4. Rational Dispute Resolution
4.1 Rule of Law
4.2 Enforcement of Contracts
4.3 Commercial Dispute Resolution
In-Country Assessment

4. Rational Dispute Resolution

The judicial system is subject to political influences. This high degree of partiality is expressed in the low level of trust placed by citizens in the police, courts, and contract enforcement as well as the low level of judicial accountability.

The weakness of the rule of law is aggravated by the time-consuming and inefficient mechanisms for enforcing contracts. According to World Bank’s most recent Doing Business report, judicial enforcements in the Philippines, on average, are found to take more than two years to implement, with 37 steps for resolution of commercial disputes, costing 26 percent of claim value. Given the weakness of the courts, most foreclosures are handled outside the court system.

There has been some improvement as specialized commercial courts are now designated for handling property disputes and foreclosures. Standards for alternative dispute resolution are also being set by the Office for Alternation Dispute Resolution (ADR) as provided for in the ADR Act of 2004.


Goal – An efficient institutional framework that balances the rights of the public, owners, lenders and borrowers in the event of a dispute or loan default

4.1 Rule of Law

Core Question: Do all market participants abide by the rule of law and have confidence in the courts and the ability of police to control crime? No – Very Weak, the judicial system remains weak and vulnerable to political influence.

4.1.1 What is the confidence level of the strength and impartiality of the police, courts and contract enforcement? Weak – Percentile Ranking – 34.6 Trend ↓

Source: Governance Matters 2010, World Bank,

Independent Judiciary
4.1.2 Can members of the judiciary be held accountable for their actions? No – Score 45 out of 100 – Very Weak

Source:Global Integrity Report 2010 –

4.1.2 Can members of the judiciary be held accountable for their actions? No – Score 45 out of 100 – Very Weak

Source:Global Integrity Report 2010 –

Costs of Crime
4.1.3 What are the business costs of crime and violence? Moderate Costs – Ranking 112th out of 142 – Score 3.8 out of 7, Very Weak

Source:The Global Competitiveness Report 2011-2012, World Economic Forum

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4.2 Enforcement of Contracts

Core Question: Are systems in place for timely and efficient enforcement of contracts?Commercial – No – Weak, time
is the major constraint.

4.2.1 – Judicial Enforcement
Commercial – Weak – Ranking 112nd out of 183 Trend ↑ What is the number of procedures involved in resolving a commercial dispute? 37 What is the time between the filing of a lawsuit and resolution in judicial enforcements? 842 days What is the cost of judicial enforcements as a percentage of debt value? 26%

Source:Doing Business 2012 – Enforcing Contracts

4.2.2 – Summary Proceedings
SQ 10: Summary proceedings are alternative dispute resolution processes where creditors can apply for a direct court order in property disputes. What is the time between notice of intent to foreclose and loan collection in summary proceedings if available to lenders? Not available – Very Weak

SQ 11: What is the cost of summary proceeding if available to lenders as a percentage of property value? Not available – Very Weak

4.2.3 – Power-of-Sale
SQ 12: Power-of-sale agreements give creditors to power to sell properties after notice to the borrower without court intervention. What is the time between notice of intent to sell and loan collection for powerof-sale agreements if available to lenders? Very Strong – Practically all defaulted mortgages are now foreclosed extra judicially.

Source: Asian Development Bank, Insolvency Law Reform

SQ 13: What is the cost of power-of-sale agreements if available to lenders as a percentage of property value? Unknown

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4.3 Commercial Dispute Resolution

Core Question: Can commercial disputes be resolved efficiently and fairly without exorbitant expense and delay? Yes – Strong, the policy of the state is to actively promote Alternative Dispute Resolution to achieve speedy and impartial justice.

Survey Questions
Commercial Courts
SQ 14: Do specialized commercial courts exist for the handling of property disputes and foreclosures? Yes – Strong, there are 64 special commercial law courts designated by the Supreme Court.

Source: Insolvency Systems in Asia, Organization for Economic Cooperating and Development

Alternative Dispute Resolution
SQ 15: Are alternative dispute resolution mechanisms in place including commercial arbitration, private mediation and community based processes? Yes – Very Strong, ADR Act of 2004 gives the Office of ADR the power to set standards and certify practitioners.

Source: Philippine Dispute Resolution Center,

Commercial Treaties

SQ 16: What bilateral, regional and international commercial treaties exist concerning business between countries? Strong, the Philippines is a member of the World Trade Organization, the ASEAN Free Trade Area, various ASEAN-plus free trade agreements, the Philippines-Japan Economic Partnership Agreement and more than 40 bilateral trade agreements.

Source: Association of Southeast Asian Nations;

World Trade Organization; and

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In-Country Assessment

FQ23: To what extent do small businesses trust public institutions to support contract enforcement?

Small business owners have shown confidence that contracts will be supported by the law.

FQ24: To what extent are alternative dispute resolution procedures used and trusted by small businesses?

Special commercial courts within the Regional Trial Courts focus on commercial disputes due to the specificity and complex nature of these disputes. Through these special courts, commercial disputes can be resolved with reasonable expertise; however, the courts still lack efficiency in regards to time and costs. As a result, many businesses prefer to utilize alternative dispute resolution. This primarily includes commercial arbitration, private mediation, and community-based practices. Moreover, ADR is also popular because contractual provisions are usually decided on the basis of discussions between the seller and the buyer, with minimal intervention by the government (unless public land is involved).Source: Research and interviews conducted by the Institute for Solidarity in
Asia in June and July 2011 in Manila and San Fernando, Pampanga.