May 27, 2013

Arbitration and the Issue of Foreign Corporations Doing Business in the Philippines Without a License

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The most recent significant ruling in arbitration is the ruling in Tuna Processing, Inc. vs. Philippine Kingford, Inc., G.R. No. 185582, 29 February 2012, where the Supreme Court held that an arbitral award in favor of a foreign corporation doing business in the Philippines without a license is enforceable in the Philippines.

The general rule (there are a few statutory and jurisprudential exceptions) is that a foreign corporation “doing business” in the Philippines without a license cannot file an action in court. The rule is based on Section 133 of the Corporation Code, which provides:

“Sec. 133.Doing business without a license. — No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.”

While not defined under the Corporation Code, the term “doing business” is defined under Republic Act No. 7042 (the Foreign Investments Act of 1991) as follows:

“SEC. 3.Definitions. — As used in this Act:
xxx xxx xxx

(d) the phrase ‘doing business’ shall include soliciting orders, service contracts, opening offices, whether called ‘liaison’ offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eight(y) (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase ‘doing business’ shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account.”

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