Philippines

Paul Cornelius T. Castillo

Platon Martinez Flores San

Pedro Leao
Makati City

ptcastillo@platonmartinez.com
Law firm bio

I. Background: Alternative Dispute Resolution is favored in the Philippines

Alternative Dispute Resolution (ADR) methods like arbitration, mediation, negotiation, and
conciliation - are encouraged means of settlement (RCBC Capital Corporation v. Banco De Oro
Unibank, G.R. No. 196171, 10 December 2012). By enabling the parties to resolve their disputes
amicably, they provide solutions that are less tedious, less confrontational, and more productive
of goodwill. (Id.)

In 2004, the Philippine Congress enacted the Alternative Dispute Resolution Act (Republic
Act 9285), which provided a more solid framework within which parties can resolve their
disputes without going through litigation, likewise making enforceable agreements by parties to
settle conflicts extra-judicially. The ADR Act states in no uncertain terms the Philippine policy
on ADR:

It is hereby declared the policy of the State to actively promote party autonomy
in the resolution of disputes or the freedom of the party to make their own
arrangements to resolve their disputes. Towards this end, the State shall
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. [Emphasis and underscoring supplied.]

This primer provides a general overview on the matter.

As will be further highlighted, Philippine procedural laws mandatory two-step mediation

process effectively reads into contracts multi-tiered dispute resolution processes, which is an
important consideration in reviewing the enforceability of such provisions in the Philippine
experience.

Procedural rules on mandatory mediation, it seems, dissuade litigants from squarely putting in
issue the enforceability of contractual provisions that require negotiations between parties. This
is due to the fact that both parties will in any event discuss the possible settlement of the dispute
in a compulsory two-step procedure. This shall be explained succinctly at the end of this primer.

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II. Enforcement of Multi-Tiered Dispute Resolution Clauses

Under the ADR Act, arbitration is itself considered an alternative dispute resolution procedure in
the Philippines. However, for purposes of this primer and based on information sought, focus
shall remain on possible enforcement of dispute resolution clauses prior to litigation and/or
arbitration.

In General: A contract is the law between the parties and must be complied with
in good faith

Obligations arising from contracts have the force of law between the parties, and must be
complied with in good faith. A contract is the law between the parties (Civil Code of the
Philippines, Art. 1159; Spouses Chung v. Ulanday, G.R. No. 156038, 11 October 2010).

It is thus arguable that one can ask the court or arbitral tribunal to dismiss a complaint, on the
ground that negotiations in good faith have not yet been done as agreed upon. However, it still
remains to be seen how courts will rule on the enforceability of a clause that makes no reference
to any special dispute resolution method, manner, or law, such as a loosely drafted agreement to
enter into talks in good faith.

The fulfillment of a contractual agreement to enter into mediation is a condition

precedent for filing a civil complaint

Meanwhile, reference to mediation (or any of the other alternative dispute resolution methods
in the ADR Act) in a contract makes such a provision easier to construe and enforce.

Under Philippine procedural law, failure to comply with a condition precedent before filing a
claim is a ground to dismiss a complaint (Rule 16, Section 1(j), Rules of Court). The ADR Act
supports this procedural rule by expressly defining Court-Referred Mediation in this way: a
mediation ordered by a court to be conducted in accordance with the Agreement of the
Parties when an action is prematurely commenced in violation of such agreement (ADR
Act, Section 3(m); emphasis supplied).

Pursuant to the foregoing, an agreement to mediate that is crafted in view of and with regard to
the provisions of the ADR Act may be enforced by the court, by dismissing a complaint filed
before the parties have gone through mediation (or such other methods under law and noted in
the contract) as agreed upon.

With an agreement to settle disputes in a manner and under a framework already provided by
law, it is easier for the court to ascertain parameters that will help it determine if there is in
reality something to enforce.

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III. Special Cases

Multi-tiered dispute Resolution in Construction Disputes

Apart from general civil law principles as mentioned above, construction disputes in the
Philippines may be resolved by a body known as the Construction Industry Arbitration
Commission (CIAC). The CIAC acquires jurisdiction over a construction dispute if the issue is
somehow connected to a construction contract, and if the parties agree to submit the dispute to
arbitration proceedings. (Manila Insurance v. Spouses Amurao, G.R. No. 179628, 16 January
2013).

Multi-tiered dispute resolution in Employment Law

An unequivocal provision in a Collective Bargaining Agreement to resolve disputes through a

particular grievance procedure, which includes multi-tiered dispute resolution methods, is
binding and must be complied with. The Philippine Supreme Court ruled that when parties have
validly agreed on a procedure for resolving grievances and to submit a dispute to voluntary
arbitration then that procedure should be strictly observed (Ace Navigation v. Fernandez,
G.R. No. 197309, 10 October 2012).

Multi-tiered dispute resolution in Family Law

The Philippine Family Code categorically provides that a suit between members of the same
family shall be dismissed, if it is shown that no earnest efforts toward a compromise were
undertaken (Article 151, Family Code of the Philippines).

IV. Securing Better Enforcement of Multi-Tiered Dispute Resolution Clauses

From a review of cases and applicable law, better enforcement of multi-tiered dispute resolution
clauses may be secured if the provisions are:

a. Anchored on law such as the ADR Act, where the parties can point to rules (in the
law or of particular institutions) that have to be followed prior to litigation,
allowing the parties to work within realistic guidelines and with achievable goals.

b. Crafted in a very detailed manner as to parties, timeframes, number of negotiation

sessions, manner of selecting mediators/ presiding officers, allowed participants,
place, etc.- either in the contract itself or through an adoption of established rules
and procedures of a dispute resolution institution. In this manner, courts will be
able to see the conditions precedent that should have been met before a case is
brought to it.

c. Worded to categorically require the fulfillment of dispute resolution procedures

before resort to litigation is made.

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V. Samples of Clauses that have been Held as Binding

a. Manila Insurance v. Spouses Amurao, G.R. No. 179628, 16 January 2013.

ARTICLE XVII ARBITRATION

17.1 Any dispute arising in the course of the execution and performance of this
Agreement by reason of difference in interpretation of the Contract Documents set forth
in Article I which the OWNER and the CONTRACTOR are unable to resolve amicably
between themselves shall be submitted by either party to a board of arbitrators composed
of Three (3) members chosen as follows: One (1) member shall be chosen by the
CONTRACTOR AND One (1) member shall be chosen by the OWNER. The said Two (2)
members, in turn, shall select a third member acceptable to both of them. The decision of
the Board of Arbitrators shall be rendered within Ten (10) days from the first meeting of
the board, which decision when reached through the affirmative vote of at least Two (2)
members of the board shall be final and binding upon the OWNER and CONTRACTOR.

17.2 Matters not otherwise provided for in this Contract or by Special Agreement of the
parties shall be governed by the provisions of the Arbitration Law, Executive Order No.
1008.

b. Department of Foreign Affairs v. Falcon, G.R. No. 176657, 1 September 2010.

Section 19.02 Failure to Settle Amicably If the Dispute cannot be settled amicably
within ninety (90) days by mutual discussion as contemplated under Section 19.01 herein,
the Dispute shall be settled with finality by an arbitrage tribunal operating under
International Law, hereinafter referred to as the Tribunal, under the UNCITRAL
Arbitration Rules contained in Resolution 31/98 adopted by the United Nations General
Assembly on December 15, 1976, and entitled Arbitration Rules on the United Nations
Commission on the International Trade Law. The DFA and the BCA undertake to abide
by and implement the arbitration award. The place of arbitration shall be Pasay City,
Philippines, or such other place as may mutually be agreed upon by both parties. The
arbitration proceeding shall be conducted in the English language.

c. Ace Navigation v. Fernandez, G.R. No. 197309, 10 October 2012.

Any Dispute, grievance, or misunderstanding concerning any ruling, practice, wages or

working conditions in the COMPANY or any breach of the Contract of Employment, or
any dispute arising from the meaning or application of the provisions of this Agreement
or a claim of violation thereof or any complaint or cause of action that any such Seaman
may have against the COMPANY, as well as complaints which the COMPANY may have
against such Seaman shall be brought to the attention of the GRIEVANCE RESOLUTION
COMMITTEE before either party takes any action, legal or otherwise. Bringing such a
dispute to the Grievance Resolution Committee shall be unwaivable prerequisite or
condition precedent for bringing any action, legal or otherwise, in any forum and the
failure to so refer the dispute shall bar any and all legal or other actions.

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 d. Golanco Construction v. Ray Burton, G.R. No. 163582, 9 August 2010.

33. SETTLEMENT OF DISPUTES AND ARBITRATION

33.1. Amicable Settlement

Both parties shall attempt to amicably settle all disputes or controversies arising from
this Contract before the commencement of arbitration.

33.2. Arbitration
All disputes or controversies arising from this Contract which cannot be settled between
the Employer and the Contractor shall be submitted to arbitration in accordance with the
UNCITRAL Arbitration Rules at present in force and as may be amended by the rest of
this Clause. The appointing authority shall be Hong
Kong International Arbitration Center. The place of arbitration shall be in Hong Kong at
Hong Kong International Arbitration Center (HKIAC).

VI. Mandatory Mediation in Philippine Procedural Law

As noted earlier, Philippine Procedural law requires a two-step mediation procedure before a full
trial is had in civil cases (as well as other cases enumerated in the rules).

These are Mediation before the Philippine Mediation Center and Judicial Dispute Resolution
(JDR) before the presiding judge. For JDR, the judge acts not as the presiding officer but as
mediator, conciliator, and neutral evaluator. Mediation and JDR are, when applicable,
mandatory.

As such, a mandatory multi-tiered dispute resolution process is effectively read into contracts,
which is beyond the contention of any litigant. Should parties seek to enforce contractual
provisions on the matter, they may end up just prolonging the dispute when a reasonable
compromise is completely beyond view, given that they will meet in another mediators table if
the complaint is brought to court.

This note is made in light of the fact that the enforceability of contractual provisions to negotiate
do not tend to be a serious area of contention between parties, considering that if the case is filed,
they will have to mediate and talk to each other in anyway, effectively bringing to life the very
same provisions on multi-tiered dispute resolution.

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