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A. LEGISLATION AND RULES

A.1       Legislation

Republic Act No. (RA) 9285, or the Alternative Dispute Resolution Act (“ADR Act”), continues to be the principal governing arbitration law in the Philippines. The ADR Act has not been amended since its enactment in 2004. However, there have been efforts from the Office for Alternative Dispute Resolution, an agency under the Department of Justice (DOJ), to propose amendments to the ADR Act since 2016. Among the proposed amendments include the adoption of the 2006 amendments to the UNCITRAL Model Law.

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

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

  • RA 876 (as amended by the ADR Act) regulates domestic arbitrations.
  • Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules) are the applicable procedural rules for ADR-related court proceedings.
  • Executive Order (EO) No. 1008 and its rules of procedure, as amended, deal specifically with the arbitration of construction disputes before the Construction Industry Arbitration Commission (CIAC).
  • EO No. 78 and its implementing rules and regulations mandate the adoption of ADR mechanisms, such as arbitration, in particular, government contracts.
  • The Civil Code of the Philippines contains provisions on compromises and arbitrations and governs contracts in general.

A.2       Institutions, rules and infrastructure

A.2.1    Philippine Dispute Resolution Center, Inc. (PDRCI) Rules 2021

On the occasion of its 25th year as an arbitral institution, the PDRCI issued its 2021 Arbitration Rules, which became effective on 1 October 2021. Among the amendments introduced in the new rules are the following:

  • As early as in the Notice of Arbitration and the Response to the Notice of Arbitration, the parties may propose the application of the expedited procedure set forth under article 57 of the new rules.
  • The new rules provide that once the arbitral tribunal has been constituted, a person shall not accept representation of a party in the arbitration when a relationship exists between the person and an arbitrator that will create a conflict of interest unless none of the parties objects after proper disclosure.
  • The new rules now contain provisions on counsel-in-charge of the file and tribunal secretary, who are likewise subject to the rules on disclosure and challenge applicable to arbitrators.
  • Previously, if the parties have not agreed on the seat of arbitration, the arbitral tribunal will determine the seat. Under the new rules, absent such previous agreement, the seat will be the Philippines, unless otherwise determined by the tribunal.
  • The new rules contain provisions on summary disposition and production of evidence.

The PDRCI likewise issued its 2021 Sports Arbitration and Mediation Rules, which apply to any contractual sports dispute, difference, controversy or claim. In December 2021, the PDRCI signed a memorandum of agreement with the Philippine Sports Commission for the establishment of sports arbitration and mediation at the PhilSports Complex in Pasig City.

A.2.2    Draft guidelines on arbitration of intra-corporate disputes

The 2018 Revised Corporation Code allowed Philippine corporations to include arbitration agreements in their articles of incorporation or bylaws. When such an agreement is in place, disputes between the corporation, its stockholders or members, which arise from the implementation of the articles of incorporation or bylaws, or intra-corporate relations, shall be referred to arbitration.

On 23 June 2021, the Philippine Securities and Exchange Commission (SEC) published the “Draft Memorandum Circular on Guidelines on Arbitration of Intra-Corporate Disputes for Corporations” and invited comments, feedback and input from the public. The draft guidelines contain provisions on the scope of arbitration, the form and effect of the arbitration agreement, the seat of arbitration (which is the Philippines, unless otherwise stated in the arbitration agreement), the composition and appointment of arbitrators, and the general powers of the arbitral tribunal. For the other aspects of the arbitration, the draft guidelines refer to the ADR Act and its implementing rules, the SEC Rules of Procedure, and the Special ADR Rules. The guidelines have not yet been finalized.

A.2.3    Various ADR events

Amidst the pandemic, the Office for Alternative Dispute Resolution (OADR) held the 2nd National Alternative Dispute Resolution Convention on 1-3 December 2021. The convention is the OADR’s flagship advocacy activity pursuant to its mandate under the ADR Act to promote, develop and expand the use of ADR in the public and private sectors. The OADR also administered a training course on ADR Mechanisms under the Katarungang Pambarangay Law and a comprehensive course on arbitration for National Government agencies in February 2022.

On 25 November 2021, the Philippine Institute of Construction Arbitrators and Mediators conducted its Philippine Construction Arbitration International Conference 2021, with the Philippine Supreme Court’s Chief Justice Alexander G. Gesmundo as the keynote speaker.

Through Presidential Proclamation No. 1152, Series of 2006, the 3rd Thursday of October of every year was declared as “Conflict Resolution Day” to promote awareness of mediation, arbitration, conciliation and other creative and peaceful means of resolving conflict. The Conflict Resolution Day was last held on 21 October 2021.

B. CASES

B.1       CIAC arbitral awards may be appealed to the Supreme Court on pure questions of law or to the Court of Appeals only on very limited factual grounds

Global Medical Center of Laguna, Inc. v. Ross Systems International, Inc.[1] involved a construction dispute between Ross Systems International, Inc., (RSII) and Global Medical Center of Laguna, Inc. (GMCLI). The CIAC arbitral tribunal rendered an award that granted, in part, the reliefs sought by the parties. RSII filed with the Court of Appeals (CA) a petition for review pursuant to rule 43 of the Rules of Court, which at the time governed appeals from quasi-judicial agencies, including the CIAC, whether the appeal involves questions of fact, law, or both. The CA modified the arbitral award. Both parties sought review by the Supreme Court.

The Supreme Court reinstated the arbitral award, with modification. In the process, it amended rule 43 by removing CIAC arbitral awards from its coverage and issued the following guidelines on the judicial review of CIAC arbitral rewards:

  1. For appeals from CIAC arbitral awards that have already been filed and are currently pending before the CA under rule 43, the prior availability of the appeal on matters of fact and law thereon applies. This is only proper since the parties resorted to this mode of review as it was the existing procedural rules at the time of filing, before the instant amendment.
  2. For future appeals from CIAC arbitral awards that will be filed after the promulgation of this Decision:
    1. If the issue to be raised by the parties is a pure question of law, the appeal should be filed directly and exclusively with the Supreme Court through a petition for review under rule 45.
    2. If the parties will appeal factual issues, the appeal may be filed with the CA, but only on the limited grounds that pertain to either a challenge to the integrity of the CIAC arbitral tribunal (i.e., allegations of corruption, fraud, misconduct, evident partiality, incapacity or excess of powers within the tribunal) or an allegation that the arbitral tribunal violated the Constitution or positive law in the conduct of the arbitral process, through the special civil action of a petition for certiorari under rule 65, on grounds of grave abuse of discretion amounting to lack or exceeding of jurisdiction. The CA 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.
  3. Under no other circumstances other than the limited grounds provided above may parties appeal to the CA a CIAC arbitral award.

B.2       The jurisdiction of the CIAC cannot be subjected to any condition or waived or diminished by the stipulation, act or omission of the parties

In Datem, Incorporated v. Alphaland Makati Place, Inc., et al.,[2] the construction agreement between Alphaland Makati Place, Inc. and Alphaland Development, Inc. (collectively, “Alphaland”) and Datem, Inc. (“Datem”) provided for a two-step dispute resolution mechanism consisting of a 30-day amicable settlement phase and arbitration proceedings with the CIAC. When the dispute arose, Datem sent demand letters to Alphaland. With its demands unheeded, Datem commenced arbitration before the CIAC. Because the parties did not undergo the amicable settlement phase before arbitration was commenced, Alphaland assailed the jurisdiction of the CIAC.

The Supreme Court rejected Alphaland’s jurisdictional objection, stating 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 the 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 declared that non-compliance with a stipulated condition under the arbitration clause does not divest the CIAC of its automatic jurisdiction under EO 1008 and that the mere existence of an arbitration clause is, considered by law, sufficient for the CIAC to acquire jurisdiction over a construction dispute.

B.3      Parties may not invoke the grounds for correction of arbitral awards under section 25(a) of RA 876 as a ruse to ask for a review of the substantive findings of an arbitral tribunal

In Philippine Charity Sweepstakes Office v. DFNN, Inc.,[3] a dispute arose between the Philippine Charity Sweepstakes Office (PSCO) and DFNN, Inc. (DFNN) in relation to an equipment lease agreement (ELA) for systems design and development and upgrade of a lotto betting platform. Under the ELA, PCSO agreed to exclusively lease from DFNN all hardware, software and technical skills to design and develop an application for acceptance and processing of bets in the Philippines. The ELA contained an arbitration clause.

Prior to the launch of the platform, PCSO issued a Board Resolution unilaterally terminating the ELA for DFNN’s supposed failure to comply with its obligations and commitment, including the timely implementation of the project. In response, DFNN commenced ad hoc arbitration proceedings and claimed, among others, liquidated damages with monthly penalty interest. Subsequently, the arbitral tribunal issued an award finding PCSO’s termination improper, but granting DFNN liquidated damages only, in the amount of PhP 27 million (approximately USD 520,000). The tribunal refused to impose monthly penalty interest because it found that under the ELA, the monthly interest-only penalty pertained to unpaid lease rentals, none of which became due.

As such, DFNN filed a petition for correction of the arbitral award before the trial court citing section 25(a) of RA 876, which authorizes modification or correction of an arbitral award “[w]here there was an evident miscalculation of figures or an evident mistake in the description of any person, thing or property referred to in the award.” DFNN contended that there was ” evident miscalculation of figures,” since the arbitral tribunal failed to direct the payment of monthly penalty interest, among others.

Contrary to the finding of the arbitral tribunal, the trial court found that the monthly penalty interest applied to liquidated damages. As such, it increased the award to more than PhP 310 million (approximately USD 6 million). The CA affirmed the trial court.

When the case reached the Supreme Court, it held that the trial court erred when it reversed and set aside the findings of the arbitral tribunal under the guise of correcting an “evident miscalculation of figures.” The Supreme Court held that this phrase means “obvious mathematical errors that relate to miscalculation that appears on the face of the award. It does not pertain to any allegation of fraud, corruption, or grave abuse. It is limited to clerical errors and honest mistakes and is, thus, correctible only insofar as they do not affect the merits of the controversy. Such is the restrained attitude that courts were intended to maintain with respect to arbitral awards.”

[1] G.R. Nos. 230112 and 230119, 11 May 2021.

[2] G.R. Nos. 242904-05, 10 February 2021.

[3] G.R. Nos. 232801 & 234193, 30 June 2021.

Author

Donemark Calimon heads the Dispute Resolution Pactice Group at Quisumbing Torres in the Philippines. Experienced in litigation and commercial arbitration, he also has extensive experience in civil and criminal litigation, and corporate, tax and mining litigation. Donemark Calimon can be reached at [email protected] and +63 2 819 4920.

Author

Oswald P. Imbat is an associate in Quisumbing Torres, a member firm of Baker & McKenzie International, a Swiss Verein. He is a member of the Dispute Resolution Practice Group, and his practice focuses on international and domestic arbitration, civil and commercial litigation, and general dispute resolution. He has advised clients across a range of industries concerning dispute resolution clauses, settlement of disputes, the commencement of arbitration in the Philippines, and recognition and enforcement of arbitral awards in the Philippines.