Construction Arbitration: Philippines

Legal system

1. Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?

 Philippines

The Philippines is considered a mixed law jurisdiction. Although its core codes are based on Spanish law, Supreme Court decisions form part of the law of the land.

The 1987 Constitution, statutes, treaties and decisions of the Supreme Court have legal force and effect.

The Congress of the Philippines is the lawmaking body.

New laws are published in the Official Gazette or in a newspaper of general circulation.

Laws are prospective in nature, save for a few exceptions.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Contract formation

2. What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?

 Philippines

Article 1318 of the Civil Code provides that contracts, including construction contracts, have the following essential requisites: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract, and (3) cause of the obligation which is established. Consent requires absolute acceptance of the offer. As to the object of the contract, article 1347 of the Civil Code provides that the object may include all things that are not outside the commerce of man and all services which are not contrary to law, morals, good customs, public order, or public policy. As to the cause of the contract, article 1350 of the Civil Code provides that for onerous contracts, the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other. These three requisites must concur in all contracts.

In Fleet Marine Cable Solutions Inc v Mjas Zenith Geomapping & Surveying Services (G.R. No. 267310, 4 November 2024), the Supreme Court held that construction refers to all “on-site works on buildings or altering structures, from land clearance through completion, including excavation, erection and assembly and installation of components and equipment”. Aside from the essential elements mentioned, the contract must cover any of the foregoing matters to be considered a construction contract.

A letter of intent is generally non-binding, unless the essential requisites of contract are complied with.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Choice of laws, seat, arbitrator and language

3. Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?

 Philippines

Article 1306 of the Civil Code provides that contracting parties are free to stipulate on all matters in their agreement, provided such stipulations are not contrary to law, morals, good customs, public order, or public policy. Thus, parties to a construction contract are free to stipulate on the matters in items “a” to “f”.

As to arbitration regarding construction disputes, section 4 of Executive Order No. 1008 provides that the Construction Industry Arbitration Commission (CIAC) has original and exclusive jurisdiction over disputes arising from, or connected with, construction contracts. For the CIAC to acquire jurisdiction, the parties must agree to submit their dispute to voluntary arbitration.

The Supreme Court, in China Chang Jiang Energy Corp v Rosal Infrastructure Builders (G.R. No. 125706, 30 September 1996),has interpreted the CIAC’s “original and exclusive jurisdiction” over construction disputes to mean that, while parties may stipulate as to their preferred forum for arbitration of disputes relating to construction contracts, they may not divest the CIAC of its jurisdiction.

Given the Supreme Court’s pronouncement in China Chang Jiang Energy Corp, if the parties agreed to resolve disputes through arbitration without specifying the institution and applicable rules, Philippine law establishes the CIAC and its arbitration rules as the default. If the parties agreed on an arbitration institution and rules other than CIAC and CIAC rules, then Philippine law establishes the CIAC and its rules as an alternative to the institution and rules chosen by the parties. In the latter case, if one of the parties invokes CIAC’s jurisdiction over the construction dispute, and a CIAC tribunal takes jurisdiction and renders an award, then there is a risk that any award secured by the other party in a non-CIAC arbitration (ie, consistent with the parties’ agreement) may not be enforced in the Philippines.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Implied terms

4. How might terms be implied into construction contracts? What terms might be implied?

 Philippines

Terms may be implied if they are mandated by law or recognised in custom.

 Construction Industry Authority of the Philippines Document 102 (Document 102) sets out the general conditions of contracts which applies exclusively to private construction contracts. Document 102 embodies customary practice in the Philippines. Thus, it is deemed read into the construction contract unless there are contractual stipulations to the contrary.

In addition, warranties against hidden defects (article 1719, Civil Code) and the right to require that the contractor remove defects (article 1715, Civil Code) are implied in every construction contract.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Certifiers

5. When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?

 Philippines

Philippine law does not use or define a “certifier”. For purposes of this question, we understand that a “certifier” is an independent assessor of construction projects who are typically engaged during key milestones of the construction contract, or after certain periods of time, to ensure that the work is of acceptable quality. A certifier under a construction contract must act impartially, fairly and honestly in all matters involving the project. Article 19 of the Civil Code provides that every person, in the exercise of his rights and in the performance of his duties, must observe honesty and good faith. If the certifier acts in a manner that unjustly favours one party, the aggrieved party may bring a complaint for damages against the certifier.

The provision on Standard of Conduct of both parties in article 2.02 of Document 102 is consistent with article 19 of the Civil Code.

Parties are bound by certificates issued by the certifier, but these may be reviewed further by a court or tribunal such as the CIAC. The certifier’s findings enjoy a disputable presumption of correctness. The contractor may bring proceedings directly against the certifier if they acted with bad faith of fraud, in contravention of articles 19 and 21 of the Civil Code and the Standard of Conduct under Document 102.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Competing causes of delay

6. If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?

 Philippines

The contractor may be entitled to an extension for any delay caused by and attributable to the employer. Article 1169 of the Civil Code provides that, in reciprocal obligations, “neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him.” If both parties are equally at fault, then neither of them is in delay.

Article 1192 of the Civil Code further provides that, in case both parties have committed a breach of the obligation, the liability of the party who first breached the agreement shall be equitably tempered by the courts. Thus, even if the employer caused delay, the degree of the contractor’s contributory delay (eg,delay arising due to defective work) will be considered in determining whether the contractor is entitled to an extension (see, eg, BF Corporation v Werdenberg International Corporation, G.R. No. 174387, 9 December 2015).

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Disruption

7. How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?

 Philippines

The employer’s disruption (ie, breach of contract and commission of acts of prevention) would allow the contractor to invoke the remedy under article 1191 of the Civil Code, which provides that, when the contract involves reciprocal obligations, the injured party may choose between the fulfilment of the obligation or rescission. In either case, the injured party will be entitled to damages. To invoke the principal remedy of rescission, the plaintiff must prove (1) the obligation between the parties is reciprocal in nature, (2) the other party breached the contract, and (3) the breach committed is not merely slight or casual but is substantial or fundamental. Thus, to mount a successful disruption claim, the contractor must be able to prove that the employer is guilty of a substantial or fundamental breach of the contract.

To claim actual damages, article 2199 of the Civil Code requires that the claimant prove the actual pecuniary loss suffered. Even if the amount of loss cannot be determined with absolute precision, the contractor may be awarded either nominal or temperate damages. Nominal damages may be recovered where a legal right is technically violated and ought to be vindicated, but the plaintiff has not suffered any actual loss or damage. Temperate damages are awarded when the plaintiff suffers actual loss, but definitive proof of its amount cannot be presented. Courts have the discretion to determine the amount of nominal or temperate damages to be awarded, which must be reasonable.

The contractor’s entitlement to either actual, temperate or nominal damages will depend on the level of disruption as well as the evidence that the contractor is able to present.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Acceleration

8. How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?

 Philippines

The employer’s refusal to grant an extension of time that is warranted under the circumstances may be deemed a breach of contract which would entitle the contractor to the payment of damages. Article 21.04 of Document 102 provides that the Contractor is entitled to an equitable adjustment of the Completion Time in the instances enumerated.

Document 102 is read into all Philippine construction contracts unless there are stipulations to the contrary. In general, the employer’s refusal to grant an extension of time in case of the occurrence of any of the events mentioned in article 21.04 may already constitute a breach of contract and entitle the contractor to damages – in which case, the contractor must prove (1) its entitlement to an extension of time citing any of the grounds in article 21.04 of Document 102, and (2) the construction contract contains no contrary stipulations covering extensions of time.

Further, if the employer acted unreasonably or in bad faith, then the contractor will be entitled to recover damages based on article 21 of the Civil Code, which provides that any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for damage. In general, the obligor who breaches the contract is only liable for the natural and probable consequences of the breach of the obligation, as well as those consequences which could have been reasonably foreseen at the time the obligation was constituted. However, article 2201 of the Civil Code provides that if the obligor breached the contract in bad faith, or by means of fraud, or with malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Force majeure and hardship

9. What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?

 Philippines

Article 1174 of the Civil Code provides that, except in cases expressly specified by law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for events which could not be foreseen or were inevitable. The parties are free to stipulate that (1) only certain events shall constitute force majeure, or (2) each party shall be liable for the consequences of an event that would normally be considered as unforeseeable or, although foreseeable, is inevitable.

The defence of force majeure is not automatic and must be invoked. In Philippine Communications Satellite Corp. v Globe Telecom, Inc. (G.R. No. 147324, 25 May 2004), the Supreme Court held that, in order that a party may be exempt from compliance with its obligation under the contract, the concurrence of the following elements must be established: (1) the event must be independent of human will; (2) the occurrence must render it impossible for the debtor to fulfil the obligation in a normal manner; and (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor. The party who invokes the right to be exempted from liability based on force majeure has the burden of proving these elements.

Article 1174 of the Civil Code allows parties to stipulate that the rules of force majeure shall not apply.

If the construction contract has no provisions on force majeure, then Document 102 applies. Article 1.01 of Document 102 defines force majeure as any event beyond the reasonable control of the employer or the contractor, and which is unavoidable notwithstanding the reasonable care of the party affected.The defence of force majeure may not be invoked if the assumption of risk is expressly stipulated, or if the nature of the obligation implies the assumption of risk. The event need not have a permanent effect nor result in total impossibility in performance. Relief is available even if only some obligations are affected. Document 102 contemplates force majeure which justifies adjustment of prices (20.16), delay in completion of the work (21.04) and just cause for suspension of work (27.02). The Force Majeure Reference Book provides that in the cases where the defence of force majeure was upheld, the court totally absolved the defendant from liability. Note, however, that under Document 102, the occurrence of a fortuitous event justifies an extension of time or suspension of work, or allows the parties to terminate the obligation entirely.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

10. When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?

 Philippines

Article 1267 of the Civil Code provides that the contractor may be released from the obligation in whole or in part if the performance of the service has become unusually and manifestly difficult. To be entitled to relief under article 1267, jurisprudence provides that the following conditions must concur: (1) the event or change in circumstances could not have been foreseen at the time of the execution of the contract; (2) it makes the performance of the contract extremely difficult but not impossible; (3) it must not be due to the act of any of the parties; and (4) the contract is for a future performance of an act or service.

Article 20.16 of Document 102 further provides that, if an event of force majeure causes an abnormal change in costs of materials, the contractor is entitled to add the same to the Contract Price.

The contractor may also suspend or even terminate the contract upon the submission of 15 days’ written notice to the employer for any of the reasons provided under article 26 of Document 102, which grounds are exclusive.

Document 102 further provides that, in case suspension of work occurs due to any of the circumstances enumerated above, the contractor shall be entitled to an equitable adjustment of the Completion Time and/or Contract Price.

The parties may exclude the general rules under the Civil Code and Document 102 by agreement.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Impossibility

11. When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?

 Philippines

Under article 1266 of the Civil Code, the debtor shall be released if the obligation becomes legally or physically impossible without the fault of the obligor. Thus, the contractor may be released from further obligations and responsibility for damages if the impossibility to achieve a particular aspect of the contractual specification is not attributable to the contractor’s fault.

If the impossibility to perform the task is attributable to the contractor, then the contractor is guilty of breach, which would entitle the employer to recover damages based on article 1169 in connection with article 2201of the Civil Code.

Additionally, if what is contemplated is extreme difficulty rather than impossibility of performance, article 1267 of the Civil Code shall apply. Article 1267 provides that the contractor may be released from the obligation in whole or in part if performance of the service has become unusually and manifestly difficult. In Tagaytay Realty Co., Inc. v Gacutan (G.R. No. 160033, 1 July 2015), the Supreme Court held that to invoke article 1267, the party must show that the event or change in circumstance could not have been foreseen at the time of the execution of the contract, and the event or change in circumstance is not due to the act of any of the parties. If the contractor was aware or should have been aware of the possibility that the performance of the contract could become extremely difficult to perform, the contractor will not be able to invoke article 1267.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

12. How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example, making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?

 Philippines

Article 1174 of the Civil Code allows parties to stipulate that the contractor shall be responsible even for matters that could not have been foreseen, or which, though foreseen, were inevitable. This freedom is limited only by article 1306, which states that the contracting parties may establish such stipulations provided they are not contrary to law, morals, good customs, public order or public policy.

The parties may therefore stipulate that the contractor shall bear the risk of specified events of force majeure, ground conditions that no reasonably diligent contractor could have foreseen, and errors in documents provided by the employer. It should be noted, however, that article 1171 of the Civil Code provides that any waiver of an action for future fraud is void. Thus, the contractor may avoid liability if the employer’s errors or omissions amount to fraud. For example, even if the parties stipulate that the contractor shall bear the risk for errors in documents provided by the employer, the contractor may avoid liability if it is shown that the errors in such documents were deliberately caused by the employer.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Duty to warn

13. When must the contractor warn the employer of an error in a design provided by the employer?

 Philippines

Under article 1715 of the Civil Code, the contractor must execute the work in such a manner that it has the qualities agreed upon and has no defects which destroy or lessen its value. If the contractor proceeds with the design with knowledge of the error in the design, such that the work becomes defective, the employer may have the corresponding right under article 1715 to (1) have the defect removed, or (2) have the contractor execute another work. The contractor’s responsibility is further underscored by article 1719 of the Civil Code, which provides that the employer’s acceptance of the work will not relieve the contractor of liability for defects if the defect is hidden and the employer is not, by his special knowledge, expected to recognise the same. Thus, if the employer is not expected to have knowledge of the defect, the contractor may be liable for the same, even if the defect was caused by an error in a design provided by the employer.

Additionally, article 2.04 of Document 102 provides that, if there is any error or omission in the Drawings or Specification, the contractor must immediately report the same to the employer, who must correct such error or omission.

Article 2.04 of Document 102 further provides that the contractor who performs the work involving these discrepancies despite knowledge and without informing the employer shall bear the costs of repairs and corrective works, if necessary. 

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Good faith

14. Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?

 Philippines

Yes. Article 19 provides that every person, in the exercise of his rights and in the performance of his duties, must act with justice, give everyone his due, and observe honesty and good faith.

Article 2.02 of Document 102 reproduces article 19 of the Civil Code. Although the employer may intervene in the works and order changes in the work, section III, article 8 of Document 102 recognises the right of the contractor to demand corresponding contract price and completion time adjustments.

Even if the employer may terminate or suspend the contract without cause (subject to written notice and payment of work done and reasonable termination costs), it cannot do so arbitrarily or whimsically, lest it be held liable for damages. Although the employer may have the right to terminate or suspend the contract without cause, article 21 of the Civil Code provides that any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs, or public policy shall compensate the latter for the damage. Thus, if the employer exercises its rights arbitrarily or whimsically, the contractor may file a complaint for damages.

The employer has the right to claim pre-agreed sums in the manner stipulated in the contract or through legal action. That said, in the exercise of its right, the employer must abide by both the relevant stipulations in the contract and the standard of conduct provided in articles 19 and 21 of the Civil Code. Also, under article 2227 of the Civil Code, the amount of liquidated damages, even if freely agreed upon by the parties, may be reduced if the courts find that they are iniquitous or unconscionable.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Time bars

15. How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?

 Philippines

A stipulation providing that claims are barred if the other party is not notified within a certain period is valid under Philippine law. Article 1306 of the Civil Code provides that the contracting parties may establish such stipulations as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. This freedom to contract, however, is subject to article 1171 of the Civil Code, which provides that any waiver of an action for future fraud is void.

Under article 1144 of the Civil Code, actions for breaches of contract prescribe in 10 years from the date of the commission of the breach, which is the date when the right of action for breach of contract accrues.

Article 1159 of the Civil Code provides that obligations arising from contracts have the force of law between the contracting parties. Thus, if the parties have agreed to incorporate sub-clause 20.1 of the FIDIC Red Book 1999 into their contract, then they are bound to comply with sub-clause 20.1 in its entirety.

There is no difference in approach to claims based on matters that the employers caused and matters it did not. Nor is there a difference in approach to claims for extensions of time and relief from liquidated damages for delay and monetary sums. The parties’ agreement to bar claims not validly notified within a specified period will apply in any of the foregoing circumstances.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Suspension

16. What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?

 Philippines

The right of the employer to suspend payment to the contractor and vice versa shall be governed by the relevant stipulations in the contract. Parties are free to determine the terms and conditions of the contract, for as long as what has been agreed upon does not violate law or public policy. In the absence of such stipulations, article 1191 of the Civil Code shall apply, which provides that, in reciprocal obligations, the injured party may choose between fulfilment and rescission of the obligation, with the payment of damages in either case. Jurisprudence provides that, to invoke the principal remedy of rescission, the plaintiff must prove (1) the obligation between the parties is reciprocal in nature, (2) the other party breached the contract, and (3) the breach committed is not merely slight or casual but is substantial or fundamental.

Moreover, under article 22.03 of Document 102, the employer has the right to deduct from any payment due to the contractor (1) the estimated cost of defective work not remedied, (2) the amount of substantiated and unpaid claims by sub-contractors and/or suppliers of materials and labour for the work unjustifiably withheld by the contractor, and (3) the accrued liquidated damages.

The contractor has the right to suspend the work upon 15 days’ written notice to the employer for any ground listed under article 26 of Document 102.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Omissions and termination for convenience

17. May the employer exercise an express power to omit work, or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?

 Philippines

Parties are free to stipulate that the employer shall have the express power to omit work or to terminate the contract at will or for convenience. However, article 1308 of the Civil Code provides that the validity of a contract cannot be left to the will of one party alone. In addition, article 1725 of the Civil Code states that, if the owner withdraws at will from the construction of the work, the owner is required to indemnify the contractor for all its expenses, work, and the usefulness that the owner may obtain from such work, and damages.

In the absence of stipulation, article 29 of Document 102 provides that the employer may terminate the contract even without cause. Note, however, that the employer must provide 15 days’ written notice to the contractor, and must pay the contractor for all work executed and any expense sustained, which shall include reasonable termination costs.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Termination

18. What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?

 Philippines

Termination rights depend on the parties’ stipulations, including whether the contract may be terminated in part. If the parties do not expressly stipulate on termination rights, article 1191 of the Civil Code recognises an injured party’s right to terminate the agreement if the other party is in breach of the same. The practical and financial consequences of termination are dependent on the reason for termination and whether termination was validly executed. For example, termination due to the contractor’s breach may entitle the owner to call on a performance bond and to take over the works. On the other hand, termination due to the owner’s breach (eg, for non-payment) may entitle the contractor to liquidated damages.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

19. If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?

 Philippines

The right to terminate a construction contract is recognised under article 1191 of the Civil Code, which provides that the right to rescind is implied in reciprocal obligations in case of substantial breach, even if not expressly stated. However, the other party may challenge the validity of such rescission which should only be based on substantial breach, or those that defeat the very object or fundamental purpose of the contract (seeRepublic v Pascual, G.R. No. 244214-15, 29 March 2023). For example, substantial breach may exist where the contractor commits serious violations that go to the essence of the undertaking, such as failure to comply with laws or permits and contract specifications, leading to stoppage orders that negatively affect the timeline of the construction contract (seeGaite, et al. v The Plaza, Inc. et. al., G.R. No. 177685, 26 January 2011).

Article 1725 of the Civil Code also provides that the owner may withdraw at will from the construction, even if commenced, provided the owner indemnifies the contractor for expenses, work performed, usefulness obtained, and damages.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

20. What limits apply to exercising termination rights?

 Philippines

Termination through rescission under article 1191 of the Civil Code should be based on a substantial breach. On the other hand, termination based on grounds stipulated by the parties only requires that the terminating party establish that one of the grounds for termination under the contract exists. A party exercising a contractual right to terminate is still required to act in good faith in accordance with article 19 of the Civil Code.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Completion

21. Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?

 Philippines

Parties are free to stipulate on when construction works are deemed completed (including whether such a conclusion would arise by virtue of the employer taking beneficial possession of the works). In the absence of stipulation, Document 102 states that works are deemed completed when the contractor completes 95% of the work, provided that the remaining work and the performance of the work necessary to complete the work shall not prevent the normal use of the completed portion.

Philippine tribunals may treat the employer’s conduct, of taking possession and using the works, as acceptance of the work when the contract does not specify the form of acceptance (see Narra Integrated Corporation v Court of Appeals, G.R. No. 137915, 15 November 2000). However, should the construction contract provide that possession and usage of the works shall not be deemed as acceptance of the work, the contractual stipulation shall prevail (see Abaño v Colegio de San Juan de Letran-Calamba, G.R. No. 179545, 11 July 2012).

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

22. Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?

 Philippines

No, acceptance of work by or on behalf of the employer or by the employer himself does not bar a complaint. Article 1723 Civil Code states that acceptance of a building after completion does not imply a waiver to sue the engineer or architect who drew the plans, or the contractor, for damages if the building collapses on account of construction defects or the use of materials of inferior quality furnished by the contractor, or due to violation of the terms of the construction contract. If the employer expressly waives the filing of a subsequent complaint, the waiver would be binding unless it is contrary to law, such as when the waiver covers the contractor’s fraudulent acts (as this is in violation of article 1716 of the Civil Code).

Acceptance of the work may be express, such as when the owner issues a certificate of completion to the contractor, or implied from the unequivocal acts of the employer showing that the work is treated as completed and the owner has accepted its benefits. However, the employer taking possession or using the works does not necessarily constitute acceptance where the contract documents expressly provide that use or occupancy shall not be deemed acceptance of the work (see Abaño v Colegio de San Juan de Letran-Calamba, G.R. No. 179545, 11 July 2012).

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Liquidated damages and similar pre-agreed sums ('liquidated damages')

23. To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?

 Philippines

Under article 1226 of the Civil Code, in the absence of a contrary stipulation, liquidated damages shall substitute the indemnity for damages and the payment of interests in the case of the contractor’s delay to the completion of the works by the contractual completion date. Delays prior to the contractual completion date, in the absence of interim milestone dates with liquidated damages for delay attaching to them, would not result in the contractor being liable for liquidated damages.

If the contractor caused critical delay but acted in good faith, then the contractor’s liability for damages is limited to those that are the “natural and probable consequences of the breach and those which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted” (seeCivil Code, article 2201). In this situation, if the parties agreed on liquidated damages, then the payment of such damages shall substitute the indemnity for actual damages and interests (see Civil Code, article 1226).

On the other hand, if the contractor caused critical delay due to fraud, bad faith, or malice, then the contractor may be held liable for all damages reasonably attributable to the non-performance of the obligation, regardless of whether or not the parties have foreseen or could have reasonably foreseen such damages at the time the obligation was constituted (see Civil Code, article 2201). In this situation, recovery can be made not only on, but also other damages resulting from the non-fulfilment of the obligation (see Pryce Corporation v Philippine Amusement Gaming Corporation, G.R. No. 157480, 6 May 2005).

Fraud or bad faith imports a dishonest purpose or some moral obliquity and conscious doing of a wrong. It is a breach of a known duty through some motive or interest or ill will (see Philharbor Ferries and Port Services, Inc. v Carlos, G.R. No. 266636, July 29, 2024), and must be proven by clear and convincing evidence (see Singson v Carpio, et. al., G.R. No. 237814, 30 August 2023). Fraud and bad faith cannot be excluded by agreement because it is contrary to public policy (see Philippine Commercial International Bank v Court of Appeals, et. al., G.R. No. 97785, 29 March 1996).

Wilful misconduct refers to misconduct that is done deliberately, or with intention or desire to achieve an outcome that is considered injurious (see Cabalas v BPI Family Savings Bank, et. al., G.R. No. 233846, 18 November 2020). Gross negligence is negligence characterised as having want of even slight care, acting or omitting to act in a situation when there is a duty to act, not inadvertently but wilfully and intentionally, with a conscious indifference to consequences insofar as other persons may be affected (see Philharbor Ferries and Port Services, Inc v Carlos, G.R. No. 266636, 29 July 2024). These may arguably be excluded by agreement as there is no express provision under Philippine law that prohibits the waiver for wilful misconduct and gross negligence which are not tantamount to fraud.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

24. If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?

 Philippines

No, the employer cannot claim liquidated damages due to late completion of works if the employer caused the delay as contractors are generally entitled to an adequate adjustment of completion time that prevents the accrual of liquidated damages.

Paragraph 29.06 of Document 102 provides that liquidated damages accrue from the first day of delay in completing the work. Paragraph 21.04 of Document 102 also provides that the contractor shall be entitled to an adequate adjustment of completion time where the work is delayed through an act or delay of the owner (ie, the employer). In this regard, if the completion time should be adjusted due to the owner’s delay, liquidated damages will not accrue until a day after the adjusted completion time.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

25. When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?

 Philippines

Philippine courts and tribunals applying Philippine substantive laws may award less than the stipulated liquidated damages when (1) there was partial or irregular performance, or (2) the stipulated amount is iniquitous or unconscionable (see Civil Code, articles 2227 and 1229).

In determining whether liquidated damages are “iniquitous or unconscionable”, courts may consider factors such as the type, extent and purpose of the liquidated damages, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, the application of which are addressed to the court or tribunal’s discretion (see Ligutan v Court of Appeals, G.R. No. 138677, 12 February 2002).

In reducing liquidated damages, courts and tribunals may consider any breach that may have been committed by the other party and set off the parties’ claims against each other accordingly (see Sia v Tan, et al., G.R. No. 217368, 5 August 2024).

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

26. When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?

 Philippines

If liquidated damages are specified in the contract for delay, then, in general, no other damages caused by delay may be claimed beyond the amount stipulated. An award for more than the stipulated liquidated damages may be issued if damages are incurred from a different breach (eg, substandard work).

Nevertheless, Philippine courts and tribunals may award more than liquidated damages if the requisites for the award of exemplary damages are present. Exemplary damages are awarded in addition to liquidated damages by way of example or correction for the public good (seeCivil Code, article 2229). However, there must be proof that the breaching party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Assessing damages and limitations and exclusions of liability

27. How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?

 Philippines

Under article 2201 of the Civil Code, a guilty party who acted in good faith is only liable for those that are the natural and probable consequences of the breach of contract and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted. A guilty party who committed fraud or acted in bad faith, with malice or wanton attitude, is liable for all damages which may be reasonably attributed to the breach of contract, regardless of foreseeability. Indemnification for damages may include the profits that the non-breaching party failed to obtain (see Civil Code, article 2200).

A claimant is entitled to actual damages, including lost profits – whether or not such lost profits are exceptionally high – only for such damages as he has duly proved (see Civil Code, article 2199). The party suffering loss is also required to show proof that he has minimised the damages resulting from the act or omission in question (see Civil Code, article 2203). Under article 2215 of the Civil Code, courts may equitably mitigate the damages if: (1) the claimant also breached the contract; (2) the claimant derived some benefit as a result of the contract; (3) in cases where exemplary damages are to be awarded, that the defendant acted upon the advice of counsel; (4) that the loss would have resulted in any event; and (5) that since the filing of the action, the defendant has done his best to lessen the claimant’s loss or injury.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

28. If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?

 Philippines

Yes, the contractor is liable for remedying the non-compliant work. Article 1715 of the Civil Code mandates the contractor to execute the work in such a manner that it has the qualities agreed upon and has no defects that destroy or lessen its value or fitness for its ordinary or stipulated use. Should the work not be of such quality, the employer may require that the contractor remove the defect or execute another work. if the contractor fails or refuses to comply with this obligation, the employer may have the defect removed or another work executed, at the contractor's cost.

The Civil Code does not expressly limit the contractor’s obligation of rectifying the work on the ground that rectification costs would be disproportionate to the benefit of the remedy.

Parties may agree on a regime that is stricter for the contractor under the principle of autonomy of contracts, so long as the agreement is not contrary to law, morals, good customs, public order or public policy (seeCivil Code, article 1306).

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

29. If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?

 Philippines

If the construction contract is silent as to the employer’s rights to claim for any defects appearing after the DNP expires, the employer may claim damages only in cases where the defect is hidden and the employer is not, by his special knowledge, expected to recognise the same (see Civil Code, article 1719).

Further, article 1723 of the Civil Code provides that acceptance of a building after completion does not imply a waiver to sue the contractor if the edifice falls within 15 years of completion of the structure on account of defects in the construction or the sue of inferior materials, or due to any violations of the terms of the contract.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

30. What is the effect of a construction contract excluding liability for “indirect or consequential loss”?

 Philippines

The Supreme Court has characterised “consequential losses” as those that could be “reasonably foreseen or have been brought within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting”, and included in this category are claims for loss profits on account of breach (see Continental Cement v ASEA Brown Boveri, Inc., G.R. No. 171660, 17 October 2011). Consequently, a clause in a construction contract excluding liability for “indirect or consequential loss” may limit the recovery lost profits or opportunity costs. However, if one of the parties acted fraudulently or in bad faith, the stipulation excluding liability for indirect or consequential loss is void pursuant to articles 1716 and 2201 of the Civil Code.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

31. Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?

 Philippines

Contractual limits or exclusions may be effective, but not to shield a party from liability (1) for fraud, wilful misconduct or gross negligence, or (2) for future fraud, wilful misconduct or gross negligence, as these are contrary to law (seeCivil Code, articles 1171, 1173, 1716 and 2201). Moreover, article 1171 of the Civil Code provides that a clause that effectively waives liability for future fraud is void. Thus, even if the contract is silent, or even if it purports to apply notwithstanding such conduct, courts may, and will (in the case of waiver of liability for future fraud), disregard the clause. The loss must be reasonably attributed to the behaviour that caused the loss.

In any event, while parties are not allowed to stipulate on limitations or exclusions from liability due to fraud, gross negligence or wilful misconduct, the aggrieved party may choose to subsequently waive their rights against fraud, gross negligence or wilful misconduct that occurred in the performance of the obligation.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Liens

32. What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?

 Philippines

Article 2242(3) of the Civil Code provides for a contractor’s lien as a preferred credit over other credits. However, this provision is only applied in insolvency proceedings where the existence of other preferred creditors is determined. It does not apply in cases filed for specific performance or damages. Accordingly, the contractor’s right is recognised and enforced by asserting the right in insolvency proceedings involving the employer.

However, the parties are free to stipulate that the contractor may retain the works until the employer has completed payment.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Subcontractors

33. How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?

 Philippines

Conditional payment provisions, such as “pay-when-paid” or “pay-if-paid” provisions, are generally analysed in Philippine law as valid conditional obligations under the article 1179 and 1181 Civil Code. They are generally enforceable unless it is shown that the debtor actively prevented the fulfilment of the condition, in which case courts or tribunals will consider the condition as having been fulfilled (seeCivil Code, article 1186). Also, the fulfilment of conditional payment obligations cannot be left to the will of one of the contracting parties; otherwise, it is void (seeCivil Code, article 1183).

Thus, payment provisions which are conditioned on payment from other parties are valid contractual provisions under Philippine laws. Consequently, only when the condition is deemed fulfilled (ie, payment from another entity not a party to the contract) will the obligation to pay arise (see Fluor Daniel, Inc.-Phlippines v E.B. Villarosa & Partners Co., Ltd., G.R. No. 159648, 27 July 2007, where the Supreme Court recognised a pay-when-paid provision).

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

34. May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?

 Philippines

A subcontractor may sue the employer up to the amount the employer still owes the contractor when the claim is made, and early payments and renunciation cannot prejudice the subcontractor based on article 1729 of the Civil Code.

The subcontractor must generally establish: (1) that work, labour or materials were furnished for the contractor’s project; and (2) the non-payment by the contractor to the subcontractor. Consequently, the employer may not be held liable to the subcontractor in amounts beyond what the employer owes to the contractor. In such case, the subcontractor has the burden to prove the factual and contractual basis and amount of its claim against the contractor. On the other hand, the employer bears the burden to prove full payment to the contractor as a defence (see Grandspan Development Corporation v Franklin Baker, Inc., et al., G.R. No. 251463, 2 August 2023). Once the subcontractor proves the factual and contractual basis and amount of its claim against the contractor, the burden of evidence shifts from the subcontractor to the employer to prove full payment or that no remaining amount is due from the employer to the contractor.

Philippine law recognises the principle of autonomy of contracts where parties may establish such stipulations, clauses, terms and conditions as they may deem convenient provided they are not contrary to law, morals, good customs, public order or public policy. This includes electing that foreign law govern their agreement provided that there is a reasonable connection between the foreign law and the transaction (seeCivil Code, article 1306). Having said that, where parties elected that a foreign law govern a construction contract instead of Philippine law, and the project is substantially connected to the Philippines (eg, the construction and project implementation will occur in the Philippines), Philippine conflict-of-laws principles may allow Philippine courts or tribunals to disregard a foreign-law choice insofar as it defeats Philippine prohibitory laws and public policy – eg, in cases where the parties’ foreign law choice contradicts local law on labour protection (see Civil Code, article 17 and Triple Eight Integrated Services, Inc. v National Labor Relations Commission, G.R. No. 129584, 3 December 1998).

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

35. May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?

 Philippines

Yes, an employer may hold a contractor to their arbitration agreement even if the dispute concerns a subcontractor. Section 2 of Republic Act No. 9285 (known as the Alternative Dispute Resolution Act of 2004) states that it is the policy of the Philippines to actively promote autonomy in the resolution of disputes, including the freedom of the parties to make their own arrangements to resolve their disputes. Further, section 24 of Republic Act No. 9285 mandates that court refer the parties to arbitration if the matter brought before it is subject to an arbitration agreement. However, this would largely depend on whether there is a “substantial and significant connection” between the party sought to be impleaded (ie, the subcontractor) and the construction contract subject of the arbitration. Following this principle, an employer may hold a contractor to their arbitration agreement even if the dispute concerns the subcontractor.

In this connection, the contractor may implead the sub-contractor as a third-party respondent in the arbitration if the contractor and the sub-contractor agreed to arbitrate their dispute under the sub-contract. The contractor may try to so implead the sub-contractor even if the sub-contract does not expressly contain an arbitration clause, provided that the subcontract incorporates or references the main construction contract (containing the arbitration clause), and/or does not contain any contrary dispute resolution clause. 

If an arbitration between the contractor and sub-contractor has already commenced, the contractor may try to consolidate this arbitration with that initiated by the employer against the contractor, provided the legal requisites for consolidation are present.

If the subcontract contains a litigation clause, the arbitration between the employer and contractor may proceed based on the arbitration agreement in the main construction contract, and may proceed independently from any litigation between the contractor and subcontractor under the subcontract.

Reference to a foreign seat in the arbitration clause does not affect the Philippine courts’ duty to enforce arbitration agreements and refer parties to arbitration. Philippine courts may not refuse referral to arbitration on the ground that the place of arbitration is in a foreign country.

Having said that, even if the parties agreed to a foreign seat, the construction dispute may still be referred by a party to arbitration before the CIAC. In Fleet Marine Cable Solutions, Inc. v MJAS Zenith Geomapping & Surveying Services (G.R. No. 267310, 4 November 2024), citing National Irrigation Administration v Court of Appeals (G.R. No. 129169, 17 November 1999), the Supreme Court ruled that “as long as the parties agree to submit to voluntary arbitration, regardless of what forum they may choose, their agreement will fall within the jurisdiction of the CIAC, such that, even if they specifically choose another forum, the parties will not be precluded from electing to submit their dispute before the CIAC because this right has been vested upon each party by law.” This means that the choice of a foreign seat will not preclude any of the parties to submit their dispute to arbitration before the CIAC seated in the Philippines.

In this connection, though, if the parties had agreed in their arbitration clause a foreign seat or a foreign arbitration institution, and one of the parties objected to the CIAC arbitration initiated by the other party, the latter may be hard-pressed to enforce a favorable CIAC arbitration in a foreign jurisdiction under the 1958 New York Convention on the Recognition and Enforcement of Arbitral Awards. Conversely, the former may be hard-pressed to enforce in the Philippines a favorable foreign arbitral award that is inconsistent with the CIAC award that may be issued.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Third parties

36. May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?

 Philippines

As a general rule, construction contracts, like any contract, are binding only upon the contracting parties, their assigns and heirs (seeCivil Code, article 1311). Accordingly, third parties ordinarily cannot enforce contractual rights against a contractor or bring claims for delays or defects. An exception exists where the contract contains a “stipulation pour autrui”, under which the contracting parties deliberately confer a benefit upon a third party. Such stipulation is enforceable if the benefit is clear and deliberate, and the third party accepts it before revocation.

Shareholders and affiliates of the employer generally cannot sue the contractor for injuries suffered by the employer corporation. Having said that, a shareholder may bring a derivative suit for and on behalf of a corporation-employer only where the corporation wrongfully refuses to enforce its rights, subject to compliance with requirements under Philippine law, including exhaustion of intra-corporate remedies.

Exclusions and limitations of liability are generally enforceable under the principle of contractual autonomy, provided they are not contrary to law, morals, public order or public policy. Parties may validly agree on liability caps, liquidated damages, notice requirements and warranty limitations.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

37. How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?

 Philippines

Persons connected with the contractor, such as affiliates, directors or employees, are generally not liable for delays, defects, or payment obligations, consistent with the doctrine of separate juridical personality under the Revised Corporation Code of the Philippines, which recognises that a corporation has a personality separate and distinct from its shareholders, directors and officers. However, liability may arise under the Revised Corporation Code of the Philippines where the corporate veil is pierced, particularly if the entity is used to perpetuate fraud or functions as an alter ego or business conduit. Also, shareholders may be held liable for claims against their corporation to the extent of these shareholders’ unpaid subscriptions pursuant to the Trust Fund Doctrine, which states that subscription to the capital stock of a corporation constitute a fund to which creditors have a right to look up to for satisfaction of their claims, and that the assignee in insolvency can maintain an action upon any unpaid stock subscription to realise assets for the payment of its debt (Halley v Printwell, Inc., G.R. No. 157549, 30 May 2011). Contractual exclusions and limitations of liability are binding except in cases where such exclusions or limitations of liability operate to shield a party from liability for its fraud, wilful misconduct, or gross negligence, which are contrary to public policy.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Limitation and prescription periods

38. What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?

 Philippines

Actions arising from construction contracts are generally treated as actions upon a written contract and are therefore subject to the 10-year prescriptive period provided in article 1144 of the Civil Code, reckoned from the time the right of action accrues (eg, upon breach of the contractor’s obligations or the employer’s non-payment). For defects in construction resulting in the collapse of a building within 15 years from construction, article 1723 establishes a 10-year prescriptive period reckoned from such collapse. The liability under article 1723 is considered mandatory and may not be the subject of a contrary stipulation. All other claims for defects remain subject to the provisions of the construction contract and to the general 10-year prescriptive period mentioned earlier.

Article 1155 provides that prescription is interrupted by the filing of an action, written extrajudicial demand or written acknowledgement of the obligation. Parties may stipulate to shorten these statutory prescriptive periods, provided the period is a reasonable one (see Republic of the Philippines v Pascual, G.R. No. 244214-15, 29 March 2023).

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Other key laws

39. What laws apply that cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

 Philippines

Under Philippine law, contractual stipulations cannot derogate from statutorily mandated provisions. Article 5 of the Civil Code of the Philippines provides that acts contrary to such laws are void, unless the law itself permits otherwise.

Certain provisions of FIDIC Silver Book 1999, such as Clause 8.7 (on Delay Damages as an exclusive remedy) and 17.6 (on Limitation of Liability), may not be enforced in accordance with their terms under specific circumstances. Clause 8.7 provides that delay damages constitute the employer’s exclusive remedy for delay, while Clause 17.6 limits the contractor’s liability and excludes certain categories of damages. Under the Civil Code, contractual stipulations for exempting or limiting liability for fraud, wilful misconduct, bad faith or gross negligence are generally unenforceable for being contrary to law and public policy.

In addition, disputes regarding construction projects in the Philippines fall within the jurisdiction of the CIAC under Executive Order No. 1008 where the parties have agreed to submit such disputes to arbitration. While parties may freely stipulate as to their preferred arbitration institution and rules, they may not divest CIAC of its jurisdiction by contractual stipulation (see China Chang Jiang Energy Corp v Rosal Infrastructure Builders, G.R. No. 125706, 20 September 1996). In fact, parties may not limit or render conditional such jurisdiction of the CIAC (see Datem Incorporated v Alphaland Makati Place, Inc., G.R. No. 242904-05, 10 February 2021).

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

40. What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

 Philippines

Philippine courts generally adhere to the contractual choice of foreign governing law where such foreign law has a connection to the transaction, subject to proper pleading and proof in accordance with our Rules on Evidence. Notwithstanding a foreign governing law clause, Philippine mandatory laws, public policy, labour standards, tax regulations and licensing requirements continue to apply.

Certain provisions of standard forms, such as the FIDIC Silver Book 1999, including, but not limited to, Clause 8.7 (on Delay Damages as an exclusive remedy), and 17.6 (on Limitation of Liability), may therefore not be enforced in accordance with their terms. Clause 8.7 provides that delay damages constitute the employer’s exclusive remedy for delay, while Clause 17.6 limits the contractor’s liability and excludes certain categories of damages. As discussed, under the Civil Code, contractual stipulations for exempting or limiting liability for fraud, wilful misconduct, bad faith or gross negligence are generally unenforceable for being contrary to public policy.

In addition, as discussed, disputes regarding construction projects in the Philippines fall within the jurisdiction of the CIAC under Executive Order No. 1008 where the parties have agreed to submit such disputes to arbitration. Executive Order No. 1008 does not distinguish between the construction contract governed by Philippine law and foreign law. As discussed, while parties may stipulate on a foreign arbitration seat, arbitration rules, and governing law, they may not divest CIAC of its jurisdiction by contractual stipulation (see China Chang Jiang Energy Corp v Rosal Infrastructure Builders, G.R. No. 125706, 30 September 1996).

In The Consortium of Hyundai Engineering Co., Ltd. and Hyundai Corp. v National Grid Corporation of the Philippines (G.R. Nos. 214743 & 248753, December 4, 2023), the Supreme Court reiterated that there are three requisites for the CIAC’s exercise of its jurisdiction: first, a dispute arising form or connected with a construction contract; second, such contract must have been entered into by parties involved in construction in the Philippines, and, third, an agreement by the parties to submit their dispute to arbitration. Thus, regardless of the parties’ choice of law, if the foregoing requisites are present, CIAC will have jurisdiction over the dispute. 

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

41. For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?

 Philippines

In arbitrations seated in the Philippines, a tribunal may grant interim or partial relief, including orders for payment, where warranted by the contract.

Parties to an arbitration may also apply for interim measures of protection before the courts (1) before arbitration is commenced, (2) after arbitration is commenced, but before the constitution of the arbitral tribunal or (3) after the constitution of the arbitral tribunal and at any time during arbitral proceedings but, at this stage, only to the extent that the arbitral tribunal has no power to act or is unable to act effectively. The kinds of interim reliefs that courts may grant include preliminary injunction directed against a party to arbitration.

Thus, a contractor may apply for an interim measure of protection, in the form of a preliminary mandatory injunction directing the employer to pay the sum awarded by the DAB pending a final award. In any event, as an injunctive relief, the grant of preliminary mandatory injunction will issue only if the following requisites are present: (1) there must be a clear and unmistakable right, that is a right in esse; (2) there is a material and substantial invasion of such right; (3) there is an urgent need for the writ to prevent irreparable injury to the applicant; and (4) no other ordinary, speedy and adequate remedy exists to prevent the infliction of irreparable injury (see Pimentel v Commission on Elections, G.R. No. 265395, 8 July 2025).

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Courts and arbitral tribunals

42. Does your jurisdiction have courts or judges specialising in construction and arbitration?

 Philippines

The Philippines does not have specialised courts exclusively dedicated to construction or arbitration. However, certain regional trial courts are designated as special commercial courts and may handle arbitration-related cases, including applications for interim measures and enforcement of awards. Under section 39 of R.A. No. 9285, in case of a construction dispute where parties have an arbitration agreement, the Regional Trial Courts are mandated to refer the dispute to CIAC arbitration. 

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

43. What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?

 Philippines

For construction-related litigation (where parties do not have an arbitration agreement), complaints are initially filed with the appropriate Regional Trial Court (provided that the amount of the claim exceeds million pesos (seeBatas Pambansa Blg. 129, as amended by Republic Act No. 11576, section 19). Decisions of the Regional Trial Court may be appealed to the Court of Appeals on questions of fact and of law. Decisions of the Court of Appeals may be further appealed to the Supreme Court on questions of law. 

For construction-related arbitration before the CIAC, the Supreme Court, in Global Medical Center of Laguna, Inc. v Ross Systems International, Inc., G.R. Nos. 230112/230119, 11 May 2021, discussed the remedies available after the CIAC renders an award. Thus, in Global, the Supreme Court ruled that a party may seek judicial review of a CIAC award generally by filing an appeal on pure questions of law directly with the Supreme Court in accordance with rule 45 of the Philippine Rules of Court. Moreover, the Supreme Court confirmed that, in limited cases where the petition takes issue on the integrity of the arbitral tribunal and its decision (ie, allegations of corruption, fraud, misconduct, evident partiality, incapacity or excess of powers within the tribunal), or the unconstitutionality or invalidity of its actions in the arbitral process, the parties may appeal the CIAC award before the Court of Appeals under rule 65, on grounds of grave abuse of discretion amounting to lack or excess in jurisdiction, where a factual review may then be had by the Court of Appeals. Again, decisions of the Court of Appeals may be further appealed to the Supreme Court on questions of law.

For arbitration that is not related to construction, in general, after an arbitral tribunal has rendered a final award, recourse to the courts is limited to the remedies provided under the Alternative Dispute Resolution Act of 2004 and the Special ADR Rules, particularly through a Petition to Vacate or Set Aside the arbitral award filed with the appropriate Regional Trial Court, acting as a special commercial court. Any further review may be made via a Petition for Review to the Court of Appeals, and ultimately, on questions of law, to the Supreme Court.

Only Supreme Court decisions constitute binding precedent under article 8 of the Civil Code, which provides that judicial decisions applying or interpreting the laws or the Constitution form part of the Philippine legal system.

Only Supreme Court decisions are published in the Philippine reports, and the Supreme Court’s Public Information Office may choose and submit significant decisions for publication in the Official Gazette (see Internal Rules of the Supreme Court, rule 14, section 7). Court of Appeals decisions are published in the Official Gazette and in the Court of Appeals Reports Annotated (see 2002 Internal Rules of the Court of Appeals). Regional Trial Court decisions are not published.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

44. In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?

 Philippines

An arbitrator may raise issues or seek clarification on matters not expressly articulated by the parties, as part of active case management and duty to ensure full ventilation of issues. This is consistent with the authority of arbitral tribunals under the Alternative Dispute Resolution Act of 2004 and the CIAC Revised Rules of Procedure Governing Construction Arbitration to conduct proceedings in a fair and expeditious manner. In CIAC arbitration, such matters may be addressed during the preliminary conference and reflected in the Terms of Reference. Tribunals are not expected to give preliminary indications as to how they view the merits of the dispute prior to the final determination, as this may be seen as violative of the arbitrators’ duty to maintain impartiality (see CIAC Revised Rules of Procedure Governing Construction Arbitration, section 8.3).

Further, while arbitration in the Philippines requires an express grant in the Terms of Reference of equity jurisdiction to an arbitral tribunal to decide ex equo et bono, the Supreme Court has recognised that given its expertise, the CIAC “is given a wide latitude of discretion so that it may resolve all issues before it in a fair and expeditious manner”, and that “[i]ncluded within the bounds of its discretion are situations where it resolves, on the basis of equity, to order a party to compensate a contractor for any unpaid work done.” (See Metro Bottled Water Corporation v Andrada Construction and Development, G.R. No. 202430, 6 March 2019.)

Likewise, courts are not permitted to give their preliminary indications as to how it views the merits of a dispute before it. Judges shall not knowingly, while a proceeding is before or could come before them, make any comment that might reasonably be expected to affect the outcome of such proceeding or impair the manifest fairness of the process, nor shall they make any comment in public or otherwise that might affect the fair trial of any person or issue (see New Code of Judicial Conduct, Canon 3, section 4).

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

45. If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?

 Philippines

Where a valid arbitration agreement exists, Philippine courts generally stay or dismiss parallel proceedings on the same dispute in favour of arbitration, including CIAC arbitration in construction disputes. However, a party may still seek interim judicial relief or ancillary court intervention. These include applications for interim measures of protection, such as preliminary injunctions or temporary restraining orders to preserve the status quo, and applications for attachment. The existence of pre-arbitration steps under construction contracts, such as DAB determination or amicable settlement clauses, are generally treated as procedural conditions precedent rather than a jurisdictional requirement, and non-compliance may affect admissibility or timing but does not ordinarily prevent arbitration from proceeding once invoked. Accordingly, these provisions do not generally affect the jurisdiction of CIAC or the arbitrability of the dispute, which the parties cannot make subject to conditions or limitations (Consortium of Hyundai Engineering Co., and Hyundai Corp. v National Grid Corporation of the Philippines, G.R. No. 214743&248753, 4 December 2023).

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

46. If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?

 Philippines

A contractor does not generally lose its right to arbitrate under Philippine law merely by seeking interim or provisional relief from a foreign court. Such measures are typically regarded as ancillary and protective and do not constitute a waiver of the arbitration agreement, provided they do not involve adjudication of the merits. Philippine law, including the Alternative Dispute Resolution Act of 2004, reflects a strong policy in favour of arbitration, and waiver of the right to arbitrate must be clear, unequivocal and inconsistent with the intention to arbitrate.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Expert witnesses

47. In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?

 Philippines

Both tribunal-appointed and party-appointed experts are used in CIAC arbitration under Executive Order No 1008 and the CIAC Revised Rules of Procedure Governing Construction Arbitration. The tribunal may appoint independent experts when necessary, either on its own initiative or upon the request of the parties. The CIAC rules also permit the tribunal to require the production of expert reports and to receive expert testimony on technical matters relevant to the dispute.

Party-appointed experts typically function as expert witnesses supporting the case of the appointing party but owe duties of honesty, objectivity and professional integrity to the arbitral tribunal and are required to act independently and impartially.

In practice, however, CIAC arbitrations make limited use of third-party experts. Constructions disputes submitted to CIAC are frequently decided by arbitrators with substantial technical and industry expertise. In addition, the CIAC rules require the arbitral tribunal to render a final award within six months of the date of signing of the terms of reference or the date of the preliminary conference (see CIAC Rules, rule 16, section 16.1). Due to these relatively compressed timelines, parties often rely instead on project personnel, company representatives and documentary records, rather than extensive expert evidence.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

State entities

48. Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer).

 Philippines

Where the employer is a Philippine government entity, construction contracts must comply with the New Government Procurement Act and its Implementing Rules and Regulations, which impose mandatory procurement procedures, standardised contract forms, and restrictions on contract modifications. Government infrastructure contracts are also required to contain dispute resolution provisions. Projects funded through official development assistance (ODA) may additionally be subject to the procurement rules and guidelines agreed upon for the ODA project concerned. As a result, ODA-funded construction projects may adopt specialised procurement procedures, dispute mechanisms or arbitral rules required by the relevant financing agreement.

Further, government contracts are subject to audit and budgeting rules, and termination, suspension and variation rights are strictly regulated. Contractors generally have no lien rights over public property, which is immune from execution consistent with the principle of the doctrine of state immunity. While government entities may be parties to arbitration, enforcement of awards is subject to appropriation and the rules and regulations of the Philippine Commission on Audit, which is constitutionally mandated to examine, audit and settle claims involving the expenditure or use of public funds. Consequently, even where an arbitral award has become final, satisfaction of the award against a government entity may still require compliance with government disbursement procedures. In any event, an arbitral award that has become final and executory, which the COA has confirmed to be final and executory, shall be respected by the COA (see Sunway Builders v Commission on Audit,G.R. No. 252986, 20 September 2022).

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Settlement offers

49. If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?

 Philippines

In Philippine-seated arbitration, settlement offers may be made on a “without prejudice” basis under the confidentiality and settlement-promoting policy of the Alternative Dispute Resolution Act of 2004 favouring the confidential and voluntary settlement of disputes. The Alternative Dispute Resolution Act of 2004 and the Special Rules of Court on ADR recognise the confidentiality of ADR proceedings and communications made during mediation or settlement discussions. Consistent with these principles, settlement communications are generally inadmissible on the merits of the dispute. In CIAC arbitration, amicable settlement is specifically addressed during the preliminary conference and is commonly reflected in the terms of reference or procedural orders issued by the tribunal.

In practice, CIAC tribunals allow the parties to conduct settlement negotiations in parallel with the arbitration proceedings without suspending the arbitration. Where the parties successfully reach a settlement, they may request the arbitral tribunal either to terminate the proceedings or to render an award based on the parties’ compromise agreement or settlement terms. A consent award rendered by the tribunal may then be enforced in the same manner as any other arbitral award.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Privilege

50. Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?

 Philippines

Philippine law does not expressly recognise “without prejudice” privilege. However, Philippine arbitration law recognises substantially similar protections through the confidentiality and settlement-promoting framework established under the Alternative Dispute Resolution Act of 2004. In particular, mediation proceedings and related communications are generally confidential and privileged. Communications made in a genuine effort to settle are generally inadmissible on the merits to encourage candid negotiations under the Philippines’ Rules on Evidence. Parties may also validly agree, pursuant to the principle of contractual autonomy under the Philippine Civil Code, that such communications remain confidential and that disclosure in breach of this agreement may give rise to contractual consequences, including costs sanctions or liquidated damages.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

51. Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?

 Philippines

Advice given by in-house counsel may be protected by attorney-client privilege under Philippine law, provided that the counsel is acting in a legal and professional capacity and communication is made in confidence for the purpose of seeking or rendering legal advice. The privilege is recognised under the Philippine Rules of Court and reinforced by the Code of Professional Responsibility and Accountability, which impose a duty of confidentiality on lawyers. These rules prohibit a lawyer, without the consent of the client, from being examined as to any communication made by the client in confidence or as to advice given in the course of professional employment. Attorney–client privilege is grounded on public policy and is treated as a matter of substantive law, forming part of the Philippine Rules on Evidence governing admissibility.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Guarantees

52. What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?

 Philippines

Under Philippine law, guaranty is a collateral and subsidiary obligation requiring a valid principal obligation and the express consent of the guarantor. It is strictly construed and cannot be presumed. Pursuant to article 1403(2)(b) of the Civil Code, a guaranty must be in writing to be enforceable under the Statute of Frauds. Accordingly, oral guarantees are not enforceable in Philippine courts or arbitral proceedings.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

53. Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?

 Philippines

Under Philippine law, a guarantor’s liability is generally limited to the extent of the principal debtor’s obligation and cannot exceed what is expressly stipulated, consistent with article 2055 of the Civil Code, which provides that a guaranty cannot exist without a valid obligation and that a guarantor may bind himself for less, but not for more, than the principal debtor. If the guarantee is silent, it is construed strictly and is co-extensive with the principal obligation, including accessories such as interests and costs, unless otherwise excluded. The wording of the guarantee is decisive, as parties may validly limit, or even convert the guaranty into solidary liability, depending on its express terms.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

54. Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?

 Philippines

Under Philippine law, a guarantor is released when the principal obligation is extinguished, pursuant to article 2076 of the Civil Code, which provides that the obligation of the guarantor is extinguished at the same time as the principal obligation. The guarantor may also be discharged where the creditor grants extensions of time or performs acts prejudicial to the guarantor’s rights without consent. The wording of the guarantee may affect these outcomes, as parties may validly stipulate waivers or modifications consistent with the principle of autonomy of contracts, subject to the limits imposed by law and public policy. This means that, while Philippine courts generally give effect to express waiver and continuing liability provisions, waivers that are contrary to law, morals, good customs, public order or public policy may be declared void.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

On-demand bonds

55. If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.

 Philippines

A call under an on-demand bond governed by Philippine law may be challenged on limited grounds, as such instruments are generally treated as autonomous and independent from the underlying construction contract. Courts may intervene where the demand is made in bad faith, amounts to fraud, or fails to comply with the express terms of the bond, consistent with the provisions of the Philippine Civil Code requiring contracting parties to act in good faith in the exercise of rights and performance of obligations.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

56. If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts that the employer is entitled to (such as sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?

 Philippines

Under Philippine law, an on-demand bond is generally autonomous from the underlying construction contract, and courts or arbitral tribunals will not restrain a call merely on the basis that the employer lacks entitlement in principle or that the amount claimed is excessive, as these issues concern the merits of the underlying dispute. Nevertheless, a prayer to restrain a call may be granted where the demand is shown to be made in bad faith, is fraudulent or clearly fails to comply with the bond terms, consistent with the provisions of the Philippine Civil Code requiring contracting parties to act in good faith in the exercise of rights and performance of obligations.

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Further considerations

57. Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?

 Philippines

There are no other material aspects of Philippine law concerning constructions projects not addressed in the foregoing responses. 

 Ricardo Maria PG Ongkiko, Ma Patricia B Paz-Jacoba, Ramon I Rocha IV and Raymond Joseph S Garcia
SyCip Salazar Hernandez & Gatmaitan

Originally published by GAR.