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International Commercial Arbitration: Its Relevance in the Philippines¹
By: Eduardo R. Ceniza²

Introduction

While it is true that parties and arbitrators prefer to operate in a sort of special chamber to avoid, as far as possible, national law or national court rules, the fact remains that international commercial arbitration cannot avoid the incidence and influence of national law. For one thing, arbitration cannot take place totally without reference to its venue and, necessarily, the national law of the venue. The lex arbitri will certainly have an influence, if not a direct bearing, upon the procedural and other administrative aspects of the arbitration. For another thing, arbitrators do not have power over individuals or institutions who do not submit themselves to the jurisdiction of the arbitral tribunal. Thus, to bind third parties, for instance, to interim measures of protection, resort to the national court for assistance becomes unavoidable. Therefore, while international commercial arbitration may operate quite independently of national law, the national law of the place of arbitration will always be somewhere in the background. Indeed, national law provides the contextual framework in which all international commercial arbitrations take place³.

For international commercial arbitration to flourish in a country, it is of utmost importance that its arbitration law be modem, arbitration-friendly and supportive of the arbitral process. Recognizing that the UNCITRAL Model Law has become the benchmark for many countries seeking to modernize their arbitration laws, particularly in international commercial arbitration, the Philippine Congress enacted in April 2004 Republic Act No. 9285, otherwise known as the ADR Act of 2004. The Act expressly adopted the UNCITRAL Model Law as the law governing international commercial arbitration in the Philippines⁴. Under the Act, the recognition and enforcement of foreign arbitral awards is governed by the New York Convention of 1958⁵. Domestic arbitration continues to be governed by the old Arbitration Law of 1953 (Republic Act No 876), with some amendments introduced by the ADR Act⁶.

With the adoption of the UNCITRAL Model Law as the law on international commercial arbitration, it can now be said that the Philippines has become an "arbitration-friendly" country.

Arbitration versus Litigation

There is increasing recognition throughout the modern world that arbitration is the most effective way of resolving international commercial disputes. The demand for international commercial arbitration as a mode of dispute resolution is growing year by year in line with the expansion of transnational commerce and trade and the rapid globalization of the world economy.

The dispute resolution mechanisms provided by modern arbitral institutions such as the ICC International Court of Arbitration and our very own, the Philippine Dispute Resolution Center (PDRCI), were conceived and designed specifically for business disputes in an international context. These business or commercial disputes pose unique difficulties and challenges. The parties to transnational commercial transactions, invariably, are of different nationalities, with different linguistic, legal and cultural backgrounds. The parties may also have very different expectations about how a dispute can be resolved reasonably and fairly. There may be a relatively strong distrust of a foreign legal system on the part of one or more of the parties, accompanied by uncertainty or a lack of information about the course to follow. These difficulties may be compounded by distance and the disadvantages one party may face in submitting to the procedure in the other party's home ground. These are some of the reasons why the national courts in the country of one of the parties may not appear suitable to the other party.

I shall now discuss with some detail some of the important reasons why arbitration, in the Philippine setting, ought to be a preferable, if not an altogether compelling choice, as against court litigation, for the resolution of commercial disputes.

Speed and economy

It is a sad commentary that the wheels of justice in the Philippines grind ever so slowly. The principal reason for this is the clogged dockets of the courts, from the lowest to the highest court. The Philippine Congress has taken cognizance of this fact. Thus, in enacting the ADR Act, Congress declared it to be "the policy of the State to actively promote party autonomy in the resolution of disputes" and to "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.⁷” Similarly, the Supreme Court has issued several Administrative Orders⁸ aimed at decongesting the clogged dockets of the courts. These Administrative Orders provide for, inter alia, (i) the establishment of court-referred mediation system, (ii) the creation of the Philippine Mediation Center, (iii) the issuance of the Guidelines for the implementation of mediation proceedings, (iv) the issuance of the Code of Ethical Standards for Accreditation of Mediators for court-referred and court-related mediation cases, and (v) the issuance of Standards and Procedures for Mediation and Supervisors. Notwithstanding these measures, courts are still bedeviled by clogged dockets and the perennial problem of slow and protracted court proceedings is still the order of the day.

A simple collection case may take as much as two years before it is decided by the trial court and another one or two years before it is finally decided on appeal. The more complex commercial cases can remain in litigation for up to five or more years. Another major contributing cause for the undue delay in the disposition of cases is the availability of appeals, frivolous or otherwise, at different levels of the court hierarchy. Because litigation of civil and commercial cases in the Philippines is so ridiculously slow, the litigation cost in terms of legal fees and other expenses become disproportionately high.

Since the pace of court proceedings in the Philippines is utterly unsatisfactory and painfully frustrating, I suggest that the choice of arbitration as an alternative mode of dispute resolution appears to be more compelling rather than being a choice of mere convenience.

Arbitration is faster and less expensive than court litigation. This is true in other countries and more so in the Philippines. Although a complex international commercial dispute may sometimes take a great deal of time and money to resolve, even by arbitration, the limited scope for challenge against arbitral awards, as compared with court judgments, offers a clear advantage. Unlike court litigation, arbitration helps to ensure that the parties will not subsequently be entangled in a prolonged and costly series of appeals. Furthermore, arbitration offers the parties the flexibility to set up proceedings that can be conducted as quickly and economically as the circumstances allow. In an ICC brochure distributed in Sydney during the Asian Arbitration Conference 2004 on 3 November 2004, it was reported that in an ICCadministered arbitration, a multi-million dollar arbitration was completed in just over two months. I have been in active law practice for the last 44 years, but I do not know of any commercial case of that size that was resolved with finality in a record time of just over two months.

In our experience in the Philippine Dispute Resolution Center, most commercial arbitrations can get to a hearing and final award in about 6 to 8 months on the average. We have some cases that take up 12 to 14 months to reach final award. But in these few cases, it is the lawyers who cause the delay by moving for postponements or asking for extension of time to file their written submissions. By mutual consent of the parties, these delays are allowed by the arbitrators because, after all, the arbitration is the arbitration of the parties. The more complex cases can take a longer time, but still more expeditious than court cases. Another advantage of arbitration over court litigation is that in arbitration you can get a firm hearing date or dates instead of the possibility that exists in most courts where trial dates are uncertain due to, inter alia, interminable postponements and the fact that civil and commercial cases are routinely bumped off to allow criminal trials to move forward.

Specialized competence of arbitrators

Judicial systems do not allow the parties to a dispute to choose their own judges. In contrast, arbitration offers the parties the unique opportunity to designate persons of their choice as arbitrators, provided they are independent. This enables the parties to have their dispute resolved by people who have specialized competence in the relevant field. This advantage of arbitration over court litigation is of special importance in the Philippines.

It used to be that only the most competent lawyers with unquestionable integrity were appointed to the courts. Unfortunately, things have changed. Although the Judicial and Bar Council recommends to the President of the Republic the nominees for appointment to the courts, after supposedly reviewing and scrutinizing the qualifications of the candidates for appointment, the President, in recent and contemporary times, has used the appointing power to reward political favors, without due consideration to the merits of the appointee. As a result, lawyers who are ill-equipped for the bench, but who have strong political backing, get appointed as judges. These judges do not have the training, the aptitude or the experience to try complex commercial cases. Their lack of sufficient judicial qualifications, if not their sheer ignorance of the law, oftentimes lead to atrociously wrong decisions. I will illustrate this point by citing, as an example, an actual case.

Two years ago, I handled a case where a company producing a popular gin product sued my client for infringement of trade mark and unfair competition. The gist of the complaint was that my client was using in its trade mark the word Ginebra, which is the Spanish word for gin. Every lawyer in the Philippines, including the plaintiff's lawyer and the judge, knows that Ginebra or gin is a generic term and, as such, belongs to the public domain. According to the Intellectual Property Law and decisions of the Supreme Court, a generic word cannot be registered as a trade mark; and no matter how long a generic term may have been used by a person on his product, it can never acquire a secondary meaning and be protected as a trade mark. I wish to add that this is true not only under Philippine trade mark law but also under the trade mark laws of all civilized nations of the world. In this case, however, the judge ruled, in an order that displayed the depths of his undisguised ignorance, that the admittedly generic term Ginebra, after plaintiff's long use of it on its gin product, had ripened into a trade mark protected by law. The ruling was quickly appealed to the Court of Appeals. The three justices of a division of the Court, in a unanimous resolution that also betrayed their ignorance of trade mark law and jurisprudence, affirmed the ruling of the judge. Now on its third year of litigation, the case is still in the Supreme Court on petition for review and I do not have the faintest idea when it will be finally resolved.

What I do know is that, if that dispute were submitted to arbitration, the parties could have chosen arbitrators who are experts in trade mark law and practice; the dispute could have been resolved speedily since the issue was simple, the law in point quite straightforward and the applicable jurisprudence well-settled. Incidentally, the Philippine Dispute Resolution Center (PDRCI) has members whose field of specialization is Intellectual Property Law. It also has specially crafted Arbitration Rules on Intellectual Property Disputes.

Arbitration allows parties who wish to avoid long delays in the court system to choose arbitrators with expertise in their business. The parties are also free to exercise some control on how the proceedings will proceed by specifying the rules which will govern the dispute resolution. Thus, in the case I have cited as an illustration, the parties could have chosen to submit their dispute to PDRCI_ administered arbitration, they could have chosen arbitrators from the roster of arbitrators whose specialization is Intellectual Property Law; and they could have chosen PDRCI's special Rules on Intellectual Property Dispute to govern the arbitral proceedings.

Neutrality and party autonomy

Another advantage of arbitration over court litigation is that in arbitral proceedings, parties can place themselves on an equal footing in at least five key respects. The parties are free to choose the (a) place of arbitration, i.e., it can take place in any country; (b) language to be used; (c) procedures or rules of law to be applied; (d) nationality of the arbitrators, and (e) legal representation.

In contrast, these key factors are not within the control of the parties in court litigation. In the Philippines, venue is generally fixed by the Rules of Court; the official language in court proceedings is English or Pilipino; the proceedings are governed by the Rules of Court; all judges must be Filipino citizens; and only lawyers who are Filipino citizens and who have been duly admitted to the practice of law in the Philippines can represent the parties in court.

Final, binding decisions

Although parties to commercial transactions have a number of options for resolving their disputes, only litigation and arbitration can provide a binding and enforceable decision. However, unlike the decisions made by courts of first instance, arbitral awards are usually not subject to appeal at different levels and become final and binding on the parties once rendered. As pointed out above, one major cause for undue delay in the disposition of cases in the Philippines is the availability of interminable appeals, often frivolous, at various levels of the hierarchy of courts.

Arbitral awards may be challenged in either the country where the arbitral award is made or where enforcement is sought, but the grounds for challenging arbitral awards are very limited. In contrast, decisions of courts of first instance are appealable on broad questions of fact or law or both.

International recognition and enforcement of arbitral awards

International commercial arbitration is traditionally hailed as affording the most substantial benefit of producing an award that, in the overwhelming majority of cases, is entitled to recognition and enforcement in 134 countries that have acceded to the New York Convention of 1958⁹. This regime of almost universal recognition and enforcement compares most favorably with that regulating the recognition and enforcement of judgments rendered by foreign courts. Those judgments are recognized and enforced only when domestic law or a relevant treaty so provides¹⁰.

The general rule prevailing in civil law systems is that foreign judgments are not recognized or enforced at all or on a basis of reciprocity, with frequent uncertainty as to what form of reciprocity is required¹¹. In common law countries, foreign judgments are generally recognized and enforced, but courts retain a significant measure of leeway. European countries have adopted a regional recognition and enforcement scheme laid down in the Brussels Convention, as amended by the Lugano Convention. Generally, however, the liberality in the recognition and enforcement of international arbitral awards prescribed by the New York Convention stands in mark contrast to the uncertain fate that awaits foreign judgments in domestic courts¹².

Confidentiality

Arbitration proceedings are not open to the public, and only the parties themselves receive copies of the award. The parties can expect to keep their trade secrets private from third parties. In. contrast, court proceedings are open to the public, and court records are public records.

Institutional Arbitration in the Philippines

Institutional arbitration in the Philippines can be either under the ICC or the Philippine Dispute Resolution Center, Inc. (PDRCI). A third arbitral institution is the Construction Industry Arbitration Commission (CIAC), the jurisdiction of which, however, is limited to arbitration of disputes involving construction contracts in the Philippines.

In view of the confidential nature of arbitration, there are no available published records of how many ICC administered cases have been filed, heard and decided over any given period of time in the Philippines. However, a private interview of a number of lawyers in SyCip Salazar Hernandez & Gatmaitan (the largest law firm with the widest and most varied transnational practice in the Philippines) who have extensive experience in litigation and arbitration and in negotiating and drafting contracts between local and foreign companies, revealed the interesting fact that in the drafting of arbitration clauses, the preponderant preference of the parties in the choice of institutional rules is the ICC Rules, and in the choice of the place of arbitration, the preponderant preference is Singapore, Hong Kong and Australia, in that order. PDRCI, being relatively a young institution, has yet to gain a strong foothold in the field of international commercial arbitration. Most of the cases it administers deal with domestic commercial arbitration.

The preponderant preference of parties to cross-border commercial transactions for ICC administered arbitrations is indicative of ICC's popularity. Since its establishment in 1923, the International Court of Arbitration, as the arbitration body of the ICC, has pioneered international commercial arbitration as it is known today. The Court has administered some 11,000 international arbitration cases involving parties and arbitrators from more than 170 countries and territories around the world. Demand for its services grows year by year, keeping step with the rapid expansion of international trade and the globalization of the world economy. This unmatched achievement of ICC leads us to the conclusion that it has been and still is today the world's leading institution in the filed of international commercial arbitration.

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Footnotes:

1 Lecture given at the Arbitration Forum sponsored by ICC Philippines on 14 February 2005.

2 Eduardo R. Ceniza, President, Philippine Dispute Resolution Center, Inc. and Chief Counsel, Office of the General Counsel Lucio Tan Group of Companies.

3 Leslie Chew, "National Law, Rules & Procedure: The Assistance of the National Courts in International Commercial Arbitration - The Singapore Experience," Singapore, February 13 2004.

4 Section 19, ADR Act

5 Section 42, Ibid. "The recognition and enforcement of foreign arbitral awards not covered by the New York Convention shall be done in accordance with 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." (Sec. 43, ADR Act)

6 Section 32, ADR Act.

7 Section 2, ADR Act.

8 See Supreme Court Administrative Circular No. 20 - 2002, Resolution A. M. No. 01-10-5- SC-PHILJA; Also Circular No 82 - 2001 issued by the Court of Appeals Administrator.

9 As of 23 December 2003.

10 Hans Smit, "Annulment and Enforcement of International Arbitral Awards: A Practical Perspective," The Leading Arbitrators' Guide to International Arbitration, Juris Publishing, Inc., New York, [2004], 461.

11 Hans Smit, "International Res Judicata in the Netherlands: A Comparative Approach," 16 Buffalo L. Review 165 [1966]; also Han Smit, "International Cooperation in Civil Litigation: Some Observations on the Roles of International Law and Reciprocity," 9 Neth. Int. Law Review 137 [1963].

12 Hans Smit, "Annulment and Enforcement of International Arbitral Awards: A Practical Perspective," The Leading Arbitrators' Guide to International Arbitration, Juris Publishing, Inc., New York [2004], 461.

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