Mabuhay Holdings v. SEMBCORP
Mabuhay Holdings v. SEMBCORP
Mabuhay Holdings v. SEMBCORP
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* FIRST DIVISION.
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On September 16, 1996, Mabuhay, IDHI, and Sembcorp
entered into a Shareholders’ Agreement8 (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.
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Pursuant to Article 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 24
th month following the full disbursement of the 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.10
The Agreement included an arbitration clause, viz.:
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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 completed on January 8, 1999.
Said audits revealed that WJSC and WJNA both incurred
losses.12
On November 26, 1999, 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 fifty percent
(50%) of the claim or US$464,937.75.13
On February 24, 2000, Sembcorp sent a Final Demand
to Mabuhay to pay the Guaranteed Return. Mabuhay
requested for three (3) months to raise the necessary funds
but still failed to pay any amount after the lapse of the said
period.14
On December 4, 2000, Sembcorp filed a Request for
Arbitration before the International Court of Arbitration of
the International Chamber of Commerce (ICC) in
accordance with the Agreement and sought the following
reliefs:
(1) payment of the sum of US$929,875.50;
(2) alternatively, damages;
(3) interest on the above sum at such rate as the Arbitral
Tribunal deems fit and just;
(4) cost of the arbitration; and
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11 Id., at p. 108.
12 Id., at pp. 69-70.
13 Id., at p. 70.
14 Id.
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The Sole Arbitrator hereby decides that the Sole Arbitrator has
jurisdiction over the parties’ dispute and directs [Mabuhay] to
make the following payments to [Sembcorp]:
1. Half of the Guaranteed Return or an amount of
US$464,937.75 (Four Hundred Sixty-Four Thousand Nine
Hundred Thirty-Seven and Point Seventy-Five US Dollars);
2. Interest at the rate of 12% per annum on the said
amount of US$464,937.75 calculated from the date of this
Final Award until the said amount of US$464,937.75 is
actually and completely paid by [Mabuhay] to [Sembcorp];
and
3. A reimbursement of half of the costs of arbitration
fixed by the ICC Court at US$57,000 or the aggregate half
of which amount to US$28,500 together with an interest at
the rate of 12% per annum calculated from the date of this
Final Award until the said amount is actually and
completely paid by [Mabuhay] to [Sembcorp].17
Consequently, on April 14, 2005, Sembcorp filed a
Petition for Recognition and Enforcement of a Foreign
Arbitral Award18 before the RTC of Makati City, Branch
149.19
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15 Id.
16 Id., at pp. 210-260.
17 Id., at p. 260.
18 Id., at pp. 265-270.
19 Id., at p. 71.
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Aggrieved, Sembcorp appealed to the CA via a Notice of
Appeal under Rule 41 of the Rules of Court.25
Ruling of the CA
On November 19, 2013, the CA promulgated its Decision
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reversing and setting aside the RTC’s Decision.
The CA noted that the Final Award already settled the
factual issue on whether Sembcorp acquired the adverted
shares
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23 Id., at p. 89.
24 Id., at pp. 91-92.
25 Id., at p. 75.
26 Id., at pp. 68-84.
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Mabuhay thus contends that filing a petition for review
and not a notice of appeal is the proper remedy to contest
the RTC’s refusal to enforce the Final Award.
The Court notes, however, that the Special ADR Rules
took effect in 2009. Sembcorp’s notice of appeal was filed
only in 2008. The ADR Act, which was already in effect at
that time, did not specify the proper remedy of appeal from
the RTC to the CA. It merely provides that “a decision of
the regional trial court confirming, vacating, setting aside,
modifying or correcting an arbitral award may be appealed
to the CA in accordance with the rules of procedure to be
promulgated by the Supreme Court.”38
The Special ADR Rules shall retroactively apply to all
pending cases provided that no vested rights are impaired
or prejudiced.39 In this case, Sembcorp filed a notice of
appeal in
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In relation to the applicable standard or test for judicial
review by the CA in arriving at its decision, the Special
ADR Rules further provide:
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Here, Mabuhay did not specifically raise any of the
grounds under Rule 19.36 above in its petition before this
Court. Nonetheless, considering the dearth of
jurisprudence on enforcement of foreign arbitral awards
and the fact that the CA reversed the RTC’s decision, the
Court exercises its discretion to review the CA’s decision
solely for purposes of determining whether the CA applied
the aforecited standard of judicial review.
III. Grounds for Refusing
Enforcement or Recogni-
tion
We now delve into the core of the issue — whether there
is a ground for the RTC to refuse recognition and
enforcement of the Final Award in favor of Sembcorp.
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Under Article V of the New York Convention, the
grounds for refusing enforcement and recognition of a
foreign arbitral award are:
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41 Lanuza, Jr. v. BF Corporation, 744 Phil. 612; 737 SCRA 275 (2014).
42 See Sec. 2 of RA No. 9285 and Rule 2.1 of the Special ADR Rules.
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The aforecited grounds are essentially the same grounds
enumerated under Section 3643 of the Model Law. The list
is exclusive. Thus, Section 45 of the ADR Act provides:
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In Our jurisdiction, We have incorporated the grounds
enumerated under the New York Convention in our
arbitration laws. Article 4.36, Rule 644 of the IRR and Rule
13.445 of
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at the request of the party against whom it is provoked, only if the party
furnishes to the Regional Trial Court proof that:
(a) the parties to the arbitration agreement are, 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 an arbitrator or of the arbitral
proceedings or was otherwise unable to present his case; or
(c) the award deals with dispute 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 tribunal 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 court of the country in which, or
under the law of which, that award was made.
Recognition and enforcement of an arbitral award may also be refused
if the Regional Trial Court where recognition and enforcement is sought
finds that:
(a) the subject matter of the dispute is not capable of settlement
by arbitration under the law of the Philippines; or
(b) the recognition or enforcement of the award would be contrary
to the public policy of the Philippines.
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In accordance with the aforecited rules, Dr. Chantara-
Opakorn was appointed upon the proposal of the Thai
National Committee.
It bears stressing that the pro-arbitration policy of the
State includes its policy to respect party autonomy. Thus,
Rule 2.3 of the Special ADR Rules provides that “the
parties are free to agree on the procedure to be followed in
the conduct of arbitral proceedings.” The procedure to be
followed on the appointment of arbitrator are among the
procedural rules that may be agreed upon by the parties.
Moreover, under Rule 7.2 of the Special ADR Rules, a
challenge to the appointment of an arbitrator may be
raised in court only when the appointing authority fails or
refuses to act on the challenge within such period as may
be allowed under the applicable rule or in the absence
thereof, within thirty (30) days from receipt of the request,
that the aggrieved party may renew the challenge in court.
This is clearly not the case for Mabuhay as it was able to
challenge the appointment of Dr. Chantara-Opakorn in
accordance with Article 11 of the ICC Rules, but the ICC
Court rejected the same.48 As such, the Court shall not
entertain any challenge to the appointment of arbitrator
disguised as a ground for refusing enforcement of an
award.
At any rate, Mabuhay’s contention that the sole
arbitrator must have the expertise on Philippine law fails
to persuade. If the intent of the parties is to exclude foreign
arbitrators due to the substantive law of the contract, they
could have specified the same considering that the ICC
Rules provide for ap-
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48 Rollo, p. 221.
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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.”
Among the issues settled in the Final Award is whether
the dispute is an intra-corporate controversy. Dr.
Chantara-Opakorn ruled in the negative. The pertinent
portion of the Final Award is reproduced as follows:
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Again, the Special ADR Rules specifically provides that
in resolving the petition for recognition and enforcement of
a foreign arbitral award, the court shall not disturb the
arbitral tribunal’s determination of facts and/or
interpretation of law.50
Yet, the RTC, in its decision dismissing the petition of
Sembcorp, declared that “it is undisputed that the shares of
stocks of IDHI in WJNA and WJSC were actually owned by
[Sembcorp] before the filing of the request for arbitration”
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without providing any factual basis for such conclusion
which directly contradicts the arbitral tribunal’s findings.
Even granting that the court may rule on the issue of
whether the dispute is an intra-corporate controversy,
Mabuhay’s argument is premised on the factual issue of
whether Sembcorp indeed acquired the shares of IDHI.
Mabuhay failed to establish such fact before the arbitral
tribunal. The RTC, on the other hand, concluded that
Sembcorp acquired the subject shares but failed to explain
the basis for such
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54 Id.
55 Parsons & Whittemore Overseas v. Société Généralé de L’Industrie
du Papier (RAKTA), Court of Appeals, Second Circuit, United States of
America, 508 F.2d 969, 974 (1974).
56 Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas
Bumi Negara [2009], 12 H.K.C.F.A.R. 84, 100 (C.F.A.); See also Hebei
Import & Export Corporation v. Polytek Engineering Company, Limited
[1999] 1 HKLRD 665.
57 PT Asuransi Jasa Indonesia (Persero) v. Dexia Bank SA [2007] I
SLR(R) 597, citing Deutsche Schachtbau-und Tiejbohrgesellschaft m.b.H.
v. Shell International Petroleum Co., Ltd., Court of Appeal, England and
Wales, 24 March 1987, [1990] 1 A.C. 295.
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An older case, Ferrazzini v. Gsell,59 defined public policy
for purposes of determining whether that part of the
contract under consideration is against public policy:
In light of the foregoing and pursuant to the State’s
policy in favor of arbitration and enforcement of arbitral
awards, the Court adopts the majority and narrow
approach in determining whether enforcement of an award
is contrary to Our public policy. Mere errors in the
interpretation of the law or factual findings would not
suffice to warrant refusal of enforce-
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We affirm the aforecited findings of the CA. However,
We find no conflict between the fallo and the ratio
decidendi of the CA’s Decision. The fallo of the CA’s
Decision includes “[n]o pronouncement as to cost.” The CA
also reversed and set aside the RTC’s Decision in its
entirety. As such, even the pronouncement of the RTC as to
costs is set aside. Accordingly, We find no merit in
Mabuhay’s prayer for a statement in the dispositive portion
expressly stating that it is not liable for attorney’s fees and
exemplary damages.
On a final note, We implore the lower courts to apply the
ADR Act and the Special ADR Rules accordingly.
Arbitration, as a mode of alternative dispute resolution, is
undeniably one of the viable solutions to the longstanding
problem of clogged
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