An Arbitration Agreement in the Philippines 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.^[1]

An Arbitration Agreement is very important since it is the foundation of almost every arbitration.

An Arbitration Agreement is a contract defining the parameters for the arbitration.

It must properly reflect the intention of the parties to arbitrate because a party cannot be required to submit to arbitration any dispute which he has not agreed to submit and so is crucial to any attempt to arbitrate.

^[1] Article 7, UNCITRAL Model Law

RA 876, Section 4 or the Arbitration Law of the Philippines states that an Arbitration Agreement in the Philippines must be in writing and subscribed by the party sought to be charged, or by his lawful agent.

A Philippine Arbitration Agreement may be separate from a main contract or be part of the contract itself – it is basically up to the parties involved.

If it is part of a contract, it could be placed in:

1. A clause in a main contract
2. A clause in an incorporated instrument
3. A clause in a separate agreement
4. Or a submission agreement

What do we mean when we say in “a clause in an incorporated instrument”?

This means that a general incorporation clause in a contract will suffice to incorporate an arbitration agreement contained in another instrument.

In fact, there is already a ruling by the Supreme Court in National Union Fire Insurance vs. Stolt-Nielsen.^[1]

In this case, the Supreme Court ruled that the parties should have referred the dispute to arbitration pursuant to the arbitration clause even if such clause was only incorporated by reference.

This is in line with the Philippines’ policy in favor of arbitration.

This was expressly provided for under RA 9285 which is the Alternative Dispute Resolution Act of 2004.

Arbitration agreements in the Philippines are liberally construed in favor of proceeding to arbitration.

The interpretation that would render effective an arbitration clause if the terms of the agreement allow for such interpretation will be adopted.^[2]

^[1] G.R. No. 87958

^[2] Luzon Iron Development Group Corporation vs. Bridestone Mining and Development Corporation, G.R. No. 220546, December 7, 2016

There are some things to consider before drafting an Arbitration Agreement in the Philippines.

1. First, the referral must be to “arbitration” and not to any other mode of dispute resolution. This means that the clause in the Philippine arbitration agreement must expressly provide for arbitration as the mode of dispute resolution.
2. Second, the title “arbitration” is not the controlling factor in determining if the parties did submit a controversy to arbitration. This means that the substance of the dispute resolution process will determine if it was really arbitration.

Why should this be taken into account?

Because there are some “arbitration” procedures here in the Philippines that are not the same as commercial arbitration.

The Philippines has labor arbitration, which only deals with labor and employment cases.

We also have CIAC arbitration but this is only for construction-related disputes.

This is why the title “arbitration” is not the controlling factor to check if the parties really did submit themselves to arbitration.

Arbitration Agreement in the Philippines must be specific.

The Arbitration Agreement in the Philippines must at least contain the following:        

1. The place or seat of arbitration. This is the law to be applied to the arbitration proceedings, regardless of where the actual arbitration proceedings will take place.

It is important to include this because it will affect how the arbitral tribunal will be constituted, how an arbitral award can be set aside, etc.

This is different from the venue of arbitration.

The venue of arbitration is only the place where the actual arbitration proceedings will take place.

2. The type of arbitration is either ad hoc or institutional. Ad hoc arbitration is one where the parties make their own rules when it comes to how the arbitration proceedings will go.

An institutional arbitration is one where arbitration is administered by an arbitral institution, which is usually under its own rules.

3. The governing law of the contract

This provides the law which will be used in resolving the issue or dispute arising from the contract.

4. The number of arbitrators, where the default number is three (3),.
5. The language to be used in arbitration. The default language in the Philippines is English for international arbitration and English or Filipino for domestic arbitration.

All five must be present in an Arbitration Agreement in the Philippines for it to be valid.

An arbitration agreement in the Philippines that will hamper or defeat the constitution of the arbitral tribunal or invite court intervention is called a “pathological clause.”.

An agreement that is unclear and incomplete in a way that is ineffective to cover all the disputes that the parties intend to submit to arbitration is also pathological clause.

Let’s enumerate the things to avoid in an Arbitration Agreement in the Philippines.

Arbitration Agreement in the Philippines Things to Avoid 2: Avoid referring to an imprecise arbitral institution

The parties must exercise due diligence in choosing the arbitral institution that will handle the arbitration proceedings.

The arbitral institution chosen must actually exist and be capable of resolving disputes through arbitration.

An example would be, “Any dispute arising out of the present contract shall be settled pursuant to the arbitration rules of the Philippine International Arbitration Center.”

Why is this a pathological clause?

Because there is no Philippine International Arbitration Center.

Thus again, this kind of language in an Arbitration Agreement in the Philippines should be avoided.

Avoid contradictory statements in Arbitration Agreement in the Philippines

An example would be: “The arbitration shall be governed by the rules of the Philippine Dispute Resolution Center, Inc. (PDRCI), to be administered by the Singapore International Arbitration Center (SIAC).”

The example above shows that the parties chose two different arbitral institutions which will govern the arbitration proceedings.

This is evidently contradictory.

Another contradictory agreement is one which provides for both arbitration and litigation as means to resolve issues.

Why is this contradictory?

It is unclear which entity has the jurisdiction to resolve the dispute.

If a party submits a dispute to arbitration, the other party can contest this, stating that the courts have jurisdiction and not arbitration.

Arbitration Agreement in the Philippines Things to Avoid 4: Optional or non-mandatory agreements.

This somewhat relates to the third example, which is to avoid contradictory statements for Arbitration Agreements in the Philippines.

For instance, if parties use the word “may”, this gives them the option to either go for arbitration or litigation.

The use of the word “may” is permissive. This means that referring the matter for arbitration is neither obligatory nor a requirement before filing a case in court.^[1]

When drafting an Arbitration Agreement in the Philippines, consider hiring corporate counsel specializing in this to ensure that the contract is well made.

^[1] Public Estates Authority vs. Henry Sy, G.R. No. 210001, February 6, 2023