International Arbitration 2022

Last Updated August 16, 2022

Philippines

Law and Practice

Authors



SyCip Salazar Hernandez & Gatmaitan was founded in 1945 and presently has offices in Makati City (the business centre of the Philippines), as well as in Cebu, Davao and the Subic Freeport. SyCipLaw’s litigation department consists of 15 partners and 18 counsel, senior associates and junior associates. It has a wide-ranging litigation practice at virtually all court levels – from the municipal and regional trial courts to the courts of appeal and the Supreme Court – and with various administrative agencies. SyCipLaw has a very extensive arbitration practice involving foreign arbitrations, international commercial and other domestic arbitrations, and construction arbitrations. The firm handles some of the most significant, high-value and complex Philippine commercial law disputes, a number of which involve the Philippine government. SyCipLaw represents a wide array of foreign and local clients – ranging from public utilities to large companies in industries such as mining, power, banking, construction, transportation, pharmaceuticals, hospitals, airlines, hotels, food manufacturing and distilled spirits.

The use of international arbitration to resolve disputes is growing in the Philippines. Although domestic parties still resort to litigation as the primary mode of dispute settlement, international arbitration is slowly becoming an acceptable alternative means of settling commercial disputes involving foreign counterparties expeditiously and with minimal intervention from the courts.

Arbitral institutions were forced to adapt to the COVID-19 pandemic by issuing guidelines for the conduct of proceedings through videoconferencing. Local arbitral institutions, such as the Construction Industry Arbitration Commission (CIAC), the Philippine Dispute Resolution Center, Inc (PDRCI) and the Philippine International Center for Conflict Resolution (PICCR), have issued their respective guidelines for the conduct of online hearings.

In general, the Philippine experience of online videoconference hearings during the COVID-19 pandemic has been good. It appears that the use of online hearings will continue even after the Philippines has recovered from the pandemic.

The authors are not aware of any particular Philippine industry experiencing a significant increase or decrease in international arbitration activity in 2021–22. Although there was a slowdown in new international arbitration cases in the Philippines at the beginning of the pandemic, probably owing to the economic uncertainty, international arbitration activity has since normalised and even improved.

Among the domestic arbitral institutions, the one most used for international arbitration involving construction disputes is the CIAC. However, the PDRCI is used most for commercial disputes.

Under a unique Philippine construction arbitration law, the CIAC is granted original and exclusive jurisdiction over construction disputes in which the parties have agreed to arbitration. Where the parties have named another arbitration institution in their arbitral agreement, the law incorporates the CIAC as an alternative choice of arbitration institution into the agreement. On the other hand, the PDRCI is the most established arbitral institution in the country for commercial disputes, having been founded in 1996.

Although no new arbitral institutions were established in the Philippines in 2021–22, the PICCR was established by the Integrated Bar of the Philippines (IBP) in 2019.

There are no specific courts in the Philippines that are designated to hear disputes related to international arbitrations and/or domestic arbitrations. The regional trial courts, which are the ordinary trial courts in the Philippines, have original jurisdiction over petitions relating to arbitration under the Special ADR Rules.

Republic Act No 9285, or the Alternative Dispute Resolution Act of 2004 (the “ADR Act”), is the national legislation governing arbitration in the Philippines. It provides that international commercial arbitration shall primarily be governed by the 1985 UNCITRAL Model Law (the “UNCITRAL Model Law”). The ADR Act does not diverge in any significant way from the UNCITRAL Model Law.

There have been no significant changes in the past year to the ADR Act, which has not been amended since its enactment in 2004. Various workshops to discuss proposed changes to the ADR Act were spearheaded by the Office for Alternative Dispute Resolution, which is a government agency attached to the Department of Justice tasked with developing, strengthening and improving ADR practices in accordance with world standards. But there has been no recent news regarding the details of the proposed changes or what stage these proposals are at in the Philippine legislative process.

Consistent with the UNCITRAL Model Law, Philippine law requires that an arbitration agreement must be in writing. This requirement is satisfied if the arbitration agreement is:

  • an electronic document;
  • in a document signed by the parties;
  • in an exchange of letters, telegrams or other means of telecommunication; or
  • even in an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other party.

Furthermore, the Philippine Supreme Court has ruled that an arbitration agreement is a contract. As such, it must comply with the Philippine Civil Code’s requirements for a valid contract, which are consent, object and consideration.

Disputes in the Philippines are generally arbitrable. However, the Implementing Rules and Regulations (IRR) of the ADR Act – consistent with the Philippine Civil Code – provide that the following subject matters cannot be referred to arbitration:

  • labour disputes;
  • civil status of persons;
  • validity of marriage;
  • legal separation of spouses;
  • jurisdiction of courts;
  • future legitime;
  • criminal liability;
  • disputes that by law cannot be compromised; and
  • disputes referred to court-annexed mediation.

National courts in the Philippines favour arbitration. The Philippine Supreme Court ruled that arbitration agreements are to be liberally construed in favour of proceeding to arbitration and that courts should generally adopt the interpretation that renders an arbitration clause effective if the terms of an agreement allow for such interpretation. As such, courts would refer matters to arbitration if the case were improperly or prematurely referred to them despite an arbitration agreement.

The Philippine Supreme Court has upheld the validity of an arbitration clause despite the invalidity of the main contract, consistent with the rule of separability. It is settled in our jurisdiction that an arbitration agreement is independent of the main contract, and it does not automatically terminate when the contract of which it is part comes to an end.

It is a recognised policy of the State to respect party autonomy or the freedom of the parties to make their own arrangements in the resolution of disputes. Thus, there are no limitations on the parties’ freedom to select arbitrators in international commercial arbitration in the Philippines or to agree on the qualifications of the arbitrators.

In a similar vein, the ADR Act’s IRR provides that no person shall be precluded from acting as an arbitrator because of their nationality, unless otherwise agreed by the parties.

The parties are free to determine the number of arbitrators but, in the absence of such agreement, there shall be three arbitrators.

The parties are free to agree on a procedure for appointing the arbitrator or arbitrators. In the absence of such agreement, if the parties had agreed to have a sole arbitrator but are unable to agree on the arbitrator, a party may request that the arbitrator be appointed by the appointing authority.

If the parties are to have three arbitrators, each party shall appoint an arbitrator and then the two appointed arbitrators shall appoint the third arbitrator. If a party fails to appoint the arbitrator within 30 days of receiving a request to do so from the other party – or if the two arbitrators fail to agree on the third arbitrator within 30 days of their appointment – the appointing authority shall make the appointment upon request of the other party.

The appointing authority is the person or institution named as such in the arbitration agreement, or else the regular arbitration institution under whose rules the arbitration is conducted. Where the parties have agreed to submit their dispute to institutional arbitration rules, they are deemed to have agreed for arbitrators to be selected and appointed under said rules – unless they have agreed to a different procedure.

In ad hoc arbitration, the default appointment of an arbitrator shall be made by the National President of the IBP or their duly authorised representative.

However, there is no default procedure specifically for multiparty arbitrations.

The court intervenes in the selection of arbitrators and may act as the appointing authority at the request of a party in the following circumstances:

  • if a party fails or refuses to appoint an arbitrator;
  • when the parties fail to agree on the sole arbitrator;
  • when the two designated arbitrators fail to agree on the third arbitrator; and
  • the arbitral institution fails or is unable to perform its duty as an appointing authority within a reasonable time upon receiving a request for appointment.

In an ad hoc arbitration, the court may intervene when:

  • the parties failed to provide a method for appointing or replacing an arbitrator or substitute arbitrator, or the method agreed upon is ineffective; and
  • the National President of the IBP (or their duly authorised representative) fails or refuses to act within:
    1. such period as may be allowed under the pertinent rules of the IBP;
    2. such period as may be agreed upon by the parties; or
    3. 30 days of receiving such request for appointment.

An arbitrator may be challenged on any of the grounds provided for in Republic Act No 9285 (and its implementing rules), Republic Act No 876 or the UNCITRAL Model Law. The nationality or professional qualification of an arbitrator are not grounds to challenge an arbitrator unless the parties have specified the arbitrator’s nationality and/or professional qualification in their arbitration agreement.

An arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed to by the parties. A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

Arbitrators are required to disclose any circumstances likely to give rise to justifiable doubts as to their impartiality or independence. From the time of their appointment and throughout the arbitral proceedings, an arbitrator shall disclose any such circumstances to the parties without delay – unless they have already been informed of these circumstances by the arbitrator.

There are subject matters that cannot be referred to arbitration under Philippine law. These include:

  • labour disputes covered by the Labour Code of the Philippines and its rules;
  • the civil status of persons;
  • the validity of marriage;
  • any ground for legal separation;
  • the jurisdiction of courts;
  • future legitime;
  • criminal liability;
  • matters that cannot be compromised under law such as future support; and
  • disputes referred to court-annexed mediation.

An arbitral tribunal has the first opportunity or competence to rule on whether or not it has jurisdiction to decide a dispute submitted to it, including any objections that a party may have concerning:

  • the existence or validity of the arbitration agreement; or
  • the fulfilment of any condition precedent before filing a request for arbitration.

This is part of the policy of the State to actively promote party autonomy in the resolution of disputes.

Philippine courts also adopt a policy of judicial restraint. This means that when a court is asked to rule upon issues that affect an arbitral tribunal’s competence or jurisdiction – either before or after the arbitral tribunal is constituted – the court must exercise judicial restraint and give the arbitral tribunal the first opportunity to rule upon such issues.

On the other hand, the court must make no more than a prima facie determination when asked to decide whether the arbitration agreement is:

  • null and void;
  • inoperative; or
  • incapable of being performed.

Unless the court concludes that the arbitration agreement is null and void, inoperative, or incapable of being performed, the court must suspend the action before it and refer the parties to arbitration pursuant to the arbitration agreement.

Ordinarily Philippine courts would address the issue of an arbitral tribunal’s jurisdiction only after the arbitral tribunal exercises the first opportunity to rule on its jurisdiction. Hence the courts may address the issue of an arbitral tribunal’s jurisdiction:

  • immediately after the arbitral tribunal makes a preliminary determination of such issue; or
  • at the enforcement stage, when the party against which an award is issued contests the award on the ground of the arbitral tribunal’s lack of jurisdiction.

Generally, Philippine courts are reluctant to intervene. Under the Special ADR Rules, when a court is asked to rule upon issues affecting an arbitral tribunal’s competence or jurisdiction, the court is mandated to exercise judicial restraint and defer to the competence or jurisdiction of the arbitral tribunal by allowing the arbitral tribunal the first opportunity to rule upon the issue of its competence or jurisdiction.

As Philippine courts follow the principle of judicial restraint in deferring to the competence or jurisdiction of the arbitral tribunal by allowing the arbitral tribunal the first opportunity to rule upon such issues, parties have the right to go to court to challenge the jurisdiction of an arbitral tribunal only after the arbitral tribunal makes such a determination.

This may either be:

  • immediately after the arbitral tribunal makes a preliminary determination of such issue; or
  • at the enforcement stage, when the party against whom an award is issued contests the award on the ground of the arbitral tribunal’s lack of jurisdiction.

As a rule, Philippine courts follow a deferential standard of judicial review for questions of admissibility and jurisdiction.

The Philippine Supreme Court has ruled, in numerous cases, that courts must uphold factual findings of arbitral tribunals. Under the premise that parties must have had confidence in the arbitrators by choosing said arbitrators themselves, Philippine courts will not permit the parties to relitigate issues of facts that have been previously presented and argued before the arbitral tribunal.

As an exception, Philippine courts will allow relitigating factual issues on a de novo basis in domestic arbitration when:

  • there is an allegation of a violation of the Philippine Constitution or positive law; or
  • the integrity of the arbitral tribunal is challenged.

A challenge to the integrity of the arbitral tribunal includes allegations that:

  • the award was procured by corruption, fraud or other undue means;
  • any one of the arbitrators were evidently partial or corrupt;
  • the arbitrators were guilty of misconduct in refusing to:
    1. postpone the hearing upon sufficient cause shown; or
    2. hear evidence pertinent and material to the controversy;
  • one or more of the arbitrators were disqualified to act as such under Section 9 of the Arbitration Law and wilfully refrained from disclosing such disqualifications;
  • one or more of the arbitrators wilfully refrained from disclosing any other misbehaviour by which the rights of any party have been materially prejudiced; or
  • the arbitrators exceeded their powers – or so imperfectly executed them – that a mutual, final and definite award upon the subject matter submitted to them was not made.

When a party to an arbitration agreement commences court proceedings in breach of an arbitration agreement, Philippine courts will typically refuse to take ownership of such case and instead refer the matter to arbitration.

The Philippines adopts a policy in favour of arbitration. Hence, as long as an arbitration clause exists, Philippine courts will in practice construe the contract in a manner that gives life to an arbitration clause rather than defeats it.

Thus, the Philippine Supreme Court has ruled that a contract containing an arbitration clause precludes Philippine courts from taking ownership of a case and continuing litigation. Where the dispute is subject to an arbitration agreement, Philippine law requires the court before which the action is brought to refer the parties to arbitration, as long as at least one party so requests no later than the pre-trial conference. Hence, Philippine courts are generally reluctant to allow court proceedings in breach of an arbitration clause.

Philippine laws generally do not allow an arbitral tribunal to assume jurisdiction over individuals or entities that are neither party to an arbitration agreement nor signatories to the contract containing the arbitration agreement, for as long as such individuals or entities refuse to submit their dispute to arbitration.

One possible exception to this rule occurs when a corporation’s representative, who is not strictly speaking a party to an arbitration agreement, signs the arbitration agreement – or the contract where an arbitration clause is contained – for and on behalf of the corporation. An exception may be made if they are forced to participate in an arbitration proceeding that is made pursuant to such arbitration agreement or arbitration clause and in a situation where the separate juridical personality of the corporation may be disregarded – and the corporate veil pierced – on grounds recognised by Philippine law and jurisprudence.

An arbitral tribunal may award preliminary or interim relief, which it may consider necessary with regard to the subject matter of the dispute, unless otherwise agreed upon by the parties to an arbitration agreement. Such relief is binding in nature and may be granted to:

  • prevent irreparable loss or injury;
  • provide security for the performance of any obligation;
  • produce or preserve any evidence; or
  • compel any other appropriate act or omission.

Such interim relief or interim measures of protection include:

  • preliminary injunction directed against a party;
  • appointment of receivers; and
  • the detention, preservation or inspection of property that is the subject of the dispute in arbitration.

The party seeking such interim relief may apply to Philippine courts for assistance with implementing or enforcing an interim measure ordered by an arbitral tribunal.

Philippine courts can play one of two roles in issuing interim relief pursuant to an arbitration proceeding – either the grantor or facilitator of such relief.

Grantor of Relief

Philippine courts may grant an application for interim relief before the constitution of an arbitral tribunal, whether before or after the commencement of arbitration proceedings.

After constitution of an arbitral tribunal and during arbitral proceedings, courts may grant a request for interim relief only if the arbitral tribunal has no power to act or is unable to act effectively. The arbitral tribunal is deemed constituted when the sole arbitrator or the chair of the tribunal has accepted the nomination and the parties are notified.

In much the same way as an arbitral tribunal, courts may grant interim relief to:

  • prevent irreparable loss or injury;
  • provide security for the performance of any obligation;
  • produce or preserve any evidence; or
  • compel any other appropriate act or omission.

Facilitator in the Implementation or Enforcement of Relief

Philippine laws also allow a party seeking interim relief to apply to the courts for assistance with implementing or enforcing an interim measure ordered by an arbitral tribunal.

Although Philippine laws do not specifically allow Philippine courts to grant interim relief in aid of foreign-seated arbitrations, neither do they specifically prohibit such a grant. Thus, arguably, Philippine courts may grant interim relief in aid of foreign-seated arbitrations in the same way Philippine courts grant interim relief for Philippine-seated arbitrations, as long as other requirements for jurisdiction and venue are complied with.

Under the Special ADR Rules, the venue for a petition for an interim measure of protection is the regional trial court that has jurisdiction over:

  • the principal place of business of any of the parties to arbitration;
  • the residence of any of the parties to arbitration;
  • the place where the acts sought to be enjoined are being performed or threatened to be performed or not performed; or
  • the place where the real property subject to arbitration (or a portion thereof) is situated.

Philippine laws do not provide for the appointment of emergency arbitrators. The ADR Act was enacted by the Philippine legislature in 2004 and the Special ADR Rules were issued by the Philippine Supreme Court in 2009 – both before the appointment of emergency arbitrators was practised. Having said that, some Philippine arbitrational rules now provide for the appointment for emergency arbitrators.

It is therefore not clear whether Philippine courts may still entertain applications for interim measures of protection when an emergency arbitrator has been appointed, considering that the arbitral tribunal strictly speaking has not been constituted at that point in time. It is also not clear if Philippine courts can assist in implementing or enforcing an interim measure that has been ordered by an emergency arbitrator, given that the latter is separate and distinct from the arbitral tribunal. Having said that, Philippine courts may consider the issuance of an interim measure of protection by an emergency arbitrator at their discretion if it supports their own case for issuing interim relief.

Philippine laws and rules do not expressly permit the grant of security for costs, which would serve as an interim measure of protection to secure a future award for the legal or other costs of any party (usually the respondent) by way of a deposit or bank guarantee.

Having said that, there are grounds to argue that Philippine law may allow security for costs to be granted on the basis that such relief:

  • provides security for the performance of an obligation, in particular the obligation to arbitrate disputes; or
  • compels appropriate action to provide security for legal or other costs, especially where a respondent must participate in the arbitration in order to avoid a default award.

Parties are generally free to agree on the procedure to be followed by the arbitral tribunal during its conduct of the arbitration proceedings. In the absence of an agreement, the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate, subject to Chapter 4 Rule 5 of the ADR Act’s IRR. The latter provides that, unless considered inappropriate by the arbitral tribunal, the 1976 UNCITRAL Arbitration Rules shall apply – however, references to the Secretary General of the Permanent Court of Arbitration at the Hague shall be deemed to refer to the appointing authority under the law.

Accordingly, under the ADR Act, international commercial arbitration seated in the Philippines is primarily governed by the UNCITRAL Model Law.

There are no mandatory procedural steps required by law for international commercial arbitration proceedings conducted in the Philippines. As mentioned in 7.1 Governing Rules, parties to an arbitration are free to agree on the procedure to be followed by the arbitral tribunal during its conduct of the arbitration proceeding and, in the absence of an agreement, the arbitral tribunal may conduct arbitration proceedings in a manner it considers appropriate.

Philippine law mandates that the parties shall be treated equally and each party shall be given full opportunity to present its case. The law imposes duties on arbitrators to:

  • hold hearings if so requested by a party, unless the parties agreed that no hearings shall be held;
  • give sufficient advance notice to parties of any hearing and any meeting of the arbitral tribunal for the purpose of inspecting goods, other property, or documents;
  • decide the dispute in accordance with such rules of law that:
    1. are chosen by the parties as appropriate for the substance of the dispute; or
    2. in the absence of such choice, are determined by the conflict of law rules considered applicable by the arbitrators;
  • decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorised them to do so; and
  • decide in accordance with the terms of the contract in all cases, taking into account any applicable trade usages.

Philippine law recognises the power of an arbitral tribunal, inter alia, to:

  • determine the admissibility, relevance, materiality and weight of any evidence;
  • order that any documentary evidence be translated into the language of the proceedings;
  • disallow amendments by a party of its statement of claim or defence when the delay in making the amendment is considered inappropriate;
  • request assistance from a Philippine court in taking evidence or allow a party to make such a request;
  • administer oaths to – or require affirmation from – witnesses, which directs them to tell the truth in any oral or written testimony they provide during an arbitration hearing;
  • require any person to:
    1. attend a hearing as a witness; or
    2. produce documents through a subpoena;
  • require the exclusion of any witness while any other witness is giving evidence; and
  • order interim measures of protection.

Furthermore, in the absence of an agreement by the parties concerning the following circumstances, Philippine law recognises the power of the arbitral tribunal to:

  • terminate the proceedings if the claimant fails to communicate their statement of claim;
  • continue with the proceedings and make an award on the evidence before it if:
    1. a respondent fails to communicate their statement of defence; or
    2. a party fails to:
      1. appear at a hearing; or
      2. produce documentary evidence;
  • decide whether to:
    1. hold oral hearings for the presentation of evidence (or oral arguments); or
    2. conduct the proceedings on the basis of documents and other materials;
  • appoint expert witnesses; and
  • order the party to give the expert any relevant information or produce any relevant document, goods or other property for the expert’s examination.

Under Philippine law, a party may be represented by any person of their choice. Philippine laws and rules do not specify any particular qualification or requirement necessary for representing a party or appearing before an arbitral tribunal. This is true both for domestic and international commercial arbitration.

A representative who is not authorised to practise law, however, is not authorised to appear as counsel in any Philippine court or any other quasi-judicial body – even if such appearance may be in relation to the arbitration in which they appear.

There are no specific rules that apply to the collection and submission of evidence, including discovery, disclosure, privilege, use of witness statements, and cross-examination. As mentioned in 7.1 Governing Rules, the parties are free to agree on the procedure to be followed by the arbitral tribunal during its conduct of the proceedings and, in the absence of such agreement, the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate.

There are no specific rules of evidence applicable to arbitral proceedings seated in the Philippines. Having said that, it is generally accepted that the technical rules of evidence that apply in Philippine court proceedings are not applicable to arbitration proceedings. As mentioned in 7.3 Powers and Duties of Arbitrators, the arbitrators have the power and discretion to determine the admissibility, relevance, materiality and weight of the evidence submitted by the parties.

To this end, the parties may agree to adopt – or use as a guide – the International Bar Association (IBA) Rules on the Taking of Evidence in International Arbitration or the Prague Rules on the Efficient Conduct of Proceedings in International Arbitration.

Arbitrators have the power to issue subpoenas to compel:

  • the production of documents, where relevant and material to the case; and
  • the attendance of any person at a hearing as a witness.

With respect to the latter, the law applies whether the witness is a party or non-party.

However, Philippine law neither expressly grants arbitrators contempt powers nor recognises that they have inherent contempt powers. Arbitrators (or a party, with the arbitrators’ approval) may therefore apply to the proper court for a subpoena to assist in the evidence-taking process.

Arbitration proceedings in the Philippines are confidential. The ADR Act provides that the arbitration proceedings (including the records, evidence and arbitral award) shall be considered confidential and should not be generally published, except:

  • with the parties’ consent; or
  • for the limited purpose of disclosing relevant documents to the court in cases where resorting to court is allowed.

However, these exceptions do not include information containing secret processes, developments, research and other sensitive matters (eg, business or trade secrets) if there is evidence that the applicant will be materially prejudiced by authorising the disclosure of such information.

Under the Special ADR Rules, any person, counsel or witness who disclosed or who was compelled to disclose information related to the subject of the arbitration in circumstances where one might reasonably expect that the information would be kept confidential may file a petition with the regional trial court for a protective order to:

  • prohibit the confidential information from being divulged; or
  • suppress the confidential information unless written consent is obtained from the source or the party who made the disclosure.

Philippine law requires the arbitral award to be in writing and signed by either the sole arbitrator or the majority of arbitrators in the arbitral tribunal, with a statement outlining the reason for any omitted signature.

The arbitral award shall state the reasons upon which it is based, unless the parties have agreed otherwise or the award is based on agreed terms. The arbitral award shall also state the date of the award and the place of arbitration. Copies of the signed award shall be delivered to each party.

Philippine laws do not specify time limits for issuing an award. However, the arbitral tribunal is expected to render a decision within a reasonable timeframe once the hearings have closed and, if an institutional arbitration is involved, within the period of time provided in the institution’s rules.

There are no limits on the types of remedies that an arbitral tribunal may award, as long as they may be granted:

  • under the applicable rules of law;
  • ex aequo et bono or by amiable compositeur, if expressly authorised by the parties; or
  • under the terms of the contract (in all cases), taking into account the trade usages that apply.

Having said that, the arbitral tribunal cannot exceed its authority. Thus, it may not grant any remedy for a dispute that is not contemplated by – or does not fall within – the terms of its submission to arbitration.

Philippine laws allow parties to recover their legal costs and interests.

The ADR Act’s IRR provide that the arbitral tribunal shall fix the costs of arbitration in its award, which include:

  • fees of the arbitral tribunal;
  • travel and other expenses incurred by the arbitrators;
  • cost of expert advice and other assistance required by the arbitrators;
  • travel and other expenses for witnesses;
  • cost of legal representation and assistance for the successful party, to an extent that is deemed reasonable, if such costs are claimed; and
  • any fees and expenses for the appointing authority.

Under the ADR Act’s IRR, the costs of arbitration shall – in principle – be borne by the unsuccessful party. However, the arbitral tribunal may apportion each of these costs between the parties if it so deems reasonable, having taken into account the circumstances of the case.

For costs of legal representation and assistance, the arbitral tribunal is free to determine which party bears these costs. Alternatively, having taken into account the circumstances of the case, it may deem it reasonable to apportion the costs between the parties.

On a related note, arbitrators may be guided by Article 2208 of the Philippine Civil Code, which provides that attorney fees and other litigation expenses cannot be recovered in the absence of stipulation. Exceptions can be made in a number of specific circumstances, including:

  • where exemplary damages are awarded;
  • where one person’s act or omission has compelled the other to litigate with third persons or incur expenses to protect their own interests;
  • where one person’s civil action or proceedings against the other is clearly unfounded; and
  • where one person acted in gross and evident bad faith by refusing to satisfy the other’s plainly valid, just and demandable claim.

Article 2209 of the Philippine Civil Code provides legal basis for granting interest where there are obligations to pay a sum of money, in the absence of contrary stipulation. The interest shall be that agreed upon or, in the absence of stipulation, at the legally required interest rate of 6% per annum.

Article 2210 of the Philippine Civil Code allows for the grant of interest, at the discretion of the court (or the arbitral tribunal), upon damages awarded for breach of contract. Damages due shall earn legal interest from the time they are judicially demanded, even though the obligation may be silent on this point. However, interest cannot be recovered upon unliquidated claims or damages unless the demand can be established with reasonable certainty.

Under Philippine jurisprudence, when the judgment of the court (or the arbitral tribunal) awarding a sum of money becomes final and executory, the judgment award shall earn interest at the legal rate of 6% per annum from such finality until its satisfaction.

An arbitral award in an international commercial arbitration cannot be appealed on the grounds of errors of fact or errors of law. An agreement to refer a dispute to arbitration means that the arbitral award shall be final and binding. Rule 19.7 of the Special ADR Rules specifically prohibits the filing of an appeal or petition for certiorari to question the merits of an arbitral award.

However, the losing party may file a petition to set aside the arbitral award in an international commercial arbitration no later than three months after receiving the award. This is the exclusive recourse against such an arbitral award.

The courts can only vacate or set aside the arbitral award on the grounds cited under the UNCITRAL Model Law, to wit:

  • incapacity of a party to the arbitration agreement;
  • lack of proper notice of the an arbitrator’s appointment;
  • party was unable to present their case;
  • award being beyond the scope of the arbitration agreement or resolving a dispute outside the scope of the submission to arbitration;
  • the arbitration procedure or the composition of the arbitral tribunal was not in accordance with the parties’ agreement or, in the absence of such agreement, not in accordance with Philippine law;
  • subject matter of the dispute is not capable of settlement by arbitration under Philippine laws; and
  • the recognition or enforcement of the award would be contrary to public policy.

Philippine courts are mandated to disregard any grounds to set aside or vacate the arbitral award other than those listed.

Procedure for Setting Aside the Arbitral Award

A verified petition must be filed with the court within three months of receiving the arbitral award; it cannot be filed after the three-month time period has elapsed. If a petition to recognise and enforce the arbitral award is already pending, the petition to set aside shall be filed in opposition to the petition to recognise. Failure to file a petition to set aside shall preclude a party from raising grounds to resist enforcement of the award.

If the petition filed is sufficient both in form and in substance, the court shall issue notice to the other party directing them to file an opposition thereto within 15 days of receiving the petition.

The court will then determine whether the issue is one of law or if there are issues of fact.

  • Issues of law – parties will be required to submit legal argument briefs within 15 days of receiving the order
  • Issues of fact – the court will require the parties to submit their:
    1. witness affidavits (attaching all documents relied upon) within the same 15-day period; and
    2. reply affidavits within 10 days of receiving the affidavits requiring a reply.

If the court finds there is a need to conduct oral hearings on the basis of the pleadings and the affidavits, the court shall set the case for hearing. At such hearing, the witnesses’ affidavits constitute their direct testimonies, and these witnesses will undergo cross-examination. The court shall have full control over the proceedings to ensure that the case is heard without delay. 

Unless a ground to set aside has been fully established, the court shall dismiss the petition to set aside and will recognise and enforce the arbitral award.

The decision of the court in the petition to set aside can be reviewed by the court of appeal via a verified petition for review filed within 15 days from notice of the court's decision or denial of petitioner’s motion for reconsideration. The decision of the court of appeal may be reviewed by the Supreme Court – not as a matter of right, but only of sound judicial discretion – if there are serious and compelling reasons resulting in grave prejudice to the aggrieved party, as per those grounds listed in Rule 19.3.6 of the Special ADR Rules.

Philippine laws provide that recourse to the court against an international commercial award may only be made by an application to set aside in accordance with the provisions in the UNCITRAL Model Law, which also sets out the specific grounds on which the arbitral award may be set aside.

It is generally accepted that the grounds to set aside/vacate an arbitral award are exclusive. Although there has been no Philippine Supreme Court decision on this point, it is reasonable to interpret that parties may not exclude or expand the grounds on which an arbitral award may be challenged. 

It is a basic rule of statutory construction that the express mention of one person, thing, act or consequence excludes all others. Where a statute is expressly limited to certain matters by its own terms, it may not – by interpretation or construction – be extended to others.

Moreover, although parties are free to enter into agreements and stipulate the terms and conditions of their contract, such freedom is not absolute. The stipulations, clauses, terms and conditions must not be contrary to law, morals, good customs, public order or public policy.

On a related note, the Special ADR Rules expressly state that it is the policy of the State to:

  • actively promote the use of various modes of ADR, including arbitration; and
  • respect each party’s autonomy and the parties’ freedom to make their own arrangements in the resolution of disputes, with the greatest cooperation and the least intervention from the courts.

To this end, the courts are to exercise the power of judicial review as provided by the Special ADR Rules.  Since the Philippine laws provide that the grounds are exclusive, it reasonably follows that the parties cannot expand or exclude these grounds through a contractual agreement.

In Fruehauf Electronic Philippines Corporation v Technology Electronics Assembly and Management Pacific Corporation (GR No 204197, 23 November 2016), the Supreme Court ruled that courts cannot delve into the merits of an arbitral award and substitute their judgment with regard to the findings of fact and the interpretation and application of laws. 

However, arbitral awards rendered by the CIAC in construction disputes may be appealed to:

  • the Supreme Court on questions of law; or
  • the court of appeal on questions of fact, provided that the appellant:
    1. challenges the integrity of the CIAC arbitral tribunal; or
    2. alleges that the arbitral tribunal violated the Philippine Constitution or positive law during its conduct of the arbitral process. 

Courts can set aside or vacate an arbitral award only on the grounds provided under the Special ADR Rules and the ADR Act. Notably, these grounds do not concern the correctness of the arbitral award. Rather, these grounds address the validity of the arbitration agreement and/or the regularity of the arbitration proceedings.

The Philippines signed and ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) on 6 July 1967. The Philippines declared that, on the basis of reciprocity, it will apply the New York Convention only to:

  • the recognition and enforcement of awards made in the territory of another contracting state; and
  • differences arising from legal relationships – whether such relationships are contractual or otherwise – that are considered commercial relationships by the national law of the State making the declaration.

International Commercial Arbitral Award

Rule 12 of the Special ADR Rules sets out the procedure for the recognition and enforcement of an international commercial arbitral award rendered by an arbitral tribunal seated in the Philippines. It provides that a verified petition can be filed to recognise and enforce an arbitral award any time after the award is received. The verified petition shall be filed with the relevant regional trial court, based on:

  • where the arbitration proceedings were conducted;
  • where any of the assets to be attached or levied are located;
  • where the act to be enjoined will be or is being performed; or
  • where any of the parties resides or has its place of business.

Alternatively, it can be filed in the National Capital Judicial Region.

The verified petition shall state the following:

  • the registered addresses, or any change thereof, of the parties to arbitration;
  • that the arbitration agreement or submission exists;
  • the names of the arbitrators and proof of their appointment;
  • that an arbitral award was issued and when the petitioner received it; and
  • the relief sought.

In addition, the following shall be attached to the petition for enforcement and recognition:

  • an authentic copy of the arbitration agreement;
  • an authentic copy of the arbitral award;
  • a verification and certification against forum shopping executed by the applicant; and
  • an authentic copy or authentic copies of the appointment of an arbitral tribunal.

Upon receiving notice that the petition has been filed, the respondent may file an opposition thereto or – in lieu thereof – the respondent may instead seek to oppose by filing a petition to set aside the award. The petitioner may reply.

The court then has the discretion to either:

  • require the submission of briefs/legal memoranda only; or
  • set the case for a hearing.

Based on the parties’ submissions and/or hearing, the court will thereafter decide.

Foreign Arbitral Award

Rule 13 of the Special ADR Rules sets out the procedure for recognising and enforcing foreign arbitral awards. The procedure outlined above is essentially the same for the foreign arbitral awards. The court shall only recognise and enforce a foreign arbitral award made in a country that is not a signatory to the New York Convention if such country extends comity and reciprocity to awards made in the Philippines.

The contents of the verified petition, however, are not the same as those of a petition to recognise and enforce an international commercial arbitral award. In particular, the verified petition shall contain:

  • the addresses of the parties to arbitration;
  • the country where the arbitral award was made (if not indicated in the award) and whether such country is a signatory to the New York Convention; and
  • the relief sought.

The following should also be attached to the verified petition:

  • an authentic copy of the arbitration agreement;
  • an authentic copy of the arbitral award; and
  • a translation of the foreign arbitral award or agreement, which – if not in English – should be certified by:
    1. an official or sworn translator; or
    2. a diplomatic or consular agent.

Petition to Set Aside in the Foreign Seat

If a foreign arbitral award has been set aside by the courts in the foreign seat of arbitration, Philippine courts may refuse recognition and enforcement of the same.

There are some exclusive grounds on which recognition of a foreign arbitration award may be refused, including where an award has:

  • not yet become binding on the parties; or
  • been set aside or suspended by the court in which – or under the law of which – the award was made.

There is no express rule on what Philippine courts, before which a petition for recognition and enforcement of a foreign arbitral award has been filed, will do if there are ongoing setting-aside proceedings at the seat.  However, considering the aforementioned exclusive grounds that justify a refusal to recognise and enforce the foreign arbitral award, it is likely that Philippine courts will suspend proceedings while awaiting the outcome of the petition to set aside in the foreign seat. If the setting-aside petition is denied in the foreign seat, Philippine courts are likely to dismiss proceedings to refile the petition for recognition and enforcement without prejudice.

State Immunity

State immunity is not among the grounds to set aside or resist the enforcement of an arbitral award provided in the Special ADR Rules. As such, the Philippine Supreme Court ruled in China National Machinery & Equipment Corp v Santamaria (GR No 185572, 7 February 2012) that:

  • an agreement to submit any dispute to arbitration may be construed as an implicit waiver of immunity from suit; and
  • the doctrine of state immunity cannot be extended to commercial, private and proprietary acts.

However, money claims against the government are within the primary jurisdiction of the Commission on Audit (COA). The Philippine Supreme Court ruled in Department of Environment and Natural Resources v United Planners Consultants, Inc (GR No 212081, 23 February 2015) that the settlement of any money claim against the Philippine government is still subject to the primary jurisdiction of the COA, despite the finality of the confirmed arbitral award by the regional trial court pursuant to the Special ADR Rules.

Thus, money claims must still be approved by the COA through a petition filed before them, unless an appropriation law was already enacted to cover the prevailing party’s money claim against the government.

Rule 12.12 of the Special ADR Rules provides that there must be a presumption that an arbitral award was made and released in due course and is subject to enforcement by the court, unless a ground for setting aside the arbitral award was established. Thus, the courts tend to apply the grounds for setting aside or refusal of recognition strictly.

Under the New York Convention, a court may refuse to recognise and enforce an international commercial award if doing so would be contrary to the public policy of the State in which enforcement is sought. Philippine laws provide, therefore, that being contrary to the public policy of the State in which enforcement is sought is one of the exclusive grounds to set aside or refuse recognition and enforcement of an international commercial or foreign arbitral award. Although neither the New York Convention nor Philippine law defines this public policy ground, the following recent Philippine Supreme Court decision offers guidance on this matter.

Mabuhay Holdings Corp v Sembcorp Logistics Limited

Here, the Philippine Supreme Court adopted the same narrow and restrictive approach in defining public policy that has been adopted by most arbitral jurisdictions pursuant to the pro-enforcement policy of the New York Convention. The court ruled that that “[m]ere errors in the interpretation of the law or factual findings would not suffice to warrant refusal of enforcement under the public policy ground. The illegality or immorality of the award must reach a certain threshold such that enforcement of the same would be against the Philippines’ fundamental tenets of justice and morality – or would blatantly be injurious to the public or the interests of society” (GR No 212734, 5 December 2018).

The ADR Act and the Special ADR Rules do not have provisions for class action or group arbitration. There are also no Philippine Supreme Court cases yet on this matter.

Various Philippine arbitration organisations and institutions have adopted ethical codes and professional standards for arbitrators and arbitration counsels. To the extent that they do not conflict with any provisions in Philippine law, the Code of Ethics for Arbitration in the PCDRI’s administrative guidelines espressly incorporates:

  • the IBA Rules of Ethics for International Arbitrators;
  • the 2014 IBA Guidelines on Conflicts of Interest in International Arbitration; and
  • the IBA Guidelines on Party Representation in International Arbitration. 

Similarly, the PICCR has expressly adopted the original IBA Rules of Ethics for International Arbitrators (1987) and the 2014 IBA Guidelines on Conflicts of Interests in International Arbitration as a Code of Ethics in its guidelines for complaints against arbitrators.

However, the Philippine Institute of Arbitrators issued its own Code of Professional Responsibility for Members (CPR). The CPR provides a uniform benchmark for the application of professional and ethical standards that should govern its members’ conduct at all times.

If the counsel or arbitrator conducting arbitration proceedings is a Philippine lawyer, they are also additionally bound to observe and comply with the Code of Professional Responsibility promulgated by the Philippine Supreme Court in June 1988. Lawyers are subject to discipline when they violate or attempt to violate these rules. Penalties can be as severe as disbarment.

Further, the ADR Act expressly provides that ADR providers (which include arbitrators) and practitioners (which include arbitration counsels) are deemed public officers. Thus, they can also be held civilly liable for acts performed during their official duties that clearly show bad faith, malice or gross negligence.

There are no Philippine laws expressly providing for rules or restrictions on third-party funders. However, the risk of possible objections to the use of third-party funders is such that contracts with third-party funders may be deemed champertous.

A champertous contract is defined as a contract between a stranger and a party to a lawsuit, in which the stranger pursues the party’s claim with the aim of receiving part or any of the proceeds recovered under the judgment. The Philippine Supreme Court ruled in Conjugal Partnership of the Spouses Cadavedo v Lacaya (GR No 173188, 15 January 2014) that champertous contracts are void for being against public policy.

Although champertous contracts are generally prohibited for lawyers only, in Nocom v Camerino (GR No 182894, 10 February 2009) the Philippine Supreme Court extended the same prohibition to a third party (ie, an attorney-in-fact) who colluded with a party’s lawyer to finance the litigation and the agreement was invalidated for being contrary to law and public policy.

Article 4.45 of the ADR Act’s IRR expressly provides that there can be consolidation of arbitration proceedings if the parties agree to the consolidation. The arbitral tribunal has no power to order consolidation or arbitration proceedings unless the parties agree to confer such power upon the arbitral tribunal. The law, however, does not set out the circumstances under which such consolidation may be ordered. Having said that, Philippine arbitration institutional rules now provide for consolidation of arbitration proceedings.

An arbitration agreement generally can only bind and be invoked by those who are party to the agreement. However, there are certain circumstances in which third parties, who are not parties to the arbitration agreement, may be bound by the arbitration agreement. Similarly, only parties are generally bound by an arbitral award, yet there are certain exceptional instances where the arbitral award may be enforced against third parties.

As such, Rule A.6 of the Special ADR Rules provides that third-party security providers will be bound by the arbitration agreement only if the third-party that secures the loan has agreed in the accessory contract (either directly or by reference) to be bound by such arbitration agreement.

Furthermore, heirs and assigns are generally bound by contracts (including arbitration agreements) entered into by their predecessors-in-interest – except when the rights and obligations arising therefrom are not transmissible by their nature, stipulation, or provision of law.

Another possible exception occurs if a representative of a corporation that is party to an arbitration agreement, who signs the arbitration agreement or a contract in which an arbitration clause is contained, is then deemed to have agreed to such arbitration agreement or clause (see 5.7 Third Parties).

On the other hand, an arbitral award may possibly be enforced on such third parties when the separate juridical personality of the corporation that is a party to the arbitration is disregarded– and the corporate veil pierced – on grounds recognised by Philippine law and jurisprudence.

Jurisdiction of Philippine Courts over Foreign Third Parties

Philippine courts may bind foreign third parties only if they are able to acquire jurisdiction over such foreign third parties. In ordinary court actions, Philippine courts acquire jurisdiction over a defendant by:

  • personal service of summons;
  • substituted services of summons, including:
    1. leaving the summons at defendant’s residence;
    2. leaving the summons with a competent person at the defendant’s place of business; or
    3. sending electronic mail to defendant’s email address (if allowed by the court); or
  • methods consistent with established international conventions (to which the Philippines is a party) through a counsel of record whom the court appoints to make a special appearance on behalf of the defendant.

If the defendant is a foreign private juridical entity doing business in the Philippines, summons may be served on its resident agent. If the defendant has no such resident agent, summons may be served on any of its officers, directors or trustees within the Philippines or a government official designated by law.

If the foreign private juridical entity is not registered in the Philippines and does not have a resident agent, but has transacted or is doing business in the Philippines, Philippine courts may authorise the service of summons outside the Philippines in the following ways:

  • by personal service coursed through the appropriate foreign court;
  • by publication in a newspaper in general circulation in the country where the defendant may be found;
  • by serving a copy of the summons at the last known address via registered mail;
  • by facsimile;
  • by electronic means with proof of service; or
  • by such other means as the court may direct at its discretion. 

These methods may be used to help Philippine courts acquire jurisdiction over foreign third parties in arbitration-related petitions under the Special ADR Rules and thus bind such foreign third parties.

Having said that, the Special ADR Rules expressly provide that the provisions of the Philippine Rules of Court that apply to petitions under the Special ADR Rules have either been included and incorporated in the Special ADR Rules or specifically referred to there. The above-mentioned rules for the acquisition of jurisdiction by Philippine courts have not been included and incorporated in the Special ADR Rules – nor specifically referred to there – and thus it may be reasonably argued that Philippine courts may not bind foreign third parties.

SyCip Salazar Hernandez & Gatmaitan

SyCipLaw Center
105 Paseo de Roxas
Makati City 1226
Philippines

+63 2 982 3500

sshg@syciplaw.com www.syciplaw.com
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Trends and Developments


Authors



SyCip Salazar Hernandez & Gatmaitan (SyCipLaw) was founded in 1945 and presently has offices in Makati City (the business centre of the Philippines), as well as in Cebu, Davao and the Subic Freeport. SyCipLaw’s litigation department consists of 15 partners and 18 counsel, senior associates and junior associates. It has a wide-ranging litigation practice at virtually all court levels – from the municipal and regional trial courts to the courts of appeal and the Supreme Court – and with various administrative agencies. SyCipLaw has a very extensive arbitration practice involving foreign arbitrations, international commercial and other domestic arbitrations, and construction arbitrations. The firm handles some of the most significant, high-value and complex Philippine commercial law disputes, a number of which involve the Philippine government. SyCipLaw represents a wide array of foreign and local clients – ranging from public utilities to large companies in industries such as mining, power, banking, construction, transportation, pharmaceuticals, hospitals, airlines, hotels, food manufacturing and distilled spirits.

Resolving Disputes in the Philippine Construction Industry

Introduction

For a developing country on the rise, such as the Philippines, construction is a significant driver of the economy. The construction industry has been identified as one of the main contributors to the nation’s economic growth following the economy’s wane during the pandemic. This underscores the importance of settling construction disputes swiftly and conclusively, as delay in their resolution will have real economic impact.

In the Philippines, construction disputes – like any other commercial dispute – may be resolved through court litigation. That process has proven to be costly and drawn out. Trial and appeal within the entire hierarchy of courts could potentially span years until a final adjudication is reached.

Executive Order No 1008 (“EO 1008”) was promulgated in 1985, in recognition of the need to establish arbitral machinery to settle construction disputes expeditiously. This was considered necessary in order to promote a healthy partnership between government and the private sector in pursuit of national development goals.

EO 1008 institutionalised voluntary arbitration of construction disputes and established the Construction Industry Arbitration Commission (CIAC) as the national arbitral institution for such disputes. Republic Act No 9285 (2004), or the Alternative Dispute Resolution Act of 2004 (“ADR Act”) is the latest Philippine arbitration law and confirms that the arbitration of construction disputes shall continue to be governed by EO 1008.

EO 1008 has created a unique framework for voluntary arbitration of construction disputes in the Philippines. Parties generally may only nominate – and the CIAC may only appoint – arbitrators from the list of CIAC-accredited arbitrators. This list includes any of the following who have passed the CIAC accreditation course:

  • engineers;
  • architects;
  • construction managers;
  • engineering consultants;
  • businessmen familiar with the construction industry; and
  • lawyers who are experienced in construction disputes.

There are some exceptions – the parties’ common nominee or a foreign arbitrator nominated by an international party may be appointed as arbitrators even if not CIAC-accredited.

More significantly, the CIAC arbitral tribunal is mandated to render an award within 30 days of the case being submitted for resolution – but no longer than than six months from the date that the Terms of Reference were signed or the final day of the preliminary conference. This is approximately equal to the timeframe for expedited procedures under international arbitration institution rules.

Although the CIAC may approve requests from the CIAC tribunal for more time, it can impose penalties on CIAC arbitrators who delay issuing their award by reducing their fees or disqualifying them from appointment for a specified period.

CIAC arbitral awards are also executory 15 days following receipt by the parties (even if the losing party seeks a review of the award), unless:

  • the reviewing court stays execution based on such terms as it deems just; or
  • the CIAC tribunal, in agreement with the CIAC, approves a bond posted by the losing party for an amount equal to the award.

The latter is conditional upon the judgment of the appellate court, in case it upholds the CIAC arbitral award in whole or in part.

Finally, the CIAC is under the Construction Industry Authority of the Philippines (CIAP), which is the government authority tasked with overseeing and promoting the development and growth of the local construction industry. The CIAC charges administrative and arbitrators’ fees that are heavily discounted in comparison with even the local arbitration institutions.

However, perhaps the two most important aspects of CIAC arbitration that make it unique are:

  • its original and exclusive jurisdiction over construction disputes; and
  • the limited appealability of the CIAC arbitral awards.           

The CIAC’s original and exclusive jurisdiction over construction disputes

EO 1008 vests the CIAC with original and exclusive jurisdiction over disputes arising from – or connected to – contracts entered into by parties involved in construction in the Philippines. With the exception of employer–employee relationship issues, some of the disputes that may be referred to the CIAC for arbitration include:

  • violation of specifications for materials and workmanship;
  • violation of the terms of agreement;
  • interpretation and/or application of contractual time and delays;
  • maintenance and defects;
  • payment;
  • default of employer or contractor; and
  • changes in contract cost.

Under Philippine law, the law is deemed written into every contract.  Considering that EO 1008 vests the CIAC with original and exclusive jurisdiction over construction disputes in the Philippines, its provisions are deemed incorporated into any arbitration agreement involving construction contracts in this country.

This means that the CIAC would acquire jurisdiction over a dispute if:

  • the parties agreed to submit any dispute arising from the construction contract to voluntary arbitration through an arbitration agreement; and
  • any of the parties refers the dispute to the CIAC for voluntary arbitration.

This applies even if the parties have expressly agreed to refer the dispute to a different arbitral institution for arbitration. 

In a similar vein, the Philippine Supreme Court has interpreted the CIAC’s original and exclusive jurisdiction over construction disputes under EO 1008 to mean that:

  • an agreement to refer a construction dispute to CIAC arbitration excludes regular courts from acquiring jurisdiction over the dispute;
  • as long as the parties agree to submit a construction dispute to arbitration, regardless of which forum they choose, the parties will not be precluded from submitting their dispute before the CIAC;
  • once the CIAC’s jurisdiction is properly invoked, it applies to the dispute and continues to apply until the CIAC fully disposes of the case; and
  • a party is estopped from assailing the CIAC’s jurisdiction after it actively participates in the arbitration proceedings.

The Datem case

The jurisdiction of the CIAC has been strengthened through the Supreme Court’s 2021 decision in Datem, Inc v Alphaland Makati Place, Inc (GR No 242904, 10 February 2021) (“Datem”). 

Datem involved a construction contract that incorporated an arbitration agreement. The arbitration agreement provided, inter alia, that any dispute arising from the construction contract must first be settled amicably within a certain period of time. Should the parties fail to reach an amicable settlement, then the dispute will be referred to the CIAC for arbitration. When a dispute arose, it was referred by one of the parties to the CIAC for arbitration without going through the amicable settlement procedure set out in the arbitration agreement. The other party challenged the jurisdiction of the CIAC because the condition precedent was not complied with.

According to the Supreme Court, the failure of the parties to attempt to resolve the dispute amicably did not divest the CIAC of its jurisdiction over the dispute. The Supreme Court explained that “since the CIAC’s jurisdiction is conferred by law, it cannot be subjected to any condition; nor can it be waived or diminished by stipulation, act or omission of the parties, as long as the parties agreed to submit their construction contract dispute to arbitration, or if there is an arbitration clause in the construction contract”.

The Supreme Court explained further that “[t]o affirm a condition precedent in the construction contract, which would effectively suspend the jurisdiction of the CIAC until compliance therewith, would be in conflict with the recognised intention of the law to automatically vest CIAC with jurisdiction over a dispute should the construction contract contain an arbitration clause”. 

After taking into consideration the foregoing and the fact that the CIAC arbitral tribunal gave the parties a reasonable period of time to reach an amicable settlement, the Supreme Court affirmed the CIAC’s jurisdiction over the dispute. 

CIAC arbitral awards can be appealed

Under EO 1008, a CIAC arbitral award may be appealed to the Philippine Supreme Court on questions of law. This sets CIAC arbitral awards apart from other international arbitral awards. Under the ADR Act, the latter are unappealable and can instead be set aside or refused recognition and enforcement based on the exclusive grounds set out in the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) and the 1985 UNCITRAL Model Law on International Commercial Arbitration (the “UNCITRAL Model Law”). 

The language of EO 1008 notwithstanding, the CIAC had promulgated rules of procedure that allowed parties to appeal CIAC arbitral awards to the court of appeal on questions of fact and law, prior to appealing to the Supreme Court on questions of law. As a consequence, CIAC arbitral awards were subjected to judicial review on questions of fact by justices who may not be experts in construction.

The Global Medical case

However, the Supreme Court has recently revised this somewhat in its 2021 ruling in Global Medical Center of Laguna, Inc v Ross Systems International, Inc (GR No 230112, 11 May 2021) (“Global Medical”).

In Global Medical, the Supreme Court set the following guidelines when it comes to the judicial review of CIAC arbitral awards.

  • Appeals that involve pure questions of law must be filed directly and exclusively with the Supreme Court through a petition for review under Rule 45 of the Rules of Court.
  • Appeals that involve factual issues must be filed with the court of appeal through a petition for certiorari under Rule 65 of the Rules of Court. 

However, the above-mentioned petition must:

  • challenge the integrity of the CIAC arbitral tribunal (ie, it must contain allegations of:
    1. corruption;
    2. fraud;
    3. misconduct;
    4. evident partiality;
    5. incapacity; or excess of powers within the CIAC tribunal); or
  • allege that the CIAC tribunal violated the Philippine Constitution or positive law while conducting the arbitral process.

These are the only grounds that parties can raise in their appeal that would justify a review of the factual findings of the CIAC tribunal by the court of appeal. Stated differently, the court of appeal may conduct a factual review only if there is sufficient evidence demonstrating that the integrity of the CIAC tribunal was indeed compromised or that the CIAC committed unconstitutional or illegal acts during the conduct of the arbitration. 

Following Global Medical, a party seeking to challenge a CIAC arbitral award on a pure question of law should now file the appeal directly with the Supreme Court. This is consistent with EO 1008. However, although EO 1008 does not always allow a party to challenge the factual findings of a CIAC arbitral tribunal, a party may apparently do so nonetheless – provided the limited grounds outlined in Global Medical are pleaded and sufficiently proven. 

Moving forward

The recent pronouncements by the Supreme Court affirm the pro-arbitration policy of the Philippines. They recognise the role of arbitration as a tool that parties may resort to for an efficient and cost-effective mode of dispute resolution. The aftermath of the two aforementioned cases is summarised here.

  • Following Datem, the CIAC arbitral tribunal shall retain jurisdiction over a construction dispute notwithstanding the parties’ non-compliance with any condition precedent in their arbitration agreement. Datem recognised the CIAC tribunal’s power to:
    1. suspend the arbitration proceedings to give the parties time to resolve their dispute amicably; and
    2. resume the proceedings, hear the parties, receive evidence, and resolve the dispute by rendering an arbitral award.
  • Following Global Medical, CIAC arbitral awards may be appealed on questions of law and, provided that the limited grounds are present, questions of fact. By limiting the ability of courts to review the factual findings of CIAC arbitral tribunals, Global Medical has helped parties put an end their dispute within the shortest possible time.

Although these developments are all positive, the following questions remain unanswered.

  • As the CIAC is “automatically” vested with jurisdiction over construction disputes provided that the parties have an arbitration agreement in place, how should the CIAC act when a dispute is referred to its arbitral tribunal by a party only for the CIAC to learn that the other party has referred the same dispute to the arbitral tribunal stipulated by the parties in their arbitration agreement? In such a situation:
    1. how may a CIAC arbitral award be recognised and enforced in a foreign country when the constitution of the arbitral tribunal and the arbitral procedure were not in accordance with the agreement of the parties, which is among the limited grounds for refusing recognition or enforcement of an arbitral award under the New York Convention?
    2. could the Philippines, by providing original and exclusive jurisdiction to the CIAC over construction disputes, be deemed in violation of Article II of the New York Convention’s obligation to recognise the parties’ written arbitration agreement? 
  • As EO 1008 states that CIAC arbitral awards can only be appealed on questions of law, are the guidelines formulated from Global Medical unconstitutional because they amount to judicial legislation, which exceeds the judicial power vested in the Supreme Court, and are contrary to law?
  • Shouldn’t CIAC arbitral awards be considered as international commercial or domestic arbitral awards instead, and therefore subject to the provisions of the ADR Act on the confirmation, recognition and enforcement of arbitral awards?

Considering that the Philippine Supreme Court will only be able to address these issues when it is confronted with an actual controversy, the Philippine Congress should be urged to step in to implement amendments to the existing Philippine arbitration laws.

Any amendments should not only address these issues, but also ensure that Philippine construction arbitration laws are consistent with the fundamental principles of international arbitration. This is necessary to not only ably support the growth of the Philippine construction industry – and, subsequently, the Philippine economy – but also to help transform the Philippines into a more marketable arbitration seat in Southeast Asia.

SyCip Salazar Hernandez & Gatmaitan

SyCipLaw Center
105 Paseo de Roxas
Makati City 1226
Philippines

+63 2 982 3500

sshg@syciplaw.com www.syciplaw.com
Author Business Card

Law and Practice

Authors



SyCip Salazar Hernandez & Gatmaitan was founded in 1945 and presently has offices in Makati City (the business centre of the Philippines), as well as in Cebu, Davao and the Subic Freeport. SyCipLaw’s litigation department consists of 15 partners and 18 counsel, senior associates and junior associates. It has a wide-ranging litigation practice at virtually all court levels – from the municipal and regional trial courts to the courts of appeal and the Supreme Court – and with various administrative agencies. SyCipLaw has a very extensive arbitration practice involving foreign arbitrations, international commercial and other domestic arbitrations, and construction arbitrations. The firm handles some of the most significant, high-value and complex Philippine commercial law disputes, a number of which involve the Philippine government. SyCipLaw represents a wide array of foreign and local clients – ranging from public utilities to large companies in industries such as mining, power, banking, construction, transportation, pharmaceuticals, hospitals, airlines, hotels, food manufacturing and distilled spirits.

Trends and Development

Authors



SyCip Salazar Hernandez & Gatmaitan (SyCipLaw) was founded in 1945 and presently has offices in Makati City (the business centre of the Philippines), as well as in Cebu, Davao and the Subic Freeport. SyCipLaw’s litigation department consists of 15 partners and 18 counsel, senior associates and junior associates. It has a wide-ranging litigation practice at virtually all court levels – from the municipal and regional trial courts to the courts of appeal and the Supreme Court – and with various administrative agencies. SyCipLaw has a very extensive arbitration practice involving foreign arbitrations, international commercial and other domestic arbitrations, and construction arbitrations. The firm handles some of the most significant, high-value and complex Philippine commercial law disputes, a number of which involve the Philippine government. SyCipLaw represents a wide array of foreign and local clients – ranging from public utilities to large companies in industries such as mining, power, banking, construction, transportation, pharmaceuticals, hospitals, airlines, hotels, food manufacturing and distilled spirits.

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