Published 13 August 2018, The Daily Tribune

Claims and disputes involving business contracts tend to be technically complex, factually intensive and costly to resolve through litigation. As a result, contracting parties frequently agree to resolve their disputes by using alternative dispute resolution processes such as arbitration.

Arbitration is an alternative mode of dispute resolution outside of the regular court system.

Although adversarial in character, arbitration is technically not litigation. It is a voluntary process in which one or more arbitrators — appointed according to the parties’ agreement or according to the applicable rules of the Alternative Dispute Resolution (ADR) Law — resolve a dispute by rendering an award.

The arbitrator’s final award may direct one or more parties to pay another party a monetary amount, or the award may direct the parties to take some other specific action based on the issues presented to and decided by the arbitrator. While most parties will voluntarily comply with the arbitrator’s final award, some losing parties resort to numerous ways of delaying (if not avoiding) its enforcement. For those involved in a domestic arbitration proceeding for the first time, a frequent question after securing an arbitral award is “now what?”

If the losing party refuses to pay or comply with the award, the winning party will have to seek assistance from the courts to enforce the award. The winning party can petition the Regional Trial Court (RTC) to confirm an arbitral award (rule 11.1, Special ADR Rules). After the award is judicially confirmed, it can now be enforced like any final judgment issued by a court.

For the losing party, on the other hand, the only remedy against a final domestic arbitral award is to file a petition to vacate or to modify/correct the award not later than 30 days from the receipt of the award (rule 11.2, Special ADR Rules). Unless a ground to vacate has been established, the RTC must confirm the arbitral award as a matter of course.

A domestic arbitral award can be vacated, modified, corrected or set aside under very limited specified grounds by court action (Sections 24 and 25, Republic Act 9876, otherwise known as the Arbitration Law, rule 11.1, Special ADR Rules).

The grounds for vacating a domestic arbitral award under Section 24 of the Arbitration Law contemplate the following scenarios:

(a) when the award is procured by corruption, fraud or other undue means; or

(b) there was evident partiality or corruption in the arbitrators or any of them; or

(c) the arbitrators were guilty of misconduct that materially prejudiced the rights of any party; or

(d) the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not made.

The award may also be vacated if an arbitrator who was disqualified to act willfully refrained from disclosing his disqualification to the parties (Article 5.35 (iv), Implementing Rules and Regulations (IRR) of the ADR Law).

The RTC may also set aside the arbitral award based on Article 34 of the UNCITRAL Model Law. These grounds are reproduced in Chapter 4 of the IRR of the 2004 ADR Act:

(i) the party making the application furnishes proof that:

(aa) a party to the arbitration agreement was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the Philippines; or

(bb) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(cc) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only the part of the award which contains decisions on matters not submitted to arbitration may be set aside; or

(dd) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of ADR Act from which the parties cannot derogate, or, failing such agreement, was not in accordance with ADR Act; or

(ii) The Court finds that:

(aa) the subject-matter of the dispute is not capable of settlement by arbitration under the law of the Philippines; or

(bb) the award is in conflict with any public policy of the Philippines.

Notably, these grounds are not concerned with the correctness of the award; they go into the validity of the arbitration agreement or the regularity of the arbitration proceedings.

These grounds for vacating an arbitral award are exclusive. Under Section 41 of the ADR Law, courts are obliged to disregard any other grounds invoked to set aside an award.

The good news for winning parties to an arbitration proceeding is that there is no appeal from an arbitral award. The Special ADR Rules specifically prohibit the filing of an appeal to question the merits of an arbitral award. Consequently, the winning party can generally expect the enforcement of the award.

However, the decision and orders of the RTC relating to the arbitral award (either confirming or not, vacating, correcting, setting aside, etc.) can be reviewed by the Court of Appeals and subsequently by the Supreme Court (rules 19.8, 19.12 and 19.36, Special ADR Rules). Thus, lawyers will always find creative ways of keeping alive the hopes of losing parties ad infinitum.

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