International Arbitration

1. What legislation applies to arbitration in your country? Are there any mandatory laws?

   Republic Act No. 9285, or the Alternative Dispute Resolution Act of 2004 (ADR Act), is the legislation that applies to arbitration in the Philippines. In particular, it provides that (a) international commercial arbitration shall primarily be governed by the 1985 UNCITRAL Model Law on International Commercial Arbitration (1985 Model Law), (b) domestic arbitration shall continue to primarily be governed by Republic Act No. 876 (Arbitration Law), and (c) the arbitration of construction disputes shall continue to be governed by Executive Order No. 1008.

2. Is your country a signatory to the New York Convention? Are there any reservations to the general obligations of the Convention?

   Yes, the Philippines signed and ratified the New York Convention. The Philippines signed the New York Convention in June 1958 on the basis of reciprocity and, upon ratifying the same on July 6, 1967, declared that it would apply the Convention to the recognition and enforcement of awards made only in the territory of another contracting state and only to differences that arise out of legal relationships, whether contractual or not, which are considered commercial in nature under the national law of the state that is making the declaration.

3. What other arbitration-related treaties and conventions is your country a party to?

   The Philippines is a party to the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention).

4. Is the law governing international arbitration in your country based on the UNCITRAL Model Law? Are there significant differences between the two? Are there any impending plans to reform the arbitration laws in your country?

   Yes, the ADR Act provides that the 1985 Model Law primarily governs international commercial arbitration seated in the Philippines. There are no significant differences. However, sections 26, 27, 28, 30, and 31 of the ADR Act modify and supplement certain provisions of the 1985 Model Law. Moreover, the ADR Act additionally provides for legal representation in international arbitration, subject to certain limitations [ADR Act, Section 22] and for confidentiality in arbitration proceedings, subject to certain exceptions [ADR Act, Section 23]. There are currently no pending bills in the 20th Congress to reform the arbitration laws of the Philippines.

5. What arbitral institutions (if any) exist in your country? When were their rules last amended? Are any amendments being considered?

   The Construction Industry Arbitration Commission (CIAC) was created through the enactment of Executive Order No. 1008 in 1985. The CIAC is vested with original and exclusive jurisdiction over construction disputes in the Philippines where the parties have agreed to arbitration. The Philippine Supreme Court has interpreted this to mean that where the parties have agreed to arbitration without naming an arbitration institution, the CIAC shall have original and exclusive jurisdiction over their construction disputes; where the parties have agreed to an arbitration institution, the parties' arbitration agreement shall be read as providing for CIAC as an alternative choice of arbitration institution. The CIAC released their latest Revised Rules of Procedure (CIAC Rules) on January 1, 2023. The Philippine Dispute Resolution Center, Inc. (PDRCI) was organized by the Philippine Chamber of Commerce and Industry in 1996 to provide alternative dispute resolution services in the Philippines. It has forged cooperation agreements with various international arbitration centers and is the primary commercial arbitration institution in the Philippines. The Amended PDRCI Arbitration Rules (PDRCI Rules) were released in 2021. The Philippine International Center for Conflict Resolution (PICCR) was organized by the Integrated Bar of the Philippines (IBP) in 2019 to provide alternative dispute resolution services all over the Philippines. The PICCR Handbook and Arbitration Rules (PICCR Rules) were released in 2019.

6. Is there a specialist arbitration court in your country?

   There is no specialist arbitration court in the Philippines. The Regional Trial Courts have been vested with jurisdiction to act on arbitration-related petitions under the Special Rules of Court on Alternative Dispute Resolution issued by the Philippine Supreme Court in 2009 (Special ADR Rules), such as petitions (a) questioning the existence, validity, and enforceability of an arbitration agreement, (b) for interim measures of protection, and (c) for the recognition and enforcement of arbitral awards.

7. What are the validity requirements for an arbitration agreement under the laws of your country?

   Philippine law requires the arbitration agreement to be in writing. For domestic arbitration and international commercial arbitration, this requirement is satisfied even if the arbitration agreement is in (a) an electronic document, or (b) a document signed by the parties, or (c) an exchange of letters, telex, telegrams or in any other means of telecommunication providing a record of the agreement, or (d) an exchange of statements of claim and defense in which the agreement's existence is alleged by a party without being denied by the other party. Moreover, the reference in a contract to a document that contains an arbitration clause shall constitute an arbitration agreement, provided that the contract is in writing, and the reference is such as to make that clause part of the contract [ADR Act Implementing Rules and Regulations (IRR), Article 4.7 and 5.6]. For construction disputes, the arbitration agreement need not be signed by the parties, as long as the intent is clear that the parties agree to submit the construction dispute to arbitration. Moreover, it may be in the form of exchange of letters sent by post or by telefax, telexes, telegrams, electronic mail, or any other mode of communication [CIAC Rules, Section 4.1.3].

8. Are arbitration clauses considered separable from the main contract?

   Yes, the Philippines recognizes the principle of separability of the arbitration clause. This means that an arbitration clause shall be treated as an agreement independent of the other terms of the contract of which it forms part. Thus, a finding that the contract where the arbitration clause is contained is null and void shall not necessarily invalidate the arbitration clause [Special ADR Rules, Rule 2.2].

9. Do the courts of your country apply a validation principle under which an arbitration agreement should be considered valid and enforceable if it would be so considered under at least one of the national laws potentially applicable to it?

   The Philippine Supreme Court has not ruled on the applicability of this validation principle in resolving issues relating to the validity and enforceability of arbitration agreements.

10. Are asymmetric arbitration clauses – for instance, where one party has the right to choose between arbitration or litigation while the other party does not have this option – valid in your jurisdiction?

    The Philippine Supreme Court has not ruled on the validity of asymmetric arbitration clauses.

11. In what instances can third parties or non-signatories be bound by an arbitration agreement? Are there any recent court decisions on these issues?

    As a general rule, contracts, such as an arbitration agreement, take effect only between the parties, their assigns, and heirs [Civil Code of the Philippines, Article 1311]. This is the principle of relativity of contracts. Thus, a third party cannot be bound by an arbitration agreement. Consequently, a third party cannot be impleaded in the arbitration proceedings and the arbitral tribunal cannot compel such party to participate in the proceedings without that party's consent [See Fruehauf Electronics Philippines Corporation v. Technology Electronics Assembly and Management Pacific Corporation, G.R. No. 204197, November 23, 2016]. An exception to this principle may arise under the doctrine of piercing the veil of corporate fiction. In Lanuza, Jr. and Olbes v. BF Corporation, et al. [G.R. No. 174938, October 1, 2014], the Philippine Supreme Court held that the corporate representatives of a corporation may be compelled to submit to arbitration proceedings in connection with a contract entered into by the corporation if there are allegations of bad faith or malice on their part in representing the corporation and such representatives are sought to be held solidarily liable with the corporation. In such cases, the corporate representatives may be compelled to participate in the arbitration proceedings to determine (a) if the corporate veil should be pierced and the representatives should be held liable, and (b) the extent of their liabilities. Another exception relates to an arbitration agreement covering intra-corporate disputes that are found in a corporation's articles of incorporation or by-laws, or in a separate agreement that may bind the corporation itself, its directors, trustees, officers, executives, and managers, even if they are not signatories to the articles of incorporation, by-laws, or separate agreement [See, Revised Corporation Code, Section 181, and SEC Memorandum Circular No. 8, series of 2022, Section 6.].

12. Are there any recent court decisions in your country concerning the choice of law applicable to an arbitration agreement where no such law has been specified by the Parties?

    In Department of Foreign Affairs v. BCA Corporation International & Ad Hoc Arbitral Tribunal [G.R. No. 225051, July 19, 2017], the Philippine Supreme Court applied lex loci contractus – the law of the place where the contract is made governs where the parties did not specify their choice of law in the arbitration agreement perfected in the Philippines. The dispute arose when the petitioner terminated its contract with the respondent. The respondent opposed the termination and referred the dispute to arbitration under the UNCITRAL Arbitration Rules. In the course of the arbitral proceedings, the petitioner sought relief directly from the Supreme Court to assail the arbitral tribunal's procedural orders allowing the respondent to file an amended claim and submit additional supporting evidence. The petitioner argued that the amended claim should have been denied because it was belatedly filed and was outside the scope of the arbitration agreement. In ruling that the petition was improperly filed with the Supreme Court, the court determined that Philippine law was the law applicable to the arbitration agreement because the agreement was perfected in the Philippines. Thus, the Supreme Court applied Philippine arbitration laws, i.e., the ADR Act and its IRR, and the Special ADR Rules, and dismissed the petition for failure to observe the rules on court intervention under the ADR Act and Special ADR Rules.

13. How is the law applicable to the substance determined? Is there a specific set of choice of law rules in your country?

    The law that shall govern the substance of the dispute depends on the 'choice of law' of the parties as specified in the contract. In the absence of agreement or upon failure of the parties to designate, the arbitral tribunal shall apply the law determined by the conflict of laws rules that it considers applicable. In all cases, the arbitral tribunal shall decide based on the terms of the contract and shall take into account the usages of the trade that apply to the transaction [ADR Act IRR, Article 4.28]. Parties are generally free to choose the law which would govern the agreement however if a foreign law is chosen, the foreign law must have a nexus (connection) to the agreement. Choice-of-law rules generally require an analysis of (i) a factual relationship, such as a property right or contract claim, and (ii) a connecting factor or point of contact. One or more of the following circumstances may be present to serve as the possible connecting factor for the determination of the applicable law: (1) the nationality of a person, his [or her] domicile, his [or her] residence, his [or her] place of sojourn, or his [or her] origin; (2) the seat of a legal or juridical person, such as a corporation; (3) the situs of a thing, that is, the place where a thing is, or is deemed to be situated (when real rights are involved); (4) the place where an act has been done (particularly important in contracts and torts); (5) the place where an act is intended to come into effect; (6) the intention of the contracting parties as to the law that should govern their agreement; (7) the place where judicial or administrative proceedings are instituted or done; or (8) the flag of a ship [See Alcala Vda. de Alcañeses v. Alcañeses, G.R. No. 187847, June 30, 2021]. In a contract dispute, the "state of the most significant relationship rule" may also be applied by considering the following connecting factors: (a) place where the contract was made, (b) place of negotiation, (c) place of performance, and (d) domicile, place of business, or place of incorporation of the parties. In Philippine Export and Foreign Loan Guarantee Corporation v. V.P. Eusebio Construction, Inc., et al. [G.R. No. 140047, July 13, 2004], the Philippine Supreme Court used the "state of the most significant relationship rule" to determine the applicable law in the issue of whether the respondent had breached its contractual obligations due to delayed work performance. Respondent was one of the contractors engaged by the Iraqi government for the construction of a rehabilitation center in Baghdad, Iraq. The Supreme Court held that, in the absence of an agreement between the parties on the choice of law, the applicable law is that of the state that "has the most significant relationship to the transaction and the parties." Since one of the parties is the Iraqi government and the place of performance of the contract is in Iraq, the Supreme Court held that the issue of whether there was a breach of contract must be determined by the laws of Iraq.

14. In your country, are there any particular requirements for and/or restrictions in the appointment of arbitrators?

    In international commercial arbitration, and in the absence of any express agreement by the parties, there are no restrictions in the appointment of arbitrators [ADR Act IRR, Article 4.11]. There are also no restrictions on the appointment of arbitrators under the 1985 Model Law. Under PDRCI Rules, if the parties do not reach an agreement on the choice of a sole arbitrator or either party fails to make any proposal, the arbitrator shall be appointed and confirmed by PDRCI. In making the appointment, PDRCI shall ensure the appointment of a qualified, independent, and impartial arbitrator and, when appropriate, it shall appoint an arbitrator of a nationality other than the nationalities of the parties [PDRCI Rules, Articles 12 and 13]. Under PICCR Rules, in confirming or appointing arbitrators, the PICCR shall consider the prospective arbitrator's nationality, residence and other relationships with the countries of which the parties or the other arbitrators are nationals, and the prospective arbitrator's availability and ability to conduct the arbitration in accordance with the PICCR Rules. For arbitrations where a party or the parties are of different nationalities, the sole arbitrator or the chair of the arbitral tribunal shall be of a nationality other than those of the parties. However, in suitable circumstances and provided that none of the parties objects within the time limit fixed by the PICCR, the sole arbitrator or the chair of the arbitral tribunal may be chosen from a country of which any of the parties is a national [PICCR Rules, Article 13]. There are certain qualifications to be appointed as arbitrators in domestic arbitration and construction arbitration in the Philippines. Specifically:
    1. In domestic arbitration, arbitrators must be (i) of legal age, (ii) in full enjoyment of his or her civil rights, (iii) able to read and write, (iv) not related by blood or marriage within the sixth degree to a party to the controversy, (v) without any financial, fiduciary or other interest in the controversy, and (vi) without any personal bias which might prejudice the right of any party to a fair and impartial award [ADR Act IRR, Article 5.10].
    2. In construction arbitration in the Philippines under the CIAC, the arbitrators must possess the competence, integrity, and leadership qualities to resolve any construction dispute expeditiously and equitably. They may include engineers, architects, construction managers, engineering consultants, and businessmen familiar with the construction industry and lawyers who are experienced in construction disputes. Generally, only CIAC-accredited may be appointed as arbitrator unless the nominee (i) is the parties' common nominee; (ii) possesses the technical or legal competence to handle the construction dispute involved; and (iii) has signified his or her availability or acceptance of his possible appointments [CIAC Rules, Rule 8]. An arbitrator must meet the following requirements to be accredited by the CIAC: (i) at least 40 years of age at the time of application; (ii) a holder of a Bachelor's degree in Engineering, Architecture, Law, Accountancy or any other course relevant to any field of construction or construction activity; (iii) licensed to practice his/her profession in the Philippines and, preferably, endorsed and/or nominated by his/her professional organization through a duly approved Board Resolution; (iv) at least ten (10) years in the practice of his/her profession and ten (10) years of work experience in construction management-related activities or in handling of construction disputes and/or contract negotiations; (v) in full enjoyment of his/her civil rights and must not have been convicted of a crime involving moral turpitude or of any crime for which the penalty imposed upon him/her is over six (6) months of imprisonment; and (vi) subject to all screening requirements and accreditation course for arbitrators to be conducted by the CIAC [CIAC Resolution No. 06-2015 dated September 28, 2015].

15. Can the local courts intervene in the selection of arbitrators? If so, how?

    Yes, the Regional Trial Court may intervene in the selection of arbitrators in the following specific instances:
    1. In institutional arbitration, the court can intervene in the selection of arbitrators if: (i) a party fails or refuses to appoint an arbitrator, the parties fail to agree on the sole arbitrator, or when two (2) designated arbitrators fail to agree on the third or presiding arbitrator; and (ii) the institution fails or is unable to perform its duty as appointing authority within a reasonable time from receipt of the request for appointment [Special ADR Rules, Rule 6.1(a)];
    2. In ad hoc arbitration, the court can intervene in the selection of arbitrators if: (i) the parties failed to provide a method for appointing or replacing an arbitrator, or substitute arbitrator, or the method agreed upon is ineffective; and (ii) the National President of the IBP, or his duly authorized representative, fails or refuses to act within the required period under pertinent rules, or as agreed upon by the parties, or, in the absence thereof, within thirty (30) days from receipt of such request for appointment [Special ADR Rules, Rule 6.1(b)]; and

    Where the parties agreed that their dispute shall be resolved by three arbitrators but no method of appointing those arbitrators has been agreed upon, each party shall appoint one arbitrator and the two (2) arbitrators thus appointed shall appoint a third arbitrator. If a party fails to appoint his arbitrator within thirty (30) days of receipt of a request to do so from the other party, or if the two (2) arbitrators fail to agree on the third arbitrator within a reasonable time from their appointment, the appointment shall be made by the Appointing Authority. If the latter fails or refuses to act or appoint an arbitrator within a reasonable time from receipt of the request to do so, any party or the appointed arbitrator/s may request the court to appoint an arbitrator or the third arbitrator as the case may be [Special ADR Rules, Rule 6.1(c)].

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Originally published by The Legal 500

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