Alternative Dispute Resolution(ADR)

8/10/2019 Alternative Dispute Resolution(ADR)

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LAW 160AALTERNATIVE DISPUTE RESOLUTION

Prof. Arthur Autea

Class Policies:1) Final Exam40%a) last day of our regular classOctoberb) problem + objective2) Class Participation60%a) attendance2xb) suprise quizzes3) Final Exam 40%

Relevant Laws / Rules

1) RA 876Arbitration Law2) EO No 1008CIA Law3) RA 9285 - ADR Act of 20044) UNCITRAL Model Law5) Special ADR Rules6) UNCITRAL Arbitration Rules7) ICC Arbitration Rules

Cases1) Vega v. San Carlos Milling Co. Ltd, 51 Phil 908 (1924)2) California & Hawaiian Sugar Co. v. Pioneer Insurance & Surety

Corp.346 SCRA 214 (2000)3) Associated Bank v. CA, 233 SCRA 137 (1994)4) Bloomfield Academy v. CA, 237 SCRA 43 (1994)5) Mindanao Portland Cement Corporation v. McDonough

Construction Co. of Florida, 90 SCRA 808 (1967)6) Gonzales v. Climax Mining Ltd., 512 SCRA 148 (2007)7) Oil & Natural Gas Commission v. CA , 293 SCRA 26 (1998)

8) Magellan Capital Mgt. Corp. v. Zosa, 355 SCRA 157 (2001)9) BF Corporation v. CA, 288 SCRA 267 (1998)10) Korea Technologies Co. Ltd. v. Lerma, 542 SCRA 1 (2008)11) Luzon Development Bank v. Luzon Development Bank

Employees, 249 SCRA 162 (1995)12) Toyota Motor Phils. Corp. V. CA, 216 SCRA 33613) Heirs of Agusto L. Salas, Jr. v. Laperal Realty Corp ., 302 SCRA

62014) Del Monte Corp. USA v. CA, 351 SCRA 373 - WRONG15) Homebankers Savings and Trust Co. v. CA, 318 SCRA 55816) Chung Fu Industries Inc. V. CA , 206 SCRA ___17) Adamson v. CA, 232 SCRA 602 (1994)18) National Steel Corp. v. RTC of Lanao del Norte, 304 SCRA 595

(1999)19) Asset Privatization Trust v. CA, 300 SCRA 57920) China Chiang Jiang Energy Corp (Phils) v. Rosal Infrastructure

Builders, G.R. 125706, 30 September 199621) Hi Precision Steel, 228 SCRA 397

22) ABS CBN v. World,544 SCRA 308


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Law 160A Alternative Dispute Resolution (Prof. A. Autea) 2Salma F. Angkaya | AY 2010-2011, 1 stsemesterSpecial thanks to Krizelle Poblacion for her great digests!

Class Notes - June 11, 2010

INTRODUCTION TO ALTERNATIVE MODESOF DISPUTE RESOLUTION

ADRalternative to conventional litigationArbitration only form of ADR that will result in afinal, binding and enforceable awardMediation facilitate communication, cannotimpose resolution of the mediator

ConventionalLitigation

Arbitration

Judgment Award

Final Judgment Final AwardInterlocutory Order Interim AwardP v. D / P v. R Claimant v.

RespondentStenographers Court Reporters

Arbitration clause stipulation that parties wilsubmit dispute to arbitration

Request for Arbitrationarbitrable dispute

Legislative History:

1) RA 876 (1953)Arbitration Law2) New York Convention (1958)

a) Convention on the recognition &enforcement of foreign arbitral awards

b) Need to prove authenticity only

e.g. NAIA 3 case3) RA 9285 (2004)ADR Act of 2004

a) Covers domestic & international arbitrationb) Covers all forms of ADR

4) EO No. 1008 (1985)CIACa) Covers all disputes in the construction

industry5) Special ADR Rules (October 13, 2009)

a) Clarified problems in RA 876 and RA 92856) UNCITRAL MODEL LAW part of Philippine

lawa) Sec. 33 of ADR Act of 2004

Sec. 33Applicability to Domestic Arbitration

Uncitral Model Law Preceding Ch. 48Arbitration

Agreement +

Substantive Claim10No. of arbitrators11Appointment12Grounds forchallenge13Procedure for

Sec. 22 LegalRepresentation in

International ArbitrationSec. 23 Confidentiality inArbitration ProceedingsSec. 24 Referral to

ArbitrationSec. 25 Interpretation of

challenge14 Unable toperform18 Conduct ofhearings19 Determination ofrules29 to 32 Termination ofproceedings

the ActSec. 26 Meaning ofAppointing AuthoritySec. 27 What FunctionsMay be Performed by

Appointing AuthoritySec. 28 Grant of InterimMeasure of ProtectionSec. 29 Further Authorityfor Arbitrator to Grant InterimMeasure of ProtectionSec. 30 Place of

ArbitrationSec. 31 Language of the

Arbitration

ARBITRATION

Arbitration v. Litigation {PALPVA}

Arbitration LitigationPrivate & confidential PublicParties may selectarbitrator

Parties cannot agreeon presiding officer;Judge is raffled

Parties can selectgoverning law that willdetermine theirsubstantive rights

Philippine law governs

Procedure depends onagreement

Rules of Court applies

Venue depends onagremeent

Rules of Courtgoverns; Venue mayalso depend on

agreementConsensual Not consensual

Note:A voluntary arbitrator has the same status asan RTC judge.

What is the nature of ADR?Consensual cannot be compelled to submit toarbitration; but once you agree, youre bound by it

What is an arbitration agreement?Arbitration agreement determines the rights,obligations, procedure & rules;- may be in a separate agreement or may be aclause in a contract

1) Arbitration clauseAny dispute arising out of this contract shall beresolved by arbitration.

2) Container contractContract containing the arbitration clause


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Note: Doctrine of separability applies.

Rule 2.2. Policy on arbitration. XXX The Special ADR Rulesrecognize the principle of separability of the arbitration clause,which means that said clause shall be treated as an agreementindependent of the other terms of the contract of which it formspart. A decision that the contract is null and void shall not entailipso jure the invalidity of the arbitration clause.

Domestic v. International Arbitration1) Domesticnot International (RA 9285)2) International Article 1.3 (UNCITRAL Model

Law)

RA 9285, Sec. 32. Law Governing Dom est ic Arbi t rat ion. -Domestic arbitration shall continue to be governed by Republic

Act No. 876, otherwise known as "The Arbitration Law" asamended by this Chapter. The term "domestic arbitration" asused herein shall mean an arbitration that is not internationalas defined in Article (3) of the Model Law.

Uncitral Model Law, Article 1 - xxx3) An arbi t rat ion is internat ionalif:a) the parties to an arbitration agreement have at the time of theconclusion of that agreement, their places of business indifferent States; orb) one of the following places is situated outside the State inwhich the parties have their places of business:i) the place of arbitration if determined in, or pursuant to, thearbitration agreement:ii) any place where a substantial part of the obligations of thecommercial relationship is to be performed or the place withwhich the subject-matter of the dispute is most closelyconnected; orc) the parties have expresslyagreed that the subject-matter ofthe 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 ofbusiness 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 bemade to his habitual residence.

Institutional v. Adhoc Arbitration1) Adhoc arbitration -

2) Institutional conducted under the auspices ofan institution

Examples:

International Chamber of CommerceCIACPDRCISingapore International Arbitration CentreHongkong International Arbitration CentreICSPI Disp.American Arbitration Association

Japan Commercial ArbitrationKuala Lumpur RCAKCABICCInternational Court of ArbitrationICAnot a court of adjudication

Sample arbitration clause:Any dispute arising out of this contract shall beresolved by arbitration under the ICC Rules ofArbitration.

Overview ICC Arbitration Rules / Principles:1) Submit request for arbitration2) Assessment of non-refundable fee + cost of

arbitrationa) Non-refundable fee - $2,500b) Arbitration cost

i) Fees of arbitratorsprofessional fees(1) 40% - chair(2) 30% - members

ii) Claimant1

iii) Respondent1iv) Appointee of Appointing Authority - 1v) Administrative expenses

3) Highly confidential4) Counsel in arbitration does not have to be a

lawyera) ADR Rates - $300 / hourb) IBP RatesP3,000 / appearance

i) Senior - P7 to 10T / hourii) AssociateP1-1,500 / hour

5) ICAcan modify the form of the award

See provisions, page 31.

What is the principle of Party Autonomy?Party autonomy freedom of the parties todetermine the rules / law governing the mode ofresolving their dispute

Rule 2.1. General policies. It is the policy of the State toactively promote the use of various modes of ADR and to respectparty autonomy or the freedom of the parties to make their ownarrangements in the resolution of disputes with the greatestcooperation of and the least intervention from the courts. To thisend, the objectives of the Special ADR Rules are to encourageand promote the use of ADR, particularly arbitration andmediation, as an important means to achieve speedy and efficientresolution of disputes, impartial justice, curb a litigious culture andto de-clog court dockets.

RA 9285, Sec. 2Declaration of Policy-To actively promote party autonomy in the resolution of disputesor the freedom of the parties to make their own arrangements toresolve their disputes-To encourage and actively promote the use ofADR to achieve speedy and impartial justice & de-clog courtdockets

Uncitral Model Law, Article 19 - [Determination of rules ofprocedure]

1) Subject to the provisions of this Law, the parties are free toagree on the procedure to be followed by the arbitral tribunal inconductingthe proceedings.2) Failing such agreement, the arbitral tribunal may, subject to theprovisions of this Law, conduct the arbitration in such manner as itconsiders appropriate. The power conferred upon the arbitral


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tribunal includes the power to determine the admissibility,relevance, materiality and weight of any evidence.

Uncitral Model Law, Article 28 - [Rules applicable tosubstance of dispute]1) The arbitral tribunal shall decide the dispute in accordancewith such rules of law as are chosen by the parties as applicableto the substance of the dispute. Any designation of the law orlegal system of a given State shall be construed, unless otherwiseexpressed, as directly referring to the substantive law of that Stateand not to its conflict of laws rules.2) Failing any designation by the parties, the arbitral tribunal shallapply the law determined by the conflict of laws rules which itconsiders applicable.3) The arbitral tribunal shall decide ex aequo et bono1 or asamiable compositeur2 only if the parties have expresslyauthorised it to do so.4) In all cases, the arbitral tribunal shall decide in accordance withthe termsof the contract and shall take into account the usagesof the trade applicable to the transaction.

Uncitral Arbitration Rules, Applicable law, amiablecompositeur, Article 33

1. The arbitral tribunal shall apply the law designated by theparties as applicable to the substance of the dispute. Failing suchdesignation by the parties, the arbitral tribunal shall apply the lawdetermined by the conflict of laws rules which it considersapplicable.

2.The arbitral tribunal shall decide as amiable compositeuror exaequo et bonoonly if the parties have expressly authorised thearbitral tribunal to do so and if the law applicable to the arbitralprocedure permits such arbitration.

3.In all cases, the arbitral tribunal shall decide in accordance withthe termsof the contract and shall take into account the usagesof the trade applicable to the transaction.

ICC Rules,Article 15:Rules Governing the Proceedings

1. The proceedings before the Arbitral Tribunal shall begoverned by these Rules, and, where these Rules are silent, byany rules which the parties or, failing them, the Arbitral Tribunalmay settle on, whether or not reference is thereby made to therules of procedure of a national law to be applied to thearbitration.

2. In all cases, the Arbitral Tribunal shall act fairly and impartiallyand ensure that each party has a reasonable opportunity topresent its case.

ICC Rules,Article 17:Applicable Rules of Law

1. The parties shall be free to agree upon the rules of law to beappliedby the Arbitral Tribunal to the merits of the dispute. In theabsence of any such agreement, the Arbitral Tribunal shall applythe rules of law which it determines to be appropriate.

2. In all cases the Arbitral Tribunal shall take account of theprovisions of the contractand the relevant trade usages.

3. The Arbitral Tribunal shall assume the powers of an amiablecompositeuror decide ex aequo et bonoonly if the parties haveagreed to give it such powers.

1Latin for "according to the right and good" or "from equity andconscience"2Clauses in arbitration agreements allowing the arbitrators to actas "amiables compositeurs", permit the arbitrators to decide thedispute according to the legal principles they believe to be just,without being limited to any particular national law.

Next meeting:

RA 876RA 9285Special ADR RulesUNCITRAL Model Law

Class Notes - June 18, 2010

Appointment of Arbitrators (Domestic)ADR LawSec. 5 & Sec. 8

RA 876, Sec. 8Appointment of arbitrators

If, in the contract for arbitration or in the submission described insection two, provision is made for a method of naming or

appointing an arbitrator or arbitrators, such method shall befollowed; but if no method be provided therein the Court of FirstInstance shall designate an arbitrator or arbitrators.

The Court of First Instance shall appoint an arbitrator orarbitrators, as the case may be, in the following instances:

(a) If the parties to the contract or submission are unable toagree upon a single arbitrator; or

(b) If an arbitrator appointed by the parties is unwilling or unableto serve, and his successor has not been appointed in the mannerin which he was appointed; or

(c) If either party to the contract fails or refuses to name hisarbitrator within fifteen days after receipt of the demand forarbitration; or

(d) If the arbitrators appointed by each party to the contract, orappointed 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 controversyinvolved in any of the preceding cases in which the agreement issilent as to the number of arbitrators.

(f) Arbitrators appointed under this section shall either accept ordecline their appointments within seven days of the receipt of theirappointments. In case of declination or the failure of an arbitratoror arbitrators to duly accept their appointments the parties or thecourt, as the case may be, shall proceed to appoint a substitute orsubstitutes for the arbitrator or arbitrators who decline or failed toaccept his or their appointments.

Sec. 9Appointment of addnal arbitrators

Where a submission or contract provides that two or morearbitrators therein designated or to be thereafter appointed by theparties, may select or appoint a person as an additional arbitrator,the selection or appointment must be in writing. Such additionalarbitrator must sit with the original arbitrators upon the hearing.

RULE 6: APPOINTMENT OF ARBITRATORS

Rule 6.1.When the court may act as Appointing Authority. Thecourt shall act as Appointing Authority only in the followinginstances:
http://www.sice.oas.org/DISPUTE/comarb/icc/rules.asp#a15ahttp://www.sice.oas.org/DISPUTE/comarb/icc/rules.asp#a15ahttp://www.sice.oas.org/DISPUTE/comarb/icc/rules.asp#a17ahttp://www.sice.oas.org/DISPUTE/comarb/icc/rules.asp#a17ahttp://www.sice.oas.org/DISPUTE/comarb/icc/rules.asp#a17ahttp://www.sice.oas.org/DISPUTE/comarb/icc/rules.asp#a15a


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a. Where any of the parties in an institutional arbitration failed orrefused to appoint an arbitrator or when the parties have failed toreach an agreement on the sole arbitrator (in an arbitration beforea sole arbitrator) or when the two designated arbitrators havefailed to reach an agreement on the third or presiding arbitrator (inan arbitration before a panel of three arbitrators), and theinstitution under whose rules arbitration is to be conducted fails oris unable to perform its duty as appointing authority within areasonable time from receipt of the request for appointment;

b. In all instances where arbitration is ad hoc and the partiesfailed to provide a method for appointing or replacing anarbitrator, or substitute arbitrator, or the method agreed upon isineffective, and the National President of the Integrated Bar of thePhilippines (IBP) or his duly authorized representative fails orrefuses to act within such period as may be allowed under thepertinent rules of the IBP or within such period as may be agreedupon by the parties, or in the absence thereof, within thirty (30)days from receipt of such request for appointment;

c. Where the parties agreed that their dispute shall be resolvedby three arbitrators but no method of appointing those arbitratorshas been agreed upon, each party shall appoint one arbitratorand the two arbitrators thus appointed shall appoint a thirdarbitrator. If a party fails to appoint his arbitrator within thirty (30)days of receipt of a request to do so from the other party, or if thetwo arbitrators fail to agree on the third arbitrator within areasonable time from their appointment, the appointment shall bemade by the Appointing Authority. If the latter fails or refuses toact or appoint an arbitrator within a reasonable time from receiptof the request to do so, any party or the appointed arbitrator/smay request the court to appoint an arbitrator or the thirdarbitrator as the case may be.

Rule 6.2.Who may request for appointment. Any party to anarbitration may request the court to act as an Appointing Authorityin the instances specified in Rule 6.1 above.

Rule 6.3.Venue. The petition for appointment of arbitrator maybe filed, at the option of the petitioner, in the Regional Trial Court(a) where the principal place of business of any of the parties islocated, (b) if any of the parties are individuals, where those

individuals reside, or (c) in the National Capital Region.

Rule 6.4.Contents of the petition. The petition shall state thefollowing:

a. The general nature of the dispute;b. If the parties agreed on an appointment procedure, adescription of that procedure with reference to the agreementwhere such may be found;c. The number of arbitrators agreed upon or the absence of anyagreement as to the number of arbitrators;d. The special qualifications that the arbitrator/s must possess, ifany, that were agreed upon by the parties;e. The fact that the Appointing Authority, without justifiablecause, has failed or refused to act as such within the timeprescribed or in the absence thereof, within a reasonable time,from the date a request is made; andf. The petitioner is not the cause of the delay in, or failure of, theappointment of the arbitrator.

Apart from other submissions, the petitioner must attach to thepetition (a) an authentic copy of the arbitration agreement, and (b)

proof that the Appointing Authority has been notified of the filing ofthe petition for appointment with the court.

Rule 6.5.Comment/Opposition.The comment/opposition mustbe filed within fifteen (15) days from service of the petition.

Rule 6.6.Submission of list of arbitrators. The court may, at itsoption, also require each party to submit a list of not less thanthree (3) proposed arbitrators together with their curriculum vitae.

Rule 6.7.Court action. After hearing, if the court finds merit inthe petition, it shall appoint an arbitrator; otherwise, it shalldismiss the petition.

In making the appointment, the court shall have regard to suchconsiderations as are likely to secure the appointment of anindependent and impartial arbitrator.

At any time after the petition is filed and before the court makesan appointment, it shall also dismiss the petition upon beinginformed that the Appointing Authority has already made theappointment.

Rule 6.8.Forum shopping prohibited. When there is a pendingpetition in another court to declare the arbitration agreementinexistent, invalid, unenforceable, on account of which the

respondent failed or refused to participate in the selection andappointment of a sole arbitrator or to appoint a party-nominatedarbitrator, the petition filed under this rule shall be dismissed.

Rule 6.9.Relief against court action. If the court appoints anarbitrator, the order appointing an arbitrator shall be immediatelyexecutory and shall not be the subject of a motion forreconsideration, appeal or certiorari. An order of the court denyingthe petition for appointment of an arbitrator may, however, be thesubject of a motion for reconsideration, appeal or certiorari.

How do you commence arbitration? (domestic)

Sec. 5Preliminary procedure

Arbitration Agreement SubmissionAgreement

(a) (c)(b) Default (d) Neglect / Fail /

Refuse to arbitrate Follow (a) and (b)

RA 876, Sec. 5. Preliminary procedure. An arbitrationshall be instituted by:

(a) In the case of a contract to arbitrate futurecontroversies by the service by either party upon the otherof a demand for arbitration in accordance with thecontract. Such demand shall be set forth the nature of thecontroversy, the amount involved, if any, and the reliefsought, together with a true copy of the contract providingfor arbitration. The demand shall be served upon any partyeither in person or by registered mail. In the event that thecontract between the parties provides for the appointmentof a single arbitrator, the demand shall be set forth aspecific time within which the parties shall agree uponsuch arbitrator. If the contract between the partiesprovides for the appointment of three arbitrators, one to beselected by each party, the demand shall name the

arbitrator appointed by the party making the demand; andshall require that the party upon whom the demand ismade shall within fifteen days after receipt thereof advisein writing the party making such demand of the name ofthe person appointed by the second party; such notice


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shall require that the two arbitrators so appointed mustagree upon the third arbitrator within ten days from thedate of such notice.

(b) In the event that one party defaults in answering thedemand, the aggrieved party may file with the Clerk of theCourt of First Instance having jurisdiction over the parties,a copy of the demand for arbitration under the contract toarbitrate, with a notice that the original demand was sentby registered mail or delivered in person to the partyagainst whom the claim is asserted. Such demand shallset forth the nature of the controversy, the amountinvolved, if any, and the relief sought, and shall beaccompanied by a true copy of the contract providing forarbitration.

(c) In the case of the submission of an existingcontroversy by the filing with the Clerk of the Court of First

Instance having jurisdiction, of the submission agreement,setting forth the nature of the controversy, and the amountinvolved, if any. Such submission may be filed by anyparty and shall be duly executed by both parties.

(d) In the event that one party neglects, fails or refuses toarbitrate under a submission agreement, the aggrievedparty shall follow the procedure prescribed insubparagraphs (a) and (b) of this section.

Arbitration v. AdjudicationSir thinks the difference is only in the terminology,until he saw the FIDIC.

Arbitration - (d) "Arbitration" means a voluntarydispute resolution process in which one or morearbitrators, appointed in accordance with the

agreement of the parties, or rules promulgatedpursuant to this Act, resolve a dispute by renderingan award (RA 9285)

In arbitration an independent, impartial third partyhears both sides in a dispute and makes a decisionto resolve it. In most cases the arbitrator's decisionis legally binding on both sides, so it is not possibleto go to court if you are unhappy with the decision.

Arbitration is in many ways an alternative form ofcourt with procedural rules which govern issues suchas disclosure of documents and evidence. Butarbitration is private rather than public. Hearings areless formal than court hearings, and some forms ofarbitration do not involve hearings but are decidedon the basis of documents only.

Adjudication - Adjudication involves an

independent third party considering the claims ofboth sides and making a decision. The adjudicator isusually an expert in the subject matter in dispute.Adjudicators are not bound by the rules of litigationor arbitration. Their decisions are often interim ones,

ie they can be finalised using arbitration or anotherprocess. Adjudication decisions are usually bindingon both parties by prior agreement.

In relation to construction contracts, adjudication is astatutory procedure by which any party to thecontract has a right to have a dispute decided by anadjudicator, normally used to ensure payment. It isintended to be quicker and more cost effective thanlitigation or arbitration. The right arises by virtue ofthe Housing Grants Construction and RegenerationAct 1996.

Adjudication is also sometimes used to describe anon-specific alternative dispute resolution process inwhich a third party makes a decision as to the bestway to resolve the dispute. In this sense,

ombudsmen, arbitrators and judges are all types ofadjudicators.

The aim of adjudication is to resolve disputedissues in order to enable work to continue (eitherindefinitely or while awaiting the decision of ajudge or arbitrator). Arbitration is a more formalprocess, and the arbitrator's decision is legallybinding.

FIDIC (Federacion Internationale Des IngenieursConseil)1) Dispute Adjudication Board2) Relevant in contract negotiation3) Different colors

a) Redb) Bluec) Greend) Pinke) Silver

i) 2 parties:(1) Project owneremployer(2) Contractor

ii) Contains an interesting provision sayingthat an employer would not be liableeven if wrong information was given

iii) Contains an adjudication clause in thefollowing tenor: Appeal fromadjudication may be taken to thearbitrational panel under ICC Rules.

iv) Three levels:(1) Amicable settlement(2) Adjudication(3) Arbitration


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MINI-TRIAL

What is a Mini-Trial?"Mini-Trial" means a structured dispute resolutionmethod in which the merits of a case are arguedbefore a panel comprising senior decision makerswith or without the presence of a neutral third personafter which the parties seek a negotiated settlement(RA 9285, Sec. 3(u))

Note:

Senior decision makers meet, negotiated settlement

EARLY NEUTRAL EVALUATION

What is Early Neutral Evaluation?"Early Neutral Evaluation" means an ADR processwherein parties and their lawyers are broughttogether early in a pre-trial phase to presentsummaries of their cases and receive a nonbindingassessment by an experienced, neutral person, withexpertise in the subject in the substance of thedispute

Note:

Similar to a pre-trial; before the filing of thecomplaint

MEDIATION

How are mediated-settlements enforced?

By depositing in court (RA 9285, Sec. 17)

Court-Annexed Mediation v. Court-OrderedMediation"Court-Annexed Mediation" means any mediationprocess conducted under the auspices of the court,after such court has acquired jurisdiction of thedispute (RA 9285, Sec. 3 (l))Note:governed by SC issuances

Court-Referred Mediation" means mediationordered by a court to be conducted in accordancewith the Agreement of the Parties when as action isprematurely commenced in violation of suchagreement (RA 9285, Sec. 3 (m))

Notes:

- ground for stay of civil action

- related to Art. 1159 CC

Art. 1159. Obligations arising from contracts have the force of lawbetween the contracting parties and should be complied with ingood faith.

Principle of confidentiality in mediationExtends to admissions made in mediation

Sec. 9 - Confidentiality of Information

Information obtained through mediation proceedings shall besubject to the following principles and guidelines:

(a) Information obtained through mediation shall be privilegedand confidential.

(b) A party, a mediator, or a nonparty participant may refuse todiscloseand may prevent any other person from disclosing amediation communication.

(c) Confidential Information shall not be subject to discoveryandshall be inadmissible if any adversarial proceeding, whether

judicial or quasi-judicial, However, evidence or information thatis otherwise admissible or subject to discovery does not becomeinadmissible or protected from discovery solely by reason of itsuse in a mediation.

(d) In such an adversarial proceeding, the following personsinvolved or previously involved in a mediation may not becompelled to disclose confidential information obtained duringmediation: (1) the parties to the dispute; (2) the mediator ormediators; (3) the counsel for the parties; (4) the nonpartyparticipants; (5) any persons hired or engaged in connectionwith the mediation as secretary, stenographer, clerk orassistant; and (6) any other person who obtains or possessesconfidential information by reason of his/her profession .

(e) The protections of this Act shall continue to apply even of amediator is found to have failed to act impartially.

(f) a mediator may not be called to testifyto provide informationgathered in mediation. A mediator who is wrongfully subpoenaedshall be reimbursed the full cost of his attorney's fees and relatedexpenses.

Sec. 10Waiver of Confidentiality

A privilege arising from the confidentiality of information may bewaived in a record, or orallyduring a proceeding by the mediatorand the mediation parties.

A privilege arising from the confidentiality of information maylikewise be waived by a nonparty participant if the information isprovided by such nonparty participant.

A person who discloses confidential information shall beprecluded from asserting the privilege under Section 9 of thisChapter to bar disclosure of the rest of the informationnecessary to a complete understanding of the previouslydisclosed information. If a person suffers loss or damagesin ajudicial proceeding against the person who made the disclosure.

A person who discloses or makes a representation about amediation is precludefrom asserting the privilege under Section9, to the extent that the communication prejudices anotherperson in the proceeding and it is necessary for the personprejudiced to respond to the representation of disclosure.

Sec. 11Exceptions to Privilege {RPTCPM}

(a) There is no privilege against disclosure under Section 9 ifmediation communication is:


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(1) in an agreement evidenced by a recordauthenticated by allparties to the agreement;

(2) available to the publicor that is made during a session of amediation which is open, or is required by law to be open, to thepublic;

(3) a threat or statement of a plan to inflict bodily injury orcommit a crime of violence;

(4) internationally used to plan a crime, attempt to commit, orcommit a crime, or conceal an ongoing crime or criminal activity;

(5) sought or offered to prove or disprove abuse, neglect,abandonment, or exploitation in a proceeding in which apublic agency is protecting the interest of an individual protectedby law; but this exception does not apply where a child protectionmatter is referred to mediation by a court or a public agencyparticipates in the child protection mediation;

(6) sought or offered to prove or disprove a claim or complaintof professional misconduct or malpractice filed againstmediator in a proceeding; or

(7) sought or offered to prove or disprove a claim of complaintof professional misconduct of malpractice filed against aparty, nonparty participant, or representative of a party basedon conduct occurring during a mediation.

(b) There is no privilege under Section 9 if a court oradministrative agency, finds, after a hearing in camera, that theparty seeking discovery of the proponent of the evidence hasshown that the evidence is not otherwise available, that there isa need for the evidence that substantially outweighs theinterest in protecting confidentiality, and the mediationcommunication is sought or offered in:

(1) a court proceeding involving a crime or felony; or

(2) a proceeding to prove a claim or defense that under the law issufficient to reform or avoid a liability on a contractarising out of

the mediation.

(c) A mediator may not be compelled to provide evidence of amediation communication or testify in such proceeding .

(d) If a mediation communication is not privileged under anexception in subsection (a) or (b), only the portion of thecommunication necessary for the application of the exception fornondisclosure may be admitted. The admission of particularevidence for the limited purpose of an exception does notrender that evidence, or any other mediation communication,admissible for any other purpose.

Sec. 12Prohibited Mediator ReportsA mediator may not make a report, assessment, evaluation,recommendation, finding, or other communication regarding amediation to a court or agency or other authority that make aruling on a dispute that is the subject of a mediation, except:

(a) Where the mediation occurred or has terminated, or where asettlement was reached.

(b) As permitted to be disclosed under Section 13 of thisChapter.

RULE 10: CONFIDENTIALITY/PROTECTIVE ORDERS

Rule 10.1.Who may request confidentiality. A party, counsel

or witness who disclosed or who was compelled to discloseinformation relative to the subject of ADR under circumstancesthat would create a reasonable expectation, on behalf of thesource, that the information shall be kept confidential has the rightto preventsuch information from being further disclosed withoutthe express written consent of the source or the party whomade the disclosure.

Rule 10.2. When request made.A party may request aprotective orderat anytime there is a need to enforce theconfidentiality of the information obtained, or to be obtained, inADR proceedings.

Rule 10.3. Venue. A petitionfor a protective order may befiled with the Regional Trial Court where that order would beimplemented.

If there is a pending court proceedingin which the informationobtained in an ADR proceeding is required to be divulged or isbeing divulged, the party seeking to enforce the confidentiality of

the information may file a motionwith the court where theproceedings are pending to enjoin the confidential informationfrom being divulged or to suppress confidential information.

Rule 10.4. Grounds. A protective order may be granted only ifit is shown that the applicant would be materially prejudicedbyan unauthorized disclosure of the information obtained, or to beobtained, during an ADR proceeding.

Rule 10.5. Contents of the motion or petition.The petition ormotion must state the following:

a. That the information sought to be protected was obtained, orwould be obtained, during an ADR proceeding;b. The applicant would be materially prejudicedby thedisclosure of that information;c. The person or personswho are being asked to divulge theconfidential information participated in an ADR proceedings; andd. The time, date and placewhen the ADR proceedings tookplace.

Apart from the other submissions, the movant must set the motion

for hearing and contain a notice of hearing in accordance withRule 15 of the Rules of Court.

Rule 10.6. Notice. Notice of a request for a protective ordermade through a motion shall be made to the opposing parties inaccordance with Rule 15 of the Rules of Court.

Rule 10.7.Comment/Opposition. The comment/oppositionmust be filed within fifteen (15) days from service of the petition.The opposition or comment may be accompanied by written proofthat (a) the information is not confidential, (b) the informationwas not obtained during an ADR proceeding, (c) there was awaiverof confidentiality, or (d) the petitioner/movant is precludedfrom asserting confidentiality.

Rule 10.8.Court action. If the court finds the petition or motionmeritorious, it shall issue an order enjoining a person or personsfrom divulging confidential information.

In resolving the petition or motion, the courts shall be guided bythe following principles applicable to all ADR proceedings:Confidential information shall not be subject to discoveryand shall be inadmissible in any adversarial proceeding,whether judicial or quasi judicial. However, evidence orinformation that is otherwise admissible or subject todiscovery does not become inadmissible or protected fromdiscovery solely by reason of its use therein.


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For mediationproceedings, the court shall be further guided bythe following principles:

a. Information obtained through mediation shall be privilegedand confidential.b. A party, a mediator, or a nonparty participantmay refuseto disclose and may prevent any other person from disclosing amediation communication.c. In such an adversarial proceeding, the following personsinvolved or previously involved in a mediation may not becompelled to disclose confidential information obtained during themediation: (1) the partiesto the dispute; (2) the mediatorormediators; (3) the counselfor the parties: (4) the nonpartyparticipants; (5) any persons hired or engaged in connectionwith the mediationas secretary, stenographer; clerk orassistant; and (6) any other person who obtains or possessesconfidential information by reason of his/ her profession .d. The protection of the ADR Laws shall continue to apply evenif a mediator is found to have failed to act impartially.e. A mediator may not be called to testify to provide

information gathered in mediation. A mediator who iswrongfully subpoenaed shall be reimbursed the full cost of hisattorney fees and related expenses.

Rule 10.9. Relief against court action. The order enjoiningaperson or persons from divulging confidential information shall beimmediately executory and may not be enjoined while theorder is being questioned with the appellate courts.

If the court declinesto enjoin a person or persons from divulgingconfidential information, the petitioner may file a motion forreconsideration or appeal.

Rule 10.10. Consequence of disobedience. Any person whodisobeys the order of the court to cease from divulgingconfidential information shall be imposed the proper sanctionbythe court.

No Class - June 25, 2010

Class Notes - July 2, 2010

ARBITRATION

What is ADR?"Alternative Dispute Resolution System" means anyprocess or procedure used to resolve a dispute orcontroversy, other than by adjudication of apresiding judge of a court or an officer of agovernment agency, as defined in this Act, in whicha neutral third party participates to assist in theresolution of issues, which includes arbitration,mediation, conciliation, early neutral evaluation,mini-trial, or any combination thereof (Sec. 3a, RA9285)

What is Arbitration?"Arbitration" means a voluntary dispute resolutionprocess in which one or more arbitrators, appointedin accordance with the agreement of the parties, or

rules promulgated pursuant to this Act, resolve adispute by rendering an award (Sec. 3d, RA 9285)

What distinguishes Arbitration from other formsof ADR?Final, binding and enforceable through thefollowing procedures:1) Confirmation of award2) Judgment is capable of enforcement

PROCESS OF ARBITRATION

Arbitration agreement|

Dispute|

Selection of arbitrators|

Conduct of arbitration proceedings|

Arbitral Award|

Confirmation &/or Enforcement

FIRST PART: ARBITRATION AGREEMENT

Arbitration Agreement v. Submission Agreement

Arbitration Agreement SubmissionAgreement

Before occurence ofdispute

Agreement to submitdispute to arbitration; noprevious arbitrationclause

A party may invoke thisat any time before pre-trial, after which, bothparties must invoke it

May be entered into atany time, even after pre-trial

Petition for Enforcement of ArbitrationAgreement (See end)

Notice Requirements

Depends on whether or not the petition / motion filedis covered by Summary Procedure.

Covered by Summary Procedure:

1) Judicial Relief Involving the Issue of Existence,Validity or Enforceability of the ArbitrationAgreement;


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2) Referral to ADR;3) Interim Measures of Protection;4) Appointment of Arbitrator;5) Challenge to Appointment of Arbitrator;6) Termination of Mandate of Arbitrator;7) Assistance in Taking Evidence;8) Confidentiality/Protective Orders; and9) Deposit and Enforcement of Mediated

Settlement Agreements.

Not Covered by Summary Procedure:

1) Confirmation, Correction or Vacation of Award inDomestic Arbitration

2) Recognition and Enforcement or Setting Asideof an Award in International Commercial

Arbitration3) Recognition and Enforcement of a Foreign

Arbitral Award

Notes:

*Petition to correct / vacate does not touch upon themerits of the award.*Petition to vacate (domestic)depends on groundsto vacate*Petition to set aside (international) SeeUNCITRAL A.34 & 36

Pop Quiz - July 9, 2010

Petition to Enforce Arbitation Agreement using thecase of Mindanao Portland Cement Corporation v.McDonough Construction Co. of Florida, 90 SCRA808 (1967)

Class Notes - July 16, 2010

THIRD PART:COMMENCEMENT OF ARBITRATION &

CONSTITUTION OF ARBITRAL TRIBUNAL

How do you commence arbitration?1) Adhocby a demand to arbitrate2) Institutional - very similar to a demand to arbitrate,addressed to the institution; called a Request forArbitration or Notice of Arbitration

What is the significance of filing a Request for

Arbitration or Notice of Arbitration?Whether conventional litigation or ADR, the filing ofthe initiatory complaint / request for arbitration issignificant in the area of interim measures ofprotection. It could be obtained from:

General Rule: the arbitral tribunalExcept: the court, in the following instances:1) Before commencement of arbitration2) After arbitration is commenced, but before the

constitution of the arbitral tribunal;3) After the constitution of the arbitral and at any

time during arbitral proceedings but, at thisstage, only to the extent that the arbitral tribunalhas no power to act or is unable to acteffectively.

RA 876, Sec. 14 xxx The arbitrator or arbitrators shall have thepower at any time, before rendering the award, without prejudiceto the rights of any party to petition the court to take measures tosafeguard and/or conserve any matter, which is the subject of thedispute in arbitration.

RA 9285, Sec. 28Grant of Interim Measure of Protection(a) It is not incompatible with an arbitration agreement for a partyto request, before constitution of the tribunal, from a Court aninterim measure of protection and for the Court to grant suchmeasure. After constitution of the arbitral tribunal and duringarbitral proceedings, a request for an interim measure ofprotection or modification thereof, may be made with the arbitraltribunal or to the extent that the arbitral tribunal has no power toact or is unable to act effectively, the request may be made withthe Court. The arbitral tribunal is deemed constituted when thesole arbitrator or the third arbitrator who has been nominated, hasaccepted the nomination and written communication of saidnomination and acceptance has been received by the partymaking request.

(b) The following rules on interim or provisional relief shall beobserved:

(1) Any party may request that provision relief be granted againstthe adverse party:

(2) Such relief may be granted:

(i) to prevent irreparable loss or injury:

(ii) to provide security for the performance of any obligation;

(iii) to produce or preserve any evidence; or

(iv) to compel any other appropriate act or omission.

(3) The order granting provisional relief may be conditioned uponthe provision of security or any act or omission specified in theorder.

(4) Interim or provisional relief is requested by written applicationtransmitted by reasonable means to the Court or arbitral tribunalas the case may be and the party against whom the relief issought, describing in appropriate detail the precise relief, the partyagainst whom the relief is requested, the grounds for the relief,and evidence supporting the request.

(5) The order shall be binding upon the parties.

(6) Either party may apply with the Court for assistance inImplementing or enforcing an interim measure ordered by anarbitral tribunal.

(7) A party who does not comply with the order shall be liable forall damages resulting from noncompliance, including all


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expenses, and reasonable attorney's fees, paid in obtaining theorder's judicial enforcement.

RA 9285, Sec. 29 Further Authority for Arbitrator to GrantInterim Measure of ProtectionUnless otherwise agreed by the parties, the arbitral tribunal may,at the request of a party, order any party to take such interimmeasures of protection as the arbitral tribunal may considernecessary in respect of the subject matter of the dispute followingthe rules in Section 28, paragraph 2. Such interim measures mayinclude but shall not be limited to preliminary injuction directedagainst a party, appointment of receivers or detention,preservation, inspection of property that is the subject of thedispute in arbitration. Either party may apply with the Court forassistance in implementing or enforcing an interim measuresordered by an arbitral tribunal.

Uncitral Model Law, Article 17 - [Power of arbitral tribunal toorder interim measures]Unless otherwise agreed by the parties, the arbitral tribunal may,

at the request of a party, order any party to take such interimmeasure of protection as the arbitral tribunal may considernecessary in respect of the subject-matter of the dispute. Thearbitral tribunal may require any party to provide appropriatesecurity in connection with such measure.

Uncitral Arbitration Rules, Interim measures of protection,Article 26

1.At the request of either party, the arbitral tribunal may take anyinterim measures it deems necessary in respect of the subject-matter of the dispute, including measures for the conservation ofthe goods forming the subject-matter in dispute, such as orderingtheir deposit with a third person or the sale of perishable goods.

2.Such interim measures may be established in the form of aninterim award. The arbitral tribunal shall be entitled to requiresecurity for the costs of such measures.

3.A request for interim measures addressed by any party to ajudicial authority shall not be deemed incompatible with theagreement to arbitrate, or as a waiver of that agreement.

ICC Rules, Article 23, Conservatory and Interim Measures1. Unless the parties have otherwise agreed, as soon as the filehas been transmitted to it, the Arbitral Tribunal may, at therequest of a party, order any interim or conservatory measure itdeems appropriate. The Arbitral Tribunal may make the grantingof any such measure subject to appropriate security beingfurnished by the requesting party. Any such measure shall takethe form of an order, giving reasons, or of an Award, as theArbitral Tribunal considers appropriate.2. Before the file is transmitted to the Arbitral Tribunal, and inappropriate circumstances even thereafter, the parties may applyto any competent judicial authority for interim or conservatorymeasures. The application of a party to a judicial authority forsuch measures or for the implementation of any such measuresordered by an Arbitral Tribunal shall not be deemed to be aninfringement or a waiver of the arbitration agreement and shall notaffect the relevant powers reserved to the Arbitral Tribunal. Anysuch application and any measures taken by the judicial authoritymust be notified without delay to the Secretariat. The Secretariatshall inform the Arbitral Tribunal thereof.

Upon receipt:1) WON a dispute is arbitablethe first thing that aninstitution should determine2) Assess an non-refundable fee of $2500.

3) Inform the prospective respondent that a Requestfor Arbitration was received4) Prospective respondent answers5) Assess the fees

Period for rendering an Award:1) Stipulation2) To be determined by the arbitral tribunal duringthe preliminary conference

Less than 60 daysSummary (ADR Rules)15 days from service to file Comment/Opposition1 hearing day, only for the purpose of clarificationsResolution 30 days from the time the petition issubmitted for resolution

10 days- ADR Law

Four courses of action by the CourtDetermine existence of AAIf no, dismiss (1)If yes, determine if there was default or not in thecompliance with the Arbitration Agreement (2)If there is no default, (dismiss)If there was default, Court to

Challenge of arbitratorIf a party renews his challenge in Court arbitrationproceedings are suspendedBut under Special ADR Rulesproceed

International Bar Association (IBA) Rules ofEvidenceGreen List list of factors that may or may not be

disclosed but will not affect the fitness ofRed Listlist of prohibited factors

Long Quiz - July 23, 2010

Coverage: Class notes from start to latest.

Class NotesJuly 30, 2010

FOURTH PART:CONDUCT OF ARBITRATION PROCEEDINGS

CONFIDENTIALITY

Why is there no publication of awards of arbitraltribunals?Because of the principle of confidentiality ofarbitration proceedings (Sec. 23, RA 9285).


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Sec. 23 Confidentiality in ArbitrationProceedingsThe arbitration proceedings, including the records,evidence and the arbitral award, shall be consideredconfidential and shall not be published except (1)with the consent of the parties, or (2) for the limitedpurpose of disclosing to the court of relevantdocuments in cases where resort to the court isallowed herein. Provided, however, that the court inwhich the action or the appeal is pending may issuea protective order to prevent or prohibit disclosure ofdocuments or information containing secretprocesses, developments, research and otherinformation where it is shown that the applicant shallbe materially prejudiced by an authorized disclosurethereof.

Exception to confidentiality:1) Application for Interim Measure of Protection2) Appoint Arbitrator3) Challenge Arbitrator4) Ask to Vacate / Modify Award5) Ask to Enforce the Award

What is the consequence of breach ofconfidentiality?Claim for damages.

Where do you file the action for damangesarising from breach of confidentiality?RTC, not arbitral tribunal. Because the jurisdiction ofthe arbitral tribunal over issues is defined by thearbitration agreement. Issue of breach ofconfidentiality is usually involved in other causes of

actions or pending actions. e.g. transactions with 3rdpersons.

Note:

Breach of confidentiality covers mere disclosure offact of pendency of arbitration proceedings.

COMPETENCE-COMPETENCE PRINCIPLE

What is the Competence-CompetencePrinciple?Power of arbitral tribunal to initially rule on thequestion of its jurisdiction over a dispute includingany objections with respect to the existence orvalidity of the arbitration agreement or any conditionprecedent to the filing of a request of arbitration.

Restatement of the Rule:Before the arbitral tribunal is constituted, the regular

courts have jurisdiction to determine the issue ofcompetence of a tribunal. The moment the arbitraltribunal is constituted, the arbitral tribunal hasjurisdiction.

There arises a policy of judicial restraint, such thatthe finding of the court on the jurisdiction of thearbitral tribunal is at bestprima facie.

Note:There is a before AT, after ATs finding, and after-after.

Does the prima faciefinding of the court meanthat the arbitral tribunal can still be formed?Yes. If the court finds that the arbitration agreementis null and void, inoperative or incapable of beingperformed, a party may nevertheless commencearbitration and constitute the arbitral tribunal.

So where does prima faciefinding of the court

come in? How is it prima facie?This means that the same issue may be passedupon by the arbitral tribunal, which has the effect ofsuperseding the previous of the court. (This is theAFTER ruling.)

What about the after-after ruling?The same issue may be passed upon in an action tovacate or set aside the arbitral award (Rule 3.11) Inthis case, it is no longer aprima fac ie determinationof such issue or issues, but shall be a FULLREVIEW of such issue or issues with due regard,however, to the standard of review for arbitralawards.

But how may arbitration commence if it the courthas made a prima facie finding that ithearbitration agreement is found null and void,

inoperative or incapable of being performed?Will the other party who got the favorable rulingof the court participate / cooperate?Get an appointment of arbitrator - sole arbitrator, ad-hoc, institutional.

Illustration:Its possible for A to get a ruling from the court thatthe arbitration agreement is null and void, and Bmay commence arbitration in an institution inanother country. B now asked to appoint arbitratorfor A contesting the arbitration agreement.

What is the remedy of A?a) Get an injunction from RTC Philippines. Next stepis contempt. (Although the exercise of a legal right isnot contemptuous) There may also be problem ingetting injunction. Plus theres a provision in Special

ADR Rules prohibiting injunction against arbitration.Finally, A can later on file a petition to set aside theaward.b) Challenge jurisdiction of arbitral tribunalconstituted by institution in foreign country.


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UNCITRAL:1) Petition to Set Aside2) Petition to Refuse Recognition

What is the Principle of Separability?Arbitration clause is treated as an agreementindependent of the other terms of the contract ofwhich it forms part. A decision that the contract isnull and void shall not entail ipso jure the invalidity ofthe arbitration clause. (Uncitral Model Law, Sec.16(1); Special ADR Rules 2.2)

What is the effect of multiple actions andparties?Rule 4.7.

Would Rule 4.7 result in multiplicity of suits?Yes. But this does not prevent arbitration from beingcommenced.

Cases for next meeting (August 6, 2010):

1) Vega v. San Carlos Milling Co. Ltd, 51 Phil 908(1924)no digest

2) California & Hawaiian Sugar Co. v. PioneerInsurance & Surety Corp. 346 SCRA 214 (2000)

3) Associated Bank v. CA, 233 SCRA 137 (1994)4) Bloomfield Academy v. CA, 237 SCRA 43

(1994)5) Mindanao Portland Cement Corporation v.

McDonough Construction Co. of Florida, 90SCRA 808 (1967)

6) Gonzales v. Climax Mining Ltd., 512 SCRA 148

(2007)7) Oil & Natural Gas Commission v. CA, 293 SCRA

26 (1998)8) Magellan Capital Mgt. Corp. v. Zosa, 355 SCRA

157 (2001)9) BF Corporation v. CA, 288 SCRA 267 (1998)10) Korea Technologies Co. Ltd. v. Lerma, 542

SCRA 1 (2008)11) Luzon Development Bank v. Luzon

Development Bank Employees, 249 SCRA 162(1995)In re: multiplicity

Class Notes - August 6, 2010

Is there a counterpart of the principle ofconfidentiality in Sec. 23 RA 9285 in RA 876?

Sec. 14? (UNANSWERED)

What is the Judicial Relief After Commencementof Arbitration (Rule 3, Special ADR Rules)?

A party may ask that the ruling of the arbitra l tribunalon a preliminary question upholding or declining itsjurisdiction be declared null and void, inexistent orunenforceable. This is premised on the fact that thejurisdiction of the arbitral tribunal is defined by thearbitration agreement. The determination of thecourt is no longer a prima facie finding.

But would that not violate the Competence-Competence Principle?The determination of the court after thecommencement of arbitration proceedings

IllustrationAugust 6Commencement of Arbitration

Scenario A:On May 6, the determination of the court is merelyprima facie and the parties may still commencearbitration.

Scenario B:On November 6, the determination of the court is nolonger prima facie. What would be the remedy of theclaimant?

Not final may still be reviewed by MR, appeal,certiorari.

Rule 3.191) MR - yes2) Certiorariyes

a) Affirming ATs jurisdiction not subject tocertiorari

b) AT has no jurisdictioncertiorari available

Note:How many days?3) Appealyes daw

Vega v. San Carlos Milling Co. Ltd, 51 Phil 908(1924)

Petitioners: Teodoro VegaRespondent: San Carlos Milling Co., Ltd.

Facts:

Defendant-appellant contends that Sec. 23 of theMills covenant and Sec. 14 of the Planterscovenant, as such stipulations on arbitration arevalid, and constitute a condition precedent, towhich the plaintiff should have resorted beforeapplying to the courts, as he prematurely did.3

3Said STIPULATIONS TO ARBITRATE are as follows:"23 (Mills covenant). That it (the MillParty of the first part)will submit any and all differences that may arise between theMill and the Planters to the decision of arbitrators , two of


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This, more so, if these two provisions are read withthe reciprocal covnenant in Sec. 7 of the Millscovenant.4It is an admitted fact that the differences which laterarose between the parties, and which are thesubject of the present litigation have not beensubmitted to arbitration provided for in the abovequoted clauses.Plaintiff filed an action for the recovery of 32,959kilos of centrifugal sugar, or its value, P6,252, plusthe payment of P500 damagesand the costs.The lower court decided in favor of the plaintiff.Issue:WON the lower court erred in having held itself withjurisdiction to take cognizance of and renderjudgmentin the cause

Held: NO.Ratio:1) The defendant is right in contending that

clause 23 of the Mi l l 's covenant and clause14 of the Planter 's Covenanton arbitration areval id, but they are not for that reason a bar toju d ic ia l ac ti on, in view of the way they areexpressed:

"An agreement to submit to arbitration, notconsummated by an award, is no bar to a suit atlaw or in equity concerning the subject mattersubmitted. And the rule applies both in respect ofagreements to submit existing differences andagreements to submit differences which mayarise in the future." (5 C. J., 42.)And in view of the terms in which the said covenantson arbitration are expressed, it cannot be held that inagreeing on this point, the parties proposed to

establish the arbitration as a condition precedent tojudicial action, because these clauses quoted do notcreate such a condition either expressly or bynecessary inference.

whom shall be chosen by the Mill and two by the Planters, who incase of inability to agree shall select a fifth arbitrator, and torespect and abide by the decision of said arbitrators , or anythree of them, as the case may be.""14 (Planters covenant). That they (the PlantersParties ofthe second part) will submit any and all differences that mayarise between the partiesof the first part and the parties of thesecond part to the decision of arbitrators, two of whom shall bechosen by the said parties of the first part and two by the saidparty of the second part, who in case of inability to agree, shallselect a fifth arbitrator, and will respect and abide by thedecision of said arbitrators, or any three of them, as the casemay be."

4Said RECIPROCAL COVENANT No. 7, reads:"7. Subject to the provisions as to arbitration,hereinbefore appearing, it is mutually agreed that the courts ofthe City of Iloilo shall have jurisdiction of any and all judicialproceedingsthat may arise out of the contractual relations hereinbetween the party of the first and the parties of the second part."

"Submission as Condition Precedent to Suit. Clauses in insurance and other contracts providingfor arbitration in case of disagreement are verydissimilar, and the question whether submission toarbitration is a condition precedent to a suit upon thecontractdepends upon the language employed ineach particular stipulation. Where by the sameagreement which creates the liability, theascertainment of certain facts by arbitrators isexpressly made a condition precedent to a rightof action thereon, sui t cannot be brought unt i lthe award is made. But the courts generally willnot construe an arbitration clause as oustingthem of their jurisdiction unless suchconstruction is inevitable, and consequentlywhen the arbitration clause is not made a

condition precedent by express words ornecessary implication, it will be construed asmerely col lateral to the l iabi l i ty clause, and so nobar to an act ion in the courts w i thout an award."(2 R. C. L., 362, 363.)2) Neither does the reciprocal covenant No . 7

of the Mills covenant expressly or impliedlyestablish the arbitration as a conditionprecedent.

The expression "subject to the provisions as toarbitration, hereinbefore appearing" does not declaresuch to be a condition precedent. This phrase doesnot read "subject to the arbitration," but "subjectto the provisions as to arbitration hereinbeforeappearing." And, which are these "provisions as toarbitration hereinbefore appearing?" Undoubted lyclauses 23 and 14 quoted abov e, which do not

make arbi t rat ion a condi t ion p recedent.

Disposition. Affirmed.

Separate Opinions

AVANCEA, J., concurring:

1) Inasmuch as clause 23 of the Mill's Covenants,and clause 14 of the Planter's Covenants providethat the parties should respect and abide by thedecision of the arbitrators, they bar judicialintervention and consequently are null and voidinaccordance with the ruling of this court in the case ofWahl and Wahl vs. Donaldson, Sims & Co. (2 Phil.,301).

2) Clause 7 of the Mutual Covenants, naming theCourt of First Instance of Iloilo as the one with

jurisdiction to try such cases as might arise from theparties' contractual relations, by the very fact that itwas made subject to the arbitration clauses previouslymentioned, does not render such arbitrationmerely a condition precedent to judicial action,nor does it change its scope, as clearly indicated byits wording and the intention of the parties. Saidclause 7 was doubtless added in case it became


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necessary to resort to the courts for the purposeof compelling the parties to accept the arbitrators'decision in accordance with the contract, and not inorder to submit anew to the courts what hadalready been decided by the arbitrators, whosedecision the contracting parties had boundthemselves to abide by and respect.

MALCOLM, J., dissenting:1) Defendant is not bound to furnish cars free of

charge for use on the plaintiff's portable railwaytracks, in relation with its corollary, that the letterwritten by the manager of the defendant's mill onMarch 18, 1916, does not estop the defendant fromdemanding compensation for the future use of thecars.

2) The parties having formally agreed to submit theirdifferences to arbitrators, while recognizing the

jurisdiction of the courts, arbitration has been made acondition precedent to litigation, and should be heldvalid and enforceable.

a) In the Philippines fortunately, the attitude of thecourts toward arbitration agreements isslowly crystallizing into definite and workableform. The doctrine announced in Wahl and Wahlvs. Donaldsono. ([1903], 2 Phil., 301), was that aclause in a contract providing that all matters indispute shall be referred to arbitrators and tothem alone, is contrary to public policy andcannot oust the courts of jurisdiction. But the rulenow is that unless the agreement is such asabsolutely to close the doors of the courtsagainst the parties, which agreement would bevoid, the courts will look with favor upon suchamicable arrangements and will only withgreat reluctance interfere to anticipate ornullify the action of the arbitrator.

b) The new point of the judiciary in the progressivejurisdiction of Pennsylvania, in England, andunder the Civil Law, is also worthy of our seriousconsideration.i) It is the rule in Pennsylvania that when the

persons making an executory contract stipulate init that all disputes and differences between them,present or prospective, in reference to suchcontract or any sum payable under it, shall besubmitted to the arbitrament of a named individual,or specifically designated persons, they areeffectually bound irrevocably by thatstipulation, and precluded from seekingredress elsewhere until the arbiter or arbitersagreed upon have rendered an award orotherwise been discharged.

ii) In England, the view seems now to prevail that acontractual stipulation for a general arbitration,constitutes a condition precedent to theinstitution of judicial proceedings for theenforcement of the contract.

iii) Finally, it is within our knowledge that theSpanishcivil law wisely contains elaborate provisionslooking to the amicable adjustment ofcontroversies out of court. Litigation by meansof friendly adjusters was formerly well known. Theprocedure in this kind of litigation was minutelyoutlined in the Ley de Enjuiciamiento Civil. Two

articles of the Civil Code, namely, articles 1820and 1821, were given up to the subject ofarbitration, and expressly confirmed this method ofsettling differences.

c) It was plainly the solemn purpose of theparties to settle their controversies amicablyif possible before resorting to the courts.They provided for themselves by mutualconsent a method which was speedier andless expensive for all concerned and lesslikely to breed that ill-feeling which is oftenthe consequence of hotly contested litigation.

All this was done by the Planters on the one handand by the Milling Company on the other, to theend that justice might guide them and possibledifferences be quickly adjusted.

d) It is clear, by paragraph 7 of the MutualCovenants, that these parties did not intend

that the decision of the arbitrators shouldprevent resort to the courts, for theyexpressly agreed to carry litigation betweenthem to the courts of Iloilo. Acting under legalrules, even in their most restrictive form, disputesarising out of the contract, were to be referred toarbitration so that the damages sustained by abreach of the contract, could be ascertained byspecified arbitrators before any right of actionarose; but the matters in dispute were not to bereferred to arbitrators and to them alone, to theutter exclusion of the courts. It is exactly correctto state that the clauses of the Covenantshereinbefore quoted, were meant as a conditionprecedent to litigation, which accordingly shouldbe given effect.

STUDY NOTES

Rule 2.2. Policy on arbitration. (A) Where the parties have

agreed to submit their dispute to arbitration, courts shall referthe parties to arbitration pursuant to Republic Act No. 9285bearing in mind that such arbitration agreement is the lawbetween the parties and that they are expected to abide by it ingood faith. Further, the courts shall not refuse to refer partiesto arbitration for reasons including, but not limited to, thefollowing:a. The referral tends to oust a court of its jurisdictiond. The arbitration proceeding has not commenced

CLASS NOTES1) Court was already talking about arbitration

agreement, etc. as early as 1924.2) Malcolm dissent:

3 jurisdictions:*Pensylvannia irrevocably bound by stipulation,precluded from seeking redress to the courts; but

makes a distinction between (a) did not namearbitrator; (b)*England even a general reference to arbitration isa condition precedent (liberal)


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*Spain (Ley de Enjuiciamiento Civil) detailedamicable settlement + arbitration- Respect solemn purpose of the parties- Not null and void for absolutely ousts the courts ofjurisdiction.

Is an arbitration agreement a conditionprecedent to the filing of an action in court?

Rule 16.1 (j) of the Rules of Court MTD on theground of failure to comply with a conditionprecedent

Is this an absolute rule?No. It can be waived.

R.A. 9285, Sec. 24. Referral to Arbitration. - A court beforewhich an action is brought in a matter which is the subject matterof an arbitration agreement shall, if at least one party so requestsnot later that the pre-trial conference, or upon the request ofboth parties thereafter, refer the parties to arbitration unless itfinds that the arbitration agreement is null and void, inoperative orincapable of being performed.

Sec. 7Stay of civil actionRelate to Referral to ADR (Special Rules)Depends on the request of a party, because party may decide notto undergo ADR- Related to Section 24 of RA 9285

If any suit or proceeding be brought upon an issue arising out ofan agreement providing for the arbitration thereof, the court inwhich such suit or proceeding is pending, upon being satisfiedthat the issue involved in such suit or proceeding is referable toarbitration, shall stay the action or proceeding until an arbitrationhas been had in accordance with the terms of the agreement:Provided, That the applicant, for the stay is not in default inproceeding with such arbitration.

Rule 4.2. When to make request. (A) Where the arbitrationagreement exists before the action is filed. The request forreferral shall be made not later than the pre-trial conference .After the pre-trial conference, the courthuj will only act upon therequest for referral if it is made with the agreement of all parties tothe case.

Conclusion: An arbitration clause is NOT acondition precedent such that it is a ground fordismissal, because it is an alternative mode ofdispute resolution. Hence, a party goes to courtnot to pass upon the merits or to have resolve itresolved, but for other reasons, such as to have thearbitration agreement enforced, modified, set aside,etc. It is a ground to STAY civil action (Sec. 7, RA876; Sec. 24, RA 9285), not to dismiss it.

Malcolm: Condition precedent if it is more of a fact-

finding task.

Class Notes - August 13, 2010

Can you be bound by an arbitration clause bysubrogation?See California & Hawaiian Sugar Co. v. PioneerInsurance & Surety Corp (2000)

California & Hawaiian Sugar Co. v. PioneerInsurance & Surety Corp., 346 SCRA 214 (2000)Petitioners: California Hawaiian Sugar Company,Pacific Gulf Marine Inc and CF Sharp and CoRespondent: Pioneer Insurance and Surety

Corporation

Facts:On November 27, 1990, the vessel MV SUGARISLANDER arrived at the portof Manila carrying acargo of soybean meal in bulk consigned to severalconsignees, one of which was the Metro ManilaFeed Millers Association. Discharging of cargofrom vessel to barges commenced. From thebarges, the cargo was allegedly offloaded,rebagged and reloaded on consignees deliverytrucks.Respondent, however, claims that when the cargowas weighed on a licensed truck scale a shortageof 255.051 metric tons valued at P1,621,171.16 wasdiscovered. The shipment was insured withPioneer against all risk in the amount ofP19,976,404.00.

Due to the alleged refusal of petitioners to settletheir respective liabilities, respondent, as insurer,paid the consignee Metro Manila Feed MillersAssociation.Pioneer filed a complaint for damages againstpetitioners. Petitioners filed a Motion to Dismissthe complaint on the ground that respondents claimis premature, the same being arbitrable.The RTC ordered to deferthe hearing of the MTDand directed petitioners to file their Answer.Petitioners filed their answer with counterclaim andcrossclaim alleging that Pioneer did not complywith the arbitration clause.Petitioners filed a Motion to Defer Pre-Trial andMotion to Set for Preliminary Hearing theAffirmative Defense of Lack of Cause of Actionfor Failure to comply with Arbitration Clause,respectively.

The RTC denied.The CA affirmed. It ruled that petitioner cannot setthe case for preliminary hearing as an MTD wasfiled. Also, the arbitration clause in the charter partydid not bind Pioneer. The right of Pioneer to file a


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complaint against petitioners is not dependentupon the charter party, nor does it grow out ofany privity contract. It accrues simply uponpayment.Citing Pan Malayan Insurance Corporation v. CA,the CA ruled that the right of respondent insurancecompany as subrogee was not based on thecharter party or any other contract ; rather, itaccrued upon the paymentof the insurance claimby private respondent to the insured consignee.Issue: WON the arbitration clause was binding uponPioneerHeld: YESRatio:The CA erred when it held that the arbitrationclause was not binding on Pioneer.There was nothing in Pan Malayan, however, that

prohibited the applicability of the arbitrationclause to the subrogee. That case merelydiscussed, inter alia, the accrual of the right ofsubrogation and the legal basis therefor. Thisissue is completely different from that of theconsequences of such subrogation; that is, therights that the insurer acquires from the insuredupon payment of the indemnity.(Pan Malayan: The right of subrogation is notdependent upon, nor does it grow out of, any privityof contract or upon written assignment of claim. Itaccrues simply upon payment of the insurance claimby the insurer.)As to the preliminary hearing: True, Section 6, Rule16 specifically provides that a preliminary hearing onthe affirmative defenses may be allowed only whenno motion to dismiss has been filed. Section 6,however, must be viewed in the light of Section 3

which requires courts to resolve a motion to dismissand prohibits them from deferring its resolution onthe ground of indubitability. Section 6 disallows apreliminary hearing of affirmative defenses once amotion to dismiss has been filed because suchdefense should have already been resolved. In thepresent case, however, the trial court did notcategorically resolve petitioners Motion to Dismiss,but merely deferred resolution thereof.

STUDY NOTESRule 2.2. Policy on arbitration. (A) Where the parties haveagreed to submit their dispute to arbitration, courts shall refertheparties to arbitration pursuant to Republic Act No. 9285 bearing inmind that such arbitration agreement is the law between theparties and that they are expected to abide by it in good faith.Further, the courts shall not refuseto refer parties to arbitrationfor reasons including, but not limited to, the following:c. The referral would result in multiplicity of suits;

Rule 4.7. Multiple actions and parties. The court shall notdecline to refer some or all of the parties to arbitration for any ofthe following reasons:a. Not all of the disputes subject of the civil action may bereferred to arbitration;

b. Not all of the parties to the civil action are bound by thearbitration agreementand referral to arbitration would result inmultiplicity of suits;c. The issues raised in the civil action could be speedily andefficiently resolved in its entirety by the court rather than inarbitration;d. Referral to arbitration does not appear to be the most prudentaction; ore. The stay of the action would prejudice the rights of theparties to the civil action who are not bound by thearbitration agreement.The court may, however, issue an order directing the inclusionin arbitration of those parties who are not bound by thearbitration agreement but who agree to such inclusionprovided those originally bound by it do not object to theirinclusion.

CLASS NOTES

Can you be bound by an arbitration clause insubrogation?No express ruling in California & Hawaiian SugarCo. v. Pioneer Insurance & Surety Corp (2000),citing Pan Malayan, saying that a subrogee isbound. Theres only the accrual of the right ofsubgrogation and the legal basis therefor.

Was there consent on the part of the insurancecompany?Yes, on the basis of the principle of subrogation andits effects.

Will Article 1311 of the Civil Code apply here?

Art. 1311. Contracts take effect only between the parties, theirassigns and heirs, except in case where the rights and obligationsarising from the contract are not transmissible by their nature, orby stipulation or by provision of law. The heir is not liable beyondthe value of the property he received from the decedent.

If a contract should contain some stipulation in favor of a thirdperson, he may demand its fulfillment provided he communicatedhis acceptance to the obligor before its revocation. A mereincidental benefit or interest of a person is not sufficient. Thecontracting parties must have clearly and deliberately conferred afavor upon a third person.

Can Assignment in A1311 be equated withSubrogation?No. The right of subrogation is not dependent upon,nor does it grow out of, any privity of contract orupon written assignment of claim. It accrues simplyupon payment of the insurance claim by the insurer.(Pan Malayan)

c.f.Art. 2207. If the plaintiff's property has been insured, and he has

received indemnity from the insurance company for the injury orloss arising out of the wrong or breach of contract complained of,the insurance company shall be subrogated to the rights of theinsured against the wrongdoer or the person who has violated thecontract. If the amount paid by the insurance company does notfully cover the injury or loss, the aggrieved party shall be entitled


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to recover the deficiency from the person causing the loss orinjury.

Can a party be bound by the Arbitration Clauseby statutory provision?Xam: Analogous to heirs in the sense that thesubrogee acquires the transmissible rights of theoriginal party. (UNANSWERED).

See however, Bloomfield Academy Sec. 10 onConsultation of RA 6728, also commonly known as"An Act Providing Government Assistance toStudents and Teachers in Private Education, AndAppropriating Funds Therefor"

Xam: See also, Associated Bank case Sec. 3

(Agreement to the PCHC Rules) in relation to Sec.36 on Arbitration.

Bloomfield Academy v. CA, 237 SCRA 43 (1994)

Petitioners: Bloomfield Academy and RodolfoLageraRespondents: CA, Bloomfield Academy ParentsAdvisory Association Inc, et al

Facts:

The petition originated in a complaint for injunctionfiled on April 6, 1990 by private respondent, theassociation of parents and guardians of studentsenrolled in petitioner. One of the defendants in thecase is petitioner which is a non-stock, non-profit

educational institution. What is being disputedbefore the court is the increase in tuition fee. Thepetitioners contend that the increase is essential dueto the increase of the minimum wage under RA6727.

Private respondents alleged that the 21.22%increase was made without prior consultationwith the parents required by law and that, in anycase, the approved increase was exorbitant (at21.22%).

They sent a letter to the DECS Secretarycomplaining that the tuition fee increase waswithout valid basis already, after both partiesagreed on 50% of the increase which wasimplemented and paid by the students during theschool year with the clear understanding that the

other 50% is waivedby the defendant.

Petitioners, on their part, contended that the partiesdid, in fact, hold consultationsat which the wageincrease for teachers mandated by RA6727 and the

resulting increase in tuition fees allowed by RA 6728were discussed at length.

The DECS however affirmed the tuition feeincrease.

The court issued an order enjoining petitionersand Secretary Cario and/or their agents,representatives or persons acting in their behalffrom implementingthe increase in tuition fees, andnot withholding their release of the report cards and/or other papers necessary for the studentsdesiring to transfer to other schools until furtherorders from the court. The application for injunctionwas set for hearing on April 19, 1990 at 2:00 p.m.Answer to the complaintwas filed by petitioners on

April 19, 1990. On the same date, the courtconducted the first hearing on the application fora writ of preliminary injunctionwhich hearing wasfollowed by settings on April 25, 26 and 27, 1990.The court thereafter issued an order granting thewrit of preliminary injunction.On certiorai, the CA affirmed and ruled that thegrant or denial of an injunction rests upon the sounddiscretion of the court.

Issue: WON the cour t erred in granting theinjunction

Held:

Ratio: The pertinent provisions RA 6728, alsocommonly known as "An Act Providing GovernmentAssistance to Students and Teachers in Private

Education, And Appropriating Funds Therefor,"provide:Sec. 9. Further Assistance To Students in PrivateColleges and Universities. . . . .(b) For students enrolled in schools charging aboveone thousand five hundred pesos (P1,500.00) peryear in tuition and other fees during the school year1988-1989 or such amount in subsequent years asmay be determined from time to time by the StateAssistance Council, no assistance for tuition feesshall be granted by the Government: Provided,however, That the schools concerned may raisetheir tuition fees subject to Section 10 hereof.xxx xxx xxxSec. 10. Consultation. In any proposedincrease in the rate of tuition fee, there shall beappropriate consultationsconducted by the schooladministration with the duly organized parents and

teachers associations and faculty associations withrespect to secondary schools, and with studentsgovernments or councils, alumni and facultyassociations with respect to colleges. For thispurpose, audited financial statements shall be made


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available to authorized representatives of thesesectors. Every effort shall be exerted to reconcilepossible differences. In case of disagreement,the alumni association of the school or any otherimpartial body of their choosing shall act asarbitrator.xxx xxx xxxSec. 14. Program Administration/Rules andRegulations. The State Assistance Council shallbe responsible for policy guidance and direction,monitoring and evaluation of new and existingprograms, and the promulgation of rules andregulations, while the Department of Education,Culture and Sports shall be responsible for theday to day administration and programimplementation. Likewise, it may engage the

services and support of any qualified government orprivate entity for its implementation.The judicial act ion ini t iated by private

respondent before the court appears to us to b e

an inappropriate recourse. It remains undisputedthat the DECS Secretary has, in fact, takencognizance of the case for the tuition fee increaseand has accordingly acted thereon. We can onlyassume that in so doing the DECS Secretary hasduly passed upon the relevant legal and factualissues dealing on the propriety of the matter. In thedecision process, the DECS Secretary has verilyacted in a quasi-judicial capacity.The remedy from that decision is an appeal . Conformably with BP 129, the exclusive appellatejurisdiction to question that administrative action lieswith the CA, not with the court a quo. If we were toconsider, upon the other hand, the case for

injunction filed with the court a quo to be a ordinaryaction solely against herein petitioner (with DECSbeing then deemed to be merely a nominal party), itwould have meant the court's taking cognizanceover the case in disregard of the doctrine ofprimary jurisdiction.Neither can we treat the case as a special civi l

act ion for cert iorar i or prohibi t ion as thecomplaint filed by private respondent with the court aquo, contains no allegation of lack, or grave abuse inthe exercise, of jurisdiction on the part of DECS norhas there been any finding made to that effect byeither the court a quo or the appellate court thatcould warrant the extraordinary remedy. A specialcivil action, either for certiorari or prohibition, can begrounded only on either lack of jurisdiction or graveabuse of discretion.In passing, we also observe that the parties have

both remained silent on the provisions ofRepublic Act No. 6728 to the effect that in caseof disagreement on tuition fee increases (in thisinstance by herein private parties), the issueshould be resolved through arbitration. Although

the matter has not been raised by the parties, it is anaspect, nevertheless, in our view, that cou ld havewel l been explored by them instead of

immediately invoking, such as they apparent ly

did, the administ rat ive and judicial rel ief to

resolve the controv ersy.All told, we hold that the court a quo has been bereftof jurisdic

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