CHAPTER 5: INTERNATIONAL COMMERCIAL ARBITRATION UNDER THE ADR ACT OF

2004 AND ITS IMPLEMENTING RULES AND REGULATION

The ADR act of 2004 adopted the United Nations Commission on International Trade
Law (UNCITRAL) model law on International Commercial Arbitration and by operation of Article
19 of the ADR Act, made the Model Law the governing statute for international commercial
arbitration.

The ADR Act of 2004 has provisions dealing with legal representation in international
arbitration, confidentiality of arbitral proceedings, referral of court action to arbitration,
definition and function of the appointing authority, the grant of interim measures of protection,
governing law, and the place and language of arbitration.

* INTERNATIONAL COMMERCIAL ARBITRATION

Arbitration is international if any of the following instances occur:

1. The parties’ place of business, which at the time of the conclusion of the arbitration
agreement, is in different states;

2. The place of arbitration provided in the agreement and in which the parties have their
places of business, is outside the Philippines;

3. The place where a substantial part of the obligation is to e performed outside the
Philippines;

4. Parties have expressly agreed that the subject matter of the arbitration agreement
relates to more than one country.

Arbitration is commercial if it covers matters arising from all relationships of a

commercial nature, whether contractual or not.

An International Commercial Arbitration (ICA) with the Philippines as its seat is governed
by the ADR Act and the IRR, even if the venue of the arbitration is outside the Philippines.

An International Commercial Arbitration whose seat is outside the Philippines is a

foreign arbitration even if the venue of arbitration is in the Philippines.

* COVERAGE OF IRR PROVISIONS ON INTERNATIONAL COMMERCIAL ARBITRATION

The provisions of the IRR on international arbitration are default rules, they are
applicable only in the absence of or in default of applicable provisions contained in:

1. An agreement, in force between the Philippines and other states; and 2.

An agreement between the parties on the applicable rules.

* RULES OF INTERPRETATION

The following are the rules in the interpretation of the ADR Act of 2004, Model Law and
IRR:

1. Interpretation of the ADR Act - The court shall have due regard to the policy of the
law favoring arbitration.

2. Interpretation of the Model Law – regard should be given that the said law is of
international origin and there is a need for uniformity in its interpretation.

3. Interpretation of the IRR

a. The same policies on the interpretation of the ADR Act and Model law are applicable
b. Party autonomy should be promoted in the resolution of the dispute c. The
right to authorize third parties to determine issues
d. Parties may agree upon the rules of the arbitration
e. The rules applicable to claims and defenses are equally applicable to
counterclaims and defenses against counterclaims, respectively.

* RULES ON RECEIPT OF WRITTEN COMMUNICATIONS IN ICA

Written communications, electronic or otherwise, therefore, play a vital role in

international arbitration. The IRR devoted provisions on the delivery and receipt thereof. In line
with the policy of party autonomy, the general rule on the receipt of communications in ICA are
those provided for by the parties in their arbitration agreement. In default of such rules,
communication is deemed received:

1. If it is delivered to the addressee personally or at his places of business, habitual

residence or mailing address;
2. If there is none, if it is delivered by registered letter or any other means.

* WAIVER OF THE RIGHT TO OBJECT IN ICA

The ADR act and IRR limited the application of the rules on waiver in mediation
proceedings to waivers of confidentiality and privilege only. In case of ICA, the IRR expanded
the application of the rules on waiver to include non-compliance with rules or requirements.

Objections to non-compliance with the rules or any requirement under the arbitration
agreement must be raised without undue delay or within the time prescribed failing which, the
right to object is deemed waived based on the equitable doctrine of estoppel. An admission
or representation cannot be denied or disproved as against the person relying on it. Estoppel in
pais happens when one, by his acts, representations or admissions or by his own silence when
he ought to speak out, intentionally or through culpable negligence, induces another to believe
certain facts to exist and such other person relies and acts on such belief in manner that he will
be prejudiced if the former is permitted to deny the existence of such facts.
* CONFIDENTIALITY IN ICA

The records, evidence and award in ICA are confidential and shall not be disclosed
except:

1. With the consent of the parties;

2. For the limited purpose of disclosing to the court relevant documents in cases where
resort to the court is allowed.

* DUE PROCESS IN ICA

As an assurance of impartiality and due process in the arbitral proceedings, the IRR
mandates that the parties shall be treated equally and be given an opportunity to present their
sides.

* VENUE OF ICA

The venue shall be determined by the parties. The default venue of arbitration shall be
in Metro Manila, unless the arbitration tribunal decides on a different place of arbitration taking
into consideration the circumstance of the case.

* COMMENCEMENT OF ICA PROCEEDINGS

The date of commencement of ICA is to be determined by the parties. The default date
of commencement of arbitration is the date on which a request for that dispute to be referred to
arbitration is received by the respondent.

* LANGUAGE IN IN ICA

The parties shall determine the language to be used. In default, English shall be used.

* APPLICABLE LAW IN ICA

The parties may choose the applicable law to the dispute and to the arbitral proceeding.
The law applicable to the dispute shall be distinguished from the law applicable to the arbitral
proceeding.

The first one is the substantive law which determines the rights and obligations of the
parties. While the latter is the law which governs the arbitral proceeding.

In default, the arbitral tribunal shall determine based on the rules of conflict of law.
* APPOINTING AUTHORITY IN ICA

The appointing authority in an ICA is the person or institution named in the arbitration
agreement or regular arbitration institution under whose rules the arbitration is agreed to be
conducted, authorized to make the default appointment of arbitration or sole arbitrator. In
addition, the appointing authority in an ICA has the following functions:

a. Take the necessary measures to appoint an arbitrator in case any party or the
arbitrators already appointed or any third party fails to perform any function necessary for the
appointment of the arbitrator.

b. Decide on the challenge against an arbitrator if arbitral tribunal rejects the

challenge.

c. Consider the qualifications of an arbitrator, the necessity of ensuring impartiality

and independence of the arbitrator, and the advisability of appointing an arbitrator who is of
nationality different from those of the parties.

In an ad hoc arbitration, unless the parties have agreed upon a different procedure, the
default appointment of an arbitrator shall be made by the national president or IBP or his duly
designated representative.

* ARBITRATORS AND ARBITRAL TRIBUNALS IN ICA

In line with the principle of party autonomy and self-determination, the parties in an ICA
are free to determine the number of arbitrators and procedure for appointment. The default
number of arbitrators is 3 and the following is the default procedure for appointing:

1. In arbitration with 3 arbitrators each party shall appoint one arbitrator and both
appointed arbitrators shall appoint the 3rd arbitrator, failing which the appointment shall be
made by the appointing authority.

2. In arbitration with sole arbitrator, the arbitrator shall be appointed, upon request of a
party, by the appointing authority.

The decision of the appointing authority on this matter shall be immediately executory
and shall not be subject to a motion for reconsideration or appeal.

If any party is not satisfied with the appointment of any, some or all of the arbitrators, he
may file a petition in court challenging the appointment of the arbitrators.

The arbitral tribunal is deemed constituted when the sole arbitrator or the 3rd member
of the panel of arbitrators who has been nominated has accepted his nomination and written
communication of said nomination and acceptance has been received by the party making the
request.
* GROUNDS FOR CHALLENGE OF ARBITRATORS IN ICA

An arbitrator may be challenged only if circumstances exist that give rise to a justifiable
doubt as to his 1. Impartiality or independence; or 2. Possession of the qualifications agreed
upon by the parties. A party who appointed an arbitrator shall not be allowed to challenge that
arbitrator, grounded on the rule of estoppel. However, estoppel does not apply where the act of
appointing was performed without the knowledge, actual or constructive of the actual facts and
except for reasons, which the appointing party became aware of after the appointment was
made.

* PROCEDURE FOR THE CHALLENGE IN ICA

1. Challenging party shall send written statement of the reasons for the challenge to
arbitral tribunal within 15 days after becoming aware of the circumstance constituting the
ground for challenge.

2. If the challenge before the arbitral tribunal is not successful, the challenging party
may request the appointing authority within 30days from notice of the decision rejecting the
challenge, to decide the challenge, which decision shall be immediately executory and not
subject to a motion for reconsideration or appeal.

A party may file a petition in court questioning the decision in the challenge against an
arbitrator in accordance with the Special Rules of Court on ADR.

After a successful challenge, a substitute arbitrator will have to be appointed. The

appointment of the substitute arbitrator shall be governed by the same rules applicable to the
appointment of the replaced arbitrator.

* PROCEDURE IN CASE THE ARBITRATOR FAILS TO ACT IN ICA

If an arbitrator in ICA becomes de jure or de facto unable to perform his functions or

fails to act without undue delay, his mandate terminates [i] if he withdraws or [ii] if the parties
agree on the termination. The withdrawal of the arbitrator does not carry with it an implied
acceptance of the existence or veracity of the ground for termination.

If the controversy remains, any party may request the appointing authority to decide on
the termination of the arbitrator, which decision shall be immediately executory and not subject
to a motion for reconsideration of appeal.

* JURISDICTION OF ARBITRAL TRIBUNAL IN ICA

Jurisdiction is the right to act or the power and authority to hear and determine a cause.
In the case of an arbitral tribunal, it is the authority by virtue of which it can resolve disputes in
an arbitration proceeding by rendering an award thereon.

Law confers the jurisdiction of an arbitral tribunal over the subject matter of the
controversy.

There are two instances when the court, a quasi-judicial agency or arbitral tribunals acts
without jurisdiction, namely:
1. When it has no jurisdiction in the first place, in which case there is lack of jurisdiction; or
2. When it went beyond its jurisdiction, which it had in the first place, in which case it acted in
excess of jurisdiction.
 In the case of courts, lack or excess of jurisdiction are the proper grounds for a petition
for certiorari as a SCA under Rule 65 of the 1997 Rules of Civil Procedure.

*LACK OR EXCESS OF JURISDICTION

The jurisdiction of an arbitral tribunal includes the authority to rule on its own jurisdiction
in the same way that courts have the power to rule on motions to dismiss complaints or
petitions based on lack of jurisdiction.

In determining the jurisdiction of an arbitral tribunal, the arbitration agreement or

arbitration clause should be treated as an independent and separate agreement from the
container agreement and the invalidity of the latter does not automatically result in the nullity of
the former. It is only in the event that the arbitration clause or agreement is itself void, inexistent
or inoperative that the arbitral tribunal’s jurisdiction may be questioned.

In ICA, the challenge of lack of jurisdiction should be raised not later than the
submission of the statement of defense in the answer or in motion to dismiss.

While in a challenge of excess of jurisdiction it may be raise as soon as the excess of

jurisdiction comes apparent, otherwise the objections are deemed waived in both
circumstances.

* JUDICIAL REVIEW OF JURISDICTIONAL ISSUE

The decision of a court or quasi-judicial agency without jurisdiction over the subject
matter is null and void ab initio. In the same manner, the award of arbitral tribunal which does
not have jurisdiction is also null and void ab initio unless there is a waiver of the absence of
jurisdiction.

If the arbitral tribunal renders a preliminary ruling on the jurisdictional issue, an

aggrieved party may elevate the ruling for review by the RTC within 30days from receipt of the
ruling and the decision of the court shall be immediately executory and not subject to a motion
for reconsideration or appeal.

The arbitration proceedings may proceed notwithstanding the pendency of a judicial

action with the RTC unless the court issues in the meantime a TRO or writ of PI enjoining the
conduct of the ICA during the pendency of the court action or petition.

* JURISDICTION OVER THE PARTIES

Jurisdiction of an arbitral tribunal over the person of the parties in arbitration is

conferred by the consent of the parties to submit to arbitration. This consent may be contained
in an agreement to submit to arbitration (pre-causal consent) which is entered into at the time
of the execution of an arbitration agreement or a contract which includes an arbitration clause
or in a submission agreement (present causal consent) between the parties to who do not have
an arbitration agreement or a contract with an arbitration clause but who nonetheless agree to
submit an existing dispute or controversy to arbitration.
* INTERIM MEASURES IN ICA

The procedures for granting interim measures in ICA are as follows:

1. After the arbitral tribunal has been constituted, any party may request for the grant of
interim measure from the arbitral tribunal against the adverse party. This request shall be in
writing transmitted by reasonable means to the arbitral tribunal and the adverse party,
describing the precise relief in appropriate detail, the ground and the evidence supporting the
request.

2. The relief may be granted in order to prevent irreparable loss; to provide for security
for the performance of an obligation; to produce or preserve evidence; to compel any other
appropriate acts or omissions.

3. The grant of interim measure may be conditioned upon the provision security or any
act or omission specified in the order.

4. The order either granting or denying the request for interim measure shall be binding
upon the parties and either party may apply with the courts for assistance in implementing or
enforcing it.

5. A party who refuses to comply with the order for an interim measure shall be liable for
damages resulting from non-compliance including all expenses and reasonable attorney’s fees
paid in obtaining judicial enforcement. The party who refuses to comply with the court order
compelling compliance with an interim measure may be cited for indirect contempt of court.

6. Before the constitution of the arbitral tribunal, or to the extent that the arbitral tribunal
already constituted has no power to act effectively, the interim measure may be requested from
the court in accordance with the Special Rules of Court on ADR.

* LEGAL REPRESENTATION IN ICA

As a rule, only lawyers accredited by the SC can practice law in the Philippines. In an
ICA conducted in Philippines, a party may be represented by a person of his choice even if by a
non-lawyer. However, if a non-lawyer is so appointed, he shall not be authorized to appear as
counsel in any Philippine Court or any quasi-judicial body even if such appearance is in relation
to the arbitration, which he appears.

* RULES OF PROCEDURE IN ICA

The general rule is that the parties in an international commercial arbitration are free to
determine the rules that will govern their arbitration proceedings.

In default, the arbitral tribunal shall apply the “UNCITRAL Arbitration Rules” adopted by
the UNCITRAL on 28th of April 1976, unless the tribunal finds said rules inappropriate.

The procedures in ICA in default of an agreement of the parties are as follows:

1. Statement of claims – within the period agreed upon by the parties, the claimant shall
state the facts supporting his claim; the issues and relief or remedy sought and shall be submit
or refer to relevant documents.

2. Statement of Defenses – respondent shall state his defenses.

3. Default of the parties – failure of the claimant or respondent to communicate their
statements of claims or defenses during the period or their failure to appear at a hearing or to
produce documentary evidence, results in the default of the failing party. Default of the
claimant for failure to communicate his statement of claims results in termination of
proceedings. Default of the respondent to communicate his statement of defenses shall not
terminate the proceedings and instead shall proceed without such failure being considered as
an admission of claimant’s allegation.

4. Amendment of claims or defenses – parties may amend or supplement their claims

or defenses as the case may be unless the tribunal considers amendment inappropriate.

5. Hearings – the tribunal shall determine whether to hold oral hearings only, oral
arguments only or just require the submission of documents during the appropriate stages of
arbitral proceedings.

a. Court assistance in taking evidence – the tribunal or any party with the approval of
the tribunal, may request from the courts assistance in taking evidence.

b. Subpoena – the tribunal has the power to issue subpoena in order to compel the
attendance of witnesses and/or the production of documents. ARBITRAL TRIBUNAL
DOES NOT HAVE CONTEMPT POWERS.

c. Expert – the tribunal may appoint experts to report to it on specific issues, require the
parties to provide the expert with relevant information or access to documents. The expert
sought by the tribunal is similar to an amicus curiae or friend of the court except that the
expert’s field of specialization is not limited to law.

6. Conclusion/Closure – an ICA may be concluded or closed in either of two

ways: a. By an award or settlement

b. Termination – tribunal shall issue an order for termination of arbitration when:

1. The claimant withdraws his claim unless the respondent objects on the basis of
legitimate interest in obtaining a final settlement;

2. The parties agree to terminate proceedings in writings; or

3. Tribunal finds that the continuation of the proceedings has become unnecessary or
impossible.

In both instances, the mandate of the arbitral tribunal ends except that, if the conclusion
of the proceedings is by way of an award or settlement, the tribunal’s mandate extends: 1. To
correct and interpret the award; 2. To set aside an exclusive recourse against the arbitral
award; or 3. When reserved, to the quantification of costs and the determination of the party
liable therefore, or the division.

The arbitral tribunal retains jurisdiction until the award becomes final and executory.
* COSTS IN ICA

Costs in an ICA include only the:

1. Fees of the arbitral tribunal;
2. Travel and other expenses;
3. Costs of expert advise;
4. Travel and other expenses of witnesses;
5. Costs for legal representation and assistance;
6. Fees and expenses of the appointing authority.

In principle, the costs shall borne by the unsuccessful party. However, the arbitral
tribunal may apportion the costs if unreasonable under the circumstance of the case.

The SC held that, where the petitioner had a valid reason to institute the arbitral
proceedings as it believed that it was entitled to its claim, and the respondent cannot be
faulted for defending itself for perceived wrongful acts and conditions, it is only fitting that both
parties should share in the burden of the cost of arbitration, on a pro rata basis so as not to put
a price on the right to litigate (Keppel Cebu Shipyard vs. Pioneer Insurance and Surety
Corp. 601 SCRA 96 [2009])

* CORRECTION AND INTERPRETATION OF ICA AWARD

The arbitral award in an ICA does not become executory until after the lapse of the
period for its amendment.

The arbitral award may be amended in any of the following manners:

1. Agreement of the parties - the parties provide for the instances that the arbitral award
be amended.

2. Quantification of the costs and the determination of the party liable or the division
between the parties – provided that a reservation for such hearing and quantification has been
made by the tribunal.

3. Correction of typographical and similar errors initiated by a party – parties may ask
the tribunal for the correction of the award within 30days from receipt of the award and with
notice to the other party, for any error in computation, clerical or typographical error. An error is
typographical or clerical in nature and therefore correctible even after the decision has become
executory, if the error is occasioned by a mistake in copying or typing does not alter the
substance of the decision and does not affect or prejudice substantial rights.

4. Interpretation of the award – within the same period for the correction of
typographical errors initiated by the parties, the parties may agree to request the tribunal to
give an interpretation of a specific point or part of the award. If the tribunal finds the request for
correction justified, it shall make the correction or give the interpretation within 30days from
receipt of the request and the interpretation or correction shall form part of the award.

5. Correction of typographical error initiated by the arbitral tribunal – within 30days from
the date of award, the tribunal may motu propio correct any typographical error.
6. Additional award – within 30days from receipt of the award, a party, with notice to the
other party, may request the tribunal to make an additional award as to claims presented in the
arbitral proceedings but omitted in the award.

* SETTING ASIDE AN ICA AWARD

An ICA award may be set-aside through the courts, particularly the RTC provided

that: 1. The petitioner furnishes proof that there was:

a. Defect in the arbitration agreement – party was under some incapacity or agreement
is not valid under applicable law;

b. Violation of due process – petitioner was not given proper notice of the appointment
of an arbitrator or proceeding or otherwise unable to present his case;

c. Lack or excess of jurisdiction on the part of arbitral tribunal – the award deals with a
dispute not contemplated by or not falling within the terms of submission to arbitration,
subject to the application of the doctrine of severability /separability;

d. Violation of arbitration agreement – the composition of tribunal or process was not in

accordance with the agreement, unless such agreement was in conflict with a provision of the
ADR act

2. Or the court finds that:

a. The subject of the dispute is not capable of settlement under the laws of RP b. The

award is in conflict with the public policy of the RP.

* TIME FOR FILING THE PETION FOR SETTING ASIDE

The petition for setting aside must be filed within 3 months (90 days) from the date on
which the party making that application received the award or from the date on which a request
for correction, interpretation or additional award has been disposed of by the tribunal.

* RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

Recognition is the means by which a Philippine court gives legal acknowledgement to a

foreign arbitral award and confers upon it the capability to be enforced under the Philippine law
through legal processes.

Confirmation is the judicial affirmation of a domestic arbitral award.

* JURISDICTION, VENUE AND NATURE OF PROCEEDINGS
 Jurisdiction over proceedings for the recognition and enforcement of a foreign arbitral
award, vacating or setting aside and any application with a court for arbitration assistance is
vested by the ADR act on RTC.

The venue of the proceedings shall be:

1. Where the arbitration proceedings are conducted;

2. Where the asset to be attached or levied upon or the act to be enjoined is

located; 3. Where any of the parties to dispute resides or his place of business; or 4.

In the NCJR at the option of the applicant.

Except for appeal, the foregoing proceedings shall be deemed as special proceedings.
They shall also be summary in nature.

In recognition and enforcement of foreign arbitral awards susceptible of recognition, the

court shall send notice to the parties at their addresses of record in arbitration. The notice shall
be sent at least 15days before the date set for initial hearing.

* GROUNDS FOR REFUSING RECOGNITION AND PROCEDURE FOR RECOGNITION OF

CONVENTION AND AS-IN CONVENTION AWARDS

In general, the conditions and requisites for the recognition and enforcement of foreign
judgments in the Philippines are:

1. Proof of foreign judgment;

2. The judgment must be on a civil or commercial matter;

3. There must be no lack of jurisdiction, no want of notice, no collusion, no fraud, no

clear mistake of law or fact;

4. The judgment must not contravene a sound and established public policy of the
forum; and

5. The judgment must be res judicata in the state that rendered it.

A convention award is a foreign arbitral award made in a state, which is a party to the
New York Convention. Its recognition and enforcement shall be governed by the NY convention
as implemented by the IRR.

A non-convention award is a foreign arbitral award rendered in a state, which is not a

party to NY convention. It cannot be recognized or enforced under ADR act but it shall be
deemed as a presumptive evidence of a right as between the parties in accordance with
section 48 rule 39 of the rules of civil procedure.

A as-in convention award us one which is rendered in a state which is not a party to NY
convention but which, by reason of comity and reciprocity, may be recognized and enforced as
if it is a convention award.
* PROCEDURE FOR RECOGNITION OF CONVENTION AND AS-IN CONVENTION

The procedure for the recognition and enforcement of convention and as-in convention
awards are as follows:

1. Filing of application – party relying upon an award or applying for its enforcement
shall file with the RTC the original or duly authenticated copy of the award and the original
arbitration agreement.

2. Confirmation – once confirmed, the foreign arbitral award shall be enforced in the
same manner as final and executory decisions of the courts of law of the RP.

3. Consolidation/concurrent hearings – the parties and tribunal may agree on 1.

Consolidation of proceedings; or 2. The conduct of concurrent hearings with other related
arbitration proceedings.

4. Rejection/suspension – the RTC, upon application for rejection or suspension of the

enforcement of the award, may vacate or suspend the enforcement, order the party seeking
rejection or suspension to provide appropriate security like a bond for example. In the case of
as-in convention award, the court may also remit the award to the arbitral tribunal of the
objections raised may be cured or rectified.

5. Appeals – the decision of RTC recognizing, enforcing, vacating or setting aside an

arbitral tribunal awards may be appealed to the CA in accordance with the special rules on
ADR, which shall require the appealing party to post a counter-bond in favor of the prevailing
party in the amount of the award. The right to appeal may be validly waived by the agreement
or stipulation of the parties without prejudice to judicial review by certiorari under rule65 of
the rules of court.

* LEGAL EFFECTS OF NON-CONVENTION AWARDS

Non-convention awards, unless they qualify to be as-in convention awards, are not
entitled to recognition or enforcement under the ADR act. They may be given legal effect in the
Philippines on the basis of section48, rule39 of the rules on civil procedure.

Under article 4.37(a) of the IRR, in conjunction with section48, rule39 of the rules of civil
procedure, a non-convention award which does not qualify as an as-in convention award is
either “conclusive upon the title to a thing” or at best, is a “presumptive evidence of a right as
between the parties and their successors in interest by subsequent title,” provided there is no
want of jurisdiction, no want of notice, no collusion, no fraud and no clear mistake of fact or
law.
Submitted to:

Atty. David L. Ballesteros

Prepared by:

Aure, Justin Dave

Barachina, Kathleen

Lahom, Sean Paolo