Philippines: Litigation

Arbitration is increasingly gaining ground as a mode of resolving commercial disputes, especially those involving multinational companies and cross-border transactions. This trend is due to the increased adoption of arbitration clauses in commercial contracts. Under Philippine law, parties to a contract with an arbitration clause must observe the mediation process stipulated in said clause; failing which, parties must proceed to arbitration.

In the absence of an arbitration agreement, disputes are resolved through litigation. Certain commercial disputes, such as intellectual property cases, intra-corporate disputes, cases involving maritime laws, and rehabilitation, are handled by special commercial courts.

If commercial litigation is commenced before the courts, the provisions of the Rules of Court govern.

For commercial arbitration, the provisions of Republic Act No. 9876 (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 in International Trade (UNCITRAL) Model Law 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.

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.

As mentioned above, certain commercial cases, i.e., intellectual property cases, intra-corporate disputes, cases involving maritime laws, and rehabilitation, are handled by regional trial courts designated as special commercial courts.

In case the commercial dispute purely involves a 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 P300,000.00 or approximately USD5,770.00 (outside Metro Manila), or P400,000.00 or approximately USD6,792.00 (in Metro Manila). If the commercial dispute involves real property, the claim should be filed before a municipal or metropolitan trial court if the assessed value of the property does not exceed P20,000.00 or approximately USD384.00 (outside Metro Manila), or P50,000.00 or approximately USD961.00 (in Metro Manila).

Should the commercial claim exceed 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.

Ordinarily, after exchange of pleadings, pre-trial, court-annexed mediation, and judicial dispute resolution, trial may start four (4) to six (6) months from commencement of proceedings. However, other factors, such as the complexity of the issues, the case load of the court, and other possible interlocutory challenges, like motions to dismiss, motions for bill of particulars, and complex discovery procedures, may extend the period above mentioned.

Generally, court proceedings are open to the public, except when necessary for orderly proceedings, essential to protect privacy or confidentiality, the evidence to be produced is offensive to decency or public morals, or confidentiality of the proceedings is mandated by law or Supreme Court’s rules. A party may also request, when necessary, for closure of portions of the trial.

Court records are considered public records subject to inspection by any person, except in the interest of morality and decency or when there are privacy or confidentiality concerns. A party may request for the issuance of a protective order to maintain confidentiality of court-submitted documents. Courts may also forbid reproduction but allow inspection of the documents within the court premises should the documents contain sensitive and confidential information.

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

If the individual litigants reside in the same village, prior recourse to barangay (village) conciliation proceedings is required. If the parties have an arbitration agreement, the parties must resolve their dispute through arbitration before seeking judicial relief. If the claim involves deceit or misappropriation, a prior demand is necessary. Further, a party is only considered in default upon non-compliance with a prior demand. Thus, generally, a monetary claim or an action to enforce a contract must be preceded by an extrajudicial demand. Nevertheless, parties are allowed to waive the requirement of prior demand through contract stipulation.

Non-compliance with pre-action conduct requirements may result in the dismissal of the case. In exceptional cases, a court may proceed with the case despite non-compliance in the interest of justice.

Civil litigation is commenced by the filing of a complaint. If the commercial dispute purely involves a 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. 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 and bear the cost thereof.

The basis of jurisdiction is the amount of the claim or 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 as to the law that should govern their agreement, the place where the contract was executed, and the place of performance of contractual duties.

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.

If the questions raised are purely legal, the court may order the submission of position papers or legal memoranda and dispense with trial.

The court may also delegate the reception of evidence to a commissioner, who shall then file a report with the court. The commissioner’s report may be adopted, modified, or rejected by the court. When the parties stipulate that the commissioner’s factual findings shall be conclusive, only questions of law will be heard by the court.

The court may also approve a compromise agreement reached by the parties prior to trial as a result of an amicable settlement from the mediation or judicial dispute resolution conferences.

Under Philippine rules of procedure, the interim remedies commonly available for commercial disputes are:

1. preliminary attachment, wherein the court levies on the property or garnishes the debts, credits, and other receivables of the defendant;
2. preliminary injunction, wherein the court prevents a party from performing or compels a party to perform a particular act;
3. receivership, wherein the court orders a receiver to preserve, administer, and/or dispose of the property subject of litigation;
4. replevin, wherein the court orders the personal property subject of litigation to be delivered to the party seeking recovery of possession; and
5. support pendente lite, applicable to family law cases, wherein the court orders a party to pay the applying party an amount of money for support while the case is pending.

All cases require the filing of a complaint (sometimes denominated as a petition), which states the ultimate facts on which the claimant relies for its claim. Generally, the defendant must file its answer within 15 days from receipt of the summons and the complaint; otherwise, the defendant will be declared in default and cannot participate in trial. The claimant may file a reply within 10 days from receipt of the defendant’s answer.

Five days before pre-trial, the parties are required to submit their respective pre-trial briefs. The pre-trial briefs shall contain the summary of the parties’ claims and defences, the issues of the case, the parties’ evidence, and the affidavits of their witnesses.

After trial, the parties may be required to submit memoranda summarizing 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.

Under Philippine rules of procedure, witnesses are required to reduce their testimonies in affidavit form. The affidavits take the place of the witnesses’ direct testimony. Documentary or object evidence must also be identified in and attached to the judicial affidavits.

At trial, the witnesses will identify their affidavits in open court and may be cross-examined in open court on the contents of their affidavits and on the exhibits attached. The witnesses may also be subjected to re-direct and re-cross examination in open court.

Depositions are permitted and either party may request for the deposition of any person. Depositions may be oral or written. In either case, the other party may cross-examine the deponent on his or her deposition. Further, 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 or training, 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 follow 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 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.

Costs of litigation, in the form of attorney’s fees, can be awarded to the prevailing party. However, the amount to be recovered is discretionary upon the court. Further, due to the principle that no premium should be placed on the right to litigate, the prevailing party may not necessarily recover the actual amount spent for litigation.

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.

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 cross-claim.

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 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.

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 fact, Philippine procedural rules are considered to be mere tools to facilitate the attainment of justice. Thus, procedural rules may be relaxed, if necessary, to serve the broader interests of justice.

Although there are discernible efforts to streamline the litigation process in the Philippines, such as the adoption of rules on witness statements in the form of affidavits and prohibitions against extensions of time to file pleadings, considering the importance of due process, there is still a possibility of protracted litigation. As mentioned, Philippine courts will exert every effort to ensure that parties to a case will be fully heard, even if such would entail a relaxation of procedural rules.

The infrastructure of special commercial courts will most likely grow in the next five (5) years. The Supreme Court is adopting measures to increase the number of special commercial courts. Further, there are continued efforts to provide specialized training to judges, with a view to increased efficiency in handling special commercial cases and more adept decisions on complex commercial issues. The Supreme Court is also undertaking a thorough review of the Rules of Court, which governs, in large part, commercial disputes. We believe that these measures will result in a more streamlined commercial litigation process.

There are also sustained efforts to promote arbitration as a viable and practical alternative to litigation. The arbitral institutions in the Philippines, such as the Philippine Dispute Resolution Center, Inc. (PDRCI) and the Construction Industry Arbitration Commission (CIAC), 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. There are also associations in the Philippines, such as the Philippine Institute of Arbitrators (PIArb), which are solely focused on promoting arbitration as an alternative mode of dispute resolution. Thus, we believe that international commercial arbitration will continue to gain ground in the Philippines.

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. The aforementioned rule already applies to all courts in the country.

Moreover, there are already certain courts in the Philippines that are designated as electronic courts or e-courts. E-courts have Automated Hearing Systems, where activities in a hearing are captured real time and court orders are served to the parties minutes after the end of the hearing. E-courts also have special case management systems, which highlight pending incidents and the corresponding deliverables and deadlines. In addition to the current e-courts infrastructure, the Supreme Court’s digital reforms are geared towards having litigants file and serve pleadings through e-mail or in a digital platform, similar to how pleadings are currently filed and served in arbitration proceedings. Thus, we anticipate that reforms in the judiciary will follow the digital trend in arbitration proceedings.