International Character of Arbitration Determined by Place of Business

(Strickland vs. Ernst & Young LLP, G.R. No. 193782, 10 August 2018)
Darwin P. Angeles & Christopher Ryan R. Maranan

 An arbitration is international if the place with which the subject-matter of the dispute is most closely
connected is outside of the Philippines.

 An arbitration is “commercial” if it involves “relationships of a commercial nature” such as any trade

transaction for the supply or exchange of goods or services, joint ventures, or partnerships.

BACKGROUND

Dale Strickland (“Strickland”) was a partner of Ernst and Young, LLP (“EYLLP”) and was assigned as Lead Due
Diligence Partner in the liquidation of National Home Mortgage Financing Corporation’s (“NHMFC”) Unified Home
Lending Program (“UHLP”) in the Philippines, with Punongbayan and Aurallo (“PA”), as EYLLP’s Philippine Member.

As the parties transactions went awry, Strickland filed a complaint for sum of money and damages against,
among others, EYLLP, PA, NHMFC and for equitable compensation for services rendered as Lead Due Diligence
Partner in relation to the Financial Advisory Services Agreement (“FASA”) with NHMFC.

One of the issues brought to fore in this case is whether the claim for damages based on tortious conduct
committed here in the Philippines may be characterized as commercial arbitration of an international character,
thus making the Model Law on International Commercial Arbitration (“Model Law”) applicable.

In ruling that the Model law applies on Strickland’s complaint for tortious conduct against EYLLP PA and
NHMFC in refusing to compensate him for services rendered, the Supreme Court explained that under Republic Act
No. 9285, (“ADR Act”) domestic arbitration is defined as one that is not international as defined in the Mode Law. In
this regard, Article 1 (3) (b) (ii) of the Model Law provides that an arbitration is international if the place which the
subject-matter of the dispute is mostly connected is outside the State in which the parties have their place of
business. Considering that the place of business of EYLLP is the United States of America and it is in the Philippines
where the services for which Strickland seeks remuneration was rendered, the arbitration must be regarded as
international.

Applying the Model Law, the Supreme Court went on to rule that Strickland’s suit is also commercial as the
term commercial ought to be given a wide interpretation as to cover matters arising from all relationships of a
commercial nature, whether contractual or not. Its definition includes a wide variety of commercial transactions
including other forms of business operations, broad enough to cover a partnership agreement. Additional
circumstances also show that the Court correctly referred Strickland’s Complaint for arbitration, to wit:

1) While Strickland assails the authenticity of the Partnership Agreement which contains the arbitration
agreement between Strickland and EYLPP, his Complaint relies on the same Partnership Agreement;

2) EYLLP wrote an assignment letter to Strickland confirming his assignment to Manila as partner, stating
that the assignment letter shall be governed by, construed in accordance with, the laws of the US and
under the jurisdiction of US courts; and

3) The allegations in Strickland’s Complaint admit that the entire controversy stems from his working
relationship with EYLLP as a partner.

Thus, the Supreme Court ruled that, even if it involved allegations of tortious conduct, Strickland’s
Complaint was properly referred to international commercial arbitration.
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DARWIN P. ANGELES CHRISTOPHER RYAN R. MARANAN

Senior Associate Associate
dpangeles@mosveldttlaw.com crmaranan@mosveldttlaw.com