Philippines

Trial courts

Trial courts dealing with commercial claims are composed of first level courts (namely, metropolitan trial courts, municipal trial courts, municipal trial courts in cities, and municipal circuit trial courts) and second level courts, or regional trial courts. These courts each have a designated presiding judge.

When the claim does not exceed PHP 2,000,000.00, or when the claim involves title to or possession of real property, or any interest therein, where the assessed value does not exceed PHP 400,000.00, the claim must be filed in the first level court (section 19, Batas Pambansa Blg. (BP) 129, as amended by Republic Act No. (RA 11576). When the claim or assessed property value exceeds the said amounts, or is incapable of pecuniary estimation, the claim must be filed in the regional trial court (section 33, BP 129, as amended by RA 11576).

Some regional trial courts have been designated to act as “special commercial courts.” The jurisdiction of these courts includes intra-corporate disputes, rehabilitation and insolvency proceedings, and Securities Regulation Code violations (RA 8799; RA 10142; A.M. No. 00-11-03-SC).

Appellate courts

Appellate courts dealing with commercial claims include the regional trial court, Court of Appeals (CA) and the Supreme Court (SC).

Regional trial courts exercise appellate jurisdiction over decisions of the first level courts (section 22, BP 129).

The CA is composed of 23 regular divisions and special divisions, all of which are composed of three justices (section 24, BP 129). The CA operates in all three major islands of the Philippines, with stations in Manila, Cebu, and Cagayan De Oro.

The SC is the highest court composed of 15 members, including the Chief Justice (Article VIII, section 4, Philippine Constitution). The SC may sit either en banc or in one of three divisions composed of three, five, or seven members (Article VIII, section 4, Philippine Constitution).

The 1997 Rules of Civil Procedure (“1997 Rules”), as amended by the 2019 Amendments to the 1997 Rules of Civil Procedure (“2019 Rules”), governs commercial litigation. The taking and appreciation of evidence are governed by the 2019 Amendments to the Revised Rules on Evidence (A.M. No. 19-08-15-SC).

Notable also are the Rules of Expedited Procedures in First Level Courts (A.M. No. 08-8-7-SC) and the Interim Rules of Procedure Governing Intra-Corporate Controversies under R.A. No. 8799 (A.M. No. 01-2-04-SC), both of which provide for the suppletory application of the 1997 Rules, as amended by the 2019 Rules.

For rehabilitation and liquidation, the relevant rules are the Financial Rehabilitation Rules of Procedure (A.M. No. 12-12-11-SC), the Rules of Procedure on Corporate Rehabilitation (A.M. No. 00-8-10-SC) and the Financial Liquidation and Suspension of Payments Rules of Procedure for Insolvent Debtors (A.M. No. 15-04-06-SC).

Before filing an action, the plaintiff must already prepare judicial affidavits of their intended witnesses, as well as all the documentary and object evidence in support of its claims (rule 7, section 6, 2019 Rules). This is a requirement introduced by the 2019 Rules that was not formerly in the 1997 rules.

Depositions before an action is filed are also available and governed by rule 24 of the 1997 Rules (as amended by the 2019 Rules).

In cases where the individual parties reside in the same city or municipality, they are required to undergo conciliation proceedings before the barangay (the smallest local government unit) before any action may be filed in court (sections 408–412, RA 7160). This rule does not apply to corporations and other juridical entities.

Arbitration and mediation are the primary modes of ADR to settle large commercial disputes. The SC has also adopted ADR as an integral part of the civil and commercial litigation process in the form of court-annexed mediation (CAM) and judicial dispute resolution (JDR).

Trial typically starts nine months for first level courts and 18 months for regional trial courts from the time the complaint is filed.

Certification against forum shopping

The plaintiff is required to disclose the commencement or pendency of any action involving the same issues in any court, tribunal or quasi-judicial agency (rule 7, section 5, 2019 Rules). The same requirement applies for a defendant raising a counterclaim that does not arise from or is not connected with the transaction or occurrence constituting the subject matter of the opposing party’s claim (rule 6, section 7, 2019 Rules). Failure to comply with the obligation to disclose such pending actions is cause for dismissal of the case without prejudice (rule 7, section 5, 2019 Rules). However, a finding of and deliberate forum shopping is a ground for summary dismissal with prejudice (of both/all concerned cases) and constitutes direct contempt of court (rule 7, section 5, 2019 Rules).

Disclosure of documents

There is no requirement to disclose unhelpful documents. As stated in Question 3, above, parties are required to attach the judicial affidavits of their intended witnesses and to disclose all documentary and object evidence in support of their allegations.

Yes, courts are empowered to issue a subpoena to witnesses to direct them to attend and testify (rule 21, section 1, 2019 Rules). Failure to attend may merit the issuance of a warrant of arrest and may be grounds for a contempt citation (rule 21, sections 8–9, 2019 Rules).

Courts have wide discretion to award costs in favor of the prevailing party, or for each party to bear its own costs. Typically, this is reflected in a one-sentence statement in the dispositive portion of the judgment, without any further enumeration or breakdown.

Interim or provisional remedies are governed by rules 57 to 61 of the 2019 Rules. For commercial matters, these include:

• Preliminary attachment. The court can have the property of the adverse party attached as security for the satisfaction of any judgment that may be recovered by the applying party.
• Preliminary injunction. An order requiring a party or a court, agency or a person to refrain from a particular act or acts or requiring the performance of a particular act or acts.
• A receiver is appointed by the court, who shall have the power to bring and defend, in such capacity, actions in his or her own name:
  • to take and keep possession of the property in controversy; to receive rents;
  • to collect debts due to himself as receiver or to the fund, property, estate;
  • person, or corporation of which he is the receiver;
  • to compound for and compromise the same;
  • to make transfers; to pay outstanding debts;
  • to divide the money and other property that shall remain among the persons legally entitled to receive the same; and
  • generally, to do such acts respecting the property as the court may authorize.
• Replevin. An order for the delivery of personal property to the party praying for the recovery of possession thereof.

Aside from provisional remedies under the 2019 Rules, courts may also issue a preliminary deposit order, which is “an extraordinary provisional remedy whereby money or other property is placed in custodia legis to ensure restitution to whichever party is declared entitled thereto after court proceedings” (see Guerrero Estate Dev’t Corp. v. Leviste & Guerrero Realty Corp., G.R. No. 253428, 16 February 2022).

State policy in favor of arbitration

The SC has promulgated the Special Rules of Court on Alternative Dispute Resolution (“Special ADR Rules”) in furtherance of the state policy of promoting the use of various modes of alternative dispute resolution, including arbitration (rule 2.1, Special ADR Rules). Hence, mechanisms are in place for parties to refer pending litigation to arbitration, as reflected in rule 4 of the Special ADR Rules.

The Special ADR Rules also direct courts to recognize the principles of party autonomy, competence-competence, and separability of arbitration clauses (rules 2.2–2.4, Special ADR Rules).

Law applicable to arbitration

Domestic arbitration is governed by the RA 876; Articles 8, 10, 11, 12, 13, 14, 18 and 19 and 29–32 of the 1985 UNCITRAL Model Law; and sections 22–31 of RA 9285, in relation to sections 32–33 of the RA 9285.

International commercial arbitration conducted in the Philippines is governed by the RA 9285 and the 1985 UNCITRAL Model Law.

Arbitration of construction disputes is governed by Executive Order No. (EO) 1008 and sections 17(d), 28–29, and 34–39 of the RA 9285.

Yes, arbitrators can grant interim relief, and such grant is recognized by Philippine courts under the RA 876, RA 9285, and the Special ADR Rules.

Arbitration awards are not appealable and may only be subject to judicial review or court action through confirmation or recognition, or through refusal to recognize and/or vacation and setting aside (rule 19.7, Special ADR Rules).

In particular, the grounds to resist an arbitration award depend on the nature of the arbitration award.

The grounds to vacate a domestic arbitration award are as follows:

• the arbitral award was procured through corruption, fraud or other undue means;
• there was evident partiality or corruption in the arbitral tribunal or any of its members;
• the arbitral tribunal was guilty of misconduct or any form of misbehavior that has materially prejudiced the rights of any party such as refusing to postpone a hearing upon sufficient cause shown or to hear evidence pertinent and material to the controversy;
• one or more of the arbitrators was disqualified to act as such under the law and willfully refrained from disclosing such disqualification;
• the arbitral tribunal exceeded its powers, or so imperfectly executed them, such that a complete, final and definite award upon the subject matter submitted to them was not made;
• the arbitration agreement did not exist, or is invalid for any ground for the revocation of a contract or is otherwise unenforceable; or
• a party to arbitration is a minor or a person judicially declared to be incompetent (rule 11.4, Special ADR Rules).

The grounds to set aside or resist enforcement of an award in an international commercial arbitration conducted in the Philippines are as follows:

• 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 Philippine law.
• The party making the application to set aside or resist enforcement was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case.
• 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 submitted, only the part of the award concerning matters not submitted may be set aside, while the part concerning decisions on matters submitted may be enforced.
• The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of Philippine law from which the parties cannot derogate, or, failing such agreement, was not in accordance with Philippine law.
• The subject-matter of the dispute is not capable of settlement by arbitration under the law of the Philippines.
• The recognition or enforcement of the award would be contrary to public policy (rule 12.4, Special ADR Rules).

The grounds to refuse recognition and enforcement of a foreign arbitral award are as follows:

• 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.
• The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case.
• 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 submitted, only the part of the award which concerns matters not submitted to arbitration may be set aside.
• 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.
• The award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which that award was made.
• The subject-matter of the dispute is not capable of settlement or resolution by arbitration under Philippine law.
• The recognition or enforcement of the award would be contrary to public policy (rule 13.4, Special ADR Rules).

Awards of the Construction Industry Arbitration Commission (CIAC) in construction disputes may be appealed directly to the SC only on pure questions of law.

The Philippines is a party to the New York Convention and has adopted the 1985 UNCITRAL Model Law (but not the 2006 amendments).

Generally, all judgments rendered by courts of competent jurisdiction in commercial matters are enforceable.

When a judgment is rendered against a party in any court through fraud, accident, mistake, or excusable negligence, such party may file a petition for relief from judgment in the same court that rendered judgment (rule 38, section 2, 2019 Rules).

A judgment may also be annulled by the CA on grounds of extrinsic fraud, lack of jurisdiction, and violation of due process (rule 47, section 2, 2019 Rules; Arcelona v. Court of Appeals, G.R. No. 102900, 2 October 1997).

Foreign judgments 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 (rule 39, section 48, 2019 Rules).

Foreign judgments

Foreign judgments in commercial matters may be recognized and enforced in the Philippines by filing a petition for that purpose. There is no special procedural rule on recognition and enforcement of foreign judgments. As such, it is treated as an ordinary action by Philippine courts and is therefore subject to the same disclosure and pre-action requirements discussed above.

As also stated, foreign judgments 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.

Foreign arbitral awards

Foreign arbitral awards are governed by Chapter 7 (B) of the RA 9285, the New York Convention, and rule 13 of the Special ADR Rules.

At any time after receipt of a foreign arbitral award, any party to the arbitration may petition the proper regional trial court to recognize and enforce such award (rules 13.1–13.2, Special ADR Rules). Upon finding that the petition is sufficient both in form and in substance, the court shall cause notice and a copy of the petition to be delivered to the respondent allowing it to file an opposition (rule 13.6, Special ADR Rules).

If the court finds that the issue between the parties is mainly one of law, the parties may be required to submit briefs of legal arguments (rule 13.8, Special ADR Rules). If there are issues of fact relating to the ground(s) relied upon for the court to refuse enforcement, the court shall, on its own initiative or upon request of any party, require the parties to simultaneously submit the affidavits of all witnesses (rule 13.8, Special ADR Rules). The court may also allow the submission of reply affidavits (rule 13.8, Special ADR Rules).

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 (rule 13.11, Special ADR Rules). The court shall not disturb the arbitral tribunal’s determination of facts and/or interpretation of law (rule 13.11, Special ADR Rules).

Non-convention awards

Foreign arbitral awards made in a country not a signatory to the New York Convention may be recognized and enforced in the Philippines when such non-convention country extends comity and reciprocity to awards made in the Philippines (rule 13.12, Special ADR Rules). If not, the court may nevertheless treat such award as a foreign judgment enforceable as such (rule 13.12, Special ADR Rules).

Money judgments

Money judgments are executed by way of payment to the judgment creditor, his or her representative, or to the sheriff of the court in trust for the judgment creditor, and/or by way of levy on properties of the judgment obligor of whatever kind, with the option to immediately choose which property may be levied (rule 39, section 9, 2019 Rules). Garnishment of funds held by a third person (such as bank deposit accounts) may also be undertaken (rule 39, section 9, 2019 Rules).

Judgments for specific acts and special judgments

Judgments for conveyance of property, delivery of deeds, sale of property, restitution, may be compelled by the court by directing the act to be done at the cost of the disobedient party by some other person appointed by the court and the act when so done shall have like effect as if done by the party (rule 39, sections 10–11, 2019 Rules).

Receivership

The court may appoint a receiver of the property of the judgment debtor and forbid a disposition of, or any interference with, the property of the judgment debtor not exempted from execution (rule 39, section 41, 2019 Rules).

Liquidation and rehabilitation

Liquidation and rehabilitation, whether voluntary or involuntary, are also available as means to execute a judgment against insolvent judgment debtors, or those without financial capacity to pay their liabilities as they fall due in the ordinary course of business or whenever their liabilities are greater than their assets (see A.M. No. 15-04-06-SC; A.M. No. 12-12-11-SC).

Stay of discretionary execution

Discretionary execution issued pending appeal or of several, separate, or partial judgments may be stayed upon approval by the proper court of a sufficient bond filed by the party against whom it is directed, conditioned upon the performance of the judgment or order allowed to be executed in case it shall be finally sustained in whole or in part (rule 39, section 3, 2019 Rules). The bond given may be proceeded against on motion with notice to the surety (rule 39, section 3, 2019 Rules).

Examination of judgment debtor and of debtor of judgment debtor

When the judgment remains unsatisfied, the judgment creditor shall be entitled to an order from the court which rendered the judgment, requiring the judgment debtor to appear and be examined concerning his property and income (rule 39, section 36, 2019 Rules). Proceedings may be had for the application of the property and income of the judgment obligor towards the satisfaction of the judgment (rule 39, section 36, 2019 Rules).

Upon proof that a person, corporation, or other juridical entity has property of such judgment obligor or is indebted to them, the court may require such person, corporation, or other juridical entity, or any officer or member thereof, to appear before the court or a commissioner appointed by it be examined concerning the same (rule 39, section 37, 2019 Rules). The service of the order requiring the examination shall bind all credits due the judgment obligor and all money and property of the judgment obligor in the possession or in the control of such person, corporation, or juridical entity from the time of service (rule 39, section 37, 2019 Rules).

Proceeding on the assumptions outlined in the Model Answer, would a court in this jurisdiction recognise and enforce the arbitral award under the New York Convention?

In particular:

• Does the award fall within the scope of Article V(1) of the Convention, or would any of the grounds in Article V(1) justify refusal on the assumed facts?
• Is the subject matter of the dispute capable of settlement by arbitration under domestic law for the purposes of Article V(2)(a)?
• Would recognition or enforcement of the award be contrary to public policy within the meaning of Article V(2)(b)?

Response

Enforceability of award in the Philippines under Philippine law and the New York Convention

As a party to the New York Convention, the Philippines is bound to enforce the award contemplated in the assumed facts. Philippine courts would treat such an award as it would any other foreign arbitral award under the New York Convention. In particular, the Philippine court where the award is sought to be confirmed or recognized will only limit itself to the ultimate adjudication of the dispute covered by the arbitration agreement and cannot reconsider the merits thereof. This is wholly consistent with the scope of the arbitration agreement in the assumed facts.

There is also no reason for the Philippine court to refuse recognition under any of the grounds set forth in Article V(1) of the New York Convention. Subsection (c), in particular, cannot be invoked considering that there are no indications in the assumed facts that would show that the tribunal exceeded the narrowly defined scope of the arbitration agreement.

As for orders to provide security, Philippine courts would treat these as interim measures of protection under Rule 5.6 (e) of the Special ADR Rules, that is, assistance in the enforcement of an interim measure of protection granted by the arbitral tribunal, which the latter cannot enforce effectively. This presumes that the dispute has some nexus to the Philippines, which necessitates the required payment of a sum by way of security to be effectively done in the Philippines and that the arbitral tribunal itself cannot effectively enforce the same in Philippine jurisdiction.

Capability of settlement by arbitration under Philippine law

Non-payment of a monetary obligation arising from a judgment and failure to comply with a contractual obligation to provide security are disputes or controversies that may be referred to arbitration.

There are limited instances under Philippine law in which arbitration cannot proceed due to the subject matter of the dispute. In particular, Section 6 of RA 9285 provides what matters are exempted from being resolved through alternative dispute resolution. These are: “(a) labor disputes covered by Presidential Decree No. 442, otherwise known as the Labor Code of the Philippines, as amended and its Implementing Rules and Regulations; (b) the civil status of persons; (c) the validity of a marriage; (d) any ground for legal separation; (e) the jurisdiction of courts; (f) future legitime; (g) criminal liability; and (h) those which by law cannot be compromised.”

As recognized by the Philippine Supreme Court, the last item “those which by law cannot be compromised[,]” refers to Article 2035 of the Civil Code of the Philippines (see Maynilad Water Services, Inc. v. National Water and Resources Board et al., G.R. No. 181764, 7 December 2021). This is further supported by Rule 18.4 of the Special ADR Rules which likewise refers to the rules of compromise under the Civil Code with regard to the suspension of court proceedings upon the parties’ referral of the dispute to alternative dispute resolution.

Article 2035 of the Civil Code thus provides for a list of what cannot be subject to compromise:

“ARTICLE 2035. No compromise upon the following questions shall be valid:

(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;

(6) Future legitime.”

The subject matter of the award contemplated in the assumed facts do not fall under any of the above matters that Philippine law considers to be incapable of being subjected to a compromise between the parties.

Applicability of the public policy exception to enforcement of arbitral awards

Section 45 of RA 9285 limits opposition to the recognition and enforcement of a foreign arbitral award to the grounds enumerated under Article V of the New York Convention. The Special ADR Rules likewise provide that courts may refuse recognition or enforcement of a foreign arbitral award when the recognition or enforcement of such would be contrary to public policy (rule 13.4[b], Special ADR Rules).

The Philippine Supreme Court has qualified the public policy exception as “a safety valve to be used in those exceptional circumstances when it would be impossible for a legal system to recognize an award and enforce it without abandoning the very fundaments on which it is based.” (Mabuhay Holdings Corporation v. Sembcorp Logistics Limited, G.R. No. 212734, 5 December 2018.) The Philippine Supreme Court expounded further:

“[M]ere errors in the interpretation of the law or factual findings would not suffice to warrant refusal of enforcement under the public policy ground. The illegality or immorality of the award must reach a certain threshold such that, enforcement of the same would be against Our State’s fundamental tenets of justice and morality, or would blatantly be injurious to the public, or the interests of the society.” (Mabuhay Holdings Corporation v. Sembcorp Logistics Limited, G.R. No. 212734, 5 December 2018.)

As the assumed facts do not show how the award would be injurious to the public or the interests of Philippine society, the public policy exception finds no applicability to prevent recognition and enforcement.

Conclusion

Philippine courts would recognize and enforce an award issued pursuant to the arbitration agreement contemplated in the assume facts. There appear to be no grounds to refuse such recognition and enforcement under Philippine law and the New York Convention.