When Republic Act No. 11232 or the Revised Corporation Code of the Philippines (the “RCC”) became effective on 23 February 2019, among the significant amendments introduced by such legislation was to encourage corporations to adopt arbitration as a means of resolving intra-corporate disputes.
To implement such relevant provisions, the Securities and Exchange Commission (“SEC”) released on June 23, 2021 a draft of the Guidelines on Arbitration of Intra-Corporate Disputes for Corporations (“Draft Guidelines”) for public comments.
Arbitration of Intra-Corporate Disputes
As described under the RCC and defined under Draft Guidelines, intra-corporate disputes refers to those involving the rights and obligations of corporations, its directors or trustees, officers, and shareholders or members arising from the implementation of the articles of incorporation or by-laws, or from intra-corporate relations (e.g., between the corporation and its shareholders or officers, or among shareholders themselves, etc.). It excludes disputes involving the interest of third parties or criminal offenses.
When an arbitration agreement is in place in a domestic corporation’s articles of incorporation, by-laws or in a separate agreement, the RCC and the Draft Guidelines provides that intra-corporate disputes shall be referred to arbitration after compliance with pre-agreed alternative forms of dispute resolution, such as negotiation or mediation under the arbitration agreement.
While Republic Act No. 8799, or the Securities Regulation Code vests original and exclusive jurisdiction of cases involving intra-corporate disputes with the Regional Trial Courts designated as special commercial courts, the RCC promotes referral to arbitration by providing that, when an intra-corporate dispute is filed with the courts, the courts shall dismiss the case before the termination of the pre-trial conference, if it determines that an arbitration agreement is written in the corporation’s articles of corporation, by-laws, or in a separate agreement.
Key Points of the Draft Guidelines
Aside from reinforcing the provisions of the RCC, notably the Draft Guidelines enumerates the applicable circumstances and procedures by which the SEC may exercise authority to appoint arbitrators tasked to resolve intra-corporate disputes.
2. Conditions for applicability
In order for the Draft Guidelines to apply, certain conditions must be satisfied which include that:
(a) The arbitration agreement does not expressly state that the seat or place of arbitration is other than the Philippines.
In relation to this, note that under the Draft Guidelines, the seat or place of arbitration shall be presumed to be the Philippines unless the arbitration agreement states otherwise.
(b) The arbitration agreement includes the prescribed minimum provisions.
For arbitration agreements to be enforceable under the Draft Guidelines, it should indicate the (i) number of arbitrators, (ii) designated independent third party who will appoint the arbitrator(s), (iii) procedure for the appointment of arbitrator(s), and (iv) period within which the arbitrator(s) should be appointed by the designated independent third party.
The parties are deemed to have agreed on an appointment procedure if the arbitration agreement provides for the application of a set of arbitration rules that include an appointment procedure and a designated appointing authority, or the arbitration agreement expressly provides an appointment procedure, which requires the parties’ designated independent third party to appoint the arbitrator(s).
For arbitration agreements that do not meet the foregoing, the arbitration shall instead proceed under the Alternative Dispute Resolution Act (Republic Act No. 9285 or the “ADR Act”) and its implementing rules 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.
3. How the SEC may exercise authority to appoint arbitrators
For cases where the Draft Guidelines are applicable, if the designated independent third party fails to appoint arbitrator(s) in the manner and within the period specified by the arbitration agreement, a party to the arbitration may make a written request to the SEC to appoint the arbitrators, following the procedure outlined therein.
In evaluating such request, the SEC will allow the other party to provide written information relevant thereto, and will consider factors such as the nature of the dispute, identity and nationality of the parties to the arbitration agreement, suggestions of the parties themselves, including objections to the appointment of an arbitrator. The SEC may decline to appoint an arbitrator if parties are able to give reason why no arbitrator should be appointed, or if the SEC is satisfied that no arbitrator should be appointed (e.g., the dispute is not an intra-corporate dispute).
If the SEC will proceed to grant the request, the Draft Guidelines provide that the appointment will be from among arbitrators accredited by the SEC or the Office for Alternative Dispute Resolution established under the ADR Act, or organizations accredited by both government agencies. Should circumstances exist that give rise to doubts as to the impartiality and independence of the arbitrators appointed by the SEC, the parties are allowed to challenge the appointment of such arbitrator(s) under the Draft Guidelines.
4. Powers of the Arbitral Tribunal
The arbitral tribunal constituted under the Draft Guidelines shall have the power to rule on its own jurisdiction and on questions relating to the validity of the arbitration agreement. It shall also have the power to grant interim measures necessary to ensure enforcement of the award, prevent a miscarriage of justice, and protect the rights of the parties. Further, the powers of the arbitral tribunal under the ADR Act shall apply insofar as they are not inconsistent with the RCC and the Draft Guidelines.
Parties may wish to note that under the ADR Act, an arbitral tribunal may order interim measures of protection or modification such as a preliminary injunction directed against a party, appointment of receivers or detention, preservation, inspection of property that is the subject of the dispute in arbitration. Either party may also seek assistance from the courts in implementing or enforcing the interim measures ordered by an arbitral tribunal.
5. Finality and enforcement of the arbitral award
A final arbitral award shall be executory after the lapse of fifteen (15) days from receipt of such award by the parties and shall be stayed only by the filing of a bond or the issuance by the appellate court of an injunctive writ. For the execution of the final arbitral award, the Special Rules of Court on Alternative Dispute Resolution (A.M. No. 07-11-08-SC), or such other prevailing rules will apply, insofar as they are not inconsistent with the RCC and the Draft Guidelines.
Arbitration is gaining ground as a primary mode of resolving commercial disputes. Once the Draft Guidelines are finalized, it will add to the existing legal framework and procedural rules which already support and promote the effectiveness of arbitration as an alternative means of dispute resolution in the Philippines. As parties consider dispute resolution mechanisms for their commercial agreements relating to the Philippine matters, arbitration should be actively considered as it provides parties a means to achieve efficient, confidential and final resolution to their disputes, instead of protracted litigation.