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WHY LITIGATE? ARBITRATE!
By: Atty. Custodio O. Parlade

I. Justice Delayed is Justice Denied

The question is often asked whether there is not in fact a denial of justice when civil disputes are resolved by a trial court for five (5) years on the average. Trial court dockets are hopelessly clogged. There are more cases being filed than are being resolved. In addition, more than 30% of the salas of trial judges are vacant. The salary of a trial judge is not attractive enough to most lawyers. And yet as we grow in population and our economy improves the number of commercial transactions will correspondingly increase. An important obstruction to the growth of business is the manner and speed by which commercial disputes are resolved.

Commercial disputes are unavoidable. A breach of contract may be the result of willful or negligent failure to comply with a contractual undertaking. It may also be due to circumstances beyond the control of the party in breach. The financial crisis of 1995-1996 saw even big companies fly to the Securities and Exchange Commission to seek protection against being declared insolvent. That is why lawyers always envision what is known as the worst-case scenario: What happens if, in spite of their good intentions and sincere desire to comply with their contractual commitments, parties they fail to do so.

Many cases are brought to court. However, court dockets are clogged. It is no longer unusual for a judge to have a caseload of 500 cases. This accounts for the long delay of the judge in trying and deciding a case. One alternative that a business executive may wish to consider is arbitration. Arbitration is a private process of dispute resolution whereby parties submit their dispute to a private individual chosen by them directly or indirectly for hearing and binding decision.

There are advantages to using arbitration. First, it is a speedy process. This stems from the simple fact that an arbitrator often has only one case at a time to hear and resolve. As a rule, no postponement of the hearing will be allowed. Only one day of continuous hearing lasting from six (6) to eight (8) hours is oftentimes sufficient. Decisions or awards can be released in six (6) months or less. The MWSS cases involving Manila Water Company and later Maynilad Water Company were submitted to arbitration. The issues were technical and the amounts involved were very substantial. They were resolved in approximately one (1) year from the first day of hearing.

The proceeding is speedy without sacrificing the right of parties to due process of law. The arbitrator receives all the evidence submitted by the parties usually employing a fast-track process. The testimony of witness is produced in the form of affidavits and counter-affidavits. Documents are attached to these affidavits to support the statements of fact of the affiants. The rules of evidence under the law are applied although they are liberally construed. The right to counsel and the right to cross-examine witnesses are respected and observed. Cases are not decided on position papers only. The decision of the arbitrators is reasoned and is based on the applicable law and the facts established during the hearing.

Many parties and their lawyers who have used arbitration expressed satisfaction over the process. Even those who had openly expressed misgivings about a private process of dispute settlement became purveyors of the good news about arbitration as the better alternative to litigation.

II.    The proof of the pudding is in the eating.

Arbitration is reliable and the result is often more satisfactory than litigation. When a party sues another in court, the case is assigned to a judge after a raffle. The judge is therefore chosen by chance, not by the parties. In contrast, the parties choose the arbitrator. Because the parties have the right to choose their arbitrators, as early as the execution of the arbitration agreement, they can prescribe the desired qualifications of the arbitrators who may be appointed for the dispute. Often appointed as arbitrators are those with subject matter expertise. It is not unusual to have doctors in a panel to decide a medical malpractice case, or an engineer or architect to decide a construction dispute. The fact that the arbitrators are often experts in the field that is the subject matter of the dispute enables them to sift the truly relevant facts and exclude consideration of those that merely clutter the record and are offered as a matter of course by the parties.

Because of their acknowledged expertise in the subject matter of the dispute, more than 99% of arbitrators’ awards in construction arbitration have been affirmed by the Supreme Court and Court of Appeals, although in some of them there were minor modifications.

III.       Choice of Venue of the Proceeding

During an international commercial arbitration seminar conducted in Cebu City under the auspices of the Philippine Chamber of Commerce and Industry, a participant, a lady business person, informed the participants of a case against her company, commenced in the United States, where she had already spent a couple of million pesos and the date of hearing was not even in sight. She mentioned this because she believed the expense was unnecessary and avoidable if only the contract she signed provided for arbitration as a mode of dispute resolution.

It is in international arbitration that this benefit is more easily recognized and acknowledged. In a commercial transaction between two or more business entities having their places of business in different states, litigation, if it is chosen as a mode of dispute resolution, can be commenced, as a general rule, only in the jurisdiction where either party has a place of business. Thus, in a commercial dispute arising between two parties, one having a place of business in Tokyo, Japan, and the other in Metro Manila, Philippines, the competent courts that can take jurisdiction over the dispute are those either in Tokyo or Metro Manila. Both parties would naturally prefer to have their dispute settled in the court of a neutral state. But this cannot be done because of the familiar rule of forum non conveniens, applying which the court of a third state will decline to take jurisdiction over the dispute. If they, however, submit their dispute to arbitration, the place of arbitration can be any place chosen by them, even in a third state.

IV.    Arbitration is Cost Efficient

The obvious advantages of arbitration as a mode of dispute resolution are amply demonstrated by its cost efficiency. Since the period for hearing and decision is fairly short, legal costs are also considerably reduced. It is often pointed out that arbitrators have to be paid their fees. In contrast, judges are paid by the state. In that sense, it is said, there is an additional cost to the parties.

Arbitrators are professionals with different kinds and varying degrees of expertise. As professionals, they are entitled to a compensation that takes into account that expertise, their professional standing, the nature of the dispute, the issues raised, the amount involved and the time they have to devote themselves to hearing and deciding a case. It is often said that if one needs a quality product, one has to pay the price.

The cost of arbitration need not be exorbitant. Parties can choose a more convenient venue as a place of arbitration. The objection to the Philippines as the place of arbitration in earlier years was due to the Philippine substantive law on arbitration, Republic Act No. 876, which took effect in 1953. The law was thought to be antiquated and did not allow the use of current and standard arbitration procedures used in many countries of the world. The Philippines has adopted the UNCITRAL Model Law on International Commercial Arbitration with the passage of Republic Act No. 9285, the Alternative Dispute Resolution Act of 2004. If a foreign venue is unavoidable because it may be insisted upon by a foreign party to a commercial transaction, the parties can decide on a neutral venue more convenient to a Philippine party. It does not have to be Paris, New York or Zurich. It could be Hong Kong, Singapore, Malaysia or Indonesia.

For domestic arbitration in particular, the parties can choose as arbitrators qualified individuals within a community where the parties have their place of business. The arbitrators need not be retired Justices of the Supreme Court. They do not even have to be lawyers. The Arbitration Law allows the appointment of any person as arbitrator if he is at least 18 years of age and is literate. This is so in order to give the parties the widest freedom of choice in appointing arbitrators. Thus, a party, a judicious choice of arbitrators and the place of arbitration can considerably minimize the cost of dispute resolution.

Arbitration is therefore more cost efficient than litigation. For example, hearing and resolving a case involving the issuance of bouncing – a very simple case – may last five (5) years. The decision may not be forthcoming until after a few months. In arbitration, the hearing may last for one-half day. The award may be released in one (1) week after hearing. Thus, the cost of legal representation is considerably reduced.

(This article was written for the general reader with little or no knowledge of arbitration. It first appeared in the column MAPping the Philippines, Philippine Daily Inquirer, June 13, 2005)

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