SEC units regulations on arbitration inside corporations

THE SECURITIES and Exchange Commission (SEC) has issued guidelines that will allow corporations to resolve intra-corporate disputes through arbitration without going to court.

“The commission on September 19 issued SEC Memorandum Circular No. 8, Series of 2022, which provides for the guidelines on arbitration of intra-corporate disputes for corporations,” SEC said in a press release on Thursday.

“The guidelines operationalize Section 181 of Republic Act No. 11232, or the Revised Corporation Code of the Philippines (RCC), which states that an arbitration agreement may be provided in the articles of incorporation or bylaws of a corporation,” SEC added.

Section 181 of the RCC provides that an arbitration agreement may be provided in the articles of incorporation or by-laws of a corporation.

The guidelines provide the minimum provisions of the arbitration agreement that a corporation may execute, the place of arbitration, the procedure for the appointment of arbitrators, the composition and powers of the arbitral tribunal, and disclosure requirements, among others.

The rules define arbitration as a voluntary dispute resolution process in which arbitrators, appointed or in accordance with the rules, resolve a dispute by rendering an award.

According to the guidelines, a domestic corporation may provide an arbitration agreement in its articles of incorporation or bylaws or in a separate agreement.

The agreement must state the number of arbitrators, the designated independent third party, the procedure for the appointment of the arbitrator or arbitrators, and the period within which they should be appointed.

The guidelines state that “disputes that involve criminal offenses and interests of third parties shall be excluded from arbitration.”

The SEC said that when an intra-corporate dispute is filed with a regional trial court despite the adoption of an arbitration agreement, “the court shall act in accordance with the rules of procedure that the Supreme Court may promulgate to implement Section 181 of the RCC.”

The place of arbitration is presumed to be in the Philippines unless stated otherwise or under a relevant law if it is outside the country.

“Prior to arbitration, parties must comply with alternative forms of dispute resolution, such as negotiation or mediation, as prescribed under the agreement,” it said.

The arbitration will proceed after a designated independent party has appointed arbitrators. However, the SEC may appoint should the parties fail to appoint the arbitrators as specified in the arbitration agreement.

The guidelines provide that the arbitrators must be accredited by the Office for Alternative Dispute Resolution under the Department of Justice or the SEC or by organizations accredited by any of the two.

“A person who has been approached for his or her possible appointment as an arbitrator shall disclose any circumstances likely to give rise to justifiable doubts as to his or her impartiality or independence to the case,” the SEC rules said.

However, arbitrators may be challenged should there be doubts about their impartiality or independence.

The arbitral tribunal has the power to rule on its own jurisdiction and arbitration agreement and has the power to grant the necessary interim measures “to ensure enforcement of the award, prevent a miscarriage of justice, or otherwise protect the rights of the parties.”

“Interim measures include preliminary injunction directed against a party to arbitration and preliminary attachment against property or garnishment of funds in the custody of a bank or third person, among others,” the SEC added.

Under Section 181 of the RCC, the final arbitral award is considered a commercial arbitration award and will be executed in accordance with the rules of procedure promulgated by the Supreme Court. — Justine Irish D. Tabile

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