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Arbitration of intra-corporate disputes

An amicable settlement through arbitration offers a convenient process that may prove to be less costly and more expedient than immediately resorting to court action

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While the Securities and Exchange Commission exercises supervisory, administrative, and regulatory functions over corporations and persons acting on their behalf, not all matters relative to these functions are within the power of the Commission to hear and decide upon. Jurisdiction over intra-corporate disputes or controversies has been transferred to the Regional Trial Courts acting as special commercial courts pursuant to Section 5.2 of Republic Act 8799 or the Securities Regulation Code.

In determining whether an issue constitutes an intra-corporate controversy, the Supreme Court, in a plethora of cases, has consistently applied the relationship test and nature of controversy test.

Under the relationship test, the existence of any of the following relationships makes the dispute intra-corporate: Between the corporation and the public; between the corporation and the State insofar as its franchise, permit or license to operate is concerned; between the corporation, its stockholders, members or officers; and among the stockholders themselves.

The nature of controversy test, on the other hand, puts emphasis on the fact that the issue or controversy must pertain to the enforcement of the parties’ correlative rights and obligations under the Code and the internal and intra-corporate regulatory rules of the corporation.

Accordingly, a controversy is well within the jurisdiction of the Regional Trial Courts when it arises out of intra-corporate relations and the nature of the question subject of the controversy is intrinsically connected with the regulation of the corporation or the enforcement of the parties’ rights.

Nevertheless, while an issue is one that involves an intra-corporate dispute, a party need not directly proceed to courts of law to seek redress of their grievances.

Republic Act 11232 or the Revised Corporation Code introduced Section 181 which recognizes another mode of settling intra-corporate disputes. In particular, the said section permits the inclusion of an arbitration agreement or clause in an unlisted corporation’s articles of incorporation and by-laws. Such arbitration agreement is binding on the corporation, its directors, trustees, officers, and executives or managers.

Applying the said Section, issues between the corporation, its stockholders or members, which arise from the implementation of the articles of incorporation or by-laws, or from intra-corporate relations, shall be referred to arbitration before they are brought before the courts. Accordingly, the court shall dismiss an intra-corporate dispute case filed before it if it determines there is an arbitration agreement in the corporation’s articles of incorporation, by-laws, or even in a separate agreement.

Note, however, that matters involving criminal offenses as well as the interests of third parties are not arbitrable disputes.

The arbitral tribunal duly constituted in accordance with the arbitration agreement shall have the power to rule on its own jurisdiction and on questions on the validity of the arbitration agreement. In addition, the arbitral tribunal also has the power to grant interim measures necessary to ensure enforcement of the award, prevent a miscarriage of justice, or otherwise protect the rights of the parties.

A final arbitral award shall be executory after the lapse of 15 days from receipt thereof by the parties. The award may be stayed by the filing of a bond or the issuance by the appellate court of an injunctive writ.

The inclusion of an arbitration agreement is another practical avenue that may be considered by the stakeholders of the corporation to settle controversies pertaining to intra-corporate relations.

An amicable settlement through arbitration offers a convenient process that may prove to be less costly and more expedient than immediately resorting to court action. Moreover, arbitration also offers a less polarizing environment for the parties who, because of the nature of their relationship, are expected to productively work together in the conduct of the corporation’s affairs.

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