PHILIPPINES Trends and Developments Contributed by: Alexander J. Poblador, Dino Vivencio A. A. Tamayo, Anzen P. Dy and Justin Christopher C. Mendoza, Poblador Bautista & Reyes Law Offices
Trends and Developments in Commercial Arbitration The “permissive” arbitration clause Through the years, arbitration has gained ground in becoming a leading mode of commercial dispute reso- lution. Regardless of the magnitude and complexity of the transaction, service, or project involved, commer- cial contracts nowadays usually include some type of arbitration clause. Parties are attracted to the speed and efficiency by which disputes are resolved through arbitration, even though the process itself can entail costs and expenses considerably higher than those in traditional court litigation. Party autonomy, especially the freedom to select tribunal members who are tech- nical, industry, or practice area experts and special- ists, and the limited remedies and grounds available to question an arbitral award, are other key reasons that arbitration has gained widespread acceptance in the business community. Arbitration, however, is still a creature of contract. Therefore, resort to arbitration depends first and fore- most on the language of the arbitration clause itself. A stipulation calling for arbitration should unmistakably convey the parties’ intent to refer any potential con- tractual dispute to arbitration to the exclusion of court litigation or some other mode of dispute resolution. An arbitration clause should clearly set forth a contractual duty and mandate – not merely a right – to submit the dispute to arbitration. Any flexibility in the words and sentences of the arbitration clause can be a pathway leading straight to court. This was precisely the Supreme Court’s ruling in the consolidated petitions in Poro Point Manage- ment Corporation vs . Bulk Handler ’ s Inc ., G.R. No. 188034; Bases Conversion and Development Authority vs . Bulk Handler ’ s Inc ., G.R. No. 188077; Bases Con- version and Development Authority vs . Bulk Handler ’ s Inc ., et al ., G.R. No. 216537 and 217060; Poro Point Management Corporation and Bases and Conversion and Development Authority vs . Bulk Handler ’ s Inc ., et al ., G.R. Nos. 216589 to 216590, 7 April 2025 (“Poro Point”). The disputed arbitration clause in Poro Point is quoted below:
“In the event of failure of the Parties to arrive at an amicable settlement at the end of such term, either Party shall have the right to have the dispute settled by binding arbitration , which shall be conducted by a simple Arbitrator according to the law on arbitration”. (Emphasis in the original.) In Poro Point , the Supreme Court agreed with the position taken by Bulk Handler’s Inc. (BHI) and Poro Point Industrial Corporation (PPIC) that “the language of the (arbitration clause) is permissive and not exclu- sive” and thus, the Court upheld their “resort to judi- cial action to enforce the terms of the Agreement”. The Court noted that “(t)he word ‘shall’ (in the arbitra- tion clause) emphasises the party’s right to have dis- putes settled through arbitration”, but then stressed that the word “shall” “does not mandate that all dis- putes regarding the enforcement or implementation of the Agreement must be submitted to arbitration to the exclusion of all other recourses including judicial remedies”. The Court added that “(l)ike all rights, the right of each party to submit disputes through bind- ing arbitration may be exercised, and even waived depending on the express or implied actions of each party”. In Poro Point , the Supreme Court applied the “sepa- rability doctrine”, or the principle that the arbitration clause is separate and distinct from the contract embodying the clause. Citing earlier case law, the Court reiterated that “the validity of the contract con- taining the agreement to submit to arbitration does not affect the applicability of the arbitration clause itself”, because “(a) contrary ruling would suggest that a par- ty’s mere repudiation of the main contract is sufficient to avoid arbitration”. Binding a “non-signatory” to an arbitration clause Another issue that has recently cropped up before the Supreme Court is whether a “non-signatory” to an arbitration clause may nonetheless be bound by it. An arbitration clause is binding on the parties because, like any contract, the parties gave their consent to it. Similar to a party’s consent to a contract, a party’s consent to an arbitration clause is expressed in the party’s signature on the contract. But what if a party did not actually sign the contract or the arbitration
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