Lost arbitration

From out of nowhere last week, President Rodrigo Duterte, slammed the concession agreement entered into by Manila Water (of Ayala) and Maynilad (of Metro Pacific/MVP Group) rocking the two conglomerates dizzy, nearly down for the count. Their stock prices plummeted, similar to what happened to ABS-CBN after the President’s latest tirade on the non-renewal of its franchise. It is not a good time to be on their side, but a betting man will say that now’s a good time to buy their shares. The interrelationship of big business and politics is a reality, which is why each conglomerate must have an efficient government relations arm.

Manila Water and Maynila entered into concession agreements with the government back in 1997. They were able to negotiate a renewal on 2009, or 13 years before its actual expiration on 2022. The renewal is for another 25 years, or until 2037. I am not fully aware of how Manila Water and Maynilad have been doing their business, but a betting man should say that after the 2009 renewal, these two companies probably got more relaxed as compared to the time period from 1997 to 2009. Government lawyers in 1997 should have insisted on inserting a provision in the concession agreement prohibiting the renewal until two years before its expiration. Lesson learned.

Fast forward to present day, Manila Water and Maynilad now have a favorable arbitral award for each of their claims, totaling to P11 Billion. This has irked the President, naturally, since why should his Administration pay for the shortcomings of the previous ones, even considering that early this year, Metro Manila suffered a terrible water crisis? As of this writing, news has broken out that the two companies will no longer pursue their claims.

We can have the Chinese to blame. China refused to recognize the arbitral award issued in 2016, in favor of the Philippines by the arbitral tribunal constituted under the United Nations Convention on the

Law of the Sea, with respect the territorial boundaries of the West Philippine Sea (or South China Sea, in their eyes) on the ground that it has no jurisdiction over them. Singing the same tune, President Duterte announced that the Philippines will not recognize the arbitral awards issued by the Permanent Court of Arbitration (PCA) in Singapore, in favor of Manila Water and Maynilad for being based on the “onerous” concession agreement.

This announcement indeed has repercussions, especially in the field of Philippine arbitration — a very specific and niche practice of law that is taking so long to take flight. Arbitration is undoubtedly a more efficient and quicker method of settling disputes, as compared to traditional court litigation. I have attended hearings before in the Philippine Dispute Resolution Center, Inc. and the more technical Construction Industry Arbitration Commission under the Department of Trade and Industry, and these, I think, are how litigation must be done. There is no grandstanding, nor opportunities to delay proceedings. Hearings can be done daily, even during holidays, unlike in courts where proceedings come to a halt during Christmas and Holy Week seasons, or whenever there is a court inventory or seminar/training.

Laws have been enacted in support of arbitration. The Philippines is a signatory to the UN Convention on the Recognition and Enforcement of Arbitral Awards of 1958, and we have enacted RA 9285, or the Alternative Dispute Resolution (ADR) Act of 2004, and the Supreme Court has issued its Special ADR Rules in 2008. These rules do not treat arbitral awards as good as local judgment, but instead will have to be recognized and enforced by local courts via special proceedings. It now seems that the best way to refuse recognition of an arbitral award is to have the President speak against it.

With the President’s resistance to accept an arbitral award, and the claimants’ obedience not to enforce the same, instead taking a hit with a hefty price tag of P11 Billion, some faith in the arbitration industry may have been lost. What comes next is the unfortunate filing of pleadings before the PCA Singapore and the local courts where they have filed petitions in recognition of arbitral awards. I can only imagine what their lawyers must be thinking as they also stand to lose their attorneys’ fees of at least 10 percent in the claim, or a billion. Ouch.

“With the President’s resistance to accept an arbitral award, and the claimants’ obedience not to enforce the same, instead taking a hit with a hef ty price tag of P11 Billion, some faith in the arbitration industry may have been lost.

“The interrelationship of big business and politics is a reality, which is why each conglomerate must have an efficient government relations arm.