ADR Midterm Notes - Billy

What is a compromise?

Article 2028 NCC - A compromise is a contract whereby the parties, by making reciprocal
concessions, avoid a litigation or put an end to one already commenced. (1809a)

What are the issues not subject to compromise?

Article 2035. No compromise upon the following questions shall be valid:

(1) The civil status of persons;
(2) The validity of a marriage or a legal separation;
(3) Any ground for legal separation;
(4) Future support;
(5) The jurisdiction of courts;
(6) Future legitime. (1814a)

Article 2045 NCC. Any clause giving one of the parties power to choose more arbitrators than
the other is void and of no effect. (n)

RA 9285 - Alternative Dispute Resolution Act of 2004

State Policy on ADR:

SEC. 2, RA 9285 - it is hereby declared the policy of the State to actively promote party autonomy in
the resolution of disputes or the freedom of the party to make their own arrangements to resolve their
disputes. Towards this end, the State shall encourage and actively promote the use of Alternative
Dispute Resolution (ADR) as an important means to achieve speedy and impartial justice and declog
court dockets. As such, the State shall provide means for the use of ADR as an efficient tool and an
alternative procedure for the resolution of appropriate cases.

What is ADR?

"Alternative Dispute Resolution System" means any process or procedure used to

resolve a dispute or controversy, other than by adjudication of a presiding judge of a court or
an officer of a government agency, as defined in this Act, in which a neutral third party
participates to assist in the resolution of issues, which includes arbitration, mediation,
conciliation, early neutral evaluation, mini-trial, or any combination thereof. (Sec 3, (a)
RA 9285)

Sec. 3 (d) - "Arbitration" means a voluntary dispute resolution process in which one or
more arbitrators, appointed in accordance with the agreement of the parties, or rules
promulgated pursuant to this Act, resolve a dispute by rendering an award.
Sec. 3 (q) - "Mediation" means a voluntary process in which a mediator, selected by the
disputing parties, facilitates communication and negotiation, and assist the parties in
reaching a voluntary agreement regarding a dispute.

Sec.3 (n) - "Early Neutral Evaluation" means an ADR process wherein parties and their
lawyers are brought together early in a pre-trial phase to present summaries of their cases
and receive a nonbinding assessment by an experienced, neutral person, with expertise in
the subject or in the substance of the dispute;

Sec 3(u) - "Mini-Trial" means a structured dispute resolution method in which the merits of a
case are argued before a panel comprising senior decision makers with or without the
presence of a neutral third person after which the parties seek a negotiated settlement;

Policy of the Judiciary on ADR as declared by the Supreme Court

“Alternative dispute resolution methods or ADRs – like arbitration, mediation,

negotiation and conciliation – are encouraged by the Supreme Court. By enabling
parties to resolve their disputes amicably, they provide solutions that are less time-
consuming, less tedious, less confrontational, and more productive of goodwill and
lasting relationships.”

Objectives or purpose of ADR

1) Speedy and impartial justice

– ADR has been judicially recognized as a tool for the speedy, inexpensive
and amicable settlement of disputes.

2) Declogging of court dockets

FORMS OF ADR

1. Arbitration means a voluntary dispute resolution process in which one or more

arbitrators, appointed in accordance with the agreement of parties or rules
promulgated pursuant to the ADR Act, resolve dispute rendering and award.

2. Mediation - A voluntary process in which a mediator, selected by the praties,

facilitates communication and negotiation and assists the parties in reaching a
voluntary agreement regarding a dispute.

3. Conciliation - Adjustment of dispute in a friendly and welcoming manner.

Mediation includes conciliation.

4. Neutral and Early Neutral Evaluation - is a process wherein the parties and their
lawyers are brought together to present summaries of their cases and received a
non-binding assessment by an experienced neutral person with expertise in the
subject or in the substance of the dispute.
5. Mini Trial A structured dispute resolution method in which the merits of a case are
argued before a panel composed of senior decision makers with or without the
presence of neutral third person, after which a party seek a negotiated settlement

6. Any combination of the foregoing

7. Any other ADR form.

Not covered by ADR procedures

Sec. 3(l) "Court-Annexed Mediation" means any mediation process conducted under
the auspices of the court, after such court has acquired jurisdiction of the dispute;

Sec. 3(m) "Court-Referred Mediation" means mediation ordered by a court to be

conducted in accordance with the Agreement of the Parties when as action is
prematurely commenced in violation of such agreement;

Arbitral Proceedings under administrative agencies exercising quasi-judicial powers

such as NLRC, Regional Offices of DOLE, IPO, Mines and Geosciences Bureau, Insurance
Commission and other similar Government Agencies are not covered by ADR Act of 2004.

The limitation as to the applicability of the said law into the said administrative agencies
is expressly provided for under Section 6 of R.A 9285; (ADR Act of 2004)

SEC. 6. Exception to the Application of this Act. (ADR) - The provisions of this Act shall not
apply to resolution or settlement of the following:

(a) Labor disputes covered by Presidential Decree No. 442, otherwise known as the
Labor Code of the Philippines, as amended and its Implementing Rules and
Regulations;

(b) the civil status of persons;

(c) the validity of a marriage;

(d) any ground for legal separation;

(e) the jurisdiction of courts;

(f) future legitime;

(g) criminal liability; and

(h) those which by law cannot be compromised.

The law does not necessarily mean that similar procedures before quasi-judicial agencies
are not considered forms of arbitration, mediation or conciliation. They are, the rationale is
just different there being other specific laws and rules governing their procedures.

Ex. Those by law cannot be compromised –Acts or Omissions punishable under Act
No. 3815 or the Revised Penal Code of the Philippines.
A crime committed against the state cannot be compromised.

Principles of ADR

1. Promotion of party autonomy and self-determination in the resolution of disputes.

-The parties are given the freedom to choose the form of ADR they desire to avail of.
(Luzon Iron v. Bridestone – G.R. No. 220546, December 07, 2016; Koppel Inc. v. Makati
Rotary Club Foundation, Inc.)

2. Recognition of ADR as an efficient tool and an alternative procedure for the

resolution of cases.
–ADR does not altogether do away with the court trial system. ADR merely provides
the parties with an alternative means of settling their disputes in a manner that is
different, separate and independent from the court trial system.

3. Enlisting of Private Sector participation.

– The essence of ADR is that it usually requires the participation of third parties who
do not necessarily dispense public service. Many ADR practitioners or providers hail
the private sector in various fields of endeavour.

Features of ADR

1) ADR is a means used to resolve a dispute or controversy in a speedy, amicable and

inexpensive manner.

2) ADR utilizes means and methods allowed by law, usually in the form of arbitration,
mediation, conciliation, early neutral evaluation, or mini trial.

3) ADR is contractual in nature - wherein any form that satisfies the essential requisites of
contract and which is not contrary to law, morals, good customs, public order or public policy.

4) ADR avoids court trial but recognizes the right of any party to apply with the courts to
take measure to safeguard and/or conserve any matter which is the subject of the dispute in
arbitration or allows the filing of petitions for provisional or interim measures with the regular
courts whenever the arbitral tribunal has no power to act or to act effectively. (Home Bankers
Savings v. Court of Appeals, G.R. No. 115412, November 19, 1999)

5) ADR usually involves the participation of a neutral third party.

The policy of the law is to actively promote party autonomy, the parties to a dispute are
given the freedom to agree to resolve their dispute and decide on the procedure
therefore.

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Competence-Competence Principle

In Luzon Iron v. Bridestone – G.R. No. 220546, December 07, 2016, The Court said that
Judicial restraint should be exercised pursuant to the competence-competence principle
embodied in Rule 2.4 of the Special Rules of Court on Alternative Dispute Resolution which
provides that; “when a court is asked to rule upon issue/s affecting the competence or
jurisdiction of an arbitral tribunal in a dispute brought before it, either before or after the
arbitral tribunal is constituted, the court must exercise judicial restraint and defer to the
competence or jurisdiction of the arbitral tribunal by allowing the arbitral tribunal the first
opportunity to rule upon such issues.”

Unless the court, pursuant to such prima facie determination, concludes that the arbitration
agreement is null and void, inoperative or incapable of being performed, the court must
suspend the action before it and refer the parties to arbitration pursuant to the arbitration
agreement. (Luzon Iron v. Bridestone – G.R. No. 220546, December 07, 2016)

In Mabuhay Holding Corporation v. Sembcorp Logistics LTD, G.R. No. 212734, 5

December 2018

The Court said that the CA correctly applied the Kompetenz-Kompetenz principle expressly
recognized under Rule 2.2 of the Special ADR Rules, viz:

The Special ADR Rules recognize the principle of competence-competence, which means
that the arbitral tribunal may initially 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 a request for arbitration.

The Special ADR Rules expounded on the implementation of the said principle:

Rule 2.4. Policy implementing competence-competence principle. The arbitral tribunal shall
be accorded the first opportunity or competence to rule on the issue of whether or not it has
the competence or jurisdiction to decide a dispute submitted to it for decision, including any
objection with respect to the existence or validity of the arbitration agreement. When a court
is asked to rule upon issue/s affecting the competence or jurisdiction of an arbitral tribunal in
a dispute brought before it, either before or after the arbitral tribunal is constituted, the court
must exercise judicial restraint and defer to the competence or jurisdiction of the
arbitral tribunal by allowing the arbitral tribunal the first opportunity to rule upon such
issues.

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Confidentiality of ADR Proceedings

In Federal Express vs. Airfreight – G.R. No. 216600, November 21, 2016, where, during
the arbitration proceedings, witness Rhicke S. Jennings divulged an information that Merit and Ace
were Air21's proxies and further said that Merit and Ace were just very small companies with meager
resources, yet they were able to finance and file a case to oppose the grant of IFF license to FedEx
which lead to the filing of a complaint for grave slander against Jennings, the Court said that the
testimonies given during the arbitration proceedings falls within the ambit of confidential information
and, therefore, covered by the mantle of a confidentiality/protection order.

SEC. 23 of RA 9285 (ADR Law). Confidentiality of Arbitration Proceedings. - The arbitration

proceedings, including the records, evidence and the arbitral award, shall be considered confidential
and shall not be published except (1) with the consent of the parties, or (2) for the limited purpose of
disclosing to the court of relevant documents in cases where resort to the court is allowed herein.
Provided, however, that the court in which the action or the appeal is pending may issue a protective
order to prevent or prohibit disclosure of documents or information containing secret processes,
developments, research and other information where it is shown that the applicant shall be materially
prejudiced by an authorized disclosure thereof.

The Court said that it must be stressed that the very soul of an arbitration proceeding would be
rendered useless if it would be simply used as an avenue for evidence gathering or an entrapment
mechanism to lure the other unsuspecting party into conveying information that could be potentially
used against him in another forum or in court. Thus, the claimed slanderous statements by Jennings
during the arbitration hearing are deemed confidential information and the veil of confidentiality over
them must remain.

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Separability or Severability Principle – Repudiation of contract/Arbitration Clause

In Cargill v. San Fernando Regala, G.R. No. 175404, January 31, 2011, where Cargill
itself repudiated the existence or validity of the contract but invoked the arbitration clause
contained therein, the Court said that arbitration is proper when one of the parties
repudiated the existence or validity of the contract due to the doctrine of separability.

The doctrine of separability or severability enunciates that an arbitration agreement is

independent of the main contract. The arbitration agreement is to be treated as a separate
agreement and the arbitration agreement does not automatically terminate when the contract
of which it is a part comes to an end. Indeed, the doctrine denotes that the invalidity of the
main contract, also referred to as the "container" contract, does not affect the validity of the
arbitration agreement. Irrespective of the fact that the main contract is invalid, the arbitration
clause/agreement still remains valid and enforceable.27

In this case, the arbitration agreement clearly expressed the parties' intention that any
dispute between them as buyer and seller should be referred to arbitration. It is for the
arbitrator and not the courts to decide whether a contract between the parties exists or is
valid.

In Koppel v. Makati Rotary – G.R. No. 198075, September 4, 2013, where the party to the
contract impugned it validity but invoked the arbitration clause contained therein, the Court
said that under the doctrine of separability, an arbitration agreement is considered as
independent of the main contract.92 Being a separate contract in itself, the arbitration
agreement may thus be invoked regardless of the possible nullity or invalidity of the
main contract.93

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Section 24 of R.A. No. 9285 provides - Referral to Arbitration. - A court before which an
action is brought in a matter which is the subject matter of an arbitration agreement shall, if
at least one party so requests not later that the pre-trial conference, or upon the request of
both parties thereafter, refer the parties to arbitration unless it finds that the arbitration
agreement is null and void, inoperative or incapable of being performed.

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Allegation of fraud/deceit on corporate officials/ Doctrine of piercing the veil of
corporate fiction

In Lanuza v. BF Corp – G.R. No. 174938, October 1, 2014, the issue is whether
petitioners should be made parties to the arbitration proceedings, being only
representatives of Shangrila and are not parties to the contract between BF Corporation
and Shangri-La. YES

The Court said that a corporation’s representatives are generally not bound by the terms of
the contract executed by the corporation. They are not personally liable for obligations and
liabilities incurred on or in behalf of the corporation as corporations have a separate and
distinct personality created by law from its representatives or stockholders. However, this
rule is disregarded as when there are allegations of bad faith or malice against
corporate directors or representatives and in this instance, the doctrine of piercing
the veil of corporate fiction comes into play.

Hence, the issue of whether the corporation’s acts in violation of complainant’s rights, and
the incidental issue of whether piercing of the corporate veil is warranted, should be
determined in a single proceeding which in this case, compelling Shangrila’s Directors to
submit to the court ordered arbitration proceedings.

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Arbitration Clause - Incorporation by Reference

In Steamship v. Sulpicio Lines, G.R. No. 196072, September 20, 2017, the issue is
whether there is a valid and binding arbitration agreement between Steamship Mutual
Underwriting (Bermuda) Limited and Sulpicio Lines, Inc. YES

As held in BF Corp. v. Court of Appeals, the Court ruled that the formal requirements of the
law were deemed complied with because "the subscription of the principal agreement
effectively covered the other documents incorporated by reference [to them] and further
explained that a contract need not be contained in a single writing. It may be collected from
several different writings which do not conflict with each other and which, when connected,
show the parties, subject matter, terms and consideration, as in contracts entered into by
correspondence. A contract may be encompassed in several instruments even though every
instrument is not signed by the parties, since it is sufficient if the unsigned instruments are
clearly identified or referred to and made part of the signed instrument or instruments.
(Steamship v. Sulpicio Lines, G.R. No. 196072, September 20, 2017)

In this case, it was exposed to the Court that there are several copies of letters from Sulpicio
addressed to the Company with attached letter by Sulpicio to the Club. With these evidence,
Sulpicio is estopped from denying knowledge of the Rulebook and cannot feign ignorance of
the arbitration clause since it was already charged with notice of the Club Rules due to an
appropriate reference to it in the Certificate of Entry and Acceptance.

Same with the case BF Corp v. Court of Appeals, G.R. No. 120105, March 27, 1998
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Art. 1311 NCC – parties to a contract affects only to parties, their heirs and assigns.

Avoidance on multiplicity of suits

Heirs of Salas v. Laperal Realty, G.R. No. 135362, December 13, 1999 , the issue is
whether the contacting party has the right to compel the other party to first arbitrate before
seeking judicial relief (YES) and whether this right it is absolute (NO).

In this case, the Court said that Respondent Laperal Realty, as a contracting party to the
Agreement, has the right to compel petitioners to first arbitrate before seeking judicial relief.
However, to split the proceedings into arbitration for respondent Laperal Realty with
Petitioners and trial for the respondent lot buyers, or to hold trial in abeyance pending
arbitration between petitioners and respondent Laperal Realty, would in effect result in
multiplicity of suits, duplicitous procedure and unnecessary delay. On the other hand, it
would be in the interest of justice if the trial court hears the complaint against all herein
respondents and adjudicates petitioners' rights as against theirs in a single and complete
proceeding.

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CIAC Jurisdiction

DPWH vs. CMC – G.R. No. 179732, September 13, 2017

ISSUE: Whether Construction Industry Arbitration Commission (CIAC) enjoys a wide latitude
of recognition of its technical expertise and experience and whether its factual findings are
accorded with respect and even finality. YES

As a general rule, findings of fact of CIAC, a quasi-judicial tribunal which has expertise on
matters regarding the construction industry, should be respected and upheld.

In National Housing Authority v. First United Constructors Corp., this Court held that CIAC's
factual findings, as affirmed by the Court of Appeals, will not be overturned except as to the
most compelling of reasons, it being apparent that the CIAC arrived at said finding after a
thorough consideration of the evidence presented by both parties, the same may no longer
be reviewed by this Court. This conclusion is made more compelling by the fact that the
CIAC is a quasi-judicial body whose jurisdiction is confined to construction disputes. Indeed,
settled is the rule that findings of fact of administrative agencies and quasi-judicial bodies,
which have acquired expertise because their jurisdiction is confined to specific matters, are
generally accorded not only respect, but finality when affirmed by the Court of Appeals.

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Fruehaf v. Technology – G.R. No. 204197, NOVEMBER 23, 2016

ISSUES:

1. Whether commercial arbitral tribunals are deemed quasi-judicial agencies

thereby exercising quasi-judicial powers. NO
2. Whether an ordinary appeal (via notice of appeal) is the correct remedy from an
order confirming, vacating, modifying, or correcting an arbitral award. NO

3. Whether the merits of the arbitral award can be reviewed and then substituted
by the courts. NO

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Home Bankers Savings v. Court of Appeals, G.R. No. 115412, November 19, 1999

Whether a party to a pending arbitral proceeding may go to court to obtain

conservatory relief in connection with his cause of action although the disposal of
that action on the merits cannot as yet be obtained. YES

Section 14 of Republic Act 876, otherwise known as the Arbitration Law provides:

Sec. 14. Subpoena and subpoena duces tecum. — Arbitrators shall have the power to
require any person to attend a hearing as a witness. They shall have the power to subpoena
witnesses and documents when the relevancy of the testimony and the materiality thereof
has been demonstrated to the arbitrators. Arbitrators may also require the retirement of any
witness during the testimony of any other witness. All of the arbitrators appointed in any
controversy must attend all the hearings in that matter and hear all the allegations and
proofs of the parties; but an award by the majority of them is valid unless the concurrence of
all of them is expressly required in the submission or contract to arbitrate. The arbitrator or
arbitrators shall have the power at any time, before rendering the award, without prejudice to
the rights of any party to petition the court to take measures to safeguard and/or conserve
any matter which is the subject of the dispute in arbitration.

Section 14 simply grants an arbitrator the power to issue subpoena and subpoena duces
tecum at any time before rendering the award. The exercise of such power is without
prejudice to the right of a party to file a petition in court to safeguard any matter which is the
subject of the dispute in arbitration. In the case at bar, private respondent filed an action for
a sum of money with prayer for a writ of preliminary attachment. Undoubtedly, such action
involved the same subject matter as that in arbitration, i.e., the sum of P25,200,000.00 which
was allegedly deprived from private respondent in what is known in banking as a "kiting
scheme."

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Hagiiii…. Tubtob la anay kita dinhi…. Billy

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