Arbitration is now one of the preferred modes of resolving commercial disputes in the country because of the adoption of arbitration clauses in most commercial contracts, especially when one or several of the contracting parties is a multi-national and/or related company.

Commonly, arbitration clauses/agreements provide for a procedure for escalation of disputes, which begins with a mediation process described in the contract.

In case the dispute persists, the parties then resort to formal arbitration usually before a pre-agreed arbitration entity.

If there is no arbitration agreement in the contract, disputes will be resolved via the regular procedures provided for under the rules of court promulgated by the Philippine Supreme Court. These are brought before regular courts of justice and jurisdiction is determined by the nature of the case and/or the amounts involved. Certain commercial disputes, such as intellectual property cases, intra-corporate disputes, rehabilitation, insolvency, liquidation, and competition cases are handled by special commercial courts.

For commercial arbitration, the provisions of Republic Act No. 876 (Arbitration Law), Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004), and the Special Rules of Court on Alternative Dispute Resolution are observed. The United Nations Commission on International Trade Law [Uncitral] Model Law on International Commercial Arbitration was wholly adopted in the Alternative Dispute Resolution Act of 2004. Any stipulation on the adoption of a specific arbitral institution’s rules is respected. In the absence of such stipulation, parties to a commercial arbitration are allowed to set their own procedural rules.

In cases where there is no arbitration agreement, commercial litigation commenced before regular courts are governed by the provisions of the rules of court.

The Philippine court system has four levels, comprised of municipal or metropolitan trial courts, regional trial courts, the Court of Appeals, and the Supreme Court.

Commercial disputes involving intellectual property cases, intra-corporate disputes, rehabilitation, insolvency, liquidation, and competition cases are handled by certain regional trial courts designated as special commercial courts.

In case the commercial dispute involves a purely monetary claim, the claim should be filed before a municipal or metropolitan trial court if the amount of the claim or personal property involved does not exceed PHP 300,000.00 or approximately USD 6,243.00 (outside Metro Manila), or PHP 400,000.00 or approximately USD 8,325.00 (in Metro Manila). If the commercial dispute involves title to, possession of, or interest in real property, the claim should be filed before a municipal or metropolitan trial court if the assessed value of the property does not exceed PHP 20,000.00 or approximately USD 416.00 (outside Metro Manila), or PHP 50,000.00 or approximately USD 1040.00 (in Metro Manila).

If the commercial claim exceeds these threshold amounts, the case should be filed before a regional trial court.

In either case, Philippine rules of procedure provide for an appeal process to the Court of Appeals, and ultimately, to the Supreme Court as the final court of appeal.

Considering the recent amendments to the rules of civil procedure, which shortened the litigation process by, among others, discouraging extensions and continuances, cases ideally get to trial  within  six (6) months to one (1) year from commencement of the action. Among the key innovations of the new rules which expedites the process is the requirement that all available evidence be attached by the parties to their pleadings.

Court proceedings are open to the public, except when necessary for orderly proceedings, essential to protect privacy or confidentiality.

Court records are also public and may be accessed subject to the procedures provided for by the individual courts, such as imposing restrictions on reproduction of documents or their publication for dissemination. Normally, courts impose stricter guidelines on access to records of cases when sought  by a non-party or when the information sought to be disclosed is confidential or when the information not yet made of public record relates to cases that are still pending.

Philippine laws provide for the following relevant prescriptive periods:

Four years from the time the right of action accrues – actions based on negligence or tort

Six years from the time the right of action accrues – actions upon an oral contract and upon a quasi-contract

Eight years from the time possession is lost – actions to recover a movable property, unless the possessor has acquired ownership by prescription for a less period

Ten years from the time the right of action accrues – actions upon a mortgage, upon a written contract, upon an obligation created by law, and upon a judgment

Thirty years from the time the right of action accrues – real actions over immovable property

Five years from the time the right of action accrues – actions whose periods are not fixed by law

If the individual litigants reside in the same city or town, prior recourse to barangay (a local government unit within a city or town) conciliation proceedings is required. If the parties have an arbitration agreement, the parties must resolve their dispute through arbitration before seeking judicial relief. It must also be noted that, before cases proceed to trial proper, courts will require parties to go through court-annexed mediation and judicial dispute resolution.

Non-compliance with pre-action conduct requirements may result in the dismissal of the case for failure to comply with a condition precedent.

Civil litigation is commenced by the filing of a complaint. If the commercial dispute involves a purely monetary claim, the court, through its own process server, will serve the summons and the complaint to the defendant. The summons will order the defendant to respond to the complaint.

The amended rules of civil procedure allow the court to authorise the plaintiff, together with the process server, to serve the summons, in case of failure of service. The new rules also provide that, if the summons is to be served outside the jurisdictional region of the court, the plaintiff shall be authorised to cause the service of summons. Moreover, if summons is improperly served and a lawyer makes a special appearance on behalf of the defendant, such lawyer shall be deputised by the court to serve summons on his or her client.

In cases where title to property is involved, and the defendant is not based in the Philippines or the whereabouts of the defendant are unknown, the summons and the complaint may be served by publication in a newspaper of general circulation. The party who filed the complaint will cause the publication at said party’s expense.

The amended rules of civil procedure further allow the service of summons and pleadings through methods recognised in international conventions to which the Philippines is a party. For instance, in cases involving parties living in countries who are states-parties to the Hague Service Convention, Philippine courts may avail of the procedures for service of court documents, such as through diplomatic agents or postal channels.

The basis of jurisdiction is the amount of the claim or value of the property in dispute; and the nature of the action, as alleged in the complaint.

As a rule, Philippine courts will apply Philippine law. If a party claims that foreign law should be applied, such party must establish the basis for the application of foreign law and prove the contents of the foreign law. In determining whether to apply foreign law, courts take into account various factors, including the stipulation of the parties on governing law, the place where the contract was executed, the place of performance of contractual obligations, and, if applicable, the place where damage or injury is done.

If the pleadings of the parties are already sufficient to render judgment without the presentation of evidence, such as when there is no genuine factual issue, the court may render a judgment on the pleadings or a summary judgment. A judgment on the pleadings or a summary judgment may be rendered without the need of position papers or memoranda. When the defendant fails to answer within the reglementary period, and upon motion of the plaintiff, the court may render a default judgment granting such relief as the plaintiff’s pleading may warrant. The court may also resolve a case based on the submission of the parties if the documents on record provide for sufficient basis for a decision. Further, after pre-trial, litigants are referred to court-annexed mediation proceedings and judicial dispute resolution, where parties are encouraged to amicably resolve the dispute without going to trial.

The following are the interim remedies commonly available for commercial disputes:

1. Preliminary attachment, where the court levies on the property or garnishes the debts, credits, and other receivables of the defendant;
2. Preliminary injunction, where the court prevents a party from performing or compels a party to perform a particular act; and
3. Receivership, where the court orders a receiver to preserve, administer, and/or dispose of the property subject of litigation.

All cases require the filing of a complaint (sometimes, a petition), which states the ultimate facts and the documentary and object evidence in support of the plaintiff’s allegations. Witness statements must also be attached to the complaint.

The defendant is given 30 days to file an answer, which must also include all of the defendant’s evidence. Within 15 days from receipt of the answer, the plaintiff may file a reply under limited situations.

At least three (3) days before pre-trial, the parties are required to submit their respective pre-trial briefs. These contain, among others, the summary of the parties’ claims and/or defences, the issues of the case, the parties’ evidence, the summary of witness testimonies, and the reliefs prayed for.

After trial, the parties may be required to submit memoranda summarising their arguments and evidence, typically within 30 days from notice of the court’s order.

Parties have the prerogative to submit the documents they consider necessary to prove their claims or defences. However, a party may request for the production or inspection of documents through a discovery procedure, which may be granted if the court considers the documents requested to be relevant and necessary to the proceedings. The discovery procedure may be refused if the requested documents contain privileged or confidential information. Parties may also refuse to a court compulsion to disclose information if they involve trade secrets or confidential information.

Witnesses are required to reduce their testimonies in affidavit form, in lieu of direct examination in open court. Documentary or object evidence must also be identified in and attached to the affidavits.

At trial, the witnesses will identify their affidavits in open court and may be cross-examined in open court on any relevant matter. The witnesses may also be subjected to re-direct and re-cross examination in open court.

Parties may request for the deposition of any person, which may be taken before action, pending action, or pending appeal. Depositions may be oral or written. In either case, the other party may cross-examine the deponent on his or her deposition. Generally, depositions may be used against any party who was present or represented at the taking of the deposition or who had notice thereof.

Expert opinion is permitted on a matter requiring special knowledge, skill, experience, training or education, which the expert is shown to possess. Experts may be appointed either by the court or by a party. Experts have the same rights and obligations as ordinary witnesses.

Final and interim decisions can be appealed or challenged before the next higher court. As mentioned, the Philippine court system has four levels: the municipal or metropolitan trial courts, the regional trial courts, the Court of Appeals, and the Supreme Court. Thus, the appeal procedure for final and interim decisions follows this hierarchy of courts.

Generally, final decisions or orders may be appealed to the next higher court within 15 days from receipt of the final decision or order.

Interim decisions or orders may be the subject of a motion for reconsideration, which should be filed within 15 days from receipt of the interim decision or order. If the motion for reconsideration is denied, a party may assail the interim decision or order before the next higher court, through a petition for certiorari, within 60 days from receipt of the order denying the motion for reconsideration.

Foreign judgments can be enforced by filing an action for enforcement in a regional trial court. In such action, the party seeking to enforce the foreign judgment must prove: (a) the existence, authenticity, and finality of the foreign judgment; and (b) that the judgment was rendered by a court of competent jurisdiction.

The foreign judgment may be repelled if the adverse party proves that the judgment was rendered without jurisdiction, without proper notice, or through collusion, fraud, mistake, or violation of the rights of the adverse party.

Due to the principle that no premium should be placed on the right to litigate, the prevailing party is not necessarily entitled to recover the actual amount spent for litigation. However, costs of litigation, in the form of attorney’s fees, can be awarded to the prevailing party in certain instances and must have factual, legal, and equitable justification. If awarded, the amount to be recovered is discretionary upon the court.

Philippine rules of procedure provide for a class suit mechanism, the requisites of which are: (1) the subject matter of the controversy is one of common or general interest to many persons; (2) the parties affected are so numerous that it is impracticable to bring them all to court; and (3) the parties bringing the class suit are sufficiently numerous or representative of the class and can fully protect the interests of all concerned.

A party may file a third-party complaint against a third person for contribution, indemnity, subrogation or any other relief with respect to the other party’s claim. The third party will be impleaded in the proceeding upon approval of the court.

A person who has a legal interest in the matter in litigation may, with leave of court, be allowed to intervene in the on-going proceeding.

At its own initiative, a court may also order that a party be joined as a defendant if the presence of such party is required for the grant of complete relief in a counterclaim or crossclaim.

Upon motion or at the court’s initiative, two proceedings involving a common question of law or fact may be consolidated or jointly heard.

There is no prohibition against third parties funding litigation in our jurisdiction. It is, however, not  expressly allowed whether in court litigation or arbitration. In fact, third-party funding is generally not relevant in commercial litigation, so long as the party filing the case is a real party in interest, i.e., a party who may benefit or be injured by the judgment in the case.

A third-party funder not a party to the case is not bound by the judgment rendered therein. Thus, in such case, the court cannot render a judgment awarding costs against a third-party funder.

The COVID-19 pandemic has slowed down court operations in the Philippines. During peak positivity rates for COVID-19 (e.g. March to May 2020), and the surge of infection in early 2021 (e.g. March-April), the Supreme Court ordered the physical closure of all courts in places where the government has imposed strict quarantine restrictions. The Supreme Court has also granted extensions of deadlines for non-urgent court submissions. During the periods that courts are physically closed, they are still allowed to receive pleadings for urgent matters such as those relating to persons deprived of liberty and habeas corpus cases. Courts are also permitted to conduct videoconference hearings as far as practicable.

In periods when the government does not impose strict operational restrictions, courts are allowed to operate with limited personnel onsite. Inquiries and court transactions are, however, coursed through hotline numbers or emails. Courts are also allowed to receive pleadings and other submissions physically but still giving the litigants the option to file the same electronically.

The Supreme Court has likewise adopted measures to enable courts to act on matters presented before them through videoconferencing. It has issued guidelines on the conduct of videoconferencing which will continue to be applicable even after the COVID-19 pandemic. Furthermore, the Supreme  Court also deployed technological support to all courts to enable them to receive pleadings and other court submissions by email and to host videoconference hearings.

Despite these commendable efforts, Philippine courts and litigants still face challenges due to the COVID-19 pandemic. For instance, some courts (even those in Metro Manila) still opt to conduct hearings in open court due to intermittent internet connectivity issues. Courts in provinces where internet service is limited are also faced with the difficult task of conducting in-person hearings despite the prevalence of COVID-19 cases.

The main advantage of litigating international commercial disputes in our jurisdiction is the system of laws and procedures which has due process at its core. The principles underlying Philippine laws and procedures have a mix of Anglo-American and Spanish roots. Thus, Philippine procedural rules are similar, if not identical to, internationally accepted standards of due process and fair play, including notice to the parties, a fair opportunity to be heard, and a strong discovery procedure. In light of the adoption of the recent amendments to the rules of civil procedure, Philippine procedural rules were further harmonised with international standards. The recent amendments are substantially based on litigation best practices of other jurisdictions. The amended rules grant courts with additional powers to ensure that all parties are given an opportunity to be heard, including deputisation of parties and counsels to serve summons.

Although there are discernible efforts to streamline the litigation process in the Philippines, such as the adoption of the recent amendments to the rules of civil procedure, the rules on witness statements in lieu of open court testimony, and prohibitions against extensions of time to file pleadings, there are still several external factors that lead to protracted litigation. We observe that Philippine courts exert efforts to ensure that parties are fully heard on their cases, and these efforts entail a relaxation of procedural rules.

The infrastructure of special commercial courts and the use of alternative modes of dispute resolution will most likely grow and develop further.

The Supreme Court has been continuously adopting measures to increase the number of special commercial courts and to expand the coverage of commercial disputes within the jurisdiction of special commercial courts. Judges of these courts have also been provided with specialised training, with a view of improved efficiency in handling commercial cases and more adept decisions on complex commercial issues based on the contemporary developments in commercial law. We believe that these measures will result in a more streamlined commercial litigation process.

There is also a trend toward the development of judicial expertise and further specialisation of courts. For instance, the Supreme Court recently approved a rule designating certain courts as admiralty courts, which are specifically tasked to handle admiralty, shipping and maritime cases. We anticipate the Supreme Court to adopt similar measures for other commercial cases.

The Philippines has also recently signed the Singapore Mediation Convention, which facilitates the enforcement of settlements of commercial disputes resulting from mediation between states parties.

Several arbitral institutions in the Philippines, such as the Philippine Dispute Resolution Center, Inc. [PDRCI] and the Construction Industry Arbitration Commission [CIAC] and the Philippine International Center for Conflict Resolution [PICCR], continue to update and revise their rules to reflect the latest innovations in the international arbitration community. For instance, the PDRCI recently revised its rules to incorporate an emergency arbitration procedure, wherein a party can request for the appointment of an emergency arbitrator who may provide interim relief prior to the constitution of the arbitral tribunal. Prior to the introduction of emergency arbitration, a party seeking interim relief had to resort to court proceedings. Further, the jurisdiction of the CIAC over construction disputes has been made so comprehensive such that, as long as the parties submit to voluntary arbitration, the parties may submit their dispute to the CIAC, regardless of the forum stipulated in the arbitration agreement. The CIAC also amended its rules to address delays in its procedure by imposing strict reglementary periods and a fixed timeframe to render an award and by prohibiting motions for time in any case. The recent amendments include the automatic acceptance of appointment of an arbitrator in case of failure to communicate acceptance or refusal and the grant of motions for execution pending appeal when no bond to stay execution is filed.  

Arbitration has also been promoted through legislation. For instance, the Revised Corporation Code allows the inclusion of arbitration agreements in a corporation’s articles of incorporation and by-laws, which inclusion effectively permits intra-corporate disputes to be arbitrated, instead of being litigated in special commercial courts.

Over the past few years, there has been an increasing awareness and usage of electronic evidence in commercial transactions and court proceedings. Electronic evidence is considered as the functional equivalent of a paper-based document. Electronic signatures are also considered as the functional equivalent of signatures on a written document. Further, audio, video, and ephemeral evidence, such as text messages and chatroom sessions, are admissible in evidence. These rules governing electronic evidence have been integrated in the recent amendments to the rules on evidence.

The Supreme Court has also adopted digital reforms, giving litigants the option to electronically file and serve their submissions. Under the new rules of civil procedure, filing and service of pleadings and other court submissions may now be made through electronic means. Substituted service of summons may also now be effected through electronic mail. The Supreme Court has also promulgated rules for remote notarisation, where affiants may appear before a notary public through videoconferencing. These developments have been further utilised with the emergence of the COVID-19 pandemic which urged the courts and the parties to maximise technology in litigating cases.  The COVID-19 pandemic has allowed the courts to run these digital measures, identify areas of improvement, and adopt modifications to enhance the system as a whole. Thus, we anticipate that the Supreme Court will continue to adopt technological measures to further streamline litigation.

The COVID-19 pandemic has given commercial litigation in the Philippines a fresh perspective. Although courts and litigants were forced to adjust, technological mechanisms have permitted litigants to prove their claims and defences from remote locations even abroad. Operational restrictions served as an avenue for the recent amendments to the rules of civil procedure and evidence to come to life.

In the long run, we foresee commercial litigation to shift from a hybrid of physical (e.g. paper documents, partial videoconference hearings) and virtual platforms (e.g. videoconferencing, electronic evidence, electronic filing and service of submissions) to a completely virtual or digital process where the entirety of commercial litigation — from the initiatory complaint to the execution process — can be undertaken in a computer instead of in court.