Alternative Dispute Resolution:

Effective Tool in Settlement of Business Disputes

EXCEPTIONS:
RA. NO. 9285, Art. 1.3. Exceptions to the Application of the ADR Act.
The provisions of the ADR Act shall not apply to the resolution or
settlement of the following:

A. Labor disputes covered by PD 442, AKA as the Labor Code of the

Philippines, as amended, and its implementing Rules and
Regulations
B. The civil status of persons
C. The validity of marriage
D. Any ground for legal separation
E. The jurisdiction of courts
F. Future legitime
G. Criminal liability
H. Those disputes which by law cannot be compromised
I. Disputes referred to court-annexed mediation

I. LEGAL BASIS OF ALTERNATIVE DISPUTE RESOLUTION

To remedy the sad state of long-drawn-out court litigations, the 1987

Constitution mandates the Supreme Court to promulgate rules that
shall provide a simplified and inexpensive procedure for the speedy
disposition of cases. Pursuant to the constitutional provision, the
Supreme Court issued S.C. Circulars, Memoranda and Administrative
Orders of 2001 making mediation as mandatory in certain types of civil
cases. The 1997 Rules of Civil Procedure requires the courts to consider
the possibility of an amicable settlement or of a submission to alternative
modes of resolution.

On 19 July 1953, the Philippine Congress enacted RA 876 otherwise

known as the Arbitration Law, which authorized the making of arbitration
and submission agreements and provided for the appointment of
arbitrators and the procedure for the arbitration in civil controversies.

On 2 April 2004, Congress enacted RA 9285 or the Alternative Dispute

Resolution Act (ADR Law) of 2004, which declares that it is a policy of the
State to encourage and actively promote the use of Alternative Dispute
Resolution systems as an important means to achieve speedy and
impartial justice and declog court dockets.
II. FORMS OF ALTERNATIVE DISPUTE RESOLUTIONS

What is Alternative Dispute Resolution? It is defined as any process or procedure

used to resolve a dispute or controversy, other than by adjudication of a
presiding judge of a court or an officer of a government agency, in which a
neutral third party participates to assist in the resolution of issues. It includes
arbitration, mediation or conciliation, mini-trial, early neutral evaluation, or any
combination thereof.

A. What is Arbitration?

Arbitration is defined by ADR Law as a voluntary dispute resolution

process in which one or more arbitrators, appointed in accordance
with the agreement of the parties resolve a dispute by rendering an
award. It is the reference by mutual agreement or consent of the parties of
a controversy or dispute to selected persons for an informal hearing and
extra-judicial determination and resolution. The hearing is usually held in
private and the decision of the persons selected will be a substitute for a
court judgment. This avoids the formalities, delay and expenses of
ordinary litigation.

B. What is Mediation

Mediation is a dispute resolution procedure in which an impartial third

party, mutually chosen by the parties, acts as the referee to help the
contending parties settle their dispute. The mediator, unlike the arbitrator,
has no authority to make the parties reach an agreement. He serves as a
clarifier and facilitator without dictating settlement. The term mediation
used under ADR Law includes conciliation.

C. What is Mini-trial

Mini-trial is defined under the ADR Law as a dispute resolution method in

which the merits of a case are argued before a panel created by
agreement of the parties comprising senior decision makers with or
without the presence of a neutral third person after which the parties seek
a negotiated settlement.

D. What is Early neutral evaluation

Early neutral evaluation is an alternative dispute resolution process

whereby parties and their lawyers are brought together early in a pre-trial
phase to present summaries of their cases and receive a non-binding
assessment by an experienced, neutral person with expertise in the
subject of the dispute.
 E. What is Combination of Alternative Dispute Resolution

A particular alternative dispute resolution may be combined with the other

types of alternative dispute resolutions. The most common is the
mediation-arbitration (Med-Arb). In this kind of combination, parties first
proceed to mediation to define the dispute and settle as many issues as
possible, and then they engage in arbitration to settle issues that remain
unresolved by the mediator.

III. ARBITRATION

One of the oldest forms of dispute resolution is arbitration, which may be

classified as either international or domestic. International arbitration is
governed by the Model Law on International Commercial Arbitration per
Section 19 of the ADR Law, while domestic arbitration shall continue to be
governed by RA 876, as amended by the ADR Law. A highly specialized
form of domestic dispute resolution involving construction disputes is
governed by the Construction Industry Arbitration Law, EO No. 1008. This
falls within the exclusive jurisdiction of the Construction Industry
Arbitration Commission (CIAC).

IV. MEDIATION

A more popular form of alternative dispute resolution is mediation. The

ADR Law mentions two kinds of mediation: court-annexed mediation
and court-referred mediation.

Court-annexed mediation is defined under ADR Law as any mediation

process conducted under the auspices of the court, after such court has
acquired jurisdiction of the dispute. It is mandatory, being part of pre-trial.
On the other hand, court-referred mediation is mediation ordered by a
court to be conducted in accordance with an agreement of the parties
when an action is prematurely commenced in violation of such agreement.

The distinction between court-annexed mediation and court-referred

mediation is important. The provisions of the ADR Law do not apply to
court-annexed mediation. They cover voluntary mediation only, not court-
annexed mediation or mandatory mediation. Under this law, there must a
binding agreement of the parties to mediate their dispute. This usually
results when the parties insert a clause in their contract requiring a prior
resort to mediation before the dispute may be brought to arbitration or filed
in court.
V. WAYS OF ENFORCEMENT OF SETTLEMENT AGREEMENTS IN
MEDIATION UNDER ADR LAW (other than Court-Annexed)

A. The parties may deposit the settlement agreement arrived at during the
mediation process under the ADR Law with the appropriate clerk of a
Regional Trial Court of the place where one of the parties resides.
Where there is a need to enforce the settlement agreement, a petition
may be filed by any of the parties with the same court, in which case,
the court shall proceed summarily to hear the petition, in accordance
with such rules of procedure as may be promulgated by the Supreme
Court.

B. The other mode of enforcing the settlement agreement is for the

parties to agree that the mediator shall become a sole arbitrator for the
dispute and to treat the settlement agreement as an arbitral award.
This award shall be subject to enforcement under RA 876, otherwise
known as the Arbitration Law wherein the party wishing to implement
the agreement may apply to the RTC for an order confirming an award.
Once granted, a judgment may be entered which shall have the same
force and effect in all respects as a judgment in an action; and it may
be enforced as if it had been rendered in the court in which it is
entered.

VI. COURT ANNEXED MEDIATION UNDER SUPREME COURT GUIDELINES

A. Order of Mediation – The trial court for civil cases with stamped-mark
Mediatable is mandated to issue an order during the pre-trial referring
the case to the Philippine Mediation Center (PMC) unit for mediation
and directing the parties to proceed immediately to the PMC unit. The
order will be personally given to the parties during the pre-trial. There
are PMC units in courthouses or near the court premises to mediate
the parties.

In Cagayan de Oro City, the PMC unit was established on 18 October

2004. It is heartening to note that as of January 2005, there were 376
cases received by the Cagayan de Oro City Mediation Center and, out
of these, 154 cases were settled, and 102 cases were returned to court
either because the parties did not want to mediate or the parties
mediated but failed to reach an amicable settlement. It has only 120
cases pending.

Since mediation is part of pre-trial, the trial court will impose the
appropriate sanction including but not limited to censure, reprimand,
contempt and such sanctions as are provided under the Rules of
Court, in case any or both of the parties absent himself/ themselves, or
for abusive conduct during mediation proceedings.
 B. Selection of Mediator – The Supervisor of the PMC unit will assist the
parties to select a mutually acceptable mediator from the list of
available mediators. The mediator will be considered an officer of the
court. Lawyers may attend the mediation proceedings, but they must
cooperate with the mediator to reach an amicable settlement of the
case.

C. Conference – The mediator will hold a conference with all the parties
involved in the case and will make serious attempts to settle the matter
quickly.

If no settlement is reached, the mediator may, with the consent of both

parties, hold separate caucuses with each party to enable the mediator
to determine their respective real interests in the dispute. Thereafter,
another joint conference may be held to consider various options
proposed by the parties to the mediator to resolve the dispute.

D. Submission of Report – The mediator will submit to the trial court

status report on the progress of the proceedings at the end of the
mediation period. The mediator is mandated not to record the
proceedings in any manner, but he may take down personal notes to
guide him. The PMC will not keep a file of mediation proceedings
except the report of the mediator. This is because court-annexed
mediation proceedings like those voluntary mediation proceedings
under the ADR Law are confidential.

E. Outcome of mediation – When the mediation results in realization of all

claims of the plaintiff, a motion to dismiss may be filed in court. If there
are obligations still to be complied with, the parties may execute a
compromise agreement, which will then be submitted to the court for
approval. If the court finds the compromise agreement to be in order,
judgment will be rendered in accordance therewith. If mediation fails,
the case will be returned to the court of origin per a Certificate of Failed
Mediation issued by the mediator.

VII. ADVANTAGES OF MEDIATION

1 It is effective – In a recent pilot project conducted by PHILJA, 85% of

cases referred for court-annexed mediation had reached settlement.
Surveys conducted after mediation sessions reveal a high level of
satisfaction among disputing parties. As a result of mediation, close to
100% comply with agreements reached in mediation.

2 It is faster – Many cases reached settlement in 1-2 sessions. The

enormous time and effort expended in litigation are avoided.
3 It is cost-saving – Unlike rigorous court proceedings, mediation is quick
and devoid of legal intricacies.

4 It restores relationships – Mediation is a proven way to restore

relationships long torn by conflict. The process addresses deep-rooted
sources of misunderstanding, which are inimical to business concerns.
GENERAL PROVISIONS:

SCOPE: This shall apply to voluntary mediation whether ad hoc or institutional,

other than court-annexed mediation and only in default of an agreement of the
parties on the applicable rules. These rules shall also apply to all cases pending
before the administrative or quasi-judicial agency that are subsequently agreed
upon by the parties to be referred to the mediation.

SELECTION OF A MEDIATOR:
1. Parties have the freedom to select their mediator from the list of roster or
resumé of its certified members, by asking the OADR.
2. If the mediator is unable to act as such for any reason, the parties, upon
being informed of such fact, may select another mediator.
3. A mediator may refuse from acting as such, withdraw or may be
compelled to withdraw from the mediation under the following
circumstances:
a. Upon request of any party.
b. Mediator does not have the qualification, training, experience.
c. When mediator’s impartiality is in question.
d. If the continuation of the process would violate any ethical
standards.
e. If the safety of any of the parties would be jeopardized.
f. If the mediator is unable to provide effective services.
g. In case of conflict of interest.
h. In any of the following instances, if the mediator is satisfied that:
i. One or more of the parties is/are not acting in good faith.
ii. The parties’ agreement would be illegal or involve the
commission of a crime.
iii. Continuing the dispute resolution would give rise to an
appearance of impropriety.
iv. Continuing discussions would not be in the best interest of
the parties, their minor children or the dispute resolution
process.

ROLE OF PARTIES AND THEIR COUNSELS:

 A party may designate a lawyer or any other person to provide assistance
in the mediation. A waiver in writing must be had, if a party waives his right
to.
 A lawyer shall inform his client all the process and the essence of
mediation.

PLACE OF MEDIATION: Parties are free to agree on the place of mediation.

Absent the agreement, to any place which is convenient to all the parties.
WHAT IS THE EFFECT OF AN AGREEMENT TO SUBMIT DISPUTE TO
MEDIATION UNDER INSTITUTIONAL RULES: An agreement to submit a
dispute under institutional rules shall include an agreement to be bound by the
internal mediation and administrative policies of such institution, including the
lawyers of the parties.

OPERATIVE PRINCIPLE TO GUIDE MEDIATION:

1. A settlement agreement following successful mediation shall be prepared
by the parties with the assistance of their respective counsels, if any, and
by the mediator. Parties create non-conflicting interpretations of the
agreement.
2. Parties, with their counsel, is any, sign the agreement. Mediator shall
certify that he has explained the concepts of the settlement agreement to
the parties in the language known to them.
3. If the parties agree, settlement agreement may be jointly deposited, or by
other party after notice to the other party, to the Clerk of Court of the RTC
where the principal place of business in the Philippines of any of the
parties is located; if any of the parties is an individual, where any of those
individual resides; or in the NCJR. If there is a need to enforce the
agreement, the party may file a petition with the proper court, and the
court shall conduct summary proceeding to hear the petition, in
accordance with the special rules of ADR.
4. The parties may agree in the settlement agreement that the mediator shall
become a sole arbitrator for the dispute and shall treat the settlement
agreement as an arbitral award which shall be subject to enforcement
under RA.No.876, aka, Arbitration Law, notwithstanding the provisions of
EO 1008, s1985, otherwise as the Construction Industry Arbitration Law,
for mediated disputes outside of the Construction Industry Arbitration
Commission.