Why this is relevant to you

The issuance of the Guidelines is an important development as it attempts to harmonize the arbitration contemplated under the general law on arbitration of the Philippines with that contemplated under Section 181 of the RCC.

Disputing parties are choosing arbitration as an alternative mode of dispute resolution due to its efficiency, emphasis on party autonomy, the ability to choose the qualifications of the arbitrators and other inherent flexibilities allowed by arbitration (e.g., purely electronic submissions, proceedings conducted virtually, etc.). This choice remains relevant since the ongoing COVID-19 pandemic still presents significant issues for travel and mobility.

With the issuance of the Guidelines, parties choosing arbitration should be mindful that there are some nuances to arbitrations contemplated under the RCC and the Guidelines, as compared to those under Republic Act No. 9285 ("ADR Act").

Salient points

The Guidelines will apply to domestic corporations, whether listed or unlisted.[1] There are some substantial deviations from the Draft Guidelines, including the provisions on the referral to arbitration, the requirements for enforceability of the arbitration agreement and the final arbitral award.

Their salient points are as follows:

• The Guidelines do not apply if the arbitration agreement expressly provides for a seat or place of arbitration anywhere other than the Philippines. In those instances, the arbitration law of the foreign seat will apply to the arbitral proceedings. However, there is a presumption that the Philippines is the seat of arbitration unless the arbitral tribunal decides otherwise.
• Disputes involving criminal offenses and interests of third parties, even if they can be considered intra-corporate or related to an intra-corporate dispute, will not be referred to arbitration. 
• When an arbitration agreement is in place, intra-corporate disputes will be referred to arbitration after compliance with the agreed pre-arbitration alternative dispute resolution (ADR). The Guidelines recognize other forms of ADR aside from arbitration as means of settling intra-corporate disputes (e.g., negotiation and mediation). 
• Consistent with the express language of Section 181 of the RCC, the arbitration agreement will be binding on the corporation, its directors, trustees, officers and executives or managers even if they are not signatories to the arbitration agreement.
• When an intra-corporate dispute is filed in court, and the court, before the termination of the pre-trial conference, determines that an arbitration agreement is written in the corporation's articles of incorporation, by-laws, or in a separate agreement, the court will act in accordance with the rules of procedure that the Supreme Court may promulgate to implement Section 181. This deviates from the Draft Guidelines and appears to contemplate future issuance by the Supreme Court of rules of procedure implementing Section 181 of the RCC, aside from those presently found in the Special Rules of Court on Alternative Dispute Resolution ("Special ADR Rules").
• All arbitration agreements must contain the following:

1. The number of arbitrators
2. The designated independent third party who will appoint the arbitrator or arbitrators
3. The procedure for the appointment of the arbitrator or arbitrators
4. The period within which the arbitrator or arbitrators should be appointed by the designated independent third party

• Arbitration agreements that fail to meet the minimum requirements stated above will be unenforceable under the Guidelines. This was not previously stated in the Draft Guidelines. However, arbitration will still proceed under the ADR Act if the seat of arbitration is the Philippines or the applicable arbitration law if the seat is outside the Philippines.
• The arbitrator/s will be appointed by the designated independent third party named in the arbitration agreement. The parties are deemed to have agreed on an appointment procedure if the arbitration agreement provides for either the application of arbitration rules with an appointment procedure or an express appointment procedure requiring the independent third party to appoint the arbitrator/s.
• If the designated independent third party fails to appoint the arbitrator/s in the manner and within the period specified under the arbitration agreement, a party could request the SEC to appoint the arbitrator/s in the form provided by the rules and upon payment of a fee.
• The designated independent "third party" is any person, other than the corporation, its director, trustees, officers, stockholder or member, and executives or manager. This definition was not included in the Draft Guidelines.
• While this was not previously specified in the Draft Guidelines, the Guidelines now provide an indicative list of interim measures that may be granted by the arbitral tribunal to ensure enforcement of the award, prevent a miscarriage of justice or otherwise protect the rights of the parties. The arbitral tribunal may grant interim measures such as the following:

1. Preliminary injunction directed against a party to arbitration
2. Preliminary attachment against property or garnishment of funds in the custody of a bank or a third person
3. Appointment of a receiver
4. Detention, preservation, delivery or inspection of property
5. Appointment of a management committee.  

• A final arbitral award will be considered as a commercial arbitration award and will be executed in accordance with the rules of procedure promulgated by the Supreme Court to implement Section 181 of the RCC. The Draft Guidelines previously provided that a final arbitral award will be executory after the lapse of 15 days from receipt of the parties, except when a party is able to post a bond or obtain an injunctive writ from the appellate court, consistent with Section 181 of the RCC. This is no longer present in the current Guidelines.
• Arbitrators, from the time of their appointment and throughout the arbitral proceedings, will immediately disclose to the parties and to the other arbitrators any circumstances that are likely to give rise to justifiable doubts to their impartiality or independence.
• The ADR Act, the SEC Rules of Procedure and the Special ADR Rules will be supplementary to the Guidelines. The Supreme Court may also promulgate separate rules of procedure to implement Section 181 of the RCC.

Actions to consider

The Guidelines provide guidance on the procedure that could apply if an intra-corporate dispute is covered by an arbitration clause and/or referred to arbitration. It is especially relevant when a Philippine corporation has stockholders, directors and officers who are not based in the Philippines. Cross-border litigation in the Philippines can be time-consuming, inefficient and expensive and commercial arbitration (whether for intra-corporate disputes or otherwise) remains to be a speedier and more efficient mode of dispute resolution than domestic litigation.

However, persons who are considering having arbitration clauses and/or other forms of ADR as the mode for settling intra-corporate disputes should be mindful of the implications of Section 181 and the Guidelines, and how they potentially establish a slightly different arbitration regime compared to regular commercial arbitration or ADR.  

We can advise on these implications and nuances, and assist clients in drafting arbitration and ADR clauses, including choice of the seat of arbitration, the arbitral institutions, the arbitration rules, the number of arbitrators and the appointing authority.

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[1] The RCC version found on the SEC website provides that Sec. 181 applies to unlisted corporations only (available at https://www.sec.gov.ph/wp-content/uploads/2019/11/2019Legislation_RA-11232-REVISED-CORPORATION-CODE-2019.pdf, last accessed on 4 October 2022). However, the version of the law found in the Official Gazette (OG) website does not provide for this limitation (available at https://www.officialgazette.gov.ph/downloads/2019/02feb/20190220-RA-11232-RRD.pdf, last accessed on 5 October 2022). The SEC has confirmed that the OG version is the correct version.

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