By Augusto A San Pedro Jr and Raquel Wealth A Taguian, Villaraza & Angangco Law Offices
January 4, 2018
In the Philippines the time constraints and costliness of litigation are more often moving contracting parties to arbitration, but there remain roadblocks to be aware of when choosing this increasingly popular method of dispute resolution.
Given the aversion of contracting parties to costly and protracted litigation, arbitration as an alternative mode of dispute resolution is gaining more favour and popularity in the Philippines, resulting in arbitration clauses being an integral part of most commercial transactions.
In solidifying arbitration as a viable substitute in resolving commercial disputes, Congress enacted Republic Act No. 9285, also known as the Alternative Dispute Resolution Act of 2004 (ADR Act), which provided the much-needed legislation to institutionalize arbitration in the Philippines. The ADR Act addressed most of the inadequacies of its predecessor, Republic Act No. 876. It governs both domestic and international commercial arbitration, and has adopted the 1985 UNCITRAL Model Law as a complement to the Philippines’ earlier accession to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards on 19 June 1958, which it ratified on 6 July 1967.
To smoothly integrate arbitration into the existing judicial system, the Supreme Court issued Administrative Matter No. 076-11-08-SC, dated 1 September 2009, also known as the Special Rules of Court on Alternative Dispute Resolution (special ADR rules), which provided for the procedural guidelines for both domestic and international arbitration, as well as enforcement of arbitration in the Philippines.
The ADR Act likewise established the Office for Alternative Dispute Resolution (OADR) to promote, develop and expand the use of alternative modes of dispute resolution in the country. It is empowered, among other things, to: formulate training standards and certify arbitration practitioners and institutions; co-ordinate the development, implementation, monitoring and evaluation of government alternative dispute resolution programmes; and to carry out the ADR Act. To lessen court interference in ad hoc arbitrations, the national president of the Integrated Bar of the Philippines is recognized in the ADR Act as the default appointing authority.
Upholding the choice of the contracting parties, arbitration practice in the Philippines may be institutional, ad hoc or specialized. Institutional arbitration is coursed through organized institutes such as the Philippine Dispute Resolution Centre Inc (PDRCI), which provide for their own procedure. On the other hand, parties are granted the right to enter into ad hoc arbitration by selecting their own arbitrator or arbitrators, using their choice of procedure, which may include existing procedures used by different arbitration institutions.
Finally, specific industries in the country possess different arbitration bodies equipped to resolve commercial disputes. For instance, the Construction Industry Arbitration Commission (CIAC) is mandated under Executive Order No. 1008 to have original and exclusive jurisdiction over all construction disputes. In addition, parties may also arbitrate disputes under arbitration programmes formed by state agencies such as the Intellectual Property Office (in co-operation with PDRCI), which cover intellectual property disputes, and the Wholesale Electricity Spot Market, which handles energy-related inter-partes disputes.
Fees and costs
In the PDRCI, a claimant must pay a filing fee of at least 75,000 pesos (US$1,500), a 100,000 peso deposit for arbitrator’s fees, and a 25,000 peso deposit for miscellaneous expenses. The enforcement of arbitral awards, however, only requires a maximum filing fee of 50,000 pesos. In the CIAC, filing fees may go above 49,968 pesos, administrative fees can go beyond 73,000 pesos, and arbitrators’ fees can be assessed to more than 1,075,280 pesos depending on the sum in dispute. In contrast, ordinary court cases can require a filing fee of more than 2% of the amount involved.
Attitude of courts
The Philippines has adopted a stance in favour of arbitration such that even arbitration clauses drafted in permissive language, or which still resort to courts in the alternative, are deemed to mandate referral of disputes to arbitration. Philippine courts also promote arbitration through interim measures of protection, such as injunctive reliefs, and confidentiality and protective orders. In matters of enforcement of domestic and foreign arbitral awards, the Philippine courts further construed an apparent ambiguity in the rules of procedure in a manner that made court reliefs existing pending arbitration also available in the execution of a confirmed arbitral award.
Res judicata, arbitral awards
Arbitral tribunals are not considered quasi-judicial bodies and are therefore not courts that can decide with the effect of res judicata. Nonetheless, confirmed arbitral awards are enforceable as final and executory decisions of Philippine courts, and final court rulings on incidents arising from arbitration have the effect of res judicata.
Challenges in practice
While a growing interest in arbitration confidently foretells of the continuous growth of arbitration practice in the Philippines, certain ambiguities in the delineation of the roles of arbitral tribunals and local courts have to be addressed so as not to defeat the benefits that come along with choosing arbitration.
In one case, a claim enforced through arbitration was frustrated on the ground that an arbitral tribunal lacked jurisdiction to hear claims against a rehabilitating corporation covered by a suspension or stay order. In the Philippines, the enforcement of arbitral awards can be protracted by judicial uncertainty on reliefs they may grant post-award, among others. For instance, a writ of preliminary attachment obtained in an action to enforce a foreign arbitral award was struck down by an appellate court on the ground that interim reliefs are only available pending arbitration, and not in the enforcement stage. Courts are also prone to issue or modify interim reliefs even though the ADR Act grants arbitral tribunals primary authority over interim measures of protection.
Under the ADR Act, the enforcement of an arbitral award may be refused, or may be vacated on the ground that its issuance is against public policy. In view, however, of the absence of any clear jurisprudence defining what matters are considered against public policy, courts are given considerable leeway in interpreting such provision. In some instances, courts have even also cited public policy as a ground to deny the issuance of interim reliefs.
The culprit lies in the silent resistance of some of the local courts, which have been accustomed to implementing local procedural rules used in litigation, instead of adopting arbitration rules of procedure, which are characterized with much dynamism and flexibility. This is currently being addressed, as can be seen from the efforts of the judiciary in training and orienting judges with arbitration laws and procedure.
Nonetheless, although factors detrimental to arbitration still remain, there is a recognized burgeoning interest in the practice, and the collaborative efforts of the government, the institutions and the practitioners to promote arbitration as a preferable mode of dispute resolution.
Republic Act No. 9285 or the Alternative Dispute Resolution Act of 2004; Articles 2028-2046 of the Civil Code of the Philippines; Administrative Matter No. 076-11-08-SC (1 September 2009), or the Special Rules of Court on Alternative Dispute Resolution.
The Office for Alternative Dispute Resolution.
Does the law govern both domestic and international proceedings?
Is the UNCITRAL Model Law the basis of the law governing international or domestic disputes?
Yes, internationally, while certain provisions of the Model Law were made applicable to domestic arbitration.
Has the Philippines ratified the New York Convention on Enforcement of Arbitration Agreements and Awards?
What are the most prominent arbitral institutions?
The Philippine Dispute Resolution Centre and the Construction Industry Arbitration Commission.
Can third parties/non-signatories be bound by an arbitration?
As a general rule, no. However, exceptions are made in cases of parties bound by separate or accessory contracts that incorporate arbitration clauses in another primary contract, such as third-party beneficiaries and bond issuers to a construction contract.
What is the attitude of your courts to enforcement of international awards
Philippine courts adopt a stance in favour of arbitration, and particularly refrain from reviewing arbitral awards subject of enforcement.
Are certain types of disputes more commonly being referred to arbitration?
General commercial disputes, disputes involving construction contracts, and disputes over government procurement contracts.