On 19 September 2022, the Philippine Securities and Exchange Commission (“SEC”) issued Memorandum Circular No. 8, series of 2022, or the Guidelines on the Arbitration of Intra-Corporate Disputes (“Guidelines”). The Guidelines seek to implement Section 181 of the Revised Corporation Code (“RCC”) which authorises the inclusion of an arbitration agreement in the incorporation documents of a corporation.[1]

Salient provisions of the Guidelines 

The Guidelines apply to domestic corporations with an arbitration agreement in the incorporation documents or a separate agreement

Pursuant to Section 181 of the RCC, intra-corporate disputes shall be referred to arbitration when an arbitration agreement is provided in the articles of incorporation or the by-laws of a domestic corporation, whether listed or unlisted. The parties may also choose to stipulate an arbitration agreement in the form of a separate agreement.

It should be noted that the Guidelines do not apply to intra-corporate disputes involving criminal offenses and interests of third parties[2], or to arbitration wherein the SEC is not the party designated to appoint the arbitrators. Further, it does not apply if the arbitration agreement expressly states that the seat or place of arbitration is outside the Philippines.[3]

The Guidelines also suggest that the Supreme Court will promulgate rules and regulations to implement Section 181 of the RCC for intra-corporate disputes filed with the courts and when the courts determine, prior to the termination of the pre-trial conference, that the parties executed an arbitration agreement. In such a scenario, the courts shall act in accordance with the rules to be promulgated by the Supreme Court. In comparison, the SEC, in the draft guidelines, previously intimated that the court shall call for the outright dismissal of the case.

The arbitration agreement must contain the minimum provisions prescribed by the Guidelines

Arbitration agreements must contain the following minimum provisions prescribed by the Guidelines:

• the number of arbitrators (e.g., one or three);
• the designated independent third party who shall appoint the arbitrator or arbitrators, e.g., the SEC;
• the procedure for the appointment of the arbitrator or arbitrators; and
• the period within which the arbitrator or arbitrators should be appointed by the designated independent third party.

Arbitration agreements that do not contain the minimum provisions shall be unenforceable under the Guidelines, but may proceed in accordance with the Alternative Dispute Resolution Act and its implementing rules and regulations, or under other relevant dispute resolution laws.

Powers of the arbitral tribunal

The powers of the arbitral tribunal include the power to rule on its own jurisdiction, the power to rule on questions relating to the validity of the arbitration agreement, and the power to grant interim measures necessary to ensure enforcement of the award, prevent miscarriage of justice, or otherwise protect the rights of the parties. The SEC has specified such interim measures to include:

• preliminary injunction directed against a party to arbitration;
• preliminary attachment against property or garnishment of funds in the custody of a bank or a third person;
• appointment of a receiver;
• detention, preservation, delivery, or inspection of property; or
• appointment of a management committee

Final arbitral award

The final arbitral award shall be considered as a commercial arbitration award and shall be executed in accordance with the rules of procedure to be promulgated by the Supreme Court. To date, the Supreme Court has not yet implemented the rules and regulations to implement Sec. 181 of the RCC.

Conclusion

The Guidelines promote corporate arbitration as an alternative form of dispute resolution. It is principally relevant to domestic corporations with foreign owners or investors who want to avoid litigation in the Philippines. Compared to court litigation, arbitration is preferred by the parties due to its efficiency, confidentiality, flexibility and cost-effectiveness. It may do well for parties to consider amending their companies’ articles of incorporation or by-laws to incorporate an arbitration agreement, or adding such agreement to the constituent documents of companies that are about to be established.

If you have any questions or require any additional information, please contact Felix Sy, Reeneth B. Santos and Geia Barrido of Insights Philippines Legal Advisors (a member of ZICO Law).

This alert is for general information only and is not a substitute for legal advice.

[1] See related article Philippine SEC Releases Draft Guidelines for Arbitration of Intra-Corporate Disputes available at: https://www.zicolaw.com/resources/alerts/philippine-sec-releases-draft-guidelines-for-arbitration-of-intra-corporate-disputes/.

[2] “Third party” is defined as any person, other than the corporation, its directors, trustees, officers, stockholder or member, and executives or manager.

[3] Worthy to note that there is a presumption that the seat of arbitration is the Philippines unless the arbitration agreement states otherwise, or the arbitral tribunal subsequently decides otherwise.