Federal Express Corporation and Rhicke S. Jennings vs. Airfreight 2100, Inc. and Alberto D. Lina

Information disclosed by a party or witness in an arbitration proceeding, including witness statements and oral testimony, is confidential under Section 3(h) and Section 23 of the ADR Act and the Special ADR Rules; the phrase "relative to the subject of mediation or arbitration" is construed as "connected to" and is not limited to the core issues, so a confidentiality/protective order may issue to prevent its use in another adversarial proceeding absent consent or an applicable exception.

Federal Express Corporation, a foreign corporation engaged in international air carriage, logistics, and freight forwarding, lost its International Freight Forwarder's license to operate in the Philippines and entered into Global Service Program contracts with Airfreight 2100, Inc., a domestic freight forwarding corporation, for delivery and pick-up services within the country. Alberto D. Lina is the Chairman of Air21's Board of Directors, while Rhicke S. Jennings is FedEx's Managing Director for the Philippines and Indonesia. Their commercial relationship was governed by the GSP contracts and later by the confidentiality regime of R.A. No. 9285 (the ADR Act), the Special ADR Rules, and the PDRCI Arbitration Rules when the parties agreed to arbitrate their dispute before the Philippine Dispute Resolution Center.

Federal Express Corporation, a foreign corporation doing business in the Philippines primarily engaged in international air carriage, logistics, and freight forwarding, and Rhicke S. Jennings, its Managing Director for the Philippines and Indonesia, were the petitioners. Airfreight 2100, Inc., a domestic corporation likewise involved in freight forwarding, and Alberto D. Lina, the Chairman of its Board of Directors, were the respondents. FedEx lost its International Freight Forwarder's license to engage in international freight forwarding in the Philippines, and it executed various Global Service Program contracts with Air21, an independent contractor, to primarily undertake its delivery and pick-up services within the country. Under the GSP arrangement, packages sent by FedEx customers from abroad would be picked up at a Philippine airport and delivered by Air21 to its respective consignees; conversely, packages from Philippine clients would be delivered by Air21 to the airport and turned over to FedEx for shipment to consignees abroad. Air21 guaranteed that all shipments would be cleared through customs in accordance with Philippine law. In the implementation of these contracts, several issues relating to money remittance, value-added taxes, dynamic fuel charge, trucking costs, interests, and penalties ensued between the parties.

On May 11, 2011, in an effort to settle their commercial dispute, FedEx and Air21 agreed to submit themselves to arbitration before the Philippine Dispute Resolution Center. On June 24, 2011, FedEx filed its Notice of Arbitration, and on October 3, 2011, the Arbitral Tribunal was constituted. As part of the arbitration proceedings, Jennings, John Lumley Holmes, the Managing Director of SPAC Legal of FedEx, and David John Ross, Senior Vice President of Operations, Middle East, India and Africa, executed their respective statements as witnesses for FedEx. Ross and Holmes deposed that Federal Express Pacific, Inc., a subsidiary of FedEx, used to have an IFF license to engage in the business of freight forwarding in the Philippines, but this license was suspended pending a case in court filed by Merit International, Inc. and Ace Logistics, Inc., both freight forwarding companies, which questioned the issuance of the IFF to FedEx. Absent the said license, FedEx executed the GSP contracts with Air21 to be able to conduct its business in the Philippines. Ross and Holmes averred that Merit and Ace were either owned or controlled by Air21 employees or persons connected with the Lina Group of Companies, which included Air21.

Jennings, in his cross-examination, was identified as the source of the information that Merit and Ace were Air21's proxies and was asked if he had any written proof of such proxy relationship. He answered in the negative. In his re-direct examination, he was made to expound on the supposed proxy relationship between Merit, Ace, and Air21. He responded that Merit and Ace were just very small companies with meager resources, yet they were able to finance and file a case to oppose the grant of IFF license to FedEx. Jennings also disclosed that one of the directors of Ace was a friend of Lina and that Loma Orbe, the President of Merit, was the former "boss" of Lito Alvarez, who was also associated with Air21.

Feeling aggrieved by those statements, Lina, for himself and on behalf of Air21, filed a complaint for grave slander against Jennings before the Office of the City Prosecutor in Taguig City. Lina claimed that the defamatory imputation of Jennings that Merit and Ace were Air21's proxies brought dishonor, discredit, and contempt to his name and that of Air21. Lina quoted certain portions of the written statements of Holmes and Ross and the Transcript of Stenographic Notes of the April 25, 2013 arbitration hearing reflecting Jennings' testimony to support his complaint.

Consequently, FedEx and Jennings filed their Petition for Issuance of a Confidentiality/Protective Order with Application for Temporary Order of Protection and/or Preliminary Injunction before the RTC, alleging that all information and documents obtained in, or related to, the arbitration proceedings were confidential. FedEx asserted that the testimony of Jennings, a witness in the arbitration proceedings, should not be divulged and used to bolster the complaint-affidavit for grave slander as this was inadmissible in evidence. On January 16, 2014, the RTC granted petitioners' application for the Temporary Order of Protection. Meanwhile, on February 3, 2014, the arbitral tribunal rendered an award in favor of FedEx. The RTC and CA found that Jennings' declarations were not related to the subject of the arbitration, which the CA characterized as revolving around the parties' claims for sum of money.

• Applicability of ADR Act Sections 3(h) and 23: Petitioners argued that Jennings' statements were part of the records and evidence of arbitration under Section 23, witness statements made therein under Section 3(h)(3), and communications made in a dispute resolution proceeding under Section 3(h)(1), and therefore confidential.
• Disregard of Special ADR Rules Rule 10.5: Petitioners maintained that Rule 10.5 of the Special ADR Rules, allowing for the issuance of a confidentiality/protective order, was completely disregarded by the CA when it denied the petition as a result of Lina divulging what were supposed to be confidential information from ADR proceedings.
• Improper Relevance Test: Petitioners claimed that in ruling that Jennings' statements were not confidential information by applying the test of relevance that "statements made without any bearing on the subject proceedings are not confidential in nature," the CA used a test that had no basis in law and whose application amounted to judicial legislation.
• Substantial Prejudice and Public Policy: Petitioners asserted that the assailed decision resulted in substantial prejudice to them and defeated public policy on confidentiality of the records of and communications made in the course of arbitration.

• Non-Absolute Privilege: Respondents countered that while the ADR Law confers on communications made during arbitration the privilege against disclosure, otherwise known as the confidentiality principle, said privilege cannot be invoked to shield any party from criminal responsibility and is not absolute.
• No Shield for Crime: Respondents argued that the ADR Law does not exist in a vacuum without regard to other existing jurisprudence and laws, particularly the Revised Penal Code, and that otherwise arbitration proceedings could be used by an unscrupulous disputant as a venue for the commission of crime.
• Crime Not Protected: Respondents maintained that a crime cannot be protected or extinguished through a bare invocation of the confidentiality rule.

• Confidentiality of Arbitration Testimony: Whether Jennings' testimony and witness statements given during the arbitration proceedings constitute confidential information under Section 3(h) and Section 23 of the ADR Act and Rule 10.1 of the Special ADR Rules, such that a confidentiality/protective order should issue.
• Relevance Test: Whether the CA's test—that statements made without any bearing on the subject proceedings are not confidential—is consistent with the ADR Act and the Special ADR Rules.
• Crime Exception: Whether the confidentiality privilege may be denied because the statements allegedly constitute grave slander under the Revised Penal Code.

• Confidentiality of Arbitration Testimony: Yes. Jennings' written statements and oral testimony during the arbitration are confidential information under Section 3(h)(1) and (3) of the ADR Act, and the general rule is that information disclosed by a party or witness in an ADR proceeding is privileged and confidential.
• Relevance Test: No. The phrase "relative to the subject of mediation or arbitration" means "connected to" and is not confined to the core issues; the CA's relevance test is not sanctioned by the ADR Act and the Special ADR Rules.
• Crime Exception: No. The mere allegation that the statements constitute grave slander does not remove them from the confidentiality regime; if Lina had grounds to suspect slander before arbitration, he must present evidence independent of the arbitration documents.

• Confidentiality of Arbitration Testimony: Section 3(h) of R.A. No. 9285 defines confidential information as any information relative to the subject of mediation or arbitration, expressly intended by the source not to be disclosed, or obtained under circumstances creating a reasonable expectation that it shall not be disclosed. It includes communications, oral or written, made in a dispute resolution proceeding, and pleadings, motions, manifestations, witness statements, and reports filed or submitted in arbitration. Rule 10.1 of the Special ADR Rules allows a party, counsel, or witness who disclosed or was compelled to disclose information relative to the subject of ADR under circumstances creating a reasonable expectation of confidentiality to prevent further disclosure without express written consent. The Court listed the requisites for a confidentiality/protective order: (1) an ADR proceeding is pending; (2) a party, counsel, or witness disclosed or was compelled to disclose information; (3) the disclosure was made under circumstances creating a reasonable expectation that the information would be kept confidential; (4) the source or party who made the disclosure has the right to prevent disclosure; (5) the source or party has not given express consent; and (6) the applicant would be materially prejudiced by unauthorized disclosure. The written statements of Ross, Holmes, and Jennings, as well as Jennings' oral testimony in the April 25, 2013 arbitration hearing, fall under Section 3(h)(1) and (3). The parties and the Arbitral Tribunal had agreed in the Terms of Reference that the arbitration proceedings should be kept strictly confidential under Section 23 of the ADR Act and Article 25-A of the PDRCI Arbitration Rules. The provisions use the word "shall," which is mandatory. Thus, the general rule is that information disclosed by a party or witness in an ADR proceeding is privileged and confidential. Rule 10.8 of the Special ADR Rules provides that confidential information shall not be subject to discovery and shall be inadmissible in any adversarial proceeding, whether judicial or quasi-judicial, although evidence otherwise admissible does not become inadmissible solely by reason of its use therein. Article 5.42 of the IRR of the ADR Act likewise provides that arbitration proceedings, records, evidence, the arbitral award, and other confidential information are privileged and confidential and shall not be published except with the consent of the parties or for the limited purpose of disclosing relevant documents to the court where resort to court is allowed. Because the witness statements and arbitration testimony fall within confidential information, they must, as a general rule, remain confidential. Although there is no unbridled shroud of confidentiality, the presence of the criteria must be apparent; otherwise, the general rule applies. Here, only a perceived imputation of a wrongdoing was alleged by the respondents.
• Relevance Test: The phrase "relative to the subject of mediation or arbitration" need not be strictly confined to the discussion of the core issues in the arbitral dispute. By definition, "relative" simply means "connected to," which means that parties in arbitration proceedings are encouraged to discuss openly their grievances and explore the circumstances which might have any connection in identifying the source of the conflict in the hope of finding a better alternative to resolve the parties' dispute. An ADR proceeding is aimed at resolving the parties' conflict without court intervention and was not designed to be strictly technical or legally confined at all times. By mutual agreement or consent, the parties submit their differences to arbitrators for an informal hearing and extra-judicial determination and resolution. Usually, an ADR hearing is held in private, and the decision of the persons selected to comprise the tribunal takes the place of a court judgment, avoiding the formalities, delays, and expenses of ordinary litigation. Legislative intent or spirit must be the controlling factor in statutory construction; a thing within the intent of the lawmaker is as much within the statute as if within the letter, and a thing within the letter is not within the statute unless within the intent of the lawmakers. In this case, the supposed questionable statements surfaced when FedEx's suspended IFF license was discussed during the arbitration hearing. Jennings was asked by Arbitrator Panga to expound on how the opposition of Ace and Merit could be related to the ongoing arbitration, and Jennings replied that, to his mind, it was indicative of the leverage that Air21 had over FedEx as it was able to withhold large sums of money and siphon their joint plans from being properly established. Whether the information disclosed would be given weight by the tribunal in resolving the dispute is a separate matter, and the relevance or materiality of the statements should be best left to the arbitrators' sound appreciation and judgment. Even granting that the weight of the statements was not fundamental to the issues in the arbitration, they were still connected to, and propounded by, a witness who relied upon the confidentiality of the proceedings and expected that his responses be reflected. Arbitration was primarily designed to be a prompt, economical, and amicable forum for the resolution of disputes, and it guarantees confidentiality to encourage parties to ventilate their claims in a less formal but spontaneous manner. A person who participates in an arbitration proceeding is entitled to speak his or her piece without fear of being prejudiced should the process become unsuccessful. Hence, any communication made towards that end should be regarded as confidential and privileged.
• Crime Exception: Section 23 of the ADR Act states that arbitration proceedings, including the records, evidence, and the arbitral award, shall be considered confidential and shall not be published except (1) with the consent of the parties, or (2) for the limited purpose of disclosing to the court relevant documents in cases where resort to the court is allowed. The court in which the action or appeal is pending may issue a protective order to prevent or prohibit disclosure of documents or information containing secret processes, developments, research, and other information where it is shown that the applicant shall be materially prejudiced by an authorized disclosure. If Lina had legal grounds to suspect that Jennings committed slanderous remarks even before the arbitration proceeding commenced, then he must present evidence independent and apart from some quoted portions of the arbitration documents. The very soul of an arbitration proceeding would be rendered useless if it would simply be used as an avenue for evidence gathering or an entrapment mechanism to lure the other unsuspecting party into conveying information that could be potentially used against him in another forum or in court. The RTC and CA failed to consider that an arbitration proceeding is essentially a unique proceeding that is non-litigious in character, where the parties are bound by a different set of rules under the Special ADR Rules. When Lina cited portions of the arbitration documents, he violated their covenant in the Terms of Reference to resolve their dispute through the arbitration process and to honor the confidentiality of the proceeding. To disregard this commitment would impair the very essence of the ADR proceeding and, by itself, would have served as a valid justification for the grant of the confidentiality/protective order in favor of FedEx and Jennings. Thus, the claimed slanderous statements by Jennings during the arbitration hearing are deemed confidential information and the veil of confidentiality over them must remain.

• Confidentiality of Arbitration Proceedings — Under Section 23 of R.A. No. 9285, arbitration proceedings, including the records, evidence, and the arbitral award, are confidential and shall not be published except with the consent of the parties or for the limited purpose of disclosing relevant documents to the court where resort to court is allowed. The Court applied this to witness statements and oral testimony given during arbitration.
• Definition of Confidential Information under the ADR Act — Section 3(h) defines confidential information as any information relative to the subject of mediation or arbitration, expressly intended by the source not to be disclosed, or obtained under circumstances creating a reasonable expectation that it shall not be disclosed. It includes communications, oral or written, made in a dispute resolution proceeding, and witness statements filed or submitted in arbitration. The list is not exclusive and may include other information satisfying express or implied confidentiality.
• "Relative to the Subject of Mediation or Arbitration" Construed Broadly — The phrase "relative" means "connected to" and is not strictly confined to the core issues in the arbitral dispute. Parties in arbitration are encouraged to discuss openly their grievances and explore circumstances connected to the source of the conflict. The Court applied this to Jennings' statements about Merit and Ace being Air21's proxies and the suspended IFF license.
• Requisites for a Confidentiality/Protective Order under Rule 10.1, Special ADR Rules — The requisites are: (1) an ADR proceeding is pending; (2) a party, counsel, or witness disclosed or was compelled to disclose information; (3) the disclosure was made under circumstances creating a reasonable expectation that the information would be kept confidential; (4) the source or party who made the disclosure has the right to prevent disclosure; (5) the source or party has not given express consent; and (6) the applicant would be materially prejudiced by unauthorized disclosure.
• General Rule and Exceptions to Confidentiality — The general rule is that information disclosed by a party or witness in an ADR proceeding is privileged and confidential. There is no unbridled shroud of confidentiality, but the presence of the criteria must be apparent; otherwise, the general rule applies. Under Rule 10.8 of the Special ADR Rules, confidential information shall not be subject to discovery and shall be inadmissible in any adversarial proceeding, whether judicial or quasi-judicial, although evidence otherwise admissible does not become inadmissible solely by reason of its use therein.
• Legislative Intent in Statutory Construction — A statute must be read according to its spirit or intent, and legislative intent is part and parcel of the statute. The intent or spirit of the act is the controlling factor in interpretation. A thing within the intent of the lawmaker is as much within the statute as if within the letter, and a thing within the letter is not within the statute unless within the intent of the lawmakers.
• Arbitration as a Non-Litigious, Confidential Forum — Arbitration is designed to be a prompt, economical, and amicable forum for dispute resolution. It guarantees confidentiality to encourage parties to ventilate their claims in a less formal but spontaneous manner. It should not be used as an avenue for evidence gathering or an entrapment mechanism to lure an unsuspecting party into conveying information that could be used against him in another forum or in court.

• "Confidential information" means any information, relative to the subject of mediation or arbitration, expressly intended by the source not to be disclosed, or obtained under circumstances that would create a reasonable expectation on behalf of the source that the information shall not be disclosed. It shall include (1) communication, oral or written, made in a dispute resolution proceedings, including any memoranda, notes or work product of the neutral party or non-party participant, as defined in this Act; (2) an oral or written statement made or which occurs during mediation or for purposes of considering, conducting, participating, initiating, continuing of reconvening mediation or retaining a mediator; and (3) pleadings, motions manifestations, witness statements, reports filed or submitted in an arbitration or for expert evaluation. [Emphases Supplied] — This is the statutory definition of confidential information under Section 3(h) of the ADR Act, which the Court applied to witness statements and oral testimony in arbitration.
• "The phrase "relative to the subject of mediation or arbitration" need not be strictly confined to the discussion of the core issues in the arbitral dispute. By definition, "relative" simply means "connected to," which means that parties in arbitration proceedings are encouraged to discuss openly their grievances and explore the circumstances which might have any connection in identifying the source of the conflict in the hope of finding a better alternative to resolve the parties' dispute." — This passage states the Court's ratio for rejecting the CA's narrow relevance test and for holding that Jennings' statements were connected to the arbitration subject.
• "If Lina had legal grounds to suspect that Jennings committed slanderous remarks even before the arbitration proceeding commenced, then he must present evidence independent and apart from some quoted portions of the arbitration documents." — This passage addresses the respondents' crime exception argument and explains that the confidentiality privilege is not defeated by a mere allegation of crime.
• "It must be stressed that the very soul of an arbitration proceeding would be rendered useless if it would be simply used as an avenue for evidence gathering or an entrapment mechanism to lure the other unsuspecting party into conveying information that could be potentially used against him in another forum or in court." — This passage articulates the policy rationale for confidentiality in arbitration and supports the grant of the protective order.

• Yellow Taxi & Pasay Transp. Workers Union vs. Manila Yellow Taxi Cab Co., 80 Phil. 833 (1948) — Cited, with other cases, for the rule that legislative intent or spirit is the controlling factor in statutory construction.
• De Jesus vs. City of Manila, 29 Phil. 73 (1914) — Cited for the proposition that the intent or spirit of the act is the dominant influence in statutory construction.
• Alonzo vs. Intermediate Appellate Court, 234 Phil. 267, 273 (1987) — Cited for the principle that a thing within the intent of the lawmaker is as much within the statute as if within the letter, and a thing within the letter is not within the statute unless within the intent.
• U.S. vs. Co Chico, 14 Phil. 128 (1909) — Cited for the same statutory-construction principle that a statute must be read according to its spirit or intent.

• Section 3(h), R.A. No. 9285 (ADR Act) — Defines confidential information to include communications made in a dispute resolution proceeding and witness statements filed or submitted in arbitration; the Court applied this to Jennings' written statements and oral testimony.
• Section 23, R.A. No. 9285 (ADR Act) — Provides that arbitration proceedings, including records, evidence, and the arbitral award, are confidential and shall not be published except with party consent or for the limited purpose of disclosing relevant documents to the court where resort to court is allowed; a protective order may issue upon a showing of material prejudice.
• Rule 10.1, Special ADR Rules (A.M. No. 07-11-08-SC) — Allows a party, counsel, or witness who disclosed or was compelled to disclose information relative to the subject of ADR under circumstances creating a reasonable expectation of confidentiality to prevent further disclosure without express written consent; the Court enumerated the requisites for a confidentiality/protective order under this Rule.
• Rule 10.8, Special ADR Rules (A.M. No. 07-11-08-SC) — Provides that confidential information shall not be subject to discovery and shall be inadmissible in any adversarial proceeding, whether judicial or quasi-judicial, although evidence otherwise admissible does not become inadmissible solely by reason of its use therein.
• Article 5.42, Implementing Rules and Regulations of the ADR Act (Department Circular No. 98, series of 2009) — Echoes that arbitration proceedings, records, evidence, the arbitral award, and other confidential information are privileged and confidential and shall not be published except with party consent or for the limited purpose of disclosing relevant documents to the court where resort to court is allowed.
• Article 25-A, PDRCI Arbitration Rules — Defines confidential information relative to the subject of arbitration and includes witness statements; the parties and the Arbitral Tribunal agreed in the Terms of Reference to be bound by its confidentiality requirements.
• Articles 353 and 358, Revised Penal Code — Cited in the RTC Order as the purported crime of grave slander; the Supreme Court held that the confidentiality privilege was not defeated by the mere allegation of such crime.

Antonio T. Carpio (Chairperson), Arturo D. Brion, Mariano C. Del Castillo, and Marvic M.V.F. Leonen concurred. No separate concurring opinions are summarized in the text.