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RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS IN THE PHILIPPINES: CHALLENGES AFTER THE 2009 SPECIAL ADR RULES
Like taxes and death, dispute is another constant in this ever‐changing world. And, with the
accelerating pace at which globalization is proceeding, focus continues to be on attaining a
harmonized, expeditious and effective dispute resolution mechanism for cross‐border commercial
transactions. More than half a century ago, the Philippine legislative department statutorily
accepted arbitration as an alternative to litigation, the traditional mode of dispute settlement, and,
consistent therewith, the Philippines bound itself to recognize and enforce foreign and/or
international commercial arbitral awards under the regime contemplated by the 1958 New York
Convention.1 Unfortunately, it was only in recent years that the Philippines’ seeming lip service to
international commercial arbitration was turned into action and the “wave of the future” in
Philippine dispute resolution, especially in the area of recognition and enforcement of international
commercial and foreign arbitral awards, was laid down with clarity.
With this paper, the author seeks to explain the legal environment in the Philippines, which
may, in the past, have been understandably viewed by the rest of the ASEAN, or even the world, as
an obstacle to a party’s recovery on an international arbitral award despite the Philippines’
ratification of the New York Convention in 1965,2 more than forty‐four (44) years ago. The author
will then discuss the positive impact that the enactment of Republic Act No. 9285, otherwise known
as the Alternative Dispute Resolution Act of 2004 or the ADR Law, and the recent promulgation by
the Philippine Supreme Court of the Special Rules of Court on Alternative Dispute Resolution
(“Special ADR Rules”)3 had and will continue to have on the recognition and enforcement of foreign
arbitral awards in the Philippines. Lastly, the author will endeavour to identify the challenges that
lie ahead and that need to be addressed in order that the Philippines, as a nation and as a part of
1 Convention on the Recognition and Enforcement of Foreign Arbitral Awards dated 10 June 1958. 2 61 O.G. 8344, 27 December 1965. 3 Supreme Court En Banc’s A.M. No. 07‐11‐08‐SC dated 1 September 2009, published on 11 September
2009 in the Philippine Daily Inquirer and to take effect on 30 October 2009.
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the ASEAN, will be able to improve the world’s experience in the area of recognition and
enforcement of foreign arbitral awards in, so to speak, “its own backyard”.
I. PHILIPPINE LEGAL ENVIRONMENT: PAST AND PRESENT
A. Pre‐New York Convention: Jurisprudential and Statutory Recognition
More than eighty years ago, the Philippine Supreme Court was confronted with the legal
issue of whether to enforce and/or recognize a foreign arbitral award.4 Back in 1926, the answer
seemed simple enough not to generate any dissenting opinion or elicit any objection. According to
the Supreme Court En Banc in 1926, a foreign arbitral award may be recognized and enforced in the
Philippines upon presentation of proof of the following facts:
(i) notice to defendant of plaintiff’s election to arbitration;
(ii) the arbitrators were elected in the manner and form provided in the contract;
(iii) the arbitrators met and performed their duties, made and presented their findings,
based upon which they signed their award; and
(iv) the defendant was either legally a party to the arbitration or that it ratified or
approved it after it was made.
According to the 1926 High Court in the Philippines, “as between parties and their privies, an award
is a final adjudication by a court of the parties’ own choice, and until such time as it is impeached in
an appropriate proceeding, an award, which is regular on its face, is conclusive upon the merits of
the controversy submitted”.5
4 Robinson, Fleming & Co. vs. Cruz Tan Chong Say, G.R. No. 24904, March 25, 1926. 5 Ibid.
3
After achieving its political independence, the Philippines enacted a New Civil Code,6 which
expressly accepted arbitration as a mean of dispute resolution.7 Significantly, however, the
provisions of the New Civil Code excluded the following from among those matters that may be
arbitrated:
(1) The civil status of persons;
(2) The validity of a marriage or a legal separation;
(3) Any ground for legal separation;
(4) Future support;
(5) The jurisdiction of courts; and
(6) Future legitime.8
More importantly, the New Civil Code expressly restricted the parties’ right to stipulate that the
arbitral award or decision will be final and binding9 by making such arbitral award or decision
subject to the following provisions of law on compromises:
“Article 2038. A compromise in which there is mistake, fraud, violence, intimidation, undue influence, or falsity of documents, is subject to the provisions of article 1330 of this Code.
However, one of parties cannot set up a mistake of fact as against the other
if the latter, by virtue of the compromise, has withdrawn from a litigation already commenced.“10
“Article 2039. When the parties compromise generally on all differences
which they might have with each other, the discovery of documents referring to one or more but not to all of the questions settled shall not itself be a cause for
6 Republic Act No. 386 enacted on 18 June 1949 and which took effect on 30 August 1950. 7 NEW CIVIL CODE, Book IV, Title XIV, Chapter 2, Arts. 2042‐2046 in relation to Arts. 2028 to 2041. 8 NEW CIVIL CODE, Art. 2035. 9 NEW CIVIL CODE, Article 2044 provides:
“Article 2044. Any stipulation that the arbitrators' award or decision shall be final, is valid, without prejudice to articles 2038, 2039, and 2040. “ [underscoring supplied]
10 Emphasis and underscoring supplied.
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annulment or rescission of the compromise, unless said documents have been concealed by one of the parties.
But the compromise may be annulled or rescinded if it refers only to one
thing to which one of the parties has no right, as shown by the newly‐discovered documents.“ 11
“Article 2040. If after a litigation has been decided by a final judgment, a
compromise should be agreed upon, either or both parties being unaware of the existence of the final judgment, the compromise may be rescinded.
Ignorance of a judgment which may be revoked or set aside is not a valid
ground for attacking a compromise. “
Some years after, in 1953, Republic Act No. 876, otherwise known as the Arbitration Law of
the Philippines, was enacted. The Philippine Arbitration Law laid out the procedure to be followed
in arbitration proceedings conducted in, and intended to be pursued in, the Philippines, without
distinction as to the whether the dispute sought to be resolved was international or domestic in
character. As for the recognition and enforcement of foreign arbitral awards, that is, awards
rendered in an arbitration proceeding conducted outside the Philippines’ territorial jurisdiction,
Republic Act No. 876 was, by its own terms, inapplicable. As a result, the doctrine laid down by the
Supreme Court En Banc in the 1926 case of Robinson, Fleming & Co. vs. Cruz Tan Chong Say12 should
have continued to be the binding legal rule on the recognition and enforcement of foreign arbitral
awards. Unfortunately, as will be discussed later on, this proved not to be the case.
B. Ratification of New York Convention: A Binding Treaty Commitment
A significant step in the promotion of a harmonized legal system in the field of international
trade was made through the adoption of the New York Convention on 10 June 1958, which
covenant not only rationalized the concept of an “arbitration agreement” but, more importantly,
enumerated the available grounds for refusing recognition and/or enforcement of a foreign arbitral
11 Emphasis and underscoring supplied. 12 Supra.
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award in a Convention state. As per Article V of the New York Convention, recognition and
enforcement of an award may be refused, at the request of the party against whom it is invoked,
only if that party furnishes proof of the following:
“ARTICLE V
1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (a) The parties to the agreement referred to in Article II were, under
the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or the arbitration proceedings or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been
set aside or suspended by competent authority of the country in which, or under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused if
the competent authority in the country where recognition and enforcement is sought finds that:
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(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of that country.”
The New York Convention was widely accepted across the globe and most of the various members
of the ASEAN have acceded to it.
Insofar as the Philippines is concerned, acceptance of the New York Convention came at an
early stage as it was one of the original signatories thereof.13 On 10 May 1965, through Senate
Resolution No. 71, the Philippines ratified the New York Convention and, upon deposit of the
ratification document, the New York Convention came into force in the Philippines on 4 October
1967, some forty‐two years ago.
C. Post New York Convention
Like other multilateral treaties, the New York Convention, even as ratified, was not self‐
executing. As such, though the New York Convention imposed upon the Philippines and its courts
certain treaty obligations under principles of public international law, nonetheless, rights of parties
who are citizens of a Convention state were dependent on the enactment of a specific substantive
law or the promulgation of specific procedural rules that give effect to, and implement the
provisions of, the New York Convention within Philippine territory. Unfortunately, despite repeated
acknowledgment by the Philippines’ High Court of the New York Convention and the Philippines’
ratification thereof, the Philippines’ agreement to the principles of the New York Convention
remained to be nothing more than lip service for several decades – from 1958 to 2004, no
substantive law on arbitration consistent with the New York Convention was passed and, worse,
from 1958 to 2009, no procedural rules on the recognition and enforcement of foreign arbitral
13 The Philippine delegation signed ad referendum with reservation that it will apply the Convention, on the
basis of reciprocity, to the recognition and enforcement of awards made only in the territory of another Contracting State and only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration.
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awards were promulgated. In fact, as of the writing of this paper, the very first procedural rule on
this subject matter will come into effect only on 30 October 2009.14
In April 2004, the Philippines’ legislature finally enacted the ADR Law. The ADR Law not only
updated the 1953 Philippine Arbitration Law but, more importantly, aligned Philippine substantive
law on arbitration with that of the rest of the world by adopting the UNCITRAL Model Law15 as the
governing law for international commercial arbitration and by finally implementing the Philippines’
obligations under the New York Convention. Thus, with respect to recognition and enforcement of
foreign arbitral awards, the ADR Law limited the grounds to oppose a petition for recognition and
enforcement to the following, to wit:
“SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered by the New York Convention. – The recognition and enforcement of foreign arbitral awards not covered by the New York Convention shall be done in accordance with the procedural rules to be promulgated by the Supreme Court. The Court may, on grounds of comity and reciprocity, recognize and enforce a non‐convention award as a convention award.”
“SEC. 45. Rejection of a Foreign Arbitral Award. – A party to a foreign
arbitration proceeding may oppose an application for recognition and enforcement of the arbitral award in accordance with the procedural rules to be promulgated by the Supreme Court only on those grounds enumerated under Article V of the New York Convention. Any other ground raised shall be disregarded by the Regional Trial Court.”
As to the procedure to be followed in such cases, the legislative department expressly left it to the
Philippine Supreme Court to promulgate such rules as may be deemed necessary to give meaning to
the ADR Law.
The lack of a specific procedural rule on the recognition and enforcement of foreign arbitral
awards for almost half a century has contributed to, if not caused, the vagaries of Philippine
14 As mentioned above, the Special ADR Rules promulgated on 1 September 2009 will take effect only on 30
October 2009. 15 UNCITRAL Model Law on International Commercial Arbitration, U.N. Doc. A/40/17, Annex I, as adopted by
the United Nations Commission on International Trade Law on 21 June 1985.
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jurisprudence on the matter. In fact, because of the absence of a specific procedural rule, parties
were constrained to seek recognition and enforcement of foreign arbitral awards through a petition
for recognition and enforcement of a foreign judgment (i.e., the foreign arbitral award as confirmed
by the foreign local court) under the Rules of Court particularly Rule 39, section 48. This indirect
process for recognition and enforcement of foreign arbitral awards, which as will be explained
below is fraught with complications and consequences that are in direct contravention of the New
York Convention, continued even after the passage of the ADR Law while legal practitioners eagerly
awaited the “rules of procedure” to be promulgated by the Supreme Court and while first level
courts were unsure of what procedural rules to apply.
D. The Special ADR Rules of 2009: Guidelines for the Future
On 1 September 2009, the Supreme Court of the Philippines, under the helm of Chief Justice
Reynato S. Puno, finally promulgated the much‐awaited Special ADR Rules, which will take effect on
30 October 2009. These Special ADR Rules not only implement the provisions of the ADR Law but,
more importantly, prescribe a detailed procedure for the recognition and enforcement of
international commercial arbitral awards and foreign arbitral awards that is consistent with the
letter of the UNCITRAL Model Law and New York Convention and, to a great degree, promotes their
noble objective of progressively harmonizing and unifying the law on international trade so to
further the effectiveness of arbitration in the expeditious settlement of private law disputes.
II. PROBLEMS IN ENFORCEMENT AND RECOGNITION OF FOREIGN ARBITRAL AWARDS PRIOR TO THE SPECIAL ADR RULES
As mentioned earlier, the failure of the earlier Supreme Court to promulgate a specific
procedural rule on the recognition and/or enforcement of foreign arbitral awards has given rise to
consequences and complications that have effectively reversed the High Court’s 1926 En Banc
decision in Robinson, Fleming & Co. vs. Cruz Tan Chong Say16 and, worse, perhaps even caused the
16 Supra.
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Philippines to have, in its practical application, breached its treaty obligations under the New York
Convention.
A. Foreign Arbitral Awards as Foreign Judgments: Expanding the Grounds for Refusal of Recognition and/or Enforcement
As mentioned earlier, in the absence of a specific procedural rule for the recognition and/or
enforcement of a foreign arbitral award, litigants and their lawyers had to be creative and employ
the remedies available. Thus, to seek recognition and/or enforcement of a foreign arbitral award,
members of the Bench and the Bar equated a foreign arbitral award, duly confirmed by a local court
in the place where it was rendered, with a foreign judgment and, consequently, sought recognition
and enforcement of the “confirmed” award under the Rules of Court of the Philippines.
Foreign judgments have limited binding effect in the Philippines and may be reversed or
even wholly set aside by courts of law for reasons not identified in Article V of the New York
Convention. Thus, section 48 of Rule 39 of the Rules of Court provides:
“SEC. 48. Effect of foreign judgments or final orders — The effect of a judgment or final order of a tribunal of a foreign country, having jurisdiction to render the judgment or final order, is as follows:
(a) In case of a judgment or final order upon a specific thing, the judgment or
final order is conclusive upon the title of the thing; and (b) In case of a judgment or final order against a person, the judgment or final
order is presumptive evidence of a right as between the parties and their successors in interest by a subsequent title.
In either case, the judgment or final order may be repelled by evidence of a want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact.”
Characterizing a foreign arbitral award, as confirmed, as a foreign judgment and thereupon seeking
its recognition and enforcement have the following necessary adverse implications:
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(1) As a foreign judgment, a foreign arbitral award against a party is not deemed conclusive
but merely “presumptive evidence” of a right as between the parties and their
successors‐in‐interest by a subsequent title; and
(2) As a foreign judgment, a foreign arbitral award may “be repelled by evidence of want of
jurisdiction, want of notice to the party, collusion, fraud or clear mistake of law or fact”.
In allowing a party‐litigant to classify a foreign arbitral award as a foreign judgment, therefore, the
Philippine judiciary expanded the list of allowable grounds to refuse recognition or enforcement of
a foreign arbitral award under the New York Convention. Specifically, under the Philippine Rules of
Court, a foreign arbitral award (but treated as a foreign judgment) could be refused recognition
and/or enforcement upon proof of want of jurisdiction, collusion, fraud, and clear mistake of law.
A prime example of the negative consequences that the foregoing “indirect process” of
recognition and enforcement has brought about is evident from the decision of the Supreme Court
En Banc in the 1970 case of Soorajmull Nagarmull vs. Binalbagan‐Isabela Sugar Company, Inc.17
In this case, a foreign arbitral award rendered by a tribunal in India, as duly affirmed by the
High Court of Judicature of Calcutta, was considered a judgment of a sum of money rendered by a
foreign court. Thus, according to the Supreme Court, it “is presumptive evidence of a right as
between the parties and their successors in interest by subsequent title” but when suit for its
enforcement is brought in a Philippine court, said judgment “may be repelled by evidence of want
of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact.”18
Further, the Philippine Supreme Court concluded that the foreign arbitral award rendered in India, a
Convention State, is not enforceable in the Philippines because it is based on a clear mistake of law
and its enforcement will give rise to a patent injustice.19 In refusing to give effect to the foreign
arbitral award rendered in India, a Convention State, the Supreme Court En Banc looked into the
substance of the arbitral award, tested the same against the standards and principles in Philippine
17 G.R. No. L‐22470, May 28, 1970, 33 SCRA 46. 18 Ibid., at pp. 51‐52. 19 Id., at pp. 52‐53.
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contract law and, thereupon, effectively vacated or set the same aside. Thus, the Supreme Court
reasoned:
“Upon the facts of record, We are constrained to hold that the decision sought to be enforced was rendered upon a "clear mistake of law" and because of that it makes appellant — an innocent party — suffer the consequences of the default or breach of contract committed by appellee.
There is no question at all that appellee was guilty .of a breach of contract
when it failed to deliver one‐hundred fifty‐four Hessian bales which, according to the contract entered into with appellant, should have been delivered to the latter in the months of July, August and September, all of the year 1949. It is equally clear beyond doubt that had these one‐hundred fifty‐four bales been delivered in accordance with the contract aforesaid, the increase in the export tax due upon them would not have been imposed because said increased export tax became effective only on October 1, 1949.
To avoid its liability for the aforesaid increase in the export tax, appellee
claims that appellant should be held liable therefor on the strength of its letter of September 29, 1949 asking appellee to ship the shortage. This argument is unavailing because it is not only illogical but contrary to known principles of fairness and justice. When appellant demanded that appellee deliver the shortage of 154 bales, it did nothing more than to demand that to which it was entitled as a matter of right. The breach of contract committed by appellee gave appellant, under the law and even under general principles of fairness, the right to rescind the contract or to ask for its specific performance, in either case with right to demand damages. Part of the damages appellant was clearly entitled to recover from appellee growing out of the latter's breach of the contract consists precisely of the amount of the increase decreed in the export tax due on the shortage — which, because of appellee's fault, had to be delivered after the effectivity of the increased export tax.
To the extent, therefore, that the decisions of the Tribunal of Arbitration of
the Bengal Chamber of Commerce and of the High Court of Judicature of Calcutta fail to apply to the facts of this case fundamental principles of contract, the same may be impeached, as they have been sufficiently impeached by appellant, on the ground of "clear mistake of law". We agree in this regard with the majority opinion in Ingenohl vs. Walter E. Olsen & Co. (47 Phil. 189), although its view was reversed by the Supreme Court of the United States (273 U.S. 541, 71 L. ed. 762) which at that time had jurisdiction to review by certiorari decisions of this Court. We can not sanction a clear mistake of law that, would work an obvious injustice upon appellant.”20
20 Id.; emphasis and underscoring supplied.
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Notably, the Soorajmull Nagarmull case was decided in the aforesaid manner by the
Supreme Court despite the fact that several years earlier, in 1965, the Philippine Senate had ratified
the New York Convention, which (i) expressly provides that only the Convention state where the
award is rendered, in this case India, has the authority to vacate or set aside an arbitral award
rendered in its jurisdiction and (ii) expressly excludes a “clear mistake of law” and “patent injustice”
as grounds for refusal under Article V.
That the procedural confusion in the enforcement and recognition of “confirmed” foreign
arbitral award as foreign judgments continued even after the ADR Law was enacted is shown by
certain judicial decisions authorizing Philippine courts to “set aside” and/or “vacate” foreign arbitral
awards,21 the most recent of which is the 2008 case of Korea Technologies Co., Ltd. vs. Hon. Alberto
Lerma and Pacific General Steel Manufacturing Corporation.22
In the Korea Technologies case, the Supreme Court sought to differentiate between
domestic, international commercial and foreign arbitration awards and, in an obiter dictum, stated,
in unequivocal terms, that a “foreign arbitral award is subject to judicial review by the [Regional
Trial Court] which can set aside, reject, or vacate it”23 though only under the grounds provided
under Article 34(2) of the UNCITRAL Model Law. Accordingly, the Supreme Court concluded:
“Thus, based on the foregoing features of RA 9285, PGSMC must submit to
the foreign arbitration as it bound itself through the subject contract. While it may have misgivings on the foreign arbitration done in Korea by the KCAB, it has available remedies under RA 9285. Its interests are duly protected by the law which requires that the arbitral award that may be rendered by KCAB must be confirmed here by the RTC before it can be enforced.
With our disquisition above, petitioner is correct in its contention that an
arbitration clause, stipulating that the arbitral award is final and binding, does not
21 Luzon Hydro Corporation vs. Hon. Rommel O. Baybay and Transfield Philippines, Inc., CA‐G.R. SP No.
94318, 29 November 2006. 22 G.R. No. 143581, 7 January 2008, 542 SCRA 1. 23 Id., at p. 29.
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oust our courts of jurisdiction as the international arbitral award, the award of which is not absolute and without exceptions, is still judicially reviewable under certain conditions provided for by the UNCITRAL Model Law on ICA as applied and incorporated in RA 9285.”
Though the High Court’s obiter dictum may have been a result of confusion between and among the
various types of arbitral awards contemplated by the ADR Law, that is, domestic, international
commercial and foreign, still, as it is part of a decision of no less than the Supreme Court of the
Philippines. it is quite probable that party litigants would exploit this obiter dictum to justify
extensive judicial review of foreign arbitral awards sought to be recognized and enforced in the
Philippines, which would be diametrically opposed to the provisions of the New York Convention.
B. Filing Fees: A Major Concern
Another consequence of equating a “confirmed” foreign arbitral award to a foreign
judgment has its impact on the economic front: the payment of a substantial amount in filing or
docket fees. This adverse consequence arises from the contention that a petition to recognize
and/or enforce a foreign money judgment is actually a collection case, and nothing less.
The argument that a petition to recognize and/or enforce a foreign money judgment entails
the payment of filing fees akin to one for a collection of a sum of money is not a novel one and has
already been debunked by no less than the Supreme Court in the case of Mijares, et al. vs. Hon.
Judge Ranada and Estate of Ferdinand E. Marcos.24 The Mijares case involves an action to recognize
and enforce a foreign judgment rendered in a class action suit filed by victims of human rights
violations committed under the martial law regime imposed by the former and late President
Ferdinand E. Marcos. The judgment of the United States District Court of Hawaii, which was
affirmed by the US Court of Appeals and which became final on 17 December 1996, awarded the
plaintiffs in the class a total of USD$1,964,005,859.90. When the class action plaintiffs filed a
complaint with Regional Trial Court (RTC) of Makati City for the enforcement of the final foreign
judgment, the defendant Marcos Estate moved to dismiss the complaint for failure to pay sufficient
24 G.R. 139325, 12 April 2005, 455 SCRA 397.
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filing fees. Agreeing with the Marcos Estate, the RTC judge ruled that that “complaint was indeed
capable of pecuniary estimation, as it involved a judgment rendered by a foreign court ordering the
payment of definite sums of money”. Thus, the RTC judge estimated the proper amount of filing
fees was approximately PHP472 million. Upon appeal, the Supreme Court reversed the decision of
the RTC judge and ruled that an action to enforce a foreign money judgment is not an action for the
collection of a sum of money but rather a special proceeding not concerning property which, thus,
entails payment of a nominal amount in filing fees.
Although the Mijares case actually involved a foreign judgment, the argument espoused by
the counsel of the Marcos estate was the basis of an objection raised in a petition involving the
recognition and/or enforcement of a foreign arbitral award. In the 2006 Court of Appeals case of
Luzon Hydro Corporation vs. Hon. Rommel O. Baybay and Transfield Philippines, Inc.,25 the party
against whom a foreign arbitral award was sought to be enforced, Luzon Hydro Corporation (LHC),
raised the issue on the correct payment of docket or filing fees, which was estimated by LHC to be
“about P21 Million on [Transfield Philippines, Inc.’s] claim of about US$24 Million”. The Regional
Trial Court disregarded LHC’s objections including the issue raised on the proper amount of filing
fees. The Court of Appeals characterized the Regional Trial Court’s disregard of LHC’s objection as a
badge of bias and impropriety but it did not categorically reverse the same. Accordingly, there is no
judicial decision unequivocally stating that a petition to enforce and/or recognize a foreign arbitral
award should not be considered an action for collection and should not be assessed exorbitant filing
and docket fees. Without binding clarification from the Supreme Court, therefore, it would not be
far‐fetched for a losing party in a foreign arbitration to move for the dismissal of a petition to
recognize and/or enforce a foreign arbitral award by reason of insufficient payment of docket fees.
C. Recognition and Enforcement under the original Rules of Court: A Protracted Process
One of the more deplorable consequences of the lack of a specific procedural rule on the
recognition and enforcement of foreign arbitral awards is the delay brought about by the
25 CA‐G.R. SP No. 94318, 29 November 2006.
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protracted process of a special proceeding wherein the Regional Trial Court examines the merits of
the arbitral award, assesses the same against the standards of Philippine laws and then resolves to
either enforce or recognize the same or even modify, reverse or set the same aside. Otherwise
stated, the “indirect process” of enforcement and recognition under the Rules of Court provision on
foreign judgments allowed the losing party to “relitigate” the issues already resolved in the
arbitration proceedings proper; to avail of a series of appeals to the Court of Appeals and thereafter
the Supreme Court; and, worse, to delay, if not effectively deny, any recoupment by the winning
party under the foreign arbitral award.
The case of Oil and Natural Gas Commission vs. Court of Appeals and Pacific Cement
Company, Inc.26 is a paramount example of how, through the remedies legally allowed under the
original Rules of Court, a foreign arbitral award could remain unrecognized, unenforced and
necessarily unsatisfied for over a decade.
The Oil and Natural Gas Commission case involves a foreign arbitral award rendered in India
on 23 July 1988 directing Pacific Cement Company to pay certain sums of money. The foreign
arbitral award was confirmed by an India civil court in a memorandum decision that merely stated
that the award “should be made `Rule of the Court’” and that said award “shall be part of the
decree”. In the proceedings in the Philippines to enforce the foreign arbitral award, as confirmed
by the India civil court, Pacific Cement Company argued that the dispute was not subject to
arbitration and that the memorandum decision violated the Constitutional requirement that judicial
decisions must clearly and distinctly state the facts and the law on which the decision is based.27
The argument (along with the objection on the arbitrability of the dispute packaged as a
jurisdictional defect) led to a series of inconsistent rulings. The trial court declared the arbitration
proceeding null and void and, thus, refused to enforce the “foreign judgment”. The Court of
Appeals affirmed the trial court’s findings and further ruled that the foreign court’s judgment did
not contain any findings of facts and law in violation of the Constitution. On the other hand, the
Supreme Court initially reversed the Court of Appeals’ decision and ordered Pacific Cement 26 G.R. No. 114323, 28 September 1999, 315 SCRA 296. 27 1987 Constitution, Article VIII, section 14.
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Company to pay the amount indicated in the foreign arbitral award. Resolving the motion for
reconsideration of Pacific Cement Company in 1999, more than eleven (11) years after the rendition
of the arbitral award, the Supreme Court reconsidered its original decision and, instead of enforcing
the foreign arbitral award, remanded the case for further proceedings before the court a quo.
Clearly, from the facts of the case, it is apparent that Pacific Cement Company is merely
exhausting the courses of action available to it under the Rules of Court to stop the recognition
and/or enforcement of the adverse foreign arbitral award. However, likewise apparent is the fact
that, in exhausting its procedural remedies, the objective of international commercial arbitration as
an expeditious and efficient dispute resolution mechanism was rendered nugatory by the prevailing
legal environment in the Philippines and the lack of a specific procedural rule on the enforcement
and recognition of foreign arbitral awards.
Sadly, the experience of the Oil and Natural Gas Commission is not uncommon. Philippine
case law is replete with decisions that exhibit how the objectives of international commercial
arbitration have been frustrated by the legal environment that had been prevailing for decades.
Worse, Philippine case law is replete with decisions that prove the country’s seeming deviation
from the New York Convention by reason of the utilization of a procedure in the Rules of Court that
was laid down to further litigation, not promote arbitration as an expeditious and efficient
alternative.
III. THE SPECIAL ADR RULES: IMPROVING THE LEGAL ENVIRONMENT
Starting 30 October 2009, the legal regime in the Philippines on alternative dispute
resolution particularly in the area of foreign arbitral awards will auspiciously proceed under the
“new” procedure prescribed in detail by the Special ADR Rules of the Supreme Court with the
following stated policy objective:
“…To this end, the objectives of the Special ADR Rules are to encourage and promote the use of ADR, particularly arbitration and mediation, as an important
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means to achieve speedy and efficient resolution of disputes, impartial justice, curb a litigious culture and to de‐clog court dockets.” 28
The salient portions of the Special ADR Rules on the recognition and enforcement of foreign arbitral
awards attempt to address the problems faced by the private disputants, the legal practitioners and
by the trial courts under the long‐standing regime under the original Rules of Court and, quite
fortunately, prescribes steps to implement the Philippines’ treaty obligations under the New York
Convention.
A. Simplified and Expeditious (albeit not a Summary) Process
i. No summons requirement
Among the problems sought to be resolved through the promulgation of the Special ADR
Rules is the unreasonable delay that has effectively deprived disputants of “real‐time” justice.
Towards this end, the Special ADR Rules particularly exempt special proceedings thereunder from
the “technical rules on service of summons” and provide that “a court acquires authority to act on
the petition or motion [in cases covered by the Special ADR rules] upon proof of jurisdictional facts.
i.e., that the respondent was furnished a copy of the petition and the notice of hearing” in, at least,
a manner that “reasonably ensure[s] receipt thereof by the respondent to satisfy the requirement
of due process”.29
ii. Motion for extension prohibited
In addition, motions for extension of time are expressly disallowed and “shall not be
accepted for filing by the Clerk of Court” except “in cases where an ex‐parte temporary order of
protection has been issued.”30 More importantly, the court is expressly vested with the authority to
28 SPECIAL ADR RULES, Rule 2.1. 29 Ibid., at Rule 1.9. 30 Id., at Rule 1.6(e).
18
“motu proprio order a pleading/motion that it has determined to be dilatory in nature be expunged
from the records.”31
iii. Presentation of case generally via written submissions and affidavits; hearings not mandatory
To save time and perhaps ensure that the court’s and counsel’s full calendars will not
prevent a speedy resolution of the case in chief, the Special ADR Rules provide that the
presentation of the parties’ respective positions shall be via written pleadings or submissions. Thus,
upon receipt of a petition to enforce and/or recognize a foreign arbitral award and upon receipt of
notice, the party against whom the foreign arbitral award is sought to be invoked will be allowed to
file a verified opposition thereto.32 Thereafter, if the court finds that the issue between the parties
“is mainly one of law”, the parties may be required to submit briefs of their respective legal
arguments.33 If, however, there are issues of fact relating to the ground/s relied upon for the court
to refuse enforcement, the court may, on its own or upon request of any party, require the
presentation of evidence through the simultaneous submission of sworn witness affidavits and/or
reply affidavits, which affidavits shall attach all the supporting documents.34 Unlike ordinary cases,
the court is not mandated to conduct a hearing for the purpose of allowing a party to cross‐examine
the other party’s witnesses. But, when the court deems it necessary to have a hearing, the court is
mandated to “give due priority to hearings on petitions” under the Special ADR Rules and to ensure
that the case is heard without delay.35
iv. No time period to resolve a petition for recognition and/or enforcement of a foreign arbitral award
31 Id. 32 Id., at Rules 13.6 and 13.7. 33 Id., at Rule 13.8. 34 Id. 35 Id., at Rule 13.9.
19
Quite surprisingly, unlike the other remedies allowed under the Special ADR Rules, Rule 13
on the “Recognition and Enforcement of a Foreign Arbitral Award” does not set a time frame within
which courts are mandated to resolve petitions filed under said rule.
B. Grounds to Refuse Recognition and/or Enforcement of Foreign Arbitral Awards: Consistent with the New York Convention
Consistent with the terms of the New York Convention, which the Philippines is bound to
comply with under general principles of public international law as well as under its fundamental
law,36 the Special ADR Rules limit the grounds for a court to refuse to recognize and/or enforce a
foreign arbitral award rendered in a Convention State to only the following:
“Rule 13.4 Governing law and grounds to refuse recognition and
enforcement – The recognition and enforcement of a foreign arbitral award shall be governed by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) and this Rule. The court may, upon grounds of comity and reciprocity, recognize and enforce a foreign arbitral award made in a country that is not a signatory to the New York Convention as if it were a Convention Award.
A Philippine court shall not set aside a foreign arbitral award but may
refuse it recognition and enforcement on any or all of the following grounds: a. The party making the application to refuse recognition and
enforcement of the award furnishes proof that:
(i) A party to the arbitration agreement was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereof, under the law of the country where the award was made; or
(ii) The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral
36 1987 Constitution, Article II, sec. 2 in relation to Art. VII, sec. 21.
20
proceedings or was otherwise unable to present his case; or
(iii) The award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration; provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted to arbitration may be set aside; or
(iv) The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where arbitration took place; or
(v) The award has not yet become binding on the parties or
has been set aside or suspended by a court in which that award was made; or
b. The court finds that:
(i) The subject‐matter of the dispute is not capable of settlement or resolution by arbitration under Philippine law; or
(ii) The recognition or enforcement of the award would be contrary to public policy.
The court shall disregard any ground for opposing the recognition and
enforcement of a foreign arbitral award other than those enumerated above.” 37
To further emphasize the exclusivity of the aforesaid list, the Special ADR Rules expressly instruct
courts to “disregard any ground for opposing the recognition and enforcement of a foreign arbitral
award other than those enumerated above”.38
As for Non‐Convention Awards, that is, foreign arbitral awards made in a state that is not a
signatory to the New York Convention, the court “may, upon grounds of comity and reciprocity, 37 SPECIAL ADR RULES, Rule 13.4; underscoring and emphasis supplied. 38 Ibid.
21
recognize and enforce a” Non‐Convention Award “as if it were a Convention Award”.39 However, if
that country does not extend comity and reciprocity to awards made in the Philippines, “the court
may nevertheless treat such award as a foreign judgment enforceable as such under Rule 39,
Section 48 of the Rules of Court,”40 under which, as discussed above, the grounds for refusal are
more extensive.
In acting on petitions to recognize and/or enforce a foreign arbitral award or the
accompanying oppositions, the Special ADR Rules clearly state that the presumption is, and should
always be, in favour of recognition and/or enforcement.41 Accordingly, the “court shall recognize
and enforce a foreign arbitral award unless a ground to refuse recognition or enforcement of the
foreign arbitral award under this rule is fully established”.42
More importantly, perhaps because jurisprudential history teaches us that Philippine courts,
including the High Court, tend to look into the merits of an arbitral award and evaluate the award’s
legal soundness, the Special ADR Rules repeatedly clarify the limits of judicial authority in special
proceedings for the recognition and enforcement of foreign arbitral awards and expressly proscribe
courts from replacing the arbitral tribunal findings with its own judgment. Thus, the Special ADR
Rules provide:
“Rule 13.11. Court action – It is presumed that a foreign arbitral award was made and released in due course of arbitration and is subject to enforcement by the court. The court shall recognize and enforce a foreign arbitral award unless a ground to refuse recognition or enforcement of the foreign arbitral award under this rule is fully established.
x x x
39 Id. 40 Id., at Rule 13.12. 41 Id., at Rule 13.11. 42 Id., underscoring and emphasis supplied.
22
In resolving the petition for recognition and enforcement of a foreign arbitral award in accordance with these Special ADR Rules, the court shall either [a] recognize and/or enforce or [b] refuse to recognize and enforce the arbitral award. The court shall not disturb the arbitral tribunal’s determination of facts and/or interpretation of law.” 43 “Rule 19.11. Rule on judicial review of foreign arbitral award. – The court can deny recognition and enforcement of a foreign arbitral award only upon the grounds provided in Article V of the New York Convention, but shall have no power to vacate or set aside a foreign arbitral award.” 44 “Rule 19.24. Subject of appeal restricted in certain instance. – If the decision of the Regional Trial Court refusing to recognize and/or enforce, vacating and/or setting aside an arbitral award is premised on a finding of fact, the Court of Appeals may inquire only into such fact to determine the existence or non‐existence of the specific ground under the arbitration laws of the Philippines relied upon by the Regional Trial Court to refuse to recognize and/or enforce, vacate and/or set aside an award. Any such inquiry into a question of fact shall not be resorted to for the purpose of substituting the court’s judgment for that of the arbitral tribunal as regards the latter’s ruling on the merits of the controversy.”45
It is hoped that, with the clear, categorical and unequivocal proscriptions in these Special ADR
Rules, courts of law in the Philippines will resist the temptation to treat foreign arbitral awards as
court judgments that may be examined, reviewed, modified under the guise of due process and
procedure.
C. Court Decision to Recognize and/or Enforce a Foreign Arbitral Award is Immediately Executory
Understanding that the series of appeals allowed under the Rules of Court may result in
delayed justice or, worse, even a miscarriage or denial of justice, the Special ADR Rules specifically
provide that the “decision of the court recognizing and enforcing a foreign arbitral award is
43 Underscoring and emphasis supplied. 44 Underscoring and emphasis supplied. 45 Underscoring and emphasis supplied.
23
immediately executory.”46 And, more importantly, any appeal from a court decision recognizing
and/or enforcing a foreign arbitral award “shall not stay the award, judgment, final order or
resolution sought to be reviewed unless the Court of Appeals directs otherwise upon such terms as
it may deem just.”47
D. Limitation on Judicial Review of Court Decisions Rendered under Rule 13 of Special ADR Rules
For the sake of clarity, the Special ADR Rules identify with particularity the legal remedies
that a party can resort to after a trial court recognizes, enforces and/or refuses to recognize and/or
enforce a foreign arbitral award under Rule 13 thereof.
i. Motion for Reconsideration
Within a non‐extendible period of fifteen (15) days from receipt of the questioned ruling or
order recognizing and/or enforcing a foreign arbitral award, or refusing recognition and/or
enforcement of the same, the affected party may file a motion for reconsideration.48 No party,
however, shall be allowed to file a second motion for reconsideration.49
ii. Appeal to the Court of Appeals via Petition for Review
Within fifteen (15) days from receipt of the denial of a party’s motion for reconsideration or,
without need of filing a motion for reconsideration, within fifteen (15) days from receipt of the trial
court’s order under Rule 13 of the Special ADR Rules, a losing party may appeal to the Court of
46 SPECIAL ADR RULES, Rule 13.11. 47 Ibid., at Rule 19.22. 48 Id., at Rules 19.1 and 19.2. 49 Id., at Rule 19.6.
24
Appeals via a verified petition for review described in the Special ADR Rules,50 and not the original
Rules of Court. As an additional requirement to the appeals process under the Special ADR Rules,
the party appealing from the “decision or a final order of the Regional Trial Court” enforcing an
arbitral award shall be required to “post a bond executed in favour of the prevailing party equal to
the amount of the award” and the “failure of the petitioner to post such bond shall be a ground for
the” dismissal of the petition.51
As mentioned above, the filing of an appeal with the Court of Appeals “shall not stay the
award, judgment, final order or resolution sought to be reviewed unless the Court of Appeals
directs otherwise upon such terms as it may deem just.”52
iii. Special Civil Action of Certiorari with Court of Appeals
The Special ADR Rules authorize the filing of a special civil action for certiorari with the
Court of Appeals whenever “the Regional Trial Court in making a ruling under the Special ADR Rules,
has acted without or in excess of its jurisdiction, or with grave abuse of discretion amounting to lack
or excess of jurisdiction, and there is no appeal or any plain, speedy and adequate remedy in the
ordinary course of law” and where the relief prayed for is the annulment or setting aside of such
Regional Trial Court ruling.53
Significantly, the frequent resort to certiorari petitions with the Court of Appeals and
sometimes even the Supreme Court has historically and undeniably aggravated the protracted
nature of litigation in the Philippines especially where the appellate courts were convinced to issue
injunctive relief against the enforcement of the assailed orders of the Regional Trial Courts. Perhaps
to address this possibility, the Special ADR Rules shorten the period within which to file a certiorari
50 Id., at Rules 19.12 to 19.15. 51 Id., at Rule 19.25. 52 Id., at Rule 19.22. 53 Id., at Rule 19.26.
25
action to a mere fifteen (15) days from receipt of the assailed order,54 as distinguished from Rule 65
certiorari petitions that should be filed within sixty (60) days. More importantly, other than
requiring the respondent to file its comment on the petition within a non‐extendible period of
fifteen (15) days from notice, no other briefs and/or pleadings are allowed.55 Thereafter, the
certiorari petition would be submitted for resolution, which resolution should be rendered by the
Court of Appeals within a “non‐extendible period of fifteen (15) days”.56
iv. Supreme Court Review Discretionary
In most cases, judicial review by the Highest Court in the land is a matter of discretion.
Special proceedings under the Special ADR Rules are no different. Thus, Rule 19.36 thereof
expressly provides that “a review by the Supreme Court is not a matter of right, but of sound
judicial discretion, which will be granted only for serious and compelling reasons resulting in grave
prejudice to the aggrieved party.” As to what circumstances may “indicate the serious and
compelling, and necessarily, restrictive nature of the grounds that will warrant the exercise of the
Supreme Court’s discretionary powers”, the Special ADR Rules enumerate the following examples,57
to wit:
(a) When the Court of Appeals failed to apply the applicable standard or test for judicial review prescribed in these Special ADR Rules in arriving at its decision resulting in substantial prejudice to the aggrieved party;
(b) When the Court of Appeals erred in upholding a final order or decision despite the lack of jurisdiction of the court that rendered such final order or decision;
54 Id., at Rule 19.28. 55 Id., at Rule 19.31. 56 Id., at Rule 19.34. 57 Id., at Rule 19.36.
26
(c) When the Court of Appeals failed to apply any provision, principle, policy or rule contained in these Special ADR Rules resulting in substantial prejudice to the aggrieved party; and
(d) When the Court of Appeals committed an error so egregious and harmful to a party as to amount to an undeniable excess of jurisdiction.
Thus, according to the Special ADR Rules, the error imputed to the Court of Appeals must be
grounded upon any of the above prescribed grounds for review or be closely analogous thereto.58
As to the procedure to be followed to invoke the High Court’s discretionary authority, Rules
19.37 and 19.38 prescribe that a verified petition for review on certiorari should be filed with the
Supreme Court within fifteen (15) days from notice of the Court of Appeals’ order appealed from or
from the Court of Appeals’ denial of its motion for reconsideration. In either case, however, the
verified petition for review on certiorari shall raise only questions of law, which must be distinctly
set forth. The period within which to file a petition for review on certiorari may, under Rule 19.38 of
the Special ADR Rules, be extended for another thirty (30) days but only for justifiable reasons.
v. Fixed Time Periods for Resolution of Judicial Remedies
Conspicuously, the provisions of the Special ADR Rules on the motion for reconsideration,
appeal and certiorari with the Court of Appeals expressly mandate the court of law concerned to
resolve the incident within time periods. Thus, insofar as motions for reconsideration of Regional
Trial Court decisions are concerned, the Regional Trial Court is mandated to resolve the incident
within 30 days from receipt of the opposition or comment or upon the expiration of the period to
file such opposition or comment.59
As for the resolution of appeals, the Court of Appeals is instructed to resolve the appeal
within sixty (60) days from the time the case is submitted for decision upon the filing of the last
58 Id. 59 Id., at Rule 19.5.
27
pleading or required memorandum.60 On a stricter basis, the Court of Appeals is mandated to
decide the certiorari petition within the non‐extendible period of fifteen (15) days from the filing of
the comment or the expiration of the period to file the same.61
In stark contrast to the foregoing, the Special ADR Rules do not lay down a specific time
frame within which appeals pending before the Supreme Court must be resolved. However,
applying the general provisions of no less than the fundamental law of the land, the 1987 Philippine
Constitution,62 the Supreme Court is constitutionally‐obligated to resolve cases pending before it
within twenty‐four (24) months from the date of their submission for resolution.
E. Filing Fees Clarified: Nominal Fee Only
For the avoidance of doubt, and to preclude any argument on the sufficiency of the filing
fees paid by a party applying for the recognition and/or enforcement of a foreign arbitral award, as
was raised in the Court of Appeals case of Luzon Hydro Corporation vs. Hon. Rommel O. Baybay and
Transfield Philippines, Inc.,63 a case brought after the enactment of the ADR Law in 2004, the Special
ADR Rules provide that the “minimal filing fee payable in `all other actions not involving property’
shall be paid by the petitioner seeking to enforce foreign arbitral awards under the New York
Convention in the Philippines”.64
After the foregoing review of the salient points of the Special ADR Rules, it cannot be denied
that the Philippine legal environment on the recognition and enforcement of foreign arbitral awards
has, at least in theory, been improved through clarification and detailed instruction. Though
theoretical and academic improvements are the springboards of actual change, the Philippines
cannot, and should not, allow these procedural rules to become obsolete through lack of
60 Id., at Rule 19.23. 61 Id., at Rule 19.34. 62 1987 Constitution, Article VIII, sec. 15(1). 63 CA‐G.R. SP No. 94318, 29 November 2006. 64 SPECIAL ADR RULES, Rule 20.1.
28
understanding, knowledge and use. Thus, at this point, the author seeks to identify what she sees as
the challenges that lie ahead and that must be successfully overcome to obtain the fullest reward of
the promulgation of the Special ADR Rules and the enactment of the ADR Law.
IV. CHALLENGES FOR THE FUTURE: KEEPING THE PHILIPPINE LEGAL REGIME ON RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS ADVANCING IN THE RIGHT DIRECTION
The regime under the Special ADR Rules will come into effect only on 30 October 2009. With
its effectivity, the legal community hopes that the travails that parties have gone through in the
recognition and enforcement of foreign arbitral awards over the last forty‐something years will
become a thing of the past. Indeed, much is expected from the Special ADR Rules not only because
they clarify the distinctions between domestic and international commercial arbitral awards but,
more importantly, because they adopt the UNCITRAL Model and give meaning and implement the
country’s treaty obligations insofar as the recognition and enforcement of foreign arbitral awards
rendered in a Convention State are concerned. However, the work of the members of the Bench
and the Bar does not end with the promulgation of the Special ADR Rules. On the contrary, if the
primordial objective is to obtain a progressively harmonized, unified and efficient dispute resolution
mechanism in cross‐border transactions in international trade, the promulgation of the Special ADR
Rules is just the beginning.
In this author’s mind, the many challenges that the Philippine legal community still has to
overcome are best appreciated in terms of the short‐term, medium‐term and long‐term goals that
need to be attained. And, for purposes of this conference, the author will discuss how these goals,
especially the long‐term ones, can be realized by the Philippines with the assistance of international
legal associations such as the ASEAN Law Association or ALA.
A. Short‐Term Goal: Information Dissemination
29
Faced with a newly‐promulgated procedural rule on alternative dispute resolution (ADR)
especially international commercial arbitration, the very first goal is widespread publication and
dissemination to not only the members of the Bench and the Bar but, in view of the impact on
commercial transactions and dispute resolution mechanisms stipulated therein, the general public.
It is a given that, like all other newly promulgated rules, a copy of the Special ADR Rules was
published in a newspaper of general circulation. However, publication in the broad sheets may not
be sufficient to ensure that judges and legal practitioners residing in the most far‐flung areas are
fully informed of this key development in ADR. Thus, to avoid procedural errors that serve nothing
but to delay arbitration proceedings and prejudice the parties, it is recommended that
dissemination to the legal profession be effected through the chapters of the Integrated Bar of the
Philippines and, for the members of the judiciary and other government agencies, through the
Philippine Judicial Academy and Philippine Information Agency.
The need for information campaigns for the general public, that is, those who are not
lawyers or judges, stems from the fact that numerous provisions in the Special ADR Rules impact on
commercial agreements particularly cross‐border commercial transactions that stipulate on
international commercial arbitration, whether in the Philippines or abroad, as the dispute
resolution mechanism. To ensure that parties to a commercial transaction understand the
consequence of their contractual stipulations and, more importantly, to manage their expectations
when the dispute resolution mechanism is resorted to (e.g., limited grounds to set aside an
international commercial arbitration award and/or to refuse recognition and enforcement of a
foreign arbitral award), the general Filipino public especially businessmen and decision makers in
Filipino corporations should be made aware of the significant changes that the Special ADR Rules
make to the current legal environment and the consequences of, among others, agreeing to a
contractual stipulation that disputes shall be resolved through arbitration especially if it is to be
conducted in another country.65 Information dissemination to the business community is best done
through the industry‐specific business associations and societies that are active in the country.
65 Under Rule 19.7 of the Special ADR Rules, an “agreement to refer a dispute to arbitration shall mean
that the arbitral award shall be final and binding. Consequently, a party to an arbitration is precluded
30
B. Medium‐Term Goal: Aggressive Training of Bench and Bar
After information dissemination comes education and training not only of the members of
the legal profession but, more importantly, of members of the judiciary.
The success of the legal regime under the Special ADR Rules requires the cooperation, if not
compliance, of both sets of personalities. Frequently, non‐compliance with procedural rules is a
fruit of ignorance rather than deliberate intent. Thus, to ensure that the Special ADR Rules are
implemented by the courts and, more importantly, obeyed by the legal practitioners as they were
intended and in accordance with their policy objectives, there must be an aggressive training
seminar for all members of the judiciary – Regional Trial Court judges to Supreme Court justices –
with the active assistance of the members of the Supreme Court’s committee that prepared the
draft of the Special ADR Rules.
More importantly, for the correct understanding of the complex and intricate working of
the provisions of the Special ADR Rules, all lawyers even transactional and in‐house counsel and
members of the government’s legal departments (e.g., Office of the Solicitor General, Office of the
Government Corporate Counsel and Public Attorney’s Office) must be required to have continued
training and education on these new procedural rules that create a legal regime that is “atypical” in
this extremely litigious society and that hopefully will result in a change in the adversarial culture of
dispute resolution in the Philippines. Currently, lawyers are required to undergo mandatory
continuing legal education (MCLE) in, among others, the area of ADR. With the effectivity of the
Special ADR Rules, it is expected that MCLE sessions will involve lectures on this new “topic”.
However, training on the Special ADR Rules particularly insofar as arbitration is concerned is best
done in a focused manner – that is, separately for domestic arbitration, international commercial
arbitration and foreign arbitration. It is only when these areas are distinguished from one another
from filing an appeal or a petition for certiorari questioning the merits of an arbitral award.” [emphasis supplied]
31
that legal practitioners will truly understand the nuances of each of them and the significance of
such nuances to commercial disputes.
C. Long Term Goals: Successfully Implementing the Special ADR Rules as Intended
The Special ADR Rules have as among their stated policy objectives the encouragement and
promotion of the use of ADR, particularly arbitration and mediation, as “an important means to
achieve speedy and efficient resolution of disputes, impartial justice, curb a litigious culture and to
de‐clog court dockets”.66 However, insofar as international commercial arbitral awards and foreign
arbitral awards are concerned, the impact of the Special ADR Rules would be felt not just locally,
but also around the world. Thus, on a long‐term basis, the Special ADR Rules should seek to attain a
progressively harmonized, unified and efficient dispute resolution mechanism in cross‐border
transactions in international trade, which purpose can be best achieved through, among others,
years of consistent (1) strict implementation of the Special ADR Rules; (2) uniform interpretation of
their provisions particularly insofar as the limited grounds to refuse recognition and enforcement of
foreign arbitral awards are concerned; and (3) faithful observance by the legal community of the
explicit provisions of the rules so as not to delay the proceedings.
i. Strict implementation by members of the Bench
For the Special ADR Rules to be effective in attaining its long‐term goals and/or objectives,
courts must be especially strict in the implementation of the salient provisions of the Special ADR
Rules which includes those on the grounds to refuse recognition and enforcement of a foreign
arbitral award. Otherwise stated, a court should, as expressly mandated, disregard all other grounds
and/or objections raised in opposition to a petition to recognize and enforce a foreign arbitral
award and, more importantly, refuse the temptation to substitute its own opinion and findings with
those of the arbitral tribunal.
66 SPECIAL ADR RULES, Rule 2.1.
32
In order to ensure that undue delay is prevented in proceedings that are intended and
formulated to be expeditious, courts must not only demand strict adherence to the stated
deadlines but, more importantly, themselves obey the time limits set for rendering decisions.
Provisions on the maximum periods within which decisions are to be rendered are not novel and
are not peculiar to the Special ADR Rules. Unfortunately, these time‐frame provisions have, for the
most part, been honoured more in breach. To ensure that the Special ADR Rules fully achieve its
purpose, courts must endeavour to meet these mandated deadlines so as give meaning to the
intention of the Special ADR Rules of aligning the Philippine legal system with requirements and
expectations in the international scene.
ii. Uniform Interpretation by members of the Bench especially the Supreme Court
The author is aware that the words of the Special ADR Rules and their underlying spirit
could be rendered futile by the interpretation thereof by those tasked to give the rules and the ADR
Law meaning—the courts especially the Supreme Court of the Philippines. Especially vulnerable to
varying, and perhaps even inconsistent, judicial interpretations in the area of foreign arbitral
awards is the “public policy” exception, that is, “the recognition or enforcement of the award would
be contrary to public policy”.67
Admittedly, the term “public policy” is not defined in the New York Convention or even in
the UNCITRAL Model Law. It is likewise not a defined term in the ADR Law or the Special ADR Rules.
This omission, however, should not be taken by the judiciary as a license to circumvent the
prohibition against courts looking into the merits of a foreign arbitral award and, worse,
substituting their own opinions and conclusions for those of the arbitral tribunal that rendered the
award sought to be recognized and/or enforced. An example of the wide range of possibilities that
courts may consider as falling within the ambit of the “public policy” exception is evident in the
2006 decision of the Court of Appeals in the case of Luzon Hydro Corporation vs. Hon. Rommel O.
67 Ibid., at Rule 13.4(b)(ii).
33
Baybay and Transfield Philippines, Inc. (“Luzon Hydro case”),68 which declared unenforceable a
foreign arbitral award for being in manifest disregard of Philippine law and for being contrary to
public policy.
The 29 November 2006 decision of the Philippine Court of Appeals in the Luzon Hydro case
is one of the first judicial decisions promulgated after the passage of the ADR Law in 2004 that deals
with an application to set aside a foreign arbitral award on the basis that the award was null and
void having been rendered contrary to the public policy of the Philippines. After noting the
obligations attendant to the Philippines having signed and ratified the New York Convention, the
Court of Appeals went on to say:
“This Court recognizes that the Philippines is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. As a general rule, the courts are aware of the encouragement given to the parties to resort to arbitration as a mode of dispute resolution. As such, foreign arbitral awards issued in accordance with the rules of the UN convention are entitled to great respect and recognition by the international community. However, this Court recognizes that there are exceptions to this rule. Compelling reasons exist to justify the action to be taken by this Court in regard to the validity of the arbitral award subject of the instant case.”69
In nullifying and declaring unenforceable the foreign arbitral award, the Court of Appeals ruled that
“judicial interference in the arbitral process is recognized where an arbitration award provides for a
relief that is contrary to public policy or is in manifest disregard of the law” and thereafter
reasoned as follows:
“The Final Award must not be given effect because to do so would result in supplanting our own laws and public policies with a judgment that is based on foreign law despite the clear obligation of the arbitral tribunal to apply Philippine law in resolving the commercial dispute between the petitioner and the respondent TPI. The said dispute arose from a Turnkey Contract between the said
68 CA‐G.R. SP No. 94318, 29 November 2006. 69 Emphasis supplied.
34
parties wherein they categorically stipulated that it shall be governed by Philippine law.
In effect, the petitioner suffered damages for TPI’s delay because it was compelled to grant an extension of time to the completion date and then, it was made to pay acceleration costs despite the fact that the original completion date has already been moved to a later date. TPI, on the other hand, recovered twice – by not having to pay liquidated damages and being paid the costs to minimize delays and TPI should not be entitled to more.
A recovery by a party under one remedy necessarily bars recovery under the other. This, in essence, is the rationale for the proscription in our law against double jeopardy for the same act or omission which, obviously, stems from the fundamental rule against enrichment.
Another glaring example of the arbitral tribunal’s manifest disregard of Philippine law apparent on the face of the records of the case is its finding on pages 446‐469 of the Third partial Award that the construction of the lined tunnel by TPI was not completed in accordance with prudent utility practices and international engineering standards which was a clear requirement under the Turnkey Contract.
But notwithstanding such finding of fault against TPI (or in culpa under the Civil Code of the Philippines), the arbitral tribunal nevertheless penalized the petitioner by ordering it to return to TPI the proceeds of the performance securities drawn by the petitioner under the Turnkey Contract. The relevant provisions of the Turnkey Contract are categorical in stating that such performance securities are intended to secure the proper performance of TPI of its obligations thereunder. In the event that TPI is at fault, as it was in this case, the petitioner may then validly draw on such securities, as it did.
If the arbitral tribunal’s indisputable finding of fact is that TPI was at fault because it failed to perform its contractual obligation to construct the lined tunnel in accordance with prudent utility practices and international engineering standards, it should have concluded that the petitioner had validly drawn on the performance securities. It is, therefore, absurd and unconscionable for the arbitral tribunal to nonetheless order in its Final Award that the petitioner return all the proceeds of the performance securities it has validly drawn.
Then the arbitral tribunal made matters worse by declaring the petitioner liable to pay TPI, despite the latter’s own fault as shown above, for all the arbitration costs and litigation expenses, including attorney’s fees arising from the suit. Clearly, the arbitral tribunal blatantly disregards Philippine law by effectively showing TPI to be unjustly enriched and to inequitably profit at the expense of the petitioner.
Anent the Final Award, the arbitral tribunal as earlier mentioned adjudges the petitioner liable to respondent TPI for legal and arbitration costs of about $12 Million, in gross violation of Philippine law and public policy, there being no finding that the petitioner litigated in bad faith against respondent TPI. It was mentioned
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that the petitioner was, in fact, awarded $11.8 Million of its own counterclaims for respondent TPI’s misperformance under the Turnkey Contract, showing it had basis and reason to litigate with respondent TPI. Instead of applying Philippine law as required under clause 1.4.1 of the Turnkey Contract, the arbitrators applied the principle of “cost follows the event”. Based on this principle, apparently, the tribunal determines who is the successful party in terms of net amount awarded after the set‐off of all awards granted. The tribunal then imposes on the losing party the costs incurred by the successful party.
The petitioner points out that the Final Award penalizes the petitioner with the obligation to pay the respondent TPI its arbitration costs and litigation expenses on the simple logic that the arbitrators’ award on respondent TPI’s claims had a net excess over their award on the petitioner’s counterclaims. The petitioner submits that the award is null and void as a matter of law and Philippine public policy with respect to the grant to respondent TPI of its arbitration costs and litigation expenses since it is a settled public policy of the Philippines that, in the absence of bad faith, a litigant cannot be penalized for the exercise of his right to litigate.
The petitioner’s arguments are meritorious.
A perusal of the Final Award, first on page 29 thereof, shows that the arbitral tribunal recognizes the principle of “costs follow the event.” x x x
x x x
This principle, however, is not recognize or accepted in Philippine law. x x x
The arbitral tribunal gravely abused its discretion when it casually disregarded substantive Philippine law in favor of an alien principle of “costs follow the event.”
The award is null and void as a matter of law and Philippine public policy with respect to the grant to respondent TPI of its arbitration costs and litigation expenses; this part of the award amounts to US$10,817.898. It is a well‐settled public policy of the Philippines that, in the absence of bad faith, a litigant cannot be penalized for the exercise of his right to litigate, and the arbitrators did not and could not have found petitioner to have acted in bad faith in resisting the claims of the private respondent, and in presenting its own claims in the arbitration which the arbitration in fact upheld.
Attorney’s fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. No premium shall be placed on the right to litigate and not every winning party is entitled to an automatic grant of attorney’s fees. The party must show that he falls under one of the instances enumerate under Article 2208 of the Civil Code of the Philippines.
x x x”
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It appears from the judgment that the substantive law of the Philippines was applied to the dispute.
However, according to the Court of Appeals, the award seemingly failed to apply Philippine law or
that the arbitral tribunal failed to appreciate the same in coming up with the arbitral award. Indeed,
a reading of the Court of Appeals decision demonstrates that, to a substantial and glaring extent,
the appellate court seriously disagreed with the various conclusions of fact and law contained in the
arbitral award and, by necessarily implication, disagreed with the substance of the award itself. In
conclusion, the Court of Appeals said:
“Based on the foregoing findings and pursuant to Article V, Section 2(b) of the New York Convention, this Court finds that the enforcement and recognition of the Final Award would be contrary to the laws and public policies of this country. This Court therefore rules that the said award be vacated.”70
The question that comes to the fore is whether the Court of Appeals’ invocation of the “public
policy” exception when, in truth and in fact, it was objecting to the arbitral award’s “manifest
disregard of Philippine law”, which laws presumably reflect public policy, is one that the Supreme
Court’s Special ADR Rules actually contemplated, or even anticipated. Whether it is or not is
something that the Supreme Court of the Philippines has yet to clarify.
This author is of the opinion that the adoption of a broad interpretation of “public policy”
and the inclusion of “manifest disregard of law” within the “public policy” exception, as was done
by the Court of Appeals in the Luzon Hydro case, will increase instances where courts interfere and
refuse to recognize and enforce foreign arbitral awards purportedly under the allowable grounds of
the New York Convention. The need for an acceptable, reasonable and uniform interpretation of
the “public policy” exception under the New York Convention and the Special ADR Rules therefore
poses an added dimension of importance to the need for uniformity and predictability in the High
Court’s decisions, which automatically become part of the law of the land. Succinctly stated, it is
only when the Supreme Court, as the final arbiter of the Special ADR Rules, has rendered a decision 70 Emphasis in original.
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that interprets the “public policy” exception that judges and counsel alike would be educated on
what the intention of the Special ADR Rules really is. In the meantime, members of the Bar have to
advocate their own views as to what constitutes “public policy” while members of the Bench have
to evaluate such advocacy within the acceptable parameters of the policy objectives of the ADR Law
and the Special ADR Rules and thereafter decide in a manner that ensures that the “public policy”
exception will not be abused to obtain an effective “vacation” of the foreign arbitral award and a
substitution of the court’s reasoning for that of the arbitrators.
iii. Faithful observance by advocates in the special proceedings
Advocacy of legal practitioners may not end in the creative fashioning of a “public policy”
exception to justify the refusal to recognize and/or enforce a foreign arbitral award. However, if the
Special ADR Rules are to attain their lofty objectives and purposes, the advocates must be required,
if not compelled, to faithfully observe the procedural rules. Indeed, where experience shows that
the Special ADR Rules are not effective due to the advocates’ conduct, lawyers may have to be
reigned in through the imposition of sanctions or assessment of monetary fines. Among the
conduct that may be considered by the High Court as dilatory and potentially negating the rationale
of the Special ADR Rules on the recognition and enforcement of foreign arbitral awards are the
following:
(1) Filing of prohibited pleadings including a motion for extension of time;
(2) Non‐compliance with strict deadlines for filings;
(3) Raising grounds/objections that are not allowed under the Special ADR Rules including the following which tend to merely delay the proceedings:
a. Lack of capacity of foreign corporation (seeking recognition and/or enforcement) to sue in the Philippines;
b. The absence of an agreement to arbitrate and/or the opposer’s failure to read the supposed arbitration agreement;
c. The absence of authority of the representative who signed the arbitration agreement and/or participated in the arbitration proceedings;
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(4) Repetitive resort to the filing of a special civil action of certiorari under the Special ADR Rules as a basis to delay the enforcement and/or recognition of foreign arbitral awards;
(5) Moving for the conduct of a hearing when no factual issue is involved; and
(6) Prayer for resetting of the non‐mandatory hearing for inexcusable reasons.
D. ACHIEVING ITS LONG‐TERM GOALS WITH THE ASSISTANCE OF ALA
The Philippines’ long‐term goal for the Special ADR Rules, however, cannot be realized
through its own efforts alone as harmonization of the rule of law in international trade, including
the uniform interpretation of the New York Convention, will require understanding of how other
countries around the globe are implementing the convention’s provisions. It is in this sphere that
the Philippines’ membership in the ASEAN and our participation in the ALA can push the nation
down the right path.
With the assistance of the ALA, parties residing and/or conducting business in different
parts of the ASEAN may come to know the prevailing legal regimes in other parts of the ASEAN. The
ALA, through its standing committee on alternative dispute resolution, may collate and thereafter
disseminate and even publish binding decisions on the judicial interpretation of the various grounds
for refusal of recognition or enforcement of international commercial arbitral awards including
foreign arbitral awards especially the “public policy” exception so that lawyers around the world
will be better educated on the process of enforcement in the ASEAN and, more importantly, parties
to commercial transactions will be better able to manage their expectations from proceedings being
conducted across the ASEAN.
In addition to dissemination of judicial decisions impacting on the recognition and/or
enforcement of international commercial arbitral awards, the ALA may provide the forum where
continued discussion and/or monitoring of the ASEAN countries’ efforts at advancing the cause of a
harmonized, expeditious and efficient dispute resolution mode with an effective (i.e., real time)
enforcement mechanism may be done. Conferences such as these, for example, will provide the
Philippines and other members of the ASEAN with the opportunity to learn and discuss, among
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others, problems that each country may have encountered in the implementation of its treaty
obligations under the New York Convention and gaps in their respective laws and procedural rules
that need to be addressed. Indeed, the Philippines, through its participation in the ALA, may
discover new ways to make its Special ADR Rules more effective, more expeditious and more
efficient.
V. CONCLUSION
For almost half a century, the Philippine legal environment impeded, rather than promoted,
compliance with its treaty obligations under the New York Convention. As a result, enforcement of
foreign arbitral awards became, more often than not, a pyrrhic victory, if at all. With the Special
ADR Rules about to take effect in two (2) weeks, we can say, without a doubt, that the Philippine
legal environment is about to substantially and drastically change for the better. However, what lies
ahead are the challenges in implementation that the Philippines particularly the Supreme Court
would have to overcome. Hopefully, all members of the Philippine legal environment (that is,
members of the judiciary, advocates and even party‐litigants) will cooperate to ensure that the
Special ADR Rules are implemented, as intended, and not to “innovate” means to render inutile this
key development’s objective of harmonizing the Philippine legal system with the rest of ASEAN in
the area of foreign arbitral award enforcement and recognition and international commercial
arbitration. For it is only in ensuring that the legal environment within the Philippine jurisdiction is
favorable to the recognition and enforcement of foreign arbitral awards that it can assist the ASEAN
in attaining an efficient and effective mechanism for international commercial arbitration. Indeed,
although the Philippines’ ratification of the New York Convention was intended to have an impact
on its relations with the international community, it is in the judicial control of the domestic arena
that will ensure that the impact is a positive one.