In the Philippines, corporate conflicts can be settled more quickly through arbitration.
Arbitration in the Philippines is a faster way to resolve corporate disputes.
This article discusses basic arbitration topics with a focus on domestic arbitration such as:
Arbitration and other alternative dispute resolution methods like mediation, negotiation, and conciliation are favored over court action. [1]
[1] Steamship vs. Sulpicio Lines, G.R. No. 196072, September 20, 2017
Noncompliance with the minimum provisions of an arbitration agreement renders it invalid but companies may still go through arbitration as provided for in the law.
Arbitration is an agreement between parties of disputes are resolved between them.
It is a binding, non-court process that requires licensed arbitrators appointed as per an agreed upon process.
It is governed by several Philippine Arbitration laws and also follows international guidelines.
A more formal definition is:
“Arbitration” means a voluntary dispute resolution process in which one or more arbitrators, appointed in accordance with the agreement of the parties, or rules promulgated pursuant to this Act, resolve a dispute by rendering an award. [1]
Arbitration can be a welcome development.
It is faster because it avoids the clogged Philippine court system altogether.
Philippine courts are generally very overworked.
Litigation takes years or decades before resolution.
Additionally, Philippine courts have intricate process mechanisms since great care is given in order to protect the interests of the parties involved. [2]
Arbitration instead simplifies these and can be the more practical choice.
[2] IDE Asian Law Series No. 18, Dispute Resolution Mechanisms in the Philippines, retrieved at https://www.ide.go.jp/library/English/Publish/Reports/Als/pdf/18.pdf
Arbitration may take the form of institutional or ad hoc. It may either be domestic or foreign in nature.
Arbitration can either be Ad hoc or Institutional.
Additionally, it can also be international or domestic.
Let’s first define Ad hoc vs Institutional Arbitration
Now, let’s also domestic vs international Arbitration
[1] Art. 1.6(D)(1), IRR of RA 9285
[3] Strickland vs. Ernst & Young, G.R. No. 193782, August 1, 2018
Republic Act 11232
This statute permitted arbitration clauses to be added in an organization’s bylaws or articles of incorporation.
The passage of Republic Act 11232 or the Revised Corporation Code (RCC) which took effect in February 2019 included the provisions on the addition of an arbitration agreement or clause in the Articles of Incorporation (AOI) or Bylaws of a Corporation or in a separate agreement.
This is one of the significant provisions that was included in the amendment.
This law allowed arbitration agreements to be included in the AOI or bylaws of a corporation. Section 181 of RA 11232 provides for arbitration for corporations.
SEC issued Memorandum Circular No. 8 in 2022
SEC Memorandum Circular No. 8 of 2022 – 5 forms the basis for Intra-corporate dispute arbitration
In relation to RA 11232, the SEC issued Memorandum Circular No. 8 in 2022 or the Guidelines on Arbitration of Intra-Corporate Disputes for Corporations (SEC Guidelines for brevity).
The SEC Guidelines only applies to SEC appointments of arbitrators tasked to resolve intra-corporate disputes of domestic corporations in accordance with Section 181 of the RCC.
This is not applied if the Arbitration Agreement states a place of arbitration other than the Philippines.
This act adopted the UNCITRAL Model Law on Commercial Arbitration
Aside from these, Republic Act 9285 or the Alternative Dispute Resolution Act of 2004 (ADR Act) shall governs domestic arbitrations.
United Nations Commission on International Trade Law (UNCITRAL Model Law)
The Philippines also adopted the United Nations Commission on International Trade Law (UNCITRAL Model Law) on Commercial Arbitration. Articles 8, 10, 11, 12, 13, 14, 18, 19, 29 to 32 of the UNCITRAL Model Law are also specifically applicable to domestic arbitration. [1]
Cases involving criminal offences and the interests of third parties cannot undergo arbitration.
Arbitrable disputes are those between between the corporation, its stockholders or members, which arise from the implementation of the articles of incorporation or bylaws, or from intra-corporate relations. [1]
Non arbitrable disputes are those that involve criminal offenses and interests of third parties. [2]
[1] Section 181, RA 11232
A commercial arbitration is one that deals with disputes originating from commercial relationships.
Section 21 of Republic Act 9285 or the ADR Act of 2004 defines commercial arbitration.
An arbitration is “commercial” if it covers matters arising from relationships of a commercial nature, whether contractual or not.
Relationships of a commercial nature include, but are not limited to the following transactions:
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A private company’s charter may contain a provision pertaining to arbitration.
Yes, a private corporation can include an arbitration agreement in the contents of its Articles of Incorporation [1] or in its Bylaws [2] .
An arbitration agreement is an agreement by the parties to submit all or certain disputes to arbitration, which may be in the form of a separate contract or a clause incorporated in the AOI or bylaws of a corporation. [3]
[1] Section 13, RA 11232
[2] Section 46, RA 11232
[3] Section 4(d), ibid
To be eligible to arbitrate cases, arbitrators need to be accredited
The arbitration agreement must state the number of arbitrators, how they are appointed and the independent 3 rd party who can appoint them.
If the third party fails to appoint the arbitrators as specified in the arbitration agreement, the parties can request the Securities and Exchange Commission to appoint the arbitrators.
Arbitrators must be accredited or must belong to organizations accredited for the purpose of arbitration.
To summarize SEC Arbitration Guidelines, all Agreements must contain the following:
Noncompliance with the minimum provisions of an arbitration agreement renders it invalid but companies may still go through arbitration as provided for in the law.
An Arbitration Agreement that does not comply with the minimum provisions shall be unenforceable.
However, even if the Arbitration Agreement is unenforceable, this does not mean that arbitration is no longer an option.
Arbitration can still proceed under the ADR Act and its implementing rules and regulations if the seat or place of arbitration is the Philippines, or under the relevant arbitration law if the seat or place of arbitration is outside the Philippines. [1]
[1] Sec. 8, SEC Memorandum Circular No. 8, Series of 2022
The enforceability of the arbitration agreement is not dependent upon these provisions
Yes, the corporation can include pre-arbitration alternative forms of dispute resolution such as negotiation or mediation in the arbitration agreement.
However, these stipulations on negotiation or mediation are not necessary for the enforceability of the arbitration agreement.
A company has the option to specify the arbitration agreement in a different document instead of in the AOI and bylaws.
Yes, it is not a requirement under the RCC. A corporation can choose to have the arbitration agreement stipulated in the form of a separate agreement. [1]
[1] Section 5, SEC Memorandum Circular No. 8, Series of 2022
All high ranking officials of a corporation are bound by the arbitration provisions
The arbitration agreement shall be binding on the corporation, its directors, trustees, officers, and executives or managers. [1]
[1] Sec. 181, RA 11232
A corporate officer is still bound by the arbitration agreement even if not a non-signatory
Yes, despite not being signatories to the AOI, the Bylaws or the Arbitration Agreement, the Arbitration Agreement shall still be binding on the corporation, its directors, trustees, officers, and executives or managers. [1]
[1] Sec. 6, SEC Memorandum Circular No. 8, Series of 2022
English is the usual language used during an arbitration but it may be otherwise specified in the arbitration provisions
The parties can agree on the language or languages to be used in the arbitral proceedings.
If not specified, English or Filipino will be used for domestic arbitration, unless the arbitral tribunal shall determine a different or another language or languages to be used in the proceedings.
A different arbitration location may be chosen by the arbitral tribunal.
The parties are free to agree on the place of arbitration.
If the parties fail to agree, the place of arbitration shall be in Metro Manila.
However, the arbitral tribunal can decide on a different place of arbitration, having regard to the circumstances of the case including the convenience of the parties.
Unless otherwise agreed by the parties, the arbitral tribunal may also meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts, or the parties, or for inspection of goods, other property or documents. [1]
Arbitration can begin in a variety of ways.
When an intra-corporate dispute is filed with the Regional Trial Court and the court, before the termination of the pre-trial conference, determines that an Arbitration Agreement is written in the corporation’s AOI, bylaws or in a separate agreement, the court shall act in accordance with such rules of procedure the Supreme Court may promulgate to implement Section 181.
Arbitration may start in different ways, depending on the situation:
Arbitration is commenced in accordance with the arbitration rules of the institution agreed upon by the parties.
If ad hoc, arbitration is commenced by the claimant upon delivery to the respondent a demand for arbitration.
The demand shall include an invitation of the claimant to the respondent to meet and agree upon such arbitrator at the place, time and date stated therein which shall not be less than thirty (30) days from receipt of the demand.
The demand shall name the arbitrator appointed by the claimant. It shall
include the curriculum vitae of the arbitrator appointed by the claimant and the latter’s acceptance of the appointment.
Arbitration may be initiated by one party through a demand upon the other to submit their dispute to arbitration. Arbitration shall be deemed commenced upon the agreement by the other party to submit the dispute to arbitration. [1]
[1] Art. 5.20, IRR of RA 9285
