PHILIPPINES

Jay Patrick Santiago and Rafael Roman T. Cruz

A. LEGISLATION AND RULES

A.1       Legislation

Republic Act No. (RA) 9285, or the Alternative Dispute Resolution (ADR) Act (“ADR Act”), continues to be the principal governing arbitration law in the Philippines. The ADR Act has not been amended since its enactment in 2004. 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. Among the proposed amendments include the adoption of the 2006 amendments to the UNCITRAL Model Law.

The ADR Act adopted the 1985 version of the UNCITRAL Model Law for international arbitrations seated in the Philippines. It expressly recognized the application of the New York Convention in the Philippines.

Apart from the ADR Act and its implementing rules and regulations, the following laws and rules also govern arbitrations in the Philippines:

  1. RA 876 (as amended by the ADR Act) regulates domestic arbitrations;
  2. Special Rules of Court on Alternative Dispute Resolution are the applicable procedural rules for ADR-related court proceedings;
  3. Executive Order (EO) No. 1008 and its rules of procedure, as amended, deal specifically with the compulsory arbitration of construction disputes before the Construction Industry Arbitration Commission (CIAC); and
  4. EO No. 78 and its implementing rules and regulations mandate the adoption of ADR mechanisms, such as arbitration, in particular government contracts.

A.2       Institutions, rules and infrastructure

A.2.1    Amendments to the Arbitration Rules of the Philippine Dispute Resolution Center, Inc.

The Philippine Dispute Resolution Center, Inc (PDRCI) is currently in the process of amending its arbitration rules. The rules revision committee is composed of the most recognized arbitration practitioners in the Philippines. The arbitration community in the Philippines anticipates the release of the rules in 2021.

The PDRCI is also drafting its rules on sports arbitration, which are also expected to be released in 2021.

The PDRCI has started to promote its mediation rules actively. In 2020, it conducted its first commercial mediation training.

A.2.2.   Regional Arbitral Institutes Forum 2020

Against the constraints of the pandemic, the Philippine Institute of Arbitrators successfully hosted the first virtual Regional Arbitral Institutes Forum on 24 November 2020, with the theme “Arbitration and the Courts: (Alternative) Dispute Resolution under the New Normal.” Speakers from Australia, Brunei Darussalam, Hong Kong, Indonesia, the Philippines, Singapore, Thailand, and the United Kingdom tackled two broad topics: “Judicial Involvement in Arbitration” and “Interplay between Arbitral Proceedings and Insolvency Proceedings.”

During the event, representatives from the Supreme Court and the DOJ reiterated the Philippines’ pro-arbitration policy.

A.2.3.   Annual Conference of the Chartered Institute of Arbitrators (East Asia Branch) Young Members Group (CIArb EAB YMG)

The Philippine Chapter of the CIArb EAB YMG hosted the second annual conference of the CIArb EAB YMG through eight webinars spanning between 4-27 November 2020. With the theme “International ADR in Asia: Global Challenges and Opportunities to Young Practitioners in the Era of New Normal,” speakers from all over the world tackled a broad range of topics, including the Singapore Mediation Convention, the conduct of virtual hearings, reforms in institutional arbitration, careers in arbitration, the future of investment treaty arbitration in Asia, China’s influence in ADR, the interplay between human rights and international arbitration and diversity in ADR.

B. CASES

B.1.      Courts other than the Supreme Court cannot issue temporary restraining orders against the termination of a national government project, despite the presence of an arbitration clause

In Busan Universal Rail, Inc. v. Department of Transportation – Metro Rail Transit 3,[1] Busan Universal Rail, Inc. (“Busan”) commenced arbitration proceedings against the Department of Transportation (“DOTr”) due to the latter’s nonpayment of certain billings. The dispute arose from Busan’s work on a government rail project. After the Notice of Arbitration filing on 6 October 2017, Busan filed a Petition for Interim Measure of Protection (“Petition”) with the trial court, seeking to prevent DOTr from terminating the contract, pending the arbitration proceedings. The court denied the Petition on 13 October 2017. On 16 October 2017, DOTr terminated the contract with Busan. Busan appealed the termination of the Petition to the Supreme Court.

The Supreme Court ruled that the trial court correctly denied the Petition. Under Section 3 of RA 8975, no court, except the Supreme Court, shall issue any temporary restraining order or injunction against any national government project’s termination or rescission. Thus, interim measures of protection, which seek to prevent the termination or rescission of a national government project, are likewise prohibited.

The only exception to the prohibition in Section 3 of RA 8975 is when “the matter is of extreme urgency involving a constitutional issue,  such that unless a TRO or injunctive writ is issued, grave injustice and irreparable injury will result.” However, the termination of the contract with Busan relates to a contractual issue, which does not qualify under the exception.

B.2.      The Commission on Audit cannot modify or amend an arbitral award of the CIAC

In Taisei Shimizu Joint Venture v. Commission on Audit and Department of Transportation,[2] the DOTr awarded the contract to construct the New Iloilo Airport to Taisei Shimizu Joint Venture (TSJV). Claiming unpaid billings, TSJV commenced arbitration against DOTr with the CIAC. The CIAC tribunal awarded TSJV around USD 4.5 million.

TSJV attempted to enforce the award, but the DOTr and the banks which held the funds of DOTr advised TSJV that it must first seek approval of the Commission on Audit (COA). TSJV filed a petition for enforcement and payment with COA. COA reduced the award to approximately USD 2.1 million. TSJV sought relief from the Supreme Court against COA’s reduction of the award.

The Supreme Court found for TSJV, resolving that EO No. 1008, a specific law granting the CIAC primary and exclusive jurisdiction over construction arbitration, prevails over COA’s general jurisdiction over money claims due to the government. Thus, COA did not have the authority to modify the award of the CIAC tribunal.

The Supreme Court further resolved that once a court or another adjudicative body acquires jurisdiction over a money claim against the government, COA has no power to determine or review the same claim’s factual or legal issues. COA cannot interfere with a court or a tribunal’s findings, as such findings relate to judicial functions or specialized knowledge and expertise.

B.3        Courts must defer to the factual findings of a CIAC tribunal by reason of its “technical expertise and irreplaceable experience of presiding over the arbitral process

In Wyeth Philippines v. CIAC, et al.,[3] the Supreme Court held that when the award of the CIAC tribunal becomes the subject of judicial review, courts must defer to its factual findings by reason of its “technical expertise and irreplaceable experience of presiding over the arbitral process.” The only exception would be when the integrity of the CIAC tribunal itself has been jeopardized.

The dispute arose from the construction of “Dryer 3 and Wet Process Superstructure Works.” Wyeth Philippines, Inc. (“Wyeth”) was the project owner. SKI Construction Group, Inc. (“SKI”) was awarded the project provided it executes the superstructure works following a notice to proceed issued by Wyeth.

To recover its claims, SKI commenced CIAC arbitration against Wyeth. The CIAC tribunal subsequently issued its award, finding that Wyeth validly terminated the contract because SKI incurred a delay in constructing the works. SKI was held liable for the payment of additional costs incurred because of the delay in the performance of its obligation. However, it awarded SKI the cost of rebars, formworks, safety equipment, and repairs it had made.

Wyeth appealed the CIAC award to the Court of Appeals and, while the appeal was pending, moved for the execution of the CIAC award with the CIAC tribunal.

The CIAC tribunal denied Wyeth’s motion for execution based on CIAC Resolution No. 06-2002 or “Policy Guidelines to Clarify the Policy Guidelines Regarding Execution of a Final Award During Appeal.” It further explained that “allowing [Wyeth] to move for the execution of the CIAC award as well as question the same award on appeal results to an absurd and conflicting scenario of a party seeking enforcement of a final and executory judgment while also seeking the reversal or modification of the same judgment.” Wyeth then filed a petition with the Court of Appeals to compel the CIAC tribunal to execute the CIAC award.

The two petitions pending with the Court of Appeals were consolidated with the other related pending appeals. Subsequently, the Court of Appeals resolved the pending appeals and modified the CIAC tribunal’s findings.

Wyeth appealed the Court of Appeals’ decision to the Supreme Court. In denying Wyeth’s appeal, the Supreme Court reiterated its past ruling that limited the grounds for appeals of CIAC tribunals’ awards to pure questions of law. The CIAC tribunals’ factual findings should be respected and upheld.

The Supreme Court found that Wyeth raised questions of fact, which the Supreme Court cannot entertain unless the limited exceptions are raised and proved. These exceptions, which were not present in the case, must pertain to the arbitrator’s conduct and the arbitrator’s qualifications, not to its errors of fact and law, misappreciation of evidence, or conflicting findings of fact. The Supreme Court emphasized that only when “the most basic integrity of the arbitral process was imperiled” that a factual review of the findings of the arbitral tribunal may be reviewed.

The Supreme Court held that the Court of Appeals should not have disturbed the factual findings of the CIAC tribunal. In doing so, the Court of Appeals based their modification on neither a legal question nor any exceptional ground requiring it to look into factual issues. The Supreme Court thus upheld and reinstated the CIAC tribunal’s findings but ruled that under the CIAC revised rules, Wyeth was not entitled to an execution pending appeal because it appealed the CIAC tribunal’s award.

 

[1] G.R. No. 235878, 26 February 2020.

[2] G.R. No. 238671, 2 June 2020.

[3] G.R. No. 220045-48, 22 June 2020.

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