A regional comparison of arbitration landscapes: Philippines

Recent jurisprudential developments have certainly added to the Philippines’ rich arbitration practice. They have been premised on essential legal and policy principles that ensure the integrity, efficacy and rationality of the arbitral process.

Arbitration continues to be a robust and dynamic practice area in the Philippines as the legislature and courts continue to maintain a decidedly pro-arbitration stance. This is readily seen in the country’s prevailing arbitration law and procedural rules, all of which are consistent with the keystone principles developed and practised globally.

Overall, this jurisdiction’s statutory and policy framework, complemented by jurisprudence and fostered by a rebounding and growing economy, has made the Philippines a competitive regional hub for arbitration and alternative dispute resolution.

AUTONOMY REMAINS PARAMOUNT

In Colmenares v Duterte (2022), the Supreme Court of the Philippines upheld the choice of law and forum clauses stipulated in the arbitration agreements covering certain loan agreements entered by the Philippine government with the Export-Import Bank of China.

Such clauses provided that the loan agreements, and the parties’ respective contractual rights and obligations, would be governed by and construed in accordance with the laws of China; also that any dispute arising from the loan agreements would be resolved in arbitrations administered by the China International Economic and Trade Arbitration Commission or the Hong Kong International Arbitration Centre, and under their respective rules.

Special interest groups assailed the clauses for being heavily skewed against the Philippines and, thus, violative of constitutional policy on the state’s pursuit of independent foreign policy. This policy requires that, in its relations with other states, the Philippines must be guided by national sovereignty and national interest, among other considerations.

In resolving this issue, the Supreme Court upheld clauses on the fundamental arbitration principle of party autonomy. The apex court recognised that arbitration of disputes around commercial contracts was a “purely private system of adjudication facilitated by private citizens, which has been consistently recognised as valid, binding and enforceable” such that arbitration agreements should be liberally construed, and the interpretation that would render them effective should be adopted.

The Supreme Court added that, for contracts involving foreign elements, the contracting parties’ choice of law is respected, pursuant to the principle of lex loci intentionis, or the law intended by the parties. Ultimately, the court found that the subject clauses were not offensive to Philippine law, morals or public policy, and the constitutional violation alleged by the special interest groups was speculative, given their failure to demonstrate that the governing law and dispute resolution mechanism stipulated in the loan agreements resulted in actual prejudice to the Philippines.

INTERVENTION INAPPLICABLE

In Lone Congressional District of Benguet Province v Lepanto Consolidated Mining Company and Far Southeast Gold Resources (2022), the Supreme Court resolved the issue of whether a non-party to an arbitration agreement may intervene in arbitration proceedings or subsequent recognition or vacatur judicial proceedings for any resulting arbitral award.

In 1990, a mineral product sharing agreement was entered into by the Philippine government and certain mining companies to conduct mining operations in Benguet province. When the agreement was about to expire, the mining companies expressed their interest in renewing for another 25 years.

However, the Philippine government insisted that the renewal must first undergo a process under the Indigenous People’s Rights Act (IPRA), which had been enacted in the interim. The mining companies commenced arbitration assailing the new process. The arbitral tribunal rendered an award in favour of the mining companies; this was eventually vacated by a local trial court upon petition by the Philippine government.

While the case was before the Philippine Court of Appeals, the district of Benguet province, a local government unit, filed a motion for leave to intervene on the ground that it represented constituents protected by the IPRA, who stood to be affected by the renewal of the mineral product sharing agreement. Although the Court of Appeals reversed the ruling of the trial court, it denied the intervention of the district.

In resolving the issue of intervention, the Supreme Court held that Philippine arbitration law and procedural rules, particularly the Philippine Special Rules of Court on Alternative Dispute Resolution (special ADR rules), do not provide any mechanism for the intervention of non-parties to an arbitration agreement.

Specific provisions of the special ADR rules prevent the suppletory application of the rule on intervention applicable to ordinary court proceedings to arbitrations, or even to arbitration-related judicial proceedings.

The lack of a mechanism for intervention in arbitration proceedings is consistent with the objectives of Philippine arbitration law and rules – to respect party autonomy or the freedom of the parties to make their own arrangements in the resolution of disputes, as well as to achieve the speedy and efficient resolution of disputes and curb a litigious culture.

TRIBUNALS CO-EQUAL BODIES

ASEC Development and Construction Corp v Toyota Alabang (2022) is a case that involved one construction contract and arbitration agreement but two arbitral tribunals that rendered two conflicting arbitral awards in two separate construction arbitration proceedings.

The parties in this case entered a contract for the construction of a car dealership showroom. A dispute arose between the parties when the owner sought to deduct certain architectural works from the scope of the contractor, which entailed a reduction in the contract price, to which the contractor objected.

The contractor commenced arbitration before the Philippine Construction Industry Arbitration Commission (CIAC), which is the body vested with original and exclusive jurisdiction over construction arbitration disputes under Philippine law.

Arbitration ensued before the first arbitral tribunal, which rendered a final award in the contractor’s favour. Aggrieved, the owner sought judicial review before the Court of Appeals.

While this appeal was pending, the owner terminated the construction contract on the ground of delay. This prompted the contractor to once again commence arbitration before the CIAC, this time on the principal issue of its entitlement to payment under its outstanding progress billings.

Eventually, the second arbitral tribunal ruled in favour of the owner. In doing so, the second arbitral tribunal essentially overturned the findings of the first arbitral tribunal as to the valuation of the works deducted by the owner. This prompted the contractor to elevate the matter to the Court of Appeals.

The appeals were consolidated by the Court of Appeals, which ultimately ruled in favour of the owner on the issue of deductive works.

On further appeal by the contractor, the Supreme Court set aside the final award rendered by the second arbitral tribunal insofar as it ruled on the issue of deductive works, which had already been settled by the first arbitral tribunal.

The Supreme Court explained that the two arbitral tribunals were co-equal bodies and neither of them could overturn, reverse or render another award of an issue previously settled by the other.

Thus, even if the findings of the first arbitral tribunal were pending appeal, such findings were already binding on the second arbitral tribunal. Otherwise, parties may be encouraged to incessantly file requests for arbitration until they are able to obtain an award in their favour.

REGLEMENTARY PERIOD

Maynilad Water Services v National Water and Resources Board (2023) settled the rule on when to file a petition for the confirmation of a domestic arbitral award.

This case involved separate domestic arbitrations stemming from concession agreements on the principal issues of whether the water concessionaires were public utilities whose profits were subject to a regulatory price cap, and were prohibited from treating corporate income taxes as business expenditures. In one of the arbitrations, the water concessionaire prevailed.

In seeking the confirmation of the award in its favour, the water concessionaire applied the reglementary period under rule 11.2 of the special ADR rules (i.e., at any time after the lapse of 30 days from receipt of a party of the award). The other party challenged this and argued that the period under section 23 of the Arbitration Law, (i.e., at any time within one month after the award is made) should be applied instead, being specific to domestic arbitrations in the Philippines.

The Supreme Court held that rule 11.2 of the special ADR rules effectively superseded section 23 of the Arbitration Law by express provision of the Alternative Dispute Resolution Act, the Philippines’ primary law on arbitration. Ultimately, however, the award in favour of the water concessionaire was vacated on grounds of public policy.

The above-mentioned developments serve to highlight the Philippines’ unique and ripe position for the continuing development of a dynamic arbitration practice that is firmly grounded on fundamental principles and adeptly guided by judicious institutions.

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