RAMOS, Paul Reinald S.

2A

Written Report on Parlade’s Discussion on International Commercial Arbitration

I. Introduction

The Model law was adopted by the United Nations Commission on International Trade
Law on June 21, 1985 and was recommended for enactment by the General Assembly
in Resolution 40/72 on December 11,1985. The Philippines adopted the Model Law;
although amendments were made in 2006 and the Philippines had not expressly adopted
amendments, the Supreme Court applied and observed said amendments in its decisions
made after the promulgation of the amendments in the Model law. The Model Law
constitutes a sound and promising basis for the desired harmonization and improvement
of national laws. It covers all stages of the arbitral process from the arbitration agreement
to the recognition and enforcement of the arbitral award and reflects a worldwide
consensus on the principles and important issues of international arbitration practice. It is
acceptable to States of all regions and the different legal or economic systems of the
world.

The form of a model law was chosen as the vehicle for harmonization and improvement
in view of the flexibility it gives to States in preparing new arbitration laws. It is advisable
to follow the model as closely as possible since that would be the best contribution to the
desired harmonization and in the best interest of the users of international arbitration, who
are primarily foreign parties and their lawyers.

As provided in the ADR Act of 2004, commercial arbitration in the Philippines shall be
governed by the Model law as a response to the call of the United Nations for uniformity
of provisions of member states regarding their legislations involving commercial
arbitration. The Model law is said to reflect a consensus on a world wide scale on the
principles and issues covered by international arbitration practice. The Model law which
may be adopted by a State, is intended to apply as lex specialis. For instance, it is meant
to exclude all other non-treaty laws wherever they may be contained. However, it may
still be subject to other treaties on arbitration such as the UN Convention on Carriage of
Goods by the Sea and New York Convention

The following sections shall focus on the articles of the Model law and were categorized
according to the nature of their concepts and discussions.

II. Scope of Application of the Model law (Article 1)

(1) This Law applies to international commercial arbitration, subject to any

agreement in force between this State and any other State or States.
(2) The provisions of this Law, except articles 8, 9, 35 and 36, apply only if the
place of arbitration is in the territory of this State.
(3) An arbitration is international if:
(a) the parties to an arbitration agreement have, at the time of the conclusion of
that agreement, their places of business in different States; or
(b) one of the following places is situated outside the State in which the parties
have their places of business: (i) the place of arbitration if determined in, or
pursuant to, the arbitration agreement; (ii) any place where a substantial part of
the obligations of the commercial relationship is to be performed or the place
with which the subject-matter of the dispute is most closely connected; or
(c) the parties have expressly agreed that the subject-matter of the arbitration
agreement relates to more than one country.
(4) For the purposes of paragraph (3) of this article: (a) if a party has more than
one place of business, the place of business 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 be made to his
habitual residence.
(5) This Law shall not affect any other law of this State by virtue of which certain
disputes may not be submitted to arbitration or may be submitted to arbitration
only according to provisions other than those of this Law.

a. Dual System as adopted by the Philippines

The Philippines has adopted a dual system of arbitration which makes it happen that
different rules apply depending whether the arbitration is domestic or international,
commercial or non-commercial. Under Philippine law, specifically under the Alternative
Dispute Resolution Act of 2004, international commericial arbitration shall be governed
by the UNCITRAL Model law while domestic arbitration shall continue to be subject to the
terms laid down under R.A. no. 876 or the Arbitration law.

b. Matters not covered by the Model law

Matters not covered:

• Arbitrability of the SM of the dispute

• Capacity of the parties to enter into arbitration agreement
• State immunity from suit
• Enforcement by national courts of interim measures of protection granted by an
arbitrator
• Competence of an arbitrator to reform the contract
• Fixing of arbitration fees
• Request for and making a deposit for fees
• Time limit of an award
• Consolidation of arbitral proceedings
• Contractual relations between arbitrators and parties
• Security for fees or costs or period of time for the enforcement of arbitral awards
• The enforcement of interim measures of protection granted by arbitrators
• The manner of enforcing arbitral awards
• Definition of arbitration
• Interpretation of arbitration agreements
• Duties and liability of arbitrators
• Remuneration of arbitrators
• Prescription
• Res Judicata
• Costs, interest
• Capacity
• Discharge of arbitration agreement
• Multi-partite proceedings
• Court assistance in appointing arbitrators
• Dispute as to venue if not indicated

c. Territorial Criterion vs. Autonomy Criterion

Article 1 of the Model law adopts the territorial criterion which provides that the
applicability of the law shall be within the territory of the enacting state. As opposed to
autonomy criterion, this criterion applies to foreign arbitration if the parties to the
arbitration had decided to be governed by the arbitration law of another enacting state.
According the working group, the territorial criterion is more widely accepted as compared
to the autonomy criterion.
Exceptions to the territorial criterion:
1. A national court is required to refer the parties to arbitration
2. A party to a foreign arbitration may apply with a national court before or during arbitral
proceedings for an interim measure of protection
3. A prevailing party in a foreign arbitration may apply with a national court for recognition
and enforcement of a foreign award
4. A national court may refuse an application for recognition and enforcement of a foreign
arbitral award.

d. Arbitrability of a Commercial Dispute and its status as being

“international”

A dispute shall be considered international in the following instances:

1.The parties to an arbitration agreement have, at the time of the conclusion of that
agreement, their places of business in different States; or

2.One of the following places is situated outside the State in which the parties have their
places of business:

(a) the place of arbitration if determined in, or pursuant to, the arbitration
agreement;

(b) any place where a substantial part of the obligations of the commercial
relationship is to be performed or the place with which the subject-matter of the
dispute is most closely connected; or
(c) the parties have expressly agreed that the subject matter of the arbitration
agreement relates to more than one country.

e. Test of internationality
1. Place of business – Are the places of business of the parties in different states?

2. Place of arbitration – Is the stipulated venue in a foreign state?

3. Place of performance – Is the obligation to be performed outside the place of business

of the parties?

4. Place of Subject Matter of Arbitration Agreement – Is the subject matter of the

arbitration agreement related to more than one state?

f. Commercial Arbitration, defined and explained

An arbitration is "commercial" if it covers matters arising from all relationships of a

commercial nature, whether contractual or not.

g. The Concept of Travaux Preparatoires

This concept is very important in the sense of achieving the harmonization of arbitration
laws of the countries that have adopted the Model law. Under this concept, Philippine
courts are mandated not only to look for judicial precedents as part of the law of the land
but are also called to consider the decisions of other states which have adopted the Model
law into their own systems. The ADR Act of 2004 of the Philippines allows and accepts
the interpretation and consideration of other states’ courts regarding the Model law.

III. Definitions and Rules of Interpretation under the Model law (Article 2)

For the purposes of this Law:

(a) "arbitration" means any arbitration whether or not administered by a permanent
arbitral institution;
(b) "arbitral tribunal" means a sole arbitrator or a panel of arbitrators;
(c) "court" means a body or organ of the judicial system of a State;
(d) where a provision of this Law, except article 28, leaves the parties free to
determine a certain issue, such freedom includes the right of the parties to
authorize a third party, including an institution, to make that determination;
(e) where a provision of this Law refers to the fact that the parties have agreed or
that they may agree or in any other way refers to an agreement of the parties, such
agreement includes any arbitration rules referred to in that agreement;
(j) where a provision of this Law, other than in articles 25(a) and 32(2)(a), refers to
a claim, it also applies to a counter-claim, and where it refers to a defence, it also
applies to a defence to such counter-claim.
 a. Definitions

The term arbitration has not been defined in the Model law because according to the
UNCITRAL Secretary General, it is already well-known and understood in many
jurisdictions and such definition is no longer necessary to be made part of the Model law
itself.

IV. Receipt of Written Communications (Article 3)

(1) Unless otherwise agreed by the parties:

(a) any written communication is deemed to have been received if it is delivered to
the addressee personally or if it is delivered at his place of business, habitual
residence or mailing address; if none ofthese can be found after making a
reasonable inquiry, a written communication is deemed to have been received if it
is sent to the addressee's last-known place of business, habitual residence or
mailing address by registered letter or any other means which provides a record of
the attempt to deliver it;
(b) the communication is deemed to have been received on the day it is so
delivered.
(2) The provisions of this article do not apply to communications in court
proceedings.

a. Written Communications

Unless otherwise agreed by the parties:

a. any written communication is deemed to have been received if it is delivered to the

addressee personally or if it is delivered at his place of business, habitual residence or
mailing address;

b. if none of these can be found after making a reasonable inquiry, a written

communication is deemed to have been received if it is sent to the addressee’s last-
known place of business, habitual residence or mailing address by registered letter or any
other means which provides a record of the attempt to deliver it

The communication is deemed to have been received on the day it is so delivered.

Exceptions: communications in court proceedings.

V. Waiver of Right to Object (Article 4)

A party who knows that any provision of this Law from which the parties may
derogate or any requirement under the arbitration agreement has not been
complied with and yet proceeds with the arbitration without stating his objection
to such non-compliance without undue delay or, if a time-limit is provided therefor,
within such period of time, shall be deemed to have waived his right to object.

a. Waiver of Objections

A party who knows that any provision of this Law from which the parties may derogate or
any requirement under the arbitration agreement has not been complied with and yet
proceeds with the arbitration without stating his objection to such non-compliance without
undue delay or, if a time-limit is provided therefor, within such period of time, shall be
deemed to have waived his right to object.

A party deems to waive his right to object if all these requisites are met:

A. There is a procedural requirement that has not been complied with which is non-
mandatory under the Model Law

B. The party knew of such compliance

C. The party proceeds with arbitration without objections

D. The party failed to state his objection within a reasonable period of time and in the
manner provided in the law or arbitration agreement

VI. Extent of Court Intervention (Article 5)

In matters governed by this Law, no court shall intervene except where so provided
in this Law.

General Rule: Courts must yield to the primary jurisdiction of the Arbitral Tribunal

Exception (When can the RTC intervene): SADR, following Section 6 of the Model Law,
provides the following:

• Relief on the issue of Existence, Validity, or Enforceability of the Arbitration Agreement;

• Referral to Alternative Dispute Resolution ("ADR");
• Interim Measures of Protection;
• Appointment of Arbitrator;
• Challenge to Appointment of Arbitrator;
• Termination of Mandate of Arbitrator;
• Confirmation, Correction or Vacation of Award in Domestic Arbitration;
• Recognition and Enforcement or Setting Aside of an Award in International Commercial
Arbitration;
• Recognition and Enforcement of a Foreign Arbitral Award;
• Confidentiality/Protective Orders; and
• Deposit and Enforcement of Mediated Settlement Agreements.
• Assistance in Taking Evidence;
• Confirmation, Correction or Vacation of Award in Domestic Arbitration;
• Recognition and Enforcement or Setting Aside of an Award in International Commercial
Arbitration;
• Recognition and Enforcement of a Foreign Arbitral Award;
• Confidentiality/Protective Orders; and
• Deposit and Enforcement of Mediated Settlement Agreements

VII. Court or Other Authority for Certain Functions of Arbitration Assistance

and Supervision (Article 6)

The functions referred to in articles 11(3), 11(4), 13(3), 14, 16(3) and 34(2) shall be
performed by ... [Each State enacting this model law specifies the court, courts or,
where referred to therein, other authority competent to perform these functions.]

a. Philippines as Place of Arbitration

The court in the place of arbitration shall have the competence to provide assistance or
intervention in the instances when court intervention is allowed. For example, if the
Philippines is a place of arbitration, then it can be said that the Philippine courts if they
have jurisdiction, shall have the competence to intervene and thereafter apply the
Philippine procedural law.

VIII. Definition and Form of Arbitration Agreement (Article 7)

(1) "Arbitration agreement" is an agreement by the parties to submit to arbitration
all or certain disputes which have arisen or which may arise between them in
respect of a defined legal relationship, whether contractual or not. An arbitration
agreement may be in the form of an arbitration clause in a contract or in the form
of a separate agreement.
(2) The arbitration agreement shall be in writing. An agreement is in writing if it is
contained in a document signed by the parties or in an exchange of letters, telex,
telegrams or other means of telecommunication which provide a record of the
agreement, or in an exchange of statements of claim and defence in which the
existence of an agreement is alleged by one party and not denied by another. The
reference in a contract to a document containing an arbitration clause constitutes
an arbitration agreement provided that the contract is in writing and the reference
is such as to make that clause part of the contract.

a. Form of Arbitration

They may be found in an arbitration clause within the contract of the parties, or in a
separate document.

Forms:

a. In a document duly signed by the parties;

b. In an exchange of letters, telegrams, telexes, or other means of telecommunications

that provide a record of the agreement;

c. In an exchange of statements of claims and defenses in which the existence of an

arbitration agreement is alleged by one party and not denied by another;

d. In a document supplementing the original contract

b. 2006 Amendments

The ADR Act of the Philippines was approved in 2004.Under this law, international
commercial arbitration shall be governed by the UNCITRAL Model law. The 2006
amendments on the UNCITRAL Model law, as evident as it may seem, would not form
part of the Philippine laws on arbitration. States which have adopted the 2006
amendments are allowed to liberally construe and interpret the Model law. In the
Philippines, there are varying options on whether or not which option should be adopted.
Under Option1, an arbitration agreement can be entered into in any form, even orally, as
long as there is a record of the agreement. Signatures to an agreement or an exchange
of messages between the parties confirming their agreement to submit their dispute to
arbitration is not required. The existence of this agreement can be proved by electronic
means. Under Option 2, there is an omission as to any form requirement of the existence
of any arbitration agreement.

c. Typical Situations Where Validity of Agreement is raised

The Working Group and the UNCITRAL considered in several sessions the following
typical examples where validity of agreement is usually raised:

1. A contract containing an arbitration clause is formed by one party sending written

terms to the other, which performs its bargain under the contract without returning
or making any other exchange in writing in relation to the terms of the contract;
2. A contract containing an arbitration clause is formed on the basis of the contract
text proposed by one party, which is not explicitly accepted in writing by the other
party, but the other party refers in writing to that contract in subsequent
correspondence, invoice or letter of credit by mentioning, for example, its credit
number;
3. A contract is concluded through a broker who issues the text evidencing the
agreement of the parties including the arbitration clause, without there being any
direct written communications between the parties;
4. Reference in an oral agreement to a written set of terms, which may be in standard
form, that contain an arbitration agreement.

d. When the agreement exists even though not signed and when
unenforceable

In the following situations:

 When there is partial performance of the contract

 By reason of custom, it is valid;
  When there is a failure to object within a period of time and in the required form

Exception: When the contract is entered into by a broker or agent. In cases when the
principal is unaware or did not consent thereto, there is a void arbitration agreement

e. When there is incorporation by reference

It may be valid if it is such as to make the subsequent document a part of the former
document.

IX. Arbitration Agreement and Substantive Claim before court (Article 8)

(1) A court before which an action is brought in a matter which is the subject of an
arbitration agreement shall, if a party so requests not later than when submitting
his first statement on the substance of the dispute, refer the parties to arbitration
unless it finds that the agreement is null and void, inoperative or incapable of being
performed.
(2) Where an action referred to in paragraph (1) of this article has been brought,
arbitral proceedings may nevertheless be commenced or continued, and an award
may be made, while the issue is pending before the court.

Articles 8 and 9 deal with two important aspects of the complex issue of the relationship
between the arbitration agreement and resort to courts. Modelled on article 11(3) of the
1958 New York Convention, article 8(1) of the Model Law obliges any court to refer the
parties to arbitration if seized with a claim on the same subject-matter unless it finds that
the arbitration agreement is null and void, inoperative or incapable of being performed.
The referral is dependent on a request which a party may make not later than when
submitting his first statement on the substance of the dispute. While this provision, where
adopted by a State when it adopts the Model Law, by its nature binds merely the courts
of that State, it is not restricted to agreements providing for arbitration in that State and,
thus, helps to give universal recognition and effect to international commercial arbitration
agreements.

a. Same subject matter

Under the New York Convention, a Philippine court has the obligation to refer the parties
to a foreign arbitration. It provides that “the court of a contracting state, when seized of
an action in a matter in respect of which the parties have made an agreement, shall at
the request of one of the parties, refer the parties to arbitration, unless it finds that the
said agreement is null and void, inoperative, or incapable of being performed.”

b. Referral to arbitration

The Special ADR Rules provide that the Philippine court shall make no more than a prima
facie determination of the issue of the validity of an arbitration agreement based on the
pleadings and the supporting documents as submitted by the parties.

c. Validity of Arbitration Agreement

Article 8 of the UNCITRAL Model law allows the parties and the arbitral tribunal to rule
and find out whether or not the arbitration agreement is null and void, inoperative, or
incapable of being performed.

d. Applicable Law

In determining whether an arbitration agreement is null and void, inoperative, or incapable

of being performed, there shall be a reference to the national law of the particular state
involved. The working group realized that it is not the call of the forum to decide such
matter. Thus, it was left to the particular states which have adopted the Model law to
determine when an agreement is null and void, inoperative, or incapable of being
performed.

e. Presumption of Arbitrability

Under the presumption of arbitrability, a court is called to resolve the doubt in favor of
arbitration. However, there is an exception: “if, upon looking into the facts and
jurisprudence relating to the model law, the court can easily rule that it is void, inoperative,
or incapable of performance, then the court shall declare that the agreement is null and
void, inoperative, or incapable of performance.”

f. Compulsory Arbitration and Concurrent Proceedings

Although the term “arbitration” has a wide and extensive meaning, it shall not cover
compulsory arbitration because such is not based on the will or voluntariness of the
parties but rather it is required by statute.

The court may take jurisdiction and resolve the preliminary question involving the validity
of an arbitration agreement. Concurrently, the arbitration may be commenced and an
award may eventually be made. Also, when a question is brought to the court, the
arbitration proceedings shall not be deemed suspended pending the court decision on
the issue raised because such dilatory tactics have been foreseen by the working group
and are thus prevented.

g. Arbitration Commenced in a Foreign State

This is actually a serious problem the field of arbitration. This may take place when arbitral
proceedings are commenced abroad and the parties are represented by foreign counsels
and a similar action is commenced in the Philippines involving similar parties and issues
as those brought to arbitration abroad and a party is represented by a Filipino counsel
who is unaware of the arbitration proceedings abroad. According to a report of the
UNCITRAL Secretary General, “As regards the effect of a party’s failure to invoke the
arbitration agreement by way of a timely request, that party is prevented, under Article 8,
from invoking the agreement during subsequent phases of the court proceedings.

X. Arbitration Agreement and Interim Measures by court (Article 9)

It is not incompatible with an arbitration agreement for a party to request, before

or during arbitral proceedings, from a court an interim measure of protection and
for a court to grant such measure.

Article 9 expresses the principle that any interim measures of protection that may be
obtained from courts under their procedural law (e.g. pre-award attachments) are
compatible with an arbitration agreement. Like article 8, this provision is addressed to the
courts of a given State, insofar as it determines their granting of interim measures as
being compatible with an arbitration agreement, irrespective of the place of arbitration.
Insofar as it declares it to be compatible with an arbitration agreement for a party to
request such measure from a court, the provision would apply irrespective of whether the
request is made to a court of the given State or of any other country. Wherever such
request may be made, it may not be relied upon, under the Model Law, as an objection
against the existence or effect ofan arbitration agreement.

XI. Section 19 of R.A. no. 9285 (ADR ACT OF 2004)

SEC. 19. Adoption of the Model Law on International Commercial Arbitration. -

International commercial arbitration shall be governed by the Model Law on International
Commercial Arbitration (the "Model Law") adopted by the United Nations Commission on
International Trade Law on June 21, 1985 (United Nations Document A/40/17) and
recommended approved on December 11, 1985.