The Philippines is a party to the New York Convention (Convention) after ratifying it on 6 July 1967. Upon ratification, the Philippines declared that it signed the Convention on the basis of reciprocity, and would apply the Convention to the recognition and enforcement of awards made only in the territory of another contracting state and only to differences that arise out of legal relationships, whether contractual or not, which are considered commercial in nature under the national law of the state that is making the declaration.
Answer contributed byThe Philippines is a party to the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention).
Answer contributed byRepublic Act No. 9285 (2004), or the Alternative Dispute Resolution Act of 2004 (ADR Act) principally governs commercial arbitration in the Philippines. Under the ADR Act, (i) the 1985 UNCITRAL Model Law (Model Law) primarily governs international commercial arbitration that may be seated in the Philippines; (ii) Republic Act No. 876 (1953), or the Arbitration Law (RA 876), continues to govern domestic arbitration, subject to the provisions of the ADR Act and the Model Law; and (iii) Executive Order No. 1008 (1985) (EO 1008) governs construction disputes in the Philippines. The ADR Act likewise provides for the implementing legislation for the New York Convention . To date, the Philippines has not yet adopted the 2006 Model Law.
Answer contributed byThe following arbitration bodies are based in the Philippines:
There is no explicit prohibition against foreign arbitral providers having offices in the Philippines, subject to compliance with legal requirements for doing business. There is also no prohibition having arbitration proceedings under the rules of foreign arbitration institutions being seated, or having hearings held, in the Philippines.
Answer contributed byThere is as yet no specialist arbitration court in the Philippines; however, arbitration-related proceedings are ordinarily assigned to trial courts designated as commercial courts. In any case, the Philippine judiciary is supportive of the law and practice of international arbitration. In particular, the Philippine Supreme Court has enacted the Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules) that govern arbitration-related court proceedings, such as applications for interim relief and the enforcement and setting aside of awards. In the case of Mabuhay Holdings Corp v Sembcorp Logistics Limited (G.R. No. 212734, 5 December 2018), the Supreme Court recognised the state’s policy in favour of arbitration and the enforcement of awards by, among other things, adopting a narrow approach in determining whether the enforcement of an award would be contrary to public policy.
Answer contributed byPhilippine law requires that an arbitration agreement must be in writing. This means that it is contained in a document, signed by the parties, or in any other means of telecommunication providing a record of the agreement, or in an exchange of statements of claim and defence wherein the agreement’s existence is alleged by a party without being denied by the other party. The reference in a contract to a document that contains an arbitration clause shall constitute an arbitration agreement, provided that the contract is in writing, and the reference is such as to make that clause part of the contract (Department of Justice Circular No. 98, ADR Act’s Implementing Rules and Regulations [ADR Act IRR], articles 4.7 and 5.6). Parties may agree that future disputes be referred to arbitration. In this regard, the Philippine Supreme Court ruled, in Hygienic Packaging Corporation v Nutri-Asia, Inc (G.R. No. 201302, 23 January 2019), that in affixing signatures on a contract containing an arbitration agreement, the parties must show that they intended to be bound by the terms and conditions of the contract, including the arbitration agreement.
Answer contributed byPhilippine law enumerates, by way of exception, the following matters that cannot be subject to arbitration:
Contracts, such as an arbitration agreement, generally take effect only between the parties, their assigns, and heirs, as provided in article 1311 of the Civil Code of the Philippines (Civil Code). Thus, as a general rule, a third party cannot be bound by an arbitration agreement. Known exceptions to the relativity of contracts include: (i) doctrine of piercing the veil of corporate fiction; and (ii) when an agent signs on behalf of the principal and in accordance with the orders of the principal. The Philippine Supreme Court, however, has not applied these exceptions in order to bind a third party to an arbitration agreement.
Joinder of third parties may also be allowed under the circumstances set out in the applicable arbitration rules, and in the ADR Act IRR in the case of ad hoc arbitrations. Further, the 2021 Philippine Dispute Resolution Center, Inc (PDRCI) Arbitration Rules (PDRCI Rules) and the 2019 Philippine Center for Conflict Resolution ( PICCR ) Handbook and Arbitration Rules (PICCR Rules) both allow a party wishing to join an additional party to the arbitration to submit the appropriate request to the institution or the tribunal once constituted.
Answer contributed byThe parties and the tribunal may agree to consolidate different arbitral proceedings or hold concurrent hearings, upon such terms as may be agreed upon. The tribunal has the power to consolidate only if the parties confer such power to it (ADR Act IRR, articles 4.45 and 5.45).
Consolidation may be allowed under the PDRCI and the PICCR arbitration where (i) parties agree to consolidate, (ii) all the claims in the arbitrations are made under the same arbitration agreement, or (iii) generally, in both or all arbitrations, there is a common question of law or fact, or related reliefs, and the institutional body finds the arbitration agreements to be compatible (PICCR Rules, article 10; PDRCI Rules, article 10).
Answer contributed byThe ‘group of companies doctrine’ has not been expressly recognised by the Philippine Supreme Court as to bind non-parties to an arbitration agreement. However, the Supreme Court has recognised instances wherein it has allowed the piercing of the corporate veil if the corporation is used as a vehicle to perpetrate fraud or to defeat public convenience, or as an alter ego of a person (namely, directors, trustees or officers of a corporation) (Lanuza, Jr. v. BF Corp., G.R. No. 174938, 1 October 2014). Having said that, this doctrine of piercing of the corporate veil has not yet been applied by the Supreme Court to bind non-parties to an arbitration agreement.
Answer contributed byPhilippine courts recognise the principle of separability of the arbitration clause. Thus, an arbitration clause shall be treated as an agreement independent of the other terms of the contract of which it forms part. Thus, even if the contract where the arbitration clause is found is deemed void, it shall not automatically invalidate the arbitration clause (Special ADR Rules, rule 2.2; Cargill Philippines, Inc, v San Fernando Regala Trading, G.R. No. 175404, 31 January 2011 ).
Answer contributed byPhilippine law recognises the competence-competence principle. Thus, the tribunal may initially rule on its own jurisdiction, including any objections regarding the existence or validity of the arbitration agreement or any condition precedent to the filing of a request for arbitration, and Philippine courts are directed to exercise judicial restraint in ruling on these issues.
When a Philippine court is asked to determine whether the arbitration agreement is void, inoperative, or incapable of being performed, the court must make only a prima facie determination of that issue. The court must suspend the action and refer the parties to arbitration, unless it makes a prima facie determination that the agreement is void, inoperative, or incapable of being performed (Special ADR Rules, Rules 2.2 and 2.4).
Answer contributed byAs a party to the New York Convention, the Philippines generally recognises and enforces the parties’ arbitration agreement. Having said that, considering that the CIAC has been granted by law original and exclusive jurisdiction over construction disputes in the Philippines, the Philippine Supreme Court reads arbitration clauses found in construction contracts, or other contracts that may relate to construction in the Philippines, as providing for CIAC arbitration if such arbitration clause is silent, or providing for CIAC arbitration as an alternative if such arbitration clause names a different arbitration institution. Thus, if the parties to a construction dispute have entered or enter into an arbitration agreement, the parties may refer their construction dispute to CIAC arbitration regardless of the absence of, or different, agreement on the specific arbitration institution under which rules the arbitration shall proceed. Stated differently, Philippine law reads into the arbitration agreement, of parties in a Philippine construction dispute, CIAC arbitration as an alternative, giving the parties a choice of arbitration under the CIAC Rules or the arbitration rules of the specified arbitration institution. In this regard, the Supreme Court recently ruled in Datem, Incorporated v Alphaland Makati Place, Inc, et al (G.R. Nos. 242904-05, 10 February 2021) that the non-compliance with a condition precedent set out in the arbitration clause of a construction contract will not divest the CIAC of its jurisdiction over the construction dispute. According to the Supreme Court, the mere existence of an arbitration clause is sufficient for the CIAC to acquire jurisdiction over the construction dispute. Under the CIAC Rules of Procedure, non-compliance with a condition precedent does not divest the arbitral tribunal with jurisdiction over the dispute. Instead, the CIAC Rules of Procedure mandate the arbitral tribunal to suspend the arbitration proceedings pending compliance with the condition within a reasonable period directed by the tribunal.
Answer contributed byInstitutional international arbitration appears more common in the Philippines than ad hoc international arbitration. UNCITRAL Rules are commonly used in ad hoc international arbitrations in the Philippines.
Answer contributed byMulti-party arbitration agreements should explicitly include a procedure for the appointment of the arbitrators. The PDRCI and PICCR arbitration rules allow the multiple claimants and multiple respondents to jointly nominate or appoint the arbitrators (PDRCI Rules; and PICCR Rules, article 12). The Revised Rules of Procedure Governing Construction Arbitration of the Construction Industry Arbitration Commission (CIAC) (CIAC Rules) allow the multiple parties to agree on the method for constituting the tribunal, otherwise the CIAC will appoint the arbitrators (CIAC Rules, section 9.1.2) However, the ADR Act IRR does not address this issue (ADR Act IRR, articles 4.11[c] and 5.10[c]).
Answer contributed byThe commencement of arbitral proceedings is generally determined by the procedure adopted by the parties.
Under the PDRCI, PICCR and CIAC arbitration rules, arbitration is generally deemed commenced when the notice of, or request for, arbitration is filed and received by the institution, and the filing fee is paid (PDRCI Rules, article 4; PICCR Rules, article 4; and CIAC Rules, section 3.4).
Ad hoc international commercial arbitration is commenced upon receipt by the respondent of a request for that dispute to be referred to arbitration. In ad hoc domestic arbitration, it is commenced upon the delivery to the respondent of a demand for arbitration (ADR Act IRR, article 4.21 and 5.20).
Parties are free to agree as to the limitation period for the commencement of the arbitration so long as the period is reasonable. Absent any such agreement, the dispute that arose from a written contract must be commenced within 10 years of the time the dispute arose (Civil Code, article 1144).
Answer contributed byThe substantive law that shall govern the dispute depends on the ‘choice of law’ provision in the contract. In the absence of agreement, the tribunal shall apply the conflict of law rules that it considers applicable. In all cases, the tribunal shall decide based on the terms of the contract and taking into account the usages of the trade that apply to the transaction (ADR Act IRR, articles 4.28 and 5.28). In Saudi Arabian Airlines v Court of Appeals (G.R. No. 122191, 8 October 1998), the Philippine Supreme Court held that the applicable law shall be determined based on the place that has the most significant relationship or the place where the relationship between the parties is centered. The relevant factors to determine the law that has the most substantive relationship, are among others:
Under the ADR Act and the Model Law, the parties are free to determine the number of arbitrators. If the parties do not determine such number, the number of arbitrators shall be three. No person may be excluded from consideration by reason of nationality, unless the parties otherwise provide. The parties are also free to agree on the procedure to select the arbitrators (ADR Act IRR, articles 4.10, 4.11, and 5.10).
Under domestic arbitration, an arbitrator must have legal capacity and be literate. Further, the arbitrator must not (i) be related blood or marriage within the sixth degree to either party, (ii) have had financial, fiduciary or other interest in the controversy, or (iii) have any personal bias (ADR Act IRR, articles 5.9 and 5.10; RA 876, section 10).
Under the CIAC Rules, the arbitrators shall possess the competence, integrity, and leadership qualities to resolve any construction dispute expeditiously and equitably. They may include engineers, architects, construction managers, engineering consultants and businesspeople familiar with the construction industry and lawyers who are experienced in construction disputes. Generally, only CIAC-accredited arbitrators may be nominated by the parties. A nominee who is not CIAC-accredited may only be appointed as arbitrator if the nominee (i) is the parties’ common nominee; (ii) possesses the technical or legal competence to handle the construction dispute involved; and (iii) has signified his or her availability or acceptance of his or her possible appointments (CIAC Rules, Rule 8).
Answer contributed byNo person is precluded from acting as an arbitrator by reason of his or her nationality, unless otherwise agreed by the parties (ADR Act IRR, article 4.11; Special ADR Rules, Rule 7.4).
There are no special immigration requirements that apply particularly to arbitrators. Furthermore, a temporary visa is generally not required if the arbitrator is a national of a country that has diplomatic relations with the Philippines and their stay in the Philippines does not exceed 30 days.
Under CIAC Rules, a foreign arbitrator not accredited by CIAC may be appointed as a co-arbitrator or chairperson of an arbitral tribunal for a construction dispute if the dispute is a construction dispute in which one party is an international party. In which case, the foreign arbitrator to be appointed shall not be of the same nationality as the international party in the dispute. Moreover, the foreign arbitrator must be nominated by the international party or is the common choice of the two CIAC-accredited arbitrators, one of whom was nominated by the international party (CIAC Rules, Rule 9.4).
Answer contributed byIf the parties fail to determine the number of arbitrators, there shall be three arbitrators. If the parties fail to agree on the selection procedure, each party shall appoint one arbitrator, with the third arbitrator to be selected by the two prior appointees. An appointing authority shall appoint an arbitrator, at the request of any party, if (i) a party fails to appoint an arbitrator within 30 days of the receipt of the request from the other party, or (ii) if the two arbitrators fail to agree on the third arbitrator within 30 days of their appointment (ADR Act IRR, articles 4.11[c][i]). Institutional bodies are the default appointing authority in institutional arbitrations (CIAC Rules, Rule 9; PDRCI Rules, articles 13.2 and 14.2; PICCR Rules, articles 12.2 and 12.4), while the National President of the Integrated Bar of the Philippines (IBP) is the default appointing authority in ad hoc arbitrations.
The parties may generally apply to the Philippine courts to act as the appointing authority if (i) the institution fails to perform its duty as appointing authority within a reasonable time in an institutional arbitration, and (ii) if the National President of the IBP or its duly authorised representative fails to act within the allotted period in an ad hoc arbitration (Special ADR Rules, Rule 6.1[a][b] in relation to ADR Act IRR, article 4.11[d]).
Answer contributed byThere is no express law granting arbitrators a general immunity from suit. But, arbitrators are not civilly liable for acts done in the performance of their duties, unless there is a clear showing of bad faith, malice or gross negligence (ADR Act, section 5, in relation to the Administrative Code of 1987, Book 1, Chapter 9, section 38[1]).
Answer contributed byThere is no Philippine law specifically providing for security for the payment of arbitrator’s fees. Arbitrators in ad hoc arbitrations will have to enter into an arrangement with the parties for the deposit for arbitration expenses and arbitrator’s fees subject to liquidation and return of any balance, if any, after the arbitration is terminated. The PDRCI have on occasion agreed to provide secretariat services to ad hoc arbitrations for a fee, which includes fundholding services for the deposits of the parties.
Answer contributed byA challenge to an arbitrator may be made only if there are circumstances that exist giving rise to justifiable doubts as to impartiality or independence, or if the arbitrator does not possess the required qualifications as agreed by the parties. If a party appointed the arbitrator or if the former participated in the selection, the party may only challenge the arbitrator for reasons of which the party became aware after the appointment was made (ADR Act, article 12(2); ADR Act IRR, articles 4.12[b] and 5.11[b]).
The aggrieved party may request the appointing authority to rule on the challenge. If the appointing authority fails or refuses to rule or act on the challenge, within such period as allowed under the applicable rule or, in the absence thereof, within 30 days of receipt of the request, the aggrieved party may renew that challenge in court (Special ADR Rules, Rule 7.2).
The IBA Guidelines on Conflicts of Interest in International Arbitration for its arbitration proceedings (IBA Guidelines) are generally taken into account and persuasive, in resolving challenges.
Under the CIAC Rules, an arbitrator may be challenged by a party based on:
Parties may apply to a tribunal, or Philippine courts before the constitution of the tribunal or after the constitution when the tribunal has no power to act or is unable to act effectively, for the grant of interim relief in order to prevent irreparable loss or injury, provide security for the performance of any obligation, produce or preserve any evidence, and compel any other appropriate act or omission. These include but are not limited to (i) preliminary injunctions against a party, (ii) appointment of a receiver, (iii) detention, preservation or inspection of the subject property of the arbitration, (iv) preliminary attachment against property or garnishment of funds in the custody of a bank or a third person, and (v) assistance in the enforcement of an interim measure of protection granted by the arbitral tribunal, which the latter cannot enforce effectively (ADR Act, sections 28 and 29; Special ADR Rules, rule 5.6). An anti-suit injunction is in the nature of a preliminary injunction and may be sought from a tribunal or a Philippine court to restrain a party from pursuing a proceeding in breach of an arbitration agreement.
Answer contributed byThe ADR Act grants the tribunal and courts the power to grant interim relief to provide security for the performance of any obligation (ADR Act, section 28[b][2]). This power is broad and may be invoked to cover security for costs, although this has not been confirmed by case law.
Answer contributed byArbitration proceedings seated in the Philippines are primarily governed by the rules agreed upon by the parties and, failing such agreement, such procedure as the tribunal may consider appropriate, as supplemented by the provisions of the ADR Act and the ADR Act IRR. Further, if the parties choose institutional arbitration, the procedural rules of the chosen institution will generally apply, subject to any contrary agreement of the parties. This is consistent with the contractual nature of arbitral proceedings. It affords the parties substantial autonomy over the proceedings where the parties are free to agree on the procedure to be observed during the proceedings (Fruehauf Electronics v Technology Electronics, G.R. No. 204197, 23 November 2016).
Answer contributed byIf the respondent fails to communicate its defence, the arbitration shall continue and the failure is not treated as an admission of the claimant’s allegations. If any party fails to appear at a hearing or to produce documentary evidence, the tribunal may continue the proceedings and make the award based on the evidence before it (ADR Act IRR, articles 4.25 and 5.25; CIAC Rules, Rule 4.2).
If the respondent fails to appoint an arbitrator within 30 days of receipt of a request to do so, the appointment may be made by the appointing authority, upon request of a party (ADR Act IRR, article 4.11[c] and article 5.10[c]).
Answer contributed byParties generally offer testimonial evidence of an ordinary or expert witness, as well as documentary evidence supporting the testimony of its witnesses. Parties are given the opportunity to submit judicial affidavits of their witnesses, to which are attached the documentary evidence relevant to the testimony. The opposing party will be given an opportunity to cross-examine the witness during a hearing, where the tribunal may also ask clarificatory questions. In this regard, the parties generally agree that the IBA Rules on the Taking of Evidence in International Commercial Arbitration be taken into account by, or at the least guide, the arbitrators. The power of the tribunal to determine the conduct of the arbitration includes the power to determine the admissibility, relevance, materiality and weight of any evidence (ADR Act IRR, articles 4.19 and 5.18; CIAC Rules, Rule 13.6 to 13.9).
Under the CIAC Rules, an arbitral tribunal is not bound by technical evidentiary rules. Aside from witness testimonies and documentary evidence, the arbitral tribunal may also conduct a site inspection of any building, place or premises, or require video presentations (CIAC Rules, Rules 13.5 and 13.10).
Answer contributed byAny party to an arbitration may request the court to provide assistance in taking evidence. In particular, a party may petition the court to direct any person or entity, which is found in the Philippines, to:
The tribunal has the power to require the production of documents (ADR Act IRR, articles 4.27 and 5.27). To enforce such a directive, a party may petition a Philippine court to assist in the taking of evidence (Special ADR Rules, Rule 9.5).
Under the CIAC Rules, the arbitral tribunal may order the production of real or documentary evidence upon the motion of a party or on its own initiative (CIAC Rules, Rule 13.5.1).
Answer contributed byHearings are not mandatory. In international commercial arbitration, subject to any contrary agreement by the parties, the tribunal shall decide whether to hold oral hearings for the presentation of evidence or for oral argument, or whether the proceedings shall be conducted on the basis of documents and other materials. However, unless the parties have agreed that no hearings shall be held, the tribunal shall hold such hearings at an appropriate stage of the proceedings, if so requested by a party (ADR Act IRR, article 4.24).
In domestic arbitration, the parties may agree to submit their dispute to arbitration other than through oral hearing. The parties may submit an agreed statement of facts. They may also submit their respective contentions to the duly appointed arbitrators in writing; this shall include a statement of facts, together with all documentary proof (R.A 876, section 18).
Answer contributed byUnless otherwise agreed by the parties, the tribunal may meet at any place appropriate for consultation among its members, for hearing witnesses, experts, or the parties, or for inspection of goods, other property or documents (ADR Act IRR, articles 4.20 and 5.19).
Answer contributed byUnless otherwise agreed by the parties, any decision of a tribunal shall be made by a majority of all its members. Procedural questions may be decided by the presiding arbitrator if authorised by the parties or all the members of the tribunal (ADR Act IRR, articles 4.29 and 5.29; CIAC Rules, Rule 16.2).
Answer contributed byPhilippine law does not limit the types of remedies or relief that a tribunal may grant in a valid arbitration, except that the tribunal should not exceed its powers.
Answer contributed byPhilippine law does not prohibit the issuance of dissenting opinions. However, they are not common in practice.
Answer contributed byThe form and content of the award shall be:
After the award is made, a signed copy shall be delivered to each party (ADR Act IRR, articles 4.31 and 5.31).
Moreover, the CIAC Rules of Procedure provides that a final award involving a construction dispute in the Philippines that is referred to a CIAC arbitral tribunal shall contain the:
The parties shall be provided a copy of the final award. The original of an arbitral award shall be filed with the CIAC Secretariat (CIAC Rules, Rules 16.7 and 16.8).
Answer contributed byA request for correction or interpretation of the award from the tribunal must be made within 30 days from receipt of the award, unless a different period is agreed upon (ADR Act IRR, articles 4.33 and 5.33). In domestic arbitration, a petition for the correction of an award may also be filed with the courts within 30 days from receipt of the award (Special ADR Rules, Rule 11.2[B]).
In domestic arbitration, a petition to confirm an award may be filed with the appropriate court at any time after the lapse of 30 days from receipt of the award. Petitions in court for the vacation of an arbitral award may be filed not later than 30 days from receipt of the award (Special ADR Rules, Rules 11.2[A] and [C]).
In international commercial arbitration conducted in the Philippines, a petition in court for the enforcement and recognition of an award may be filed at any time from receipt of the award. A petition to set aside an award may only be filed within three months of receipt of the award (Special ADR Rules, Rule 12.2).
In an arbitration conducted outside the Philippines, a petition in court to recognise and enforce a foreign award may be filed at any time after receipt of a foreign award (Special ADR Rules, Rule 13.2).
Answer contributed byIn principle, the costs of arbitration shall be borne by the unsuccessful party. The tribunal may, however, apportion between the parties such costs if apportionment is reasonable, based on the circumstances (ADR Act IRR, articles 4.46[d] and 5.46[d]).
Answer contributed byPhilippine arbitration laws do not specifically prescribe principles governing the awarding of interest. However, under Philippine law, for an obligation that consists in the payment of a sum of money, and there is a breach, the interest shall be that stipulated by the parties in writing. If there is no stipulation, the legal rate is 6 per cent per annum (Civil Code, article 2209; Bangko Sentral ng Pilipinas Circular No. 799, series of 2013). If it is an obligation that does not involve a forbearance of money, an interest for damages may be awarded at the legal rate of 6 per cent per annum (Lara's Gift & Decors, Inc v Midtown Industrial Sales, Inc, G.R. No. 225433, 28 August 2019).
Answer contributed byFinal awards in a commercial arbitration, whether in a domestic arbitration or an international commercial arbitration seated in the Philippines, are not subject to appeal before the Philippine courts. However, final awards in a CIAC arbitration may be elevated to the Court of Appeals or the Supreme Court. In this connection, in the recent case of Global Medical Center of Laguna, Inc v Ross Systems International, Inc. (G.R. No. 230112, 11 May 2021), the Supreme Court clarified that such final awards: (i) should be appealed to the Supreme Court through a Rule 45 petition for review on certiorari if the issue to be raised is a pure question of law; and (ii) may be appealed to the Court of Appeals through a petition for certiorari on the grounds of grave abuse of discretion amounting to the lack or excess in jurisdiction, if the issues to be raised are questions of fact, whose factual issues shall be limited to those that pertain to either a challenge on the integrity of the CIAC arbitral tribunal (ie, allegations of corruption, fraud, misconduct, evident partiality, incapacity or excess of powers within the tribunal) or an allegation that the arbitral tribunal violated the Philippine Constitution or positive law in the conduct of the arbitral process. The Court of Appeals may conduct a factual review only upon sufficient and demonstrable showing that the integrity of the CIAC arbitral tribunal had indeed been compromised, or that it committed unconstitutional or illegal acts in the conduct of the arbitration.
Answer contributed byIn domestic arbitration, a party may file a petition with the appropriate court to vacate an award on the following grounds:
The Supreme Court has also recognized public policy as a ground to vacate a domestic arbitral award. In Lone Congressional District of Benguet Province v Lepanto Consolidated Mining Co (G.R. Nos. 244063 & G.R. No. 244216, 21 June 2022), the Supreme Court recognised the strong and compelling public policy on the protection of rights of the indigenous communities and indigenous people to their ancestral domains and vacated the domestic arbitral award that was rendered in clear disregard of such public policy.
In international commercial arbitration seated in and outside the Philippines, a party may file a petition with the appropriate court to set aside an award on the grounds enumerated under article V of the New York Convention, which include:
Article 2044 of the Civil Code provides that any stipulation that the arbitrators’ award or decision shall be final is valid, except when there is a mistake, fraud, violence, intimidation, undue influence or falsity of documents. Nonetheless, parties may not exclude any basis to challenge an award under the New York Convention, and adopted under the ADR Act. This issue, however, has not been resolved by the Philippine Supreme Court.
Answer contributed byA Philippine court may refuse to recognise or enforce an award if it finds that the award has been set aside or suspended by a court of the country in which that award was made (Special ADR Rules, Rule 13.4[a][v]).
Answer contributed byThe Philippines has a pro-enforcement policy, and this was affirmed in Mabuhay Holdings Corp v Sembcorp Logistics Limited (G.R. No. 212734, 5 December 2018) where the Philippine Supreme Court ruled, for the first time, that the narrow and restrictive approach must be adopted in defining public policy as a ground to refuse the recognition and enforcement of an award.
However, the recent decisions of the Supreme Court in Lone Congressional District and Maynilad Water Services, Inc v National Water and Resources Board (G.R. No. 181764, 7, December 2021) are landmark decisions that show that domestic arbitral awards may be vacated on the ground of public policy using the Special ADR Rules.
Maynilad Water Services involves two water concessionaries – Manila Water Company, Inc (Manila Water) and Maynilad Water Services, Inc (Maynilad), which cover the Service Area East and the Service Area West, respectively. The Concession Agreements provide for the mechanism of setting the rates chargeable to consumers, which provided a 12 per cent limit on the rate of return. The Concession Agreements also provide that the base from which the net rate of return is calculated shall be recomputed every five years, in an exercise called rate rebasing. In addition to the 12 per cent return, Manila Water and Maynilad may recover by way of tariff the operational costs, capital maintenance and investment expenditures efficiently and prudently incurred, Philippine business taxes, and payment corresponding debt service on the loans and concessionaires’ loans incurred to finance such expenditures.
The controversy arose in the third exercise of rate rebasing, when the water concessionaires were prohibited from including corporate income taxes as expenditures recoverable from the consumers through the tariff, because they are not considered “Philippine business taxes”. The water concessionaires instituted separate arbitration proceedings before Appeals Panels pursuant to the arbitration agreements under their respective Concession Agreements.
The Appeals Panels’ rulings on the same issue as to whether corporate income tax is recoverable by the water concessionaire diverged. On one hand, in the arbitration instituted by Manila Water, the Appeals Panel ruled that corporate income taxes were not an allowable expenditure. On the other hand, in the arbitration instituted by Maynilad, the Appeals Panel decided that corporate income taxes may be recovered by way of tariff.
The arbitral award rendered in favour of Maynilad was confirmed by the Regional Trial Court and the Court of Appeals. In its decision, the Supreme Court reversed the Court of Appeals and vacated the arbitral award on the ground of public policy. The Philippine Supreme Court recognised that public policy is a ground to refuse the recognition and enforcement of foreign arbitral awards and is not among the grounds to vacate a domestic arbitral award under the Arbitration Law. However, the Supreme Court applied this ground and cited the Special ADR Rules to justify its ruling.
The Supreme Court recognised the narrow and restrictive definition of public policy that it adopted in Mabuhay Holdings. However, unlike Mabuhay Holdings that involved purely private interests, the Supreme Court emphasised that the enforcement of the arbitral award would adversely affect the public at large. According to the Supreme Court, the arbitral award rendered in favour of Maynilad must be vacated because the enforcement of the award would result in a disproportionate price difference between the water rates in Service Area East and Service Area West. This is because the arbitral tribunal in the arbitration instituted by Manila Water ruled that Manila Water cannot pass on its corporate income taxes to consumers. This will lead to a situation where the water prices in Service Area East and Service Area West would differ disproportionately, without any substantial distinction between the consumers in the service areas. Thus, the enforcement of the Maynilad arbitral award would result in discriminatory water rates, which is violative of the equal protection clause under the Philippine Constitution.
The enforcement of the Maynilad arbitral award would also violate the mandate of the relevant government agency tasked to provide just, equitable, and non-discriminatory rates because a large segment of the water-consuming public will be made to pay for something that has no direct benefit to them, while some will enjoy water services without shouldering the same burden.
Lone Congressional District and Maynilad Water Services are landmark decisions. For the first time, the Supreme Court vacated domestic arbitral awards on the ground of public policy using the Special ADR Rules. This notwithstanding the clear language of the Arbitration Law and the ADR Act that provide that a domestic arbitral award may be vacated only under the exclusive grounds enumerated under the Arbitration Law. Public policy is not among those grounds. Nevertheless, domestic parties will have to consider the possible public policy implications of their commercial transaction and disputes that may arise from their transaction in determining how best to move forward with the transaction and the dispute.
Answer contributed byState immunity is not among the recognised grounds to resist the enforcement of an award (Special ADR Rules, Rules 11.4 and 12.4). Further, case law suggests that state immunity cannot be successfully raised as defence at the enforcement stage of commercial arbitration. In particular, Philippine case law provides that: (i) an agreement to submit any dispute to arbitration may be construed as an implicit waiver of immunity from suit, and (ii) the doctrine of immunity from suit is restricted to sovereign or governmental activities and cannot be extended to commercial, private and proprietary acts (China National Machinery & Equipment Corp v Santamaria, G.R. No. 185572, 7 February 2012).
Answer contributed byThe arbitration proceedings shall generally be considered confidential and shall not be published. The exceptions are: (i) consent of the parties; and (ii) limited purpose of disclosure of relevant documents to the court where judicial resort is allowed by law (ADR Act IRR, articles 4.41 and 5.42; PDRCI Rules, article 46; CIAC Rules, Rule 7.1). The court may issue a protective order to prevent or prohibit disclosure of information that contains secret processes, developments, research or such information that shall materially prejudice an applicant (ADR Act IRR, articles 4.41 and 5.42).
According to the Philippine Supreme Court in Fruehauf Electronics v Technology Electronics (G.R No. 204197, 23 November 2016), Philippine law highly regards the confidentiality of arbitration proceedings that it devised a judicial remedy to prevent the unauthorised disclosure of confidential information obtained from arbitration proceedings.
Answer contributed bySince arbitration is a purely private mode of dispute resolution, the arbitration proceedings, including the records, evidence, and arbitral award, are considered confidential to avoid negative publicity and to protect the privacy of the parties (Fruehauf Electronics v Technology Electronics, G.R. No. 204197, 23 November 2016). Information obtained during arbitration proceedings may be disclosed to a Philippine court only in the instances wherein resort to the courts is allowed (ADR Act IRR, articles 4.41 and 5.42). In this connection, in arbitrations administered by the PDRCI, evidence produced shall form part of the record and shall be treated with confidentiality (PDRCI Rules, article 39[7]). PICCR and CIAC Rules are silent on the matter. The general rule that all records in arbitration proceedings are confidential applies.
Answer contributed byThere is no specific mandatory code of ethics applicable to arbitrators. However, the Philippine Institute of Arbitrators has issued a Code of Professional Responsibility for its members. Likewise, if the arbitrator is a Philippine lawyer, the Code of Professional Responsibility promulgated by the Philippine Supreme Court for lawyers will apply.
Further, PDRCI adopted the (i) Rules of Ethics for International Arbitrators adopted by the International Bar Association (IBA); (ii) 2014 IBA Guidelines on Conflicts of Interest in International Arbitration; and (iii) IBA Guidelines on Party Representation in International Arbitration (PDRCI Administrative Guidelines, article 5).
Answer contributed byThere are none. Except with respect to CIAC arbitration of construction disputes, Philippine arbitration law and rules are generally consistent with international commercial arbitration practice.
Answer contributed byAt present, there are no restrictions on the use of contingency or alternative fee arrangements or third-party funding for arbitration conducted in the Philippines. However, any champertous agreement by a lawyer is against public policy. A contingent fee contract, on the other hand, is permitted.