State-investor disputes becoming unavoidable

Noting an increasing number of contract disputes between state and investors and between business partners, the business community and law experts are pushing for local lawyers and judges to undergo training on international arbitration.

Citing a study by the International Court of Arbitration, International Chamber of Commerce (ICC) Philippines president George Barcelon said the Philippines was not too far behind more developed economies in terms of the number of arbitration cases, especially in the past five years.

“Among the [Association of Southeast Asian Nations], there are two countries that are ahead of us, Singapore and Malaysia. I would think there will be more because we encourage more investments coming also from outside, the foreign direct investments. And in business contracts, you can’t cover everything. There are bound to be some gray areas … for arbitration [to decide upon],” Barcelon said.

The study was presented by Sylvia Tee of the ICC International Court of Arbitration in Singapore. She said the Philippines has about 104 cases lodged before the court.

Barcelon said being exposed to mechanisms such as arbitration should push companies and their legal teams to be more careful in crafting contracts.

“We provide that venue, to help companies that encounter difficulties,” Barcelon said of ICC Philippines.

Barcelon said international arbitration, which has become increasingly unavoidable given increased foreign direct investment and cross-border trade, affects the Philippines’ attractiveness to investors.

Barcelon said the most crucial process after a case has been wrapped up is the implementation of the decision and the credibility of the government in dealing with the aftermath.

Barcelon said knowledge of arbitration procedures would give companies the upper hand when conducting due diligence in contracts in order to avoid future disputes.

One arbitration case involving the Philippine government is its dispute with the Malampaya consortium after the Commission on Audit (COA) recalculated how much the group should be paying the national government for its shares in the gas field.

COA, in decisions dated April 6 and May 11 this year, ordered the DOE to collect an income tax of about $2.9 billion from the Malampaya consortium. COA said this should be paid on top of the government’s 60 percent share of net proceeds from the gas field.

The Department of Energy (DOE) appealed COA’s order, but was rejected.

In a letter to President Benigno S. Aquino III, Royal Dutch Shell CFO Simon Henry said the recent COA decisions on the matter have become a “cause for concern.”

Henry said the COA’s order to collect the $2.9 billion was “erroneous” since the income taxes for the period 2002 to 2014 have been paid by the DOE out of the 60 percent government share in the gas field. This is expressly provided under Service Contract No 38, Henry said.