil status of persons; (c) the validity of a marriage; (d) any ground for legal separation (of married persons); (e) the jurisdiction of courts; (f) future legitime; (g) criminal liability; and (h) those disputes which by law cannot be compromised. 6. Definition of international arbitration and domestic arbitration Arbitration is considered international if: (a) the parties to an arbitration agreement have, at the time of the conclusion of such agreement, their places of business in different States (countries); 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. On the other hand, domestic arbitration is simply defined as arbitration that is not international. Thus, if the dispute is between parties who have their place of business in the Philippines, and their obligations are to be performed in the Philippines, and there is no stipulation in their arbitration agreement that the subject matter of the arbitration agreement relates to another country, the arbitration will be considered domestic. International arbitration is governed by the United Nations Commission on International Trade Law (UNCITRAL) Model Law. Domestic arbitration is governed by Republic Act No. 876, otherwise known as the Arbitration Law, a Philippine law that was enacted in 1953. Despite the distinction between international and domestic arbitration, there are few vital distinctions between the two regimes. The reason for this is that the Alternative Dispute Resolution Act of 2004 (ADR Act of 2004) has grafted several of the UNCITRAL Model Law provisions onto R.A. No. 876.

7. Republic Act No . 876 on Domestic Arbitration a. Form of arbitration agreement The arbitration agreement must be in writing and subscribed by the party sought to be charged, or by his lawful agent. An agreement that incorporates by reference a document that contains an arbitration clause gives rise to a valid arbitration agreement. b. Third parties Where a civil action is commenced in court by or against multiple parties, one or more of whom are parties to an arbitration agreement, the court shall refer to arbitration those 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. c. Qualifications of arbitrator An arbitrator must possess the following qualifications: He must be of legal age, in full enjoyment of his civil rights, and must know how to read and write. Furthermore, the arbitrator should not possess any of the following disqualifications: He should not be related by blood or marriage within the sixth degree to either party to the controversy. Neither should he have a financial, fiduciary, or other interest in the controversy, or any personal bias, which might prejudice the right of any party to a fair and impartial award. The law prohibits an arbitrator from championing or advocating the cause of either party. Doing Business in Philippines 2009

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34 d. Interim measures A party may apply for provisional relief or interim measures with the courts prior to the constitution of the arbitral tribunal or even during the arbitration proceedings to the extent that the arbitral tribunal has no power to act or is unable to act effectively. e. Grounds for vacating/setting aside a domestic arbitral award A domestic arbitral award may be vacated on the following grounds: (i) The award was procured by corruption, fraud, or other undue means; or (ii) There was evident partiality or corruption in the arbitrators or any of them; or (iii) The arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or one or more of the arbitrators were disqualified to act as such under Section 10 of R. A. No. 876, and willfully refrained from disclosing such disqualifications, or were guilty of any other misbehavior by which the rights of any party were materially prejudiced; or (iv) The arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final, and definite award upon the subject matter submitted to them was not made. Where an award is vacated, the court, in its discretion, may direct a new hearing either before the same arbitrators or before a new arbitrator or arbitrators to be chosen in the manner provided in the submission or contract for the selection of the original arbitrator or arbitrators, and any provision limiting the time in which the arbitrators may make a decision shall be deemed applicable to the new arbitration and to commence from the date of the court's order.

The petition to vacate a domestic arbitral award must be filed with the appropriate Regional Trial Court within 30 days from receipt of the award. A domestic arbitral award may also be appealed directly to the Court of Appeals on questions of fact and law. f. Confirmation of domestic arbitral award A domestic arbitral award is not self-executory. In order to convert the domestic arbitral award into an enforceable judgment, the winning party has to file with the appropriate Regional Trial Court a petition for confirmation of the arbitral award. The court should, as a matter of course, grant the petition, unless there are grounds to vacate the award. 8. International Arbitration a. Interpretation of the UNCITRAL Model Law (Model Law) The provisions on domestic arbitration are more or less similar to the provisions on international arbitration. The one area where the two arbitration regimes may part ways is in the interpretation of the applicable laws, R.A. No. 876 (for domestic arbitration) and the Model Law (for international arbitration). The ADR Act of 2004 provides that, in interpreting the Model Law, regard shall be had for its international origin and to the need for uniformity in its interpretation, and resort may be made to the travaux preparatories and the report of the Secretary Generalof the United Nations Commission on International Trade Law dated 25 March 1985, entitled International Commercial Arbitration: Analytical Commentary on Draft Text identified by reference number a/CN. 9/264. For example, since other jurisdictions tend to interfere less with international arbitral awards, domestic arbitration and international arbitration will most likely diverge with respect to the scope of judicial review. While domestic arbitration awards may be reviewed on appeal on both questions of fact and law, Philippine courts, having regard for the international origin of the Model Law and to the need for uniformity in its interpretation, should limit the scope of its review to the grounds to set aside an arbitral award under the Model Law. b. Form The arbitration agreement shall be in writing. The definition of writing under the Model Law is broader than the definition of writing under R. A. No. 876. The Model Law considers an agreement to be in writing if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defense in which the existence of an agreement is alleged by one party and not denied by another. 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. c . Interim measures As with domestic arbitration, a party in an international arbitration may apply for provisional relief or interim measures with the courts prior to the constitution of the arbitral tribunal or even during the arbitration proceedings to the extent that the arbitral tribunal has no power to act or is unable to act effectively. d. Grounds for setting aside/vacating an international arbitral award An international arbitral award may be set aside by the courts only if the party making the application furnishes proof that: (i) a party to the arbitration agreement referred to in Article 7 of the Model Law 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; or (ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the

arbitral proceedings or was otherwise unable to present his case; or (iii) the award 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, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or Doing Business in Philippines 2009

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36 (iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of the Model Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with the Model Law; or An international arbitral award may also be set aside if the court finds that: . (i) the subject matter of the dispute is not capable of settlement by arbitration under the law of this State (the Philippines); or . (ii) the award is in conflict with the public policy of this State. An application for setting aside an international arbitral award may not be made after three months have elapsed from the date on which the party making that application received the award. e. Recognition and enforcement of international arbitral award An international arbitral award, irrespective of the country in which it was made, shall be recognized as binding and, upon application in writing to the competent court, shall be enforced unless there exists any of the grounds to set aside/vacate the award. 9. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) The Philippines acceded to the NewYork Convention, a landmark international instrument, in 1967. The parties to this convention recognize the validity and binding effect of foreign arbitral awards. Section V of the NewYork Convention provides that the recognition or enforcement of an arbitral award, irrespective of the country in which it was made, may be refused only on the following grounds: (1) Recognition or enforcement of an arbitral award, irrespective of the country in which it was made, may be refused only: (a) at the request of the party against whom it is invoked, if that party furnishes to the competent court where recognition or enforcement is sought 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 the country where the award was made; or (ii) the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that

part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or (v) the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which, or under the law of which, that award was made; or (b) if the court finds that: . (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or . (ii) the recognition or enforcement of the award would be contrary to the public policy of this State. In a recent case, the Philippine Supreme Court recognized the enforcement of a provisional/interim foreign award, as opposed to a final foreign award. The NewYork Convention also seeks to put international arbitration on equal footing with domestic arbitration by providing that the parties to the convention should not impose more onerous conditions on the enforcement of foreign arbitral awards than on the enforcement of domestic awards. To date, there are more than 140 signatories to the NewYork Convention, a testament to the near-universal recognition of the validity and binding nature of foreign arbitral awards. Notably, there is no similar convention with respect to the recognition and enforcement of foreign court judgments. 10. Construction Industry Arbitration Commission Executive Order No. 1008 established the Construction Industry Arbitration Commission (CIAC). The CIAC has original and exclusive jurisdiction over construction disputes, which shall include those between or among parties to, or who are otherwise bound by, an arbitration agreement, directly or by reference whether such parties are project owner, contractor, subcontractor, fabricator, project manager, design professional, consultant, quantity surveyor, bondsman or issuer of an insurance policy in a construction project. The CIAC is a hybrid of voluntary arbitration and compulsory arbitration. If the parties do not enter into an arbitration agreement, then the construction dispute between them shall be resolved by the courts. On the other hand, the Philippine Supreme Court has held that as long as the parties agree to submit their dispute to voluntary arbitration, regardless of what forum they may choose, their agreement will fall within the jurisdiction of the CIAC, such that, even if they specifically choose another forum, the parties will not be precluded from electing to submit their dispute before the CIAC because this right has been vested by law.Thus, for example, if the parties to a construction contract designate Singapore arbitration as the venue of any dispute that may arise between them, either party may still elect to file a request for arbitration with the CIAC notwithstanding the agreement of the parties to submit their dispute to arbitration in Singapore, and the CIAC shall assume jurisdiction over the dispute. The CIAC is known for its efficiency. It takes the CIAC an average of around six months from the time of filing of the request for arbitration to hear the case and render an award. Doing Business in Philippines 2009

(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or 37