Philippines - International Bar Association

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Philippines Paul Cornelius T. Castillo Platon Martinez Flores San Pedro Leańo Makati City [email protected] Law firm bio

I. Background: Alternative Dispute Resolution is favored in the Philippines Alternative Dispute Resolution (“ADR”) methods – like arbitration, mediation, negotiation, and conciliation - are encouraged means of settlement (RCBC Capital Corporation v. Banco De Oro Unibank, G.R. No. 196171, 10 December 2012). By enabling the parties to resolve their disputes amicably, they provide solutions that are less tedious, less confrontational, and more productive of goodwill. (Id.) In 2004, the Philippine Congress enacted the “Alternative Dispute Resolution Act” (Republic Act 9285), which provided a more solid framework within which parties can resolve their disputes without going through litigation, likewise making enforceable agreements by parties to settle conflicts extra-judicially. The ADR Act states in no uncertain terms the Philippine policy on ADR: “It is hereby declared the policy of the State to actively promote party autonomy in the resolution of disputes or the freedom of the party to make their own arrangements to resolve their disputes. Towards this end, the State shall encourage and actively promote the use of Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial justice and declog court dockets.” [Emphasis and underscoring supplied.] This primer provides a general overview on the matter. As will be further highlighted, Philippine procedural law’s mandatory two-step mediation process effectively reads into contracts multi-tiered dispute resolution processes, which is an important consideration in reviewing the enforceability of such provisions in the Philippine experience. Procedural rules on mandatory mediation, it seems, dissuade litigants from squarely putting in issue the enforceability of contractual provisions that require negotiations between parties. This is due to the fact that both parties will in any event discuss the possible settlement of the dispute in a compulsory two-step procedure. This shall be explained succinctly at the end of this primer.

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II. Enforcement of Multi-Tiered Dispute Resolution Clauses Under the ADR Act, arbitration is itself considered an alternative dispute resolution procedure in the Philippines. However, for purposes of this primer and based on information sought, focus shall remain on possible enforcement of dispute resolution clauses prior to litigation and/or arbitration. 

In General: A contract is the law between the parties and must be complied with in good faith

Obligations arising from contracts have the force of law between the parties, and must be complied with in good faith. A contract is the law between the parties (Civil Code of the Philippines, Art. 1159; Spouses Chung v. Ulanday, G.R. No. 156038, 11 October 2010). It is thus arguable that one can ask the court or arbitral tribunal to dismiss a complaint, on the ground that negotiations in good faith have not yet been done as agreed upon. However, it still remains to be seen how courts will rule on the enforceability of a clause that makes no reference to any special dispute resolution method, manner, or law, such as a loosely drafted agreement to enter into talks in good faith. 

The fulfillment of a contractual agreement to enter into mediation is a condition precedent for filing a civil complaint

Meanwhile, reference to “mediation” (or any of the other alternative dispute resolution methods in the ADR Act) in a contract makes such a provision easier to construe and enforce. Under Philippine procedural law, failure to comply with a condition precedent before filing a claim is a ground to dismiss a complaint (Rule 16, Section 1(j), Rules of Court). The ADR Act supports this procedural rule by expressly defining “Court-Referred Mediation” in this way: a mediation ordered by a court to be conducted in accordance with the Agreement of the Parties when an action is prematurely commenced in violation of such agreement” (ADR Act, Section 3(m); emphasis supplied). Pursuant to the foregoing, an agreement to mediate that is crafted in view of and with regard to the provisions of the ADR Act may be enforced by the court, by dismissing a complaint filed before the parties have gone through mediation (or such other methods under law and noted in the contract) as agreed upon. With an agreement to settle disputes in a manner and under a framework already provided by law, it is easier for the court to ascertain parameters that will help it determine if there is in reality something to enforce.

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III. Special Cases 

Multi-tiered dispute Resolution in Construction Disputes

Apart from general civil law principles as mentioned above, construction disputes in the Philippines may be resolved by a body known as the Construction Industry Arbitration Commission (“CIAC”). The CIAC acquires jurisdiction over a construction dispute if the issue is somehow connected to a construction contract, and if the parties agree to submit the dispute to arbitration proceedings. (Manila Insurance v. Spouses Amurao, G.R. No. 179628, 16 January 2013). 

Multi-tiered dispute resolution in Employment Law

An unequivocal provision in a Collective Bargaining Agreement to resolve disputes through a particular grievance procedure, which includes multi-tiered dispute resolution methods, is binding and must be complied with. The Philippine Supreme Court ruled that “when parties have validly agreed on a procedure for resolving grievances and to submit a dispute to voluntary arbitration then that procedure should be strictly observed (Ace Navigation v. Fernandez, G.R. No. 197309, 10 October 2012). 

Multi-tiered dispute resolution in Family Law

The Philippine Family Code categorically provides that a suit between members of the same family shall be dismissed, if it is shown that no “earnest efforts” toward a compromise were undertaken (Article 151, Family Code of the Philippines). IV. Securing Better Enforcement of Multi-Tiered Dispute Resolution Clauses From a review of cases and applicable law, better enforcement of multi-tiered dispute resolution clauses may be secured if the provisions are: a.

Anchored on law such as the ADR Act, where the parties can point to rules (in the law or of particular institutions) that have to be followed prior to litigation, allowing the parties to work within realistic guidelines and with achievable goals.

b.

Crafted in a very detailed manner as to parties, timeframes, number of negotiation sessions, manner of selecting mediators/ presiding officers, allowed participants, place, etc.- either in the contract itself or through an adoption of established rules and procedures of a dispute resolution institution. In this manner, courts will be able to see the “conditions precedent” that should have been met before a case is brought to it.

c.

Worded to categorically require the fulfillment of dispute resolution procedures before resort to litigation is made.

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V. Samples of Clauses that have been Held as Binding a.

Manila Insurance v. Spouses Amurao, G.R. No. 179628, 16 January 2013.

“ARTICLE XVII – ARBITRATION 17.1 Any dispute arising in the course of the execution and performance of this Agreement by reason of difference in interpretation of the Contract Documents set forth in Article I which the OWNER and the CONTRACTOR are unable to resolve amicably between themselves shall be submitted by either party to a board of arbitrators composed of Three (3) members chosen as follows: One (1) member shall be chosen by the CONTRACTOR AND One (1) member shall be chosen by the OWNER. The said Two (2) members, in turn, shall select a third member acceptable to both of them. The decision of the Board of Arbitrators shall be rendered within Ten (10) days from the first meeting of the board, which decision when reached through the affirmative vote of at least Two (2) members of the board shall be final and binding upon the OWNER and CONTRACTOR. 17.2 Matters not otherwise provided for in this Contract or by Special Agreement of the parties shall be governed by the provisions of the Arbitration Law, Executive Order No. 1008.” b.

Department of Foreign Affairs v. Falcon, G.R. No. 176657, 1 September 2010.

“Section 19.02 Failure to Settle Amicably – If the Dispute cannot be settled amicably within ninety (90) days by mutual discussion as contemplated under Section 19.01 herein, the Dispute shall be settled with finality by an arbitrage tribunal operating under International Law, hereinafter referred to as the “Tribunal”, under the UNCITRAL Arbitration Rules contained in Resolution 31/98 adopted by the United Nations General Assembly on December 15, 1976, and entitled “Arbitration Rules on the United Nations Commission on the International Trade Law”. The DFA and the BCA undertake to abide by and implement the arbitration award. The place of arbitration shall be Pasay City, Philippines, or such other place as may mutually be agreed upon by both parties. The arbitration proceeding shall be conducted in the English language.” c.

Ace Navigation v. Fernandez, G.R. No. 197309, 10 October 2012.

“Any Dispute, grievance, or misunderstanding concerning any ruling, practice, wages or working conditions in the COMPANY or any breach of the Contract of Employment, or any dispute arising from the meaning or application of the provisions of this Agreement or a claim of violation thereof or any complaint or cause of action that any such Seaman may have against the COMPANY, as well as complaints which the COMPANY may have against such Seaman shall be brought to the attention of the GRIEVANCE RESOLUTION COMMITTEE before either party takes any action, legal or otherwise. Bringing such a dispute to the Grievance Resolution Committee shall be unwaivable prerequisite or condition precedent for bringing any action, legal or otherwise, in any forum and the failure to so refer the dispute shall bar any and all legal or other actions.”

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d.

Golanco Construction v. Ray Burton, G.R. No. 163582, 9 August 2010.

“33. SETTLEMENT OF DISPUTES AND ARBITRATION 33.1. Amicable Settlement Both parties shall attempt to amicably settle all disputes or controversies arising from this Contract before the commencement of arbitration. 33.2. Arbitration All disputes or controversies arising from this Contract which cannot be settled between the Employer and the Contractor shall be submitted to arbitration in accordance with the UNCITRAL Arbitration Rules at present in force and as may be amended by the rest of this Clause. The appointing authority shall be Hong Kong International Arbitration Center. The place of arbitration shall be in Hong Kong at Hong Kong International Arbitration Center (HKIAC).” VI. Mandatory Mediation in Philippine Procedural Law As noted earlier, Philippine Procedural law requires a two-step mediation procedure before a full trial is had in civil cases (as well as other cases enumerated in the rules). These are Mediation before the Philippine Mediation Center and Judicial Dispute Resolution (“JDR”) before the presiding judge. For JDR, the judge acts not as the presiding officer but as mediator, conciliator, and neutral evaluator. Mediation and JDR are, when applicable, mandatory. As such, a “mandatory” multi-tiered dispute resolution process is effectively read into contracts, which is beyond the contention of any litigant. Should parties seek to enforce contractual provisions on the matter, they may end up just prolonging the dispute when a reasonable compromise is completely beyond view, given that they will meet in another mediator’s table if the complaint is brought to court. This note is made in light of the fact that the enforceability of contractual provisions to negotiate do not tend to be a serious area of contention between parties, considering that if the case is filed, they will have to mediate and talk to each other in anyway, effectively bringing to life the very same provisions on multi-tiered dispute resolution.

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Philippines - International Bar Association

Philippines Paul Cornelius T. Castillo Platon Martinez Flores San Pedro Leańo Makati City [email protected] Law firm bio I. Background: A...

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