Balancing Arbitration and Court Action: Securing Provisional Remedies in Commercial Disputes

When disputes arise in the Philippine business landscape, arbitration offers a streamlined alternative to traditional court litigation. However, the need to safeguard assets or enforce urgent claims might necessitate immediate court intervention, even while arbitration proceedings are underway. This landmark case clarifies that seeking provisional remedies from courts does not undermine arbitration agreements but rather complements them, ensuring that parties can effectively protect their interests while pursuing arbitration.

G.R. No. 115412, November 19, 1999: Home Bankers Savings and Trust Company vs. Court of Appeals and Far East Bank & Trust Company

INTRODUCTION

Imagine a scenario where two banks are entangled in a complex financial dispute involving bounced checks and potential fraud. They’ve agreed to arbitration to resolve the core issues, but one bank fears the other might dissipate assets before the arbitration concludes. Can they turn to the courts for immediate protection without violating their arbitration agreement? This was the crux of the legal battle in Home Bankers Savings and Trust Company vs. Court of Appeals. This case delves into the crucial intersection of arbitration and provisional remedies in the Philippines, providing clarity on when and how parties can access judicial relief to secure their claims during arbitration.

At the heart of the dispute was a check-kiting scheme involving Home Bankers Savings and Trust Company (HBSTC) and Far East Bank & Trust Company (FEBTC). After HBSTC dishonored FEBTC checks, FEBTC initiated arbitration as per their agreement under the Philippine Clearing House Corporation (PCHC) rules. Simultaneously, FEBTC filed a court action for sum of money with a prayer for a writ of preliminary attachment against HBSTC to secure the funds in dispute. HBSTC argued that filing a court case while arbitration was ongoing was improper and should be dismissed. The Supreme Court, however, sided with FEBTC, affirming the right to seek provisional remedies even during arbitration, a decision that has significant implications for businesses utilizing arbitration in the Philippines.

LEGAL CONTEXT: ARBITRATION AND PROVISIONAL REMEDIES IN THE PHILIPPINES

The Philippines strongly encourages alternative dispute resolution methods, particularly arbitration, to decongest court dockets and expedite the resolution of commercial disputes. Republic Act No. 876, also known as the Arbitration Law, governs arbitration proceedings in the country. Arbitration is a process where parties agree to submit their disputes to one or more arbitrators, who make a binding decision. This process is generally faster, more private, and often less expensive than traditional court litigation.

However, arbitration agreements are not intended to leave parties vulnerable while awaiting a final arbitral award. Recognizing this, Section 14 of the Arbitration Law explicitly provides a mechanism for parties to seek judicial intervention for provisional remedies even during arbitration. Section 14 states:

“The arbitrator or arbitrators shall have the power at any time, before rendering the award, without prejudice to the rights of any party to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration.”

This provision is critical. It ensures that while parties are committed to resolving their disputes through arbitration, they are not precluded from seeking urgent interim measures from the courts to protect their interests. These “measures to safeguard and/or conserve” typically include provisional remedies such as preliminary attachment, preliminary injunction, or receivership. These remedies are designed to maintain the status quo or prevent irreparable harm while the main dispute is being resolved in arbitration.

Prior jurisprudence, such as National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc. and Bengson vs. Chan, had already established the principle that when an arbitration clause exists, a court action should not be dismissed outright but rather stayed pending arbitration. This case further clarifies that initiating a court action solely to obtain provisional remedies while arbitration is ongoing is not only permissible but also consistent with the spirit of the Arbitration Law.

CASE BREAKDOWN: THE DISPUTE AND THE COURT’S RULING

The narrative of Home Bankers Savings unfolds with a financial transaction gone awry. Victor Tancuan and Eugene Arriesgado engaged in exchanging checks. Tancuan issued an HBSTC check for P25.25 million, while Arriesgado issued three FEBTC checks totaling P25.2 million. These checks were deposited in their respective banks for collection. When FEBTC presented Tancuan’s HBSTC check, HBSTC dishonored it due to insufficient funds. Subsequently, HBSTC also dishonored Arriesgado’s FEBTC checks, initially citing insufficient funds but later claiming it was “beyond the reglementary period,” implying they had already cleared the FEBTC checks and allowed withdrawals.

FEBTC, suspecting a check-kiting scheme and facing non-reimbursement from HBSTC, took two simultaneous actions:

1. Arbitration Filing: FEBTC submitted the dispute to the PCHC Arbitration Committee, as both banks were participants in the PCHC’s regional clearing operations and bound by its rules.
2. Court Action for Sum of Money with Preliminary Attachment: FEBTC filed a civil case against HBSTC and others in the Regional Trial Court (RTC) of Makati. Crucially, FEBTC included a prayer for a writ of preliminary attachment to secure HBSTC’s assets, fearing they might be dissipated during arbitration.

HBSTC moved to dismiss the court case, arguing that it was premature and improper because arbitration was already underway. They contended that the court action sought to enforce a non-existent arbitral award and that the ongoing arbitration barred the court case under the principle of litis pendencia (pending suit).

The RTC denied HBSTC’s motion to dismiss, and the Court of Appeals (CA) affirmed this decision. The CA emphasized that FEBTC’s complaint was not to enforce an arbitral award but to collect a sum of money and, importantly, to seek a writ of preliminary attachment – a provisional remedy explicitly allowed under the Arbitration Law. The CA stated:

“[I]n the Complaint, FEBTC applied for the issuance of a writ of preliminary attachment over HBT’s [HBSTC] property… Necessarily, it has to reiterate its main cause of action for sum of money against HBT [HBSTC]… This prayer for conservatory relief [writ of preliminary attachment] satisfies the requirement of a cause of action which FEBTC may pursue in the courts.”

Unsatisfied, HBSTC elevated the case to the Supreme Court, reiterating its arguments that the court action was improper given the pending arbitration. However, the Supreme Court firmly upheld the decisions of the lower courts, emphasizing the clear language of Section 14 of the Arbitration Law. Justice Buena, writing for the Court, stated:

“Section 14 simply grants an arbitrator the power to issue subpoena and subpoena duces tecum at any time before rendering the award. The exercise of such power is without prejudice to the right of a party to file a petition in court to safeguard any matter which is the subject of the dispute in arbitration. In the case at bar, private respondent filed an action for a sum of money with prayer for a writ of preliminary attachment. Undoubtedly, such action involved the same subject matter as that in arbitration… However, the civil action was not a simple case of a money claim since private respondent has included a prayer for a writ of preliminary attachment, which is sanctioned by section 14 of the Arbitration Law.”

The Supreme Court distinguished this case from previous rulings cited by HBSTC, such as Associated Bank vs. Court of Appeals and Puromines, Inc. vs. Court of Appeals. Those cases primarily emphasized that parties bound by arbitration agreements must first exhaust arbitration before resorting to court litigation for the main dispute. In Home Bankers Savings, however, FEBTC was not bypassing arbitration; they were actively pursuing it while simultaneously seeking a provisional remedy from the court, a right explicitly preserved by law.

PRACTICAL IMPLICATIONS: NAVIGATING ARBITRATION AND COURT RELIEF

The Home Bankers Savings case offers crucial guidance for businesses in the Philippines that utilize arbitration for dispute resolution. It clarifies that arbitration and judicial intervention for provisional remedies are not mutually exclusive but can coexist harmoniously. This ruling provides assurance that parties can effectively protect their interests during arbitration without being forced to choose between arbitration and immediate court relief.

For businesses, this means:

• Arbitration Agreements Remain Enforceable: Agreeing to arbitration does not strip you of the right to seek provisional remedies from courts.
• Strategic Use of Provisional Remedies: If there is a risk of asset dissipation, evidence destruction, or other urgent concerns during arbitration, parties can proactively seek remedies like preliminary attachment, injunctions, or receivership from the courts.
• Comply with Arbitration First for Main Dispute: While provisional remedies are permissible, parties must still adhere to the arbitration process for resolving the core dispute itself. Courts will generally stay court actions related to the merits of the case pending arbitration.
• PCHC Arbitration: For disputes within the PCHC system, this ruling confirms that seeking provisional remedies in court is compatible with PCHC arbitration rules and Section 14 of the Arbitration Law.

Key Lessons:

• Provisional Remedies are Available During Arbitration: Philippine law, specifically Section 14 of RA 876, allows parties in arbitration to seek provisional remedies from courts to safeguard their claims.
• No Violation of Arbitration Agreement: Filing a court action solely to obtain provisional remedies while arbitration is ongoing does not violate the arbitration agreement.
• Strategic Tool for Risk Mitigation: Provisional remedies are valuable tools to mitigate risks and preserve the status quo while arbitration proceedings are underway, ensuring the eventual arbitral award is meaningful and enforceable.

FREQUENTLY ASKED QUESTIONS (FAQs)

Q1: Can I file a court case if I have an arbitration agreement?

A: Yes, but it depends on the purpose of the court case. For the main dispute covered by the arbitration agreement, you generally must go through arbitration first. However, you can file a court case to seek provisional remedies like preliminary attachment or injunction to protect your rights during arbitration.

Q2: What are provisional remedies in the context of arbitration?

A: Provisional remedies are interim court orders designed to protect a party’s rights or property while a case (or arbitration) is ongoing. Common examples include preliminary attachment (to seize assets), preliminary injunction (to stop certain actions), and receivership (to manage property).

Q3: Does filing for provisional remedies in court stop the arbitration process?

A: No. Seeking provisional remedies is meant to support, not hinder, the arbitration process. The arbitration will continue to resolve the main dispute while the provisional remedy provides interim protection.

Q4: What is the Philippine Clearing House Corporation (PCHC) and how does it relate to arbitration?

A: The PCHC facilitates check clearing among banks in the Philippines. Its rules include provisions for arbitration to resolve disputes between member banks arising from clearing operations. If banks are PCHC members, they are generally bound by its arbitration rules.

Q5: What is Section 14 of the Arbitration Law?

A: Section 14 of the Arbitration Law (RA 876) explicitly allows parties in arbitration to petition courts for measures to safeguard or conserve the subject matter of the dispute, even while arbitration is ongoing. This is the legal basis for seeking provisional remedies during arbitration.

Q6: If I win in arbitration, do I still need to go to court to enforce the award?

A: Yes, generally, you need to petition the court to confirm the arbitral award to make it legally enforceable like a court judgment. Once confirmed, you can then execute the judgment through court processes.

Q7: Should my business include arbitration clauses in contracts?

A: Arbitration clauses can be beneficial for faster and more cost-effective dispute resolution. However, it’s crucial to understand the implications and ensure the clause is well-drafted. Consulting with legal counsel is advisable.

Q8: What kind of disputes are suitable for arbitration?

A: Commercial disputes, contract disputes, construction disputes, and disputes between businesses are often well-suited for arbitration. Disputes requiring urgent provisional remedies can also benefit from arbitration combined with court intervention for interim relief.

ASG Law specializes in Arbitration and Commercial Litigation. Contact us or email hello@asglawpartners.com to schedule a consultation.