By entering into an arbitration agreement, the parties agree to submit their dispute to an arbitrator or tribunal of their own choosing and be bound by the latter’s resolution.

News of an arbitral award secured by a water firm against the government piqued much interest on what differentiates arbitration from traditional litigation and the nature of an arbitral award. This discussion is best done in reference to the 2016 case of Fruehauf Philippines Electronics Corporation vs Technology Electronic Assembly and Management Pacific Corporation (TEAM) (GR 204197, 23 November 2016), where the Supreme Court (SC) provided much guidance on what distinguishes arbitration, and whether appeal or vacation of judgment is usually available to the parties.

In that case, a local arbitration resulted in an arbitral award favorable to Fruehauf. Aggrieved, TEAM filed a petition with the Regional Trial Court (RTC) to partially vacate or modify the arbitral award. The RTC denied the petition but was reversed by the Court of Appeals (CA) on appeal.

The SC found that the CA was mistaken in setting aside the arbitral award. 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 wherein one or more arbitrators resolve a dispute by rendering an award.

In resolving the issue, the SC in Fruehauf ruled that the arbitral award is final and binding on the parties by reason of their contract — the arbitration agreement. It further clarified that arbitral tribunals are not quasi-judicial bodies whose decisions may be judicially reviewed.

Arbitration carries many advantages over court litigation, but the same characteristics may also be viewed as disadvantages, depending on the factors involved and the parties’ goals.

Arbitration is voluntary and consensual. By entering into an arbitration agreement, the parties agree to submit their dispute to an arbitrator or tribunal of their own choosing and be bound by the latter’s resolution. However, this contractual and consensual character means that the parties cannot implead a third party in the proceedings even if the latter’s participation is necessary for a complete settlement of the dispute. The tribunal does not have the power to compel a person to participate in the arbitration proceedings without that person’s consent. It also has no authority to decide on issues that the parties did not submit for its resolution.

The contractual nature of arbitral proceedings affords the parties autonomy over the proceedings. They are free to agree on the procedure to be observed during the proceedings, translating to flexibility not usually available in litigation governed by the Rules of Court and such other rules as may be promulgated by the High Court.

Arbitration is a purely private mode of dispute resolution, hence the records, the evidence, and the arbitral award are confidential unlike court proceedings which are generally public. This may be advantageous for private disputes, but may be a cause for concern on transparency or accountability if it involves a government agency.

Further, the parties appoint the arbitrators based on agreement. There is a view that because not all arbitrators are lawyers or have legal background, there is a risk that the law might be misapplied or the facts not fully appreciated, leading to an erroneous award. However, arbitrators are usually experts in the field involved in the dispute which poses an advantage over court litigation presided over by magistrates, who are considered legal experts, but may not be as well versed in the subject matter of the dispute.

Needless to say, courts are without power to amend or overrule an arbitral award on the allegation of error in judgment. Courts will not review the findings of law and fact contained in an award, and will not undertake to substitute their judgment for that of the arbitrators.

An arbitral award, however, is not absolute. For instance, under Rule 19.10 of the Special ADR Rules, the RTC may set aside an arbitral award in a domestic or international arbitration if the same amounts to a violation of public policy. Other grounds to vacate an arbitral award based on the UNCITRAL Model Law and Republic Act 876 do not deal with the correctness of the award, but rather the validity of the arbitration agreement or the regularity of the arbitration proceedings — for as a private alternative to court proceedings, arbitration is meant to be an end, not the beginning, of litigation.