Philippines: A Dispute Resolution: Arbitration Overview
Introduction
In court litigation, litigants have no say in the selection of the magistrate who will decide their case or the rules followed in arriving at the court’s decision. Judicial dispute resolution also remains a slow and cumbersome process, in spite of great strides being made by the Supreme Court over the past decade in streamlining the procedure to reduce disposition timelines.
In contrast, “party autonomy” is the fundamental principle shaping every aspect of the arbitral process, including the selection of the arbitration institution (if any), composition of the tribunal, types of submissions, format of the hearing and the procedural timetable. This feature allows for the constitution of tribunals with the expertise that the nature of the dispute requires. It also enables the tribunal to resolve arbitral disputes with relative dispatch.
The uniform trend in state policy, legislation, jurisprudence and even lower court judgments has thus been to actively encourage arbitration as an alternative mode of dispute resolution.
Consent
Arbitration is anchored on the parties’ consent; therefore, “party autonomy” is expressed, first and foremost, in a written and signed arbitration clause.
In an April 2025 Decision, the Supreme Court held that the binding effect of an arbitration clause is still a function of language. Thus, a clause stating that parties “shall have the right to have the dispute settled by binding arbitration” (as opposed to one stipulating that a dispute “shall be resolved through arbitration”) merely gives the parties an option to refer their dispute to arbitration.
Allowing a party to an arbitration clause to walk away from it because of a lack of clarity in language may appear, at first glance, to be a step back from the policy to promote arbitration. However, when the contractual mandate to resort to arbitration is clear, a party cannot refuse to submit to the process and, if it does, courts may be counted upon to step in and order that party to submit to arbitration.
A recurring issue, especially in multi-party arbitrations, is whether a party who did not sign the arbitration clause, but who was nevertheless involved in the implementation of the contract, is also bound by the arbitration clause. On this matter, the Supreme Court, in a December 2023 decision, stressed that it would be material in those situations to determine the “ties” of the non-signatory to the contract itself and its implementation, and also to the arbitral dispute between the signatories.
The Arbitration Institution
Although arbitration clauses have now become standard in various kinds of commercial contracts, from complex multi-million-dollar infrastructure agreements and energy concessions to the terms of service governing the use of websites, digital platforms and e-marketplaces, a frequently asked question is still, “who will decide my arbitration?”
A common misconception is that arbitration institutions, like the Philippine Dispute Resolution Center (PDRC), the Philippine International Center for Conflict Resolution (PICCR) and the Construction Industry Arbitration Commission (CIAC), decide the arbitral disputes brought before them.
Arbitration institutions simply administer the arbitral process (with the parties’ consent) by applying their own rules and fee structures, and by providing facilities and equipment for conferences and hearings. CIAC is unique in that its jurisdiction is defined by statute; therefore, as long as the case involves a construction dispute, even if CIAC is not mentioned in the arbitration clause, it would retain jurisdiction over the dispute.
Notably, arbitration clauses in typical commercial contracts often do not specify an arbitration institution, instead referring disputes to arbitration under the Arbitration Law and/or the Alternative Dispute Resolution Act of 2004, both of which do not mention any arbitration institution. In those instances, the arbitration is considered ad hoc (as opposed to “institutional”), and the default procedure would be that found in the applicable statute.
The challenges usually encountered in ad hoc arbitrations – which have led to bottlenecks in the arbitral process itself – relate to how the administrative aspects of the arbitration should be handled. The fallback solution is to apply the rules of a particular arbitration institution or to simply refer the ad hoc arbitration to an arbitration institution.
The Arbitral Tribunal
The decision or “award” in an arbitration is handed down by an Arbitral Tribunal, which may be a sole arbitrator or a panel of arbitrators. Parties have wide latitude in selecting the sole arbitrator or tribunal members, who do not need to be judges or lawyers – or to possess legal training.
With that freedom, however, parties have been known to forget (or ignore) that arbitrators must possess qualifications mirroring those of their judicial counterparts, namely, fairness, objectivity and impartiality. In this regard, the Arbitration Law specifically states that parties to an arbitration should not appoint an arbitrator to “champion or advocate” their cause.
Award and Enforcement
The rule is that an arbitral award is final, binding and cannot be appealed. The factual findings and legal conclusions in the award cannot be altered or disturbed, even by the Supreme Court.
Like a contract, an award should be performed and carried out in good faith. In practice, however, the losing party rarely accepts the outcome of the arbitration, and invariably pursues extraordinary court remedies to set aside the award (and the decisions in those court cases may be appealed to higher courts). Notably, the enforcement of an arbitral award cannot be achieved without the assistance of a court and its judicial machinery. Finally, when a monetary award is handed down against the Philippine government, enforcement and collection cannot proceed until the approval of the Commission on Audit (COA) is secured. The Supreme Court has also clarified that the jurisdiction of the COA is limited to determining the available source of public funds for the satisfaction of the monetary award against the government.
Cost
A typical complaint about arbitration is that it is expensive, not only in terms of legal costs, but also arbitrators’ honoraria and administrative fees. Under existing formulae applied by the Philippine Dispute Resolution Center, Inc (PDRCI), PICCR and CIAC, arbitrator’s honoraria and administrative fees are proportional to the “value” of the claims or counterclaims of the parties. Other fee structures – like time rates, fixed fees and/or milestone payments – are still unheard of in arbitral institutions. Even in ad hoc arbitrations, institutional fee arrangements and rules may still be applied, but always with the consent of the parties and the arbitrator/s.
Arbitration may thus be perceived as cost-effective in high-stakes and high-value commercial disputes, but less so when disputed amounts are relatively small or insignificant – in which case, the resort to arbitration has been known to be waived or even ignored.
Closing
While challenges abound in the quest to transform arbitration into the speedy, efficient and cost-effective dispute resolution process it was envisioned to be, the government’s drive to promote arbitration has shown no signs of slowing down.
In February of this year, Chief Justice Alexander G Gesmundo, as part of his keynote address at the 3rd International Chamber of Commerce Philippines Arbitration, stressed the “transformative role” of arbitration “in shaping the future of justice” in the Philippines, and in providing “a faster, more flexible, and often more cost-effective alternative to traditional court litigation”. The Chief Justice noted that the Supreme Court “actively supports arbitration and alternative dispute resolution to ease court congestion and provide quicker access to justice” (remarks taken from a press release from the Supreme Court's Public Information Office; PIO). Under the Strategic Plan for Judicial Innovations for 2022–27, the Supreme Court will embark on a “comprehensive review of the Rules of Court to further promote ADR practices”.