Basic FAQ for Arbitration Clauses for SME Business Contracts (v.2022-1)

I was reviewing a contract with my supplier, it contained an arbitration clause, what is the significance of that clause?

If your contract has an arbitration clause, resort to arbitration becomes mandatory if (or when) there is conflict between the contracting parties.

What happens if arbitration is mandatory?

Neither party will be allowed to bring the matter to courts.  The issue will have to be resolved through arbitration.

What is arbitration?

It is an alternative mode of dispute resolution.

Why do some parties choose arbitration?

Arbitration is generally faster and cheaper than litigation with the courts.  Often times, for business transactions, speed in resolution of disputes is very important.

Where is arbitration done?

There are arbitration centers like the Philippine Dispute Resolution Center (PDRCI).  But, parties are free to choose the venue for arbitration.

What rules apply to arbitration?

The parties are free to choose what rules to apply.  The PDRCI, mentioned earlier has its own set of rules.  Parties may choose to adopt those rules.

Who will be the ‘arbitrator’?

The parties can choose the arbitrators.  One common method is for each party to choose an impartial arbitrator and for the two arbitrators to choose a third arbitrator.  Some parties choose only a single arbitrator.

Is the arbitration award final? Can it be enforced?

Yes. The winning party can ask the courts to enforce the award.

Is the arbitration award appealable?

No.  However, the courts can vacate the award for a very limited set of reasons.

What are some of those reasons?

Partiality/corruption; the arbitral award was procured through fraud; prejudicial misconduct of the arbitral tribunal are some of the examples.

How long will the arbitration take?

The parties can choose the procedure, and thus, can also choose how long the arbitration will take.  The entire process can be a few weeks or months.

How long does litigation usually take?

Typically, a case with the Regional Trial Court can last for two years.  Then, the appeals can last for another four to five years.