The Securities and Exchange Commission (“SEC”) of the Philippines has finally issued Memorandum Circular No. 08, S. 2022, prescribing the procedure and guidelines on the arbitration of intra-corporate disputes for corporations, implementing Section 181 of Republic Act No. 11232, otherwise known as the Revised Corporation Code (“RCC”), last September 19, 2022.
Section 181 of the RCC provides that an arbitration agreement may be provided in the articles of incorporation or by-laws of a corporation, and when such an agreement is in place, disputes (other than those involving criminal offenses and interest of third parties) between the corporation, its stockholders or members, which arise from the implementation of the articles of incorporation or by-laws, or from intra-corporate relations, shall be referred to arbitration.
The SEC guidelines reiterates this and adds that the parties must also comply with any agreed pre-arbitration alternative forms of dispute resolution, such as negotiation or mediation, under the arbitration agreement. This means that parties to an intra-corporate dispute must first submit their dispute to arbitration before filing it in court or risk having it dismissed.
Despite not being signatories to the articles of incorporation, by-laws or the arbitration agreement, the arbitration agreement shall be binding on the corporation, its directors, trustees, officers, and executives or managers.
For an arbitration agreement to be enforceable under the SEC Guidelines, it must contain the (i) number of arbitrators; (ii) the designated independent third party who shall appoint the arbitrator or arbitrators; (iii) the procedure for the appointment of the arbitrator or arbitrators; and (iv) the period within which the arbitrator or arbitrators should be appointed by the designated independent third party.
In case the designated party fails to appoint the arbitrator or arbitrators in the manner and within the period in the arbitration agreement, any of the parties may request the SEC to appoint the arbitrators who must be accredited by the Office of Alternative Dispute Resolution (OADR) or organizations accredited by the OADR or the SEC.
The SEC Guidelines reiterates the arbitral tribunal’s power provided for in Section 181 of the RCC to rule on its own jurisdiction and on questions relating to the validity of the arbitration agreement. It adds that the tribunal also has the power to grant interim measures including (a) preliminary injunction directed against a party to arbitration; (b) preliminary attachment against property or garnishment of funds in the custody of a bank or a third person; (c) appointment of a receiver; (d) detention, preservation, delivery or inspection of property; or € appointment of a management committee.
Final awards under the Section 181 of the RCC are considered as a commercial arbitration award and shall be executed in accordance with the rules of procedure to be promulgated by the Supreme Court.
This new Guidelines will hopefully make it easier and less costly to resolve intra-corporate disputes in the Philippines.