December 8, 2021

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International commercial arbitration in the Philippines : key takeaways for India

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This article has been written by Raina Jain, pursuing a certificate course in Arbitration: Strategy, Procedure & Drafting from LawSikho. It has been edited by Aatima Bhatia (Associate, LawSikho) Ruchika Mohapatra (Associate, LawSikho).

Table of Contents

The utilization of arbitration continues to rise in the Asia-Pacific region. The major factors for resorting to the ADR mechanism here include the exponential growth and rising complex business transactions in the region (involving foreign elements), the expansion and development of the institutionalized arbitration body in Asia and the relatively low price of administering and conducting arbitral proceedings. Also, with China’s active initiation of the ‘One Belt One Road’ Policy in Asia and Africa, it is expected that disputes among Asian parties will increase in the coming future. Thus, it would make arbitration a preferred choice in resolving international disputes. Concomitantly with a greater number of cases filed in HKIAC and SIAC institutions, there has also been a rise in the constitution of several arbitral institutions in this sphere.

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In pursuance of the above-said, the Integrated Bar of the Philippines (IBP) established a new arbitral institution: the Philippines International Centre for Conflict Resolution (PICCR), in February 2019. It is in addition to the Philippine Dispute Resolution Centre Inc (PDRCI) which has been in action since 1996. It aims to promote the practice and use of arbitration and other forms of Alternative Dispute Resolution in the Philippines. However, it is noteworthy that the trend was already increasing at a rapid pace as for the year 2018; the Philippines body of PDRCI and IBP has handled around 60 newly commenced domestic arbitrations and has assisted with the appointment of arbitrators in 40 newly commenced ad hoc arbitrations.

Therefore, considering the progress of the Philippines in the arbitration world, the present piece examines the recent developments in the Philippines in light of International Commercial arbitration, the scope and object of their arbitration legislation. Further, the article studies the current take of India on International commercial arbitration and what India can gain out of Philippines Jurisdiction that is the plausible key takeaways for India in this regard.

Philippines is gradually becoming the go-to mode of commercial dispute resolution in the arena of international arbitration. Mainly due to the rigid confidentiality of arbitral proceedings, faster delivery of binding decisions, available choice to pick independent, neutral and highly qualified arbitrators, limited scope of judicial review and supportive judiciary. Furthermore, there has been a momentous shift in the national court’s approach towards arbitration, which explains the moving of the Philippines towards a more arbitration-friendly regime.

In Fruehauf Electronics Philippine Corporation v. Technology Electronics Assembly and Management Pacific Corporation 2016, the Supreme Court held that simple errors of fact, law, or fact and law committed by the arbitral tribunal are not justifiable errors. Consequently, the courts are precluded from revising an arbitral award in a particular way, revisiting the tribunal’s findings of fact or conclusions of law, or otherwise encroaching upon the independence of an arbitral tribunal. Further, the Supreme Court also highlighted the need to uphold the autonomy of arbitral awards as an overriding public policy.

Thereafter in a landmark case pertaining to ‘Public Policy’, the Apex Court ruled in Mabuhay Holdings Corporation v. SembCorp Logistics Limited 2018, that mere error in the interpretation of law or factual findings do not suffice to warrant refusal of enforcement on public policy grounds. To rely on public policy grounds, the illegality or immorality of the award must reach a level where enforcement of the same would be against the State’s fundamental tenets of justice and morality, or would blatantly be injurious to the public or the interests of the society.

The Supreme Court, therefore, affirmed the Court of Appeal’s decision and ruled in favour of enforcing the arbitral award. The Supreme Court concluded its judgment with a reminder to the lower courts to apply Philippine arbitration legislation in accordance with the objectives of the statutes, emphasizing that: “there are policy reasons in favour of promoting international arbitration, as it would attract foreign investors to do business in the country that would ultimately boost . . . [the Philippine] economy.”

Later in 2019, the Philippines escalated in fostering arbitration by its domestic enactment. In February 2019, the Revised Corporation Code came into operation, which expressly states that the articles of incorporation or by-laws of a corporation may contain an arbitration clause. Intra-corporate disputes are hence now expressly arbitrable under Philippine law. Moreover, the PDRCI also ministered its first-ever emergency arbitration case in 2019, which successfully settled with an arbitral award issued by the sole emergency arbitrator. The trending pattern of arbitration clauses in the Philippines tend to be multi-tiered these days, that is, prior resort to mediation or negotiation is made a precondition to the arbitration proceedings.

India has widened its scope and functions in relation to international commercial Arbitration after introducing the major changes through the 2015 amendment in the Arbitration and Conciliation (Amendment) Act, 2015. Some key amendments include:

  1. Only the High Courts and Supreme Court have jurisdiction in relation to international commercial arbitrations.
  2. Section 9 (Interim measures), Section 27 (Court assistance in taking evidence) and Sections 37(1) (a) and 37(3) (orders which are appealable) of Part I of the 1996 Act made applicable to international arbitrations unless expressly excluded by the parties.
  3. Interim measure orders by a tribunal are enforceable as an order of a court, hence expediting enforcement.
  4. no more automatic stay of the award upon the filing of objections to the same.
  5. Public policy as a ground to review the awards narrowed and defined.

When it comes to international commercial arbitration, the global focus of all the jurisdictions has been to uphold party autonomy and minimize national court’s interference in the arbitration proceedings. In view of this, it is notable to mention that the Indian Judiciary has given applaudable landmark decisions by upholding the doctrines of party autonomy and minimal court’s interference in all the three stages of the arbitral process i.e. pre-arbitration, during arbitration and post-arbitration (enforcement of awards etc.)

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In the case of, Mcdonald’s India Private Limited v.  Vikram Bakshi and Ors, 2016 SCC OnLine Del 3949; the SC has refused to issue an Anti-arbitration injunction and has asked parties to adhere to their pre-decided agreement that is to arbitrate their disputes instead of litigating the same in national courts. 

Similarly, the Delhi High Court has given its historic view in the cases of Cruz City 1 Mauritius Holdings v. Unitech Limited and NTT Docomo Inc vs. Tata Sons Limited OMP. (EFA) (COM.M) 7/2016; wherein both the cases similar objections were raised against the enforcement of foreign arbitral awards stating that the same is in breach of foreign exchange laws of India. In response to this, the court clearly refused to interfere and instead enforced the terms of the settlement agreement under section 49 (Enforcement of foreign awards) of the 1996 Act.

In another significant case of Zee Sports Ltd. v. Nimbus Media Pvt. Ltd. 2017 SCC OnLine Bom 426, the Supreme Court stated that as under:

“The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at the minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court’s jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it. ”

Hence, it is evident that the Indian Judiciary is showing a great inclination towards the arbitration-friendly regime with its “Pro-arbitration” approach and delivering some remarkable decisions by preserving the essence of arbitration law. Further, it is true to say that India is making sincere efforts to keep its legislation up to par with the international norms of arbitration.

 In recent times, the Philippines have achieved a milestone in the field of Alternative Dispute resolution with the launch of a new arbitral institution namely The Philippines International Centre for Conflict Resolution (PICCR) and also it has witnessed an inauguration of the Philippines Arbitration Convention in the year 2019 that was famously called as “The Arbitration Day”  (intended to be an annual event) which was organized by the Philippines institute of arbitrators. (“PIArb”)

The organizing of such a huge event has built a good network by bringing together the whole of business and professional communities and provided a good platform to meet and exchange ideas. The conduction of such annual events really increases the awareness of the subject in the greatest possible way and builds confidence and faith amongst the public. It would be beneficial for India as well, if it could also organize such events more frequently.  

 Also, a very noteworthy agenda of the Philippine Government which can be taken as a good guideline for other jurisdictions is that the Philippines facilitates ADR through incorporating a legally mandated arbitration clause in their government contracts. The said contracts include all nature of agreements like contracts between local government and private entities, build-operate-transfer projects, public-private partnership agreements and joint venture agreements.

 Moreover, another unusual step taken by the Philippines Government which is indeed indifferent from the genre of Commercial Arbitration is that the construction industry of the Philippines is deeply engaged in arbitration. The legislative backing to it has been provided through the establishment of the Philippine Construction Industry Arbitration Commission (“CIAC”). (Via Executive Order No. 1008) One more uncommon practice with which the Philippine government is engaged is the mandatory arbitration process in labour cases. It is however the exception to the ordinary character of “party autonomy”.

 Another significant fact that should be noted is that the country’s compulsory institution for licensed lawyers i.e. The Integrated Bar of Philippines (“IBP”) has played a vital role in encouraging the ADR in the country by commencing the Philippines International Centre for Conflict Resolution (PICCR) which is a non-profit and a non-stock ADR organization catering the ADR facilities and other services, also supervising the commercial arbitration. India can also adopt these techniques because such efforts and active initiatives by recognized and prominent institutions of the country really boost the confidence of the public in emerging fields like arbitration.  

With all that said, it appears that the progressive approach of the Philippines is proving to be a mark of success for them and it has certainly been appreciated worldwide and many jurisdictions are embracing it as a guide for their further development.    

Although it is evident that India is in a good position when it comes to International commercial arbitration, it can be appropriately recommended that India can also consider the steps and agenda implemented by the Philippine Government by making a guideline and accordingly adopting certain things to further progress in the field of Alternative Dispute resolution.  


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