PASOS, Abigail

Acosta, John Kenneth C.

2D

Article 8
General rule:
The parties must be referred to arbitration if a party so request not later than the
submission of his statement on the substance of the dispute
Exemption:
When the agreement itself is null and void, inoperative or incapable of being performed

But, even if such issue is pending the award may still be given

Note:
-A party has no legal duty to submit the dispute to submit the dispute to arbitration if
there is no arbitration agreement

-the existence of valid arbitration agreement gives jurisdiction to hear a d decide

dispute, thus jurisdiction of Arbitral Tribunal depends on issue of existence, validity or
enforceability of agreement

The following are the three(3) specific situation where the court may be called upon to
decide the issue of existence or validity or enforceability of arbitration agreement
1) Commencement of civil action concerning a matter which is the subject of
arbitration agreement

Why?
The commencement of civil action is a waiver of right to arbitration

Why is it a waiver?
Because instead of filing request for arbitration, an action has been made on
issue of existence, validity or enforceability of arbitration agreement

Furthermore, since it is a form of civil action, the request must be made in a form
of motion.
Such motion must contain the following:
a) There is no arbitration agreement to refer the dispute to arbitration
b) Arbitration agreement is null and viod
c) Subject matter of dispute is not capable of settlement or resolution by
arbitration agreement pursuant to the section 6 of ADR Act

2) Special proceedings under rule 3 of the Special ADR rules

 -must be filed before the commencement arbitration
Generally the court is directed to exercise judicial restraint except when there is
Prima facie determination the arbitration is invalid or unenforceable

3) There could conceivably be other situations where the issue of competence of

arbitral tribunal may be raised before the court
Example
Assistance of concerning the taking of evidence
The issue may also be raised in a petition for an interim measure of protection

DETERMINATION BY ARBITRAL TRIBUNAL OF ITS JURISDICTION

-the thrust of the challenge to tribunals jurisdiction is that the arbitral tribunal is
not competent to resolve a dispute that concerns the issue of existence, validity
or enforceability of the arbitration agreement
- however, under Article 8 of Model Law, despite of the judicial challenge, either
of the parties are authorize to commence arbitration and will continue until the
rendition of award.
Why?
To prevent the abuse of judicial process to thwart the submission of dispute to
arbitration

Model law embodies two (2) basic principles in international commercial arbitration
Namely:
a) Principle of Separability
- The invalidity of the main contract does not ipso facto jure the invalidity of the
arbitration clause
- The arbitration agreement is independent of the main contract
Reason for Principle of Separability:
There the termination of the main contract either of expiration or payment or
performance or has been declared as void by court there might be a residual and
unresolved claims and counterclaims between the parties

b) Principle of competence-competence
- Means that the arbitration tribunal is competent to rule upon its own jurisdiction,
including objection with respect to the existence, or validity of the arbitration
agreement
Challenge to Competency of Arbitral Tribunal

Article 8 of the Model Law provides that a court in resolving the issue of whether the
parties substantive claim should be referred to arbitration will in effect rule upon the
issue of the jurisdiction of an arbitral tribunal over such claim.
In relation thereto, Article 16 (1) of the Model Law empowers the arbitral tribunal to rule
on its own jurisdiction upon the following instances:

(a) non-existence or invalidity of the arbitration agreement

In deciding the existence or validity of the arbitration agreement, the court

or the arbitral tribunal shall do so in relation to the applicable law or laws
whether of the forum state or of a foreign state.

The validity of the arbitration agreement may be constructed to include

within its meaning that such agreement is inoperative or incapable of
being performed.

(b) nullity of the contract the breach of which has resulted in the dispute
submitted to arbitration

(c) other grounds not specified in the aforesaid article

Such other grounds may include, but not limited to, the following:

(1) formal validity of arbitration agreement

In cases where the formal validity of an arbitration agreement is in

question, the arbitral tribunal will be referred to the law of the place of
arbitration. Accordingly, the Philippines adheres to the rule of lex loci
contractus such that the formal validity of contracts shall be governed
by the laws of the place where such contract is executed.

(2) lack of legal capacity to enter into agreement

Article 15 of the Civil Code of the Philippines mandates that laws

governing legal capacity of persons shall be binding upon citizens of
the Philippines regardless of where they live. By implication, it can be
understood that the legal capacity of a person shall be governed by his
national law.

(3) unenforceability of the agreement

Article 1403(1) of the Civil Code of the Philippines expressly states that
a contract entered into by an agent without or in excess of the authority
given to him by his principle is considered unenforceable.

(4) non-arbitrability of dispute

The court of the forum may set aside an arbitral award if it finds that:
 (i) the subject matter of the agreement is not capable of settlement
by arbitration under the law of the forum state; or,
(ii) the recognition and enforcement of the award would be contrary
to public policy of the forum state.

The arbitral tribunal is allowed, under Article 16(1) of the Model Law, to rule on the issue
of the existence or validity of the arbitration agreement upon its own motion regardless
whether either arbitrating parties interposed their objections.

In the absence of the abovementioned issues, a party to the arbitration may question
the arbitral tribunals exercise of authority and acting in excess of its authority.

With the foregoing, the possibility of conflict of power between a trial court and an
arbitral tribunal arises. To reconcile such variance, the Special ADR Rules was enacted.
The Special ADR Rules laid down a system to prevent such potential conflict as follows:

(a) The court should defer to an arbitral tribunal to rule on its own jurisdiction,
including:

Any objections with respect to the existence or validity of the arbitration

agreement, or
Any condition precedent to the filing of the petition.

(b) While a party may seek judicial intervention to determine the issue of the
existence, validity or enforceability of the arbitration clause, this intervention
which should be in a form of a special proceeding may be filed at any time before
the commencement of arbitration. Unless otherwise agreed by the parties, the
arbitral proceedings in respect of a particular dispute commence on the date on
which a claimants request for that dispute to be referred to arbitration is received
by the respondent.

(c) Supposing that the petition under Rule 3 of the Special ADR Rules was
seasonably file, the court is enjoined to exercise judicial restraint, and be guided
by the policy implementing the competence-competence principle that the court
must defer to the competence of an arbitral tribunal to rule upon such issue,
whether the tribunal was constituted before or after the case was file.

(d) When a civil action is commenced submitting to the court a dispute which should
be submitted to arbitration pursuant to the tenor of the arbitration agreement, the
court, under Section 24 of the ADR Act, shall refer the parties to arbitration if at
least one party so requests not later than the pre-trial conference, or upon the
request of both parties thereafter. Such referral to arbitration is prescribed for
reasons including, but not limited to, the following:

The referral tends to oust a court of its jurisdiction;

 The court is in a better position to resolve the dispute subject of
arbitration;
The referral would result in multiplicity of suits;
The arbitration proceeding has not commenced;
The place of arbitration is in a foreign country;
One or more of the issues are legal and on or more of the arbitrators are
not lawyers;
One or more of the arbitrators are not Philippine nationals; or
One or more of the arbitrators are alleged not to possess the required
qualification under the arbitration agreement or law.

There are instances, however, when a request for arbitration involves a mix of
arbitrable and non-arbitrable issues. In such cases, Section 25 of the ADR Act
provides that the court shall refer to arbitration those parties who are bound by
the arbitration agreement although the civil action may continue as to those who
are not bound by such arbitration agreement.

Rules on Procedure

Consequently, the arbitral tribunal has the discretion whether to suspend the proceeding
or to continue with it. If the proceedings shall continue, the arbitral tribunal has further
discretion whether to determine the preliminarily or in the final award. If the issue is to
be resolved preliminarily in favor of the arbitral tribunals jurisdiction or in favor of the
existence, invalidity or enforceability of an arbitration agreement, its ruling shall be
subject to immediate judicial review or the party may appeal said ruling to a Regional
Trial Court with jurisdiction. The tribunal, on other hand, may defer its ruling on
jurisdiction until it renders an award on the merits of the case.

Remedies Available to Parties

When it comes to the foregoing immediate judicial review, the Special ADR Rules
recognize the right of a party to petition the court for such judicial relief within 30 days
after having received notice of that ruling by the arbitral tribunal. Further, the court shall
render judgment, based on the pleadings filed and evidence presented, within 30 days
from the date of submission of petition for resolution. The court shall dismiss the petition
if the same is not prima facie meritorious. Such judicial recourse, however, shall not bar
the arbitral tribunal from continuing the proceedings and render its award.

A Motion for Reconsideration from a decision of the court may be also filed. If the court
affirms the jurisdiction of the arbitral tribunal, the decision is inappealable and may not
be the subject of a petition for certiorari. In contrast, if the court rules that the arbitral
tribunal has no jurisdiction, the decision may be the subject of a petition for certiorari. If
the court is unable to render a decision, the petition shall become ipso facto moot and
academic and shall be dismissed.
If the arbitral tribunal, upon its discretion, defers its resolution on the preliminary
question of jurisdiction until final award, no motion for reconsideration, appeal or petition
for certiorari shall be allowed until and unless the final award has been rendered.

Preclusion

While the Model Law failed to resolve the issue of preclusion, the State shall deal with
the appropriate procedural rules to apply particularly in the following situations:

(a) Where the arbitrability of a dispute is raised in court before arbitration is initiated,
or while it is pending, and the decision of the court becomes final and executory,
whether such decision precludes either party from taking action inconsistent with
that decision.

There are two situations presented in the Special ADR Rules from which the
issue of preclusion may arise.

(1) A petition for judicial relief under Rules 3.2 to 3.11.

In this case, the petition may be filed before arbitration commences by a

party who may or may not be party who questions the existence, validity
or enforceability of an arbitration agreement.

If a final award by the arbitral tribunal is made before the court has
rendered decision on the aforesaid petition, it may be said that the petition
has become moot and academic.

(2) A motion to refer parties to arbitration under Rule 4 of the Special ADR
Rules.

The motion is filed before a court which the civil action is pending for
reason that the subject matter of the action is covered by an arbitration
agreement. If the court rules not to stay the action, such order is
inappealable although the same may be the subject of a motion for
reconsideration and/or a petition for certiorari. If the court, on the other
hand, rules to stay the action and refers the parties to arbitration, such
order shall be immediately executory and shall not be subject to a motion
for reconsideration and/or a petition for certiorari.

(b) Where the arbitrability of a dispute is raised as a challenge to the jurisdiction of

an arbitral tribunal.

The arbitral tribunal has three ways to resolve the issue as follows:

(1) Grant the motion and declare itself without jurisdiction

(2) Deny the motion and uphold its jurisdiction
 (3) Defer resolution of the issue until after hearing on the merits and in its final
award

(c) Where a request is made to a court to resolve the issue of arbitrability and
consequently the issue of jurisdiction, and the court resolves it by reversing the
ruling of the arbitral tribunal, the issue is whether the parties and the arbitral
tribunal can continue with the arbitration proceedings or the arbitration will be
terminated.

When the Regional Trial Court reverses the arbitral tribunal and declares that the
latter has no jurisdiction over the dispute, Rule 19.12(m) of the Special ADR
Rules gives the aggrieved party the remedy of appeal to the Court of Appeals by
way of a petition for review.