1

ADR Cases Finals

TUNA PROCESSING, INC., Petitioner

-versus-
PHILIPPINE KINGFORD, INC., Respondent
GR. No. 185582 February 29, 2012

FACTS:
Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine Letters Patent, and
an Indonesian Patent, entered into a Memorandum of Agreement (MOA) with
five Philippine tuna processors including Respondent Philippine Kingford, Inc.
(KINGFORD). The MOA provides for the enforcing of the abovementioned
patents, granting licenses under the same, and collecting royalties, and for the
establishment of herein Petitioner Tuna Processors, Inc. (TPI).

Due to a series of events not mentioned in the Petition, the tuna processors,
including Respondent KINGFORD, withdrew from Petitioner TPI and
correspondingly reneged on their obligations. Petitioner TPI 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
KINGFORD.

To enforce the award, Petitioner TPI filed a Petition for Confirmation,

Recognition, and Enforcement of Foreign Arbitral Award before the RTC of
Makati City. Respondent KINGFORD filed a Motion to Dismiss, which the RTC
denied for lack of merit. Respondent KINGFORD then sought for the inhibition
of the RTC judge, Judge Alameda, and moved for the reconsideration of the
order denying the Motion. Judge Alameda inhibited himself notwithstanding
[t]he unfounded allegations and unsubstantiated assertions in the motion.
Judge Ruiz, to which the case was re-raffled, in turn, granted Respondent
KINGFORDSs Motion for Reconsideration and dismissed the Petition on the
ground that Petitioner TPI lacked legal capacity to sue in the Philippines.
Petitioner TPI is a corporation established in the State of California and not
licensed to do business in the Philippines.

Hence, the present Petition for Review on Certiorari under Rule 45.

ISSUE:
Whether or not a foreign corporation not licensed to do business in the
Philippines, but which collects royalties from entities in the Philippines, sue
here to enforce a foreign arbitral award?
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HELD:
YES. Petitioner TPI, although not licensed to do business in the Philippines,
may seek recognition and enforcement of the foreign arbitral award in
accordance with the provisions of the Alternative Dispute Resolution Act of
2004. A foreign corporations capacity to sue in the Philippines is not material
insofar as the recognition and enforcement of a foreign arbitral award is
concerned.

Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the
opposing party in an application for recognition and enforcement of the arbitral
award may raise only those grounds that were enumerated under Article V of
the New York Convention, to wit:

Article V

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;

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;

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;

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
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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.

Not one of the abovementioned exclusive grounds touched on the capacity to

sue of the party seeking the recognition and enforcement of the award.

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. Capacity to sue is not
included. Oppositely, in the rule on local arbitral awards or arbitrations in
instances where the place of arbitration is in the Philippines, it is specifically
required that a petition to determine any question concerning the existence,
validity and enforceability of such arbitration agreement available to the
parties before the commencement of arbitration and/or a petition for judicial
relief from the ruling of the arbitral tribunal on a preliminary question
upholding or declining its jurisdiction after arbitration has already
commenced should state [t]he facts showing that the persons named as
petitioner or respondent have legal capacity to sue or be sued.

Indeed, it is in the best interest of justice that in the enforcement of a foreign

arbitral award, the Court 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 Philippine courts. When a party enters into a
contract containing a foreign arbitration 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
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cause the implementation of the result. Although not on all fours with the
instant case, also worthy to consider is the wisdom of then Associate Justice
Flerida Ruth P. Romero in her Dissenting Opinion in Asset Privatization Trust
v. Court of Appeals [1998], to wit:

xxx Arbitration, as an alternative mode of settlement, is gaining adherents in

legal and judicial circles here and abroad. If its tested mechanism can simply
be ignored by an aggrieved party, one who, it must be stressed, voluntarily and
actively participated in the arbitration proceedings from the very beginning, it
will destroy the very essence of mutuality inherent in consensual contracts.

Clearly, on the matter of capacity to sue, a foreign arbitral award should be

respected not because it is favored over domestic laws and procedures, but
because Republic Act No. 9285 has certainly erased any conflict of law
question.

Finally, even assuming, only for the sake of argument, that the RTC correctly
observed that the Model Law, not the New York Convention, governs the subject
arbitral award, Petitioner TPI may still seek recognition and enforcement of the
award in Philippine court, since the Model Law prescribes substantially
identical exclusive grounds for refusing recognition or enforcement.

The Resolution of the RTC is REVERSED and SET ASIDE.

LM POWER ENGINEERING CORPORATION, Petitioner,

vs.
CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., Respondent.
G.R. No. 141833 March 26, 2003

FACTS:
Petitioner and Respondent entered into a Subcontract Agreement involving
electrical work at the Third Port of Zamboanga. Two years thereafter,
Respondent took over some of the work contracted to Petitioner. Allegedly, the
latter had failed to finish it because of its inability to procure materials.

Upon completing its task under the Contract, Petitioner billed Respondent in
the amount of P6.7M. Respondent, however, refused to pay and contested the
accuracy of the amount of advances and billable accomplishments listed by
 5

Petitioner. Respondent also took refuge in the termination clause of the

Agreement. That clause allowed it to set off the cost of the work that Petitioner
had failed to undertake due to termination or take-over against the
amount it owed the latter.

Because of the dispute, Petitioner filed with the RTC of Makati a Complaint for
Collection of the amount representing the alleged balance due it under the
Subcontract. Instead of submitting an Answer, Respondent filed a Motion to
Dismiss, alleging that the Complaint was premature because there was no prior
recourse to arbitration.

RTC denied the Motion to Dismiss on the ground that the dispute did not
involve the interpretation or the implementation of the Agreement and was,
therefore, not covered by the arbitral clause. The RTC ruled that the take-over
of some work items by Respondent was not equivalent to a termination, but a
mere modification, of the Subcontract. The latter was ordered to give full
payment for the work completed by Petitioner.

On appeal, the CA reversed the RTC and ordered the referral of the case to
arbitration. The CA held as arbitrable the issue of whether Respondents take-
over of some work items had been intended to be a termination of the original
contract under Letter K of the Subcontract.

Hence, this Petition for Review on Certiorari under Rule 45.

ISSUES:
1 Whether or not there exists a controversy/dispute between Petitioner and
Respondent regarding the interpretation and implementation of the
Subcontract Agreement that requires prior recourse to voluntary arbitration?;
2 In the affirmative, whether or not there is a need to file a request first with the
CIAC in order to vest it with jurisdiction to decide a construction dispute?

RULING:

First Issue:
YES. SC sides with Respondent. The instant case involves technical
discrepancies that are better left to an arbitral body that has expertise in those
areas.

In the instant case, the Subcontract has the following arbitral clause:
6. The Parties hereto agree that any dispute or conflict as regards to
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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.

A review of the factual allegations of the parties reveals that they differ on the
following questions, the resolutions of which lies in the interpretation of the
provisions of the Subcontract Agreement:
1 Did a take-over/termination occur?
2 May the expenses incurred by Respondent in the take-over be set off against
the amounts it owed Petitioner?
3 How much were the advances and billable accomplishments?
Being an inexpensive, speedy and amicable method of settling disputes,
arbitration along with mediation, conciliation and negotiation is
encouraged by the SC. 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.

Consistent with the above-mentioned policy of encouraging alternative dispute

resolution methods, courts should liberally construe arbitration clauses.
Provided such clause is susceptible of an interpretation that covers the
asserted dispute, an order to arbitrate should be granted. Any doubt should be
resolved in favor of arbitration.

Second Issue:
NO. SC is not persuaded with Petitioners contention. Section 1 of Article III of
the NEW Rules of Procedure Governing Construction Arbitration has dispensed
with the requirement to submit a request for arbitration. Recourse to the CIAC
may now be availed of whenever a contract contains a clause for the
submission of a future controversy to arbitration.

Section 1 of Article III of the NEW Rules of Procedure Governing Construction

Arbitration provides:

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

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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.

As clearly explained in China Chang Jiang Energy Corporation (Philippines) v.

Rosal Infrastructure Builders et al. (an extended unsigned Resolution) and
reiterated in National Irrigation Administration v. Court of Appeals [1999], from
which SC quote thus:

Under the present Rules of Procedure, for a particular construction contract to

fall within the jurisdiction of CIAC, it is merely required that the parties agree
to submit the same to voluntary arbitration unlike in the original version of
Section 1, as applied in the Tesco case, the law as it now stands does not
provide that the parties should agree to submit disputes arising from their
agreement specifically to the CIAC for the latter to acquire jurisdiction over the
same. Rather, it is plain and clear that as long as the parties agree to submit to
voluntary arbitration, regardless of what forum they may choose, their
agreement will fall within the jurisdiction of the CIAC, such that, even if they
specifically choose another forum, the parties will not be precluded from
electing to submit their dispute before the CIAC because this right has been
vested upon each party by law, i.e., E.O. No. 1008.

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.

The arbitral clause in the Agreement is a commitment on the part of the

parties to submit to arbitration the disputes covered therein. Because that
clause is binding, they are expected to abide by it in good faith. And because it
covers the dispute between the parties in the present case, either of them may
compel the other to arbitrate.

The Petition is unmeritorious; hence, DENIED. The assailed Decision of the CA

is AFFIRMED.

Korea Technologies Co., Ltd., Petitioner

-versus-
 8

Hon. Alberto A. Lerma and Pacific General Steel Manufacturing

Corporation, Respondent
G.R. No. 143581, Jan. 7, 2008.

Facts:
Korea Technologies Co., Ltd. [Korea Tech], a Korean corporation, entered into a
contract with Pacific General Steel Manufacturing Corporation [Pacific
General], a domestic corporation, whereby Korea Tech undertook to ship and
install in Pacific Generals site in Carmona, Cavite the machinery and facilities
necessary for manufacturing LPG cylinders, and to initially operate the plant
after it is installed.

The plant, after completion of installation, could not be operated by Pacific

General due to its financial difficulties affecting the supply of materials. The
last payments made by Pacific General to Korea Tech consisted of postdated
checks which were dishonored upon presentment. According to Pacific General,
it stopped payment because Korea Tech had delivered a hydraulic press which
was different in kind and of lower quality than that agreed upon. Korea Tech
also failed to deliver equipment parts already paid for by it. It threatened to
cancel the contract with Korea Tech and dismantle the Carmona plant.

Finally, Pacific General filed before the Office of the Prosecutor a Complaint-
Affidavit for estafa against Mr. Dae Hyun Kang, President of Korea Tech. Korea
Tech informed PGSMC that it could not unilaterally rescind the contract. Of
greater importance to the present article, KOGIES also insisted that their
dispute be settled by arbitration as provided by Article 15 of their contract
the arbitration clause.

Korea Tech initiated arbitration before the Korea Commercial Arbitration Board
[KCAB] in Seoul, Korea and, at the same time, commenced a civil action before
the Regional Trial Court [the trial court] where it prayed that Pacific General
be restrained from dismantling the plant and equipment. Pacific General
opposed the application and argued that the arbitration clause was null and
void, being contrary to public policy as it ousts the local court of jurisdiction.

The trial court denied the application for preliminary injunction and declared
the arbitration agreement null and void. Korea Tech moved to dismiss the
counterclaims for damages.

Korea Tech filed a petition for certiorari before the Court of Appeals [CA]. The
court dismissed the petition and held that an arbitration clause which provided
 9

for a final determination of the legal rights of the parties to the contract by
arbitration was against public policy. Further appeal was made to the Supreme
Court by way of a petition for review.

Issues:
1. Whether or not the arbitration clause applied is valid

Ruling: The Supreme Court (the Court) held:

1. Re: The validity of the arbitration clause.
The arbitration clause is valid. It has not been shown to be contrary to any
law, or against morals, good customs, public order or public policy. The
arbitration clause stipulates that the arbitration must be done in Seoul, Korea
in accordance with the Commercial Arbitration Rules of the KCAB, and that
the award is final and binding. This is not contrary to public policy. We find
no reason why the arbitration clause should not be respected and
complied with by both parties.
This ruling, the Court said, is consonant with the declared policy in Section 2
of the ADR Act that the State (shall) actively promote party autonomy in the
resolution of disputes or the freedom of the parties to make their own
arrangements to resolve their disputes. Citing Section 24 of the ADR Act, the
Court said the trial court does not have jurisdiction over disputes that are
properly the subject of arbitration pursuant to an arbitration clause. In the
earlier case of BF Corporation v. Court of Appeals and Shangri-la Properties,
Inc., where the trial court refused to refer the parties to arbitration
notwithstanding the existence of an arbitration agreement between them, the
Supreme Court said the trial court had prematurely exercised its jurisdiction
over the case.
The Court further emphasized that a submission to arbitration is a contract.
As a rule, contracts are respected as the law between the contracting parties
and produce effect between them, their assigns and heirs.8 Courts should
liberally review arbitration clauses. Any doubt should be resolved in favor of
arbitration.
2. Re: Enforcement of award in a domestic or international arbitration
An arbitral award in a domestic or international arbitration is subject to
enforcement by a court upon application of the prevailing party for the
confirmation or recognition and enforcement of an award. Under Section 42 of
the ADR Act, The recognition and enforcement of such (foreign) arbitral
awards shall be filed with the Regional Trial Court in accordance with the rules
of procedure to be promulgated by the Supreme Court. An arbitral award is
immediately executory upon the lapse of the period provided by law.
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For an award rendered in domestic or non-international arbitration, unless a

petition to vacate the award is filed within thirty (30) days from the date of
serve upon the latter, the award is subject to confirmation by the court.
For an award rendered in a domestic, international arbitration, the period for
filing an application to set it aside is not later than three (3) months from the
date the applicant received the award, otherwise the court shall recognize and
enforce it.
3. Re: Enforcement of foreign arbitral award
In an attempt to allay the fear by Pacific General of submitting its dispute to
arbitration in Seoul, South Korea under the rules of the Korea Commercial
Arbitration Board, the Supreme Court said in obiter dictum:
In case a foreign arbitral body is chosen by the parties, the arbitral 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 on June 21, 1985, the Philippine committed itself to be bound by
the Model Law. We have even incorporated the Model Law in Republic Act No.
9285, otherwise known as the Alternative Dispute Resolution Act of 2004.
xxxxxx
Thus, while the RTC 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.. Chapter 7 of RA 9285 has made it clear that all arbitral
awards, whether domestic or foreign, are subject to judicial review on
specific grounds provided for.
The Supreme Court finally held:
While it (Pacific General) may have misgivings on the foreign arbitration done in
Korea by the KCAB, 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.

JORGE GONZALES, Petitioner,

-versus-
HON. OSCAR B. PIMENTEL, in his capacity as PRESIDING JUDGE of BR.
148
of the REGIONAL TRIAL COURT of MAKATI CITY, and CLIMAX-ARIMCO
MINING CORPORATION, Respondents.
GR. No. 161957 January 22, 2007
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Facts:

This is a consolidation of two petitions rooted in the same disputed Addendum

Contract entered into by the parties. In one case, the Court 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. Gonzales averred that the DENR Panel of Arbitrators
has jurisdiction the case involves a mining dispute that properly falls within
the ambit of the Panels authority.

Respondents Climax Mining Ltd., et al., on the other hand, filed their Motion
for Partial Reconsideration and/or Clarification seeking reconsideration of that
part of the Decision holding that the case should not be brought for arbitration
under Republic Act (R.A.) No. 876, They argued 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.

On another case, Gonzales challenged the order of the Regional Trial Court
(RTC) requiring him to proceed with the arbitration proceedings while the
complaint for the nullification of the Addendum Contract was pending before
the DENR Panel of Arbitrators. He contended that any issue as to the nullity,
inoperativeness, or incapability of performance of the arbitration clause or
agreement raised by one of the parties to the alleged arbitration agreement
must be determined by the court prior to referring them to arbitration.

While Climax-Arimco contended that an application to compel

arbitration under Sec. 6 of RA No. 876 confers on the trial court only a limited
and special jurisdiction, a jurisdiction solely to determine whether the parties
have a written contract to arbitrate and if the defendant has failed to comply
with the contract.

Issue:

Whether or not arbitration is proper even though issues of validity and nullity
of the Addendum Contract and, consequently, of the arbitration clause were
raised.

Held:
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Yes.

In La Naval Drug Corporation v. Court of Appeals, the arbitration law explicitly

confines the courts authority only to pass upon the issue of whether there is
or there is no agreement in writing providing for arbitration, and 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 finds that no such agreement exists, the proceeding
shall be dismissed. The cited case also stressed that the proceedings are
summary in nature.

Arbitration, as an alternative mode of settling disputes, has long been

recognized and accepted in our jurisdiction. The Civil Code is explicit on the
matter, R.A. No. 876 also expressly authorizes arbitration of domestic disputes.
Foreign arbitration, as a system of settling commercial disputes of an
international character, 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
international arbitration agreements between parties of different nationalities
within a contracting state. The enactment of R.A. No. 9285 on 2 April 2004
further institutionalized the use of alternative dispute resolution systems,
including arbitration, in the settlement of disputes.

Implicit in the summary nature of the judicial proceedings is the

separable or independent character of the arbitration clause or agreement. This
was highlighted in the cases of Manila Electric Co. v. Pasay Trans. Co. and Del
Monte Corporation-USA v. Court of Appeals.

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 part comes to an end.

There is reason, therefore, to rule against Gonzales when he alleges

that Judge Pimentel acted with grave abuse of discretion in ordering the parties
to proceed with arbitration. Gonzaless 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 clause from the
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Addendum Contract means that validity or invalidity of the Addendum

Contract will not affect the enforceability of the agreement to arbitrate. Thus,
Gonzaless petition for certiorari should be dismissed.

INSULAR SAVINGS BANK, Petitioner

-versus-
FAR EAST BANK AND TRUST COMPANY, Respondent
GR. No. 141818 June 22, 2006

Facts:

Far East Bank and Trust Company, the respondent of this case filed a
complaint against Home Bankers Trust and Company (HBTC) with the
Philippine Clearing House Corporations (PCHC) Arbitration Committee, seeking
recovery from the petitioner, the sum of Php25,200,000.00 representing the
total amount of the three checks drawn and debited against its clearing
account.

Meanwhile, before the termination of the arbitration proceedings,

respondent filed another complaint but this time with the Regional Trial Court
(RTC) for Sum of Money and Damages with Preliminary Attachment. The RTC
suspended the proceedings pending the decision of the Arbitration Committee.

The PCHC Arbitration Committee rendered its decision in favor of

respondent. Petitioner motion for reconsideration but was denied. It then filed
a petition for review in the earlier case filed by respondent in the RTC. The
RTC dismissed the petition for review, for lack of jurisdiction.

Issue:

Whether or not the petitioner availed the proper remedy contesting the decision
rendered by the Arbitration Committee.

Held:

No. Petitioner had several judicial remedies available at its disposal after the
Arbitration Committee denied its Motion for Reconsideration. It may petition
 14

the proper RTC to issue an order vacating the award on the grounds provided
for under Section 24 of the Arbitration Law. Petitioner also has the option to
file a petition for review under Rule 43 of the Rules of Court with the Court of
Appeals on question of fact, of law, or mixed questions of fact and law. Lastly,
petitioner may file a petition for certiorari under Rule 65 of the Rules of Court
on the ground that the Arbitration Committee acted without or in excess of its
jurisdiction or with grave abuse of discretion amounting to lack or excess of
jurisdiction. Since this case involves acts or omissions of quasi-judicial agenct,
the petition should be filed in and cognizable only by the Court of Appeals.

In this instance, petitioner did not avail of any of the abovementioned remedies
available to it. Instead it filed a petition for review with the RTC where the case
is pending pursuant to Section 13 of the PCHC Rules to sustain its action.
Clearly, it erred in the procedure it chose for judicial review of the arbitral
award.

DEPARTMENT OF FOREIGN AFFAIRS AND BANGKO SENTRAL NG

PILIPINAS
-versus-
HON. FRANCO T. FALCON, IN HIS CAPACITY AS PRESIDING JUDGE OF
BR. 71 OF RTC IN PASIG CITY and BCA INTERNATIONAL CORPORATION
GR. NO. 176657 September 1, 2010

Facts:

Facts:
DFA needed to implement the Machine Readable Passport and Visa
Project under the BOT scheme. Thus, the PBAC (Prequalification, Bids and
Awards Committee) published an invitation to prequalify and bid for the supply
of the needed machine readable passports and visas, and conducted the public
bidding for the MRP/V Project. PBAC found BCAs bid to be the sole complying
bid hence, it permitted the DFA to engage in direct negotiations with BCA.
BCA, in compliance with the Notice of Award (NOA), incorporated a project
company, the Philippine Passport Corporation (PPC) to undertake and
implement the MRP/V Project.

A Build-Operate-Transfer Agreement (BOT Agreement) between DFA and

PPC was signed. The BOT Agreement was later amended to include the
following changes. An Assignment Agreement was executed by BCA and PPC
whereby BCA assigned its rights arising from the Amended BOT Agreement to
 15

PPC. MRP/V Project was divided into 6 phases, with each phase having a
different set of timeline and due dates.

DFA and BCA impute breach of the Amended BOT Agreement against
each other.
DFA: Delay of project is due to the submission of deficient documents
as well as intervening issues regarding BCAs financial incapacity.
BCA: DFA failed to perform its reciprocal obligation to issue to BCA a
certificate of acceptance of Phase 1 within 14 days which was required
by the Amended BOT. Furthermore, it alleged that every new
appointee to the position of DFA secretary wanted to review the award
to BCA thats why it took 3 years for DFA to issue said Certificate.

DFA sent a Notice of Termination to BCA and PPC due to their alleged
failure to submit proof of financial capability to complete the entire MRP/V
Project in accordance with the financial warranty under Section 5.02(A) of the
Amended BOT Agreement. DFA likewise demanded for liquidated damages.
BCA sent a letter to the DFA demanding that it immediately reconsider and
revoke its previous notice of termination, otherwise, BCA would be compelled to
declare the DFA in default pursuant to the Amended BOT Agreement. When
the DFA failed to respond to said letter, BCA issued its own Notice of Default
against the DFA, stating that if the default is not remedied within 90 days, BCA
will be constrained to terminate the MRP/V Project and hold the DFA liable for
damages.

BCA filed its Request for Arbitration with the Philippine Dispute
Resolution Center (PDRCI) pursuant to Section 19.02 of the Amended BOT
Agreement. BCAs request for Arbitration sought for the following reliefs
Judgment nullifying the Notice of Termination by DFA including the
demand to pay liquidated damages.
Judgment confirming the Notice of Default issued by BCA and
ordering DFA to comply with its obligations under the Amended BOT.
A judgment ordering DFA to pay damages to BCA in the amount of
50M representing lost business opportunities, financing fees, etc.

Thereafter, the DFA and the BSP entered into a Memorandum of

Agreement for the latter to provide the former passports compliant with
international standards. The BSP then solicited bids for the supply, delivery,
installation and commissioning of a system for the production of Electronic
Passport Booklets or ePassports

Thus, BCA filed a Petition for Interim Relief under Section 28 of the
 16

Alternative Dispute Resolution Act of 2004 (R.A. No. 9285), with the Regional
Trial Court (RTC) of Pasig praying for the issuance of TRO restraining DFA and
BSP from awarding a new contract to implement the Project or if such contract
has been awarded, from implementing such projects.

DFA filed an Opposition (to the Application for Temporary Restraining

Order and/or Writ of Preliminary Injunction alleging that:
BCA has no cause of action: MRP/V is not the same as the contract
with BSP which is for the supply of electronic passports.
RTC is prohibited from issuing a TRO pursuant to RA 8975.
The TC, after summarily hearing the parties oral arguments on BCAs
application for TRO, TC ordered the issuance of the TRO. DFA filed an MR.
After notice and hearing, an order granting BCAs application for preliminary
injunction was issued by TC. DFA and BSP filed the instant Petition for
Certiorari and prohibition with a prayer for issuance of TRO and/or a writ of
preliminary injunction, imputing GAD on the trial court when it granted
interim relief to BCA and issued the WPI.
Main allegation: RTC is prohibited under RA 8975 Section 3 to issue a
TRO and a writ of preliminary injunction against national government
projects such as ePassport project.
TRO prayed for by DFA and BSP was granted.
Issue:

1. Whether the trial courts issuance of writ of injunction was proper?

Held:

No. With respect to petitioners contention that BCA will suffer no grave
and irreparable injury so as to justify the grant of injunctive relief, the Court
finds that this particular argument merits consideration.

Under the BOT Law and the Amended BOT Agreement, in the event of
default on the part of the government (in this case, the DFA) or on the part of
the proponent, the non defaulting party is allowed to terminate the agreement,
again subject to proper compensation in the manner set forth in the
agreement.
o Even if we hypothetically accept BCAs contention that the DFA
terminated the Amended BOT Agreement without any default or
wrongdoing on BCAs part, it is not indubitable that BCA is entitled
to injunctive relief.
 17

BOT Law expressly allows the government to terminate a BOT

agreement, even without fault on the part of the project proponent, subject to
the payment of the actual expenses incurred by the proponent plus a
reasonable rate of return.

Time and again, this Court has held that to be entitled to injunctive relief
the party seeking such relief must be able to show grave, irreparable injury
that is not capable of compensation.
o WPI is resorted to only when there is a pressing necessity to avoid
injurious consequences which cannot be remedied under any
standard compensation
o Two requisites are necessary if a preliminary injunction is to issue,
namely:
the existence of a right to be protected and
the facts against which the injunction is to be directed are
violative of said right.
o It must be shown that the invasion of the right sought to be
protected is material and substantial, that the right of complainant
is clear and unmistakable and that there is an urgent and
paramount necessity for the writ to prevent serious damage.
o An injury is considered irreparable if it is of such constant and
frequent recurrence that no fair and reasonable redress can be had
therefor in a court of law, or where there is no standard by which their
amount can be measured with reasonable accuracy, that is, it is not
susceptible of mathematical computation. It is considered
irreparable injury when it cannot be adequately compensated in
damages due to the nature of the injury itself or the nature of the
right or property injured or when there exists no certain pecuniary
standard for the measurement of damages.
In this case, whether this is a termination by the DFA alone without fault on
the part of BCA or a termination due to default on the part of either party, the
BOT Law and the Amended BOT Agreement lay down the measure of
compensation to be paid under the appropriate circumstances.

Significantly, in BCAs Request for Arbitration with the PDRCI, it prayed

for, among others,a judgment ordering respondent [DFA] to pay damages to
Claimant [BCA], reasonably estimated at P50M. All the purported damages that
BCA claims to have suffered by virtue of the DFAs termination of the Amended
BOT Agreement are plainly determinable in pecuniary terms and can be
reasonably estimated according to BCAs own words.
 18

CARGILL PHILIPPINES, INC., Petitioner

-versus-
SAN FERNANDO REGALA TRADING, INC., Respondent
GR. No. 175404 January 31, 2011

Facts:

Respondent San Fernando Regala Trading, Inc. filed with the Regional Trial
Court (RTC) of Makati City a Complaint for Rescission of Contract with
Damages against petitioner Cargill Philippines, Inc.

Petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer

Controversy to Voluntary Arbitration, wherein it argued that the alleged
contract between the parties was never consummated because respondent
never returned the proposed agreement bearing its written acceptance or
conformity nor did respondent open the Irrevocable Letter of Credit at sight.
Petitioner contended that the controversy between the parties was whether or
not the alleged contract between the parties was legally in existence and the
RTC was not the proper forum to ventilate such issue. It claimed that the
contract contained an arbitration clause, to wit:

ARBITRATION

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.

that respondent must first comply with the arbitration clause before resorting
to court, thus, the RTC must either dismiss the case or suspend the
proceedings and direct the parties to proceed with arbitration, pursuant to
Sections 6 and 7 of Republic Act (R.A.) No. 876, or the Arbitration Law.

Respondent filed an Opposition, wherein it argued that the RTC has

jurisdiction over the action for rescission of contract and could not be changed
by the subject arbitration clause.
 19

In its Reply, petitioner maintained that the cited decisions were already
inapplicable, having been rendered prior to the effectivity of the New Civil Code
in 1950 and the Arbitration Law in 1953.

In its Rejoinder, respondent argued that the arbitration clause relied upon by
petitioner is invalid and unenforceable, considering that the requirements
imposed by the provisions of the Arbitration Law had not been complied with.

By way of Sur-Rejoinder, petitioner contended that respondent had even

clarified that the issue boiled down to whether the arbitration clause contained
in the contract subject of the complaint is valid and enforceable; that the
arbitration clause did not violate any of the cited provisions of the Arbitration
Law.

The RTC rendered an Order denying the defendants Motion to

Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary
Arbitration and directed the defendant to file its answer within 10 days from
receipt of order.

Petitioner filed its Motion for Reconsideration, which the RTC denied.

Petitioner filed a petition for certiorari with the CA but such petition was denied
and affirmed RTCs Orders.

Petitioner's motion for reconsideration was denied.

Hence, this petition.

Issue:

Whether or not the CA erred in finding that this case cannot be brought under
the arbitration law for the purpose of suspending the proceedings in the RTC.

Held:

Yes. The Court find merit in the petition.

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
 20

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 CA ruled that arbitration cannot be ordered in this case, since

petitioner alleged that the contract between the parties did not exist or was
invalid and arbitration is not proper when one of the parties repudiates the
existence or validity of the contract.
Consequently, the petitioner herein cannot claim that the contract was
never consummated and, at the same time, invokes the arbitration clause
provided for under the contract which it alleges to be non-existent or invalid.
Apparently, the arbitration clause is being invoked merely as a fallback
position. The petitioner must first adduce evidence in support of its claim that
there is no valid contract between them and should the court a quo find the
claim to be meritorious, the parties may then be spared the rigors and
expenses that arbitration in a foreign land would surely entail.

The petition is GRANTED. The parties are hereby ORDERED to SUBMIT

themselves to the arbitration of their dispute, pursuant to their agreement.

EQUITABLE PCI BANKING CORPORATION, Petitioner

-versus-
RCBC CAPITAL CORPORATION
G.R. No. 182248 December 18, 2008

The Facts

Petitioners Equitable PCI Bank, Inc. (EPCIB) and the individual shareholders of
Bankard, Inc., as sellers, and respondent RCBC Capital Corporation (RCBC), as
5
buyer, executed a Share Purchase Agreement (SPA) for the purchase of
petitioners interests in Bankard, representing 226,460,000 shares, for the price of
PhP 1,786,769,400. To expedite the purchase, RCBC agreed to dispense with the
conduct of a due diligence audit on the financial status of Bankard.
 21

RCBC deposited the stipulated downpayment amount in an escrow account after

which it was given full management and operational control of Bankard. June 2,
2000 is also considered by the parties as the Closing Date referred to in the SPA.

Sometime in September 2000, RCBC had Bankards accounts audited, creating for
the purpose an audit team and the conclusion was that the warranty, as
contained in Section 5(h) of the SPA (simply Sec. 5[h] hereinafter), was correct.

RCBC paid the balance of the contract price. The corresponding deeds of sale for
the shares in question were executed in January 2001. Thereafter RCBC informed
petitioners of its having overpaid the purchase price of the subject shares,
claiming that there was an overstatement of valuation of accounts amounting to
PhP 478 million, resulting in the overpayment of over PhP 616 million. Thus,
RCBC claimed that petitioners violated their warranty, as sellers, embodied in Sec.
5(g) of the SPA (Sec. 5[g] hereinafter).

RCBC, in accordance with Sec. 10 of the SPA, filed a Request for Arbitration dated
May 12, 2004 with the ICC-ICA. In the request, RCBC charged Bankard with
deviating from, contravening and not following generally accepted accounting
principles and practices in maintaining their books.

Arbitration in the ICC-ICA proceeded after the formation of the arbitration

tribunal consisting of retired Justice Santiago M. Kapunan, nominated by
petitioners; Neil Kaplan, RCBCs nominee; and Sir Ian Barker, appointed by the
ICC-ICA.

After drawn out proceedings with each party alleging deviation and non-
compliance by the other with arbitration rules, the tribunal, with Justice
Kapunan dissenting, rendered a Partial Award . On the matter of prescription, the
tribunal held that RCBCs claim is not time-barred, the claim properly falling
under the contemplation of Sec. 5(g) and not Sec. 5(h). As such, the tribunal
concluded, RCBCs claim was filed within the three (3)-year period under Sec. 5(g)
and that the six (6)- month period under Sec. 5(h) did not apply.The tribunal also
exonerated RCBC from laches, the latter having sought relief within the three (3)-
year period prescribed in the SPA.

Notably, the tribunal considered the rescission of the SPA and ASPA as
impracticable and "totally out of the question."

RCBC filed with the RTC a Motion to Confirm Partial Award. The RTC issued the
first assailed order confirming the Partial Award and denying the adverted
separate motions to vacate and to suspend and inhibit. From this order,
petitioners sought reconsideration, but their motion was denied by the RTC .
 22

Issue:

Whether or not there is manifest disregard of the law by the ICC-ICA.

Held:

The petition must be denied.

This is a procedural miscue for petitioners who erroneously bypassed the Court of
Appeals (CA) in pursuit of its appeal. While this procedural gaffe has not been
raised by RCBC, still we would be remiss in not pointing out the proper mode of
appeal from a decision of the RTC confirming, vacating, setting aside, modifying,
or correcting an arbitral award.

Rule 45 is not the remedy available to petitioners as the proper mode of appeal
assailing the decision of the RTC confirming as arbitral award is an appeal before
the CA pursuant to Sec. 46 of Republic Act No. (RA) 9285, otherwise known as the
Alternative Dispute Resolution Act of 2004, or completely, An Act to
Institutionalize the Use of an Alternative Dispute Resolution System in the
Philippines and to Establish the Office for Alternative Dispute Resolution, and for
other Purposes, promulgated on April 2, 2004 and became effective on April 28,
2004 after its publication on April 13, 2004.

In Korea Technologies Co., Ltd v. Lerma, we explained, inter alia, that the RTC
decision of an assailed arbitral award is appealable to the CA and may further be
appealed to this Court.

It is clear from the factual antecedents that RA 9285 applies to the instant
case. This law was already effective at the time the arbitral proceedings were
commenced by RCBC through a request for arbitration filed before the ICC-ICA
on May 12, 2004.

The Court Will Not Overturn an Arbitral Award Unless It Was Made in Manifest
Disregard of the Law

Following Asset Privatization Trust vs CA, , errors in law and fact would not
generally justify the reversal of an arbitral award. A party asking for the
vacation of an arbitral award must show that any of the grounds for vacating,
rescinding, or modifying an award are present or that the arbitral award was
made in manifest disregard of the law. Otherwise, the Court is duty-bound to
uphold an arbitral award.
 23

The instant petition dwells on the alleged manifest disregard of the law by the
ICC-ICA.

The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros expounded
on the phrase "manifest disregard of the law" in the following wise:

This court has emphasized that manifest disregard of the law is a very narrow
th
standard of review. Anaconda Co. v. District Lodge No. 27, 693 F.2d 35 (6
Cir.1982). A mere error in interpretation or application of the law is
insufficient. Anaconda, 693 F.2d at 37-38. Rather, the decision must fly in the
face of clearly established legal

precedent. When faced with questions of law, an arbitration panel does not act
in manifest disregard of the law unless (1) the applicable legal principle is
clearly defined and not subject to reasonable debate; and (2) the arbitrators
refused to heed that legal principle.

Thus, to justify the vacation of an arbitral award on account of "manifest

disregard of the law," the arbiters findings must clearly and unequivocally
violate an established legal precedent. Anything less would not suffice.

A review of petitioners arguments would, however, show that their arguments

are bereft of merit. Thus, the Partial Award cannot be vacated.

RCBCs Claim Is Not Time-Barred

The Court upholds the conclusion of the tribunal and rules that the claim of
RCBC under Sec. 5(g) is not time-barred.

Petitioners Were Not Denied Due Process

Petitioners assert that "the arbitrators partial award admitted and used the
Summaries as evidence, and held on the basis of the information contained in
them that petitioners were in breach of their warranty in GAAP compliance."

Petitioners position is bereft of merit. The petitioners afforded the opportunity

to refute the summaries and pieces of evidence submitted by RCBC which
became the bases of the experts opinion.

Petitioners right to due process was not breached. Sec. 15 of RA 876 or the
Arbitration Law provides that:

Section 15. Hearing by arbitrators. Arbitrators may, at the commencement of

the hearing, ask both parties for brief statements of the issues in controversy
 24

and/or an agreed statement of facts. Thereafter the parties may offer such
evidence as they desire, and shall produce such additional evidence as the
arbitrators shall require or deem necessary to an understanding and
determination of the dispute. The arbitrators shall be the sole judge of the
relevancy and materiality of the evidence offered or produced, and shall not be
bound to conform to the Rules of Court pertaining to evidence. Arbitrators shall
receive as exhibits in evidence any document which the parties may wish to
submit and the exhibits shall be properly identified at the time of

submission. All exhibits shall remain in the custody of the Clerk of Court during
the course of the arbitration and shall be returned to the parties at the time the
award is made. The arbitrators may make an ocular inspection of any matter or
premises which are in dispute, but such inspection shall be made only in the
presence of all parties to the arbitration, unless any party who shall have
received notice thereof fails to appear, in which event such inspection shall be
made in the absence of such party. (Emphasis supplied.)

The well-settled rule is that administrative agencies exercising quasi-judicial

powers shall not be fettered by the rigid technicalities of procedure, albeit they
are, at all times required, to adhere to the basic concepts of fair play.

71
The right to cross-examine is not an indispensable aspect of due process. xx
x (Emphasis supplied.)

RCBC Is Not Estopped from Questioning the Financial Condition of Bankard

On estoppel, petitioners contend that RCBC is now precluded from denying the
fairness and accuracy of said accounts since it did not seek price reduction
under Sec. 5(h). Lastly, they asseverate that RCBC continued with Bankards

accounting policies and practices and found them to conform to the generally
accepted accounting principles, contrary to RCBCs allegations.

Petitioners contention is not meritorious.

The doctrine of estoppel is based upon the grounds of public policy, fair
dealing, good faith, and justice; and its purpose is to forbid one to speak
against ones own acts, representations, or commitments to the injury of one to
72
whom they were directed and who reasonably relied on them.

The elements of estoppel pertaining to the party estopped are:

 25

(1) conduct which amounts to a false representation or concealment of material

facts, or, at least, which calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party subsequently
attempts to assert; (2) intention, or at least expectation, that such conduct
shall be acted upon by the other party; and (3) knowledge, actual or
74
constructive, of the actual facts.

In the case at bar, the first element of estoppel in relation to the party sought
to be estopped is not present. Petitioners position is that "RCBC was aware of
the manner in which the Bankard accounts were recorded, well before it
consummated the SPA by taking delivery of the shares and paying the
75
outstanding 80% balance of the contract price."

The Arbitral Tribunal explained in detail why estoppel is not present in the
case at bar. In summary, the tribunal

properly ruled that petitioners failed to prove that the formation of the
Transition Committee and the conduct of the audit by Rubio and Legaspi were
admissions or representations by RCBC that it would not pursue a claim
under Sec. 5(g) and that petitioners relied on such representation to their
detriment. The SC agrees with the findings of the tribunal that estoppel is not
present in the situation at bar.

It becomes evident from all of the foregoing findings that the ICC-ICA is not
guilty of any manifest disregard of the law on estoppel. As shown above, the
findings of the ICC-ICA in the Partial Award are well-supported in law and
grounded on facts. The Partial Award must be upheld.

The member of the three-person arbitration panel was selected by petitioners,

while another was respondents choice. The respective interests of the parties,
therefore, are very much safeguarded in the arbitration proceedings. Any
suggestion, therefore, on the partiality of the arbitration tribunal has to be
dismissed. #

TRANSFIELD PHILIPPINES, INC., petitioner,

vs.
LUZON HYDRO CORPORATION, AUSTRALIA and NEW ZEALAND BANKING
GROUP LIMITED and SECURITY BANK CORPORATION, respondents.
GR. NO. 146717 November 22, 2004
 26

Facts:

Transfield Philippines (Transfield) entered into a turn-key contract with Luzon

Hydro Corp. (LHC).Under the contract, Transfield were to construct a hydro-
electric plants in Benguet and Ilocos. Transfield was given the sole
responsibility for the design, construction, commissioning, testing and
completion of the Project. The contract provides for a period for which the
project is to be completed and also allows for the extension of the period
provided that the extension is based on justifiable grounds such as fortuitous
event. In order to guarantee performance by Transfield, two stand-by letters of
credit were required to be opened. During the construction of the plant,
Transfield requested for extension of time citing typhoon and various disputes
delaying the construction. LHC did not give due course to the extension of the
period prayed for but referred the matter to arbitration committee. Because of
the delay in the construction of the plant, LHC called on the stand-by letters of
credit because of default. However, the demand was objected by Transfield on
the ground that there is still pending arbitration on their request for extension
of time.

Issue:

Whether or not LHC can collect from the letters of credit despite the pending
arbitration case

Held:

Transfields argument that any dispute must first be resolved by the parties,
whether through negotiations or arbitration, before the beneficiary is entitled to
call on the letter of credit in essence would convert the letter of credit into a
mere guarantee.

The independent nature of the letter of credit may be: (a) independence in toto
where the credit is independent from the justification aspect and is a separate
obligation from the underlying agreement like for instance a typical standby; or
(b) independence may be only as to the justification aspect like in a commercial
letter of credit or repayment standby, which is identical with the same
obligations under the underlying agreement. In both cases the payment may be
enjoined if in the light of the purpose of the credit the payment of the credit
would constitute fraudulent abuse of the credit.

Jurisprudence has laid down a clear distinction between a letter of credit and a
guarantee in that the settlement of a dispute between the parties is not a pre-
 27

requisite for the release of funds under a letter of credit. In other words, the
argument is incompatible with the very nature of the letter of credit. If a letter
of credit is drawable only after settlement of the dispute on the contract
entered into by the applicant and the beneficiary, there would be no practical
and beneficial use for letters of credit in commercial transactions.

The engagement of the issuing bank is to pay the seller or beneficiary of the
credit once the draft and the required documents are presented to it. The so-
called independence principle assures the seller or the beneficiary of prompt
payment independent of any breach of the main contract and precludes the
issuing bank from determining whether the main contract is actually
accomplished or not. Under this principle, banks assume no liability or
responsibility for the form, sufficiency, accuracy, genuineness, falsification or
legal effect of any documents, or for the general and/or particular conditions
stipulated in the documents or superimposed thereon, nor do they assume any
liability or responsibility for the description, quantity, weight, quality, condition,
packing, delivery, value or existence of the goods represented by any
documents, or for the good faith or acts and/or omissions, solvency,
performance or standing of the consignor, the carriers, or the insurers of the
goods,oranyotherpersonwhomsoever.