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G.k. No. 143S81 Ianuary 7, 2008

kCkLAN 1LCnNCLCGILS V. AL8Lk1C LLkMAN

lalnLlffs: kC8LA 1LCPnCLCClLS CC., L1u.

uefendanL:
PCn. AL8L81C A. LL8MA, ln hls capaclLy as resldlng !udge of
8ranch 236 of 8eglonal 1rlal CourL of MunLlnlupa ClLy
AClllC CLnL8AL S1LLL MAnulAC1u8lnC CC8C8A1lCn

CASL: kCClLS enLered lnLo a conLracL wlLh CSMC whereby Lhe former
would seL up an LC Cyllnder ManufacLurlng planL whlle Lhe laLLer
would pay for such. 1he land where Lhe planL would be bullL was leased
by CSMC from WorLh roperLles lnc. CSMC encounLered flnanclal
dlfflculLles, and as such Lhe parLles agreed LhaL Lhe obllgaLlons of
kCClLS would be deemed compleLed. CSMC lssued Lwo checks for
Lhelr balance buL kCClLS was noL able Lo collecL because Lhe paymenL
was sLopped. CSMC was cancelllng Lhe conLracL on Lhe ground LhaL
kCClLS alLered Lhe quallLy of Lhe machlnerles Lo be dellvered Lo
CSMC. 1hls belng Lhe case, CSMC was golng Lo dlsmanLle and move
Lhe equlpmenL on WorLh's properLy. kCClLS Lhen lnsLlLuLed arblLraLlon
proceedlngs ln korea, whlle CSMC flled for LsLafa here ln Lhe
hlllpplnes. kCClLS Lhen flled a complalnL for speclflc performance Lo
whlch CSMC flled lLs Answer wlLh Compulsory CounLerclalm asserLlng
LhaL lL had Lhe full rlghL Lo dlsmanLle and Lransfer Lhe machlnerles and
equlpmenL because lL had pald for Lhem ln full as sLlpulaLed ln Lhe
conLracL, LhaL kCClLS was noL enLlLled Lo Lhe balance covered by Lhe
checks for falllng Lo compleLely lnsLall and make Lhe planL operaLlonal.

(ClvlL 8CCLuu8L) 1he CourL ruled LhaL CSMC was noL requlred Lo
pay dockeL fees for compulsory counLerclalms. (1hls has been
amended).

1he CourL also ruled LhaL Lhe arblLraLlon clause of Lhe conLracL beLween
kCClLS and CSMC ls valld and Lhe laLLer musL submlL lLself Lo
arblLraLlon. Such provlslon ls noL conLrary Lo publlc pollcy, nelLher does
lL dlvesL hlllpplne CourLs of [urlsdlcLlon slnce Lhe hlllpplnes ls a
slgnaLory of unCl18AL and Lherefore we have pollcles concernlng
forelgn arblLraLlon proceedlngs. Such proceedlngs are blndlng and may
be lmplemenLed and revlewed by Lhe 81C.

uCC18lnL: uockeL fees (when Lhls case was declded) are noL requlred
Lo be pald when flllng compulsory counLerclalms. PCWLvL8, under Sec.
7, 8ule 141, as amended by A.M. no. 04-2-04-SC, dockeL fees are now
requlred Lo be pald ln compulsory counLerclalm or cross- clalms.

8ACkGkCUND:
! korea 1echnologles Co., LLd. (kCClLS) ls a korean corporaLlon
whlch ls engaged ln Lhe supply and lnsLallaLlon of Llquefled
eLroleum Cas (LC) Cyllnder manufacLurlng planLs, whlle
aclflc Ceneral SLeel ManufacLurlng Corp. (CSMC) ls a
domesLlc corporaLlon.
! CSMC and kCClLS execuLed a conLracL ln Lhe hlllpplnes
whereby kCClLS would seL up an LC Cyllnder ManufacLurlng
lanL ln Carmona, CavlLe (on a properLy leased from WorLh
roperLles, lnc.). ln korea, Lhe parLles execuLed an AmendmenL
Lo Lhe conLracL regardlng Lhe Lerms of paymenL.
! Powever, afLer Lhe lnsLallaLlon of Lhe planL, Lhe lnlLlal operaLlon
could noL be conducLed as CSMC encounLered flnanclal
dlfflculLles affecLlng Lhe supply of maLerlals, Lhus forclng Lhe
parLles Lo agree LhaL kCClLS would be deemed Lo have
compleLely complled wlLh Lhe Lerms and condlLlons of Lhe
conLracL.
! lor Lhe remalnlng balance almed aL Lhe lnsLallaLlon and lnlLlal
operaLlon of Lhe planL, CSMC lssued Lwo posL-daLed checks.
When kCClLS deposlLed Lhe checks, Lhese were dlshonoured
for Lhe reason "A?MLn1 S1CLu." 1hus, kCClLS senL a
!"#"$ &'(!)*+') *",)-.- /0123 4 01256 7..89 .'7:;+"$ -7$#7*('


'7!<)$$) 7::) *9 ,+.")'')=
demand leLLer Lo CSMC LhreaLenlng crlmlnal acLlon for
vlolaLlon of 8aLas ambansa 8lg. 22 ln case of non- paymenL.
! CSMC lnformed kCClLS LhaL CSMC was cancelllng Lhelr
ConLracL on Lhe ground LhaL kCClLS had alLered Lhe quanLlLy
and lowered Lhe quallLy of Lhe machlnerles and equlpmenL lL
dellvered Lo CSMC, and LhaL CSMC would dlsmanLle and
Lransfer Lhe machlnerles, equlpmenL, and faclllLles lnsLalled ln
Lhe Carmona planL.
o kCClLS wroLe CSMC lnformlng Lhe laLLer LhaL CSMC
could noL unllaLerally resclnd Lhelr conLracL nor
dlsmanLle and Lransfer Lhe machlnerles and equlpmenL
on mere lmaglned vlolaLlons by kCClLS. lL also lnslsLed
LhaL Lhelr dlspuLes should be seLLled by arblLraLlon as
agreed. Accordlngly, on !uly 1, 1998, kCClLS lnsLlLuLed
an AppllcaLlon for ArblLraLlon before Lhe korean
Commerclal ArblLraLlon 8oard (kCA8) ln Seoul, korea
pursuanL Lo ArL. 13 of Lhe ConLracL as amended.
o llve days laLer, CSMC flled before Lhe Cfflce of Lhe
ubllc rosecuLor an AffldavlL-ComplalnL for LsLafa
dockeLed agalnsL Lhe resldenL of kCClLS.
! kCClLS flled a ComplalnL for Speclflc erformance, agalnsL
CSMC before Lhe MunLlnlupa ClLy 8eglonal 1rlal CourL (81C). ln
lLs complalnL, kCClLS alleged LhaL CSMC had lnlLlally admlLLed
LhaL Lhe checks LhaL were sLopped were noL funded buL laLer on
clalmed LhaL lL sLopped paymenL of Lhe checks for Lhe reason
LhaL "Lhelr value was noL recelved" as Lhe former allegedly
breached Lhelr conLracL by "alLerlng Lhe quanLlLy and lowerlng
Lhe quallLy of Lhe machlnery and equlpmenL" lnsLalled ln Lhe
planL and falled Lo make Lhe planL operaLlonal alLhough lL
earller cerLlfled Lo Lhe conLrary.
! CSMC flled lLs Answer wlLh Compulsory CounLerclalm asserLlng
LhaL lL had Lhe full rlghL Lo dlsmanLle and Lransfer Lhe
machlnerles and equlpmenL because lL had pald for Lhem ln full
as sLlpulaLed ln Lhe conLracL, LhaL kCClLS was noL enLlLled Lo
Lhe balance covered by Lhe checks for falllng Lo compleLely
lnsLall and make Lhe planL operaLlonal, and LhaL kCClLS was
llable for damages for alLerlng Lhe quanLlLy and lowerlng Lhe
quallLy of Lhe machlnerles and equlpmenL.

ISSULS 1C 8L kLSCLVLD: (ou can abso|ute|y |gnore the non-C|vro)
1. Whether or not the payment of docket fees and attachment of
cert|f|cate of non-forum shopp|ng are not requ|red cons|der|ng
that the Answer w|th Counterc|a|m |s a compu|sory one and |s
not an |n|t|atory p|ead|ng. (1nL CNL CIVIL kCCLDUkL ISSUL)
2. WheLher or noL Lhe CourL should declare null and vold Lhe
arblLraLlon clause ln ArLlcle 13 of Lhe conLracL beLween Lhe
parLles for belng "conLrary Lo publlc pollcy" and for ousLlng Lhe
courLs of [urlsdlcLlon
3. WheLher or noL unllaLeral resclsslon of Lhe conLracL by CSMC
was proper.
4. WheLher or noL Lhe granLlng Lo CSMC Lo dlsmanLle and
Lransfer Lhe equlpmenL and machlnerles was proper

kLSCLU1ICNS AND AkGUMLN1S
ISSUL 1 ! WheLher or noL Lhe paymenL of dockeL fees and aLLachmenL
of cerLlflcaLe of non-forum shopplng are requlred conslderlng LhaL Lhe
Answer wlLh CounLerclalm ls a compulsory one and ls noL an lnlLlaLory
pleadlng. ! nC.

MAICk CIN1 1: (LlfLed from Lhe case verbaLlm)
As apLly ruled by Lhe CA, Lhe counLerclalms of CSMC were
lncorporaLed ln lLs Answer wlLh Compulsory CounLerclalm ln
accordance wlLh SecLlon 8 of 8ule 11, 1997 8evlsed 8ules of
Clvll rocedure, Lhe rule LhaL was effecLlve aL Lhe Llme Lhe
Answer wlLh CounLerclalm was flled.
Cn !uly 17, 1998, aL Lhe Llme CSMC flled lLs Answer
lncorporaLlng lLs counLerclalms agalnsL kCClLS, lL was noL llable
Lo pay flllng fees for sald counLerclalms belng compulsory ln
naLure. We sLress, however, LhaL effecLlve AugusL 16, 2004
under Sec. 7, 8ule 141, as amended by A.M. no. 04-2-04-SC,
!"#"$ &'(!)*+') *",)-.- /0123 4 01256 7..89 .'7:;+"$ -7$#7*('


'7!<)$$) 7::) *9 ,+.")'')=
dockeL fees are now requlred Lo be pald ln compulsory
counLerclalm or cross- clalms.
As Lo Lhe fallure Lo submlL a cerLlflcaLe of forum shopplng,
CSMC's Answer ls noL an lnlLlaLory pleadlng whlch requlres a
cerLlflcaLlon agalnsL forum shopplng under Sec. 3 of 8ule 7,
1997 8evlsed 8ules of Clvll rocedure. lL ls a responslve
pleadlng, hence, Lhe courLs a quo dld noL commlL reverslble
error ln denylng kCClLS' moLlon Lo dlsmlss CSMC's
compulsory counLerclalms.

ISSUL 2 ! WheLher or noL Lhe CourL should declare null and vold Lhe
arblLraLlon clause ln ArLlcle 13 of Lhe conLracL beLween Lhe parLles for
belng "conLrary Lo publlc pollcy" and for ousLlng Lhe courLs of
[urlsdlcLlon ! nC. 1he arblLraLlon clause was muLually and volunLarlly
agreed upon by Lhe parLles. lL has noL been shown Lo be conLrary Lo any
law, or agalnsL morals, good cusLoms, publlc order, or publlc pollcy.
1here has been no showlng LhaL Lhe parLles have noL dealL wlLh each
oLher on equal fooLlng. We flnd no reason why Lhe arblLraLlon clause
should noL be respecLed and complled wlLh by boLh parLles.

MAICk CIN1 1: LsLabllshed ln Lhls [urlsdlcLlon ls Lhe rule LhaL Lhe law
of Lhe place where Lhe conLracL ls made governs. Lex locl conLracLus.
1he conLracL ln Lhls case was perfecLed here ln Lhe hlllpplnes.
1herefore, our laws oughL Lo govern. noneLheless, ArL. 2044 of
Lhe Clvll Code sancLlons Lhe valldlLy of muLually agreed arblLral
clause or Lhe flnallLy and blndlng effecL of an arblLral award.
o ArL. 2044 provldes, "Any sLlpulaLlon LhaL Lhe arblLraLors'
award or declslon shall be flnal, ls valld, wlLhouL
pre[udlce Lo ArLlcles 2038, 2039 and 2040."
1he arblLraLlon clause whlch sLlpulaLes LhaL Lhe arblLraLlon musL
be done ln Seoul, korea ln accordance wlLh Lhe Commerclal
ArblLraLlon 8ules of Lhe kCA8, and LhaL Lhe arblLral award ls
flnal and blndlng, ls noL conLrary Lo publlc pollcy.

MAICk CIN1 2: 8A 9283 lncorporaLed Lhe unCl18AL Model law Lo
whlch Lhe hlllpplnes ls a slgnaLory. Whlle 8A 9283 was passed only ln
2004, lL noneLheless applles ln Lhe lnsLanL case slnce lL ls a procedural
law whlch has a reLroacLlve effecL.
lor domesLlc arblLraLlon proceedlngs, we have parLlcular
agencles Lo arblLraLe dlspuLes arlslng from conLracLual relaLlons.
ln case a forelgn arblLral body ls chosen by Lhe parLles, Lhe
arblLraLlon rules of our domesLlc arblLraLlon bodles would noL
be applled.
As slgnaLory Lo Lhe ArblLraLlon 8ules of Lhe unCl18AL Model
Law on lnLernaLlonal Commerclal ArblLraLlon41 of Lhe unlLed
naLlons Commlsslon on lnLernaLlonal 1rade Law (unCl18AL) ln
Lhe new ?ork ConvenLlon on !une 21, 1983, Lhe hlllpplnes
commlLLed lLself Lo be bound by Lhe Model Law.

MAICk CIN1 3: erLlnenL feaLures of 8.A. no. 9283
1he 81C musL refer Lo arblLraLlon ln proper cases
o under Sec. 24, Lhe 81C does noL have [urlsdlcLlon over
dlspuLes LhaL are properly Lhe sub[ecL of arblLraLlon
pursuanL Lo an arblLraLlon clause, and mandaLes Lhe
referral Lo arblLraLlon ln such cases,
lorelgn arblLral awards musL be conflrmed by Lhe 81C
o Sec. 3343 of Lhe unCl18AL Model Law sLlpulaLes Lhe
requlremenL for Lhe arblLral award Lo be recognlzed by
a compeLenL courL for enforcemenL, whlch courL under
Sec. 36 of Lhe unCl18AL Model Law may refuse
recognlLlon or enforcemenL on Lhe grounds provlded for
o 1he concepL of a flnal and blndlng arblLral award ls
slmllar Lo [udgmenLs or awards glven by some of our
quasl-[udlclal bodles, llke Lhe naLlonal Labor 8elaLlons
Commlsslon and Mlnes Ad[udlcaLlon 8oard, whose flnal
[udgmenLs are sLlpulaLed Lo be flnal and blndlng, buL
noL lmmedlaLely execuLory ln Lhe sense LhaL Lhey may
sLlll be [udlclally revlewed, upon Lhe lnsLance of any
parLy. 1herefore, Lhe flnal forelgn arblLral awards are
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'7!<)$$) 7::) *9 ,+.")'')=
slmllarly slLuaLed ln LhaL Lhey need flrsL Lo be conflrmed
by Lhe 81C.
1he 81C has [urlsdlcLlon Lo revlew forelgn arblLral awards
o Sec. 42 ln relaLlon Lo Sec. 43 of 8A 9283 deslgnaLed and
vesLed Lhe 81C wlLh speclflc auLhorlLy and [urlsdlcLlon
Lo seL aslde, re[ecL, or vacaLe a forelgn arblLral award on
grounds provlded under ArL. 34(2) of Lhe unCl18AL
Model Law.
o Chung lu lndusLrles (hlls.), lnc. v. CA ! relled upon by
kCClLS ls appllcable lnsofar as Lhe forelgn arblLral
awards, whlle flnal and blndlng, do noL ousL courLs of
[urlsdlcLlon slnce Lhese arblLral awards are noL absoluLe
and wlLhouL excepLlons as Lhey are sLlll [udlclally
revlewable. ChapLer 7 of 8A 9283 has made lL clear LhaL
all arblLral awards, wheLher domesLlc or forelgn, are
sub[ecL Lo [udlclal revlew on speclflc grounds provlded
for.
Crounds for [udlclal revlew dlfferenL ln domesLlc and forelgn
arblLral awards
o lor forelgn or lnLernaLlonal arblLral awards whlch musL
flrsL be conflrmed by Lhe 81C, Lhe grounds for seLLlng
aslde, re[ecLlng or vacaLlng Lhe award by Lhe 81C are
provlded under ArL. 34(2) of Lhe unCl18AL Model Law.
o lor flnal domesLlc arblLral awards, whlch also need
conflrmaLlon by Lhe 81C pursuanL Lo Sec. 23 of 8A 876
and shall be recognlzed as flnal and execuLory declslons
of Lhe 81C,4Lhey may only be assalled before Lhe 81C
and vacaLed on Lhe grounds provlded under Sec. 23 of
8A 876.
81C declslon of assalled forelgn arblLral award appealable
o CSMC musL submlL Lo Lhe forelgn arblLraLlon as lL
bound lLself Lhrough Lhe sub[ecL conLracL. Whlle lL may
have mlsglvlngs on Lhe forelgn arblLraLlon done ln korea
by Lhe kCA8, lL has avallable remedles under 8A 9283.
lLs lnLeresLs are duly proLecLed by Lhe law whlch
requlres LhaL Lhe arblLral award LhaL may be rendered
by kCA8 musL be conflrmed here by Lhe 81C before lL
can be enforced.

ISSUL 3 ! WheLher or noL unllaLeral resclsslon of Lhe conLracL by
CSMC was proper. ! nC. Where an arblLraLlon clause ln a conLracL ls
avalllng, nelLher of Lhe parLles can unllaLerally LreaL Lhe conLracL as
resclnded slnce whaLever lnfracLlons or breaches by a parLy or
dlfferences arlslng from Lhe conLracL musL be broughL flrsL and resolved
by arblLraLlon, and noL Lhrough an exLra[udlclal resclsslon or [udlclal
acLlon.

ISSUL 4 ! WheLher or noL Lhe granLlng Lo CSMC Lo dlsmanLle and
Lransfer Lhe equlpmenL and machlnerles was proper ! ?LS. 81C has
lnLerlm [urlsdlcLlon Lo proLecL Lhe rlghLs of Lhe parLles

MAICk CIN1 1: Whlle Lhe lssue of Lhe proper lnsLallaLlon of Lhe
equlpmenL and machlnerles mlghL well be under Lhe prlmary
[urlsdlcLlon of Lhe arblLral body Lo declde, yeL Lhe 81C under Sec. 28 of
8A 9283 has [urlsdlcLlon Lo hear and granL lnLerlm measures Lo proLecL
vesLed rlghLs of Lhe parLles.
Conslderlng LhaL Lhe equlpmenL and machlnerles are ln Lhe
possesslon of CSMC, lL has Lhe rlghL Lo proLecL and preserve
Lhe equlpmenL and machlnerles ln Lhe besL way lL can.
MalnLalnlng Lhe equlpmenL and machlnerles ln WorLh's
properLy ls noL Lo Lhe besL lnLeresL of CSMC due Lo Lhe
prohlblLlve renL whlle Lhe LC planL as seL-up ls noL operaLlonal.
CSMC was loslng h322,360 as monLhly renLals or h3.87M
for 1998 alone wlLhouL conslderlng Lhe 10 annual renL
lncremenL ln malnLalnlng Lhe planL.
kCClLS ls noL un[usLly pre[udlced as lL has already been pald a
subsLanLlal amounL based on Lhe conLracL. Moreover, kCClLS ls
amply proLecLed by Lhe arblLral acLlon lL has lnsLlLuLed before
Lhe kCA8, Lhe award of whlch can be enforced ln our
[urlsdlcLlon Lhrough Lhe 81C.
!"#"$ &'(!)*+') *",)-.- /0123 4 01256 7..89 .'7:;+"$ -7$#7*('


'7!<)$$) 7::) *9 ,+.")'')=

MAICk CIN1 2: Whlle CSMC may have been granLed Lhe rlghL Lo
dlsmanLle and Lransfer Lhe sub[ecL equlpmenL and machlnerles, lL does
noL have Lhe rlghL Lo convey or dlspose of Lhe same conslderlng Lhe
pendlng arblLral proceedlngs Lo seLLle Lhe dlfferences of Lhe parLles.
CSMC Lherefore musL preserve and malnLaln Lhe sub[ecL equlpmenL
and machlnerles wlLh Lhe dlllgence of a good faLher of a famlly31 unLll
flnal resoluLlon of Lhe arblLral proceedlngs and enforcemenL of Lhe
award, lf any.

NC SLAkA1L CINICNS