SEC Releases Guidelines on Arbitration of Intra-Corporate Disputes

On 19 September 2022, the Securities and Exchange Commission (“SEC”) released Memorandum Circular No. 8, 2022 (the “Rules”), which provided for the Guidelines on Arbitration of Intra-Corporate Disputes for Corporations, implementing Section 181 of the Revised Corporation Code. The Rules provide for requirements regarding contents of an arbitration agreement, as well as the procedures involved in selecting arbitrators.

Under the Rules, Arbitration Agreements may be included in the articles of incorporation or by-laws of a domestic corporation. It may also be found in a separate agreement. In instances where an Arbitration Agreement is in place, all disputes 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 after compliance with any agreed pre-arbitration alternative form of dispute resolution under the Arbitration Agreement. Despite not being signatories to the articles of incorporation, by-laws, or separate agreement, the Arbitration Agreement shall be binding on the corporation, its directors, trustees, officers, and executives or managers.

The following minimum provisions must be included in an Arbitration Agreement:

1. The number of arbitrators (e.g., one or three);
2. The designated independent third party who shall appoint the arbitrator or arbitrators; 
3. The procedure for the appointment of the arbitrator or arbitrators; and
4. The period within which the arbitrator or arbitrators should be appointed by the designated independent third party.

Arbitration Agreements which do not include the foregoing provisions shall be unenforceable under the Rules. However, arbitration may still proceed under the Alternative Dispute Resolution Act and its implementing rules, if the seat or place of arbitration is the Philippines, or under the relevant arbitration law if the seat or place of arbitration is outside the Philippines.

The Rules shall apply to arbitrators appointed by the SEC to resolve the dispute, upon request of the parties. If the Arbitration Agreement expressly states that the seat or place of arbitration is a place other than the Philippines, the Rules shall not apply. Further, intra-corporate disputes which involve criminal offenses and interests of third parties shall not be referred to arbitration.

The arbitrators shall be appointed by a designated third party pursuant to the procedure agreed upon by the parties. Should the designated authority fail to appoint the arbitrators, the SEC may make the appointment upon written request from a party to the arbitration, and considering the following:

1. Nature of the dispute;
2. Whether the arbitrators who possess the required qualifications would be available to accept the appoint; 
3. The identity and nationality of the parties to the arbitration agreement; 
4. Any consideration in respect of the independence and impartiality of the person to be appointed as an arbitrator; 
5. Any stipulations in the relevant agreement; and
6. Any suggestions made by the parties themselves.

In instances when the exemption of a party from the Rules shall serve the broader interest of justice and will best service public interest, the SEC will exempt such party and apply such suitable, fair, and reasonable procedure to improve the delivery of public service and to assist the parties in obtaining a speedy and judicious disposition of cases.