Pitfalls of enforcing foreign arbitral awards in the Philippines

By Enrique dela Cruz, Divina Law
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INTERNATIONAL COMMERCIAL arbitration is a relatively new area of practice in the Philippines. While the Philippines became a signatory to the UN Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention) as early as 10 June 1958, no laws were enacted prescribing the mechanics for the conduct of international arbitration, or for the enforcement of foreign arbitral awards in the Philippines, for almost 50 years. All we had back then was Republic Act 876 – a law for domestic arbitration.

Enrique-dela-Cruz-Senior-Partner-at-Divina-Law-in-Manila-2
Enrique dela Cruz
Senior Partner at
Divina Law in Manila
Tel: (632) 822 0808 local 290
Cell: + (63) 917 5329093
Email: enrique.delacruz@divinalaw.com

Since there was no law enacted in the Philippines providing a specific procedure for the enforcement of foreign arbitral awards, Philippine courts treated these awards as foreign judgments. Thus, foreign arbitral awards have sometimes been deemed only presumptively valid, rather than conclusively valid, as required by the New York Convention. It was only in 2004 that the Philippine Congress enacted Republic Act (RA) 9285 (Alternative Dispute Resolution Act of 2004).

In 2008 the Philippine Supreme Court issued the Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules) to provide guidance on the interpretation of some provisions of RA 9285.

Section 44 of RA 9285 states that a foreign arbitral award is not a foreign judgment. For the recognition and enforcement of a foreign judgment, the applicable rule is section 48, rule 39 of the Rules of Court, which requires only proof of fact of the said judgment, and that once proven, the said foreign judgment enjoys a disputable presumption of validity (BPI Securities Corp v Guevara, 2015).

A petition for the recognition and enforcement of foreign arbitral award is a special proceeding. Under rule 13.3 of the Special ADR Rules, the petition shall, at the petitioner’s option, be filed with the Regional Trial Court (RTC): (1) where the assets to be attached or levied upon is located; (2) where the act to be enjoined is being performed; (3) in the principal place of business in the Philippines of any of the parties; (4) if any of the parties is an individual, where any of the individuals reside: or (5) in the national capital judicial region.

Rule 1.4 of the Special ADR Rules requires that the petition be verified and accompanied by a Certification Against Forum Shopping.

Rule 13.5 of the Special ADR Rules further requires that the petitioner plead in the petition: (1) the addresses of the parties to arbitration; (2) the country where the arbitral award was made, and whether that country is a signatory to the New York Convention; and (3) the relief sought. The petitioner is likewise required to attach to the petition: (1) an authentic copy of the arbitration agreement; and (2) an authentic copy of the arbitral award.

An action for recognition and enforcement of a foreign arbitral award is incapable of pecuniary estimation (Mijares v Ranada, 2005). Hence, under rule 20.1 of the Special ADR Rules, only a minimal filing fee is required.

Under rule 13.6 of the Special ADR Rules, upon receipt of the petition, the court shall initially determine whether it is sufficient in form and in substance, after which the court shall cause the service of a copy of the petition upon the respondent.

Under rules 13.6 and 13.7, the court sends a notice to the respondent to file a verified opposition within 30 days from receipt of the notice and petition. This 30-day period is non-extendible since a motion for extension is a prohibited pleading under rule 1.6.

Under rule 1.9, the court “acquires authority to act on the petition or motion upon proof of jurisdictional facts, i.e. that the respondent was furnished with a copy of the petition and the notice of hearing”. The burden of proof lies with the petitioner.

The hearing referred to in rule 1.9 is the initial hearing to prove the jurisdictional facts. The notice of initial hearing contains a directive for the respondent to file an opposition to the petition for recognition and enforcement of the foreign arbitral award. A respondent’s failure to submit an opposition shall not be cause for a declaration of default, as this is also a prohibited pleading under rule 1.6 (g).

Once the respondent has filed its opposition, the court determines whether the issue between the parties is one of law or fact. Under rule 13.8 of the Special ADR Rules, if the issue is mainly one of law, the court will require the submission of a brief of legal arguments not more than 30 days from receipt of the order.

On the other hand, if there are issues of fact, the court in accordance with rule 13.8 shall, motu proprio, or upon the request of a party, require the parties to simultaneously submit the affidavits of their respective witnesses within a period of not less than 15 days nor more than 30 days from receipt of the order.

Under section 45 of the ADR Act, and under Rule 13.4 of the Special ADR Rules, the RTC shall refuse recognition and enforcement of the foreign arbitral award only upon proof that:

(1) A party to the arbitration agreement was under some incapacity, or the agreement is not valid under the law to which the parties have subjected it, or, failing any indication, under the law of the country where the award was made; or

(2) The party making the application was not given proper notice of the appointment of an arbitrator or of arbitral proceedings, or was otherwise unable to present their case; or

(3) 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 so submitted, only that part of the award that contains decisions on matters not submitted to arbitration may be set aside; or

(4) 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; or

(5) 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.

Rule 13.4(b) further provides that the foreign arbitral award may be refused recognition and enforcement by the court if it finds that:

(1) The subject matter of the dispute is not capable of settlement or resolution by arbitration under Philippine law; or

(2) The recognition or enforcement of the award would be contrary to public policy.

Although the RTC can deny recognition and enforcement, it has no power to vacate or set aside a foreign arbitral award (rule 19.11, Special ADR Rules).

An appeal from a final order of the RTC may be taken to the Court of Appeals via petition for review under rule 19.12 of the Special ADR Rules within 15 days from notice of the RTC decision. The decision of the RTC is immediately executory (rule 13.11 of the Special ADR Rules). Rule 19.22 of the Special ADR Rules categorically states that: “The appeal shall not stay the award, judgment, final order or resolution sought to be reviewed unless the Court of Appeals directs otherwise upon such terms as it may deem just.”

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