Adr Digest Pool-2

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3B 2019-2020 ​ADR DIGESTED CASES 

1. DFA vs BCA, GR No 225051 and 210858

DFA v. BCA International Corp.


G.R. No. 225051 July 19, 2017
Peralta, J.

Facts:
DFA entered into an Amended-Built-Operate-Transfer (BOT) Agreement with BCA
International Corp. and awarded to the latter the Machine Readable Passport and Visa
Project (MRP/V Project). In the course of implementing the MRP/V Project, conflict
arose and DFA seek to terminate the agreement. BCA Int’l Corp. opposed the
termination and requested for arbitration, hence an Arbitral Tribunal was constituted.

The Arbitral issued Procedural Order No. 11, allowing BCA International Corp. to submit
its Amended Statement of Claims of actual damages amounting to 390,000,000 plus an
additional 10,000,000 for exemplary, temperate or nominal damages in order for the
claim to conform to the evidence presented by the respondent. Thereafter it issued
Procedural No. 12 which disallows the presentation of additional evidence by BCA
International Corp. to prove the increase in the amount of claim, and disallowed the
taking of testimonial evidence from any witness by any party. Procedural No. 12 denied
DFA’s motion for reconsideration of Procedural No. 11. Aggrieved, DFA filed a petition
for Certiorari under Rule 65 of the Rules of Court before the SC with application of a
TRO and/or preliminary injunction for the annulment of Procedural Nos. 11 and 12.

DFA avers that the amendment caused undue delay and prejudice to it; that the
amendment relied falls outside the scope of the arbitration clause and hence outside the
jurisdiction of the Ad Hoc Tribunal. Also, it contends that the parties in this case has
agreed to refer any dispute to arbitration under the 1976 UNCITRAL Arbitration Rules
and not by Alternative Dispute Resolution (ADR) Act of 2004 (R.A. 9285) for to do so
would amount to transgression of vested rights and vitiation of consent to arbitration
proceedings.

On the other hand, respondent contends that SC has no jurisdiction to intervene in


private arbitration, which is a special proceeding governed by the ADR Act of 2004
(​R.A. 9285),​ its IRR and Special ADR Rules; that the tribunal derives their authority to
hear and resolve cases from the contractual consent of the parties expressed in Sec.
19.02 of the Agreement.

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Issues:
1. What law should govern the Arbitration Proceedings?
2. Is the petition filed before the SC proper?

Held:
1. Under Article 33 of the UNCITRAL Arbitration Rules governing the parties, "​the
arbitral tribunal shall apply the law designated by the parties as applicable to the
substance of the dispute. Failing such designation by the parties, the arbitral tribunal
shall apply the law determined by the conflict of laws rules which it considers
applicable.​ " Established in this jurisdiction is the rule that the law of the place where the
contract is made governs, or lex loci contractus.As the parties did not designate the
applicable law and the Agreement was perfected in the Philippines, our Arbitration laws,
particularly, RA No. 876, RA No. 9285 ​and its IRR, and the Special ADR Rules apply.
The IRR of RA No. 9285 provides that “the arbitral tribunal shall decide the dispute in
accordance with such law as is chosen by the parties. In the absence of such
agreement, Philippine law shall apply."

Arbitration is deemed a special proceeding and governed by the special provisions of


RA 9285, its IRR, and the Special ADR Rules. RA 9285 is the general law applicable to
all matters and controversies to be resolved through alternative dispute resolution
methods. While enacted only in 2004, we held that RA 9285 applies to pending
arbitration proceedings since it is a procedural law, which has retroactive effect.

The IRR of RA 9285 reiterate that RA 9285 is procedural in character and applicable to
all pending arbitration proceedings. Consistent with Article 2046 of the Civil Code, the
Special ADR Rules were formulated and were also applied to all pending arbitration
proceedings covered by RA 9285, provided no vested rights are impaired. Thus,
contrary to DFA's contention, RA 9285, its IRR, and the Special ADR Rules are
applicable to the present arbitration proceedings. The arbitration between the DFA and
BCA is still pending, since no arbitral award has yet been rendered. Moreover, DFA did
not allege any vested rights impaired by the application of those procedural rules.

2. No. Court intervention is allowed under R.A. No. 9285 in the following instances: (1)
when a party in the arbitration proceedings requests for an interim measure of
protection;(2) judicial review of arbitral awards by the Regional Trial Court (RTC); and
(3) appeal from the RTC decisions on arbitral awards to the Court of Appeals.

Under the Special ADR Rules, review by the Supreme Court of an appeal by certiorari is
not a matter of right, thus:

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RULE 19.36. Review Discretionary. — A review by the Supreme Court is not a


matter of right, but of sound judicial discretion, which will be granted only for
serious and compelling reasons resulting in grave prejudice to the aggrieved
party. The following, while neither controlling nor fully measuring the court's
discretion, indicate the serious and compelling, and necessarily, restrictive nature
of the grounds that will warrant the exercise of the Supreme Court's discretionary
powers, when the Court of Appeals:

a. Failed to apply the applicable standard or test for judicial review prescribed in
these Special ADR Rules in arriving at its decision resulting in substantial
prejudice to the aggrieved party;

b. Erred in upholding a final order or decision despite the lack of jurisdiction of


the court that rendered such final order or decision;

c. Failed to apply any provision, principle, policy or rule contained in these


Special ADR Rules resulting in substantial prejudice to the aggrieved party; and

d. Committed an error so egregious and harmful to a party as to amount to an


undeniable excess of jurisdiction.

In this case, the appeal by certiorari is not from a final Order of the Court of Appeals or
the Regional Trial Court, but from an interlocutory order of the Arbitral Tribunal; hence,
the petition must be dismissed.

2. Heirs of Salas vs Laperal Realty, GR No 135362

SALAS v. LAPERAL REALTY CORP.


G.R. No. 135362 December 13, 1999
De Leon, Jr. J.

Facts:
Augusto Salas, Jr. is the registered owner of the vast tract of Land in Lipa City,
Batangas. He entered into an Owner-Contractor Agreement with Laperal Realty Corp.
to rendered and provided complete construction services on his land. Salas Jr.,
executed a SPA in favor of Laperal Realty to exercise general control, supervision, and
management of the sale of his land, for cash or on installment basis. Salas Jr. had been
missing for more than seven (7) years and was declared presumptively dead by the
RTC of Makati upon petition by her wife, Teresita Diaz.

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Respondent Laperal Realty subdivided the land of Salas, Jr. and sold subdivided
portions thereof to respondents Rockway Real Estate Corp. and South Ridge Village,
Inc, and to other respondent lot buyers.

The heirs of Salas, Jr. filed before the RTC of Lipa City a complaint for declaration of
nullity of sale, reconveyance, cancellation of contract and damages against
respondents. Laperal filed a Motion to Dismiss on the ground that petitioners failed to
submit their grievance to arbitration as required under Art. VI of the Agreement.

ARTICLE VI. ARBITRATION.


All cases of dispute between CONTRACTOR and OWNER'S representative shall be
referred to the committee represented by:
a.​ ​One representative of the OWNER; 

b.​ ​One representative of the CONTRACTOR; 

c.​ ​One representative acceptable to both OWNER and CONTRACTOR.

RTC dismissed petitioner’s complaint for non-compliance with the foregoing arbitration
clause. Petitioners now assail that: 1) Their causes of action did not emanate from the
Owner-Contractor Agreement; 2) The petition for cancellation of contract and
accounting are covered by the exception under Arbitration law; 3) Failure to arbitrate is
not a ground for dismissal.

Issue:
Should the dispute be settled first in an arbitration as provided in the agreement before
seeking relief in court?

Held:
YES. A submission to arbitration is a contract. As such, the Agreement, containing the
stipulation on arbitration, binds the parties thereto, as well as their assigns and heirs.
But only they, petitioners, as heirs of Salas, Jr., and respondent Laperal Realty are
certainly bound by the Agreement. If respondent Laperal Realty had assigned its rights
under the Agreement to a third party, making the former, the assignor, and the latter,
the assignee, such assignee would also be bound by the arbitration provision sin ce
assignment involves such transfer of rights as to vest in the assignee the power to
enforce them to the same extent as the assignor could have enforced them against the
debtor or in this case, against the heirs of the original party to the Agreement. However,
respondents Rockway Real Estate Corporation, South Ridge Village, Inc., Maharami
Development Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo, Eduardo
Vacuna, Florante dela Cruz and Jesus Vicente Capellan are not assignees of the rights

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of respondent Laperall Realty under the Agreement to develop Salas, Jr.'s land and sell
the same. They are, rather, buyers of the land that respondent Laperal Realty was given
the authority to develop and sell under the Agreement. As such, they are not "assigns"
contemplated in Art. 1311 of the New Civil Code which provides that "contracts take
effect only between the parties, their assigns and heirs".

Petitioners claim that they suffered lesion of more than one-fourth (1/4) of the value of
Salas, Jr.'sland when respondent Laperal Realty subdivided it and sold portions thereof
to respondent lot buyers. Thus, they instituted action against both respondent Laperal
Realty and respondent lot buyers for rescission of the sale transactions and
reconveyance to them of the subdivided lots. They argue that rescission, being their
cause of action, falls under the exception clause in Sec. 2 of Republic Act No. 876
which provides that "such submission to or contract of arbitration shall be valid,
enforceable and irrevocable, save, upon such grounds as exist at law for the revocation
of any contract".

The petitioners' contention is without merit. For while rescission, as a general rule, is an
arbitrable issue, they impleaded in the suit for rescission the respondent lot buyers who
are neither parties to the Agreement nor the latter's assigns or heirs. Consequently, the
right to arbitrate as provided in Article VI of the Agreement was never vested in
respondent lot buyers.

Respondent Laperal Realty, as a contracting party to the Agreement, has the right to
compel petitioners to first arbitrate before seeking judicial relief. However, to split the
proceedings into arbitration for respondent Laperal Realty and trial for the respondent
lot buyers, or to hold trial in abeyance pending arbitration between petitioners and
respondent Laperal Realty, would in effect result in multiplicity of suits, duplicitous
procedure and unnecessary delay. On the other hand, it would be in the interest of
justice if the trial court hears the complaint against all herein respondents and
adjudicates petitioners’ rights as against theirs in a single and complete proceeding.

3. Home Bankers Savings vs Court of Appeals, GR No 115412

[G.R. No. 115412. November 19, 1999.]

HOME BANKERS SAVINGS AND TRUST COMPANY, ​Petitioner​, v. COURT OF


APPEALS and FAR EAST BANK & TRUST CO., INC., ​Respondents.​

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FACTS:

Victor Tancuan, one of the defendants issued Home Bankers Savings and Trust
Company (HBSTC) check for P25,250,000.00 while Eugene Arriesgado issued Far East
Bank and Trust Company (FEBTC) three checks amounting P8,600,000.00,
P8,500,000.00 and P8,100,000.00, with a total of P25,200,000.00. Tancuan and
Arriesgado exchanged each other’s checks and deposited them with their respective
banks for collection. When FEBTC presented Tancuan’s HBSTC check for clearing,
HBSTC dishonored it for being "Drawn Against Insufficient Funds."

HBSTC sent Arriesgado’s three (3) FEBTC checks through the Philippine Clearing
House Corporation (PCHC) to FEBTC but was returned as "Drawn Against Insufficient
Funds." HBSTC received the notice of dishonor but refused to accept the checks and
returned them to FEBTC through the PCHC for the reason "Beyond Reglementary
Period," implying that HBSTC already treated the three (3) FEBTC checks as cleared
and allowed the proceeds thereof to be withdrawn.

FEBTC demanded reimbursement for the returned checks and inquired from HBSTC
whether it had permitted any withdrawal of funds against the unfunded checks and if so,
on what date. HBSTC, however, refused to make any reimbursement and to provide
FEBTC with the needed information.

Thus, FEBTC submitted the dispute for arbitration before the PCHC Arbitration
Committee, under the PCHC’s Supplementary Rules on Regional Clearing to which
FEBTC and HBSTC are bound as participants in the regional clearing operations
administered by the PCHC. While the arbitration proceeding was still pending, FEBTC
filed an action for sum of money and damages with preliminary attachment against
HBSTC, Robert Young, Victor Tancuan and Eugene Arriesgado with RTC Makati.
HBSTC moved to dismiss on the ground that there is no cause of action and because it
seeks to enforce an arbitral award which as yet does not exist. The trial court denied the
motion to dismiss and the motion for reconsideration. Petitioner then filed a petition for
certiorari with respondent CA to which it had dismissed

ISSUE: "WHETHER OR NOT PRIVATE RESPONDENT WHICH COMMENCED AN


ARBITRATION PROCEEDING UNDER THE AUSPICES OF THE PHILIPPINE
CLEARING HOUSE CORPORATION (PCHC) MAY SUBSEQUENTLY FILE A
SEPARATE CASE IN COURT OVER THE SAME SUBJECT MATTER OF
ARBITRATION DESPITE THE PENDENCY OF THAT ARBITRATION, SIMPLY TO

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OBTAIN THE PROVISIONAL REMEDY OF ATTACHMENT AGAINST THE BANK THE


ADVERSE PARTY IN THE ARBITRATION PROCEEDING."

HELD:

We find no merit in the petition​. Section 14 of Republic Act 876, otherwise known as the
Arbitration Law, allows any party to the arbitration proceeding to petition the court to
take measures to safeguard and/or conserve any matter which is the subject of the
dispute in arbitration​, thus:

SECTION 14. Subpoena and subpoena duces tecum. — Arbitrators shall have the
power to require any person to attend a hearing as a witness. They shall have the
power to subpoena witnesses and documents when the relevancy of the testimony and
the materiality thereof has been demonstrated to the arbitrators. Arbitrators may also
require the retirement of any witness during the testimony of any other witness. All of
the arbitrators appointed in any controversy must attend all the hearings in that matter
and hear all the allegations and proofs of the parties; but an award by the majority of
them is valid unless the concurrence of all of them is expressly required in the
submission or contract to arbitrate. The arbitrator or arbitrators shall have the power at
any time, before rendering the award, without prejudice to the rights of any party to
petition the court to take measures to safeguard and/or conserve any matter which is
the subject of the dispute in arbitration​. (​Emphasis supplied)​

Section 14 simply grants an arbitrator the power to issue subpoena and subpoena
duces tecum at any time before rendering the award. The exercise of such power is
without prejudice to the right of a party to file a petition in court to safeguard any matter
which is the subject of the dispute in arbitration. In the case at bar, private respondent
filed an action for a sum of money with prayer for a writ of preliminary attachment.
Undoubtedly, such action involved the same subject matter as that in arbitration, i.e.,
the sum of P25,200,000.00 which was allegedly deprived from private respondent in
what is known in banking as a "kiting scheme." However, the civil action was not a
simple case of a money claim since private respondent has included a prayer for a writ
of preliminary attachment, which is sanctioned by section 14 of the Arbitration Law.

Simply put, participants in the regional clearing operations of the Philippine Clearing
House Corporation cannot bypass the arbitration process laid out by the body and seek
relief directly from the courts. In the case at bar, undeniably, private respondent has
initiated arbitration proceedings as required by the PCHC rules and regulations, and
pending arbitration has sought relief from the trial court for measures to safeguard
and/or conserve the subject of the dispute under arbitration, as sanctioned by section

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14 of the Arbitration Law, and otherwise not shown to be contrary to the PCHC rules
and regulations.

Additional note:
Likewise, in the case of Puromines, Inc. v. Court of Appeals, 49 we have ruled
that:​jgc:chanrobles.com.ph

"In any case, whether the liability of respondent should be based on the sales contract
or that of the bill of lading, the parties are nevertheless obligated to respect the
arbitration provisions on the sales contract and/or bill of lading. Petitioner being a
signatory and party to the sales contract cannot escape from his obligation under the
arbitration clause as stated therein."​cralaw virtua1aw library

In Puromines, we found the arbitration clause stated in the sales contract to be valid
and applicable, thus, we ruled that the parties, being signatories to the sales contract,
are obligated to respect the arbitration provisions on the contract and cannot escape
from such obligation by filing an action for breach of contract in court without resorting
first to arbitration, as agreed upon by the parties.

At this point, we emphasize that arbitration, as an alternative method of dispute


resolution, is encouraged by this Court. Aside from unclogging judicial dockets, it also
hastens solutions especially of commercial disputes. 50 The Court looks with favor upon
such amicable arrangement and will only interfere with great reluctance to anticipate or
nullify the action of the arbitrator. 51

4. LM Power Engineering Corp vs Capitol Industrial Construction Corp, GR No


141833

Alternative dispute resolution methods or ADRs -- like arbitration, mediation, negotiation


and conciliation -- are encouraged by the Supreme Court. By enabling parties to resolve
their disputes amicably, they provide solutions that are less time-consuming, less
tedious, less confrontational, and more productive of goodwill and lasting relationships.

Facts

LM Power Engineering Corporation (Petitioner) and Capitol Industrial Construction


Groups (Respondent) entered into a Subcontract Agreement involving electrical work at
the Port of Zamboanga. Respondent then took over some of the work contracted to
Petitioner, It was alleged that the petitioner failed to finish it because of its inability to
procure materials.

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Upon completion of the task, Petitioner billed the respondent the amount of
6,711,813.90 pesos. Respondent refused to pay and contested the accuracy of the
amount of advances and billable accomplishments listed by the petitioner. Respondent
also took refuge in the termination clause agreement which allowed it to set off the cost
of the work that petitioner had failed to undertake (due to termination of take over).
Because of the dispute, the Petitioner filed a complaint foe collection of the
balance due under the subcontract agreement. However, instead of filing an answer,
the respondent filed a Motion to Dismiss, alleging that the complaint was premature
because there was no prior recourse to arbitration. RTC denied the motion on the
ground that the dispute did not involve the interpretation or implementation of the
agreement and was, therefore, not covered by the arbitral clause. Also, the RTC ruled
that the take over of some work items by the respondent was not equivalent to
termination but a mere modification of the subcontract.

Issues

A. Whether or not there exist[s] a controversy/dispute between petitioner and


respondent regarding the interpretation and implementation of the Sub-Contract
Agreement dated February 22, 1983 that requires prior recourse to voluntary arbitration;

B. In the affirmative, whether or not the requirements provided in Article III 1 of


CIAC Arbitration Rules regarding request for arbitration have been complied with

The Court’s Ruling

The Petition is unmeritorious.

A. Whether Dispute Is Arbitrable

Petitioner claims that there is no conflict regarding the interpretation or the


implementation of the Agreement. Thus, without having to resort to prior arbitration, it is
entitled to collect the value of the services it rendered through an ordinary action for the
collection of a sum of money from respondent.
On the other hand, the latter contends that there is a need for prior arbitration as
provided in the Agreement. This is because there are some disparities between the
parties’ positions regarding the extent of the work done, the amount of advances and
billable accomplishments, and the set off of expenses incurred by respondent in its
take-over of petitioner’s work.

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We side with respondent. Essentially, the dispute arose from the parties’ congruent
positions on whether certain provisions of their Agreement could be applied to the facts.
The instant case involves technical discrepancies that are better left to an arbitral body
that has expertise in those areas. In any event, the inclusion of an arbitration clause in a
contract does not ipso facto divest the courts of jurisdiction to pass upon the findings of
arbitral bodies, because the awards are still judicially reviewable under certain
conditions.

In the case before us, the Subcontract has the following arbitral clause:

"6. The Parties hereto agree that any dispute or conflict as regards to interpretation and
implementation of this Agreement which cannot be settled between [respondent] and
[petitioner] amicably shall be settled by means of arbitration x x x."

Clearly, the resolution of the dispute between the parties herein requires a referral to the
provisions of their Agreement. Within the scope of the arbitration clause are
discrepancies as to the amount of advances and billable accomplishments, the
application of the provision on termination, and the consequent set-off of expenses.

The resolution of the foregoing issues lies in the interpretation of the provisions of the
Agreement. According to respondent, the take-over was caused by petitioner’s delay in
completing the work. Such delay was in violation of the provision in the Agreement as to
time schedule.
The issue as to the correct amount of petitioner’s advances and billable
accomplishments involves an evaluation of the manner in which the parties completed
the work, the extent to which they did it, and the expenses each of them incurred in
connection therewith. Arbitrators also need to look into the computation of foreign and
local costs of materials, foreign and local advances, retention fees and letters of credit,
and taxes and duties as set forth in the Agreement.

Being an inexpensive, speedy and amicable method of settling disputes, arbitration --


along with mediation, conciliation and negotiation -- is encouraged by the Supreme
Court. Aside from unclogging judicial dockets, arbitration also hastens the resolution of
disputes, especially of the commercial kind. It is thus regarded as the "wave of the
future" in international civil and commercial disputes. Brushing aside a contractual
agreement calling for arbitration between the parties would be a step backward.

B. Prior Request for Arbitration

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Section 1 of Article III of the new Rules of Procedure Governing Construction Arbitration
has dispensed with this requirement and recourse to the CIAC may now be availed of
whenever a contract "contains a clause for the submission of a future controversy to
arbitration," in this wise:

"SECTION 1. Submission to CIAC Jurisdiction — An arbitration clause in a construction


contract or a submission to arbitration of a construction dispute shall be deemed an
agreement to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution or arbitral body in such
contract or submission. When a contract contains a clause for the submission of a
future controversy to arbitration, it is not necessary for the parties to enter into a
submission agreement before the claimant may invoke the jurisdiction of CIAC."

Clearly, there is no more need to file a request with the CIAC in order to vest it with
jurisdiction to decide a construction dispute.

Since petitioner has already filed a Complaint with the RTC without prior recourse to
arbitration, the proper procedure to enable the CIAC to decide on the dispute is to
request the stay or suspension of such action, as provided under RA 876 [the
Arbitration Law].u

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.

SO ORDERED.

5. Luzon vs Bridestone, GR No 220546

LUZON IRON DEVELOPMENT GROUP CORPORATION AND CONSOLIDATED


IRON SANDS, LTD., petitioners, vs. BRIDESTONE MINING AND DEVELOPMENT
CORPORATION and ANACONDA MINING AND DEVELOPMENT CORPORATION,
respondents.

The case is basically about the interpretation of TPAA. The Court ruled that paragraphs
14.8 and 15.1 of the TPAA should be harmonized in such a way that the arbitration
clause is given life.

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Facts:
1. Respondents fi led separate complaints before the RTC against the petitioner.
Both complaints sought the rescission of the Tenement Partnership and
Acquisition Agreement (TPAA)​entered into by Luzon Iron and Consolidated
Iron, on one hand, and Bridestone and Anaconda, on the other, ​for the
assignment of the Exploration Permit Application​of the former in favor of the
latter.

2. ​ uzon Iron​filed their Special Appearance with Motion to Dismiss, separately,


L
against both respondents, on similar ground, among others: the RTC had no
jurisdiction over the subject matter because of an arbitration clause in the TPAA.

3. RTC consolidated two cases and denied the motion to dismiss ​ruling that it had
jurisdiction over the subject matter because under clause 14.8​[1]​of the TPAA, the
parties could go directly to courts when a direct and/or blatant violation of the
provisions of the TPAA had been committed.

4. Luzon filed Petition for Review before CA.​The CA also sustained the jurisdiction
of the RTC over the subject matter opining that the arbitration clause in the TPAA
provided for an exception where parties could directly go to court. ​Thus, the
petition.

Petitioners:​The trial court had no jurisdiction over the consolidated cases because of
the arbitration clause set forth in the TPAA. (Par. 15.1[2])

Respondents:​The trial court had jurisdiction over the complaints because the ​TPAA
itself allowed a direct resort before the courts in exceptional circumstances.​They cited
paragraph 14.8 thereof as basis explaining that when a direct and/or blatant violation of
the TPAA had been committed, a party could go directly to the courts. ​They faulted the
petitioners in not moving for the referral of the case for arbitration instead of merely
filing a motion to dismiss.

Petitioners’ Reply: ​Paragraph 14.8 of the TPAA should not be construed as an


authority to directly resort to court action in case of a direct and/or blatant violation of
the TPAA ​because such interpretation would render the arbitration clause
nugatory.​They contended that, even for the sake of argument, the judicial action under
the said provisions was limited to issues or matters which were inexistent in the present
case.

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Issues:
1. Whether or not the controversy must be referred for arbitration — Yes.
2. Whether or not failure to refer the case for arbitration render the arbitration
clause inoperative. — No.

Held:
1. ​ ontroversy must be referred for arbitration.​The state adopts a policy in
C
​ hus, consistent with the
favor of arbitration ​(read Republic Act No. 9285 Sec. 2). T
state policy of favoring arbitration, the present TPAA must be construed in such a
manner that would give life to the arbitration clause rather than defeat it, if such
interpretation is permissible. With this in mind, the Court views the interpretation
forwarded by the petitioners as more in line with the state policy favoring
arbitration. ​Paragraphs 14.8 and 15.1 of the TPAA should be harmonized in
such a way that the arbitration clause is given life. ​The Court disagrees with
the respondents that Paragraph 14.8 of the TPAA should be construed as an
exception to the arbitration clause where direct court action may be resorted to in
case of direct and/or blatant violation of the TPAA occurs. Such construction is
anathema to the policy favoring arbitration.

2. A​ s to formal request, the petitioners' failure to refer the case for arbitration,
however, does not render the arbitration clause in the TPAA inoperative.​A
formal request is not the sole means of invoking an arbitration clause in a
pending suit. Similar to the said case, the petitioners here made the RTC aware
of the existence of the arbitration clause in the TPAA as they repeatedly raised
this as an issue in all their motions to dismiss. As such, it was enough to activate
the arbitration clause and, thus, should have alerted the RTC in proceeding with
the case.

COUR’T RULING: ​Generally, the action of the court is stayed if the matter raised before
it is subject to arbitration. In the case at bench, however, the complaints fi​ ​led before
the RTC should have been dismissed considering that the petitioners were able to
establish the ground for their dismissal, that is, violating the prohibition on forum
shopping. ​The parties, nevertheless, are directed to initiate arbitration
proceedings as provided under Paragraph 15.1 of the TPAA.

Note:

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ON JUDICIAL RESTRAINT:

RULE 2.4. Policy Implementing Competence-Competence Principle.​— xxx When a


court is asked to rule upon issue/s affecting the competence or jurisdiction of an arbitral
tribunal in a dispute brought before it, either before or after the arbitral tribunal is
constituted, ​the court must exercise judicial restraint and defer to the competence or
jurisdiction of the arbitral tribunal by allowing the arbitral tribunal the rst opportunity
to rule upon such issues.​xxx Unless the court, pursuant to such prima facie
determination, concludes that the arbitration agreement is null and void, inoperative or
incapable of being performed, the court must suspend the action before it and refer the
parties to arbitration pursuant to the arbitration agreement.

[1]​
Each Party agrees not to commence or procure the commencement of any challenge
or claim, action, judicial or legislative enquiry, review or other investigation into the
suf ciency, validity, legality or constitutionality of (i) the assignments of the Exploration
Permit Applications(s) (sic) to LIDGC, (ii) any other assignments contemplated by this
TPAA, and/or (iii) or(sic) any agreement to which the Exploration Permit Application(s)
may be converted, unless a direct and/or blatant violation of the provisions of the TPAA
has been committed.
[2]​
If, for any reasonable reason, the Parties cannot resolve a material fact, material event
or any dispute arising out of or in connection with this TPAA, including any question
regarding its existence, validity or termination, within 90 days from its notice, shall be
referred to and nally resolved by arbitration in Singapore in accordance with the
Arbitration Rules of the Singapore International Arbitration Centre ("SIAC Rules") for the
time being in force, which rules are deemed to be incorporated by reference in this
clause 15.1.

6. Steamship vs Sulpicio Lines, GR No 196072

Doctrine:

An insured member may be compelled to arbitration pursuant to the Rules of the


Protection and Indemnity Club, which were incorporated in the insurance policy by
reference. Where there are multiple parties, the court must refer to arbitration by the

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parties covered by the agreement while proceeding with the civil action against those
who were not bound by the arbitration agreement.

FACTS:

Steamship was a Bermuda-based Protection and Indemnity Club. It insures it


members-shipowners against “third party risks and liabilities” for claims arising from (a)
death or injury to passengers; (b) loss or damage to cargoes; and (c) loss or damage
from collisions.

Sulpicio insured its fleet of inter-island vessels with Steamship for Protection and
Indemnity risks through local insurance agents, Pioneer Insurance and Surety
Corporation (Pioneer Insurance) or Seaboard-Eastern Insurance Co. Inc.,
(Seaboard-Eastern) among which was the M/V Princess of the World which was gutted
by fire while on voyage from Ilolilo to Zamboanga City, resulting in total loss of its
cargoes. The fire incident was found by the DILG to be “accidental” in nature.

Sulpicio claimed indemnity from Steamship under the Protection & Indemnity insurance
policy but the latter denied the claim and subsequently rescinded the insurance
coverage of Sulpicio’s other vessels on the ground that “Sulpicio was grossly negligent
in conducting its business regarding safety, maintaining the seaworthiness of its vessels
as well as propert training of its crew.”

Sulpicio filed a Complaint with the RTC of Makati City against Steamship; one (1) of its
directors, Gary Rynsard; and its local insurance agents Pioneer Insurance and
Seaboard-Eastern for specific performance and damages. Steamship filed its Motion to
Dismiss and/or Refer Case to Arbitration pursuant to Republic Act No. 9285 or the
Alternative Dispute Resolution Act of 2004 (ADR Law), and to Rule 47 of the 2005/2006
Club Rules, which supposedly provided for arbitration in London of disputes between
Steamship and its members.

The RTC denied Steamship’s Motion to Dismiss holding that “arbitration [did] not appear
to be the most prudent action,... considering that the other defendants.. Ha[d] already
filed their [respective] [a]nswers.” The Court of Appeals affirmed the RTC decision.

ISSUE: Whether there is a valid and binding arbitration agreement between Steamship
and Sulpicio

RULING:

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YES. The contract between Sulpicio and Steamship is more than a contract of
insurance between a marine insurer and a shipowner. By entering its vessels in
Steamship, Sulpicio not only obtains insurance coverage for its vessels but also
becomes a member of Steamship. A protection and indemnity club, like Steamship, is
an association composed of shipowners generally formed for the specific purpose of
providing insurance cover against third-party liabilities of its members.

Thus, a contract of insurance is perfected between the parties upon Steamship's


issuance of the Certificate of Entry and Acceptance.Title VI, Section 49 of Presidential
Decree No. 612 or the Insurance Code defines an insurance policy as "the written
instrument in which a contract of insurance is set forth." Section 50 of this Code
provides that the policy, which is required to be in
printed form, "may contain blank spaces; and any word, phrase, clause, mark, sign,
symbol, signature, number, or word necessary to complete the contract of insurance
shall be written on the blank spaces." Any rider, clause, warranty, or endorsement
attached and referred to in the policy by its descriptive title or name is considered part of
this policy or contract of insurance and binds the insured.Section 51 of the Insurance
Code prescribes the information that must be stated in the policy, namely: the parties in
the insurance contract, amount insured, premium, property or life insured, risks insured
against, and period of insurance. However, there is nothing in the law that prohibits the
parties from agreeing to other terms and conditions that would govern their relationship,
in which case the general rules of theCivil Code regulating contracts will apply.

The Club Rules contain the terms and conditions of the relationship between the
Steamship and its members including the scope, nature, and extent of insurance
coverage of its members' vessels. The arbitration clause is found in Rule 47 of the
2005/2006 Club Rules. Under Rule 47, any dispute concerning the insurance afforded
by Steamship must first be brought by a claiming member to the Directors for
adjudication. If this member disagrees with the decision of the Director, the dispute must
be referred to arbitration in London. Despite the member's disagreement, the Managers
of Steamship may refer the dispute to arbitration without adjudication of the Directors.
This procedure must be complied with before the member can pursue legal proceedings
against Steamship. There is no ambiguity in the terms and clauses of the Certificate of
Entry Acceptance. Contrary to the ruling of the Court of Appeals, the Certificate clearly
incorporates the entire Club Rules — not only those provisions relating to cancellation
and alteration of the policy

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7. DPWH vs CMC, GR No 179732

Doctrine:

As the administrative agency tasked with resolving issues pertaining to the construction
industry, the Construction Industry Arbitration Commission enjoys a wide latitude in
recognition of its technical expertise and experience. Its factual findings are, thus,
accorded respect and even finality, particularly when they are affirmed by an appellate
court.

FACTS:

Republic of the Philippines, through the Department of Public Works and Highways
(DPWH), and CMC/Monark/Pacific/Hi-Tri J.V. (the Joint Venture) executed "Contract
Agreement for the Construction of Contract Package 6MI-9, Pagadian-Buug Section,
Zamboanga del Sur, Sixth Road Project, Road Improvement Component Loan No.
1473-PHI" (Contract) for a total contract amount of P713,330,885.28. DPWH hired
BCEOM French Engineering Consultants to oversee the project.

On October 23, 2002, or while the project was ongoing, the Joint Venture's truck and
equipment were set on fire. On March 11, 2003, a bomb exploded at Joint Venture's
hatching plant located at Brgy. West Boyogan, Kumalarang, Zamboanga del Sur.
According to reports, the bombing incident was caused by members of the Moro Islamic
Liberation Front.

Several demand letters were sent by The Joint Venture for the extension and payment
of the foreign component of the Contact. Only the foreign contract were up for
negotiations. Consequently, the Joint Venture filed a compliant against DPWH before
the CIAC.

Meanwhile, on July 8, 2004, the Joint Venture sent a "Notice of Mutual Termination of
Contract", to DPWH requesting for a mutual termination of the contract subject of the
arbitration case. This is due to its diminished financial capability due to DPWH's late
payments, changes in the project involving payment terms, peace and order problems,
and previous agreement by the parties.

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On July 16, 2004, then DPWH Acting Secretary Florante Soriquez accepted the Joint
Venture's request for mutual termination of the contract.

After hearing and submission of the parties' respective memoranda, CIAC promulgated
an Award16 on March 1, 2005, directing DPWH to pay the Joint Venture its money
claims plus legal interest. CIAC, however, denied the Joint Venture's claim for price
adjustment due to the delay in the issuance of a Notice to Proceed under Presidential
Decree No. 1594 or the "Policies, Guidelines, Rules, and Regulations for Government
Infrastructure Contracts."

ISSUES:
1. WON the mutual termination of the contract renders the case moot and academic
2. WON the filing of claim before CIAC was premature for non compliance with the
doctrine of exhaustion of administrative remedies

HELD
No. The issues arising from the mutually terminated contract are not moot and
academic. As the Court of Appeals found, there are actual substantial reliefs that
respondent is entitled to. There is a practical use or value to decide on the issues raised
by the parties despite the mutual termination of the Contract between them. These
issues include the determination of amounts payable to respondent by virtue of the time
extensions, respondent's entitlement to price adjustments due to the delay of the
issuance of the Notice to Proceed, additional costs, actual damages, and interest on its
claims. The agreement to mutually terminate the Contract did not wipe out petitioner's
obligation to pay respondent on works done before the Contract's termination on
October 27, 2004.

No. CIAC found and correctly ruled that respondent had duly complied with the
contractual obligation to exhaust administrative remedies provided for under sub-clause
67.1 of the Conditions of Contract before it brought the case before the tribunal. A total
of 17 demand letters were sent to petitioner to no avail. To require respondent to wait
for the DPWH Secretary's response while respondent continued to suffer financially
would be to condone petitioner's avoidance of its obligations to respondent. Hence,
even assuming that sub​clause 67.1 was not applicable, the case would still fall within
the exceptions to the doctrine of exhaustion of administrative remedies since strict

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application of the doctrine will be set aside when requiring it would only be
unreasonable under the circumstances.



CIAC's specific purpose is the "early and expeditious settlement of disputes" in the
construction industry as a recognition of the industry's role in "the furtherance of
national development goals." CIAC's authority to arbitrate construction disputes was
then incorporated into the general statutory framework on alternative dispute resolution
through Republic Act No. 9285 As a general rule, findings of fact of CIAC, a
quasi-judicial tribunal which has expertise on matters regarding the construction
industry, should be respected and upheld.

WHEREFORE, the Petition is DENIED. The Court of Appeals Decision dated


September 20, 2007 in CA-G.R. SP Nos. 88953 and 88911 is AFFIRMED with
MODIFICATION as follows: (1) that the order remanding the case to the Construction
Industry Arbitration Commission for proper disposition is REVERSED for being moot
and academic; and (2) that the legal interest rate is pegged at twelve percent (12%) per
annum until June 30, 2013, and then at six percent (6%) per annum until full
satisfaction.

8. BCDA vs DMCI, GR No 173137

An arbitration clause in a document of contract may extend to subsequent


documents of contract executed for the same purpose. Nominees of a party to
and beneficiaries of a contract containing an arbitration clause may become
parties to a proceeding initiated based on that arbitration clause.

FACTS: Bases Conversion Development Authority (BCDA) entered into a Joint Venture
Agreement (JVA) with Philippine National Railways and other foreign corporations for a
railroad project which included an arbitration clause. As part of the agreement, BCDA
established North Luzon Railways Corp. (Northrail). DM Consunji Inc. (DMCI) was
invited to be an additional investor of Northrail to contribute upon the latter’s increase in
authorized capital stocks.

The JVA was amended to include DMCI and/or its nominee as party. A Memorandum of
Agreement was entered into where DMCI’s share in the capital was set at P300M. Upon
BCDA and Northrail’s request, DMCI-PDI deposited such amount for “deposits for future

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subscription. In letters dated April 4, 1997, D.M. Consunji, Inc. informed PNR and the
other parties that DMCI-PDI shall be its designated nominee for all the agreements it
entered and would enter with them in connection with the railroad project. However, the
increase in authorized capital stock did not materialize. Thus, DMCI-PDI demanded the
return of the P300Mdeposit.

BCDA and North rail refused to return the amount saying the amount was in the nature
of a contribution and DMCI must share in the profits and losses. DMCI-PDI served
demand for arbitration to BCDA and Northrail. Both failed to respond. DMCI-PDI filed a
Petition to Compel Arbitration in the RTC. BCDA countered saying DMCI-PDI has no
arbitration clause to enforce because it is not a party to the JVA which included said
clause. Northrail says it is not a party to the JVA, thus, is not subject to the jurisdiction of
the court.

RTC granted the Petition to Compel Arbitration, MR denied. It said that the 3 documents
must be read as 1 contract aiming to accomplish the single goal of implementing the
railroad project.

ISSUE​: Whether or not DMCI-PDI may compel BCDA and Northrail to arbitration

HELD​: Yes Each document was executed to achieve the single purpose of
implementing the railroad project, such that documents of agreement succeeding the
original JVA merely amended or supplemented its provisions. The three agreements
must be read together for a complete understanding of the parties' whole agreement.
Hence, the arbitration clause should extend to all the agreements and its parties DMCI
and/or its nominee became a party to the amended JVA. Nomination pertains to the act
of naming the party with whom it has a relationship of trust or agency.

Contrary to BCDA and Northrail’s position, therefore, the agreement’s prohibition


against transfers, conveyance, and assignment of rights without the consent of the other
party does not apply to nomination. DMCI-PDI is a party to all the agreements, including
the arbitration agreement. It may, thus, invoke the arbitration clause against all the
parties.

DMCI in a letter formally designated DMCI-PDI as its nominee. Thus, DMCI-PDI is a


party to the contract. A beneficiary who communicated his or her acceptance to the
terms of the agreement before its revocation may be compelled to abide by the terms of
an agreement, including the arbitration clause. In this case, Northrail is deemed to have

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communicated its acceptance of the terms of the agreements when it accepted DMCI's
funds. Hence, Northrail is also a party to the agreement

9. Fruehaf vs Technology, GR No 204197


Topic: Judicial Review over arbitral awards

FACTS:
Fruehaff leased land in Pasig City to Signetics Filipinas Corporation for 25 years.
Signetics constructed a semiconductor assembly factory on the land. When it ceased
operations, Team Holdings Limited (THL) bought Signetics. THL later changed its name
to Technology Electronics Assembly and Management Pacific Corp. (TEAM).
March 1987: Freuhaff filed an unlawful detainer case against TEAM. They executed a
MOA to settle the dispute and entered a 15 year lease contract. The contract included
an arbitration agreement stating that in case of disagreement between the parties, the
dispute will be referred to a 3 member arbitration committee (each party appointing one,
and the third member appointed by the two members). The contract also authorized
TEAM to sublease the property. TEAM subleased it to Capitol Publishing House.

May 2003: TEAM informed Freuhaff of its nonrenewal of license. Sublease between
TEAM and Capitol also expired but Capitol only vacated premises on March 2005.

June 2003: Lease between Freuhaff and TEAM expired.

March 2004: Freuhaff instituted SPProc No. 11449 to RTC (Submission of an Existing
Controversy for Arbitration” alleging that when the lease expired, the property suffered
from damages and TEAM failed to turn over the premises and pay rent.
RTC granted and directed parties to comply with the arbitration clause of the contract.

Arbitral Award: 8.2m as unpaid rent of TEAM, 46.8m as damages.


TEAM petitioned RTC to vacate or modify the award arguing that the tribunal failed to
properly appreciate the facts and the terms of the lease contract.
RTC found insufficient legal grounds under Sec 24 and 25 of Arbitration Law to modify
or vacate the award.
Grounds for vacating a domestic arbitral award (Sec 24 Arbitration Law):
(a) when the award is procured by corruption, fraud, or other undue means; or
(b) there was evident partiality or corruption in the arbitrators or any of them; or

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(c) the arbitrators were guilty of misconduct that materially prejudiced the rights
of any party; or
(d) the arbitrators exceeded their powers, or so imperfectly executed them,that a
mutual, final and definite award upon the subject matter submitted to them was
not made.

TEAM filed a Notice of Appeal.


RTC Ruling​: Confirmed the Arbitral Award using Sec 29 of the Arbitration Law:
Section 29. ​Appeals. -​ ​An appeal may be taken from an order made in a
proceeding under this Act, or from a judgment entered upon an award through
certiorari proceedings​, but such appeals shall be ​limited to questions of law.
The proceedings upon such appeal, including the judgment thereon shall be
governed by the Rules of Court in so far as they are applicable.

CA Ruling​: Reversed and set aside the arbitral award using Sec 46 of the Alternative
Dispute Resolution:
SEC. 46. ​Appeal from Court Decisions on Arbitral Awards. -​ A decision of the
regional trial court confirming, vacating, setting aside, modifying or correcting an
arbitral award may be appealed to the Court of Appeals in accordance with the
rules of procedure to be promulgated by the Supreme Court.
The losing party who appeals from the judgment of the court confirming an
arbitral award shall be required by the appellant court to post counterbond
executed in favor of the prevailing party equal to the amount of the award in
accordance with the rules to be promulgated by the Supreme Court.

ISSUE AND SC RULING:

Can an arbitral award be vacated? (Generally, No.)


Conclusion: Fruehaff should be awarded. The general rule applies.

Whether we apply, Section 29 of the Arbitration Law, Section 46 of the ADR Law, or
Rule 19.12 of the Special ADR Rules, there is no legal basis that an ordinary appeal
(via notice of appeal) is the correct remedy from an order confirming, vacating, or
correcting an arbitral award. Thus, there is no merit in the CA's ruling that the RTC
gravely abused its discretion when it refused to give due course to the notice of appeal.

None of the grounds to vacate an arbitral award are present in this case and as already
established, the ​merits ​of the award cannot be reviewed by the courts.

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Arbitration is an alternative mode of dispute resolution ​outside of the regular court


system. A ​ lthough adversarial in character, arbitration is technically not litigation. It is a
voluntary process in which one or more arbitrators - appointed according to the parties'
agreement or according to the applicable rules of the Alternative Dispute Resolution
(ADR) L ​ aw - resolve a dispute by rendering an award. While arbitration carries many
advantages over court litigation, in many ways these advantages also translate into its
disadvantages.

Resort to arbitration is voluntary. It requires ​consent from both parties i​ n the form of
an arbitration clause that ​pre-existed the dispute or a ​subsequent submission
agreement.​ T ​ his written arbitration agreement is an independent and legally
enforceable contract that must be complied with in good faith. By entering into an
arbitration agreement, the parties agree to submit their dispute to an arbitrator (or
tribunal) of their own choosing and be bound by the latter's resolution.

The errors of an arbitral tribunal are not subject to correction by the judiciary. As a
private alternative to court proceedings, ​arbitration is meant to be an end, ​not the
beginning, o ​ f litigation. Thus, the arbitral award is final and binding on the parties by
reason of their contract - the arbitration agreement.

The right to an appeal is neither' a natural right nor an indispensable component of due
process; it is a mere statutory privilege that cannot be invoked in the absence of an
enabling statute. Neither the Arbitration Law nor the ADR Law allows a losing party to
appeal from the arbitral award. The statutory absence of an appeal mechanism reflects
the State's policy of upholding the autonomy of arbitration proceedings and their
corresponding arbitral awards.
Our refusal to review the award is not a simple matter of putting procedural
technicalities over the substantive merits of a case; it goes into the very legal substance
of the issues. There is no law granting the judiciary authority to review the merits of an
arbitral award. If we were to insist on reviewing the correctness of the award: ​(or
consent to the CA's doing so), i​ t would be tantamount to expanding our jurisdiction
without the benefit of legislation. This translates to judicial legislation - a breach of the
fundamental principle of separation of powers.

Assuming ​arguendo t​ hat the tribunal's interpretation of the contract was incorrect, the
errors would have ​been simple errors of law​. It was the tribunal - not the RTC or the
CA - that had jurisdiction and authority over the issue by virtue of the parties'
submissions; the CA's substitution of its own judgment for the arbitral award cannot be
more compelling than the overriding public policy to uphold the autonomy of arbitral

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awards. Courts are precluded from disturbing an arbitral tribunal's factual findings and
interpretations of law. The CA's ruling is an unjustified judicial intrusion in excess of its
jurisdiction - a judicial overreach.
Upholding the CA's ruling would weaken our alternative dispute resolution mechanisms
by allowing the courts to "throw their weight around" whenever they disagree with the
results. It ​erodes ​the obligatory force of arbitration agreements by allowing the losing
parties to "forum shop" for a more favorable ruling from the judiciary.

Whether or not the arbitral tribunal correctly passed upon the issues is irrelevant.
Regardless of the amount, of the sum involved in a case, a simple error of law remains
a simple error of law. Courts are precluded from revising the award in a particular way,
revisiting the tribunal's findings of fact or conclusions of law, or otherwise encroaching
upon the independence of an arbitral tribunal.
Rule 19.10 of the Special ADR Rules​: As a general rule, the court ​can only
vacate or set aside the decision of an arbitral tribunal upon a clear showing
that the award suffers from any of the infirmities or grounds for vacating an
arbitral award under Section 24 of Republic Act No. 876 or under Rule 34 of
the Model Law in a domestic arbitration, or for setting aside an award in an
international arbitration under Article 34 of the Model Law, or for such other
grounds provided under these Special Rules.
If the Regional Trial Court is asked to set aside an arbitral award in a domestic or
international arbitration on any ground other than those provided in the Special
ADR Rules, the court shall entertain such ground for the setting aside or
non-recognition of the arbitral award ​only if the same amounts to a violation of
public policy.
The court ​shall not set aside or vacate the award of the arbitral tribunal
merely on the ground that the arbitral tribunal committed errors of fact, or
of law, or of fact and law, as the court cannot substitute its judgment for
that of the arbitral tribunal​.

TEAM agreed to submit their disputes to an arbitral tribunal. It understood all the risks -
including the absence of an appeal mechanism ​- and found that its benefits (both legal
and economic) outweighed the disadvantages. Without a showing that any of the
grounds to vacate the award exists or that the same amounts to a violation of an
overriding public policy, the award is subject to confirmation as a matter of course.

DISPOSITIVE PORTION:

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WHEREFORE, ​we GRANT ​the petition. The CA's decision in ​CA-G. R. SP. No. 112384
is SET ASIDE ​and the RTC's order ​CONFIRMING ​the arbitral award in ​SP. Proc. No.
11449 ​is​ REINSTATED

10. Lanuza vs BF Corp, GR No 174938

CORPORATE REPRESENTATIVES MAY BE COMPELLED TO SUBMIT TO


ARBITRATION PROCEEDINGS PURSUANT TO A CONTRACT ENTERED INTO BY
THE CORPORATION THEY REPRESENT IF THERE ARE ALLEGATIONS OF BAD
FAITH OR MALICE IN THEIR ACTS REPRESENTING THE CORPORATION.

FACTS:
In 1993, BF Corporation filed a collection complaint with the Regional Trial Court
against Shangri-Laand the members of its board of directors.

BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it
entered into agreements with Shangri-La wherein it undertook to construct for
Shangri-La a mall and a multilevel parking structure along EDSA. Shangri-La had been
consistent in paying BF Corporation in accordance with its progress billing statements.
However, by October 1991, Shangri-La started defaulting in payment.

BF Corporation alleged that Shangri-La induced BF Corporation to continue with the


construction of the buildings using its own funds and credit despite Shangri-La’s default.
BF Corporation eventually completed the construction of the buildings. Shangri-La
allegedly took possession of the buildings while still owing BF Corporation an
outstanding balance.

BF Corporation alleged that despite repeated demands, Shangri-La refused to pay the
balance owed to it. It also alleged that the Shangri-La’s directors were in bad faith in
directing Shangri-La’s affairs. Therefore, they should be held jointly and severally liable
with Shangri-La for its obligations as well as for the damages that BF Corporation
incurred as a result of Shangri-La’s default.

On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G.


Licauco III, and Benjamin C. Ramos filed a motion to suspend the proceedings in view
of BF Corporation’s failure to submit its dispute to arbitration, in accordance with the
arbitration clause provided in its contract, quoted in the motion as follows:

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On April 28, 1995, the Court of Appeals granted the petition for certiorari and ordered
the submission of the dispute to arbitration.

Aggrieved by the Court of Appeals’ decision, BF Corporation filed a petition for review
on certiorari with this court. On March 27, 1998, this court affirmed the Court of Appeals’
decision, directing that the dispute be submitted for arbitration.

Another issue arose after BF Corporation had initiated arbitration proceedings. BF


Corporation and Shangri-La failed to agree as to the law that should govern the
arbitration proceedings. On October 27, 1998, the trial court issued the order directing
the parties to conduct the proceedings in accordance with Republic Act No. 876.

On July 28, 2003, the trial court issued the order directing service of demands for
arbitration upon all defendants in BF Corporation’s complaint.25 According to the trial
court, Shangri-La’s directors were interested parties who "must also be served with a
demand for arbitration to give them the opportunity to ventilate their side of the
controversy, safeguard their interest and fend off their respective positions." Petitioners’
motion for reconsideration of this order was denied by the trial court on January 19,
2005.

Petitioners filed a petition for certiorari with the Court of Appeals, alleging grave abuse
of discretion in the issuance of orders compelling them to submit to arbitration
proceedings despite being third parties to the contract between Shangri-La and BF
Corporation.

In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners’ petition for
certiorari. The Court of Appeals ruled that ShangriLa’s directors were necessary parties
in the arbitration proceedings.30 According to the Court of Appeals:
[They were] deemed not third-parties tothe contract as they [were] sued for their acts in
representation of the party to the contract pursuant to Art. 31 of the Corporation Code,
and that as directors of the defendant corporation, [they], in accordance with Art. 1217
of the Civil Code, stand to be benefited or injured by the result of the arbitration
proceedings, hence, being necessary parties, they must be joined in order to have
complete adjudication of the controversy.
The Court of Appeals further ruled that "excluding petitioners in the arbitration
proceedings . . . would be contrary to the policy against multiplicity of suits."

ISSUE:

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The issue in this case is whether petitioners should be made parties to the arbitration
proceedings, pursuant to the arbitration clause provided in the contract between BF
Corporation and Shangri-La.

HELD:
Petitioners argue that they cannot be held personally liable for corporate acts or
obligations. The corporation is a separate being, and nothing justifies BF Corporation’s
allegation that they are solidarily liable with Shangri-La.

Petitioners also argue that they are third parties to the contract between BF Corporation
and Shangri-La. Provisions including arbitration stipulations should bind only the parties.
Based on our arbitration laws, parties who are strangers to an agreement cannot be
compelled to arbitrate.

Petitioners point out that our arbitration laws were enacted to promote the autonomy of
parties in resolving their disputes. Compelling them to submit to arbitration is against
this purpose and may be tantamount to stipulating for the parties.

We rule that petitioners may be compelled to submit to the arbitration proceedings in


accordance with Shangri-Laand BF Corporation’s agreement, in order to determine if
the distinction between Shangri-La’s personality and their personalities should be
disregarded.

This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to
avoid litigation and settle disputes amicably and more expeditiously by themselves and
through their choice of arbitrators.

Thus, if there is an interpretation that would render effective an arbitration clause for
purposes of avoiding litigation and expediting resolution of the dispute, that
interpretation shall be adopted.
Indeed, as petitioners point out, their personalities as directors of Shangri-La are
separate and distinct from Shangri-La.

A corporation’s representatives are generally not bound by the terms of the contract
executed by the corporation. They are not personally liable for obligations and liabilities
incurred on or in behalf of the corporation.

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Petitioners are also correct that arbitration promotes the parties’ autonomy in resolving
their disputes. An arbitration clause shall not apply to persons who were neither parties
to the contract nor assignees of previous parties, thus:

However, there are instances when the distinction between personalities of directors,
officers,and representatives, and of the corporation, are disregarded. We call this
piercing the veil of corporate fiction.

Piercing the corporate veil is warranted when "[the separate personality of a


corporation] is used as a means to perpetrate fraud or an illegal act, or as a vehicle for
the evasion of an existing obligation, the circumvention of statutes, or to confuse
legitimate issues."85 It is also warranted in alter ego cases "where a corporation is
merely a farce since it is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation."

When corporate veil is pierced, the corporation and persons who are normally treated
as distinct from the corporation are treated as one person, such that when the
corporation is adjudged liable, these persons, too, become liable as if they were the
corporation.

When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these persons
and the corporation should be treated as one.

It is because the personalities of petitioners and the corporation may later be found to
be indistinct that we rule that petitioners may be compelled to submit to arbitration.

11. Koppel v. Makati Rotary Club


G.R. No. 198075. September 4, 2013
PEREZ, J

FACTS: In 1975, Fedders Koppel, Incorporated (FKI), a manufacturer of


air-conditioning products, bequeathed the subject land (exclusive of the improvements
thereon) in favor of herein respondent Makati Rotary Club Foundation, Incorporated by

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way of a ​conditional donation. The respondent accepted the donation with all of its
conditions. The parties executed executed a Deed of Donation.

One of the conditions of the donation required the respondent to lease the subject land
back to FKI for a period of 25 years, renewable for another period of 25 years "upon
mutual agreement" of the parties. An Amended Deed of Donation was executed that
reiterated the provisions of the Deed of Donation.

Two (2) days before the expiration of the lease, or on 23 May 2000, FKI and respondent
executed another contract of lease (​2000 Lease Contract​) covering the subject land. In
this 2000 Lease Contract, the parties agreed on a new five-year lease with annual rents
ranging from P4,000,000 for the first year up to P4,900,000 for the fifth year.

The 2000 Lease Contract also contained an arbitration clause which provides that:
Any disagreement as to the ​interpretation, application or execution of this [2000
Lease Contract] shall be submitted to a board of three (3) arbitrators constituted
in accordance with the arbitration law of the Philippines. The decision of the
majority of the arbitrators shall be binding upon [FKI and respondent.

The lease contract was renewed for another 5 years. This new lease (​2005 Lease
Contract​) required FKI to pay an annual rent of P4,200,000. It also obligated FKI to
make a yearly "donation" of money to the respondent ranging from P3,000,000 for the
first year up to P3,900,000 for the fifth year. The contract contained an arbitration clause
similar to that in the 2000 Lease Contract.

From 2005 to 2008, FKI faithfully paid the rentals and "donations" due it. But in June of
2008, FKI sold all its rights and properties relative to its business in favor of herein
petitioner Koppel, Incorporated. FKI and petitioner executed an ​Assignment and
Assumption of Lease and Donation.​

The following year, petitioner discontinued the payment of the rent and "donation" under
the 2005 Lease Contract. Petitioner contends that rental stipulations of the two lease
contracts cannot be given effect because they violated one of the "material conditions"
of the donation of the subject land.

Petitioner cites item 2 (g) of the Deed of Donation and Amended Deed of Donation that
supposedly limits the amount of rent for the lease over the second 25 years to only
"three percent (3%) of the fair market value of the subject land.

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Two demand letters were sent to petitioner. Petitioner refused to comply with the
demands. Instead, petitioner filed a complaint for rescission or cancellation of the Deed
of Donation. This case is currently pending before the RTC.

Respondent, on the other hand, filed an unlawful detainer case against petitioner before
the MeTC. ​MeTC ruled in favor of petitioner. ​RTC reversed the decision of ordered the
eviction of petitioner. ​CA ​affirmed. Hence, this appeal.

ISSUE: ​Whether or not the 2005 lease contract is arbitrable.

HELD: Yes. Independently of the merits of the case, the MeTC, RTC and Court of
Appeals all erred in overlooking the significance of the arbitration clause incorporated in
the 2005 Lease Contract.

Present Dispute is Arbitrable Under the Arbitration Clause of the 2005 Lease
Agreement Contract

The dispute between the petitioner and respondent emanates from the rental
stipulations of the 2005 Lease Contract. The respondent insists upon the enforceability
and validity of such stipulations, whereas, petitioner, in substance, repudiates them. The
dispute between the petitioner and respondent arose from the application or execution
of the 2005 Lease Contract. Undoubtedly, such kinds of dispute are covered by the
arbitration clause of the 2005 Lease Contract.

Challenges Against the Application of the Arbitration Clause of the 2005 Lease
Contract

1. Respondent maintains that the Supreme Court, in ​Gonzales v. Climax Mining, Ltd​.,
held that "the validity of contract cannot be subject ​of arbitration proceedings" as such
questions are "legal in nature and ​require the application and interpretation of laws and
jurisprudence which is necessarily a judicial function.” While it may be conceded that in
the arbitration of the disagreement in the present case, the validity of the 2005 Lease
Contract, or at least, of such contract's rental stipulations would have to be determined,
the same would not render such disagreement non-arbitrable.

The Court in ​Gonzales did not simply base its rejection of the complaint for arbitration
on the ground that the issue raised therein, i.e., the validity of contracts, is per se
non-arbitrable. The real consideration behind the ruling was the ​limitation that was
placed by R.A. No. 7942 upon the jurisdiction of the PA-MGB as an arbitral body​.

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Gonzales rejected the complaint for arbitration because the issue raised therein is not a
mining dispute per R.A. No. 7942 and it is for this reason, and only for this reason, that
such issue is rendered non-arbitrable before the PA-MGB.

2. Petitioner may still invoke the arbitration clause of the 2005 Lease Contract
notwithstanding the fact that it assails the validity of such contract. This is due to the
doctrine of separability.

Under the ​doctrine of separability​, an arbitration agreement is considered as


independent of the main contract. Being a separate contract in itself, the arbitration
agreement may thus be invoked regardless of the possible nullity or invalidity of the
main contract.

Legal Effect of the Application of the Arbitration Clause

It is clear that under the law, the instant unlawful detainer action should have been
stayed; the petitioner and the respondent should have been referred to arbitration
pursuant to the arbitration clause of the 2005 Lease Contract. The MeTC, however, did
not do so in violation of the law — which violation was, in turn, affirmed by the RTC and
Court of Appeals on appeal.

The violation by the MeTC of the clear directives under R.A. Nos. 876 (to stay the action
or proceeding until an arbitration has been had in accordance with the terms of the
agreement) and 9285 (referral of the parties to arbitration) renders invalid all
proceedings it undertook in the ejectment case after the filing by petitioner of its Answer
with Counterclaim — the point when the petitioner and the respondent should have
been referred to arbitration. This case must, therefore, be remanded to the MeTC and
be suspended at said point. Inevitably, the decisions of the MeTC, RTC and the Court of
Appeals must all be vacated and set aside.

The petitioner and the respondent must then be referred to arbitration pursuant to the
arbitration clause of the 2005 Lease Contract.

11. Korea vs Lerma, GR No 143581

KOREA TECHNOLOGIES CO., LTD.,​ petitioner,


vs.

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HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of


Regional Trial Court of Muntinlupa City, and PACIFIC GENERAL STEEL
MANUFACTURING CORPORATION,​ respondents.

Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is


engaged in the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder
manufacturing plants, while private respondent Pacific General Steel Manufacturing
Corp. (PGSMC) is a domestic corporation.

PGSMC and KOGIES executed a Contract ​whereby KOGIES would set up an LPG
Cylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the
Philippines Thereafter, the parties executed, in Korea, an Amendment for the contract
which amended the terms of payment. There was also a stipulation that KOGIES will
ship the machinery and facilities necessary for manufacturing LPG cylinders and it
would install and initiate the operation of the plant. The total contract price amounted to
USD 1,530,000.

However, after the installation of the plant, the initial operation could not be conducted
as PGSMC encountered financial difficulties affecting the supply of materials, thus
forcing the parties to agree that KOGIES would be deemed to have completely
complied with the terms and conditions of their contract.

For the remaining balance for the installation and initial operation of the plant, PGSMC
issued two postdated check, however these were dishonored for the reason "PAYMENT
STOPPED. Kogies then sent a demand letter threatening criminal action for violation of
BP 22 in case of nonpayment.

PGSMC replied that the two checks it issued KOGIES were fully funded but the
payments were stopped since KOGIES had altered the quantity and lowered the quality
of the machineries and equipment it delivered to PGSMC. Consequently, PGSMC
informed KOGIES that the former was canceling their Contract.

KOGIES argued that PGSMC could not unilaterally rescind their contract. It also insisted
that their disputes should be settled by arbitration as agreed upon in Article 15, the
arbitration clause of their contract.

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KOGIES instituted an Application for Arbitration before the Korean Commercial


Arbitration Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract as
amended.

KOGIES filed a Complaint for Specific Performance against PGSMC before the
Muntinlupa City RTC. The RTC also granted a TRO.

PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled to the
TRO since Art. 15, the arbitration clause, was null and void for being against public
policy as it ousts the local courts of jurisdiction over the instant controversy.

RTC ​denied the application for a writ of preliminary injunction. It also held that Art. 15 of
the Contract as amended was invalid as it tended to oust the trial court or any other
court jurisdiction over any dispute that may arise between the parties.

CA rendered the assailed Decision ​affirming the RTC Orders and dismissing the petition
for certiorari filed by KOGIES. It also agreed with the lower court that an arbitration
clause which provided for a final determination of the legal rights of the parties to the
contract by arbitration was against public policy.

ISSUES:
A. WON the arbitration clause in Article 15 of the parties’ contract is contrary to public
policy; and
B. WON the same is null and void for ousting the courts of jurisdiction.

RULING:

A. ​ ON the arbitration clause in Article 15 of the parties’ contract is contrary to


W
public policy

Art 15 of the Contract, the arbitration clause provides.

Article 15. ​Arbitration.​ —All disputes, controversies, or differences which may arise
between the parties, out of or in relation to or in connection with this Contract or for the
breach thereof, shall finally be settled by arbitration in Seoul, Korea in accordance with
the Commercial Arbitration Rules of the Korean Commercial Arbitration Board. ​The

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award rendered by the arbitration(s) shall be ​final and binding upon both parties
concerned​.

Established in this jurisdiction is the rule that the law of the place where the contract is
made governs. ​Lex loci contractus​. The contract in this case was perfected here in the
Philippines. Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the Civil
Code sanctions the validity of mutually agreed arbitral clause or the finality and binding
effect of an arbitral award. Art. 2044 provides, "​Any stipulation that the arbitrators’
award or decision shall be final, is valid​, without prejudice to Articles 2038, 2039 and
2040

The arbitration clause was mutually and voluntarily agreed upon by the parties. It has
not been shown to be contrary to any law, or against morals, good customs, public
order, or public policy. There has been no showing that the parties have not dealt with
each other on equal footing. We find no reason why the arbitration clause should not be
respected and complied with by both parties. In ​Gonzales v. Climax Mining Ltd.​ we held
that submission to arbitration is a contract and that a clause in a contract providing that
all matters in dispute between the parties shall be referred to arbitration is a contract

Arbitration clause is not contrary to public policy

The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea
in accordance with the Commercial Arbitration Rules of the KCAB, and that the arbitral
award is final and binding, is not contrary to public policy. This Court has sanctioned
the validity of arbitration clauses in a ​catena​ of cases.

Having said that the instant arbitration clause is not against public policy, we come to
the question on what governs an arbitration clause specifying that in case of any dispute
arising from the contract, an arbitral panel will be constituted in a foreign country and
the arbitration rules of the foreign country would govern and its award shall be final and
binding.

B. WON the arbitration clause is null and void for ousting the courts of
jurisdiction.

Petitioner is correct in its contention that an arbitration clause, stipulating that the
arbitral award is final and binding, does not oust our courts of jurisdiction as the
international arbitral award, the award of which is not absolute and without exceptions,

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is still judicially reviewable under certain conditions provided for by the UNCITRAL
Model Law as applied and incorporated in RA 9285.

**ADDITIONAL NOTES IN CONNECTION WITH THE SECOND ISSUE:

RA 9285 incorporated the UNCITRAL Model law to which we are a signatory

For domestic arbitration proceedings, we have particular agencies to arbitrate disputes


arising from contractual relations. In case a foreign arbitral body is chosen by the
parties, the arbitration rules of our domestic arbitration bodies would not be applied.

As signatory to the Arbitration Rules of the UNCITRAL Model Law on International


Commercial Arbitration ​of the United Nations Commission on International Trade Law
(UNCITRAL) in the New York Convention, the Philippines committed itself to be bound
by the Model Law. We have even incorporated the Model Law in Republic Act No. (RA)
9285, otherwise known as the Alternative Dispute Resolution Act of 2004.

Among the pertinent features of RA 9285 applying and incorporating the


UNCITRAL Model Law are the following:

(1) The RTC must refer to arbitration in proper cases


Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the
subject of arbitration pursuant to an arbitration clause, and mandates the referral to
arbitration in such case.

(2) Foreign arbitral awards must be confirmed by the RTC


Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause
to be final and binding are not immediately enforceable or cannot be implemented
immediately. It is a ​requirement that the arbitral award be recognized by a competent
court for enforcement under Sec 35 of UNCITRAL Model Law.

F​oreign arbitral awards when confirmed by the RTC are deemed not as a judgment of a
foreign court but as a foreign arbitral award, and when confirmed, are enforced as final
and executory decisions of our courts of law.

(3) The RTC has jurisdiction to review foreign arbitral awards


Sec. 42 in relation to Sec. 45 of RA 9285 vested the RTC with specific authority and
jurisdiction to set aside, reject, or vacate a foreign arbitral award. Thus, while the RTC

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does not have jurisdiction over disputes governed by arbitration mutually agreed upon
by the parties, still the foreign arbitral award is subject to judicial review by the RTC
which can set aside, reject, or vacate it.

(4) Grounds for judicial review different in domestic and foreign arbitral awards
The differences between a final arbitral award from an international or foreign arbitral
tribunal and an award given by a local arbitral tribunal are the specific grounds or
conditions that vest jurisdiction over our courts to review the awards.

For ​foreign or international arbitral awards which must first be confirmed by the RTC,
the grounds for setting aside, rejecting or vacating the award by the RTC are provided
under Art. 34(2) of the UNCITRAL Model Law.

For final ​domestic arbitral awards​, which also need confirmation by the RTC pursuant to
Sec. 23 of RA 876 and shall be recognized as final and executory decisions of the RTC,
they may only be assailed before the RTC and vacated on the grounds provided under
Sec. 25 of RA 876.

Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign
arbitration as it bound itself through the subject contract. ​While it may have misgivings
on the foreign arbitration done in Korea, it has available remedies under RA 9285. Its
interests are duly protected by the law which requires that the arbitral award that may
be rendered by KCAB must be confirmed here by the RTC before it can be enforced.

12. Gonzalez vs Climax, GR No 161957

FACTS: This is a consolidation of two petitions rooted in the same disputed Addendum
Contract entered into by the parties.

In ​G.R. No. 161957​, the Court denied the Rule 45 petition of petitioner Jorge Gonzales
and held that the DENR Panel of Arbitrators had no jurisdiction over the complaint for
the annulment of the Addendum Contract on grounds of fraud and violation of the
Constitution and that the action should have been brought before the regular courts as it
involved judicial issues. Both filed separate MR.
Gonzales avers that the Court erred in holding that the DENR Panel of Arbitrators was
bereft of jurisdiction, reiterating its argument that the case involves a mining dispute that
properly falls within the ambit of the Panel’s authority.

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Respondents Climax Mining Ltd., et al.​ , seek reconsideration of that part of the Decision
holding that the case should not be brought for arbitration under Republic Act (R.A.) No.
876, also known as the Arbitration Law. Respondents, citing American jurisprudence
and the UNCITRAL Model Law, argue that the arbitration clause in the Addendum
Contract should be treated as an agreement independent of the other terms of the
contract, and that a claimed rescission of the main contract does not avoid the duty to
arbitrate. Respondents add that Gonzales’s argument relating to the alleged invalidity of
the Addendum Contract still has to be proven and adjudicated on in a proper
proceeding; that is, an action separate from the motion to compel arbitration. Pending
judgment in such separate action, the Addendum Contract remains valid and binding
and so does the arbitration clause therein. Respondents add that the holding in the
Decision that “the case should not be brought under the ambit of the Arbitration Law”
appears to be premised on Gonzales’s having “impugned the existence or validity” of
the addendum contract. If so, it supposedly conveys the idea that Gonzales’s unilateral
repudiation of the contract or mere allegation of its invalidity is all it takes to avoid
arbitration. Hence, respondents submit that the court’s holding that “the case should not
be brought under the ambit of the Arbitration Law” be understood or clarified as
operative only where the challenge to the arbitration agreement has been sustained by
final judgment.

On the other hand, ​G.R. No. 167994 is a Rule 65 petition while the MR for G.R. No.
161957 was pending wherein Gonzales challenged the orders of RTC requiring him to
proceed with the arbitration proceedings as sought by Climax-Arimco Mining
Corporation (Climax-Arimco).
Gonzales questioned the validity of the Addendum Contract containing the arbitration
clause and alleged that it is void in view of Climax-Arimco’s acts of fraud, oppression
and violation of the Constitution. Thus, the arbitration clause, Clause 19.1, contained in
the Addendum Contract is also null and void ab initio and legally inexistent. Moreover,
Gonzales averred that referral of the parties to arbitration by Judge Pimentel despite the
timely and properly raised issue of nullity of the Addendum Contract was misplaced and
without legal basis. Both Sec 6 of R.A. No. 876 and Sec 24 of R.A. No. 9285 mandate
that any issue as to the nullity, inoperativeness, or incapability of performance of the
arbitration clause/agreement raised by one of the parties to the alleged arbitration
agreement must be determined by the court prior to referring them to arbitration.
Climax-Arimco points out that an application to compel arbitration under Sec. 6 of R.A.
No. 876 confers on the trial court only a limited and special jurisdiction, i.e., a jurisdiction
solely to determine (a) whether or not the parties have a written contract to arbitrate,
and (b) if the defendant has failed to comply with that contract. Climax-Arimco argues
that R.A. No. 876 gives no room for any other issue to be dealt with in such a

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proceeding, and that the court presented with an application to compel arbitration may
order arbitration or dismiss the same, depending solely on its finding as to those two
limited issues.

ISSUE: W/N the question of validity of the Addendum Contract bears upon the
applicability or enforceability of the arbitration clause contained therein

RULING: ​NO. ​Arbitration, as an alternative mode of settling disputes, has long been
recognized and accepted in our jurisdiction. Disputes do not go to arbitration unless and
until the parties have agreed to abide by the arbitrator’s decision. Necessarily, a
contract is required for arbitration to take place and to be binding. R.A. No. 876
recognizes the contractual nature of the arbitration agreement as stated in Sec. 2 : “Two
or more persons or parties may submit to the arbitration of one or more arbitrators any
controversy existing, between them at the time of the submission and which may be the
subject of an action, or the parties to any contract may in such contract agree to settle
by arbitration a controversy thereafter arising between them. Such submission or
contract shall be valid, enforceable and irrevocable, save upon such grounds as exist at
law for the revocation of any contract…” The special proceeding under Sec. 6 of R.A.
No. 876 recognizes the contractual nature of arbitration clauses or agreements. The
jurisdiction of the courts in relation to Sec. 6 of R.A. No. 876 as well as the nature of the
proceedings therein was expounded upon in La Naval Drug Corporation v. Court of
Appeals. There it was held that ​R.A. No. 876 explicitly confines the court's authority only
to the determination of whether or not there is an agreement in writing providing for
arbitration. In the affirmative, the statute ordains that the court shall issue an order
"summarily directing the parties to proceed with the arbitration in accordance with the
terms thereof." If the court, upon the other hand, finds that no such agreement exists,
"the proceeding shall be dismissed.” It also stressed that the proceedings are summary
in nature. Implicit in the summary nature of the judicial proceedings is the separable or
independent character of the arbitration clause or agreement. The doctrine of
separability, or severability, enunciates that an arbitration agreement is independent of
the main contract. The arbitration agreement is to be treated as a separate agreement
and the arbitration agreement does not automatically terminate when the contract of
which it is part comes to an end. ​Irrespective of the fact that the main contract is
invalid, the arbitration clause/agreement still remains valid and enforceable.

Gonzales’s argument that the Addendum Contract is null and void and, therefore the
arbitration clause therein is void as well, is not tenable. First, the proceeding in a petition
for arbitration under R.A. No. 876 is limited only to the resolution of the question of
whether the arbitration agreement exists. Second, the separability of the arbitration

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clause from the Addendum Contract means that validity or invalidity of the Addendum
Contract will not affect the enforceability of the agreement to arbitrate. ​Thus,
Gonzales’s petition for certiorari should be dismissed.

The adjudication of the petition in G.R. No. 167994 effectively modifies part of the
Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the
validity of the contract containing the agreement to submit to arbitration does not affect
the applicability of the arbitration clause itself. A contrary ruling would suggest that a
party’s mere repudiation of the main contract is sufficient to avoid arbitration. That is
exactly the situation that the separability doctrine, as well as jurisprudence applying it,
seeks to avoid. We add that when it was declared in G.R. No. 161957 that the case
should not be brought for arbitration, it should be clarified that the case referred to is the
case actually filed by Gonzales before the DENR Panel of Arbitrators, which was for the
nullification of the main contract on the ground of fraud, as it had already been
determined that the case should have been brought before the regular courts involving
as it did judicial issues.

13. Del Monte vs CA, GR No 136154

DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR., DANIEL COLLINS


and ​LUIS HIDALGO, ​petitioners,
vs.
COURT OF APPEALS, JUDGE BIENVENIDO L. REYES ​in his capacity as
Presiding Judge, RTC-Br. 74, Malabon, Metro Manila, ​MONTEBUENO
MARKETING, INC., LIONG LIONG C. SY ​and ​SABROSA FOODS, INC.,
respondents.

G.R. No. 136154; February 7, 2001

Facts:

On 1 July 1994, in a Distributorship Agreement, petitioner Del Monte


Corporation-USA (DMC-USA) appointed private respondent Montebueno
Marketing, Inc. (MMI) as the sole and exclusive distributor of its Del Monte
products in the Philippines for a period of five (5) years, renewable for two (2)
consecutive five (5) year periods with the consent of the parties. The agreement
provided, among others, for an arbitration clause which states –

12. ​GOVERNING LAW AND ARBITRATION​4

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This Agreement shall be governed by the laws of the State of California and/or, if
applicable, the United States of America. All disputes arising out of or relating to
this Agreement or the parties' relationship, including the termination thereof, shall
be resolved by arbitration in the City of San Francisco, State of California, under
the Rules of the American Arbitration Association. The arbitration panel shall
consist of three members, one of whom shall be selected by DMC-USA, one of
whom shall be selected by MMI, and third of whom shall be selected by the other
two members and shall have relevant experience in the industry x x x x

In October 1994 the appointment of private respondent MMI as the sole and
exclusive distributor of Del Monte products in the Philippines was published in
several newspapers in the country. Immediately after its appointment, private
respondent MMI appointed Sabrosa Foods, Inc. (SFI), with the approval of
petitioner DMC-USA, as MMI's marketing arm to concentrate on its marketing
and selling function as well as to manage its critical relationship with the trade.

Private respondents MMI, SFI and MMI's Managing Director Liong Liong C. Sy
(LILY SY) filed a Complaint​5 against petitioners DMC-USA, Paul E. Derby, Jr.,​6
Daniel Collins​7 and Luis Hidalgo,​8 and Dewey Ltd.​9​before the Regional Trial
Court of Malabon, Metro Manila. Private respondents predicated their complaint
on the alleged violations by petitioners of Arts. 20,​10 21​11 and 23​12 of the Civil
Code.

According to private respondents, DMC-USA products continued to be brought


into the country by parallel importers despite the appointment of private
respondent MMI as the sole and exclusive distributor of Del Monte products
thereby causing them great embarrassment and substantial damage. They
alleged that the products brought into the country by these importers were aged,
damaged, fake or counterfeit, so that in March 1995 they had to cause, after prior
consultation with Antonio Ongpin, Market Director for Special Markets of Del
Monte Philippines, Inc., the publication of a "warning to the trade" paid
advertisement in leading newspapers. Petitioners DMC-USA and Paul E. Derby,
Jr., apparently upset with the publication, instructed private respondent MMI to
stop coordinating with Antonio Ongpin and to communicate directly instead with
petitioner DMC-USA through Paul E. Derby, Jr.

Private respondents further averred that petitioners knowingly and surreptitiously


continued to deal with the former in bad faith by involving disinterested third
parties and by proposing solutions which were entirely out of their control. Private

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respondents claimed that they had exhausted all possible avenues for an
amicable resolution and settlement of their grievances; and that among other
things, as a result of the fraud, bad faith, malice and wanton attitude of
petitioners, they should be held responsible for all the actual expenses incurred
by private respondents in the delayed shipment of orders.

On 21 October 1996 petitioners filed a ​Motion to Suspend Proceedings​13 invoking


the arbitration clause in their Agreement with private respondents.

On 11 November 1997 the Motion to Suspend Proceedings was denied by the


trial court on the ground that it "will not serve the ends of justice and to allow said
suspension will only delay the determination of the issues, frustrate the quest of
the parties for a judicious determination of their respective claims, and/or deprive
and delay their rights to seek redress."

On appeal, the Court of appeals affirmed the decision of the trial court. It held
that the alleged damaging acts recited in the Complaint, constituting petitioners'
causes of action, required the interpretation of Art. 21 of the Civil Code​16​and that
in determining whether petitioners had violated it "would require a full blown trial"
making arbitration "out of the question."

Issue: ​Whether the dispute between the parties warrants an order compelling
them to submit to arbitration.

Ruling: No.

There is no doubt that arbitration is valid and constitutional in our


jurisdiction.​21 Even before the enactment of RA 876, this Court has
countenanced the settlement of disputes through arbitration. Unless the
agreement is such as absolutely to close the doors of the courts against the
parties, which agreement would be void, the courts will look with favor upon such
amicable arrangement and will only interfere with great reluctance to anticipate or
nullify the action of the arbitrator.​22 Moreover, as RA 876 expressly authorizes
arbitration of domestic disputes, foreign arbitration as a system of settling
commercial disputes was likewise recognized when the Philippines adhered to
the United Nations ​"Convention on the Recognition and the Enforcement of
Foreign Arbitral Awards of 1958" under the 10 May 1965 Resolution No. 71 of the
Philippine Senate, giving reciprocal recognition and allowing enforcement of

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international arbitration agreements between parties of different nationalities


within a contracting state.​23

A careful examination of the instant case shows that the arbitration clause in the
Distributorship Agreement between petitioner DMC-USA and private respondent
MMI is valid and the dispute between the parties is arbitrable. However, this
Court must deny the petition.

The Agreement between petitioner DMC-USA and private respondent MMI


is a contract.​The provision to submit to arbitration any dispute arising therefrom
and the relationship of the parties is part of that contract and is itself a contract.
As a rule, contracts are respected as the law between the contracting
parties and produce effect as between them, their assigns and heirs.

Clearly, only parties to the Agreement, i.e., petitioners DMC-USA and its
Managing Director for Export Sales Paul E. Derby, Jr., and private respondents
MMI and its Managing Director LILY SY are bound by the Agreement and its
arbitration clause, as they are the only signatories thereto. Petitioners Daniel
Collins and Luis Hidalgo, and private respondent SFI, not parties to the
Agreement and cannot even be considered assigns or heirs of the parties, are
not bound by the Agreement and the arbitration clause therein. Consequently,
referral to arbitration in the State of California pursuant to the arbitration clause
and the suspension of the proceedings in Civil Case No. 2637-MN pending the
return of the arbitral award could be called for but only as to petitioners
DMC-USA and Paul E. Derby, Jr., and private respondents MMI and LILY SY,
and not as to the other parties in this case. This is consistent with the recent case
of Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation, which superseded
that of Toyota Motor Philippines Corp. v. Court of Appeals.

In Toyota, the Court ruled that "[t]he contention that the arbitration clause has
become dysfunctional because of the presence of third parties is untenable"
ratiocinating that "[c]ontracts are respected as the law between the contracting
parties" and that "[a]s such, the parties are thereby expected to abide with good
faith in their contractual commitments." However, in Salas, Jr., ​only parties to
the Agreement, their assigns or heirs have the right to arbitrate or could be
compelled to arbitrate.​The Court went further by declaring that in recognizing
the right of the contracting parties to arbitrate or to compel arbitration, the
splitting of the proceedings to arbitration as to some of the parties on one hand
and trial for the others on the other hand, or the suspension of trial pending

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arbitration between some of the parties, should not be allowed as it would, in


effect, result in multiplicity of suits, duplicitous procedure and unnecessary delay.

The object of arbitration is to allow the expeditious determination of a


dispute​. Clearly, the issue before us could not be speedily and efficiently
resolved in its entirety if we allow simultaneous arbitration proceedings and trial,
or suspension of trial pending arbitration. Accordingly, the interest of justice
would only be served if the trial court hears and adjudicates the case in a single
and complete proceeding.

Petitioners’ contention:​Petitioners contend that the subject matter of private


respondents' causes of action arises out of or relates to the Agreement between
petitioners and private respondents. Thus, considering that the arbitration clause
of the Agreement provides that all disputes arising out of or relating to the
Agreement or the parties' relationship, including the termination thereof, shall be
resolved by arbitration, they insist on the suspension of the proceedings in Civil
Case No. 2637-MN as mandated by Sec. 7 of RA 876 –

Sec. 7. Stay of Civil Action. If any suit or proceeding be brought upon an issue
arising out of an agreement providing for arbitration thereof, the court in which
such suit or proceeding is pending, upon being satisfied that the issue involved in
such suit or proceeding is referable to arbitration, shall stay the action or
proceeding until an arbitration has been had in accordance with the terms of the
agreement. Provided, That the applicant for the stay is not in default in
proceeding with such arbitration.

Private respondents contention:​Private respondents claim, on the other hand,


that their causes of action are rooted in Arts. 20, 21 and 23 of the Civil Code, the
determination of which demands a full blown trial, as correctly held by the Court
of Appeals. Moreover, they claim that the issues before the trial court were not
joined so that the Honorable Judge was not given the opportunity to satisfy
himself that the issue involved in the case was referable to arbitration. They
submit that, apparently, petitioners filed a motion to suspend proceedings instead
of sending a written demand to private respondents to arbitrate because
petitioners were not sure whether the case could be a subject of arbitration. They
maintain that had petitioners done so and private respondents failed to answer
the demand, petitioners could have filed with the trial court their demand for

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arbitration that would warrant a determination by the judge whether to refer the
case to arbitration. Accordingly, private respondents assert that arbitration is out
of the question.

14. Sea-Land vs CA, GR No 126212

SEA-LAND SERVICE, INC​., petitioner, vs ​. COURT OF APPEALS, A.P.


MOLLER/MAERSK LINE and MAERSK-TABACALERA SHIPPING
AGENCY (FILIPINAS), IN​C., respondents.

FACTS:

Petitioner Sea-Land Services, Inc. and private respondent A.P. Moller/Maersk


Line (hereinafter referred to as "AMML") are carriers of cargo in containerships
as well as common carriers. They entered into a contract entitled​, "Co-operation
in the Pacific", a ​vessel sharing agreement whereby they mutually agreed to
purchase, share and exchange needed space for cargo in their respective
containerships. Under the Agreement, they could be, either a principal carrier
(with a negotiable bill of lading or other contract of carriage with respect to cargo)
or a containership operator (owner, operator or charterer of containership on
which the cargo is carried).

Florex International, Inc. delivered to AMML cargo of various foodstuffs, with


Oakland, California as port of discharge and San Francisco as place of delivery.
A bill of lading was consequently issued to Florex. Pursuant to the Agreement,
AMML loaded the cargo on a vessel owned by Sea-Land. Therefore, in this
particular transaction, AMML was the principal carrier and Sea-Land was the
containership operator.

The consignee (di sinabi kung sino) refused to pay for the cargo, alleging that
delivery thereof was delayed. According to Florex, the cargo was received by the
consignee only on June 28, 1991 in Long Beach, California, instead of in
Oakland, California on June 5, 1991 as stipulated.

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AMML filed its Answer alleging that even on the assumption that Florex was
entitled to reimbursement, it was petitioner who should be liable. Accordingly,
AMML filed a Third Party Complaint against petitioner averring that whatever
damages sustained by Florex were caused by petitioner, which actually received
and transported Florex's cargo on its vessels and unloaded them.

Petitioner filed a Motion to Dismiss the Third Party Complaint on the ground of
failure to state a cause of action and lack of jurisdiction, the amount of
damages not having been specified therein. Petitioner also prayed either for
dismissal or suspension of the Third Party Complaint on the ground that there
exists an arbitration agreement between it and AMML. ​Motion to Dismiss
denied. MR denied.

On appeal, petitioner filed a Petition for certiorari. ​PC denied by CA. Hence this
present petition.

ISSUE: WON an arbitration is a condition precedent to suit where such an


agreement to arbitrate exist.

HELD:
From the agreement of the parties, the following matters are clear:
First​, disputes between the Principal Carrier and the Containership Operator
arising from contracts of carriage shall be governed by the provisions of the bills
of lading issued to the Principal Carrier by the Containership Operator.
Second​, the Principal Carrier shall use its best efforts to defend or settle all suits
against it for loss of or damage to cargo pursuant to bills of lading issued by it.
Third​, the Principal Carrier shall have the right to seek damages and/or
indemnity from the Containership Operator by arbitration, pursuant to Clause 32
of the agreement.
Fourth​, the Principal Carrier shall have the right to commence such arbitration
any time until one year after its liability has been finally determined by
agreement, arbitration award or judgment, provided that the Containership
Operator was given notice in writing by the Principal Carrier within three months
of the Principal Carrier receiving notice in writing of said claim.

The Court of Appeals ruled that the terms of the Agreement "explicitly required
that the principal carrier's claim against the containership operator first be finally
determined by, among others, a court judgment, before the right to arbitration

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accrues." This is erroneous. In the light of the Agreement clauses, specifically


Clause 16. 3, it is clear that arbitration is the mode provided by which AMML as
Principal Carrier can seek damages and/or indemnity from petitioner, as
Containership Operator. Stated differently, AMML is barred from taking judicial
action against petitioner by the clear terms of their Agreement.

When the text of a contract is explicit and leaves no doubt as to its intention,
the court may not read into it any other intention that would contradict its plain
import. Arbitration being the mode of settlement between the parties expressly
provided for by their Agreement, the Third Party Complaint should have been
dismissed.

This Court has previously held that arbitration is one of the alternative methods of
dispute resolution that is now rightfully vaunted as "the wave of the future" in
international relations, and is recognized worldwide. To brush aside a contractual
agreement calling for arbitration in case of disagreement between the parties
would therefore be a step backward.

WHEREFORE​, premises considered, the instant ​Petition for Review on


Certiorari is ​GRANTED​. The decision of the Court of Appeals in CA-G.R. SP
No. 35777 is REVERSED and SET ASIDE. The Regional Trial Court of Quezon
City, Branch 77, is ordered to DISMISS Respondent AMML's Third Party
Complaint in Civil Case No. Q-92-12593. No pronouncement as to costs.

15. Magellan Capital Management Corp. v. Zosa


GR No. 129916; March 26, 2001
Buena, J.

FACTS:
Under a management agreement, Magellan Capital Holdings Corporation
(MCHC) appointed Magellan Capital Management Corporation (MCMC) as
manager of its business and affairs. Pursuant thereto, MCHC, MCMC, and
private respondent Rolando Zosa entered into an "Employment Agreement"
designating Zosa as President and CEO of MCHC. Under the Employment
Agreement, the term of Zosa's employment shall be co-terminous with the
management agreement, unless sooner terminated.

After some time, the MCHC's Board of Directors decided not to re-elect

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Zosa on account of loss of trust and confidence arising from alleged


violation of resolution of Board of Directors and of non-competition clause of
Employment Agreement. Nevertheless, Zosa was elected as MCHC's Vice
Chairman/Chairman for New Ventures Development.

Zosa resigned on the ground that said position had less responsibility and
scope than President and CEO. He demanded that he be given
termination benefits. MCHC did not accept Zosa's resignation, but instead,
informed him that the Employment Agreement is terminated for cause. He
was further advised that he shall have no further rights under the said
Agreement or any claims against the Manager or the Corporation except
the right to receive benefits. Disagreeing, Zosa invoked the arbitration clause
of the Employment Agreement. Nonetheless, he still filed an action for
damages against petitioners MCHC and MCMC before the RTC assailing the
validity and legality of the arbitration clause, among others.

Respondent Zosa contended that the composition of the panel of arbitrators


sought under the arbitration clause of the Employment Agreement is unfair on his
part. Under the arbitration clause, "[a]rbitration shall be effected by a panel of
three arbitrators. The Manager, Employee, and Corporation shall designate
one (1) arbitrator [...]."

Petitioners filed a motion to dismiss, arguing that the trial court has no
jurisdiction over the instant case since respondent Zosa's claims should be
resolved through arbitration. They further argued that in view of the fact that
there are three parties to the employment agreement, it is but proper that
each party be represented in the arbitration panel.

RTC favored respondent Zosa. Upon appeal, the CA gave due course to the
petition of MCHC and MCMC, but nonetheless directed the RTC to resolve the
issue on the validity or effectivity of the arbitration clause in the
Employment Agreement. Judgment is hereby rendered by RTC partially
declaring the arbitration clause of the Employment Agreement void and of
no effect, only insofar as it concerns the composition of the panel of
arbitrators, and directing the parties to proceed to arbitration in accordance
with the Employment Agreement under the panel of three (3) arbitrators,
one for the plaintiff, one for the defendants, and the third to be chosen by
both the plaintiff and defendants.

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Hence, this petition.

ISSUES:
1.) WON the composition of the panel of arbitrators sought under the arbitration
clause rendered the same void and ineffectual

2.) WON Zosa is estopped from questioning the validity of the arbitration clause

RULING:
1.) YES. SC held that the petitioners MCMC and MCHC represent the same
interest. Both petitioners are entirely two different corporations. Also, a
corporation has a personality distinct and separate from its representative(s).
However, as the petitioners represent the same interest, it could never be
expected, in the arbitration proceedings, that they would not protect and
preserve their own interest, much less, would both or either favor the
interest of the Zosa.

Accordingly, the arbitration clause, insofar as the composition of the panel


of arbitrators is concerned should be declared void and of no effect,
because the law says, "[a]ny clause giving one of the parties power to
choose more arbitrators than the other is void and of no effect" (Article
2045, Civil Code).

The arbitration law, as all other laws, is intended for the good and welfare
of everybody. Any arrangement or scheme that would give undue
advantage to a party in the negotiating table is anathema to the very
purpose of arbitration and should, therefore, be resisted.

2.) NO. Firstly, well-settled is the rule that issues not raised below cannot be
resolved on review in higher courts. Secondly, employment agreements
such as the one at bar are usually contracts of adhesion. Any ambiguity
in its provisions is generally resolved against the party who drafted the
document. And, finally, respondent Zosa never submitted himself to
arbitration proceedings (as there was none yet) before bewailing the
composition of the panel of arbitrators. He lost no time in assailing the
"arbitration clause" upon realizing the inequities that may mar the
arbitration proceedings if the existing line-up of arbitrators remained
unchecked.

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WHEREFORE, petition is dismissed and decision of the trial court is


affirmed.

16. Del Monte Corporation-USA vs Court of Appeals, GR No 136154

17. Cargill vs San Fernando Regala, GR No 175404

Note: Doctrine of Separability

FACTS:

Respondent San Fernando Regala Trading filed with the RTC of Makati City a
Complaint for Rescission of Contract with Damages against petitioner Cargill. It alleged
that it agreed that it would purchase from Cargill 12,000 metric tons of Thailand origin
cane blackstrap molasses and that the payment would be by an Irrevocable Letter of
Credit payable at sight.

The parties agreed that the delivery would be made in April/May. Cargill failed to comply
with its obligations despite demands from respondent. The respondent then filed for
rescission of the contract.

The petitioner filed a Motion to Dismiss/Suspend proceeding, arguing that they must
first resort to arbitration as stated in their agreement before going to court:

"​Any dispute which the Buyer and Seller may not be able to settle by
mutual agreement shall be settled by arbitration in the City of New York
before the American Arbitration Association. The Arbitration Award shall
be final and binding on both parties​."

The RTC ruled in favor of the respondent. The CA affirmed the RTC decision, adding
that the case cannot be brought under the Arbitration Law for the purpose of
suspending the proceedings before the RTC, since in its Motion to Dismiss/Suspend
proceedings, petitioner alleged, as one of the grounds thereof, that the subject contract
between the parties did not exist or it was invalid; that the said contract bearing the
arbitration clause was never consummated by the parties, thus, it was proper that such

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issue be first resolved by the court through an appropriate trial; that the issue involved a
question of fact that the RTC should first resolve.

ISSUE:

WON this case cannot be brought under the arbitration law for the purpose of
suspending the proceedings in the RTC.

HELD:

The petition is meritorious. Arbitration, as an alternative mode of settling disputes, has


long been recognized and accepted in our jurisdiction. R.A. No. 876 authorizes
arbitration of domestic disputes. Foreign arbitration, as a system of settling commercial
disputes of an international character, is likewise recognized. The enactment of R.A.
No.9285 on April 2, 2004 further institutionalized the use of alternative dispute
resolution systems, including arbitration, in the settlement of disputes.

A contract is required for arbitration to take place and to be binding. Submission to


arbitration is a contract and a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a contract. The provision to submit
to arbitration any dispute arising therefrom and the relationship of the parties is part of
the contract and is itself a contract. The validity of the contract containing the agreement
to submit to arbitration does not affect the applicability of the arbitration clause itself. A
contrary ruling would suggest that a party's mere repudiation of the main contract is
sufficient to avoid arbitration. That is exactly the situation that the separability doctrine,
as well as jurisprudence applying it, seeks to avoid.

San Fernando Regala Trading filed a complaint for rescission of contract and damages
with the trial court. In so doing, it alleged that a contract existed. It was that contract
which provided for an arbitration clause which expressed the parties' intention that any
dispute to arise between them, as buyer and seller, should be referred to arbitration. It is
for the arbitrator and not the court to decide whether a contract between the parties
exists or is valid. Under the circumstances, the argument that rescission is judicial in
nature is misplaced.

18. RCBC vs BDO, GR No 196171

FACTS:

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On May 2000, RCBC entered into a Share Purchase Agreement with Equitable PCI
Bank (now BDO), George Go and individual shareholders of Bankard for the sale to
RCBC of shares amounting to P1.7 Billion. RCBC rightfully paid. 3 years later, however,
a dispute between the parties arose. RCBC claims that there was an overstatement of
the valuation of accounts leading to their overpayment. No settlement was reached and
the dispute was brought to arbitration pursuant to the agreement of the Parties.

After the Arbitration Tribunal was constituted, the parties were instructed to pay equal
share of advance costs of the arbitration amounting to $350,000. The RCBC paid their
share but the respondent filed a request to fix separate advances on the basis of the
amount of their counterclaim. They alleged that to require them to pay equal share
despite their counterclaim being 40 times lower than that of the RCBC is unfair.

Because the respondent refused to pay in equal shares and in order to avoid the
suspension of the proceeding, RCBC assumed the payment of BDOs share. RCBC
then reiterated its plea that BDO be declared in default. In response to their plea,
Chairman of the Tribunal wrote a letter asking RCBC to confirm that it is their plea that
the Tribunal issue a partial award against the respondent in respect to their failure to
pay the share in the costs. The Chairman further advice that the parties refer to an
article published in the ICC regarding a party’s failure to pay their share in the cost. This
letter was protested by BDO claiming that it shows evident partiality on the part of the
members of the Tribunal. Nevertheless, the Tribunal released a final ruling against the
respondent and ordering the latter to pay sums of money.

BDO then filed a petition to vacate the final award on the ground of evident partiality.
The RTC ruled against the respondent and affirmed the Final Arbitral Award. The
respondent appealed to the CA and the latter reversed the decision of the RTC with
respect to evident partiality, ruling that the actuations of the Chairman of the Arbitration
shows evident partiality. RCBC then filed this case.

ISSUE: ​Whether there is a legal ground to vacate the award on the ground of evident
partiality?

HELD:

The Court affirms the ruling of the CA.

Under Rule 11.4 of the Special ADR Rules, the Arbitral Award may be vacated on the
ground that there was evident partiality or corruption in the Arbitral Tribunal or any of its

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members. Under our Arbitration Lawn, evident partiality is not defined, but review of
decisions of the Supreme Court of the United States showed that there is partiality when
there is a manifest bias towards a particular party. Thus, the Court adopts the
“reasonable impression of partiality standard” which requires a showing that a
reasonable person would have concluded that an arbitrator was partial to the other party
to the arbitration. Such interest or bias must be direct, definite, and capable of
demonstration rather than remote, uncertain, or speculative.

Applying the foregoing standards, the SC found evident partiality over several acts of
the Chairman of the Tribunal particularly the act of furnishing the parties with copies of
the article regarding the remedies for non payment of the cost, which shows a strong
indication that such grant of RCBC will be affirmed. By furnishing the parties with copies
of the article, the Chairman practically armed RCBC with supporting legal argument
under the contractual approach which true enough, was adopted by RCBC. furthermore,
that the Chairman is predisposed to grant RCBC’s relief was shown by his act of
interpreting letter, which merely reiterated its plea to declare respondents in default as
an application to the Tribunal to issue partial award in respect of BDO’s failure to pay its
advance costs.

The Court

19. BF Corp vs Court of Appeals, GR No 120105

FACTS
Petitioner and Shangri-la Properties SPI entered into an agreement whereby SPI
engaged the petitioner to construct the main structure of the EDS Plaza Project, a
shopping mall complex in Mandaluyong. The construction work was in progress when
SPI decided to expand the project by engaging the services of petitioner again. They
entered into an agreement for the main contract works after which construction work
began.

Delay was incurred by the petitioner in the construction work that SPI considered as
“serious and substantial. On the other hand, according to petitioner, the construction
works progressed in faithful compliance with the First Agreement until a fire broke out
damaging Phase 1 of the project. SPI proposed the re-negotiation of the agreement
between them.

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The parties entered into an agreement, however petitioner failed to complete the
construction works and abandoned the project. This resulted in disagreements between
the parties as regards their respective liabilities under the contract. The parties’
representatives met in a conference but they failed to come to an agreement. After 2
days, petitioner field with the RTC of Pasig a complaint for collection of the balance due
under the construction agreement. Later on, SPI and its co-defendants field a motion to
suspend proceedings instead of filing an answer. The motion was anchored on
defendants’ allegation that the formal trade contract for the construct of the project
provided for a clause requiring prior resort to arbitration before judicial intervention could
be invoked in any dispute arising from the contract. The following day, SPI submitted a
copy of the conditions of the contract containing the arbitration clause that it failed to
append to its motion to suspend proceedings.

Petitioner on the other hand, opposed said motion since there was no formal contract
between the parties although they entered into an agreement defining their rights and
obligations undertaking the project. It emphasized that the agreement did not provide for
arbitration and therefore the court could not be deprived of jurisdiction conferred by ht
law by the mere allegation of the existence of an arbitration clause in the agreement
between the parties.The court sustained the Court of Appeals decision against
petitioner, BF Corporation.

ISSUE: WON the contract for the construction of the EDSA Plaza between petitioner BF
Corporation and respondent Shangri-la Properties, Inc. embodies an arbitration clause
in case of disagreement... between the parties in the implementation of contractual
provisions.

HELD:
Petitioner denies the existence of the arbitration clause primarily on the ground that the
representatives of the contracting corporations did not sign the "Conditions of Contract"
that contained the said clause. Its other contentions, specifically that... insinuating fraud
as regards the alleged insertion of the arbitration clause, are questions of fact that
should have been threshed out below.

This Court may as well proceed to determine whether the arbitration clause does exist
in the parties' contract. Republic Act No. 876 provides for the formal requisites of an
arbitration agreement as follows:

"Section 4. Form of arbitration agreement. A contract to arbitrate a controversy


thereafter arising between the parties, as well as a submission to arbitrate an existing

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controversy, shall be in writing and subscribed by the party sought to be ... charged, or
by his lawful agent.

The making of a contract or submission for arbitration described in section two hereof,
providing for arbitration of any controversy, shall be deemed a consent of the parties of
the province or city where any of the parties resides, to enforce such contract of...
submission.”

The formal requirements of an agreement to arbitrate are therefore the following: (a) it
must be in writing and (b) it must be subscribed by the parties or their representatives.
There is no denying that the parties entered into a written contract that was submitted
in... evidence before the lower court. To "subscribe" means to write underneath, as
one's name; to sign at the end of a document.That word may sometimes be construed
to mean to give consent to or to... attes

The Court finds that, upon a scrutiny of the records of this case, these requisites were
complied with in the contract in question. The Articles of Agreement, which incorporates
all the other contracts and agreements between the parties, was signed by
representatives of... both parties and duly notarized. The failure of the private
respondent's representative to initial the `Conditions of Contract' would therefor not
affect compliance with the formal requirements for arbitration agreements because that
particular portion of the covenants between... the parties was included by reference in
the Articles of Agreement.

Petitioner's contention that there was no arbitration clause because the contract
incorporating said provision is part of a "hodge-podge" document, is therefore
untenable. A contract need not be contained in a single writing. It may be collected from
several different... writings which do not conflict with each other and which, when
connected, show the parties, subject matter, terms and consideration, as in contracts
entered into by correspondence.[13] A contract may be encompassed in... several
instruments even though every instrument is not signed by the parties, since it is
sufficient if the unsigned instruments are clearly identified or referred to and made part
of the signed instrument or instruments. Similarly, a written agreement of which there
are two... copies, one signed by each of the parties, is binding on both to the same
extent as though there had been only one copy of the agreement and both had signed
it.

This Court likewise does not find that the Court of Appeals erred in ruling that private
respondents were not in default in invoking the provisions of the arbitration clause which

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states that "(t)he demand for arbitration shall be made within a reasonable time after
the... dispute has arisen and attempts to settle amicably had failed." Under the factual
milieu, private respondent SPI should have paid its liabilities under the contract in
accordance with its terms. However, misunderstandings appeared to have cropped up
between the parties... ostensibly brought about by either delay in the completion of the
construction work or by force majeure or the fire that partially gutted the project. The
almost two-year delay in paying its liabilities may not therefore be wholly ascribed to
private respondent SPI.

Besides, private respondent SPI's initiative in calling for a conference between the
parties was a step towards the agreed resort to arbitration. However, petitioner
posthaste filed the complaint before the lower court. Thus, while private respondent
SPI's request for... arbitration on August 13, 1993 might appear an afterthought as it
was made after it had filed the motion to suspend proceedings, it was because
petitioner also appeared to act hastily in order to resolve the controversy through the
courts.

The arbitration clause provides for a "reasonable time" within which the parties may
avail of the relief under that clause. "Reasonableness" is a relative term and the
question of whether the time within which an act has to be done is reasonable depends
on attendant circumstances This Court finds that under the circumstances obtaining in
this case, a one-month period from the time the parties held a conference on July 12,
1993 until private respondent SPI notified petitioner that it was invoking the arbitration
clause, is a reasonable time. Indeed, petitioner may not be faulted for resorting to the
court to claim what was due it under the contract. However, we find its denial of the
existence of the arbitration clause as an attempt to cover up its misstep in hurriedly filing
the complaint before the lower court.

In this connection, it bears stressing that the lower court has not lost its jurisdiction over
the case. Section 7 of Republic Act No. 876 provides that proceedings therein have only
been stayed. After the special proceeding of arbitration has been pursued and
completed, then the lower court may confirm the award made by the arbitrator.

It should be noted that in this jurisdiction, arbitration has been held valid and
constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876, this
Court has countenanced the settlement of disputes through arbitration. Republic Act No.
876 was adopted to supplement the New Civil Code's provisions on arbitration. Its
potentials as one of the alternative dispute resolution methods that are now rightfully
vaunted as "the wave of the future" in international relations, is recognized worldwide.

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To brush aside a contractual agreement calling for arbitration in case of disagreement


between the parties would therefore be a step backward.

20. Steamship vs Sulpicio Lines, GR No 196072

Doctrine:

An insured member may be compelled to arbitration pursuant to the Rules of the


Protection and Indemnity Club, which were incorporated in the insurance policy by
reference. Where there are multiple parties, the court must refer to arbitration by the
parties covered by the agreement while proceeding with the civil action against those
who were not bound by the arbitration agreement.

FACTS:

Steamship was a Bermuda-based Protection and Indemnity Club. It insures it


members-shipowners against “third party risks and liabilities” for claims arising from (a)
death or injury to passengers; (b) loss or damage to cargoes; and (c) loss or damage
from collisions.

Sulpicio insured its fleet of inter-island vessels with Steamship for Protection and
Indemnity risks through local insurance agents, Pioneer Insurance and Surety
Corporation (Pioneer Insurance) or Seaboard-Eastern Insurance Co. Inc.,
(Seaboard-Eastern) among which was the M/V Princess of the World which was gutted
by fire while on voyage from Ilolilo to Zamboanga City, resulting in total loss of its
cargoes. The fire incident was found by the DILG to be “accidental” in nature.

Sulpicion claimed indemnity from Steamship under the Protection & Indemnity
insurance policy but the latter denied the claim and subsequently rescinded the
insurance coverage of Sulpicio’s other vessels on the ground that “Sulpicio was grossly
negligent in conducting its business regarding safety, maintaining the seaworthiness of
its vessels as well as propert training of its crew.”

Sulpicio filed a Complaint with the RTC of Makati City against Steamship; one (1) of its
directors, Gary Rynsard; and its local insurance agents Pioneer Insurance and
Seaboard-Eastern for specific performance and damages. Steamship filed its Motion to
Dismiss and/or Refer Case to Arbitration pursuant to Republic Act No. 9285 or the
Alternative Dispute Resolution Act of 2004 (ADR Law), and to Rule 47 of the 2005/2006

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Club Rules, which supposedly provided for arbitration in London of disputes between
Steamship and its members.

The RTC denied Steamship’s Motion to Dismiss holding that “arbitration [did] not appear
to be the most prudent action,... considering that the other defendants.. Ha[d] already
filed their [respective] [a]nswers.” The Court of Appeals affirmed the RTC decision.

ISSUE: Whether there is a valid and binding arbitration agreement between Steamship
and Sulpicio

RULING:

YES. The contract between Sulpicio and Steamship is more than a contract of
insurance between a marine insurer and a shipowner. By entering its vessels in
Steamship, Sulpicio not only obtains insurance coverage for its vessels but also
becomes a member of Steamship. A protection and indemnity club, like Steamship, is
an association composed of shipowners generally formed for the specific purpose of
providing insurance cover against third-party liabilities of its members.

Thus, a contract of insurance is perfected between the parties upon Steamship's


issuance of the Certificate of Entry and Acceptance.Title VI, Section 49 of Presidential
Decree No. 612 or the Insurance Code defines an insurance policy as "the written
instrument in which a contract of insurance is set forth." Section 50 of this Code
provides that the policy, which is required to be in
printed form, "may contain blank spaces; and any word, phrase, clause, mark, sign,
symbol, signature, number, or word necessary to complete the contract of insurance
shall be written on the blank spaces." Any rider, clause, warranty, or endorsement
attached and referred to in the policy by its descriptive title or name is considered part of
this policy or contract of insurance and binds the insured.Section 51 of the Insurance
Code prescribes the information that must be stated in the policy, namely: the parties in
the insurance contract, amount insured, premium, property or life insured, risks insured
against, and period of insurance. However, there is nothing in the law that prohibits the
parties from agreeing to other terms and conditions that would govern their relationship,
in which case the general rules of theCivil Code regulating contracts will apply.

The Club Rules contain the terms and conditions of the relationship between the
Steamship and its members including the scope, nature, and extent of insurance
coverage of its members' vessels. The arbitration clause is found in Rule 47 of the
2005/2006 Club Rules. Under Rule 47, any dispute concerning the insurance afforded

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by Steamship must first be brought by a claiming member to the Directors for


adjudication. If this member disagrees with the decision of the Director, the dispute must
be referred to arbitration in London. Despite the member's disagreement, the Managers
of Steamship may refer the dispute to arbitration without adjudication of the Directors.
This procedure must be complied with before the member can pursue legal proceedings
against Steamship. There is no ambiguity in the terms and clauses of the Certificate of
Entry Acceptance. Contrary to the ruling of the Court of Appeals, the Certificate clearly
incorporates the entire Club Rules — not only those provisions relating to cancellation
and alteration of the policy

21. Cargill vs Regala, GR No 175404

22. PEZA vs Bataan, GR No 179537

Petitioner Philippine Economic Zone Authority (PEZA) and Edison (Bataan)


Cogeneration Corporation (respondent) entered into a Power Supply and Purchase
Agreement (PSPA or agreement) for a 10-year period effective October 25, 1997
whereby respondent undertook to construct, operate, and maintain a power plant which
would sell, supply and deliver electricity to PEZA for resale to business locators in the
Bataan Economic Processing Zone.

In the course of the discharge of its obligation, respondent requested from PEZA a tariff
increase with a mechanism for adjustment of the cost of fuel and lubricating oil.

PEZA did not respond to both requests, however, drawing respondent to write PEZA on
May 3, 2004. Citing a tariff increase which PEZA granted to the East Asia Utilities
Corporation (EAUC), another supplier of electricity in the Mactan Economic Zone,
respondent informed PEZA of a violation of its obligation under Clause 4.9 of the PSPA
not to give preferential treatment to other power suppliers.

After the lapse of 90 days, respondent terminated the PSPA, invoking its right
thereunder, and demanded ₱708,691,543.00 as pre-termination fee. PEZA disputed
respondent’s right to terminate the agreement and refused to pay the pre-termination
fee, prompting respondent to request PEZA to submit the dispute to arbitration pursuant
to the arbitration clause of the PSPA.

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Petitioner refused to submit to arbitration, however, prompting respondent to file a


Complaint[1] against PEZA for specific performance before the Regional Trial Court
(RTC) of Pasay.

Petitioner submits that the plaintiffs Request for Arbitration dated October 20, 2004 is
not an arbitrable issue, considering that the provision on pre-termination fee in the
Power Sales and Purchase Agreement (PSPA), is gravely onerous, unconscionable,
greatly disadvantageous to the government, against public policy and therefore invalid
and unenforceable.

ISSUE: WHETHER OR NOT RESPONDENTS REQUEST FOR ARBITRATION


DESPITE THE FACT THAT THE ISSUE PRESENTED BY THE RESPONDENT IS
NOT AN ARBITRABLE ISSUE

HELD:

The petition fails.

The dispute raised by respondent calls for a proceeding under Section 6 of Republic Act
No. 876, "An Act to Authorize the Making of Arbitration and Submission Agreements, to
Provide for the Appointment of Arbitrators and the Procedure for Arbitration in Civil
Controversies, and for Other Purposes" which reads:

SECTION 6. Hearing by court. — A party aggrieved by the failure, neglect or refusal of


another to perform under an agreement in writing providing for arbitration may petition
the court for an order directing that such arbitration proceed in the manner provided for
in such agreement. Five days notice in writing of the hearing of such application shall be
served either personally or by registered mail upon the party in default. The court shall
hear the parties, and upon being satisfied that the making of the agreement or such
failure to comply therewith is not in issue, shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the agreement. If the making of
the agreement or default be in issue the court shall proceed to summarily hear such
issue. If the finding be that no agreement in writing providing for arbitration was made,
or that there is no default in the proceeding thereunder, the proceeding shall be
dismissed. If the finding be that a written provision for arbitration was made and there is
a default in proceeding thereunder, an order shall be made summarily directing the
parties to proceed with the arbitration in accordance with the terms thereof.

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x x x x (Underscoring supplied)

R.A. No. 876 "explicitly confines the court’s authority only to the determination of
whether or not there is an agreement in writing providing for arbitration."15 Given
petitioner’s admission of the material allegations of respondent’s complaint including the
existence of a written agreement to resolve disputes through arbitration, the assailed
appellate court’s affirmance of the trial court’s grant of respondent’s Motion for
Judgment on the Pleadings is in order.

The doctrine of separability, or severability as other writers call it, enunciates that an
arbitration agreement is independent of the main contract. The arbitration agreement is
to be treated as a separate agreement and the arbitration agreement does not
automatically terminate when the contract of which it is a part comes to an end.

The separability of the arbitration agreement is especially significant to the


determination of whether the invalidity of the main contract also nullifies the arbitration
clause. Indeed, the doctrine denotes that the invalidity of the main contract, also
referred to as the "container" contract, does not affect the validity of the arbitration
agreement. Irrespective of the fact that the main contract is invalid, the arbitration
clause/agreement still remains valid and enforceable.16 (Emphasis in the original;
underscoring supplied)

Petitioner nevertheless contends that the legality of the pre-termination fee clause is not
arbitrable, citing Gonzales v. Climax Mining Ltd. 17 which declared that the therein
complaint should be brought before the regular courts, and not before an arbitral
tribunal, as it involved a judicial issue. Held the Court:

We agree that the case should not be brought under the ambit of the Arbitration Law
xxx. The question of validity of the contract containing the agreement to submit to
arbitration will affect the applicability of the arbitration clause itself. A party cannot rely
on the contract and claim rights or obligations under it and at the same time impugn its
existence or validity. Indeed, litigants are enjoined from taking inconsistent positions. As
previously discussed, the complaint should have been filed before the regular courts as
it involved issues which are judicial in nature.

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In fine, the issues raised by respondent are subject to arbitration in accordance with the
arbitration clause in the parties agreement. WHEREFORE, the petition is DENIED. SO
ORDERED

23. Benguet vs DENR, GR No 163101


FACTS

Benguet Corporation (“Benguet”) and J.G. Realty and Mining (“J.G. Realty”) entered
into a Royalty Agreement with Option to Purchase (“RAWOP”), wherein J.G. Realty was
acknowledged as the owner of four mining claims covered by Mineral Production
Sharing Agreement (“MPSA”) Application No. APSA-V-0009 jointly filed by J.G. Realty
as claimowner and Benguet as operator. The RAWOP, among others, provide that “any
disputes x x x between Benguet and [J.G. Realty] with reference to anything whatsoever
pertaining to [the RAWOP] x x x shall not be cause of any action x x x in any court or
administrative agency but shall x x x be referred to a Board of Arbitrators consisting of
three (3) members, one to be selected by Benguet, another to be selected by [J.G.
Realty] and the third to be selected by the aforementioned two arbitrators so appointed.”

J.G. Realty subsequently informed Benguet that it was terminating the RAWOP by
reason of Benguet’s failure to comply with its obligations thereunder. J.G. Realty
sought the cancellation of the RAWOP, filing a petition for this purpose with the Panel of
Arbitrators (“POA”) having territorial jurisdiction over the mining area involved. In its
Decision, the POA declared the RAWOP cancelled. Benguet then filed a notice of
appeal with the MAB. The decision was affirmed on appeal to the Mines Adjudication
Board (“MAB”).

Benguet contended that the issue raised by the J.G. Realty should have been raised
first with the arbitration before POA took cognizance of the case.

ISSUE

WON the controversy should have first been submitted to arbitration before the POA

HELD

YES. Sec. 2 of RA 876 elucidates the scope of arbitration:

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Section 2. Persons and matters subject to arbitration.Two or more persons or parties


may submit to the arbitration of one or more arbitrators any controversy existing
between them at the time of the submission and which may be the subject of an action,
or the parties to any contract may in such contract agree to settle by arbitration a
controversy thereafter arising between them. Such submission or contract shall be valid,
enforceable and irrevocable, save upon such grounds as exist at law for the revocation
of any contract.

In RA 9285 or the Alternative Dispute Resolution Act of 2004, the Congress reiterated
the efficacy of arbitration as an alternative mode of dispute resolution by stating in Sec.
32 thereof that domestic arbitration shall still be governed by RA 876. Clearly, a
contractual stipulation that requires prior resort to voluntary arbitration before the parties
can go directly to court is not illegal and is in fact promoted by the State.

Moreover, the contention that RA 7942 prevails over RA 876 presupposes a conflict
between the two laws. Such is not the case here. To reiterate, availment of voluntary
arbitration before resort is made to the courts or quasi-judicial agencies of the
government is a valid contractual stipulation that must be adhered to by the parties. As
stated in Secs. 6 and 7 of RA 876:

Section 6. Hearing by court.​​––A party aggrieved by the failure, neglect or refusal of


another to perform under an agreement in writing providing for arbitration may petition
the court for an order directing that such arbitration proceed in the manner provided for
in such agreement. XXX
If the finding be that a written provision for arbitration was made and there is a default in
proceeding thereunder, an order shall be made summarily directing the parties to
proceed with the arbitration in accordance with the terms thereof.

xxxx

Section 7. Stay of civil action.––If any suit or proceeding be brought upon an issue
arising out of an agreement providing for the arbitration thereof, the court in which such
suit or proceeding is pending, upon being satisfied that the issue involved in such suit or
proceeding is referable to arbitration, shall stay the action or proceeding until an
arbitration has been had in accordance with the terms of the agreement: Provided, That
the applicant, for the stay is not in default in proceeding with such arbitration. (Emphasis
supplied.)

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In other words, in the event a case that should properly be the subject of voluntary
arbitration is erroneously filed with the courts or quasi-judicial agencies, on motion of
the defendant, the court or quasi-judicial agency shall determine whether such
contractual provision for arbitration is sufficient and effective. If in affirmative, the court
or quasi-judicial agency shall then order the enforcement of said provision.
Besides, in BF Corporation v. Court of Appeals, we already ruled:

In this connection, it bears stressing that the lower court has not lost its jurisdiction over
the case. Section 7 of Republic Act No. 876 provides that proceedings therein have only
been stayed. After the special proceeding of arbitration has been pursued and
completed, then the lower court may confirm the award made by the arbitrator.

24. Bengson vs Chan, GR No L-27283

25. GI vs Union, GR No L-30475

FACTS: The Union Insurance Society of Canton, Ltd, and the British Traders’ Insurance
Co., Ltd. are insurance corporations organized and existing under the laws of Great
Britain and licensed to do business in the Philippines with head offices in Hong Kong
and branch offices at Hong Kong Bank Building, no. 117 Juan Luna Street, Manila. The
other petitioners are also engaged in insurance business and are mere subsidiaries of
the Union Insurance Society of Canton, Ltd. of Hong Kong.

In Civil Case No. 68558, the petitioners (Private Respondents herein) and the
respondent (petitioner herein) General Insurance entered into a First Surplus
Reinsurance Agreement which was executed by petitioners in London, and by the
respondent in Manila. Both parties agreed on reciprocal reinsurance expressed and
payable in pounds sterling between the parties commencing on Jan. 1, 1959, and
terminating on Dec. 31, 1961. In the said reinsurance agreement, the parties expressly
agreed to settle by arbitration all their differences of whatever nature or controversy
arising out of the contract. The reinsurance agreement was terminated, on which date
the petitioners claim that there was due from the respondent under the treaties
negotiated between them the sum of pounds 4,784.51 which should respondent should
pay to the petitioner in pounds sterling.

In Civil Case No. 68559, the petitioners and the respondent entered into a Retrocession
Quota Share Fire Pool Agreement executed by the petitioner in London and by the
respondent in Manila. In said agreement the parties agree on reciprocal reinsurance

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arrangements expressed and payable in pounds sterling which would commence on


Jan. 1, 1960 to Dec. 31, 1961. The retrocession agreement was terminated, and on the
said date the petitioners claim that there was due from the respondent under the
treaties negotiated between them the sum of pounds 1,035.27.

However, in both civil cases, petitioner requested for the payment either in pounds
sterling or in Philippine pesos at the exchange rate prevailing on the date of payment,
respondent refused to pay in pounds sterling and insisted that it should be paid in
Philippine Pesos at the old official exchange rate of P2.015 to $1.00. With that,
petitioner made a written forman demand upon respondent to proceed with the
arbitration of their controversy in the manner provided for in the reinsurance agreement,
which demand was received by the respondent. In the said communication, the
petitioners informed the respondent that they had appointed Mr. T.B. Turvey of Victory
Insurance Co., Ltd. as arbitrator in their behalf and requested respondent to name its
own arbitrator. The respondent, however, refused to proceed with the arbitration,
contending that there was no controversy or dispute existing between the parties.

After a joint trial, the Court rendered its judgment declaring that a valid controversy
existed and the herein petitioner was ordered to submit to arbitration.

ISSUE:

1. Whether or not a controversy or dispute exists under the circumstances to


warrant an order compelling the parties to submit to arbitration.
2. Whether or not the dispute on the amount the parties owe each other is a proper
subject of arbitration.
3. Whether or not the arbitration provision can still be enforced 5 years after the
termination of both contracts.

HELD:
1. Yes. The trial court correctly ordered the parties to submit to arbitration. The two
civil cases brought by herein respondents alleged that there was still some
amount payable in pounds sterling due to it from the herein petitioner. Since it
was not disputed that in both the First Surplus Reinsurance Agreement and the
Retrocession Quota Share Fire Pool Agreement the parties had agreed that any
dispute arising from theses agreements shall be referred to a set of arbitrators.

2. Yes. In an attempt to exclude this case from coverage of their arbitration


agreement, petitioner belatedly invoked RA 529 as a defense. Whether petitioner

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agreed to pay its obligation in pounds sterling or in US dollars, “it is settled that,
“... if there is any agreement to pay the obligation in a currency other than the
Philippine currency, the same is null and void as contrary to public policy.
However, RA 529 does not invalidate the whole contract which gives the obligee
the right to demand payment in gold or other foreign currencies. What it declares
as null and void is the provision to such effect. Consequently, the transaction or
contract subsits.

As to what rate of exchange shall prevail has been settled in the case of ​Kalalo v.
Luz, L-27782, if the obligation was incurred ​prior to the enactment ​of RA 529 and
require payment in a particular kind of coin or currency other than the Philippine
currency the same shall be discharged in Philippine measured at the ​prevailing
rate of exchange at the time the obligation was incurred.​ As the SC have
adverted to, RA 529 was enacted on June 16, 1950. Here, the obligation of
appellant to pay appelle the sum of $28,000, accrued after the enactment of RA
529. It follows that the provision of RA which requires payment at the prevailing
rate of exchange when the obligation was incurred cannot be applied. RA 529
does not provide for the rate of exchange for the payment of obligations incurred
after the enactment of the said Act. The logical conclusion, therefore, is that the
rate of exchange should be prevailing at the time of payment.

3. Yes. the language of the reinsurance contract on arbitration of any dispute


between them which may arise before or after the termination of the agreement
is clear. On the other hand, the retrocession agreement is also clear that all
differences of whatever nature arising out of the agreement shall be submitted to
a court of arbitration. No restrictions as to time was contemplated by the parties,
further, the provision on arbitration is the remedy by which the parties may resort
to for disputes arising from the agreements. While the two agreements have
been terminated, the provision requiring arbitration remains as a remedy to settle
any dispute/ controversy arising from the agreements.

26. Tuna Procesing vs Philippine Kingford, GR No 185582

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G.R. No. 185582 February 29, 2012


TUNA PROCESSING, INC., Petitioner, vs. PHILIPPINE KINGFORD, INC.,
Respondent.

How do we reconcile the provisions of the Corporation Code of the Philippines on one
hand, and the Alternative Dispute Resolution Act of 2004, the New York Convention and
the Model Law on the other?

Facts:

1. Jan. 14 2003 — Kanemitsu Yamaoka (licensor), co-patentee of Yamaoka Patent


and five (5) Philippine tuna processors, namely, Angel Seafood Corporation, East
Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc.,
and respondent Kingford (sponsors/licensees) ​entered into a Memorandum of
Agreement ​(re: establishment of Tuna Processors Inc, the ownership thereof and
bank account)

2. Due to a series of events not mentioned in the petition, the licensees, including
respondent Kingford, withdrew from petitioner TPI and correspondingly reneged
on their obligations.

3. Petitioner submitted the dispute for arbitration before the International Centre for
Dispute Resolution in the State of California, United States and won the case
against respondent. (Amount of award — $1,250,000.00)

4. Oct. 10, 2007. To enforce the award, petitioner TPI filed a Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before the
RTC of Makati City.

5. Respondent Kingford filed a Motion to Dismiss. Denied. Filed MR. Granted.


Thus, the Petition for Confirmation was dismissed on the ground that the
petitioner ​lacked legal capacity to sue in the Philippines​, citing the
Corporation Code:

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.

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6. Petitioner on appeal argued that it is entitled to seek for the recognition and
enforcement of the subject foreign arbitral award in accordance with Alternative
Dispute Resolution Act of 2004, the New York Convention, and the UNCITRAL
Model Law on International Commercial Arbitration Model Law, as ​none of these
specifically requires that the party seeking for the enforcement should
have legal capacity to sue.

Issue: Whether or not the court a quo was correct in so dismissing the petition on the
ground of petitioner’s lack of legal capacity to sue — NO.

Held: ​Petition is meritorious.

As Held in a Previous Case, Special Law Prevails. The Corporation Code is the
general law providing for the formation, organization and regulation of private
corporations. On the other hand, RA 6657 is the special law on agrarian reform. As
between a general and special law, the latter shall prevail—generalia specialibus non
derogant.

The Case at Bar. Following the same principle, ​the Alternative Dispute Resolution
Act of 2004 shall apply in this case as the Act ​is a law especially enacted "to actively
promote party autonomy in the resolution of disputes or the freedom of the party to
make their own arrangements to resolve their disputes." It specifically provides
exclusive grounds available to the party opposing an application for recognition and
enforcement of the arbitral award. Inasmuch as the Alternative Dispute Resolution Act
of 2004, a municipal law, applies in the instant petition, we do not see the need to
discuss compliance with international obligations under the New York Convention and
the Model Law. After all, both already form part of the law.

[ADR Act of 2004] Sec. 45. Rejection of a Foreign Arbitral Award. - A party to a
foreign arbitration proceeding ​may oppose an application for recognition and
enforcement of the arbitral award in accordance with the procedural rules to be
promulgated by the Supreme Court ​only on those grounds enumerated under Article V
of the New York Convention. Any other ground raised shall be disregarded by the
regional trial court.

Exclusive Grounds Does Not Provide for Capacity to Sue. ​Article V of the New York
Convention:

Article V

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1. Recognition and enforcement of the award may be refused, at the request of the
party against whom it is invoked, only if that party furnishes to the competent
authority where the recognition and enforcement is sought, proof that:
a. The parties to the agreement referred to in article II were, under the law
applicable to them, under some incapacity, or the said agreement is not
valid under the law to which the parties have subjected it or, failing any
indication thereon, under the law of the country where the award was
made; or
b. The party against whom the award is invoked was not given proper
notice of the appointment of the arbitrator or of the arbitration
proceedings or was otherwise unable to present his case; or
c. The award deals with a difference not contemplated by or not falling
within the terms of the submission to arbitration, or it contains decisions
on matters beyond the scope of the submission to arbitration, provided
that, if the decisions on matters submitted to arbitration can be
separated from those not so submitted, that part of the award which
contains decisions on matters submitted to arbitration may be
recognized and enforced; or
d. The composition of the arbitral authority or the arbitral procedure was
not in accordance with the agreement of the parties, or, failing such
agreement, was not in accordance with the law of the country where the
arbitration took place; or
e. The award has not yet become binding on the parties, or has been set
aside or suspended by a competent authority of the country in which, or
under the law of which, that award was made.

2. Recognition and enforcement of an arbitral award may also be refused if the


competent authority in the country where recognition and enforcement is sought
finds that:
a. The subject matter of the difference is not capable of settlement by
arbitration under the law of that country; or
b. The recognition or enforcement of the award would be contrary to the
public policy of that country.

Clearly, not one of these exclusive grounds touched on the capacity to sue of the party
seeking the recognition and enforcement of the award.

Special Rules of Court on ADR. Pertinent provisions of the Special Rules of Court on
Alternative Dispute Resolution, which was promulgated by the Supreme Court, likewise
support this position. ​Rule 13.1 of the Special Rules provides that "[a]ny party to a
foreign arbitration may petition the court to recognize and enforce a foreign arbitral
award." The contents of such petition are enumerated in Rule 13.5.32 Capacity to
sue is not included. ​Indeed, it is in the best interest of justice that in the enforcement
of a foreign arbitral award, ​we deny availment by the losing party of the rule that bars
foreign corporations not licensed to do business in the Philippines from maintaining a
suit in our courts. When a party enters into a contract containing a foreign arbitration

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clause and, as in this case, in fact submits itself to arbitration, it becomes bound by the
contract, by the arbitration and by the result of arbitration, conceding thereby the
capacity of the other party to enter into the contract, participate in the arbitration and
cause the implementation of the result.

27. Mabuhay Holding Corporation vs Sembcorp Logistics, GR No 212734

FACTS: Petitioner Mabuhay and Infrastructure Development & Holdings Inc. (IDHI) are
corporations duly organised and existing under Philippine laws. Respondent Sembcorp
Logistics Limited (Sembcorp) is a company incorporated in the Republic of Singapore.
On January 23, 1996, Mabuhay and IDHI incorporated Water Jet Shipping Corp.
(WJSC) in the Philippines to engage in the venture of carrying passengers on a
common carriage by inter-island fast ferry. On February 5, 1996, they also incorporated
Water Jet Netherlands Antilles (WJNA) in Curasao, Netherlands.

On September 16, 1996, Mabuhay, IDHI and Sembcorp entered into a Shareholder’s
Agreement (Agreement) setting out the terms and conditions governing their
relationship in connection with a planned business expansion of WJSC and WJNA.
Sembcorp decided to invest in the said corporations. Pursuant to Art. 13 of the
Agreement, Mabuhay and IDHI voluntarily agreed to jointly guarantee that Sembcorp
would receive a minimum accounting return of US$929,875.50 (Guaranteed Return) at
the end of the 24th month following the full disbursement of Sembcorp’s equity
investment in WJNA and WJSC. They further agreed that the Guaranteed Return shall
be paid three (3) months from the completion of the special audits of WJSC and WJNA
as per Article 13.3 of the Agreement.

The Agreement included an arbitration clause providing that “Any dispute, controversy
or claim arising out of or relating to this Agreement, or a breach thereof, other than
intra-corporate controversies, shall be finally settled by arbitration in accordance with
the rules of conciliation and arbitration of the International Chamber of Commerce by
one arbitrator with expertise in the matter at issue appointed in accordance with said
rules. The arbitration proceeding including the rendering of the award shall take place in
Singapore and shall be conducted in the English Language. This arbitration shall
survive termination of this Agreement. Judgment upon the award rendered may be
entered in any court having jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement, as the case may be.”

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On December 6, 1996, Sembcorp effected full payment of its equity investment. Special
audits of WJNA and WJSC were then carried out and complemented on January 8,
1999. Said audits revealed that WJSC and WJNA both incurred losses. Sembcorp
requested for the payment of its Guaranteed Return from Mabuhay and IDHI. Mabuhay
admitted its liability but asserted that since the obligation is joint, it is only liable for 50%
of the claim or US$464,937.75. Sembcorp sent a Final Demand to Mabuhay to pay the
Guaranteed Return. Mabuhay requested three (3) months to raise the necessary funds
but still failed to pay any amount after the lapse of the said period. Sembcorp later filed
a Request for Arbitration before the International Court of Arbitration of the International
Chamber of Commerce (ICC) in accordance with the Agreement.

A Final Award was rendered by Dr. Anan Chantara-Opakorn, the Sole Arbiter in favor of
Sembcorp. Sembcorp filed a Petition for Recognition and Enforcement of a Foreign
Arbitral Award before the RTC of Makati. Mabuhay opposed citing the following grounds
for non-enforcement under Article V of the 1958 New York Convention: (1) the award
deals with a conflict not falling within the terms of the submission to arbitration; (2) the
composition of the arbitral authority was not in accordance with the agreement of the
parties; and (3) recognition or enforcement of the award would not be contrary to the
public policy of the Philippines. Mabuhay argued that the dispute is an intra-corporate
controversy, hence, excluded from the scope of arbitration clause in the Agreement.
The RTC dismissed the petion, the CA reversed.

ISSUE: Whether the dispute is subject to arbitration

HELD: YES. The CA correctly applied the Kompetenz-Kompetenz principle expressly


recognized under Rule 2.2 of the Special ADR Rules, viz: The Special ADR Rules
recognize the principle of competence-competence, which means that the arbitral
tribunal may initially rule on its own jurisdiction, including any objections with respect to
the existence or validity of the arbitration agreement or any condition precedent to the
filing of a request for arbitration.
The Special ADR Rules expounded on the implementation of the said principle in Rule
2.4: Policy implementing competence-competence principle- The arbitral tribunal shall
be accorded the first opportunity or competence to rule on the issue of whether or not it
has competence or jurisdiction to decide a dispute submitted to it for decision, including
any objection with respect to the existence or validity of the arbitration agreement.
When a court is asked to rule upon issue/s affecting the competence or jurisdiction of an
arbitral tribunal is a dispute brought before it, either before or after the arbitral tribunal is
constituted, the court must exercise judicial restraint and defer to competence or

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jurisdiction of the arbitral tribunal by allowing the arbitral tribunal the first opportunity to
rule upon such issues.

To recall, the Agreement provides that “(a)ny dispute, controversy or claim arising out of
or relating to this Agreement, or breach thereof, other than intra-corporate
controversies, shall be finally settled by arbitration…”

28. 28. Bengson v Chan, GR No. L-27283

Bengson v Chan
GR No. L-27283
July 29, 1977
Aquino, J: Bengson v Chan, GR No. L-27283

Facts​:
On June 1965, Soledad F. Bengson and Mariano M. Chan entered into a
contract for the construction of a six-story building on Bengson’s lot located at Rizal
Avenue, San Fernando, La Union. In that contract Bengson bound herself to pay Chan,
the contractor, the sum of P352,000 for the materials, labor and construction expenses.
It was stipulated that the construction would start on July 5, 1965; that the first
and second stories, together with the theater should be completed and available for use
within five months from such date; and that the construction should be finished within
twelve calendar months from that date. The contract contains and arbitration clause.
On May 24, 1966, Bengson filed an action for damages against Chan and the
sureties on his performance bond. She alleged that Chan violated the contract by not
not constructing the first and second stories within the five month period stipulated.
Chan’s inability to continue or complete the construction lead to Bengson’s terminated
of the contract and that she suffered damages amounting to P85,000 as a consequence
of Chan’s failure to construct the commercial building, and that Chan did not comply
with the clauses stipulated on the contract in not attending his work and not submitted
periodic reports of the work done as a basis of payment of the laborer’s wages. The
damages claimed totaled P183,00.
Chan and his sureties alleged in their answer that the contractor stopped the
construction because Bengson refused to pay for ninety percent of the work already
accomplished and that the construction actually started in February 1966 because of
the changes requested by Bengson, and that the stipulation for construction of the first
and second stories within five months was novated by the parties. The contractor and
sureties further alleged that Bengson had paid him, but refused to pay the additional
sum as the balance of the ninety percent of the work already accomplished. By reason

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of Bengson’s failure to pay the balance, Chan notified her that he would stop the
construction, and that he actually stopped the construction on May 30, 1966 when he
was served the copy of the complaint.
Defendants alleged as an affirmative defense that the complaint states no cause
of action because Bengson did not first submit the controversy for arbitration as
required in their construction contract.
The trial court dismissed the complaint. Bengson appealed.

Issue​:
1. Whether or not the the defendants waived the defense of lack of cause of action
in failing to raise defense in their original answer.
2. Whether or not it was proper for trial court to dismiss the case against Bengson.

Ruling​:
The Supreme Court held that there is no merit in Bengson’s contention that the
defendants waived the defense of lack of cause of action. While it is true that the
defendants did not interpose as a defense in their original answer Bengson’s failure to
resort to arbitration before going to court or the defense that her complaint does not
state a cause of action. The omission did not constitute a waiver of that defense
because Section 2, Rule 9 of the Riles of Court explicitly provides “defenses and
objections not pleaded either in a motion to dismiss or in the answer are
deemed waived; except the failure to state a cause of action which may be
alleged in a later pleading, if one is permitted".
Appellant Bengson argues that paragraph 15 refers to disputes as to "the
technical process of putting up the building", meaning whether there was an
adherence to the plans and specifications, and that her causes of action for
damages do not involve questions as to the construction of the building but refer
to disputes "based on violation of the contract for construction".
Appellant Bengson alternatively argues that if arbitration is proper, then the
trial court in conformity with section 6 of the Arbitration Law, Republic Act No.
876, should have required the parties to proceed to arbitration.
The Supreme Court held that the terms of paragraph 15 clearly express
the intention of the parties that all disputes between them should first be
arbitrated before court action can be taken by the aggrieved party.
However, although the causes of action in Bengson's complaint are covered by
paragraph 15, her failure to resort to arbitration does not warrant the dismissal
of her complaint. We agree with her alternative contention that arbitration may be
resorted to during the pendency of the case. The Arbitration Law provides:

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SEC. 6. Hearing by court.— A party aggrieved by the failure,


neglect or refusal of another to perform under an agreement in writing
providing for arbitration may petition the court for an order directing that
such arbitration proceed in the manner provided for in such agreement.
Five days notice in writing of the hearing of such application shall be
served either personally or by registered mail upon the party in default.
The court shall hear the parties, and upon being satisfied that the making
of the agreement or such failure to comply therewith is not in issue, shall
make an order directing the parties to proceed to arbitration in accordance
with the terms of the agreement. If the making of the agreement or default
be in issue the court shall proceed to summarily hear such issue. If the
finding be that no agreement in writing providing for arbitration was made,
or that there is no default in the proceeding thereunder, the proceeding
shall be dismissed. If the nding he that a written provision for arbitration
was made and there is a default in proceeding thereunder, an order shall
be made summarily directing the parties to proceed with arbitration in
accordance with the terms thereof.
"The court shall decide all motions, petitions or applications led
under the provisions of this Act, within ten days after such motions,
petitions, or applications have been heard by it. "

SEC. 7. Stay of civil action.— If any suit or proceeding be brought


upon an issue arising out of an agreement providing for the arbitration
thereof, the court in which such suit or proceeding is pending, upon being
satisfied that the issue involved in such suit or proceeding is referable to
arbitration, shall stay the action or proceeding until an arbitration has been
had in accordance with the terms of the agreement: Provided, That the
applicant for the stay is not in default in proceeding with such arbitration."

Within the meaning of section 6, the failure of Soledad F. Bengson to


resort to arbitration may be regarded as a refusal to comply with the stipulation
for arbitration. And defendants' interposition of the defense that arbitration is a
condition precedent to the institution of a court action may be interpreted as a
petition for an order that arbitration should proceed as contemplated in section
15.
Therefore, instead of dismissing the case, the proceedings therein should
be suspended and the parties should be directed to go through the motions of
arbitration at least within a sixty-day period. With the consent of the parties, the
trial court may appoint a third arbitrator to prevent a deadlock between the two

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arbitrators. In the event that the disputes between the parties could not be
settled denitively by arbitration, then the hearing of the instant case should be
resumed.

29. Federal vs Airfreight, GR No 216600

FACTS:

FedEx, having lost its International Freight Forwarder's (IFF) license to engage in
international freight forwarding in the Philippines, executed various Global Service
Program (GSP) contracts with Air21, an independent contractor, to primarily undertake
its delivery and pick-up services within the country.

Under the GSP arrangement, the 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. As
stipulated in the GSP contracts, Air21 guaranteed that all shipments would be cleared
through customs in accordance with Philippine law. In the implementation of these
contracts, however, several issues relating to money remittance, value-added taxes,
dynamic fuel charge, trucking costs, interests, and penalties ensued between the
parties.

To settle their commercial dispute, FedEx and Air21 agreed to submit themselves to
arbitration before the Philippine Dispute Resolution Center (PDRC). FedEx filed its
Notice of Arbitration and consequently an Arbitral Tribunal was constituted

Ross (SVP of Operation) and Holmes (Managing director) 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. This license, however, was
suspended pending a case in court filed by Merit International, Inc. (Merit) and Ace
Logistics, Inc. (Ace), 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, in their
individual statements, 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.

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After cross examination and re-examinations, Jennings disclosed that one of the
directors of Ace was a friend of Lina and that Lorna 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 claiming 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 claimed 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.

ISSUE: Whether or not testimonies of witnesses in an arbitration are considered


confidential information

HELD:

Yes.

Section 3(h) of Republic Act (R.A.) No. 9285 or the Alternative Dispute Resolution of
2004 (ADR Act) defines confidential information as follows:

"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]

The Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules)
allows "[a] party, counsel or witness who disclosed or who was compelled to disclose
information relative to the subject of ADR under circumstances that would create a
reasonable expectation, on behalf of the source, that the information shall be kept

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confidential x x x the right to prevent such information from being further disclosed
without the express written consent of the source or the party who made the disclosure."
Thus, the rules on confidentiality and protective orders apply when:
1. An ADR proceeding is pending;
2. A party, counsel or witness disclosed information or was otherwise compelled to
disclose information;
3. The disclosure was made under circumstances that would create a reasonable
expectation, on behalf of the source, that the information shall be kept confidential;
4. The source of the information or the party who made the disclosure has the right
to prevent such information from being disclosed;
5. The source of the information or the party who made the disclosure has not given
his express consent to any disclosure; and
6. The applicant would be materially prejudiced by an unauthorized disclosure of
the information obtained, or to be obtained, during the ADR proceeding.

Notably, both the parties and the Arbitral Tribunal had agreed to the Terms of
Reference (TOR) that "the arbitration proceedings should be kept strictly confidential as
provided in Section 23 of the ADR Act and Article 25-A of the PDRCI Arbitration Rules
(Arbitration Rules) and that they should all be bound by such confidentiality
requirements." The provisions of the ADR Act and the Arbitration Rules repeatedly
employ the word "shall" which, in statutory construction, is one of mandatory character
in common parlance and in ordinary signification. Thus, the general rule is that
information disclosed by a party or witness in an ADR proceeding is considered
privileged and confidential.

In evaluating the merits of the petition, The Special ADR Rules mandates that courts
should be guided by the principle that confidential information shall not be subject to
discovery and shall be inadmissible in any adversarial proceeding

Arbitration, being an ADR proceeding, was primarily designed to be a prompt,


economical and amicable forum for the resolution of disputes. It guarantees
confidentiality in its processes to encourage parties to ventilate their claims or disputes
in a less formal, but spontaneous manner. It should be emphasized that the law favors
settlement of controversies out of court. Thus, 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. Thus, the claimed
slanderous statements by Jennings during the arbitration hearing are deemed
confidential information and the veil of confidentiality over them must remain.

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WHEREFORE, The Petition for the Issuance of a Confidentiality/Protective Order filed


by Federal Express Corporation and Rhicke S. Jennings is hereby GRANTED

30. Dale Strickland vs Ernst & Young LLP, GR No 193782

FACTS ​(Be Patient with this case haha)

Civil Case No. 05-692 ​is a complaint ​filed by Strickland against, among others,
respondents PA and EYLLP praying for collection of sum of money.

On March 26, 2002, National Home Mortgage Finance Corporation ​(NHMFC) and
Punongbayan and Araullo (PA) entered into a Financial Advisory Services
Agreement (​FASA​) for the ​liquidation of the NHMFC's Unified Home Lending Program
(UHLP)​. At the time of the engagement, ​PA was the Philippine ​member of respondent
global company, ​EYLLP​. In the March 26, 2002 letter of ​PA to NHMFC confirming
their engagement as exclusive Financial Advisor for the UHLP Project​, PA is
designated as P&A/Ernst & Young​.

Strickland was a ​partner of EYLLP seconded to respondent Ernst & Young Asia Pacific
Financial Solutions (EYAPFS) who was ​listed in the FASA as ​member of the
Engagement Team​. Strickland played a role in ​negotiating the ​FASA between PA
and NHMFC​. PA wrote Strickland to formalize the working relationship between
PA/EYLLP and EY/APFS for the FASA with NHMFC.

EYLLP wrote PA of the ​termination of its membership in EYLLP​. Despite the


termination, the working relationship among the parties continued. November 15, 2002,
EYLLP confirmed ​Strickland's assignment to Manila as a partner.

In July 2004, the transactional relationship between the parties went awry. In an
exchange of letters, ​notice was given to NHMFC of PA's intention to remove
Strickland from the NHMFC Engagement Te​am as a result of Strickland's resignation
from EYLLP and/or EYAPFS effective on July 2, ​2004

Since ​NHMFC was intent on ​retaining Strickland's services despite his separation from
EYLLP and/or EYAPFS, ​the parties entered into negotiations ​to define Strickland's
possible continued participation in the UHLP Project. ​PA, NHMFC, and Strickland
exchanged letters containing proposed amendments to cover the new engagement
and Strickland's participation within the UHLP Project. ​No actual written and final

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agreement among the parties ​amending the ​original engagement letter of March
26, 2002 materialized.

Subsequently, conflict on Strickland's actual participation and concurrent designation on


the project arose among PA, NHMFC, and Strickland as reflected in the proposed
revisions to the "Draft Financial Advisory Services" ​initially prepared by PA​. PA
objected to ​Strickland's proposed amendments​, specifically on the terms of
compensation, which now contemplated PA's engagement of Strickland as
subcontractor for the closing​ of the ​UHLP​ Project.

By May 23, 2005, counsel for Strickland wrote PA asking for ​"equitable compensation
for professional services" ​rendered to NHMFC on the UHLP Project ​from the time of
his separation from EYLLP and/or EYAPFS in July 2004 "up and through the
recent Signing and Closing Ceremony held on 22 April 2004 and his continued
provision of services as the final closing approaches.

PA responded, categorically ​denying any contractual relationship with Strickland


and his assertion that he ​effectively substituted EYLLP and/or EYAPFS for the portion
of ​the work he carried out​ in the UHLP Project.

Thus, [Strickland] ​filed a Complaint,​ dated May 17, 2005, which included [EYAPFS],
[PA] and NHMFC. Subsequent to the complaint, [EYLLP and/or EYAPFS] ​filed a
"Motion to Refer to Arbitration.​

The ​trial court​ ​denying​ [EYAPFS'] Motion to Refer to Arbitration, thus:

"​The dispute between the defendants and [Strickland] covers domestic arbitral
proceedings and cannot be categorized as a commercial dispute of an international
character since the dispute arose from their professional and service relationship and
does not cover matters arising from a relationship of a commercial nature or commercial
intercourse that would qualify as commercial. The agreement has also no reasonable
relationship with one or more foreign states.

​ rbitral clause in question is inoperative or incapable


It appearing therefore that the a
of being performed in this jurisdiction referral to arbitration in the United St​ ates
pursuant to the arbitration clause is uncalled for.

Court of Appeals ​annulled and set aside the Orders ​of the RTC and referred the
dispute between Strickland and EYLLP to arbitration and respondent Punongbayan &
Araullo (PA).

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In annulling the January 2, 2007 and January 16, 2008 Orders of the RTC, the
CA ruled that: (1) EYLLP ​substantially complied with Section 7, Rule 8 of the
Rules of Court o setting forth actionable documents in a pleading; (2) the
Partnership Agreement indeed ​contained a valid arbitration clause​; and (3)
applying processual presumption, albeit EYLLP failed to prove the applicable
foreign law, the dispute between EYLLP and Strickland ​falls under the category
of international commercial arbitration​.

Strickland contends that the CA's referral of the dispute between EYLLP and
Strickland to arbitration is grave error since EYLLP failed to properly allege and
prove the Partnership Agreement. ​Absent an actionable Partnership
Agreement, there is no existing arbitration clause

ISSUE

Whether the CA erred in referring the dispute between Strickland and EYLLP to
arbitration and ordering that EYLLP be dropped as defendant in Civil Case No. 05-692.

RULING

No. We deny the petitions.

In this case, ​EYLLP initially only quoted the provision of the Partnership
Agreement on Dispute Resolution​, including a section on Arbitration, in its answer.
Eventually, it ​submitted a copy of the Partnership Agreement in a manifestation
dated March 15, 2006. Thus, we agree with the holding of the CA that ​EYLLP
substantially, and ultimately, complied with the provision given that Strickland
himself did​, and ​does not even deny​, ​the Partnership Agreement nor the arbitration
clause.

In ​Cargill Philippines, Inc. v. San Fernando Regala Trading, Inc. we discussed at length
the nature of an arbitration clause as a contract in itself and the continued referral of a
dispute to arbitration despite a party's repudiation of the main contract:

R.A. No. 876 authorizes arbitration of domestic disputes. Foreign arbitration, as a


system of settling commercial disputes of an international character, is likewise
recognized. The enactment of R.A. No. 9285 on April 2, 2004 further
institutionalized the use of alternative dispute resolution systems, including
arbitration, in the settlement of disputes.

A contract is required for arbitration to take place and to be binding. Submission


to arbitration is a contract and a clause in a contract providing that all matters in

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dispute between the parties shall be referred to arbitration is a contract. The


provision to submit to arbitration any dispute arising therefrom and the
relationship of the parties is part of the contract and is itself a contract.

XXX ​we now hold that the validity of the contract containing the agreement
to submit to arbitration does not affect the applicability of the arbitration
clause itself. A contrary ruling would suggest that a party's mere
repudiation of the main contract is sufficient to avoid arbitration. That is
exactly the situation that the separability doctrine, as well as jurisprudence
applying it, seeks to avoid.

Here, we consider the Partnership Agreement which ​explicitly provides for alternative
dispute resolution:

16. Dispute Resolution XXX ​(a) ​Resolution of Disputes. (b) ​Procedure ​(d)
Arbitration.

Plainly, considering that the arbitration clause is in itself a contract, the setting forth of
its provisions in EYLLP's answer and in its motion to refer to arbitration, coupled with
the actual submission by EYLLP of the Partnership Agreement, ​complies with the
requirements of Section 7, Rule 8 of the Rules of Court which Strickland should have
specifically denied.

END OF RULING FOR THIS DIGEST​. EXTENSIVE DISCUSSION BELOW WHICH I


THINK EVERYONE SHOULD READ :)

We note that while the cases before us have a foreign element involving foreign parties
and international transactions, the parties do not question the jurisdiction of our courts
to hear and decide the case. ​The parties quibble only on whether the dispute between
Strickland and EYLLP should be referred to arbitration ​despite Strickland's alleged
causes of action based on tortious conduct ​of the parties in refusing to
compensate him for services rendered.

We have consistently affirmed that ​commercial relationships ​covered by our


arbitration laws are purely private and contractual in nature. Article 1306 of the
Civil Code provides for autonomy of contracts where the parties are free to stipulate on
such terms and conditions ​except for those which go against law, morals, and public
policy. In our jurisdiction, commercial arbitration is a ​purely private system of
adjudication facilitated by ​private citizens which we have consistently recognized as
valid, binding, and enforceable.

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Thus, ​we agree with the CA's ruling on the nature of the contract between
Strickland and EYLLP​, and its application of our commercial arbitration laws to this
case:

x x x "[T]he International Law doctrine of presumed identity approach or


processual presumption comes into play. Where a foreign law is not pleaded, or,
even if pleaded, is not proved, the presumption is that foreign law is the same as
ours."

In this jurisdiction, one of the laws governing arbitration is the [Alternative Dispute
Resolution (ADR)] Act. Under this statute, international commercial arbitration
shall be governed by the Model Law on International Commercial Arbitration
("Model Law") adopted by the United Nations Commission on International Trade
Law. Meanwhile, domestic arbitration is governed by the Arbitration Law as
amended by the ADR Act.

To determine the applicable law here, the nature of the arbitration sought to be
undertaken must be looked at. The ADR Act defines domestic arbitration
negatively by stating that it is one that is not international as defined in the Model
Law[]. In turn, ​Article 1 (3) of the Model Law provides that an arbitration is
international if:

(a) the parties to an arbitration agreement have, at the time of the conclusion of
that agreement, their places of business in different States; or

(b) one of the following places is situated outside the State in which the parties
have their places of business:

(i) the place of arbitration if determined in, or pursuant to, the arbitration
agreement;

(ii) any place where a substantial part of the obligations of the commercial
relationship is to be performed ​or the place with which the
subject-matter of the dispute is most closely connected​; or

(c) the parties have expressly agreed that the subject-matter of the arbitration
agreement relates to more than one country." x x x (Emphasis in the original;
citations omitted.)

It is obvious then that the arbitration sought in the instant case is international for
falling under Article 1(3)(b)(ii) quoted above. The place of business of EYLLP is in

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the United States of America. x x x It is here [the Philippines] that the services for
which [Strickland] seeks remuneration were rendered.​ (Emphasis supplied.)

For the Model Law to apply, however, the arbitration should also be commercial. The
explanatory footnote to Article 1(l) of the Model Law explains that "[t]he term
'commercial' should be given a wide interpretation so as to cover matters ​arising from
all relationships of a commercial nature, whether contractual or not​." It also states
that relationships of a commercial nature include the following transactions among
others:

"any trade transaction for the supply or exchange of goods or services; distribution
agreement; commercial representation or agency; factoring; leasing; construction of
works; consulting; engineering; licensing; investment; financing; banking; insurance;
exploitation agreement or concession; ​joint venture and ​other forms of industrial or
business co-operation​; carriage of goods or passengers by air, sea, rail or road." x x x

The meaning attached to the term "commercial" by the Model Law is broad enough to
cover a partnership. The Civil Code x x x defines a partnership as a contract where "two
or more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves." ​Hence,
considering that EYLLP and Strickland had a partnership relationship, which was
not changed during his assignment [to] Manila for the Project, the request for
arbitration here has a commercial character​. The dispute between the said parties
relates to Strickland's and EYLLP's association with each other.

31. Cargill vs San Fernando Regala, GR No 175404

32. Aboitiz vs Gothong, GR No 198226

Facts:

ASC, CAGLI, and William Lines, Inc. (WLI), principally owned by the Aboitiz,
Gothong,and Chiongbian families, respectively, entered into an Agreement signed by
Jon Ramon Aboitiz for ASC, Benjamin D. Gothong (Gothong) for CAGLI, and
respondent Chiongbian for WLI. In the said Agreement, ASC and CAGLI agreed to
transfer their shipping assets to WLI in exchange for the latter's shares of capital stock.
The parties likewise agreed that WLI would run the merged shipping business and be

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renamed "WG&A, Inc." Pertinently, Section 11.06 of the Agreement provides that all
disputes arising out of or in connection with the Agreement shall be settled by arbitration
in accordance with Republic Act No. (RA) 876, otherwise known as "The Arbitration
Law," and that each of the parties shall appoint one arbitrator, and the three arbitrators
would then appoint the fourth arbitrator who shall act as Chairman. Among the
attachments to the Agreement was a letter written by respondent Chiongbian and
addressed to Gothong, stating that WLI committed to acquire from CAGLI's inventory
certain spare parts and materials not exceeding PhP400 Million. In this relation, a
valuation of CAGLI's inventory was conducted wherein it was shown that the same
amounted to PhP514 Million. Thereafter, WLI received inventory valued at PhP558.89
Million, but only paid CAGLI the amount of PhP400 Million as agreed upon in the
Agreement. Dissatisfied, CAGLI sent to WLI various letters in 2001, demanding that the
latter pay or return the inventory that it received in excess of PhP400 million.

2002: the Chiongbian and Gothong families decided to sell their respective interests in
WLI/WG&A to the Aboitiz family. This resulted in the execution of a Share Purchase
Agreement whereby Aboitiz Equity Ventures (AEV) agreed to purchase and acquire the
WLI/WG&A shares of the Chiongbian and Gothong families. Thereafter, the corporate
name of WLI/WG&A was changed to ATSC.

2008: CAGLI sent a letter to ATSC demanding the payment for the excess inventory it
delivered to WLI. It also demanded AEV and Chiongbian to refer the dispute to
arbitration. AEV countered that the money was already returned to CAGLI and that it
shouldn’t be included in the dispute since it is separate and distinct from ATSC.

CAGLI filed a complaint in the RTC against Chiongbian, ATSC, ASC, and AEV to
compel them to submit to arbitration.

RTC: dismissed for AEV. Directed CAGLI, Chiongbian, ATSC and ASC to proceed to
arbitration. CAGLI filed for a notice of dismissal because the opposing parties have not
submitted their responsive pleadings, court granted.

ISSUES:

1.​ W
​ hether or not the RTC was correct in confirming CAGLI’s notice of dismissal?

2.​ W
​ hether or not Chongbian should be excluded from the arbitration proceedings?

HELD:

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1. ​NO, It was an error on the part of the RTC to have confirmed the notice of dismissal.
In the present case, the records show that the primary relief sought for in CAGLI's
complaint, i.e., to compel the parties to submit to arbitration, had already been granted
by the RTC through its Order dated February 26, 2010. Undeniably, such Order
partakes of a judgment on the merits of the complaint for the enforcement of the
arbitration agreement. At this point, although no responsive pleading had been filed by
ATSC, it is the rules on appeal, or other proceedings after rendition of a judgment or
final order — no longer those on notice of dismissal — that come into play. Verily, upon
the rendition of a judgment or final order, the period "before service of the answer or of
a motion for summary judgment," mentioned in Section 1 ​of Rule 17 of the Rules of
Court when a notice of dismissal may be filed by the plaintiff, no longer applies. As a
consequence, a notice of dismissal filed by the plaintiff at such judgment stage should
no longer be entertained or confirmed.

2. ​YES, Chongbian should be excluded. The three parties to the Agreement and

necessarily to the arbitration agreement embodied therein are: (a) ASC, (b) CAGLI, and
(c) WLI/WG&A/ATSC. Contracts, like the subject arbitration agreement, take effect only
between the parties, their assigns and heirs. Respondent Chiongbian, having merely
physically signed the Agreement as a representative of WLI, is not a party thereto and
to the arbitration agreement contained therein. Neither is he an assignee or an heir of
any of the parties to the arbitration agreement. Hence, respondent Chiongbian cannot
be included in the arbitration proceedings.

Sec. 2. Persons and matters subject to arbitration. — Two or more persons or


parties may submit to the arbitration of one or more arbitrators any controversy
existing between them at the time of the submission and which may be the subject
of an action, or the parties to any contract may in such contract agree to settle by
arbitration a controversy thereafter arising between them. Such submission or
contract shall be valid, enforceable and irrevocable, save upon such grounds as
exist at law for the revocation of any contract.

Section 11.06 of the Agreement, which embodies the Arbitration Agreement among
the parties, provides:
All disputes arising out of or in connection with this Agreement including any issue
as to this Agreement's validity or enforceability, which cannot be settled amicably
among the parties, shall be finally settled by arbitration in accordance with the
Arbitration Law (Republic Act No. 876) by an arbitration tribunal composed of four
(4) arbitrators. Each of the parties shall appoint one (1) arbitrator, the three (3) to

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appoint the fourth arbitrator who shall act as Chairman. Any award by the arbitration
tribunal shall be final and binding upon the parties and shall be enforced by
judgment of the Courts of Cebu or Metro Manila.

DISPOSITIVE PORTION:

WHEREFORE, the petitions are GRANTED. The Orders dated August 13, 2010, April
15, 2011, and July 6, 2011 of the Regional Trial Court of Cebu City, Branch 20 (RTC) in
Civil Case No. CEB-34951 are hereby REVERSED and SET ASIDE. The Order dated
February 26, 2010 of the RTC is REINSTATED with MODIFICATION excluding Victor
S. Chiongbian from the arbitration proceedings.

33. Home Bankers Savings vs Court of Appeals, GR No 115412

34. DFA vs BCA, GR No. 225015 and 210858

35. Transfield vs Luzon Hydro, GR No 146717

Facts:

The adjudication of this case proved to be a two-stage process as its constituent parts involve two
segregate but equally important issues. The first stage relating to the merits of the case, specifically
the question of the propriety of calling on the securities during the pendency of the arbitral
proceedings, was resolved in favor of Luzon Hydro Corporation (LHC) with the Court’s Decision​1 of
22 November 2004. The second stage involving the issue of forum-shopping on which the Court
required the parties to submit their respective memoranda is disposed of in this Resolution.

LHC claims that Transfield Philippines, Inc. (TPI) is guilty of forum-shopping when it filed the
following suits:

1. Civil Case No. 04-332 filed on 19 March 2004, pending before the Regional Trial Court
(RTC) of Makati, Branch 56 for confirmation, recognition and enforcement of the Third Partial
Award in case 11264 TE/MW, ICC International Court of Arbitration.

2. ICC Case No. 11264/TE/MW, ​Transfield Philippines, Inc. v. Luzon Hydro Corporation filed
before the International Court of Arbitration, International Chamber of Commerce (ICC) a

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request for arbitration dated 3 November 2000 pursuant to the Turnkey Contract between
LHC and TPI;

3. G.R. No. 146717, which was an ​appeal by certiorari with prayer for TRO/preliminary
prohibitory and mandatory injunction, of the Court of Appeals Decision dated 31 January
2001 in CA-G.R. SP No. 61901.

On the other hand, TPI claims that it is LHC which is guilty of forum-shopping when it raised the
issue of forum-shopping not only in this case, but also in Civil Case No. 04-332, and even asked for
the dismissal of the other case based on this ground. Moreover, TPI argues that LHC is relitigating in
Civil Case No. 04-332 the very same causes of action in ICC Case No. 11264/TE/MW, and even
manifesting therein that it will present evidence earlier presented before the arbitral tribunal.

On 1 August 2005, TPI moved to set the case for oral argument, positing that the resolution of the
Court on the issue of forum-shopping may have significant implications on the interpretation of the
Alternative Dispute Resolution Act of 2004, as well as the viability of international commercial
arbitration as an alternative mode of dispute resolution in the country

On 28 October 2005, TPI filed its Manifestation and Reiterative Motion to set the case for oral
argument, where it manifested that the International Chamber of Commerce (ICC) arbitral tribunal
had issued its Final Award ordering LHC to pay TPI US$24,533,730.00 (including the
US$17,977,815.00 proceeds of the two standby letters of credit).

Issue:

Whether or not TPI’s resort to the RTC for recognition and enforcement of the Third Partial Award
was proper?

Held:

YES, BUT PREMATURE.

As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to the courts
for provisional reliefs. The Rules of the ICC, which governs the parties’ arbitral dispute, allows the
application of a party to a judicial authority for interim or conservatory measures. Likewise, Section
14 of Republic Act (R.A.) No. 876 (The Arbitration Law) recognizes the rights of any party to petition
the court to take measures to safeguard and/or conserve any matter which is the subject of the
dispute in arbitration. In addition, R.A. 9285, otherwise known as the "Alternative Dispute Resolution
Act of 2004," allows the filing of provisional or interim measures with the regular courts whenever the
arbitral tribunal has no power to act or to act effectively.

TPI’s verified petition in Civil Case No. 04-332, filed on 19 March 2004, was captioned as one "For:
Confirmation, Recognition and Enforcement of Foreign Arbitral Award in Case 11264 TE/MW, ICC
International Court of Arbitration​.

R.A. No. 9825 provides that international commercial arbitrations shall be governed shall be
governed by the Model Law on International Commercial Arbitration ("Model Law") adopted by the

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United Nations Commission on International Trade Law (UNCITRAL).​26 The UNCITRAL Model Law
provides:

ARTICLE 35. ​Recognition and enforcement

(1) An arbitral award, irrespective of the country in which it was made, shall be recognized as
binding and, upon application in writing to the competent court, shall be enforced subject to
the provisions of this article and of article 36.

(2) The party relying on an award or applying for its enforcement shall supply the duly
authenticated original award or a duly certified copy thereof, and the original arbitration
agreement referred to in article 7 or a duly certified copy thereof. If the award or agreement
is not made in an official language of this State, the party shall supply a duly certified
translation thereof into such language.

Moreover, the New York Convention, to which the Philippines is a signatory, governs the recognition
and enforcement of foreign arbitral awards. The applicability of the New York Convention in the
Philippines was confirmed in Section 42 of R.A. 9285. Said law also provides that the application for
the recognition and enforcement of such awards shall be filed with the proper RTC. While TPI’s
resort to the RTC for recognition and enforcement of the Third Partial Award is sanctioned by both
the New York Convention and R.A. 9285, its application for enforcement, however, was premature,
to say the least. True, the ICC Arbitral Tribunal had indeed ruled that LHC wrongfully drew upon the
securities, yet there is no order for the payment or return of the proceeds of the said securities.

The fact that the ICC Arbitral tribunal included the proceeds of the securities shows that it intended
to make a final determination/award as to the said issue only in the Final Award and not in the
previous partial awards. This supports LHC’s position that when the Third Partial Award was
released and Civil Case No. 04-332 was filed, TPI was not yet authorized to seek the issuance of a
writ of execution since the quantification of the amounts due to TPI had not yet been settled by the
ICC Arbitral tribunal. Notwithstanding the fact that the amount of proceeds drawn on the securities
was not disputed the application for the enforcement of the Third Partial Award was precipitately
filed. To repeat, the declarations made in the Third Partial Award do not constitute orders for the
payment of money.

36. DFA vs BCA, GR No. 225015 and 210858

37. PSALM vs CIR, GR No 198146

38. PVID vs Velez, GR No 84295

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39. Chavez vs Court of Appeals, GR No 159411

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