Recognition and enforcement of foreign judgments in the Philippines
The Supreme Court recognized in the case of Saudi Arabian Airlines v. Court of Appeals (G.R. No. 122191, 8 October 1998, 297 SCRA 469) that “the presence of foreign elements (in transactions) is inevitable, since social and economic affairs of (persons and/or entities) are rarely confined to the geographic limits of their births or conception.” Thus, as an example, persons/corporations from various States may enter into contracts, which contracts may even involve properties located in an entirely different State. In case of breach, it could happen that a party will resort to its own local court to obtain relief, or may go to the courts of another State with a significance or connection to them or to their transaction.
In such situations, it is important to note that it is one matter to get a decision in your favor, and
independently against the captains of the industries, the CG Code recommends that “The Board should ensure that its IDs possess the necessary qualifications and none of the disqualifications for an ID to hold the position.” It explains that “IDs need to possess a good general understanding of the industry they are in. Further, it is worthy to note that independence and competence should go hand-in-hand. It is therefore important that the non-executive directors, including IDs, possess the qualifications and stature that would enable them to effectively and objectively participate in the deliberations of the Board.”
The fact that the CG Code places the burden of “ensuring that … IDs possess the necessary qualifications and none of the disqualifications for an ID to hold the position” on the Board, which is majority-composed of representatives of controlling stockholders, tends to ensure that IDs would eventually fall under the spell of the controlling stockholders. As will be discussed hereunder, the true measure of ensuring that IDs would be accountable to the public investors against the corporate opportunism of the controlling stockholders, it is necessary that the public investors must have a certain measure of participation in the election and retention of IDs.
b. Nomination, Election and Retention in the Board of IDs
The CG Code for PLCs recommends that “The Board should have and disclose in its Manual on CG a formal and transparent board nomination and election policy that should include how it accepts nominations from minority shareholders and reviews nominated candidates. The policy should also include an assessment of the effectiveness of the Board’s processes and procedures in the nomination, election, or replacement of a director. In addition, its process of identifying the quality of directors should be aligned with the strategic direction of the company.” another to have it recognized and enforced by the State whose courts did not render the same but where the other party currently resides or conducts business.
Judgments obtained abroad may be recognized and enforced in the Philippines. It is required, however, that an action be instituted here specifically for such purpose. Our laws provide that a foreign judgment or order upon a specific thing shall be conclusive upon the title to the thing (e.g., judgments for sums of money or ownership over properties), and one against a person shall be presumptive evidence of a right between the parties (e.g., divorce decrees, etc.).
One of the requirements for the recognition and enforcement of a judgment obtained abroad is proof that the same was rendered by a court or tribunal which had jurisdiction over the parties and over
It explains that “It is the Board’s responsibility to develop a policy on board nomination, which is contained in the company’s Manual on CG. The policy should encourage shareholders’ participation by including procedures on how the Board accepts nominations from minority shareholders. The policy should also promote transparency of the Board’s nomination and election process.”
In essence, therefore, the policies and processes for the nomination, election and retention of all members of the Board, including those of IDs, are put under the charge of the Board which is majority-composed by representatives of the controlling stockholders.
The mandatory provisions relating to the nomination and election of IDs can be found in SRC IRR, which provides “The conduct of election of IDs shall be made in accordance with the standard election procedures of the company or its by-laws.”
It should therefore be pointed out that eventually those who become IDs on a PHC must achieve the majority vote from among other candidates through the support of the controlling/majority stockholders. The same is true with ID’s ability to be retained in the Board. In a recent study, it has been demonstrated that when the election and retention of IDs in the Board is dependent upon the controlling stockholders’ support, then they eventually become preempted in their corporate actuations, thus:
Independence requirements strengthen these market incentives by ensuring that directors have no conflicts that could undermine their effectiveness as monitors of management. For example, a director whose livelihood depends on her business ties with the company might fear that refusing to accept the CEO pay demands would provoke retaliation. Many investors and lawmakers, however, believe that
It is important to note that it is one matter to get a decision in your favor, and another to have it recognized and enforced by a different State.
the case. Otherwise, it may be questioned, and may not be recognized/ enforced, on the grounds that there was no jurisdiction over, and/or no notice to, the other party. To effectively comply with this, the foreign judgment and law must at the outset be properly pleaded and proven like any other facts, as after all, our courts do not take judicial notice of them. This may either be by an official publication, or by a copy of the
such independence alone may not ensure directors’ accountability because management’s influence over the appointment of directors can also undermine the effectiveness of those directors as monitors. Even an ID might fear that adopting a skeptical approach toward the CEO, for example, would reduce her chances of reappointment. Moreover, to the extent that the CEO is involved in appointment decisions, directors may develop a sense of gratitude and obligation to accommodate the CEO’s preferences. These concerns underlie the post-Enron requirement that IDs control the board nomination process, thereby taking from managers the formal power to influence the process — and thus the outcome — of director elections.
The study concludes that “These developments offer two important lessons for controlled companies. First, controllers’ absolute control over the election of IDs undermines those directors’ effectiveness as monitors. Second, enabling public investors to influence the election of IDs would provide these directors with incentives to guard public investors’ interests,” thus:
At controlled companies, IDs are expected to exercise oversight to prevent the controller from expropriating value from public investors. Yet, the same election method that holds directors accountable to public investors at widely held companies currently also holds them accountable to the controller at controlled companies. Controlling shareholders have decisive power over director appointment. Directors at firms with controlling shareholders—including IDs—cannot be elected or reelected following their initial term—unless the controlling shareholder supports their candidacies. Nor will they stay in office once the controlling shareholder decides to end their service on the board.
The study proposes that the better rule of inducing IDs to be accountable to public investors, is public document or law attested to by the officer having legal custody of the record. If the record is not kept in our country, the copy must be accompanied with a certificate that the attesting officer has the legal custody thereof. The certificate may be issued by any of the authorized Philippine embassy or consular officials stationed in the foreign country in which the record is kept, and authenticated by the seal of his office. Further, the attestation must state, in substance, that the copy is a correct copy of the original, or a specific part thereof, as the case may be, and must be under the official seal of the attesting officer.
There are exceptional instances when proof other than the foregoing may be considered as competent and therefore acceptable to our courts. In some cases, the testimony under oath of an expert witness was allowed, such as an attorney-at-law
by empowering public investors to determine or at least substantially influence the election and/or retention of IDs, such as granting public investors with veto rights over such nomination and/or election of IDs, or allowing the election of IDs to be supported by a majority of the public investors’ voting power. c. Limiting the Terms of IDs Against the criticism that eventually IDs lose their independence based on prolonged dealings with the majority members of the Board and Management, i.e., with the controlling stockholders, the CG Code for PLCs recommends that “The Board’s IDs should serve for a maximum cumulative term of nine [9] years. After which, the ID should be perpetually barred from re-election as such in the same company, but may continue to qualify for nomination and election as a non-ID. In the instance that a company wants to retain an ID who has served for nine years, the Board should provide meritorious justification/s and seek shareholders’ approval during the annual shareholders’ meeting.”
It explains that “Service in a board for a long duration may impair a director’s ability to act independently and objectively. Hence, the tenure of an ID is set to a cumulative term of nine years. IDs who have served for nine years may continue as a non-ID of the company. Reckoning of the cumulative nine-year term is from 2012.”
The CG Code further provides that “Any term beyond nine years for an ID is subjected to particularly rigorous review, taking into account the need for progressive change in the Board to ensure an appropriate balance of skills and experience. However, the shareholders may, in exceptional cases, choose to reelect an ID who has served for nine years. In such instances, the Board must provide a meritorious justification for the re-election.”
The CG Code presumes that nine (9) years is the optimum period that in the country where the foreign law operates, who quoted verbatim a section of the law, stated that the same was in force at the time material to the facts at hand. Thus, where the lawyer failed to testify on all aspects relevant to the foreign law invoked, or where no such lawyer actually appeared in open court and identified his/her affidavit, the same was deemed insufficient.
Other grounds to repel a foreign judgment are extraneous factors such as collusion, fraud, or clear mistake of law or fact.
Allowing recognition and enforcement of foreign judgments in the Philippines is important because it is based on comity with the international community. It also has another noble purpose — to give finality to litigation. Indeed, with our clogged court dockets, it would be more expedient that the merits of these cases be no longer tried here.
assures that IDs can resist the temptation to begin to in consonance with the controlling stockholders. Nine years is really a long period of time in the life of a PLC against an ID who has lost his independence in just a couple of years that he has acted with in consonance with the ruling of the majority stockholders’ representative in the Board. Yet we can appreciate the need to have long-serving IDs who develop a more intimate workings of the PHC as against a situation of having completely “green horn” IDs every couple of years or so who have yet a long learning curve ahead of them, only to be replaced by a new set when they have developed the skills and competence to exercise their independent judgment.
On the other hand, the perpetual disqualification of IDs after the cumulative nine-year period really does not provide a strong incentive to act independent of Management and controlling stockholders because of the very terms provided for in the CG Code: there are two possible ways by which an ID may remain with the Board, both of which are dependent upon the support of the entire Board (controlled by the majority stockholders) being able to prove that he should remain an ID because of meritorious justification, or by remaining in the Board as a regular director. In either case, there is every incentive on the part of the ID, during his 9-year stint, to be cozy with the controlling stockholders who hold in their power the ability to retain him in the Board.
EVOLVING A MORE RESPONSIVE SYSTEM OF IDS
We conclude this study with the following recommendations.
It is probably time to introduce statutory amendment in the Securities Regulations Code, which is peculiarly applicable to PHCs, to clearly define the role, duties and functions of the IDs to be one primarily set to champion the cause Under present rules, our courts are not required to look into and decide on the correctness of the foreign judgment, as long as it does not violate public policy or prohibitive laws. On their part, litigants may be shielded from protracted legal battles and may reasonably expect that cases already subjected to full-blown trial and won in other jurisdictions may be enforced in our country.
The views and opinions expressed in this article are those of the author. This article is for general informational and educational purposes, and not offered as, and does not constitute, legal advice or legal opinion. of stakeholders, other than stockholders, to present in all Board proceedings the values promoted under the Stakeholder Theory.
We should study introducing provisions in the SRC that legally empower public investors the right to have a certain legal standing in the nomination, election and retention of IDs in order to ensure direct accountability to such stockholders.
It may well be worth it that the agencies at the forefront of corporate governance development, namely the BSP, the SEC, and the IC, should now begin to put together a full accreditation system for IDs in partnership with leading private sector organizations that allow the proper training and orientation of professional directors that would be made available to covered corporations, each bringing with them a special set of skills for the various fields covered.
Perhaps it should be, in order to preserve the independence of such accredited IDs, that each of the three agencies develop a system of setting up funds within their industries by special levy on their covered corporations, to constitute as the source of remuneration for IDs who shall then be paid by and hence be accountable to, the supervising government agency. Under such a system, IDs would truly become quasi-public officers.
The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.
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