05 Apr 2019
On the 60th year of the signing of the New York Convention (“NYC”), the Supreme Court of the Philippines (“SC”), for the first time, declared its adoption of a narrow definition of “public policy” under the said convention. In Mabuhay Holdings Corporation v. Sembcorp Logistics Limited, G.R. No. 212734, 5 December 2018, a case arising from a Singapore-seated arbitration, the SC held that “[m]ere errors in the interpretation of the law or factual findings would not suffice to warrant refusal of enforcement under the public policy ground. The illegality or immorality of the award must reach a certain threshold such that, enforcement of the same would be against [the Philippines’] fundamental tenets of justice and morality, or it would blatantly be injurious to the public, or the interests of the society.” In particular, the SC ruled that violations of Philippine law relating to partnerships and interest are not sufficient to trigger the public policy objection under the NYC.
Mabuhay also gave the SC the opportunity to deal with objections on the basis of Articles V(1)(c) and (d) of the NYC.
Under Article V(1)(c) (i.e. the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration), petitioner argued that the dispute referred to arbitration was an intra-corporate controversy – a conflict expressly excluded from the scope of the arbitration clause. The SC dismissed the objection with reasoning that could be interpreted to mean that a Philippine enforcement court has no power to review a sole arbitrator’s positive finding of jurisdiction.
Under Article V(1)(d) (i.e. the composition of the arbitral authority was not in accordance with the parties’ agreement), petitioner argued that the appointment of the sole arbitrator, a Thai national, was not in accordance with the arbitration clause, which requires the arbitrator to have “expertise in the matter at issue”. According to petitioner, as the sole arbitrator is not legally qualified to practise law in the Philippines, he does not possess the relevant expertise that the arbitration clause requires. The SC held that as petitioner was given the opportunity to challenge the sole arbitrator under the 1998 ICC arbitration rules, and the ICC Court decided to reject the challenge, the court shall no longer “entertain any challenge to the appointment of arbitrators disguised as a ground for refusing enforcement of an award”.
Notwithstanding such broad statements, the SC continued to briefly discuss and confirm the sole arbitrator’s competence to act and his jurisdiction to decide the dispute. However, with such statements from the SC that essentially gave finality to the findings of the tribunal and the ICC Court, Mabuhay provides arbitration practitioners with some points to ponder on. When a court gives that much deference to the arbitrator and the arbitral institution, has it essentially foregone its power to review the arbitrator’s findings at the enforcement proceeding? Has the SC gone too pro-enforcement? Or rather, has the Philippine SC merely affirmed its deference to party autonomy? If so, how much of the effects of an arbitral clause could be attributed to party autonomy?
The ruling in Mabuhay could mean that Philippine courts shall not entertain a reiteration of jurisdictional arguments already raised and rejected in a challenge proceeding made in accordance with the arbitration rules agreed by the parties. Are parties better off reserving a qualification objection until the enforcement proceedings, rather than raising it as a formal challenge during the arbitral proceedings? In the former situation, however, complications could arise when one considers the relevant mandatory time limits for challenging the appointment of an arbitrator.
Mabuhay is a reminder for parties and their representatives to seek legal advice when drafting arbitration clauses. In Mabuhay, the parties agreed on the 1998 ICC arbitration rules, which requires the appointment of a sole arbitrator with neutral nationality and would, therefore, disallow the appointment of a Filipino sole arbitrator, as petitioner (respondent in the arbitration) is a Philippine corporation. However, the arbitration clause provides that the arbitrator must have expertise in the matter in dispute – a dispute governed by Philippine law. The ambiguity arose when petitioner argued that the parties have intended to appoint a Filipino arbitrator as, under Philippine law, only qualified Philippine nationals are allowed to advise on Philippine law. An experienced advisor would have advised the parties to expressly clarify the arbitrator’s nationality in the clause. In any event, the ruling is significant to the extent that the SC acknowledged that an arbitrator need not be a Philippine-qualified lawyer to be considered as one with expertise on an issue relating to the application of Philippine law.
On the issue of public policy, the SC's adoption of the narrow approach in interpreting public policy signals a new era in Philippine arbitration where the “public policy” ground is no longer a catch-all objection in enforcement proceedings. Still, Mabuhay is a reminder for parties to choose their arbitrators carefully. Otherwise, arbitrations may lead to misapplication or misinterpretation of the law. One should be reminded of the “lawlessness” of arbitration and realise that a “narrow” approach on the public policy ground means that a misapplication or misinterpretation of the law could be widely tolerated in enforcement proceedings. While arguably attributable to party autonomy, up to what extent could a misapplication of the law be tantamount to a miscarriage of justice - to the losing party, and indirectly, to third parties and the society as a whole?
With all the above questions, one should note that while arbitration is a product of party consent, for the sake of orderly functioning of the society, principles of due process and legal consistency are also important considerations in interpreting arbitration laws. The balance made by courts determines whether a jurisdiction is pro-enforcement. In the case of the Philippines, has the SC decided to be on the extreme end of the “pro-enforcement policy spectrum” - a yay or a nay?
This article was distributed at the first CIArb (East Asia Branch) Young Members Group Annual Conference in Hong Kong on 8 April 2019.
Jay Santiago is a senior associate in Quisumbing Torres (a member firm of Baker & McKenzie International). He is the co-chair of the CIArb YMG Philippine Chapter, the co-chair of Young Philippine Institute of Arbitrators, a North Asia regional representative of the ICC Young Arbitrators Forum, a regional ambassador of HK45, and the country representative of the Asia-Pacific Forum for International Arbitration. He is qualified to practise in the Philippines and England & Wales.