Turkey Is Looking Forward to Welcoming the New Commercial Code

he Turkish Commercial Code (hereinafter to be referred to as the entered into force on January 1st, 1957, and for over 50 years since then, while most of the European countries have adopted new codes or amended their regulations in accordance with the latest developments taking place in the world, the has not been significantly amended.

Introduction
New structures were needed for newly-developing business transactions and relationships, especially in the area of corporate governance. Massive corporate scandals involving World.com, and , to name but a few, obliged legislators in the United States of America and the European countries to set stricter and more transparent corporate governance and auditing rules. Given the fact that Turkey, as a candidate for EU membership and as an emerging market, aims to attract foreign investment, Turkish corporate legislation needed to be brought into line with the rest of the world in order to continue the economic integration that started with. In 2006, the Turkish Ministry of Justice formed a commission composed of scholars, judges, and practitioners for the preparation of the draft Turkish Commercial Code (hereinafter to be referred to as the “Draft Code”). The Draft Code is waiting to be ratified by the Council of Ministers.

The Draft Code will be the fundamental code regulating all types of joint stock companies, both public and private (hereinafter to be referred to as .
This document aims to provide a brief outline of the reforms that will take place with the implementation of the Draft Code, particularly with respect to and limited liability companies (hereinafter to be referred to as

I. New Auditing System:

Pursuant to the, an internal audit committee is one of the corporate organs of a company. However, experience shows that in practice this committee loses its independence and cannot be impartial vis-à-vis the shareholders. Under the Draft Code, an audit committee is no longer considered an organ of a company. The Draft Code adopts a reformist and unifying approach that obliges all types of companies to retain external auditors and be audited by eligible, professional, and independent auditors complying with international accounting standards and acting with due care. According to the Draft Code, companies’ financial statements and reports will be prepared and audited in accordance with the Turkish Accounting Standards which is almost a complete translation of the International Financial Reporting Standards.
The Draft Code requires that independent auditors also be audited by the Higher Audit Institution.

II. Obligation to launch a web-site for the company:

With the Draft Code, each company will be required to maintain a company web-site. All information regarding general assembly meeting documents and invitations, financial statements, evaluation reports, nullity actions, invitations to use rights or any information pertaining to investors’ interests (excluding company secrets or confidential information) are required to be published on the web-site of a company.

III. Amendments Specifically Introduced for :

(a) A company can be established by a single shareholder :
Pursuant to the a must be formed by a minimum of 5 shareholders; however the Draft Code enables a to be formed by only one shareholder.

(b) Capital Issue :
The minimum capital required for a remains the same, viz., 50,000 (currently
The Draft Code expanded the capital in-kind which can be put into to include web sites or domain names and undue receivables. The Draft Code enables any instruments or property rights, including rights and domain names, to be used as capital by the if the property rights are not subject to any liens or injunctions.

(c) Privileged Shares :
Under the Draft Code, voting privileges are limited to 15 votes per share. However, this number can be increased by a court decision. The possibility of privileged shares’ blocking a capital increase has been renounced. In addition, privileged votes cannot be used in voting on resolutions regarding amendment of the articles of association (hereinafter to be referred to as the of a company, appointment of a transaction auditor, or filing of discharge or liability suits.

(d) General Assembly Meetings :
With the ratification of the Draft Code, it will be possible for the shareholders of a to hold general assembly meetings on-line.

(e) The Board of Directors may be composed of a single director :
With the Draft Code, the Board of Directors can now be composed of only one director who is not required to be a shareholder of the company. The Draft Code also enables legal entities to become board members.
The Draft Code enables the board of directors’ meetings to be held on-line, and this will provide the directors the opportunity to attend to the meeting without having to travel to the place where the meeting will take place.

(f) Liability :
Under the Draft Code, the liability of the board of directors has been regulated in detail. According to the Draft Code, members of board of directors are jointly liable for each and every transaction of the company unless a responsible person is assigned for a specific duty with a written resolution of the board of directors. In this respect, the assigned person or persons or, if there is no assignment of duty, the members of the Board of Directors will be liable if any documents or declarations regarding the company or its transactions are fraudulent, misleading or illegally prepared.

IV. Amendments Specifically Introduced for :

The Draft Code, like the , does not contain detailed provisions regarding . Provisions regarding re considered to be applicable to by way of reference in cases where the Draft Code remains silent on
The minimum capital required for the establishment of an is increased from 5,000 (currently $ 3,345) to 25,000 (currently 16,723) with the Draft Code. The capital in the form of cash must be fully paid up in one installment by the partners in order for be established.
The Draft Code enables partners to have more than one share, and also expedites and simplifies the transfers of shares. The bankruptcy of a partner will not lead to the bankruptcy of the company since the creditor will only be able to place an attachment on the share of the debtor-partner and cannot request the liquidation of the company.

The Draft Code enables the board of partners’ meetings and the board of managers’ meeting in to be held on-line.

Conclusion

Most of the reforms contemplated by the Commission are reflected in the Draft Code, and it is now awaiting ratification by the Council of Ministers. It should be noted that since the Draft Code has not yet been finalized, amendments may still take place before its ratification. Given the fact that the world is at the edge of an enormous financial crisis due to the current credit crunch, it is now even more vital for an emerging market like Turkey to be attractive for foreign investors. The only way to accomplish this is to create a transparent and secure business environment, which is also the aim of the Draft Code.

European Union Regulation on the Law Applicable to Non-Contractual Obligations

The European Union regulation on the law applicable to non-contractual obligations (Rome II regulation) will take effect on 11 January 2009. From this date courts in EU member states, except Denmark, will decide on the law applicable to non-contractual obligations in civil and commercial matters based on the same rules. In addition to unifying decision rules the possibility to select the law applicable to non-contractual obligations is introduced.

Applicability
The regulation applies to non-contractual obligations under civil and commercial law except for obligations which under the regulation are excluded from its applicability. Under the regulation a non-contractual obligation is mainly civil or commercial liability arising from the breach of a statutory duty even if the breach is accidental. The regulation also applies to non-contractual obligations arising from unjust enrichment, contracts of agency without a mandate and -contractual negotiations. If the court is a court from any of the member states it always applies the regulation to determine the applicable law irrespective of whether the international element of the obligation is connected to a member state or a third party. The applicable law may thus be the law of a state which is not an EU member state. Though the regulation will take effect on 11 January 2009, it will also apply to non-contractual obligations arising after 20 August 2007 when the Rome II regulation became valid.

Determination of Applicable Law
Generally, the regulation states that the law applicable to compensation for damage is the law of the country in which the damage arose irrespective of the country in which the event causing the damage occurred and the country or countries in which indirect consequences of this event occurred. An exception from this general rules is admissible if the person liable and the injured party have their usual place of residence in the same country at the moment when damage arises. In this case the law of this country applies. The second exception is the so-called escape clause, where the law of another country applies if it appears from all the circumstances that the or tort is obviously closely related to a country other than the country where the damage arose or where the injured party and the wrongdoer had their permanent residence at the moment when it arose. There are also special rules of conflict on liability for damage caused by a defective product, for non-contractual obligations arising from unfair competition and conduct limiting free competition, non-contractual obligations arising due to damage to the environment, breach of intellectual property rights and a protest action during collective bargaining.

Choice of Law
The fundamental change brought by the Rome II regulation is the possibility to choose the applicable law. The parties will be able to agree on the law under which their non-contractual obligations with an international element will be assessed. Consequently the legal certainty increases as the parties may determine the law common to them and which they are familiar with. They may also unify the law applicable to contractual and non-contractual relationships which will simplify the resolution of a dispute. The choice of law is excluded in relation to non-contractual obligations arising from unfair competition, conduct limiting free competition and the breach of intellectual property rights. The imperative provisions of the law of the state where the relevant court sits must remain unimpaired by the choice of law and the court may reject the application of the determined applicable law if it is obviously incompatible with public order.
An agreement on applicable law may be concluded after the event which caused the damage occurred. Entrepreneurs may also agree on the applicable law before this event occurs on condition that all parties act within their entrepreneurial activities. If no agreement on the choice of law is reached, the court determines the applicable law under the rules of conflict.

Conclusion
The regulation increases the predictability of court decisions and simplifies the method of determining the law. However, the general rule for determining the applicable law (that is, the law of the country where the damage arose) must not lead to an unambiguous result, since the occurrence of damage in different jurisdictions is not excluded. Consequently, the certainty upon determining the applicable law decreases. On the contrary, the possibility to contractually regulate the law applicable to non-contractual relations could increase legal certainty. Therefore, it is appropriate to incorporate an understanding of the law applicable to non-contractual relations in agreements.

Volcker Is a Fascinating Choice for Obama’s Economic Advisor

President-elect announced the formation of the "President's Economic Recovery Advisory Board". The board will be chaired by 81-year-old Paul , who served as the chairman of the Federal Reserve under Presidents Carter and Reagan. is out-of-line with current government actions which are dramatically increasing the money supply. However, in the long-term, may be exactly the

At the end of November, President-elect announced the formation of the "President's Economic Recovery Advisory Board". The board will advise on how to revive the ailing economy. The Board will have a two-year term, at which point will determine whether to continue its existence based on economic circumstances that then exist.

The board will be chaired by 81-year-old Paul served as the chairman of the Federal Reserve from 1979 through 1987, under Presidents Carter and Reagan.

received his Fed chairmanship at a time when inflation was a major problem, and the economy was headed for recession. Inflation (as measured by the CPI) was 13.3% for 1979, but decreased to 3.8% for 1982. realized that inflation was caused by having the money supply grow faster than the real economy created value. dealt with inflation by increasing the federal discount rate to 15%. Although tight money tactics dealt with inflation, it also increased unemployment, which reached 10% in some parts of the country. was aware of the but concluded that inflation was the greater problem.

A Inflation

Currently, the primary accepted means the government is using to stimulate the economy is a dramatic money supply increase. This creates liquidity beyond what is needed to finance the size of the economy. The money supply increase is intentionally being made available to churn assets and increase asset prices.

Many economic experts identify deflation as a current potential problem. While deflation could perhaps occur in the short-term, the long-term problem will instead be inflation. In the short-term, recent dramatic oil and commodity price drops show up as deflation in the and CPI. But, the decline in oil and commodity is better described as a one-time price adjustment that reverses excessive increases occurring over the previous year. Previously, cheap foreign products restrained price increases, but this brake on overall inflation cannot continue once foreign workers obtain more affluence, and the foreign economies face their own high inflation in both wages and prices.

If this holds true, is a fascinating choice for the job of economic. Absent (i) an interest rate policy similar to when was Fed chairman, and (ii) a rapid unwinding of the U.S. investments in the capital markets and other bail-out activities, the U.S. will again reach double-digit inflation before first term is over. At that point, facing a situation similar to when was Fed chairman, will need advice. The advice will not pertain to how to end the recession, but how to break the back of inflation that practically no one is currently even contemplating.

This prediction has plenty of ramifications, but here is the biggest as it pertains to investments. Avoid bonds, unless they are inflation adjusted (like TIPS). Investors who recently fled the stock market and invested in “safe” bonds will not only miss the coming stock market rally, but will also be devastated as inflation takes its toll on their bond investments.

Accounting Connection

has other credentials that allow him to give advice in the accounting arena. Specifically:

1. In 1996, was chosen to chair the committee overseeing the restitution by Swiss banks to Holocaust victims. The far-reaching accounting investigation ultimately uncovered thousands of accounts that probably belonged to victims of Nazi Germany.

2. In 2000, chaired the oversight board that created the International Accounting Standards Board , and then served as head of for two years.

3. In 2002, was brought in to assist Arthur Andersen in the aftermath of the mess. The government’s indictment of Andersen prevented from accomplishing much, but he demonstrated a disdain for those at Andersen who hired him. intended to throw out the existing management and establish a seven-member panel to select a new management team. Under plan, the revamped Andersen would have focused almost exclusively on auditing, and would have eliminated its consulting business.

4. In late 2002, SEC-chairman Harvey Pitt to ask to head the newly created Public Company Accounting Oversight Board. declined the prestigious appointment, citing the time demands of the job.

The outspoken is likely to have the following additional advice for the administration:

1. Accounting standards should be more principles-based accounting approach (meaning what the U.S. currently does not have). would support the movement to replace U.S. generally accepted accounting principles with International Financial Reporting Standards.

2. The large (Big Four) accounting firms should be further restricted from performing consulting services. These large firms are now more aggressively getting into non-audit projects to obtain growth that is no longer coming from projects associated with objects to these additional services being offered by audit firms that help protect the capital markets.

3. If one of the large accounting firms faces a litigation problem that further restricts competition, would probably support what would now be thought as harsh government restrictions on these firms. This government intervention could include the possibility of a forced breakup of one or more of these firms.

4. In the corporate governance area, companies should have chairman and more qualified independent audit committees. These are both consistent with past comments. These corporate governance issues might arise because of U.S. investment in, or bailout of, American companies.

As long as health allows him to remain active, could provide important economic and accounting advice to the new administration in areas that are not currently being contemplated.

Volcker Is a Fascinating Choice for Obama’s Economic Advisor

President-elect announced the formation of the "President's Economic Recovery Advisory Board". The board will be chaired by 81-year-old Paul , who served as the chairman of the Federal Reserve under Presidents Carter and Reagan. is out-of-line with current government actions which are dramatically increasing the money supply. However, in the long-term, may be exactly the

At the end of November, President-elect announced the formation of the "President's Economic Recovery Advisory Board". The board will advise on how to revive the ailing economy. The Board will have a two-year term, at which point will determine whether to continue its existence based on economic circumstances that then exist.

The board will be chaired by 81-year-old Paul served as the chairman of the Federal Reserve from 1979 through 1987, under Presidents Carter and Reagan.

received his Fed chairmanship at a time when inflation was a major problem, and the economy was headed for recession. Inflation (as measured by the CPI) was 13.3% for 1979, but decreased to 3.8% for 1982. realized that inflation was caused by having the money supply grow faster than the real economy created value. dealt with inflation by increasing the federal discount rate to 15%. Although tight money tactics dealt with inflation, it also increased unemployment, which reached 10% in some parts of the country. was aware of the but concluded that inflation was the greater problem.

A Inflation

Currently, the primary accepted means the government is using to stimulate the economy is a dramatic money supply increase. This creates liquidity beyond what is needed to finance the size of the economy. The money supply increase is intentionally being made available to churn assets and increase asset prices.

Many economic experts identify deflation as a current potential problem. While deflation could perhaps occur in the short-term, the long-term problem will instead be inflation. In the short-term, recent dramatic oil and commodity price drops show up as deflation in the and CPI. But, the decline in oil and commodity is better described as a one-time price adjustment that reverses excessive increases occurring over the previous year. Previously, cheap foreign products restrained price increases, but this brake on overall inflation cannot continue once foreign workers obtain more affluence, and the foreign economies face their own high inflation in both wages and prices.

If this holds true, is a fascinating choice for the job of economic. Absent (i) an interest rate policy similar to when was Fed chairman, and (ii) a rapid unwinding of the U.S. investments in the capital markets and other bail-out activities, the U.S. will again reach double-digit inflation before first term is over. At that point, facing a situation similar to when was Fed chairman, will need advice. The advice will not pertain to how to end the recession, but how to break the back of inflation that practically no one is currently even contemplating.

This prediction has plenty of ramifications, but here is the biggest as it pertains to investments. Avoid bonds, unless they are inflation adjusted (like TIPS). Investors who recently fled the stock market and invested in “safe” bonds will not only miss the coming stock market rally, but will also be devastated as inflation takes its toll on their bond investments.

Accounting Connection

has other credentials that allow him to give advice in the accounting arena. Specifically:

1. In 1996, was chosen to chair the committee overseeing the restitution by Swiss banks to Holocaust victims. The far-reaching accounting investigation ultimately uncovered thousands of accounts that probably belonged to victims of Nazi Germany.

2. In 2000, chaired the oversight board that created the International Accounting Standards Board , and then served as head of for two years.

3. In 2002, was brought in to assist Arthur Andersen in the aftermath of the mess. The government’s indictment of Andersen prevented from accomplishing much, but he demonstrated a disdain for those at Andersen who hired him. intended to throw out the existing management and establish a seven-member panel to select a new management team. Under plan, the revamped Andersen would have focused almost exclusively on auditing, and would have eliminated its consulting business.

4. In late 2002, SEC-chairman Harvey Pitt to ask to head the newly created Public Company Accounting Oversight Board. declined the prestigious appointment, citing the time demands of the job.

The outspoken is likely to have the following additional advice for the administration:

1. Accounting standards should be more principles-based accounting approach (meaning what the U.S. currently does not have). would support the movement to replace U.S. generally accepted accounting principles with International Financial Reporting Standards.

2. The large (Big Four) accounting firms should be further restricted from performing consulting services. These large firms are now more aggressively getting into non-audit projects to obtain growth that is no longer coming from projects associated with objects to these additional services being offered by audit firms that help protect the capital markets.

3. If one of the large accounting firms faces a litigation problem that further restricts competition, would probably support what would now be thought as harsh government restrictions on these firms. This government intervention could include the possibility of a forced breakup of one or more of these firms.

4. In the corporate governance area, companies should have chairman and more qualified independent audit committees. These are both consistent with past comments. These corporate governance issues might arise because of U.S. investment in, or bailout of, American companies.

As long as health allows him to remain active, could provide important economic and accounting advice to the new administration in areas that are not currently being contemplated.

No Relief Likely for Huge Pension Underfunding

With the end of the year just weeks away, many companies having traditional pension plans face a significant problem with woefully underfunded pension plans. Because of falling stock market values, lower investment (interest) returns, and changes in pension funding from a 2006 law, most employers with these plans will need to make significant additional contributions. Appeals for legislative change will not occur under the Bush administration.

With the end of the year just weeks away, many companies having a traditional pension plan face a significant problem with woefully underfunded pension plans. Because of falling stock market values and lower investment (interest) returns, most employers with these plans will need to make significant contributions to their pension plans in 2009. These same companies will be required to recognize their pension plan deficits on their balance sheets.

The increased funding is required under the Pension Protection Act of 2006. Under this 2006 change, employers must contribute enough money to their plans each year so that liabilities are fully funded after seven years. That is a big change from prior law, in which (i) plans only had to be 90% funded to be considered fully funded, and (ii) employers had 30 years to amortize those liabilities. The new 100% funding target is being phased in. In 2008, employers had to hit a 92% funding target; in 2009, the funding target is 94%. If an employer misses any funding target, that employer’s target then increases to 100%.

These increased funding obligations coincide with cash flow problems many companies are facing because of the recession, which means these employers will have fewer resources for the business investments that help keep and create jobs. Based on this thinking, nearly 300 companies, unions, and trade associations urged Congress to give temporary relief from pension contribution requirements. Their comments included:

“The drop in the value of pension plan assets coupled with the current credit crunch has placed defined benefit plan sponsors in an untenable position. … At a time when companies desperately need cash to keep their businesses afloat, the new funding rules will also require huge, countercyclical contributions to their pension plans. Consequently, many companies will divert cash needed for current job retention, job creation and needed business investments, and instead contribute the cash to their pension plans to fund long-term obligations due many years after the current market conditions return to normal. We do not believe that, in enacting the Pension Protection Act of 2006 , Congress intended companies to be forced to make this kind of decision. Unless the funding rules are modified, they will cause an increase in unemployment and slow economic recovery. …”

We are in no way advocating an overhaul of the (Pension Protection Act of 2006) funding changes. Rather, we urge Congress to consider … adopting temporary provisions that deal with the financial crisis facing us today.”

It is pretty clear that the funding adjustments requested in the above appeal will not occur – at least until the administration is in power. Despite bipartisan support and proposals in both houses of Congress that would have decreased funding requirements, the Bush administration opposes any such change. The Administration correctly highlights that allowing companies to decrease current funding could cause plans that are already significantly underfunded to grow even more underfunded over time. This could translate into what the Administration claims is estimated $3 billion in new claims placed on the Pension Benefit Guaranty Corporation over the next decade. Putting aside the taxpayer cost oft, the Administration also indicated concern that certain “workers would lose billions in unfunded pension benefits not guaranteed by the pension insurance system”.

The Underfunding Amounts are Staggering

Pension consulting firm Mercer estimated that (at the end of November 2008) defined benefit plans at the S&P 1500 companies lost almost $300 billion in asset values since the stock market high. This causes the combined pension deficit of these S&P 1500 companies to reach an all-time high of $280 billion.
study by Credit offers similar conclusions, but focuses on the narrower group of S&P 500 companies. According to Credit , funding at these companies dropped $265 billion so far this year. About 340 of the S&P 500 companies have shortfalls, and 227 of these companies are less than 80% funded.

attorney;Scope of Application.

This law applies to international commercial arbitration.

The Model Law definition of “international commercial arbitration” includes situations in which the parties have their place of business in different states, or in which the place of arbitration or performance is a state different than that of the parties’ place of business.

B) Qualifications of Arbitrators

Republic Act No. 876 differs from the Model Law with respect to the requirements of the persons acting as arbitrators. Under the latter, there are no specific requirements that ought to be possessed by the arbitrator as the parties are free to agree on his qualifications. Under the Philippine Arbitration Law, on the other hand, the minimum requirements for the appointment of a person as an arbitrator are that he be of legal age, in full enjoyment of his civil rights and must know how to read and write. An arbitrator is to be neutral and impartial. No party shall select as arbitrator any person to act as his champion or to advocate his cause. A ground for the disqualification of an arbitrator is his personal bias which might prejudice the right of a party to a fair and impartial award. This bias is presumed where the arbitrator is related by blood or marriage to a party within the sixth degree; or where he has financial, fiduciary or other interest in the controversy or cause to be decided or in the result of the proceeding. Under the Model Law, a person may be precluded by a reason of his nationality from acting as an arbitrator, if such is agreed upon by the parties (Art. 11).

C) Court Intervention

The present Philippine Arbitration Law also differs from the Model Law on the aspect of court intervention. Republic Act No. 876 allows broad intervention by the courts. It allows the courts to intervene in proceedings and on the ground of grave abuse of discretion committed by the Ar Tribunal and other grounds. In the case of Chung Industries, Inc. vs. Court of Appeals (206 545) involving a special civil action of certiorari, it was held that the Supreme Court will not engage in a review of the facts found nor even of the law as interpreted or applied by the arbitrator, unless there be on the part of the arbitrator a grave abuse of discretion or that he has acted without or in excess of jurisdiction. There will be a judicial review of the award:

(1) When the supposed errors of fact or of law are so patent, gross and prejudicial to a party. (Chung Industries, Inc. vs. Court of Appeals, 206 545).

(2) When the arbitrator failed to apply the agreement of the parties the breach of which gave rise to the dispute submitted to arbitration. (Chung , Inc. vs. Court of Appeals, 206 545).

(3) When the arbitrator gave one party unjustified extra compensation for certain items of work. (Chung Industries, Inc. vs. Court of Appeals, 206 S545).

(4) When one party has been deprived of a fair opportunity to present his position before the tribunal. (Hi Precision Steel Center, Inc. vs. Kim Steel Builders, Dec. 13, 1993).

(5) When the award was obtained through fraud or corruption of the arbitrator, or there was evident partiality of the arbitrator, or the arbitrator was guilty of misconduct, or that the arbitrator exceed his powers. (Hi Precision Steel Center, Inc. vs. Kim Steel Builders, Dec. 13, 1993).

On the other hand, Article 5 of the Model Law expressly states that no court shall intervene except where so provided in the law. The only way to question the award or action of the tribunal will be an application for setting aside the award on the grounds provided for in Article 34 of the said law. The award may be set aside by the court only if:

a) the party to the arbitration agreement was under some incapacity;

b) the party was unable to present his case; or

c) the award was beyond the terms of the submission to arbitration; or

d) the composition of the procedure was not in accordance with the agreement of the parties.

e) the court finds the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or

f) the award is in conflict with the public policy of the state.

Further, judicial intervention is limited to those aspects relating to the processes, e.g., the issuance of provisional relief pending proceedings, assistance in the taking of evidence, and enforcement of awards. The Model Law limits judicial review in recognition of the limited connection of international commercial arbitration to any particular domestic legal system. There is, therefore, no provision for appeal to the courts on substantive matters. Recourse is limited to an application for setting aside the award. Under the Philippine Arbitration Law, appeal may be taken from a judgment or order confirming the award, or vacating or modifying it, through a certiorari on questions of law. Judicial review of an award may be made by petition under Rule 65 to the Court of Appeals. Although the parties may stipulate that the arbitrator’s decision or award shall be final, it has been held in the case of Chung that the finality of the arbitrator’s award is not absolute.

D) Status of Arbitration Proceedings

The Philippine Arbitration Law also differs from the Model Law with respect to the status of the arbitration proceedings when an action is brought before the courts. Under the former, a party to an arbitration proceeding which questions its actions may go to court and secure a temporary injunction prohibiting the tribunal from proceeding with the arbitration until the court has ruled on the action. On the other hand, under the Model Law where an action has been brought before a court, proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court (Article 8, par.2).

E) Disclosure Requirement

Another aspect wherein the Philippine Arbitration Law differs from the Model Law is on the disclosure obligations of the arbitrators. Under the former, no person shall serve as an arbitrator if he has financial, fiduciary or other interest in the controversy or has a personal bias, which might prejudice the right of any party to a fair and impartial award (Section 10). This, however, does not require prior disclosure as in the Model Law. Under the Model Law, when a person is approached in connection with his possible appointment as an arbitrator, he shall disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence. An arbitrator, from the time of his appointment and throughout the proceedings, shall without delay disclose any such circumstances to the parties unless they have already been informed of them by him (Article 12, par. 1).


F) Place of Arbitration

With respect to the designation of the place of arbitration there exists a marked difference between the Philippine Arbitration Law and the Model Law. The former does not provide for rules on the designation of the place of arbitration, whereas the latter provides that where the parties have failed to agree on the place of arbitration, the place shall be determined by the tribunal having regard to the circumstances of the case, including the convenience of the parties. It further provides that the tribunal may meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts of the parties, or for an inspection of goods, other property or documents. Under the Model Law, the parties are given broad autonomy. Aside from the place of arbitration, the parties can select their own rules of procedure, including the number of arbitrators, the language of the proceeding, and the type of hearing which may either be an oral or written presentation. Subject to certain mandatory provisions, the parties are free to determine the procedure to be followed by the tribunal in conducting the proceedings. They may do so by reference to a set of institutional or ad hoc arbitration rules, or by developing specific procedural rules tailored to their particular needs.

G) Applicable Law

Another area of difference between the two laws is the designation of the particular law to govern the dispute. The Philippine Arbitration Law does not specify the procedure for determining the law to govern the case. This is in marked contrast with the Model Law which provides that the tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties. This authorizes the parties to select not only a particular jurisdiction’s law, but the laws of several jurisdictions, or even general international legal principles. Failing any designation by the parties, the tribunal shall apply the law determined by the conflict of laws rules which it considers applicable. In all cases, the tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction (Article 28).

H) Correction or Interpretation of Award

The Philippine Arbitration Law can be considered deficient for the reason that it does not extend to the tribunal the right to correct or modify its award as first resort, unlike the Model Law which authorizes the parties to apply to the tribunal for correction or modification of the award. Article 33 of which provides that:

Within thirty days of receipt of the award, unless another period of time has been agreed upon by the parties, a party, with notice to the other party, may request the tribunal to correct in the award any errors in computation, any clerical or typographical errors or any errors of similar nature.

The Model Law, in addition, allows the parties to request the tribunal to give an interpretation of a specific point or part of the award. The same article gives the parties the opportunity to request from the tribunal additional awards as to claims presented in the proceedings but omitted from the award.

The Philippine Arbitration Law and the UNCITRAL Model Law

Ii. Major Differences

A) Subject Matter

With respect to the scope of application, the Philippine Arbitration Law differs from the Model Law in that the former applies to any controversy existing between the parties involved. The submission or contract may include questions arising out of valuations, appraisals or other controversies which may be collateral, incidental, precedent or subsequent to any issue between the parties. The Model Law, on the other hand, applies only to international arbitration as provided for in Article 1. Said article states: