A. LEGISLATION AND RULES
A.1 Legislation
Enacted in 2004, Republic Act No. (RA) 9285, or the Alternative Dispute Resolution Act (“ADR Act”), continues to be the principal governing arbitration law in the Philippines. It adopted the 1985 version of the UNCITRAL Model Law for international arbitrations seated in the Philippines, and expressly recognized the application of the New York Convention (to which the Philippines acceded in 1967) in the Philippines.
The ADR Act has not been amended since its enactment. However, there have been efforts from the Office for Alternative Dispute Resolution, an agency under the Department of Justice (DOJ), to propose amendments to the ADR Act since 2016. There is also a pending bill before the Senate, which seeks to adopt the 2006 amendments to the UNCITRAL Model Law.
Apart from the ADR Act and its implementing rules and regulations, the following laws and rules also govern arbitrations in the Philippines:
- RA 876 (as amended by the ADR Act) regulates domestic arbitrations.
- Special Rules of Court on Alternative Dispute Resolution (“Special ADR Rules”) are the applicable procedural rules for ADR-related court proceedings.
- Executive Order (EO) No. 1008 and its rules of procedure, as amended, deal specifically with the arbitration of construction disputes before the Construction Industry Arbitration Commission (CIAC).
- EO No. 78 and its implementing rules and regulations mandate the adoption of ADR mechanisms, such as arbitration, in particular, government contracts.
- The Civil Code of the Philippines contains provisions on compromises and arbitrations, and governs contracts in general.
A.2 Institutions, rules and infrastructure
A.2.1 Guidelines on arbitration of intra-corporate disputes
The 2018 Revised Corporation Code allowed Philippine corporations to include arbitration agreements in their articles of incorporation, bylaws or in a separate agreement. When such an agreement is in place, disputes between the corporation, its stockholders or members, which arise from the implementation of the articles of incorporation or bylaws, or intra-corporate relations, shall be referred to arbitration.
On 23 June 2021, the Philippine Securities and Exchange Commission (SEC) published the “Draft Memorandum Circular on Guidelines on Arbitration of Intra-Corporate Disputes for Corporations” and invited comments, feedback and input from the public. Thereafter, on 19 September 2022, the SEC issued Memorandum Circular No. 8, Series of 2022, entitled “Guidelines on Arbitration of Intra-Corporate Disputes for Corporations” (“Guidelines”). The Guidelines clarified, among others, that the arbitration contemplated under the Revised Corporation Code does not apply if the seat of arbitration is stated to be other than the Philippines. It provides for the minimum provisions of the arbitration agreement that a corporation may execute, the seat of arbitration (which is presumed to be the Philippines, unless otherwise stated in the arbitration agreement), the procedure for the appointment of arbitrators, the composition and powers of the arbitral tribunal, and disclosure requirements, among others, and some guidance on how to operationalize the requirements for an arbitration agreement under the Revised Corporation Code. Under the Guidelines, a domestic corporation may incorporate an arbitration agreement in its articles of incorporation or bylaws, or in a separate agreement. For the other aspects of the arbitration, the Guidelines refer to the ADR Act and its implementing rules, the SEC Rules of Procedure, and the Special ADR Rules, which are considered to be suppletory to the Guidelines.
A.2.2 Various ADR events
The Office for Alternative Dispute Resolution (OADR) held the third National Alternative Dispute Resolution Convention on 5-7 December 2022 with the theme “Modern and Inclusive Justice: The Future of ADR in the Philippines.” The convention is the OADR’s flagship advocacy activity pursuant to its mandate under the ADR Act to promote, develop and expand the use of ADR in the public and private sectors. The OADR and the local arbitral institutions, the Philippine Dispute Resolution Center, Inc. and the Philippine International Center for Conflict Resolution, also administered several training courses on ADR throughout the year.
In April 2022, the Intellectual Property Office of the Philippines (IPOPHL) conducted a Stakeholders’ Forum on Mediation Outside Litigation and Early Mediation on Intellectual Property (IP) Dispute Resolution, where it highlighted its new ADR service called Mediation Outside Litigation, which allows parties to enter early into mediation even before filing a case. It is intended to be a more affordable solution for IP rights holders, especially micro, small and medium enterprises, to settle their IP disputes.
Through Presidential Proclamation No. 518, Series of 2012, 19 December of every year was declared as “National ADR Day” to encourage and actively promote the use of ADR. The OADR was mandated to plan and implement appropriate activities for the observance thereof.
B. CASES
B.1 Without an agreement to submit a construction dispute to arbitration, jurisdiction lies with the regular courts, not the Construction Industry Arbitration Commission (CIAC)
In Papa v. Design Arki, Inc.,[1] Spouses Papa and Design Arki, Inc. (DAI) entered into a Construction Agreement for the construction of a two-storey residential building. The Construction Agreement did not contain an arbitration agreement. During the course of the construction of the building, Spouses Papa terminated the Construction Agreement and prevented DAI from further performing work.
DAI sued Spouses Papa before the Regional Trial Court (RTC) for payment of the value of the work already performed. However, the RTC dismissed the suit and referred the case to the CIAC. On appeal, the Court of Appeals (CA) overturned the RTC and directed it to proceed with the prompt disposition of the case on the merits.
The case was elevated to the Supreme Court, which ruled that for the CIAC to acquire jurisdiction over a dispute, three requisites must be complied with: (a) a dispute arising from or connected with a construction contract; (b) such contract must have been entered into by parties involved in construction in the Philippines; and (c) an agreement by the parties to submit their dispute to arbitration. Finding that there was nothing in the records that would indicate that the parties agreed to submit their dispute to arbitration, the Supreme Court affirmed the CA’s disposition.
B.2 Arbitral tribunals are coequal bodies and cannot reverse or render another award on the same issue previously resolved by another tribunal
ASEC Development and Construction Corp. v. Toyota Alabang, Inc.[2] involved two successive arbitration proceedings before the CIAC between ASEC Development and Construction Corporation (ASEC) and Toyota Alabang, Inc. (Toyota), in relation to the construction of Toyota’s showroom. The two proceedings were presided by different tribunals.
The first arbitration involved a carve-out from ASEC’s architectural scope of work. The parties disagreed as to how much should be deducted from the contract price as a result of the carve-out. ASEC commenced arbitration before the CIAC. The arbitral tribunal ruled in favor of ASEC and allowed a deduction of around PHP 32 million, instead of PHP 52 million (“First Award”). Toyota appealed the arbitral award to the CA.
While the appeal was pending, Toyota sent a Notice of Termination to ASEC on the ground of delay. As such, ASEC commenced another arbitration before the CIAC, this time to determine the final payment due ASEC. In ruling on the issue, the arbitral tribunal, among others, deducted from the contract price around PHP 51 million (based on the previous carve-out), instead of PH 32 million (“Second Award”). ASEC appealed the arbiral award to the CA.
The appeals were then consolidated before the CA, which set aside the First Award and affirmed the Second Award. Thus, ASEC appealed to the Supreme Court.
In ruling on the appeal, the Supreme Court found that the First Award contained findings of fact that involved the same parties and contract as the one that would be subject of the Second Award. It declared that even if the First Award was pending appeal, it has become binding on the second arbitral tribunal. Since the two arbitral tribunals are coequal bodies, neither of them can overturn, reverse or render another award on the same issue previously resolved by the other tribunal. Otherwise, parties may be encouraged to incessantly file requests for arbitration until they are able to get an award in their favor.
B.3 The remedy of intervention does not extend to arbitration cases
Lone Congressional District of Benguet Province v. Lepanto Consolidated Mining Co.[3] involved arbitration proceedings pursuant to the arbitration clause of a 1990 Mineral Product Sharing Agreement (MPSA) between the Republic of the Philippines (“Republic”), through the Department of Environment and Natural Resources (DENR), and Lepanto Consolidated Mining Company and Far Southeast Gold Resources, Inc. (collectively, “Contractors”). The dispute arose when the Contractors applied for the renewal of the MPSA and the DENR’s Mines and Geosciences Bureau endorsed the application to the National Commission on Indigenous Peoples (NCIP), to determine compliance with requirements imposed by the Indigeneous People’s Rights Act (IPRA), which was enacted in 1997 (or after the MPSA was entered into). Arguing that the imposition of requirements under a later law would impair their vested rights, the Contractors commenced arbitration.
After due proceedings, the arbitral tribunal ruled, among others, that the dispute between the parties on the applicability of the requirements under the IPRA is arbitrable, and that the said requirements may be considered as “unfavorable future legislation requirement” under the MPSA. The arbitral tribunal agreed with the Contractors that the imposition of the requirements would impair the vested rights of the Contractors, contrary to the provision of the IPRA that “property rights within the ancestral domains already existing and/or vested upon its effectivity shall be recognized and respected.”
The Republic filed a petition to vacate the arbitral award with the RTC, which vacated the award for having been rendered in excess of the arbitral tribunal’s authority and disregard of the IPRA and the public policy. On appeal, the CA reversed the RTC and reinstated the arbitral award, stating, among others, that the disagreement among the parties was arbitrable. Meanwhile, the Lone Congressional District of Benguet Province (“Benguet”) filed a motion to intervene before the CA. However, the CA ruled that Benguet could no longer intervene, as it failed to intervene during the arbitration proceedings or even during the proceedings on the Republic’s petition to vacate.
Before the Supreme Court, Benguet faulted the CA for denying its motion to intervene, arguing that it has legal interest in the case because it represents the interests of its constituents whose rights are claimed to be affected by the renewal of the MPSA. The Supreme Court rejected Benguet’s argument, reasoning that the remedy of intervention does not extend to arbitration cases. The Supreme Court noted that the Special ADR Rules do not include a mechanism for intervention and declared that a resort to the rule on intervention under the Rules of Court (which applies to court proceedings) even in a suppletory manner is not allowed.
Nevertheless, on the merits, the Supreme Court vacated the arbitral award for being contrary to public policy. It ruled that a strong and compelling public policy on the protection of the rights of the affected indigenous communities to their ancestral domains would be contravened if the requirements under the IPRA would not be applied in respect of the MPSA application.
B.4 Absent any showing that the choice of law and forum stipulations in arbitration clauses offend the law, morals, or public policy, they must be sustained
In Colmenares v. Duterte,[4] various groups challenged before the Supreme Court the constitutionality of the Preferential Buyer’s Credit Loan Agreement on The Chico River Pump Irrigation Project 2 and the Preferential Buyer’s Credit Loan Agreement on The New Centennial Water Source-Kaliwa Dam Project 3 (collectively, “Loan Agreements”) entered into by the Republic. It was argued that the Loan Agreements were unconstitutional because, among others, the arbitration clauses, particularly the choice of law (Chinese law) and forum (China International Economic and Trade Arbitration Commission (CIETAC) and Hong Kong International Arbitration Centre (HKIAC)), were skewed in favor of the Chinese lender and violated the constitutional policy on the pursuit of independent foreign relations.
The Supreme Court declared that the arbitration clauses were not unconstitutional, noting that they are the product of the fundamental arbitration principle of party autonomy. It stated that in several contract disputes involving foreign elements, it has given primacy to the principle of lex loci intentionis, or the law intended by the parties. In much the same way, even while the Loan Agreements stipulate the application of Chinese law and submission to arbitration to the CIETAC and HKIAC, absent any showing that the stipulations offend the law, morals, or public policy, the same must be sustained.
[1] G.R. No. 249977, 28 September 2022.
[2] G.R. Nos. 243477-78, 27 April 2022.
[3] G.R. Nos. 244063 and G.R. No. 244216, 21 June 2022.
[4] G.R. Nos. 245981 and 246594, 9 August 2022.
