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Topic:

CIAC Arbitration: A Preferred


Alternative To Court Litigation
Lecturer:

Atty. Eduardo R Ceniza

Atty. Eduardo R. Ceniza


FCIArb, FHKIArb, FSIArb, FPIArb
President, Philippine Institute of
Construction Arbitrators & Mediators

Chairman, Philippine Institute of


Arbitrators
Chairman, Philippine Chapter (East Asia Branch), Chartered
Institute of Arbitrators

Vice President for External Relations, Philippine Dispute


Resolution Center
Managing Partner, The Law Firm of Eduardo R Ceniza &
Partners

What is Arbitration?
Arbitration is "a voluntary dispute
resolution process in which one or more
arbitrators, appointed in accordance with
the agreement of the parties, or rules
promulgated by the arbitral institution,
resolves a dispute by rendering an award.
Otherwise stated, arbitration is a voluntary
process of dispute resolution where a
neutral third party renders a final and
binding decision after each side has an
opportunity to present its view
Section 3(d), ADR Act of 2004.

Relevance of CIAC Arbitration to


the Construction Industry
With the rapid growth and expansion of the
construction industry in the Philippines, it is
increasingly important for the stakeholders in the
construction industry --builders, contactors, and
suppliers -- to have an established method of
resolving construction disputes speedily, efficiently
and cost-effectively. When disputes arise in the
course of construction contract, parties often prefer
to settle them privately and informally, in a
businesslike fashion that will enable them to
maintain their business relationship. Arbitration is
designed for just such occasions, in that it can be
designed for quick, practical and efficient resolution.

Unlike a judicial process, arbitration is


conducted outside the court system by
impartial arbitrators who are selected by
the parties based on criteria that best fits
the nature of the contract. Arbitration is
usually conducted by either one arbitrator
or a tribunal of three arbitrators with the
scope of arbitration decided by the parties
and memorialized in the arbitration clause
of their contract. The parties usually
negotiate the arbitration clause at the
same time they develop the initial contract.

Arbitration allows the parties greater


flexibility than a court proceeding. Parties
can decide to have abbreviated time
periods in filing their submissions, the
place where the arbitration will be
conducted, the submission of affidavits in
lieu of oral testimony of witness, and how
formal the process will be.

Construction Arbitration In The Philippine


Recognizing the need to encourage the early and
expeditious settlement of disputes in the Philippine
construction industry, Executive Order No. 1008 was
issued on February 4, 1985. This law vested the
Construction Industry Arbitration Commission (CIAC)
with original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered into
by parties involved in construction in the Philippines,
provided the parties have agreed to submit the
dispute to voluntary arbitration. Sec. 4, EO No. 1008.

Republic Act No. 9285 (the ADR ACT of


2004) specifically provides that arbitration of
construction disputes shall continue to be
governed by EO No. 1008. The ADR Act of
2004 expanded the jurisdiction of CIAC by
providing that the original and exclusive
jurisdiction of CIAC over construction
disputes shall include those who are bound
by an arbitration agreement, directly or by
reference whether such parties are project
owners, design professionals, consultants,
quantity surveyors, bondsmen or issuers of
an insurance policy in a construction project.
Sections 34 & 35 ADR Act of 2004.

CIAC Arbitration versus Litigation


There is increasing recognition throughout
the modern world that arbitration is the
most effective way of resolving
commercial disputes, including
construction disputes. The demand for
commercial arbitration as a mode of
dispute resolution --- and particularly
international commercial arbitration --- is
growing year by year in line with the
expansion of transnational commerce and
trade and the rapid globalization of the
world economy.

The dispute resolution mechanisms provided by


EO No. 1008, as supplemented by the ADR Act
of 2004, were designed specifically for
construction disputes in both in the domestic
and international context. The parties to
transnational construction transactions, for
example, are invariably of different nationalities,
with different linguistic, legal and cultural
backgrounds. As expected, they may have
strong distrust of a foreign judicial system,
accompanied by a lack of information about the
course to follow. These difficulties are
compounded by the perceived disadvantages
one party may face in submitting to the judicial
procedure in the other partys home ground.

I shall now discuss with some detail some of


the important reasons why construction
arbitration, in the Philippine setting, ought to
be a preferable, if not an altogether a
compelling choice, as against court litigation,
for the resolution of construction disputes.

Speed and Economy


It is a sad commentary that the wheels of
justice in the Philippines grind ever so slowly.
The principal reason for this is the clogged
dockets of the courts, from the lowest to the
highest court. As a result, litigation is
invariably long and protracted; and cases are
decided after many years. In contrast, in
CIAC arbitration are decided, on the
average, very much faster. Let me share with
you some vital statistics from the records of
CIAC.

80% of arbitration cases in CIAC are resolved


within 6 months from the signing of the Terms of
Reference.
80% of cases filed with CIAC for mediation are
settled within 30 days from acceptance of
appointment by the mediator.
20% of cases filed with the CIAC are resolved
beyond 6 months from the signing of the Terms of
Reference; and the cause for the delay is
invariably due to the parties asking for extension
of time to file their submissions or moving for
postponement of hearing dates.

Arbitrators are required by the rules to decide


the case within the said 6 months period,
although the Commission may grant
extensions for good reasons. Absent good
reasons, arbitrators are penalized with
warning, or partial/full forfeiture of their fees,
or suspension to serve as arbitrators.
On the average, and depending on the
complexity of the issues, cases are decided
by the sole arbitrator or the Tribunal between
8 to 12 months from the filing of the request
for arbitration.

I have been a litigator for the last 50 years;


and I dare say that I do not know of any
trail court in the Philippines today that can
approximate, and much less match, the
speed at which the CIAC is able to
resolved cases filed with it.

Specialized Competence of Arbitrators


Judicial systems do not allow the parties to
a dispute to choose their own judges. In
contrast, arbitration offers the parties the
unique opportunity to nominate persons of
their choice as arbitrators, provided they are
independent and impartial. This enables the
parties to have their dispute resolved by
people who have specialized competence in
the relevant field.

This advantage of arbitration over court


litigation is of special importance in the
Philippines. In the particular case of CIAC
arbitration, the parties to a construction
dispute can choose their arbitrators from a
roster of CIAC-accredited arbitrators. The
roster of arbitrators is composed of
prominent engineers, architects, lawyers
and accountants who have undergone and
passed a special course in construction
arbitration administered by CIAC. They are
arbitrators with specialized competence in
resolving construction disputes

What about the courts? It used to be that only


the most competent lawyers with
unquestionable integrity were appointed to the
courts. Unfortunately, things have changed.
Although the Judicial and Bar Council
recommends to the President of the Republic
the nominees for appointment to the courts,
after supposedly reviewing and scrutinizing the
qualifications of the candidates for appointment,
the President, in recent and contemporary
times, has used the appointing power to reward
political favors, without due consideration to the
merits of the appointee.

As a result, lawyers who are ill-equipped for


the bench, but who have strong political
backing, get appointed as judges. Please
dont get me wrong. My statement is not to be
taken as an indictment of all trial judges for
incompetent. To be sure, there are many
judges trial judges are competent and who
possess a high degree of integrity. There are
other judges who do not have the training, the
aptitude or the experience to try complex
commercial cases and much less complex
construction disputes. And for this reason,
often times, they render atrociously wrong
decisions.

In arbitration, parties are allowed to choose


arbitrators with expertise in their business. For
example, if the dispute deals with defects in
the architectural design of a building, the
parties may want the Tribunal to be composed
of a mix of an architect, a civil engineer and a
lawyer; or if the dispute relates to defects in
the structural design of a building, the parties
may want the Tribunal to be composed of a
mix of a structural engineer, a civil engineer
and a lawyer. These options are not available
in court litigation.

A judge, who is a lawyer with no exposure to


construction, will have to decide construction
disputes that involved complex issues of
engineering, architecture, accounting and
standard conditions of contract, such as, for
example, FIDIC, and the danger is that he
may not be competent to properly evaluate
the technical evidence and the equally
technical submission of the parties. This may
result in a technically defective or erroneous
decision.

Neutrality and Party Autonomy


Another advantage of arbitration over
court litigation is that in arbitral
proceedings, parties can place themselves
on an equal footing in at least on four key
respects. The parties are free to choose
the ---

(a) Place of arbitration --- by agreement of


the parties, the place of arbitration can
be seated in any city in the Philippines;
(b) Procedures to be applied --- may be
stipulated by the parties in ad hoc
arbitration and even in institutional
arbitration the parties may by agreement
modify the rules of procedure of the
institution;

(c) Nationality of the arbitrators --- in CIAC,


the Tribunal may be composed of
Filipino arbitrators as well a foreign
arbitrator; and
(d) Legal representation --- the parties can
be represented by Filipino lawyers or
foreign lawyers.

In contrast, these key factors are not


within the control of the parties in court
litigation. In the Philippines, venue is
generally fixed by the Rules of Court; the
proceedings are governed by the Rules of
Court; all judges must be Filipino citizens;
and only lawyers who are Filipino citizens
and who have been admitted to the
practice of law in the Philippines can
represent the parties in court.

Final, Binding Decisions


Unlike the decisions made by Regional Trial

Courts which can be appealed to the Court of


Appeals by ordinary appeal, an appeal from a
CIAC award can be appealed to the Court of
Appeals by petition for review only. In an
ordinary appeal, the party appealing can raise
in the appeal errors of fact and errors of law;
and the appeal can drag on for many years.
In the Courts of Appeals docket priorities,
ordinary appeal ranks last, at the bottom of
cases to be decided.

In contrast, in a petition for review --which is the mode of appeal from a CIAC
award --- the findings of fact of the Arbitral
Tribunal when supported by substantial
evidence are usually adopted by the Court
of Appeals and the review is normally
limited to errors of law. For this reason, a
petition for review is normally decided by
the Court of Appeals much more
expeditiously than it would an ordinary
appeal.

International Recognition and Enforcement of


Arbitral Awards
International commercial arbitration is hailed
as affording the most substantial benefit of
producing an award that is entitled to
recognition and enforcement in 134 countries
that have acceded to the New York
Convention of 1958. This regime of almost
universal recognition and enforcement
compares most favorably with that regulating
the recognition and enforcement of judgments
rendered by foreign courts. Those judgments
are recognized and enforced only when
domestic law or a relevant treaty so provides.

The general rule in civil law systems, like that of the


Philippines, is that foreign judgments are recognized
or enforced on the basis of reciprocity, with frequent
uncertainty as to what form of reciprocity is required.
In common law countries, foreign judgments are
generally recognized and enforced, but courts retain a
significant measure of leeway.
Generally, however, the liberality in the recognition
and enforcement of foreign arbitral awards prescribed
by the New York Convention stands in mark contrast
to the uncertain fate that awaits foreign judgments in
domestic courts

Let me illustrate my point. Supposing we have a


construction contract between a Philippine
Company, the owner, and a Korean
Construction Company, the contractor, for the
construction of a power plant in Cebu. The total
cost of the project is, say, US$ one billion. A
dispute arises between the owner and the
contractor and, despite negotiations made in
earnest, they failed to resolve the dispute
amicable. The Philippine Company has a claim
of US$ 200 million against the contractor. If the
owner filed its claim in a Philippine court and,
after long and protracted proceeds, gets a
judgment in the amount of US$ 200 million, plus
attorneys fess and cost of suit, how does the
owner enforce the judgment?

If the Korean Company has assets in the


Philippine sufficient to cover the amount of
the judgment and which can be levied upon,
then the owner has no problem. But in all
likelihood, the Korean Company will not have
assets in the Philippines sufficient to cover
the judgment. The owner has no choice but to
enforce the judgment in South Korea. The
question is: Will a South Korean court
recognize the Philippine judgment as a
judgment enforceable by writ of execution?
It depends on what is the Korean law on the
matter.

But if the owner opted for arbitration before the


CIAC and obtained an award in the amount of
US$ 200 million plus attorneys fees and cost of
arbitral proceedings, the final award can be
enforced in South Korea as a foreign award
under the provisions of the New York
Convention, of which both the Philippines and
South Korea are signatories. The procedure for
recognition and enforcement under the New
York Convention is quite simple. The party
applying for recognition and enforcement shall
attach to the application (i) the duly
authenticated original award or a duly certified
copy thereof and (ii) the original arbitration
agreement or a duly certified copy thereof.

Private and Confidentiality


Arbitration proceedings are not open to the
public, and only the parties themselves, their
witnesses and their attorneys can attend the
proceedings. Only the parties, through their
respective counsel, receive copies of the
award. Because of the confidentiality of the
proceedings, the parties can expect to keep
their trade secrets private from third parties.
In contrast, court proceedings are open to
the public, and court records are public
records.

CIAC: A Modern Arbitral Center


CIAC has adopted as its own Revised Rules
of Procedure Governing Construction
Arbitration, which in content,
comprehensiveness, clarity and style can
very well compare with rules of procedure of
leading arbitral institutions, such as the ICC
International Court of Arbitration, the Hong
Kong International Arbitration Center, the
Singapore International Arbitration Center
and the Philippine Dispute Resolution
Center.

I will give you four good reasons why you


should opt for CIAC arbitration of your
construction disputes, rather than to
litigate your disputes in the courts.

1. CIAC is a modern arbitration institution for


construction arbitration. It was founded in
1985 and its roster of accredited members
include retired judges and justices,
prominent lawyers, distinguished professors
of law, prominent engineers, architects,
accountants and contractors.
2. CIAC can provide parties with administrative
and physical facilities for arbitration
proceedings, including an experienced
secretariat, meetings rooms and the use of
computers, fax machines, photocopying
machines, etc.

3. CIACs administrative fees as well as


arbitrators fees are very reasonable
compared to the fees charged by the ICC
International Court of Arbitration and the
other arbitral institution in the region.
4. Finally, why litigate if you can arbitrate you
construction disputes before the CIAC, with
all the advantages I have earlier
mentioned?

THANK YOU