The autonomy principle has been made a fixture of American law by the leading case of Prima Paint Corp. vs. Flood & Conklin Mfg. Co., 388 US 395 (1967), which teaches that even if one of the parties challenges the contract as invalid, such question must still be decided by the arbitrator. A court of law cannot remove from the arbitrator the jurisdiction to decide a substantive challenge to a contract unless there is an independent challenge to the making of the arbitration clause itself.
But is the rule an absolute or iron-clad rule in arbitration? What if one of the contracting parties challenges the contract as void or inexistent ab initio? What if a party does not claim fraud in inducement as what happened in the Prima case, but claims that the whole contract is void for being violative of law or public policy? What if a party says that he never intended to be bound by the contract? Will these questions be arbitrated pursuant to the arbitral clause contained in the contract? Or should the court, not the arbitrator, decide the alleged invalidity of the contract in question?
As stated above, the autonomy principle is a jurisprudential rule laid down in the United States. Over the years, however, US courts have carved out exceptions to the rule. For example, in Cancanon vs. Smith Barney, Harris Upham & Co., 805 F.2d 998 (11th Cir. 1986), the US Court of Appeals created what is described as a "fraud in factum" exception to this principle. In this particular case, some customers signed the contract because it was represented to them as a money market account. The contract turned out to be an agreement for a securities account. The form agreement, a form contract, contained an arbitration clause. The customers brought a securities fraud action in court against the stockbroker alleging that the defendant brokerage firm wasted their investment in unauthorized trading. Invoking the arbitration clause contained in the agreement, the defendant moved for an order to compel arbitration. Plaintiffs, who did not speak English, argued that since defendant represented that the contract was for a money market account, plaintiffs had never assented to a contract for a securities account. Plaintiffs argued that this fraud in factum, as opposed to fraud in inducement, voided the whole contract including the arbitration clause. The court held that the arbitral clause is not binding on the plaintiffs because there was fraud in factum in the execution of the contract. There was fraud in factum, according to the court, because there was misrepresentation as to the character or essential terms of the contract. In such a case, there is no contract at all. Thus, "where the allegation is one of fraud in factum, i.e., ineffective assent to the contract, the issue is not subject to resolution pursuant to an arbitration clause contained in the contract document." The issue on the validity of the contract is for the court, and not for the arbitrator, to determine.
A number of arbitral bodies have not fashioned any exception to the autonomy principle. They have adopted an iron-clad autonomy principle. The International Chamber of Commerce ICC is an example. The ICC Rules of Conciliation and Arbitration (ICC Rules) expressly state that "unless otherwise agreed, the Arbitral Tribunal shall not cease to have jurisdiction by reason of any claim that the contract is null and void or allegation that it is non-existent provided that the Arbitral Tribunal upholds the validity of the arbitration agreement." The ICC Rules also provide that the Arbitral Tribunal shall continue to have jurisdiction to determine the respective rights of the parties and to adjudicate upon their claims and pleas, even though the contract itself may be non-existent or null and void." (Art. 6[4]).
The iron-clad autonomy principle has also been adopted in the domestic front. The International Commercial Arbitration Rules of the Philippine Dispute Resolution Center, Inc. (PDRCI) expressly state that the arbitral tribunal shall have the power to determine the existence or validity of the contract of which an arbitration clause forms part. The PDRCI Rules, indeed, expressly state that an arbitration clause shall be treated as an agreement independent of the other terms of the contract, and that a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. (Art. 21[2]).
Note, however, that there is a distinction between ad hoc arbitration and institutional arbitration. Institutional arbitrations, like the ICC arbitration, are governed by their own arbitral rules. The rules of these institutional bodies may include an iron-clad autonomy principle. The same is not true for ad hoc arbitration like what is sanctioned by our Arbitration Law (R.A. 876). As stated in my previous article, our Supreme Court has not, as of yet, interpreted our Arbitration Law as sanctioning the autonomy principle, much less has it fashioned any exception to the rule. On the one hand, there is the judicial bias in favor of arbitration and the transformation of this particular area of the law into a morass of distinctions might weaken arbitration as a mode of alternative dispute resolution. On the other hand, there might be situations like the Cancanon case which would justify exceptions to the autonomy principle. Since this area is still unchartered in our jurisprudential history, our Supreme Court is free to decide on what course to take.
(The author is a senior partner and the co-managing partner of the Abello Concepcion Regala & Cruz Law Offices (ACCRALAW) and teaches Arbitration Law in the Ateneo Law School. He may be contacted at 830-8000.)