Arbitration of business spats

After two years of legal skirmishes, the Philippine Charity Sweepstakes Office and DFNN Inc., a listed information technology company, agreed last week to submit to arbitration their lingering business dispute.

In 2003, the parties entered into an equipment lease agreement where DFNN committed to provide the facilities needed to enable PCSO to receive lotto bets and bettors’ payment from all over the country.

The project did not materialize because, among others, the two concessionaires in Luzon and Visayas-Mindanao, with whom PCSO had earlier entered into similar gaming arrangements, objected to the revenue sharing agreement offered to them by DFNN.

As a result, in 2008, PCSO (then chaired by Sergio Valencia) unilaterally terminated its agreement with DFNN.

The cancellation spawned charges and counter charges between them, including the filing of criminal raps against PCSO officials for violation of the Anti Graft and Corrupt Practices Law.

Upon their agreement on arbitration, PCSO nominated former Environment Secretary Fulgencio Factoran Jr. as its arbitrator-representative in the arbitration panel.

As soon as DFNN names Factoran’s counterpart, the two arbitrators will choose the third (or deciding) member who shall, at the same time, act as chair of the panel.

Selection

Unless the parties agree otherwise, the standard practice in arbitration proceedings, especially if business or commercial issues are involved, is to make the arbitrators’ decision final and immediately enforceable.

Motions for reconsideration or appeals to judicial bodies are frowned upon because they defeat the underlying objective of arbitration—the speedy resolution of disputes.

While expeditious, arbitration does not come cheap. The parties have to pay the professional fees of their respective arbitrators and, at the same time, share in the fee of the third member, including the expenses for secretarial and other support services that may be incurred during the proceedings.

Cost-wise though, arbitration in the long run comes out less expensive compared to going through the judicial process where lawyers charge exorbitant fees every step of the way and demand reimbursement of the expenses (both legal and extra legal) they may have incurred in handling the case.

The biggest plus factor in avoiding the judicial system is the substantial savings in time and effort. A commercial dispute can take from five to seven years before it can be resolved with finality.

Add another two years if the judge or justices assigned to the case have scant background on business issues. They have to learn along the way or be “tutored” on the side to understand the intricacies of the case.

Governance

DFNN’s agreement to enter into arbitration to settle its differences with PCSO is on track with the direction the Revised Code of Corporate Governance wants listed and public companies (like DFNN) to take to resolve intra and external disputes.

The Code requires the board of directors of these companies to “establish and maintain an alternative dispute resolution system in the corporation that can amicably settle conflicts or differences between the corporation and its stockholders, and the corporation and third parties, including the regulatory authorities.”

The directive is a subtle admission by the corporate regulator that the traditional process of going to court to seek redress for grievances by and among stockholders and the corporation, including third parties, has ceased to be effective.

Worse, it’s time consuming and expensive. More so now when our courts are hopelessly clogged and the Supreme Court, burdened by internal personality problems, appears to be clueless in making the justice system operate efficiently.

In business, time is gold. Every minute spent attending to the resolution or settlement of disputes is a minute taken from the opportunity to make the business run efficiently and profitably.

The existing modes of alternative dispute resolution—conciliation, mediation and arbitration—provide an avenue for companies that find themselves in situations of conflict among themselves or vis-a-vis government offices, like PCSO, to be able to immediately attend to their problems and, after resolving them one way or the other, move on.

Arbitrators

Arbitration as a means of resolving commercial or business disputes is not new in our country.

As early as 1985, an arbitration system in the construction industry was put in place by presidential fiat through the Construction Industry Arbitration Commission.

If the parties in a construction row agree to enter into voluntary arbitration, the commission has original and exclusive jurisdiction to resolve the factual questions that may arise from their dispute.

Since its creation, the commission, with its staff of technical experts in different areas of construction, has been able to expeditiously settle or arbitrate, more or less, 300 construction disputes whose aggregate value run to billions of pesos.

Depending on their need, some industry or business sectors in the country have formed their own systems for the mediation, conciliation or arbitration, as the circumstances may warrant, of commercial disputes within their areas of operation.

Understandably, there is little publicity, if at all, about these activities because of possible adverse reaction from the affected companies’ target markets, aside from avoiding the loss of face by the “guilty” party.

Indeed, the most efficient way to resolve commercial or business disputes is through arbitration, not by way of the judicial system.

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