In more detail

Maynilad involves consolidated petitions raising the common issue of whether Maynilad Water Services, Inc. ("Maynilad") and Manila Water Company, Inc. ("Manila Water") are public utilities whose profits are subject to the 12% rate of return cap under Republic Act No. 6234 and are prohibited from treating corporate income taxes as business expenditures to be passed on to the public. The SC confirmed that they are indeed public utilities, but it held that the income taxes passed on to consumers may no longer be recovered because the right to a refund had long prescribed.¹

Maynilad is also notable for the SC's pronouncements regarding the arbitral award sought to be enforced by Maynilad, arising from the arbitration between Maynilad and Metropolitan Waterworks and Sewerage System (MWSS) under their concession agreement.

The dispute between Maynilad and MWSS is arbitrable

It was contended that the dispute between Maynilad and MWSS is not arbitrable, because it allows an arbitral tribunal to override the regulatory powers of the MWSS in setting water rates and deprives the public of the right to participate in the arbitration. 

The SC ruled that the dispute was arbitrable, citing the state policy of promoting the use of alternative dispute resolution (ADR), and the fact that the dispute was not among those enumerated as non-arbitrable under Section 6 of the ADR Act of 2004 ("RA 9285"). The public may question the rates with the National Water Regulatory Board (NWRB).

A petition for confirmation of a domestic award should be filed after the lapse of 30 days from receipt of the award

MWSS argued that the lower courts should not have confirmed the arbitral award in favor of Maynilad, because it was filed after the 30-day period provided in Section 23 of the Domestic Arbitration Law ("RA 876"). Section 23 states:

At any time within one month after the award is made, any party to the controversy which was arbitrated may apply to the court having jurisdiction, as provided in section twenty-eight, for an order confirming the award.  

The SC ruled that Maynilad correctly filed its petition to confirm after the lapse of 30 days from receipt of the arbitral award, following Rule 11.2 of the Special Rules of Court on Alternative Dispute Resolution ("Special ADR Rules"). Unlike Section 23 of RA 876, Rule 11.2 states: "At any time after the lapse of thirty (30) days from receipt by the petitioner of the arbitral award, he may petition the court to confirm that award."

The SC explained that while RA 9285 provides that domestic arbitration should continue to be governed by RA 876, RA 9285 likewise provides that its provisions are:

… without prejudice to the adoption by the Supreme Court of any alternative dispute resolution system xxx which shall be governed by such rules as the Supreme Court may approve from time to time.

Enforcing the arbitral award is against public policy because it adversely affects the public and results in unequal protection between water consumers serviced by Maynilad and Manila Water

Citing Rule 19.10 of the Special ADR Rules, the SC confirmed that public policy is a ground to refuse enforcement or set aside an arbitral award, whether the award is domestic or international. (Note: This is despite public policy not being a ground to vacate a domestic award under RA 876. The SC's ruling on this point is consistent with its ruling that the Special ADR Rules may supersede the provisions of RA 876.) 

Applying the public policy standard laid down in the 2018 case of Mabuhay Holdings Corporation v. Sembcorp Logistics Limited — that arbitral awards contrary to public policy are those that, when enforced, "would be against our State's fundamental tenets of justice and morality, or would blatantly be injurious to the public, or the interests of the society" — the SC ruled that the arbitral award in Maynilad, which allows Maynilad to include its corporate income tax in the water charges, will adversely affect the public at large, specifically the water consumers serviced by Maynilad, vis-à-vis those serviced by Manila Water. This is because in a separate arbitration between MWSS and Manila Water, the tribunal ruled differently from the tribunal in the Maynilad arbitration — specifically, that corporate income tax cannot be recovered from water consumers by way of tariff. According to the SC, confirming the Maynilad arbitral award will result in unequal protection of water consumers serviced by Manila Water and those serviced by Maynilad, despite the lack of substantial distinction between the two groups.

Therefore, confirming the final award that allows Maynilad to include its corporate income tax in the water charges, will be injurious to the public. The SC explained that this is unlike the situation in Mabuhay Holdings where no injury to the public was shown. 

Why this is relevant to you

The Maynilad ruling is important for several reasons:

1. It clarifies that petitions to confirm domestic awards should be filed after the lapse of 30 days from receipt of the award.
2. The SC appears to analyze questions of arbitrability based only on the enumeration of non-arbitrable disputes in RA 9285.
3. The SC confirms that public policy considerations may be a ground to vacate even a domestic award, on the strength of Rule 19.10 of the Special ADR Rules.
4. The narrow interpretation of public policy in Mabuhay Holdings appears to be limited to situations where enforcement of an award does not affect the public. Notably, the SC's application of the public policy standard in Maynilad is consistent with the 2022 case of Lone Congressional District of Benguet Province v. Lepanto Consolidated Mining Company, where the SC vacated an arbitral award that it considered as having far-reaching effects on indigenous cultural communities and indigenous peoples whose rights to their ancestral domains would be prejudiced.

1 Petitioner Bayan Muna's Motion for Partial Reconsideration of the SC's ruling that the right to a refund has prescribed, is pending as of the writing of this alert.

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