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LAW 160A

ALTERNATIVE DISPUTE RESOLUTION


Prof. Arthur Autea

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b)
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b)
3)

Class Policies:
Final Exam 40%
last day of our regular class October
problem + objective
Class Participation 60%
attendance 2x
suprise quizzes
Final Exam
40%

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2)
3)
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7)

Relevant Laws / Rules


RA 876 Arbitration Law
EO No 1008 CIA Law
RA 9285 - ADR Act of 2004
UNCITRAL Model Law
Special ADR Rules
UNCITRAL Arbitration Rules
ICC Arbitration Rules

Cases
1) Vega v. San Carlos Milling Co. Ltd, 51 Phil 908 (1924)
2) California & Hawaiian Sugar Co. v. Pioneer Insurance & Surety
Corp. 346 SCRA 214 (2000)
3) Associated Bank v. CA, 233 SCRA 137 (1994)
4) Bloomfield Academy v. CA, 237 SCRA 43 (1994)
5) Mindanao Portland Cement Corporation v. McDonough
Construction Co. of Florida, 90 SCRA 808 (1967)
6) Gonzales v. Climax Mining Ltd., 512 SCRA 148 (2007)
7) Oil & Natural Gas Commission v. CA, 293 SCRA 26 (1998)
8) Magellan Capital Mgt. Corp. v. Zosa, 355 SCRA 157 (2001)
9) BF Corporation v. CA, 288 SCRA 267 (1998)
10) Korea Technologies Co. Ltd. v. Lerma, 542 SCRA 1 (2008)
11) Luzon Development Bank v. Luzon Development Bank
Employees, 249 SCRA 162 (1995)
12) Toyota Motor Phils. Corp. V. CA, 216 SCRA 336
13) Heirs of Agusto L. Salas, Jr. v. Laperal Realty Corp., 302 SCRA
620
14) Del Monte Corp. USA v. CA, 351 SCRA 373 - WRONG
15) Homebankers Savings and Trust Co. v. CA, 318 SCRA 558
16) Chung Fu Industries Inc. V. CA, 206 SCRA ___
17) Adamson v. CA, 232 SCRA 602 (1994)
18) National Steel Corp. v. RTC of Lanao del Norte, 304 SCRA 595
(1999)
19) Asset Privatization Trust v. CA, 300 SCRA 579
20) China Chiang Jiang Energy Corp (Phils) v. Rosal Infrastructure
Builders, G.R. 125706, 30 September 1996
21) Hi Precision Steel, 228 SCRA 397
22) ABS CBN v. World, 544 SCRA 308

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

Salma F. Angkaya | AY 2010-2011, 1st semester


Special thanks to Krizelle Poblacion for her great digests!

Class Notes - June 11, 2010

INTRODUCTION TO ALTERNATIVE MODES


OF DISPUTE RESOLUTION
ADR alternative to conventional litigation
Arbitration only form of ADR that will result in a
final, binding and enforceable award
Mediation facilitate communication, cannot
impose resolution of the mediator
Conventional
Litigation
Judgment
Final Judgment
Interlocutory Order
P v. D / P v. R
Stenographers

to
of
of

of

Arbitration
Award
Final Award
Interim Award
Claimant v.
Respondent
Court Reporters

Arbitration clause stipulation that parties wil


submit dispute to arbitration
Request for Arbitration arbitrable dispute
Legislative History:
1) RA 876 (1953) Arbitration Law
2) New York Convention (1958)
a) Convention
on
the
recognition
&
enforcement of foreign arbitral awards
b) Need to prove authenticity only
e.g. NAIA 3 case
3) RA 9285 (2004) ADR Act of 2004
a) Covers domestic & international arbitration
b) Covers all forms of ADR
4) EO No. 1008 (1985) CIAC
a) Covers all disputes in the construction
industry
5) Special ADR Rules (October 13, 2009)
a) Clarified problems in RA 876 and RA 9285
6) UNCITRAL MODEL LAW part of Philippine
law
a) Sec. 33 of ADR Act of 2004
Sec. 33 Applicability to Domestic Arbitration
Uncitral Model Law
8 Arbitration
Agreement +
Substantive Claim
10 No. of arbitrators
11 Appointment
12 Grounds for
challenge
13 Procedure for

challenge
14 Unable
perform
18 Conduct
hearings
19 Determination
rules
29
to
32
Termination
proceedings

Preceding Ch. 4
Sec.
22

Legal
Representation
in
International Arbitration
Sec. 23 Confidentiality in
Arbitration Proceedings
Sec. 24 Referral to
Arbitration
Sec. 25 Interpretation of

the Act
Sec. 26 Meaning of
Appointing Authority
Sec. 27 What Functions
May be Performed by
Appointing Authority
Sec. 28 Grant of Interim
Measure of Protection
Sec. 29 Further Authority
for Arbitrator to Grant Interim
Measure of Protection
Sec. 30 Place of
Arbitration
Sec. 31 Language of the
Arbitration

ARBITRATION
Arbitration v. Litigation {PALPVA}
Arbitration
Private & confidential
Parties may select
arbitrator
Parties can select
governing law that will
determine their
substantive rights
Procedure depends on
agreement
Venue depends on
agremeent

Consensual

Litigation
Public
Parties cannot agree
on presiding officer;
Judge is raffled
Philippine law governs

Rules of Court applies


Rules of Court
governs; Venue may
also depend on
agreement
Not consensual

Note: A voluntary arbitrator has the same status as


an RTC judge.
What is the nature of ADR?
Consensual cannot be compelled to submit to
arbitration; but once you agree, youre bound by it
What is an arbitration agreement?
Arbitration agreement determines the rights,
obligations, procedure & rules;
- may be in a separate agreement or may be a
clause in a contract
1) Arbitration clause
Any dispute arising out of this contract shall be
resolved by arbitration.
2) Container contract
Contract containing the arbitration clause

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

Salma F. Angkaya | AY 2010-2011, 1st semester


Special thanks to Krizelle Poblacion for her great digests!

Note: Doctrine of separability applies.


Rule 2.2. Policy on arbitration. XXX The Special ADR Rules
recognize the principle of separability of the arbitration clause,
which means that said clause shall be treated as an agreement
independent of the other terms of the contract of which it forms
part. A decision that the contract is null and void shall not entail
ipso jure the invalidity of the arbitration clause.

Domestic v. International Arbitration


1) Domestic not International (RA 9285)
2) International Article 1.3 (UNCITRAL Model
Law)
RA 9285, Sec. 32. Law Governing Domestic Arbitration. Domestic arbitration shall continue to be governed by Republic
Act No. 876, otherwise known as "The Arbitration Law" as
amended by this Chapter. The term "domestic arbitration" as
used herein shall mean an arbitration that is not international
as defined in Article (3) of the Model Law.
Uncitral Model Law, Article 1 - xxx
3) 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.
4) For the purposes of paragraph (3) of this article:
a) if a party has more than one place of business, the place of
business is that which has the closest relationship to the
arbitration agreement;
b) if a party does not have a place of business, reference is to be
made to his habitual residence.

Institutional v. Adhoc Arbitration


1) Adhoc arbitration 2) Institutional conducted under the auspices of
an institution
Examples:
International Chamber of Commerce
CIAC
PDRCI
Singapore International Arbitration Centre
Hongkong International Arbitration Centre
ICSPI Disp.
American Arbitration Association
Japan Commercial Arbitration
Kuala Lumpur RCA
KCAB
ICC International Court of Arbitration
ICA not a court of adjudication

Sample arbitration clause:


Any dispute arising out of this contract shall be
resolved by arbitration under the ICC Rules of
Arbitration.
Overview ICC Arbitration Rules / Principles:
1) Submit request for arbitration
2) Assessment of non-refundable fee + cost of
arbitration
a) Non-refundable fee - $2,500
b) Arbitration cost
i) Fees of arbitrators professional fees
(1) 40% - chair
(2) 30% - members
ii) Claimant 1
iii) Respondent 1
iv) Appointee of Appointing Authority - 1
v) Administrative expenses
3) Highly confidential
4) Counsel in arbitration does not have to be a
lawyer
a) ADR Rates - $300 / hour
b) IBP Rates P3,000 / appearance
i) Senior - P7 to 10T / hour
ii) Associate P1-1,500 / hour
5) ICA can modify the form of the award
See provisions, page 31.

What is the principle of Party Autonomy?


Party autonomy freedom of the parties to
determine the rules / law governing the mode of
resolving their dispute
Rule 2.1. General policies. It is the policy of the State to
actively promote the use of various modes of ADR and to respect
party autonomy or the freedom of the parties to make their own
arrangements in the resolution of disputes with the greatest
cooperation of and the least intervention from the courts. To this
end, the objectives of the Special ADR Rules are to encourage
and promote the use of ADR, particularly arbitration and
mediation, as an important means to achieve speedy and efficient
resolution of disputes, impartial justice, curb a litigious culture and
to de-clog court dockets.
RA 9285, Sec. 2 Declaration of Policy
-To actively promote party autonomy in the resolution of disputes
or the freedom of the parties to make their own arrangements to
resolve their disputes
-To encourage and actively promote the use of
ADR to achieve speedy and impartial justice & de-clog court
dockets
Uncitral Model Law, Article 19 - [Determination of rules of
procedure]
1) Subject to the provisions of this Law, the parties are free to
agree on the procedure to be followed by the arbitral tribunal in
conducting the proceedings.
2) Failing such agreement, the arbitral tribunal may, subject to the
provisions of this Law, conduct the arbitration in such manner as it
considers appropriate. The power conferred upon the arbitral

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

Salma F. Angkaya | AY 2010-2011, 1st semester


Special thanks to Krizelle Poblacion for her great digests!

tribunal includes the power to determine the admissibility,


relevance, materiality and weight of any evidence.

Uncitral Model Law, Article 28 - [Rules applicable to


substance of dispute]
1) The arbitral tribunal shall decide the dispute in accordance
with such rules of law as are chosen by the parties as applicable
to the substance of the dispute. Any designation of the law or
legal system of a given State shall be construed, unless otherwise
expressed, as directly referring to the substantive law of that State
and not to its conflict of laws rules.
2) Failing any designation by the parties, the arbitral tribunal shall
apply the law determined by the conflict of laws rules which it
considers applicable.
3) The arbitral tribunal shall decide ex aequo et bono1 or as
amiable compositeur2 only if the parties have expressly
authorised it to do so.
4) In all cases, the arbitral tribunal shall decide in accordance with
the terms of the contract and shall take into account the usages
of the trade applicable to the transaction.
Uncitral Arbitration Rules,
compositeur, Article 33

Applicable

law,

amiable

Next meeting:
RA 876
RA 9285
Special ADR Rules
UNCITRAL Model Law

Class Notes - June 18, 2010


Appointment of Arbitrators (Domestic)
ADR Law Sec. 5 & Sec. 8
RA 876, Sec. 8 Appointment of arbitrators
If, in the contract for arbitration or in the submission described in
section two, provision is made for a method of naming or
appointing an arbitrator or arbitrators, such method shall be
followed; but if no method be provided therein the Court of First
Instance shall designate an arbitrator or arbitrators.

1. 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.

The Court of First Instance shall appoint an arbitrator or


arbitrators, as the case may be, in the following instances:

2. The arbitral tribunal shall decide as amiable compositeur or ex


aequo et bono only if the parties have expressly authorised the
arbitral tribunal to do so and if the law applicable to the arbitral
procedure permits such arbitration.

(b) If an arbitrator appointed by the parties is unwilling or unable


to serve, and his successor has not been appointed in the manner
in which he was appointed; or

3. In all cases, the arbitral tribunal shall decide in accordance with


the terms of the contract and shall take into account the usages
of the trade applicable to the transaction.

(a) If the parties to the contract or submission are unable to


agree upon a single arbitrator; or

(c) If either party to the contract fails or refuses to name his


arbitrator within fifteen days after receipt of the demand for
arbitration; or

ICC Rules, Article 15: Rules Governing the Proceedings

(d) If the arbitrators appointed by each party to the contract, or


appointed by one party to the contract and by the proper Court,
shall fail to agree upon or to select the third arbitrator.

1. The proceedings before the Arbitral Tribunal shall be


governed by these Rules, and, where these Rules are silent, by
any rules which the parties or, failing them, the Arbitral Tribunal
may settle on, whether or not reference is thereby made to the
rules of procedure of a national law to be applied to the
arbitration.

(e) The court shall, in its discretion appoint one or three


arbitrators, according to the importance of the controversy
involved in any of the preceding cases in which the agreement is
silent as to the number of arbitrators.

2. In all cases, the Arbitral Tribunal shall act fairly and impartially
and ensure that each party has a reasonable opportunity to
present its case.
ICC Rules, Article 17: Applicable Rules of Law
1. The parties shall be free to agree upon the rules of law to be
applied by the Arbitral Tribunal to the merits of the dispute. In the
absence of any such agreement, the Arbitral Tribunal shall apply
the rules of law which it determines to be appropriate.
2. In all cases the Arbitral Tribunal shall take account of the
provisions of the contract and the relevant trade usages.
3. The Arbitral Tribunal shall assume the powers of an amiable
compositeur or decide ex aequo et bono only if the parties have
agreed to give it such powers.
1

Latin for "according to the right and good" or "from equity and
conscience"
2
Clauses in arbitration agreements allowing the arbitrators to act
as "amiables compositeurs", permit the arbitrators to decide the
dispute according to the legal principles they believe to be just,
without being limited to any particular national law.

(f) Arbitrators appointed under this section shall either accept or


decline their appointments within seven days of the receipt of their
appointments. In case of declination or the failure of an arbitrator
or arbitrators to duly accept their appointments the parties or the
court, as the case may be, shall proceed to appoint a substitute or
substitutes for the arbitrator or arbitrators who decline or failed to
accept his or their appointments.
Sec. 9 Appointment of addnal arbitrators
Where a submission or contract provides that two or more
arbitrators therein designated or to be thereafter appointed by the
parties, may select or appoint a person as an additional arbitrator,
the selection or appointment must be in writing. Such additional
arbitrator must sit with the original arbitrators upon the hearing.
RULE 6: APPOINTMENT OF ARBITRATORS
Rule 6.1. When the court may act as Appointing Authority. The
court shall act as Appointing Authority only in the following
instances:

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

Salma F. Angkaya | AY 2010-2011, 1st semester


Special thanks to Krizelle Poblacion for her great digests!

a. Where any of the parties in an institutional arbitration failed or


refused to appoint an arbitrator or when the parties have failed to
reach an agreement on the sole arbitrator (in an arbitration before
a sole arbitrator) or when the two designated arbitrators have
failed to reach an agreement on the third or presiding arbitrator (in
an arbitration before a panel of three arbitrators), and the
institution under whose rules arbitration is to be conducted fails or
is unable to perform its duty as appointing authority within a
reasonable time from receipt of the request for appointment;
b. In all instances where arbitration is ad hoc and the parties
failed to provide a method for appointing or replacing an
arbitrator, or substitute arbitrator, or the method agreed upon is
ineffective, and the National President of the Integrated Bar of the
Philippines (IBP) or his duly authorized representative fails or
refuses to act within such period as may be allowed under the
pertinent rules of the IBP or within such period as may be agreed
upon by the parties, or in the absence thereof, within thirty (30)
days from receipt of such request for appointment;
c. Where the parties agreed that their dispute shall be resolved
by three arbitrators but no method of appointing those arbitrators
has been agreed upon, each party shall appoint one arbitrator
and the two arbitrators thus appointed shall appoint a third
arbitrator. If a party fails to appoint his arbitrator within thirty (30)
days of receipt of a request to do so from the other party, or if the
two arbitrators fail to agree on the third arbitrator within a
reasonable time from their appointment, the appointment shall be
made by the Appointing Authority. If the latter fails or refuses to
act or appoint an arbitrator within a reasonable time from receipt
of the request to do so, any party or the appointed arbitrator/s
may request the court to appoint an arbitrator or the third
arbitrator as the case may be.
Rule 6.2. Who may request for appointment. Any party to an
arbitration may request the court to act as an Appointing Authority
in the instances specified in Rule 6.1 above.
Rule 6.3. Venue. The petition for appointment of arbitrator may
be filed, at the option of the petitioner, in the Regional Trial Court
(a) where the principal place of business of any of the parties is
located, (b) if any of the parties are individuals, where those
individuals reside, or (c) in the National Capital Region.
Rule 6.4. Contents of the petition. The petition shall state the
following:
a. The general nature of the dispute;
b. If the parties agreed on an appointment procedure, a
description of that procedure with reference to the agreement
where such may be found;
c. The number of arbitrators agreed upon or the absence of any
agreement as to the number of arbitrators;
d. The special qualifications that the arbitrator/s must possess, if
any, that were agreed upon by the parties;
e. The fact that the Appointing Authority, without justifiable
cause, has failed or refused to act as such within the time
prescribed or in the absence thereof, within a reasonable time,
from the date a request is made; and
f. The petitioner is not the cause of the delay in, or failure of, the
appointment of the arbitrator.
Apart from other submissions, the petitioner must attach to the
petition (a) an authentic copy of the arbitration agreement, and (b)
proof that the Appointing Authority has been notified of the filing of
the
petition
for
appointment
with
the
court.
Rule 6.5. Comment/Opposition. The comment/opposition must
be filed within fifteen (15) days from service of the petition.

Rule 6.6. Submission of list of arbitrators. The court may, at its


option, also require each party to submit a list of not less than
three (3) proposed arbitrators together with their curriculum vitae.
Rule 6.7. Court action. After hearing, if the court finds merit in
the petition, it shall appoint an arbitrator; otherwise, it shall
dismiss
the
petition.
In making the appointment, the court shall have regard to such
considerations as are likely to secure the appointment of an
independent
and
impartial
arbitrator.
At any time after the petition is filed and before the court makes
an appointment, it shall also dismiss the petition upon being
informed that the Appointing Authority has already made the
appointment.
Rule 6.8. Forum shopping prohibited. When there is a pending
petition in another court to declare the arbitration agreement
inexistent, invalid, unenforceable, on account of which the
respondent failed or refused to participate in the selection and
appointment of a sole arbitrator or to appoint a party-nominated
arbitrator, the petition filed under this rule shall be dismissed.
Rule 6.9. Relief against court action. If the court appoints an
arbitrator, the order appointing an arbitrator shall be immediately
executory and shall not be the subject of a motion for
reconsideration, appeal or certiorari. An order of the court denying
the petition for appointment of an arbitrator may, however, be the
subject of a motion for reconsideration, appeal or certiorari.

How do you commence arbitration? (domestic)


Sec. 5 Preliminary procedure
Arbitration Agreement
(a)
(b) Default

Submission
Agreement
(c)
(d) Neglect / Fail /
Refuse to arbitrate
Follow (a) and (b)

RA 876, Sec. 5. Preliminary procedure. An arbitration


shall be instituted by:
(a)
In the case of a contract to arbitrate future
controversies by the service by either party upon the other
of a demand for arbitration in accordance with the
contract. Such demand shall be set forth the nature of the
controversy, the amount involved, if any, and the relief
sought, together with a true copy of the contract providing
for arbitration. The demand shall be served upon any party
either in person or by registered mail. In the event that the
contract between the parties provides for the appointment
of a single arbitrator, the demand shall be set forth a
specific time within which the parties shall agree upon
such arbitrator. If the contract between the parties
provides for the appointment of three arbitrators, one to be
selected by each party, the demand shall name the
arbitrator appointed by the party making the demand; and
shall require that the party upon whom the demand is
made shall within fifteen days after receipt thereof advise
in writing the party making such demand of the name of
the person appointed by the second party; such notice

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

Salma F. Angkaya | AY 2010-2011, 1st semester


Special thanks to Krizelle Poblacion for her great digests!

shall require that the two arbitrators so appointed must


agree upon the third arbitrator within ten days from the
date of such notice.

ie they can be finalised using arbitration or another


process. Adjudication decisions are usually binding
on both parties by prior agreement.

(b) In the event that one party defaults in answering the


demand, the aggrieved party may file with the Clerk of the
Court of First Instance having jurisdiction over the parties,
a copy of the demand for arbitration under the contract to
arbitrate, with a notice that the original demand was sent
by registered mail or delivered in person to the party
against whom the claim is asserted. Such demand shall
set forth the nature of the controversy, the amount
involved, if any, and the relief sought, and shall be
accompanied by a true copy of the contract providing for
arbitration.

In relation to construction contracts, adjudication is a


statutory procedure by which any party to the
contract has a right to have a dispute decided by an
adjudicator, normally used to ensure payment. It is
intended to be quicker and more cost effective than
litigation or arbitration. The right arises by virtue of
the Housing Grants Construction and Regeneration
Act 1996.

(c)
In the case of the submission of an existing
controversy by the filing with the Clerk of the Court of First
Instance having jurisdiction, of the submission agreement,
setting forth the nature of the controversy, and the amount
involved, if any. Such submission may be filed by any
party and shall be duly executed by both parties.
(d) In the event that one party neglects, fails or refuses to
arbitrate under a submission agreement, the aggrieved
party shall follow the procedure prescribed in
subparagraphs (a) and (b) of this section.

Arbitration v. Adjudication
<insert notes here>
Sir thinks the difference is only in the terminology,
until he saw the FIDIC.
Arbitration - (d) "Arbitration" means a voluntary
dispute resolution process in which one or more
arbitrators, appointed in accordance with the
agreement of the parties, or rules promulgated
pursuant to this Act, resolve a dispute by rendering
an award (RA 9285)
In arbitration an independent, impartial third party
hears both sides in a dispute and makes a decision
to resolve it. In most cases the arbitrator's decision
is legally binding on both sides, so it is not possible
to go to court if you are unhappy with the decision.
Arbitration is in many ways an alternative form of
court with procedural rules which govern issues such
as disclosure of documents and evidence. But
arbitration is private rather than public. Hearings are
less formal than court hearings, and some forms of
arbitration do not involve hearings but are decided
on the basis of documents only.
Adjudication
Adjudication
involves
an
independent third party considering the claims of
both sides and making a decision. The adjudicator is
usually an expert in the subject matter in dispute.
Adjudicators are not bound by the rules of litigation
or arbitration. Their decisions are often interim ones,

Adjudication is also sometimes used to describe a


non-specific alternative dispute resolution process in
which a third party makes a decision as to the best
way to resolve the dispute. In this sense,
ombudsmen, arbitrators and judges are all types of
adjudicators.

The aim of adjudication is to resolve disputed


issues in order to enable work to continue (either
indefinitely or while awaiting the decision of a
judge or arbitrator). Arbitration is a more formal
process, and the arbitrator's decision is legally
binding.
FIDIC (Federacion Internationale Des Ingenieurs
Conseil)
1) Dispute Adjudication Board
2) Relevant in contract negotiation
3) Different colors
a) Red
b) Blue
c) Green
d) Pink
e) Silver
i) 2 parties:
(1) Project owner employer
(2) Contractor
ii) Contains an interesting provision saying
that an employer would not be liable
even if wrong information was given
iii) Contains an adjudication clause in the
following
tenor:
Appeal
from
adjudication may be taken to the
arbitrational panel under ICC Rules.
iv) Three levels:
(1) Amicable settlement
(2) Adjudication
(3) Arbitration

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

Salma F. Angkaya | AY 2010-2011, 1st semester


Special thanks to Krizelle Poblacion for her great digests!

MINI-TRIAL
What is a Mini-Trial?
"Mini-Trial" means a structured dispute resolution
method in which the merits of a case are argued
before a panel comprising senior decision makers
with or without the presence of a neutral third person
after which the parties seek a negotiated settlement
(RA 9285, Sec. 3(u))
Note:
Senior decision makers meet, negotiated settlement

EARLY NEUTRAL EVALUATION


What is Early Neutral Evaluation?
"Early Neutral Evaluation" means an ADR process
wherein parties and their lawyers are brought
together early in a pre-trial phase to present
summaries of their cases and receive a nonbinding
assessment by an experienced, neutral person, with
expertise in the subject in the substance of the
dispute
Note:
Similar to a pre-trial; before the filing of the
complaint

MEDIATION
How are mediated-settlements enforced?
By depositing in court (RA 9285, Sec. 17)

Principle of confidentiality in mediation


Extends to admissions made in mediation
Sec. 9 - Confidentiality of Information
Information obtained through mediation proceedings shall be
subject to the following principles and guidelines:
(a) Information obtained through mediation shall be privileged
and confidential.
(b) A party, a mediator, or a nonparty participant may refuse to
disclose and may prevent any other person from disclosing a
mediation communication.
(c) Confidential Information shall not be subject to discovery and
shall be inadmissible if any adversarial proceeding, whether
judicial or quasi-judicial, However, evidence or information that
is otherwise admissible or subject to discovery does not become
inadmissible or protected from discovery solely by reason of its
use in a mediation.
(d) In such an adversarial proceeding, the following persons
involved or previously involved in a mediation may not be
compelled to disclose confidential information obtained during
mediation: (1) the parties to the dispute; (2) the mediator or
mediators; (3) the counsel for the parties; (4) the nonparty
participants; (5) any persons hired or engaged in connection
with the mediation as secretary, stenographer, clerk or
assistant; and (6) any other person who obtains or possesses
confidential information by reason of his/her profession.
(e) The protections of this Act shall continue to apply even of a
mediator is found to have failed to act impartially.
(f) a mediator may not be called to testify to provide information
gathered in mediation. A mediator who is wrongfully subpoenaed
shall be reimbursed the full cost of his attorney's fees and related
expenses.
Sec. 10 Waiver of Confidentiality

Court-Annexed Mediation v. Court-Ordered


Mediation
"Court-Annexed Mediation" means any mediation
process conducted under the auspices of the court,
after such court has acquired jurisdiction of the
dispute (RA 9285, Sec. 3 (l))
Note: governed by SC issuances
Court-Referred Mediation" means mediation
ordered by a court to be conducted in accordance
with the Agreement of the Parties when as action is
prematurely commenced in violation of such
agreement (RA 9285, Sec. 3 (m))
Notes:
- ground for stay of civil action
- related to Art. 1159 CC
Art. 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in
good faith.

A privilege arising from the confidentiality of information may be


waived in a record, or orally during a proceeding by the mediator
and the mediation parties.
A privilege arising from the confidentiality of information may
likewise be waived by a nonparty participant if the information is
provided by such nonparty participant.
A person who discloses confidential information shall be
precluded from asserting the privilege under Section 9 of this
Chapter to bar disclosure of the rest of the information
necessary to a complete understanding of the previously
disclosed information. If a person suffers loss or damages in a
judicial proceeding against the person who made the disclosure.
A person who discloses or makes a representation about a
mediation is preclude from asserting the privilege under Section
9, to the extent that the communication prejudices another
person in the proceeding and it is necessary for the person
prejudiced to respond to the representation of disclosure.
Sec. 11 Exceptions to Privilege {RPTCPM}
(a) There is no privilege against disclosure under Section 9 if
mediation communication is:

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(1) in an agreement evidenced by a record authenticated by all


parties to the agreement;
(2) available to the public or that is made during a session of a
mediation which is open, or is required by law to be open, to the
public;
(3) a threat or statement of a plan to inflict bodily injury or
commit a crime of violence;
(4) internationally used to plan a crime, attempt to commit, or
commit a crime, or conceal an ongoing crime or criminal activity;
(5) sought or offered to prove or disprove abuse, neglect,
abandonment, or exploitation in a proceeding in which a
public agency is protecting the interest of an individual protected
by law; but this exception does not apply where a child protection
matter is referred to mediation by a court or a public agency
participates in the child protection mediation;
(6) sought or offered to prove or disprove a claim or complaint
of professional misconduct or malpractice filed against
mediator in a proceeding; or
(7) sought or offered to prove or disprove a claim of complaint
of professional misconduct of malpractice filed against a
party, nonparty participant, or representative of a party based
on conduct occurring during a mediation.
(b) There is no privilege under Section 9 if a court or
administrative agency, finds, after a hearing in camera, that the
party seeking discovery of the proponent of the evidence has
shown that the evidence is not otherwise available, that there is
a need for the evidence that substantially outweighs the
interest in protecting confidentiality, and the mediation
communication is sought or offered in:
(1) a court proceeding involving a crime or felony; or
(2) a proceeding to prove a claim or defense that under the law is
sufficient to reform or avoid a liability on a contract arising out of
the mediation.
(c) A mediator may not be compelled to provide evidence of a
mediation communication or testify in such proceeding.
(d) If a mediation communication is not privileged under an
exception in subsection (a) or (b), only the portion of the
communication necessary for the application of the exception for
nondisclosure may be admitted. The admission of particular
evidence for the limited purpose of an exception does not
render that evidence, or any other mediation communication,
admissible for any other purpose.
Sec. 12 Prohibited Mediator Reports
A mediator may not make a report, assessment, evaluation,
recommendation, finding, or other communication regarding a
mediation to a court or agency or other authority that make a
ruling on a dispute that is the subject of a mediation, except:
(a) Where the mediation occurred or has terminated, or where a
settlement was reached.
(b) As permitted to be disclosed under Section 13 of this
Chapter.
RULE 10: CONFIDENTIALITY/PROTECTIVE ORDERS
Rule 10.1. Who may request confidentiality. 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 confidential has 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.
Rule 10.2. When request made.A party may request a
protective order at anytime there is a need to enforce the
confidentiality of the information obtained, or to be obtained, in
ADR proceedings.
Rule 10.3. Venue. A petition for a protective order may be
filed with the Regional Trial Court where that order would be
implemented.
If there is a pending court proceeding in which the information
obtained in an ADR proceeding is required to be divulged or is
being divulged, the party seeking to enforce the confidentiality of
the information may file a motion with the court where the
proceedings are pending to enjoin the confidential information
from being divulged or to suppress confidential information.
Rule 10.4. Grounds. A protective order may be granted only if
it is shown that the applicant would be materially prejudiced by
an unauthorized disclosure of the information obtained, or to be
obtained, during an ADR proceeding.
Rule 10.5. Contents of the motion or petition. The petition or
motion must state the following:
a. That the information sought to be protected was obtained, or
would be obtained, during an ADR proceeding;
b. The applicant would be materially prejudiced by the
disclosure of that information;
c. The person or persons who are being asked to divulge the
confidential information participated in an ADR proceedings; and
d. The time, date and place when the ADR proceedings took
place.
Apart from the other submissions, the movant must set the motion
for hearing and contain a notice of hearing in accordance with
Rule 15 of the Rules of Court.
Rule 10.6. Notice. Notice of a request for a protective order
made through a motion shall be made to the opposing parties in
accordance with Rule 15 of the Rules of Court.
Rule 10.7. Comment/Opposition. The comment/opposition
must be filed within fifteen (15) days from service of the petition.
The opposition or comment may be accompanied by written proof
that (a) the information is not confidential, (b) the information
was not obtained during an ADR proceeding, (c) there was a
waiver of confidentiality, or (d) the petitioner/movant is precluded
from asserting confidentiality.
Rule 10.8. Court action. If the court finds the petition or motion
meritorious, it shall issue an order enjoining a person or persons
from divulging confidential information.
In resolving the petition or motion, the courts shall be guided by
the following principles applicable to all ADR proceedings:
Confidential information shall not be subject to discovery
and shall be inadmissible in any adversarial proceeding,
whether judicial or quasi judicial. However, evidence or
information that is otherwise admissible or subject to
discovery does not become inadmissible or protected from
discovery solely by reason of its use therein.

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

Salma F. Angkaya | AY 2010-2011, 1st semester


Special thanks to Krizelle Poblacion for her great digests!

For mediation proceedings, the court shall be further guided by


the following principles:
a. Information obtained through mediation shall be privileged
and confidential.
b. A party, a mediator, or a nonparty participant may refuse
to disclose and may prevent any other person from disclosing a
mediation communication.
c. In such an adversarial proceeding, the following persons
involved or previously involved in a mediation may not be
compelled to disclose confidential information obtained during the
mediation: (1) the parties to the dispute; (2) the mediator or
mediators; (3) the counsel for the parties: (4) the nonparty
participants; (5) any persons hired or engaged in connection
with the mediation as secretary, stenographer; clerk or
assistant; and (6) any other person who obtains or possesses
confidential information by reason of his/ her profession.
d. The protection of the ADR Laws shall continue to apply even
if a mediator is found to have failed to act impartially.
e. A mediator may not be called to testify to provide
information gathered in mediation. A mediator who is
wrongfully subpoenaed shall be reimbursed the full cost of his
attorney fees and related expenses.

rules promulgated pursuant to this Act, resolve a


dispute by rendering an award (Sec. 3d, RA 9285)
What distinguishes Arbitration from other forms
of ADR?
Final, binding and enforceable through the
following procedures:
1) Confirmation of award
2) Judgment is capable of enforcement

PROCESS OF ARBITRATION
Arbitration agreement
|
Dispute
|
Selection of arbitrators
|
Conduct of arbitration proceedings
|
Arbitral Award
|
Confirmation &/or Enforcement

Rule 10.9. Relief against court action. The order enjoining a


person or persons from divulging confidential information shall be
immediately executory and may not be enjoined while the
order is being questioned with the appellate courts.
If the court declines to enjoin a person or persons from divulging
confidential information, the petitioner may file a motion for
reconsideration or appeal.
Rule 10.10. Consequence of disobedience. Any person who
disobeys the order of the court to cease from divulging
confidential information shall be imposed the proper sanction by
the court.

No Class - June 25, 2010


Class Notes - July 2, 2010

ARBITRATION
What is ADR?
"Alternative Dispute Resolution System" means any
process or procedure used to resolve a dispute or
controversy, other than by adjudication of a
presiding judge of a court or an officer of a
government agency, as defined in this Act, in which
a neutral third party participates to assist in the
resolution of issues, which includes arbitration,
mediation, conciliation, early neutral evaluation,
mini-trial, or any combination thereof (Sec. 3a, RA
9285)
What is Arbitration?
"Arbitration" means a voluntary dispute resolution
process in which one or more arbitrators, appointed
in accordance with the agreement of the parties, or

FIRST PART: ARBITRATION AGREEMENT


Arbitration Agreement v. Submission Agreement
Arbitration Agreement
Before
dispute

occurence

of

A party may invoke this


at any time before pretrial, after which, both
parties must invoke it

Submission
Agreement
Agreement to submit
dispute to arbitration; no
previous
arbitration
clause
May be entered into at
any time, even after pretrial

Petition
for
Enforcement
Agreement (See end)

of

Arbitration

Notice Requirements
Depends on whether or not the petition / motion filed
is covered by Summary Procedure.
Covered by Summary Procedure:
1) Judicial Relief Involving the Issue of Existence,
Validity or Enforceability of the Arbitration
Agreement;

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

10

Salma F. Angkaya | AY 2010-2011, 1st semester


Special thanks to Krizelle Poblacion for her great digests!

2)
3)
4)
5)
6)
7)
8)
9)

Referral to ADR;
Interim Measures of Protection;
Appointment of Arbitrator;
Challenge to Appointment of Arbitrator;
Termination of Mandate of Arbitrator;
Assistance in Taking Evidence;
Confidentiality/Protective Orders; and
Deposit and Enforcement of Mediated
Settlement Agreements.

Not Covered by Summary Procedure:


1) Confirmation, Correction or Vacation of Award in
Domestic Arbitration
2) Recognition and Enforcement or Setting Aside
of an Award in International Commercial
Arbitration
3) Recognition and Enforcement of a Foreign
Arbitral Award
Notes:
*Petition to correct / vacate does not touch upon the
merits of the award.
*Petition to vacate (domestic) depends on grounds
to vacate
*Petition to set aside (international) See
UNCITRAL A.34 & 36

General Rule: the arbitral tribunal


Except: the court, in the following instances:
1) Before commencement of arbitration
2) After arbitration is commenced, but before the
constitution of the arbitral tribunal;
3) After the constitution of the arbitral and at any
time during arbitral proceedings but, at this
stage, only to the extent that the arbitral tribunal
has no power to act or is unable to act
effectively.
RA 876, Sec. 14 xxx 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.
RA 9285, Sec. 28 Grant of Interim Measure of Protection
(a) It is not incompatible with an arbitration agreement for a party
to request, before constitution of the tribunal, from a Court an
interim measure of protection and for the Court to grant such
measure. After constitution of the arbitral tribunal and during
arbitral proceedings, a request for an interim measure of
protection or modification thereof, may be made with the arbitral
tribunal or to the extent that the arbitral tribunal has no power to
act or is unable to act effectively, the request may be made with
the Court. The arbitral tribunal is deemed constituted when the
sole arbitrator or the third arbitrator who has been nominated, has
accepted the nomination and written communication of said
nomination and acceptance has been received by the party
making request.

Pop Quiz - July 9, 2010

(b) The following rules on interim or provisional relief shall be


observed:

Petition to Enforce Arbitation Agreement using the


case of Mindanao Portland Cement Corporation v.
McDonough Construction Co. of Florida, 90 SCRA
808 (1967)

(1) Any party may request that provision relief be granted against
the adverse party:
(2) Such relief may be granted:
(i) to prevent irreparable loss or injury:

Class Notes - July 16, 2010

(ii) to provide security for the performance of any obligation;


(iii) to produce or preserve any evidence; or

THIRD PART:
COMMENCEMENT OF ARBITRATION &
CONSTITUTION OF ARBITRAL TRIBUNAL

(iv) to compel any other appropriate act or omission.


(3) The order granting provisional relief may be conditioned upon
the provision of security or any act or omission specified in the
order.

How do you commence arbitration?


1) Adhoc by a demand to arbitrate
2) Institutional - very similar to a demand to arbitrate,
addressed to the institution; called a Request for
Arbitration or Notice of Arbitration

(4) Interim or provisional relief is requested by written application


transmitted by reasonable means to the Court or arbitral tribunal
as the case may be and the party against whom the relief is
sought, describing in appropriate detail the precise relief, the party
against whom the relief is requested, the grounds for the relief,
and evidence supporting the request.

What is the significance of filing a Request for


Arbitration or Notice of Arbitration?
Whether conventional litigation or ADR, the filing of
the initiatory complaint / request for arbitration is
significant in the area of interim measures of
protection. It could be obtained from:

(5) The order shall be binding upon the parties.


(6) Either party may apply with the Court for assistance in
Implementing or enforcing an interim measure ordered by an
arbitral tribunal.
(7) A party who does not comply with the order shall be liable for
all damages resulting from noncompliance, including all

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11

Salma F. Angkaya | AY 2010-2011, 1st semester


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expenses, and reasonable attorney's fees, paid in obtaining the


order's judicial enforcement.
RA 9285, Sec. 29 Further Authority for Arbitrator to Grant
Interim Measure of Protection
Unless otherwise agreed by the parties, the arbitral tribunal may,
at the request of a party, order any party to take such interim
measures of protection as the arbitral tribunal may consider
necessary in respect of the subject matter of the dispute following
the rules in Section 28, paragraph 2. Such interim measures may
include but shall not be limited to preliminary injuction directed
against a party, appointment of receivers or detention,
preservation, inspection of property that is the subject of the
dispute in arbitration. Either party may apply with the Court for
assistance in implementing or enforcing an interim measures
ordered by an arbitral tribunal.
Uncitral Model Law, Article 17 - [Power of arbitral tribunal to
order interim measures]
Unless otherwise agreed by the parties, the arbitral tribunal may,
at the request of a party, order any party to take such interim
measure of protection as the arbitral tribunal may consider
necessary in respect of the subject-matter of the dispute. The
arbitral tribunal may require any party to provide appropriate
security in connection with such measure.
Uncitral Arbitration Rules, Interim measures of protection,
Article 26
1. At the request of either party, the arbitral tribunal may take any
interim measures it deems necessary in respect of the subjectmatter of the dispute, including measures for the conservation of
the goods forming the subject-matter in dispute, such as ordering
their deposit with a third person or the sale of perishable goods.
2. Such interim measures may be established in the form of an
interim award. The arbitral tribunal shall be entitled to require
security for the costs of such measures.
3. A request for interim measures addressed by any party to a
judicial authority shall not be deemed incompatible with the
agreement to arbitrate, or as a waiver of that agreement.
ICC Rules, Article 23, Conservatory and Interim Measures
1. Unless the parties have otherwise agreed, as soon as the file
has been transmitted to it, the Arbitral Tribunal may, at the
request of a party, order any interim or conservatory measure it
deems appropriate. The Arbitral Tribunal may make the granting
of any such measure subject to appropriate security being
furnished by the requesting party. Any such measure shall take
the form of an order, giving reasons, or of an Award, as the
Arbitral Tribunal considers appropriate.
2. Before the file is transmitted to the Arbitral Tribunal, and in
appropriate circumstances even thereafter, the parties may apply
to any competent judicial authority for interim or conservatory
measures. The application of a party to a judicial authority for
such measures or for the implementation of any such measures
ordered by an Arbitral Tribunal shall not be deemed to be an
infringement or a waiver of the arbitration agreement and shall not
affect the relevant powers reserved to the Arbitral Tribunal. Any
such application and any measures taken by the judicial authority
must be notified without delay to the Secretariat. The Secretariat
shall inform the Arbitral Tribunal thereof.

Upon receipt:
1) WON a dispute is arbitable the first thing that an
institution should determine
2) Assess an non-refundable fee of $2500.

3) Inform the prospective respondent that a Request


for Arbitration was received
4) Prospective respondent answers
5) Assess the fees
Period for rendering an Award:
1) Stipulation
2) To be determined by the arbitral tribunal during
the preliminary conference
Less than 60 days Summary (ADR Rules)
15 days from service to file Comment/Opposition
1 hearing day, only for the purpose of clarifications
Resolution 30 days from the time the petition is
submitted for resolution
10 days - ADR Law
Four courses of action by the Court
Determine existence of AA
If no, dismiss (1)
If yes, determine if there was default or not in the
compliance with the Arbitration Agreement (2)
If there is no default, (dismiss)
If there was default, Court to
Challenge of arbitrator
If a party renews his challenge in Court arbitration
proceedings are suspended
But under Special ADR Rules proceed
International Bar Association (IBA) Rules of
Evidence
Green List list of factors that may or may not be
disclosed but will not affect the fitness of
Red List list of prohibited factors

Long Quiz - July 23, 2010


Coverage: Class notes from start to latest.

Class Notes July 30, 2010


FOURTH PART:
CONDUCT OF ARBITRATION PROCEEDINGS

CONFIDENTIALITY
Why is there no publication of awards of arbitral
tribunals?
Because of the principle of confidentiality of
arbitration proceedings (Sec. 23, RA 9285).

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

12

Salma F. Angkaya | AY 2010-2011, 1st semester


Special thanks to Krizelle Poblacion for her great digests!

Sec. 23 Confidentiality in Arbitration


Proceedings
The arbitration proceedings, including the records,
evidence and the arbitral award, shall be considered
confidential and shall not be published except (1)
with the consent of the parties, or (2) for the limited
purpose of disclosing to the court of relevant
documents in cases where resort to the court is
allowed herein. Provided, however, that the court in
which the action or the appeal is pending may issue
a protective order to prevent or prohibit disclosure of
documents or information containing secret
processes, developments, research and other
information where it is shown that the applicant shall
be materially prejudiced by an authorized disclosure
thereof.
Exception to confidentiality:
1) Application for Interim Measure of Protection
2) Appoint Arbitrator
3) Challenge Arbitrator
4) Ask to Vacate / Modify Award
5) Ask to Enforce the Award
What is the consequence
confidentiality?
Claim for damages.

of

breach

of

Where do you file the action for damanges


arising from breach of confidentiality?
RTC, not arbitral tribunal. Because the jurisdiction of
the arbitral tribunal over issues is defined by the
arbitration agreement. Issue of breach of
confidentiality is usually involved in other causes of
actions or pending actions. e.g. transactions with 3rd
persons.
Note:
Breach of confidentiality covers mere disclosure of
fact of pendency of arbitration proceedings.
COMPETENCE-COMPETENCE PRINCIPLE
What
is
the
Competence-Competence
Principle?
Power of arbitral tribunal to initially rule on the
question of its jurisdiction over a dispute including
any objections with respect to the existence or
validity of the arbitration agreement or any condition
precedent to the filing of a request of arbitration.
Restatement of the Rule:
Before the arbitral tribunal is constituted, the regular
courts have jurisdiction to determine the issue of
competence of a tribunal. The moment the arbitral
tribunal is constituted, the arbitral tribunal has
jurisdiction.

There arises a policy of judicial restraint, such that


the finding of the court on the jurisdiction of the
arbitral tribunal is at best prima facie.
Note:
There is a before AT, after ATs finding, and afterafter.
Does the prima facie finding of the court mean
that the arbitral tribunal can still be formed?
Yes. If the court finds that the arbitration agreement
is null and void, inoperative or incapable of being
performed, a party may nevertheless commence
arbitration and constitute the arbitral tribunal.
So where does prima facie finding of the court
come in? How is it prima facie?
This means that the same issue may be passed
upon by the arbitral tribunal, which has the effect of
superseding the previous of the court. (This is the
AFTER ruling.)
What about the after-after ruling?
The same issue may be passed upon in an action to
vacate or set aside the arbitral award (Rule 3.11) In
this case, it is no longer a prima facie determination
of such issue or issues, but shall be a FULL
REVIEW of such issue or issues with due regard,
however, to the standard of review for arbitral
awards.
But how may arbitration commence if it the court
has made a prima facie finding that ithe
arbitration agreement is found null and void,
inoperative or incapable of being performed?
Will the other party who got the favorable ruling
of the court participate / cooperate?
Get an appointment of arbitrator - sole arbitrator, adhoc, institutional.
Illustration:
Its possible for A to get a ruling from the court that
the arbitration agreement is null and void, and B
may commence arbitration in an institution in
another country. B now asked to appoint arbitrator
for A contesting the arbitration agreement.
What is the remedy of A?
a) Get an injunction from RTC Philippines. Next step
is contempt. (Although the exercise of a legal right is
not contemptuous) There may also be problem in
getting injunction. Plus theres a provision in Special
ADR Rules prohibiting injunction against arbitration.
Finally, A can later on file a petition to set aside the
award.
b) Challenge jurisdiction of arbitral tribunal
constituted by institution in foreign country.

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

13

Salma F. Angkaya | AY 2010-2011, 1st semester


Special thanks to Krizelle Poblacion for her great digests!

UNCITRAL:
1) Petition to Set Aside
2) Petition to Refuse Recognition
What is the Principle of Separability?
Arbitration clause is treated as an agreement
independent of the other terms of the contract of
which it forms part. A decision that the contract is
null and void shall not entail ipso jure the invalidity of
the arbitration clause. (Uncitral Model Law, Sec.
16(1); Special ADR Rules 2.2)
What is the effect of multiple actions and
parties?
Rule 4.7.
Would Rule 4.7 result in multiplicity of suits?
Yes. But this does not prevent arbitration from being
commenced.

Cases for next meeting (August 6, 2010):


1) Vega v. San Carlos Milling Co. Ltd, 51 Phil 908
(1924) no digest
2) California & Hawaiian Sugar Co. v. Pioneer
Insurance & Surety Corp. 346 SCRA 214 (2000)
3) Associated Bank v. CA, 233 SCRA 137 (1994)
4) Bloomfield Academy v. CA, 237 SCRA 43
(1994)
5) Mindanao Portland Cement Corporation v.
McDonough Construction Co. of Florida, 90
SCRA 808 (1967)
6) Gonzales v. Climax Mining Ltd., 512 SCRA 148
(2007)
7) Oil & Natural Gas Commission v. CA, 293 SCRA
26 (1998)
8) Magellan Capital Mgt. Corp. v. Zosa, 355 SCRA
157 (2001)
9) BF Corporation v. CA, 288 SCRA 267 (1998)
10) Korea Technologies Co. Ltd. v. Lerma, 542
SCRA 1 (2008)
11) Luzon
Development
Bank
v.
Luzon
Development Bank Employees, 249 SCRA 162
(1995) In re: multiplicity

Class Notes - August 6, 2010


Is there a counterpart of the principle of
confidentiality in Sec. 23 RA 9285 in RA 876?
Sec. 14? (UNANSWERED)
What is the Judicial Relief After Commencement
of Arbitration (Rule 3, Special ADR Rules)?

A party may ask that the ruling of the arbitral tribunal


on a preliminary question upholding or declining its
jurisdiction be declared null and void, inexistent or
unenforceable. This is premised on the fact that the
jurisdiction of the arbitral tribunal is defined by the
arbitration agreement. The determination of the
court is no longer a prima facie finding.
But would that not violate the CompetenceCompetence Principle?
The determination of the court after the
commencement of arbitration proceedings
Illustration
August 6 Commencement of Arbitration
Scenario A:
On May 6, the determination of the court is merely
prima facie and the parties may still commence
arbitration.
Scenario B:
On November 6, the determination of the court is no
longer prima facie. What would be the remedy of the
claimant?
Not final may still be reviewed by MR, appeal,
certiorari.
Rule 3.19
1) MR - yes
2) Certiorari yes
a) Affirming ATs jurisdiction not subject to
certiorari
b) AT has no jurisdiction certiorari available
Note: How many days?
3) Appeal yes daw
Vega v. San Carlos Milling Co. Ltd, 51 Phil 908
(1924)
Petitioners: Teodoro Vega
Respondent: San Carlos Milling Co., Ltd.
Facts:
Defendant-appellant contends that Sec. 23 of the
Mills covenant and Sec. 14 of the Planters
covenant, as such stipulations on arbitration are
valid, and constitute a condition precedent, to
which the plaintiff should have resorted before
applying to the courts, as he prematurely did.3
3

Said STIPULATIONS TO ARBITRATE are as follows:


"23 (Mills covenant). That it (the MillParty of the first part)
will submit any and all differences that may arise between the
Mill and the Planters to the decision of arbitrators, two of

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

14

Salma F. Angkaya | AY 2010-2011, 1st semester


Special thanks to Krizelle Poblacion for her great digests!

This, more so, if these two provisions are read with


the reciprocal covnenant in Sec. 7 of the Mills
covenant.4
It is an admitted fact that the differences which later
arose between the parties, and which are the
subject of the present litigation have not been
submitted to arbitration provided for in the above
quoted clauses.
Plaintiff filed an action for the recovery of 32,959
kilos of centrifugal sugar, or its value, P6,252, plus
the payment of P500 damages and the costs.
The lower court decided in favor of the plaintiff.
Issue:
WON the lower court erred in having held itself with
jurisdiction to take cognizance of and render
judgment in the cause
Held: NO.
Ratio:
1)
The defendant is right in contending that
clause 23 of the Mill's covenant and clause
14 of the Planter's Covenant on arbitration are
valid, but they are not for that reason a bar to
judicial action, in view of the way they are
expressed:
"An agreement to submit to arbitration, not
consummated by an award, is no bar to a suit at
law or in equity concerning the subject matter
submitted. And the rule applies both in respect of
agreements to submit existing differences and
agreements to submit differences which may
arise in the future." (5 C. J., 42.)
And in view of the terms in which the said covenants
on arbitration are expressed, it cannot be held that in
agreeing on this point, the parties proposed to
establish the arbitration as a condition precedent to
judicial action, because these clauses quoted do not
create such a condition either expressly or by
necessary inference.

whom shall be chosen by the Mill and two by the Planters, who in
case of inability to agree shall select a fifth arbitrator, and to
respect and abide by the decision of said arbitrators, or any
three of them, as the case may be."
"14 (Planters covenant).
That they (the PlantersParties of
the second part) will submit any and all differences that may
arise between the parties of the first part and the parties of the
second part to the decision of arbitrators, two of whom shall be
chosen by the said parties of the first part and two by the said
party of the second part, who in case of inability to agree, shall
select a fifth arbitrator, and will respect and abide by the
decision of said arbitrators, or any three of them, as the case
may be."
4

Said RECIPROCAL COVENANT No. 7, reads:


"7.
Subject to the provisions as to arbitration,
hereinbefore appearing, it is mutually agreed that the courts of
the City of Iloilo shall have jurisdiction of any and all judicial
proceedings that may arise out of the contractual relations herein
between the party of the first and the parties of the second part."

"Submission as Condition Precedent to Suit.


Clauses in insurance and other contracts providing
for arbitration in case of disagreement are very
dissimilar, and the question whether submission to
arbitration is a condition precedent to a suit upon the
contract depends upon the language employed in
each particular stipulation. Where by the same
agreement which creates the liability, the
ascertainment of certain facts by arbitrators is
expressly made a condition precedent to a right
of action thereon, suit cannot be brought until
the award is made. But the courts generally will
not construe an arbitration clause as ousting
them of their jurisdiction unless such
construction is inevitable, and consequently
when the arbitration clause is not made a
condition precedent by express words or
necessary implication, it will be construed as
merely collateral to the liability clause, and so no
bar to an action in the courts without an award."
(2 R. C. L., 362, 363.)
2)
Neither does the reciprocal covenant No. 7
of the Mills covenant expressly or impliedly
establish the arbitration as a condition
precedent.
The expression "subject to the provisions as to
arbitration, hereinbefore appearing" does not declare
such to be a condition precedent. This phrase does
not read "subject to the arbitration," but "subject
to the provisions as to arbitration hereinbefore
appearing." And, which are these "provisions as to
arbitration hereinbefore appearing?" Undoubtedly
clauses 23 and 14 quoted above, which do not
make arbitration a condition precedent.
Disposition. Affirmed.
Separate Opinions
AVANCEA, J., concurring:
1)

Inasmuch as clause 23 of the Mill's Covenants,


and clause 14 of the Planter's Covenants provide
that the parties should respect and abide by the
decision of the arbitrators, they bar judicial
intervention and consequently are null and void in
accordance with the ruling of this court in the case of
Wahl and Wahl vs. Donaldson, Sims & Co. (2 Phil.,
301).

2)

Clause 7 of the Mutual Covenants, naming the


Court of First Instance of Iloilo as the one with
jurisdiction to try such cases as might arise from the
parties' contractual relations, by the very fact that it
was made subject to the arbitration clauses previously
mentioned, does not render such arbitration
merely a condition precedent to judicial action,
nor does it change its scope, as clearly indicated by
its wording and the intention of the parties. Said
clause 7 was doubtless added in case it became

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necessary to resort to the courts for the purpose


of compelling the parties to accept the arbitrators'
decision in accordance with the contract, and not in
order to submit anew to the courts what had
already been decided by the arbitrators, whose
decision the contracting parties had bound
themselves to abide by and respect.
MALCOLM, J., dissenting:
1)
Defendant is not bound to furnish cars free of
charge for use on the plaintiff's portable railway
tracks, in relation with its corollary, that the letter
written by the manager of the defendant's mill on
March 18, 1916, does not estop the defendant from
demanding compensation for the future use of the
cars.
2)
The parties having formally agreed to submit their
differences to arbitrators, while recognizing the
jurisdiction of the courts, arbitration has been made a
condition precedent to litigation, and should be held
valid and enforceable.
a)

b)

In the Philippines fortunately, the attitude of the


courts toward arbitration agreements is
slowly crystallizing into definite and workable
form. The doctrine announced in Wahl and Wahl
vs. Donaldsono. ([1903], 2 Phil., 301), was that a
clause in a contract providing that all matters in
dispute shall be referred to arbitrators and to
them alone, is contrary to public policy and
cannot oust the courts of jurisdiction. But the rule
now is that 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 arrangements and will only with
great reluctance interfere to anticipate or
nullify the action of the arbitrator.
The new point of the judiciary in the progressive
jurisdiction of Pennsylvania, in England, and
under the Civil Law, is also worthy of our serious
consideration.
i)

ii)

iii)

It is the rule in Pennsylvania that when the


persons making an executory contract stipulate in
it that all disputes and differences between them,
present or prospective, in reference to such
contract or any sum payable under it, shall be
submitted to the arbitrament of a named individual,
or specifically designated persons, they are
effectually
bound
irrevocably
by
that
stipulation, and precluded from seeking
redress elsewhere until the arbiter or arbiters
agreed upon have rendered an award or
otherwise been discharged.
In England, the view seems now to prevail that a
contractual stipulation for a general arbitration,
constitutes a condition precedent to the
institution of judicial proceedings for the
enforcement of the contract.
Finally, it is within our knowledge that the Spanish
civil law wisely contains elaborate provisions
looking to the amicable adjustment of
controversies out of court. Litigation by means
of friendly adjusters was formerly well known. The
procedure in this kind of litigation was minutely
outlined in the Ley de Enjuiciamiento Civil. Two

articles of the Civil Code, namely, articles 1820


and 1821, were given up to the subject of
arbitration, and expressly confirmed this method of
settling differences.

c)

d)

It was plainly the solemn purpose of the


parties to settle their controversies amicably
if possible before resorting to the courts.
They provided for themselves by mutual
consent a method which was speedier and
less expensive for all concerned and less
likely to breed that ill-feeling which is often
the consequence of hotly contested litigation.
All this was done by the Planters on the one hand
and by the Milling Company on the other, to the
end that justice might guide them and possible
differences be quickly adjusted.
It is clear, by paragraph 7 of the Mutual
Covenants, that these parties did not intend
that the decision of the arbitrators should
prevent resort to the courts, for they
expressly agreed to carry litigation between
them to the courts of Iloilo. Acting under legal
rules, even in their most restrictive form, disputes
arising out of the contract, were to be referred to
arbitration so that the damages sustained by a
breach of the contract, could be ascertained by
specified arbitrators before any right of action
arose; but the matters in dispute were not to be
referred to arbitrators and to them alone, to the
utter exclusion of the courts. It is exactly correct
to state that the clauses of the Covenants
hereinbefore quoted, were meant as a condition
precedent to litigation, which accordingly should
be given effect.

STUDY NOTES
Rule 2.2. Policy on arbitration. (A) Where the parties have
agreed to submit their dispute to arbitration, courts shall refer
the parties to arbitration pursuant to Republic Act No. 9285
bearing in mind that such arbitration agreement is the law
between the parties and that they are expected to abide by it in
good faith. Further, the courts shall not refuse to refer parties
to arbitration for reasons including, but not limited to, the
following:
a. The referral tends to oust a court of its jurisdiction
d. The arbitration proceeding has not commenced

CLASS NOTES
1) Court was already talking about arbitration
agreement, etc. as early as 1924.
2) Malcolm dissent:
3 jurisdictions:
*Pensylvannia irrevocably bound by stipulation,
precluded from seeking redress to the courts; but
makes a distinction between (a) did not name
arbitrator; (b)
*England even a general reference to arbitration is
a condition precedent (liberal)

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*Spain (Ley de Enjuiciamiento Civil) detailed


amicable settlement + arbitration
- Respect solemn purpose of the parties
- Not null and void for absolutely ousts the courts of
jurisdiction.
Is an arbitration agreement a condition
precedent to the filing of an action in court?
Rule 16.1 (j) of the Rules of Court MTD on the
ground of failure to comply with a condition
precedent
Is this an absolute rule?
No. It can be waived.
R.A. 9285, Sec. 24. Referral to Arbitration. - A court before
which an action is brought in a matter which is the subject matter
of an arbitration agreement shall, if at least one party so requests
not later that the pre-trial conference, or upon the request of
both parties thereafter, refer the parties to arbitration unless it
finds that the arbitration agreement is null and void, inoperative or
incapable of being performed.
Sec. 7 Stay of civil action
Relate to Referral to ADR (Special Rules)
Depends on the request of a party, because party may decide not
to undergo ADR
- Related to Section 24 of RA 9285
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.
Rule 4.2. When to make request. (A) Where the arbitration
agreement exists before the action is filed. The request for
referral shall be made not later than the pre-trial conference.
After the pre-trial conference, the courthuj will only act upon the
request for referral if it is made with the agreement of all parties to
the case.

Conclusion: An arbitration clause is NOT a


condition precedent such that it is a ground for
dismissal, because it is an alternative mode of
dispute resolution. Hence, a party goes to court
not to pass upon the merits or to have resolve it
resolved, but for other reasons, such as to have the
arbitration agreement enforced, modified, set aside,
etc. It is a ground to STAY civil action (Sec. 7, RA
876; Sec. 24, RA 9285), not to dismiss it.
Malcolm: Condition precedent if it is more of a factfinding task.

Class Notes - August 13, 2010


Can you be bound by an arbitration clause by
subrogation?
See California & Hawaiian Sugar Co. v. Pioneer
Insurance & Surety Corp (2000)

California & Hawaiian Sugar Co. v. Pioneer


Insurance & Surety Corp., 346 SCRA 214 (2000)
Petitioners: California Hawaiian Sugar Company,
Pacific Gulf Marine Inc and CF Sharp and Co
Respondent: Pioneer Insurance and Surety
Corporation
Facts:
On November 27, 1990, the vessel MV SUGAR
ISLANDER arrived at the port of Manila carrying a
cargo of soybean meal in bulk consigned to several
consignees, one of which was the Metro Manila
Feed Millers Association. Discharging of cargo
from vessel to barges commenced. From the
barges, the cargo was allegedly offloaded,
rebagged and reloaded on consignees delivery
trucks.
Respondent, however, claims that when the cargo
was weighed on a licensed truck scale a shortage
of 255.051 metric tons valued at P1,621,171.16 was
discovered.
The shipment was insured with
Pioneer against all risk in the amount of
P19,976,404.00.
Due to the alleged refusal of petitioners to settle
their respective liabilities, respondent, as insurer,
paid the consignee Metro Manila Feed Millers
Association.
Pioneer filed a complaint for damages against
petitioners. Petitioners filed a Motion to Dismiss
the complaint on the ground that respondents claim
is premature, the same being arbitrable.
The RTC ordered to defer the hearing of the MTD
and directed petitioners to file their Answer.
Petitioners filed their answer with counterclaim and
crossclaim alleging that Pioneer did not comply
with the arbitration clause.
Petitioners filed a Motion to Defer Pre-Trial and
Motion to Set for Preliminary Hearing the
Affirmative Defense of Lack of Cause of Action
for Failure to comply with Arbitration Clause,
respectively.
The RTC denied.
The CA affirmed. It ruled that petitioner cannot set
the case for preliminary hearing as an MTD was
filed. Also, the arbitration clause in the charter party
did not bind Pioneer. The right of Pioneer to file a

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complaint against petitioners is not dependent


upon the charter party, nor does it grow out of
any privity contract. It accrues simply upon
payment.
Citing Pan Malayan Insurance Corporation v. CA,
the CA ruled that the right of respondent insurance
company as subrogee was not based on the
charter party or any other contract; rather, it
accrued upon the payment of the insurance claim
by private respondent to the insured consignee.
Issue: WON the arbitration clause was binding upon
Pioneer
Held: YES
Ratio: The CA erred when it held that the arbitration
clause was not binding on Pioneer.
There was nothing in Pan Malayan, however, that
prohibited the applicability of the arbitration
clause to the subrogee.
That case merely
discussed, inter alia, the accrual of the right of
subrogation and the legal basis therefor. This
issue is completely different from that of the
consequences of such subrogation; that is, the
rights that the insurer acquires from the insured
upon payment of the indemnity.
(Pan Malayan: The right of subrogation is not
dependent upon, nor does it grow out of, any privity
of contract or upon written assignment of claim. It
accrues simply upon payment of the insurance claim
by the insurer.)
As to the preliminary hearing: True, Section 6, Rule
16 specifically provides that a preliminary hearing on
the affirmative defenses may be allowed only when
no motion to dismiss has been filed. Section 6,
however, must be viewed in the light of Section 3
which requires courts to resolve a motion to dismiss
and prohibits them from deferring its resolution on
the ground of indubitability. Section 6 disallows a
preliminary hearing of affirmative defenses once a
motion to dismiss has been filed because such
defense should have already been resolved. In the
present case, however, the trial court did not
categorically resolve petitioners Motion to Dismiss,
but merely deferred resolution thereof.
STUDY NOTES
Rule 2.2. Policy on arbitration. (A) Where the parties have
agreed to submit their dispute to arbitration, courts shall refer the
parties to arbitration pursuant to Republic Act No. 9285 bearing in
mind that such arbitration agreement is the law between the
parties and that they are expected to abide by it in good faith.
Further, the courts shall not refuse to refer parties to arbitration
for reasons including, but not limited to, the following:
c. The referral would result in multiplicity of suits;
Rule 4.7. Multiple actions and parties. The court shall not
decline to refer some or all of the parties to arbitration for any of
the following reasons:
a. Not all of the disputes subject of the civil action may be
referred to arbitration;

b. Not all of the parties to the civil action are bound by the
arbitration agreement and referral to arbitration would result in
multiplicity of suits;
c. The issues raised in the civil action could be speedily and
efficiently resolved in its entirety by the court rather than in
arbitration;
d. Referral to arbitration does not appear to be the most prudent
action; or
e. The stay of the action would prejudice the rights of the
parties to the civil action who are not bound by the
arbitration agreement.
The court may, however, issue an order directing the inclusion
in arbitration of those parties who are not bound by the
arbitration agreement but who agree to such inclusion
provided those originally bound by it do not object to their
inclusion.

CLASS NOTES
Can you be bound by an arbitration clause in
subrogation?
No express ruling in California & Hawaiian Sugar
Co. v. Pioneer Insurance & Surety Corp (2000),
citing Pan Malayan, saying that a subrogee is
bound. Theres only the accrual of the right of
subgrogation and the legal basis therefor.
Was there consent on the part of the insurance
company?
Yes, on the basis of the principle of subrogation and
its effects.
Will Article 1311 of the Civil Code apply here?
Art. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or
by stipulation or by provision of law. The heir is not liable beyond
the value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated
his acceptance to the obligor before its revocation. A mere
incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a
favor upon a third person.

Can Assignment in A1311 be equated with


Subrogation?
No. The right of subrogation is not dependent upon,
nor does it grow out of, any privity of contract or
upon written assignment of claim. It accrues simply
upon payment of the insurance claim by the insurer.
(Pan Malayan)
c.f.
Art. 2207. If the plaintiff's property has been insured, and he has
received indemnity from the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the
contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled

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to recover the deficiency from the person causing the loss or


injury.

resulting increase in tuition fees allowed by RA 6728


were discussed at length.

Can a party be bound by the Arbitration Clause


by statutory provision?
Xam: Analogous to heirs in the sense that the
subrogee acquires the transmissible rights of the
original party. (UNANSWERED).

The DECS however affirmed the tuition fee


increase.

See however, Bloomfield Academy Sec. 10 on


Consultation of RA 6728, also commonly known as
"An Act Providing Government Assistance to
Students and Teachers in Private Education, And
Appropriating Funds Therefor"
Xam: See also, Associated Bank case Sec. 3
(Agreement to the PCHC Rules) in relation to Sec.
36 on Arbitration.

Bloomfield Academy v. CA, 237 SCRA 43 (1994)


Petitioners: Bloomfield Academy and Rodolfo
Lagera
Respondents: CA, Bloomfield Academy Parents
Advisory Association Inc, et al
Facts:
The petition originated in a complaint for injunction
filed on April 6, 1990 by private respondent, the
association of parents and guardians of students
enrolled in petitioner. One of the defendants in the
case is petitioner which is a non-stock, non-profit
educational institution. What is being disputed
before the court is the increase in tuition fee. The
petitioners contend that the increase is essential due
to the increase of the minimum wage under RA
6727.
Private respondents alleged that the 21.22%
increase was made without prior consultation
with the parents required by law and that, in any
case, the approved increase was exorbitant (at
21.22%).
They sent a letter to the DECS Secretary
complaining that the tuition fee increase was
without valid basis already, after both parties
agreed on 50% of the increase which was
implemented and paid by the students during the
school year with the clear understanding that the
other 50% is waived by the defendant.
Petitioners, on their part, contended that the parties
did, in fact, hold consultations at which the wage
increase for teachers mandated by RA6727 and the

The court issued an order enjoining petitioners


and Secretary Cario and/or their agents,
representatives or persons acting in their behalf
from implementing the increase in tuition fees, and
not withholding their release of the report cards
and/or other papers necessary for the students
desiring to transfer to other schools until further
orders from the court. The application for injunction
was set for hearing on April 19, 1990 at 2:00 p.m.
Answer to the complaint was filed by petitioners on
April 19, 1990. On the same date, the court
conducted the first hearing on the application for
a writ of preliminary injunction which hearing was
followed by settings on April 25, 26 and 27, 1990.
The court thereafter issued an order granting the
writ of preliminary injunction.
On certiorai, the CA affirmed and ruled that the
grant or denial of an injunction rests upon the sound
discretion of the court.
Issue: WON the court erred in granting the
injunction
Held:
Ratio: The pertinent provisions RA 6728, also
commonly known as "An Act Providing Government
Assistance to Students and Teachers in Private
Education, And Appropriating Funds Therefor,"
provide:
Sec. 9. Further Assistance To Students in Private
Colleges and Universities. . . . .
(b) For students enrolled in schools charging above
one thousand five hundred pesos (P1,500.00) per
year in tuition and other fees during the school year
1988-1989 or such amount in subsequent years as
may be determined from time to time by the State
Assistance Council, no assistance for tuition fees
shall be granted by the Government: Provided,
however, That the schools concerned may raise
their tuition fees subject to Section 10 hereof.
xxx xxx xxx
Sec. 10. Consultation. In any proposed
increase in the rate of tuition fee, there shall be
appropriate consultations conducted by the school
administration with the duly organized parents and
teachers associations and faculty associations with
respect to secondary schools, and with students
governments or councils, alumni and faculty
associations with respect to colleges. For this
purpose, audited financial statements shall be made

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available to authorized representatives of these


sectors. Every effort shall be exerted to reconcile
possible differences. In case of disagreement,
the alumni association of the school or any other
impartial body of their choosing shall act as
arbitrator.
xxx xxx xxx
Sec. 14. Program Administration/Rules and
Regulations. The State Assistance Council shall
be responsible for policy guidance and direction,
monitoring and evaluation of new and existing
programs, and the promulgation of rules and
regulations, while the Department of Education,
Culture and Sports shall be responsible for the
day to day administration and program
implementation. Likewise, it may engage the
services and support of any qualified government or
private entity for its implementation.
The judicial action initiated by private
respondent before the court appears to us to be
an inappropriate recourse. It remains undisputed
that the DECS Secretary has, in fact, taken
cognizance of the case for the tuition fee increase
and has accordingly acted thereon. We can only
assume that in so doing the DECS Secretary has
duly passed upon the relevant legal and factual
issues dealing on the propriety of the matter. In the
decision process, the DECS Secretary has verily
acted in a quasi-judicial capacity.
The remedy from that decision is an appeal.
Conformably with BP 129, the exclusive appellate
jurisdiction to question that administrative action lies
with the CA, not with the court a quo. If we were to
consider, upon the other hand, the case for
injunction filed with the court a quo to be a ordinary
action solely against herein petitioner (with DECS
being then deemed to be merely a nominal party), it
would have meant the court's taking cognizance
over the case in disregard of the doctrine of
primary jurisdiction.
Neither can we treat the case as a special civil
action for certiorari or prohibition as the
complaint filed by private respondent with the court a
quo, contains no allegation of lack, or grave abuse in
the exercise, of jurisdiction on the part of DECS nor
has there been any finding made to that effect by
either the court a quo or the appellate court that
could warrant the extraordinary remedy. A special
civil action, either for certiorari or prohibition, can be
grounded only on either lack of jurisdiction or grave
abuse of discretion.
In passing, we also observe that the parties have
both remained silent on the provisions of
Republic Act No. 6728 to the effect that in case
of disagreement on tuition fee increases (in this
instance by herein private parties), the issue
should be resolved through arbitration. Although

the matter has not been raised by the parties, it is an


aspect, nevertheless, in our view, that could have
well been explored by them instead of
immediately invoking, such as they apparently
did, the administrative and judicial relief to
resolve the controversy.
All told, we hold that the court a quo has been bereft
of jurisdiction in taking cognizance of private
respondent's complaint. We see no real justification,
on the basis of the factual and case settings here
obtaining, to permit a deviation from the long
standing rule that the issue of jurisdiction may be
raised at any time even on appeal.

CLASS NOTES
Take Note of Sec. 10:
In case of disagreement, the alumni association of
the school or any other impartial body of their
choosing shall act as arbitrator
Is Sec. 10 an effective arbitration clause? Is the
designation of the alumni association in Sec. 10
an appointment of arbitrator? Statutory
arbitration clause?
A republic act meddled with the legal relationship.
Sir, too broad, too vague. Consent is absent.
If yes, party may move to stay civil action.
If not, theres no arbitrable dispute and theres no
basis to stay civil action.
Take Note of the the ff. provisions:
R.A. 9285, Sec. 24. Referral to Arbitration. - A
court before which an action is brought in a matter
which is the subject matter of an arbitration
agreement shall, if at least one party so requests not
later that the pre-trial conference, or upon the
request of both parties thereafter, refer the parties to
arbitration unless it finds that the arbitration
agreement is null and void, inoperative or incapable
of being performed.
Sec. 7 Stay of civil action
Relate to Referral to ADR (Special Rules)
Depends on the request of a party, because party
may decide not to undergo ADR
- Related to Section 24 of RA 9285
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

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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.
Rule 4.2. When to make request. (A) Where the
arbitration agreement exists before the action is
filed. The request for referral shall be made not
later than the pre-trial conference. After the pretrial conference, the courthuj will only act upon the
request for referral if it is made with the agreement
of all parties to the case.

Take Note of the SC Ruling:


Although the matter has not been raised by the
parties, it is an aspect, nevertheless, in our view,
that could have well been explored by them
instead of immediately invoking, such as they
apparently did, the administrative and judicial
relief to resolve the controversy.
Remedies available:
1) Move to dismiss
2) Ground to stay
Can the Court proceed to decide the case on the
merits in the interest of justice?
No, This proceeding [Petition for Enforcement of
Agreement to Arbitrate] is merely a summary
remedy to enforce the agreement to arbitrate. The
duty of the court in this case is not to resolve the
merits of the parties' claims but only to determine if
they should proceed to arbitration or not. (Mindanao
Portland Cement Corporation v. McDonough
Construction Co. of Florida, 90 SCRA 808 (1967)).

Mindanao Portland Cement Corporation v.


McDonough Construction Co. of Florida, 90
SCRA 808 (1967)
Petitioner appellee: Mindanao Portland Cement
Corporation
Respondent appellant: McDonough Construction

contractors'
payment.

and

fiscal

requests

for

Alterations in the plans and specifications were


subsequently made during the progress of the
construction. Due to this and to other causes
deemed sufficient by Turnbull, Inc., extensions of
time for the termination of the project, initially
agreed to be finished on December 17, 1961, were
granted.
Respondent finally completed the project on
October 22, 1962. Differences later arose.
Petitioner claimed from respondent damages in the
amount of more than P2,000,000 allegedly
occasioned by the delay in the project's completion.
Respondent in turn asked for more than P450,000
from petitioner for alleged losses due to cost of
extra work and overhead as of April 1962.
A conference was held between petitioner and
Turnbull, Inc., on one hand, and respondent on the
other, to settle the differences, but no satisfactory
results were reached.
Petitioner sent respondent written invitations to
arbitrate, invoking a provision in their contract
regarding arbitration of disputes. Instead of
answering said invitations, respondent, with
Turnbull's approval, submitted to petitioner for
payment its final statement of work accomplished,
asking for P403,700 as unpaid balance of the
consideration of the contract.
Petitioner filed the present action in the CFI of
Manila to compel respondent to arbitrate with it
concerning alleged disputes arising from their
contract.5 It averred inter alia that deletions and
additions to the plans and specifications were
agreed upon during the progress of the
construction; that disagreement arose between them
as to the cost of the additional or extra work
done, and respondent's deviation from some
5

Facts:
Petitioner and respondent McDonough executed a
contract for the construction by the respondent
for the petitioner of a dry portland, cement plant at
Iligan City. In a separate contract, Turnbull, Inc.
the "engineer" was engaged to design and
manage the construction of the plant, supervise the
construction,
schedule
deliveries
and
the
construction work as well as check and certify ill

progress

The provision of the contract on "Arbitration of


Disagreements" (par. 39) says:
39. In the event of disagreement between the Owner and the
Contractor in respect of the rights or obligations of either of the
parties hereunder except the interpretation of the plans and
specifications and questions concerning the sufficiency of
materials, the time, sequence and method of performing the
work, which questions are to be finally determined by the
Engineer, they shall submit the matter to arbitration, the
Owner choosing one arbitrator, the Contractor one, and the two
so chosen shall select a third. The decision of such arbitrators or
a majority of them shall be made in writing to both parties and
when so made shall be binding upon the parties thereto.

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agreed specifications; that petitioner claims having


overpaid respondent by P33,810.81; that petitioner
further claims to have suffered damages due to
respondent's delay in finishing the project; that
respondent, on the other hand, still claims an
unpaid balance of about P403,700; that these
matters fall under the general arbitration clause
of their contract; and that respondent has failed to
proceed to arbitration despite several requests
therefor.
The court ruled that the matter should be submitted
to arbitration.
Issue: WON the dispute should be submitted to
arbitration
Respondent, contends that:
1) There is no showing of disagreement; and
2) If there is, the same falls under the exception,
to be resolved by the engineer.
Held:
Ratio:
1) As to the first point, the fact of disagreement
has been determined by the court below
upon
the
stipulation
of
facts
and
documentary evidence submitted. In this
appeal involving pure questions of law, the
above finding should not be disturbed.
Furthermore, the existence of disagreement is
plainly shown in the record. Respondent
admits the existence of petitioner's claim but
denies its merit. It likewise admits that petitioner
has refused to pay its claim for the unpaid
balance of the price of the contract. Paragraph
86 of the stipulation of facts shows the
dispute of the parties regarding their mutual
claims and that said dispute remained
unsettled.
2) Regarding the second point, the parties agreed
by way of exception that disagreements with
respect to the following matters shall be finally
resolved by the engineer, instead of being
submitted to arbitration: (1) The interpretation
of plans and specifications; (2) sufficiency of

8. That on or about May 29, 1962, a conference was held


between petitioner and Turnbill, Inc., on the one hand, and
respondent, on the other, to settle their differences involving the
claim for damages of petitioner in the amount of more than
P2,000,000, occasioned by the delay in the completion of the
project, and the claim of respondent for losses due to the cost of
extra plant and overhead in the amount of more than P450,000,
as of April, 1962, but no satisfactory results were reached

materials; and (3) the time, sequence and


method of performing the work.
The disputes involved here, on the other hand, are
on (1) the proper computation of the total
contract price, including the cost of additional or
extra work; and (2) the liability for alleged delay in
completing the project and for alleged losses due to
change in the plans and specifications.
a) Now from the contract itself We can
determine the scope of the exceptions
aforementioned.
Thus, pars. 19 to 22 of its General Conditions deal
with the subject "Interpretation of Plans and
Specifications". And thereunder, the engineer is
empowered to correct all discrepancies, errors or
omissions in the plans and specifications; to explain
all doubts that may arise thereon; and to furnish
further plans and specifications as may be required.
No mention is made therein as to the cost of the
project; this matter is covered by the engineering
contract, under which Turnbull, Inc.'s function is
limited to making estimates of costs only.
"Sufficiency of materials" and "method of
performing the work" under the second and
third exceptions above-mentioned are treated in
pars. 2 to 6 of the General Conditions under the
heading "QUALITY OF WORKS AND MATERIALS".
Turnbull, Inc., is therein empowered to determine
the land fitness of the several kinds of work and
materials furnished and to reject or condemn many
of them which, in its opinions, does not fully conform
to the terms of the contract. In the present case, the
dispute is not as to the quality of the materials or of
the kind of work done.
"Time" and "Sequence of Work" are covered by
pars. 9 to 17 of the General Conditions under the
heading "SCHEDULING." Neither would the
disputes fall under these exceptions. Turnbull, Inc.'s
power here is to schedule the deliveries and
construction work and expedite the same so that the
project can be finished on time. It is also authorized,
under par. 15, to determine whether any eventuality
is sufficient enough to warrant in extension of time
and if so, to determine the period of such extension.
The delay envisioned here is one that occurs during
the progress of the work which disturbs the prescheduling plan, thus necessitating an extension of
the over-all deadline precisely to prevent respondent
from going beyond the same. Turnbull, Inc.'s
function goes no further than to calculate and fix the
period of extension. But the delay petitioner alleged

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is different; it is delay beyond the last date of


extension fixed by Turnbull, Inc. Clearly, the
question of liability therefor, is not embraced in the
exception.
To none of the exceptions then do the
disagreements in question belong, the rule of
arbitration therefore applies. The parties in fact
also stipulated in their contract, under "EXTRA
WORK", that the cost of extra work to be paid shall
be subject to negotiations. This negates the
proposition that Turnbull, Inc.'s cost estimates
appearing in Addenda 2, 3 and 7 are final and
conclusive.
b) The reason, moreover, for the exceptions
interpretation of plans and specifications;
sufficiency of materials; sequence, time and
method of performing the work is the
need
to
decide
these
matters
immediately, since the progress of the
work would await their determination.
The same is not true as to matters relating
to the liability for delay in the project's
completion; these are questions that the
engineer does not have to resolve before
the project can go on. Consequently, We
view that it is not included in the exceptions,
as indeed the related provisions of their
agreement indicate.
Since there obtains herein a written provision for
arbitration as well as failure on respondent's part to
comply therewith, the court a quo rightly ordered the
parties to proceed to arbitration in accordance with
the terms of their agreement (Sec. 6, Republic Act
876). Respondent's arguments touching upon
the merits of the dispute are improperly raised
herein. They should be addressed to the arbitrators.
This proceeding is merely a summary remedy to
enforce the agreement to arbitrate. The duty of
the court in this case is not to resolve the merits
of the parties' claims but only to determine if
they should proceed to arbitration or not. And
although it has been ruled that a frivolous or patently
baseless claim should not be ordered to arbitration,
it is also recognized that the mere fact that a
defense exists against a claim does not make it
frivolous or baseless.
STUDY NOTES:
Rule 2.2. Policy on arbitration. (A) Where the parties have
agreed to submit their dispute to arbitration, courts shall refer the
parties to arbitration pursuant to Republic Act No. 9285 bearing in
mind that such arbitration agreement is the law between the
parties and that they are expected to abide by it in good faith.

Further, the courts shall not refuse to refer parties to arbitration for
reasons including, but not limited to, the following:
b. The court is in a better position to resolve the dispute subject
of arbitration;

CLASS NOTES:
What is a pathological arbitration clause?
An arbitration clause thats vague or unclear, such
that instead of facilitating the arbitration of the case,
it delays it.
Mindanao Portland case contains a pathological
arbtiration clause, thus: Some are referrable to
arbitration, others are referrable to the engineer.
Note:
Respondent McDonough contended in the case that:
1) There is no showing of disagreement (merely
a problem in computation); and
2) If there is, the same falls under the exception,
to be resolved by the engineer.
Whereas Petition Mindanao Portland insisted that
there was a dispute and that it is referrable to
arbitration.
Problem is that McDonough started to argue the
case on its merits.
Court: Its wrong.
What is the duty of the Court when confronted
with the issue of the arbitrability of the dispute?
(Most common mistake of courts)
The duty of the court in this case is not to resolve
the merits of the parties' claims but only to determine
if they should proceed to arbitration or not

Associated Bank v. CA, 233 SCRA 137 (1994)


Petitioner: Associated Bank
Respondents: CA,Visitacion Flores, Asuncion Flores
PCIB, Far East Bank, Security Bank and Citytrust
Bank
Facts:
In a complaint for Violation of the NIL and
Damages, Visitacion and Asuncion Flores seek the
recovery of the amount of P900,913.60 which
petitioner charged against their current account
by virtue of the 16 checks drawn by them despite
the apparent alterations therein with respect to the

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name of the payee, that is, the name Filipinas Shell


was erased and substituted with Ever Trading and
DBL Trading by their supervisor Jeremias Cabrera,
without their knowledge and consent.
Petitioner claimed that the subject checks appeared
to have been regularly issued and free from any
irregularity which would excite or arouse any
suspicion or warrant their dishonor when the same
were negotiated and honored by it.
Petitioner filed a TPC against PCIB, Far East Bank
and City Trust for reimbursement, contribution,
indemnity for being the collecting banks of the
subject checks and by virtue of their bank guarantee
for all checks sent for clearing to the Philippine
Clearing House Corporation (PCHC), as provided for
in Section 17, (PCHC), as provided for in Section 17,
PCHC Clearing House Rules and Regulations.
Citytrust and PCIB claimed that the checks were
complete and regular on their face. A Motion To
Dismiss was filed by Security Bank on the
grounds that petitioner failed to resort to
arbitration as provided for in Section 36 of the
Clearing House Rules and Regulations of the
Philippine Clearing House Corporation.
Petitioner maintains that this Court has
jurisdiction over the suit as the provisions of the
Clearing House Rules and Regulations are
applicable only if the suit or action is between
participating member banks, whereas the
Floreses are private persons and the third-party
complaint between participating member banks
is only a consequence of the original action
initiated by the plaintiffs.
The trial court dismissed the TPC for lack of
jurisdiction citing Section 36 of the Clearing
House Rules and Regulations of the PCHC
providing for settlement of disputes and
controversies involving any check or item
cleared through the body with the PCHC. It ruled
citing the Arbitration Rules of Procedure that
the decision or award of the PCHC through its
arbitration committee/arbitrator is appealable only
on questions of law to any of the Regional Trial
Courts in the National Capital Region where the
head office of any of the parties is located. The CA
affirmed
Issue: WON the case should be dismissed for
failure to arbitrate
Held:

Yes

Ratio: The Clearing House Rules and Regulations


on Arbitration of the Philippine Clearing House
Corporation are clearly applicable to petitioner
and private respondents. Petitioners third party
complaint in the trial court was one for
reimbursement, contribution and indemnity
against PCIB, FarEast, Security Bank, and CityTrust,
in connection with petitioners having honored
sixteen checks which said banks supposedly
endorsed to the former for collection in 1989.
Under the rules and regulations of the PCHC, the
mere act of participation of the parties
concerned in its operations in effect amounts to
a manifestation of agreement by the parties to
abide by its rules and regulations. As a
consequence of such participation, a party cannot
invoke the jurisdiction of the courts over
disputes and controversies which fall under the
PCHC Rules and Regulations without first going
through the arbitration processes laid out by the
body. Since claims relating to the regularity of
checks cleared by banking institutions are among
those claims which should first be submitted for
resolution by the PCHCs Arbitration Committee,
petitioner, having voluntarily bound itself to abide by
such rules and regulations, is estopped from
seeking relief from the RTC on the coattails of a
private claim and in the guise of a third party
complaint without first having obtained a decision
adverse to its claim from the said body. It cannot
bypass the arbitration process on the basis of its
averment that its third party complaint is inextricably
linked to the original complaint in the RTC.
Pursuant to PCHCs function involving the clearing
of checks and other clearing items, the PCHC has
adopted rules and regulations designed to
provide member banks with a procedure
whereby disputes involving the clearance of
checks and other negotiable instruments
undergo a process of arbitration prior to
submission to the courts below. This procedure
(1) ensures a uniformity of rulings relating to
factual disputes involving checks and other
negotiable instruments (2) provides a mechanism
for settling minor disputes among participating
and member banks which would otherwise go
directly to the trial courts.
While the PCHC Rules and Regulations allow
appeal to the Regional Trial Courts only on
questions of law, this does not preclude our
lower courts from dealing with questions of fact
already decided by the PCHC arbitration when
warranted and appropriate.

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In Banco de Oro Savings and Mortgage Banks vs.


Equitable Banking Corporation this Court had the
occasion to rule on the validity of these rules as
well as the jurisdiction of the PCHC as a forum for
resolving disputes and controversies involving
checks and other clearing items when it held that
"the participation of two banks. . . in the Clearing
Operations of the PCHC (was) a manifestation of its
submission to its jurisdiction."
Under the PCHC Rules and Regulations,7 not
only do the parties manifest by mere
participation their consent to these rules, but
such participation is deemed (their) written and
subscribed consent to the binding effect of
arbitration agreements under the PCHC rules.
Moreover, a participant subject to the Clearing
House Rules and Regulations of the PCHC may go
on appeal to any of the Regional Trial Courts in the
National Capital Region where the head office of any
of the parties is located only after a decision or
award has been rendered by the arbitration
committee or arbitrator on questions of law.
Clearly therefore, petitioner, by its voluntary
participation and its consent to the arbitration
rules cannot go directly to the RTC when it finds
it convenient to do so. The jurisdiction of the
PCHC under the rules and regulations is clear,
undeniable and is particularly applicable to all the
parties in the third party complaint under their
7

The applicable PCHC provisions on the question of jurisdiction


provide:
1) Sec. 3 AGREEMENT TO THESE RULES
It is the general agreement and understanding, that any
participant in the PCHC MICR clearing operations, by the mere
act of participation, thereby manifests its agreement to these
Rules and Regulations, and its subsequent amendments.
2) Sec. 36 ARBITRATION
a) 36.1 Any dispute or controversy between two or
more clearing participants involving any check/item
cleared thru PCHC shall be submitted to the
Arbitration Committee, upon written complaint of any
involved participant by filing the same with the PCHC
serving the same upon the other party or parties, who
shall within fifteen (15) days after receipt thereof, file
with the Arbitration Committee its written answer to
such written complaint and also within the same period
serve the same upon the complaining participant. This
period of fifteen (15) days may be extended by the
Committee not more than once for another period of
fifteen (15) days, but upon agreement in writing of the
complaining party, said extension may be for such
period as the latter may agree to.
b) Section 36.6 is even more emphatic:
36.6 The fact that a bank participates in the clearing
operations of PCHC shall be deemed its written and
subscribed consent to the binding effect of this
arbitration agreement as if it had done so in
accordance with Section 4 of the Republic Act No. 876
otherwise known as the Arbitration Law.

obligation to first seek redress of their disputes and


grievances with the PCHC before going to the trial
court.
Finally, the contention that the third party complaint
should not have been dismissed for being a
necessary and inseparable offshoot of the main
case over which the court a quo had already
exercised jurisdiction misses the fundamental point
about such pleading. A third party complaint is a
mere procedural device which under the Rules of
Court is allowed only with the courts
permission. It is an action "actually independent
of, separate and distinct from the plaintiffs
complaint" (s)uch that, were it not for the Rules of
Court, it would be necessary to file the action
separately from the original complaint by the
defendant against the third party.
STUDY NOTES
Rule 2.2. Policy on arbitration. (A) Where the parties have
agreed to submit their dispute to arbitration, courts shall refer the
parties to arbitration pursuant to Republic Act No. 9285 bearing in
mind that such arbitration agreement is the law between the
parties and that they are expected to abide by it in good faith.
Further, the courts shall not refuse to refer parties to arbitration for
reasons including, but not limited to, the following:
f. One or more of the issues are legal and one or more of
the arbitrators are not lawyers;

CLASS NOTES:
Xam: See also, Associated Bank case Sec. 3
(Agreement to the PCHC Rules) in relation to Sec.
36 on Arbitration.
Participation in the PCHC clearing process is
equivalent to a WRITTEN and SUBSCRIBED
consent to be bound by the PCHC Rules and
Regulations, including the provision on arbitration.

Luzon Development Bank v. Luzon Development


Bank Employees, 249 SCRA 162 (1995) In re:
multiplicity
Petitioner: Luzon Development Bank
Respondent: Association of Luzon Development
Bank Employees and Atty. Ester Garcia
Facts: The following issue arose between petitioner
and respondent: Whether or not the company has
violated the CBA provision and the MOA dated April
1994, on promotion. The parties agreed on the
submission of their respective Position Papers on
December 1-15, 1994. Atty. Ester S. Garcia
(Voluntary Arbitrator) received ALDBE's Position

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Paper on January 18, 1995. LDB failed to submit its


Position Paper despite a letter from the Voluntary
Arbitrator reminding them to do so. The Voluntary
Arbitrator rendered a decision finding that the Bank
has not adhered to the CBA provision nor the MOA
on promotion.
Hence, this petition for certiorari and prohibition
seeking to set aside the decision of the Voluntary
Arbitrator and to prohibit her from enforcing the
same.

parties to a CBA shall name and designate therein a


voluntary arbitrator or a panel of arbitrators, or
include a procedure for their selection, preferably
from those accredited by the NCMB. Article 261 LC
accordingly
provides
for
exclusive
original
jurisdiction of such voluntary arbitrator or panel of
arbitrators
over
(1)
the
interpretation
or
implementation of the CBA and (2) the interpretation
or enforcement of company personnel policies.
Article 262 authorizes them, but only upon
agreement of the parties, to exercise jurisdiction
over other labor disputes.

Issue: WON direct resort to the SC is warranted


Held:

No

Ratio: In labor law context, arbitration is the


reference of a labor dispute to an impartial third
person for determination on the basis of evidence
and arguments presented by such parties who have
bound themselves to accept the decision of the
arbitrator as final and binding.
Arbitration may be classified, on the basis of the
obligation on which it is based, as either compulsory
or voluntary. Compulsory arbitration is a system
whereby the parties to a dispute are compelled by
the government to forego their right to strike and are
compelled to accept the resolution of their dispute
through arbitration by a third party. The essence of
arbitration remains since a resolution of a dispute is
arrived at by resort to a disinterested third party
whose decision is final and binding on the parties,
but in compulsory arbitration, such a third party is
normally appointed by the government. Under
voluntary arbitration referral of a dispute by the
parties is made, pursuant to a voluntary arbitration
clause in their collective agreement, to an impartial
third person for a final and binding resolution.
Ideally, arbitration awards are supposed to be
complied with by both parties without delay, such
that once an award has been rendered by an
arbitrator, nothing is left to be done by both parties
but to comply with the same. After all, they are
presumed to have freely chosen arbitration as the
mode of settlement for that particular dispute.
Pursuant thereto, they have chosen a mutually
acceptable arbitrator who shall hear and decide their
case. Above all, they have mutually agreed to de
bound by said arbitrator's decision.
In the Philippine context, the parties to a CBA are
required to include therein provisions for a
machinery for the resolution of grievances arising
from the interpretation or implementation of the CBA
or company personnel policies. For this purpose,

On the other hand, a labor arbiter under Article 217


LC has jurisdiction over the following enumerated
cases:
(1) Unfair labor practice cases; (2)
Termination disputes; (3) If accompanied with a
claim for reinstatement, those cases that workers
may file involving wages, rates of pay, hours of work
and other terms and conditions of employment; (4)
Claims for actual, moral, exemplary and other forms
of damages arising from the employer-employee
relations; (5) Cases arising from any violation of
Article 264 of this Code, including questions
involving the legality of strikes and lockouts; (6)
Except claims for Employees Compensation, Social
Security, Medicare and maternity benefits, all other
claims, arising from employer-employee relations,
including those of persons in domestic or household
service, involving an amount exceeding P5,000.00
regardless of whether accompanied with a claim for
reinstatement.
It will thus be noted that the jurisdiction conferred by
law on a voluntary arbitrator or a panel of such
arbitrators is quite limited compared to the original
jurisdiction of the labor arbiter and the appellate
jurisdiction of the NLRC for that matter. The state of
our present law relating to voluntary arbitration
provides that "(t)he award or decision of the
Voluntary Arbitrator . . . shall be final and executory
after ten (10) calendar days from receipt of the copy
of the award or decision by the parties," 5 while the
"(d)ecision, awards, or orders of the Labor Arbiter
are final and executory unless appealed to the
Commission by any or both parties within ten (10)
calendar days from receipt of such decisions,
awards, or orders." Hence, while there is an express
mode of appeal from the decision of a labor arbiter,
RA 6715 is silent with respect to an appeal from the
decision of a voluntary arbitrator.
Yet, past practice shows that a decision or award of
a voluntary arbitrator is, more often than not,
elevated to the SC itself on a petition for certiorari,
in effect equating the voluntary arbitrator with the

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NLRC or the CA. In the view of the Court, this is


illogical and imposes an unnecessary burden upon
it.
In Volkschel Labor Union, et al. v. NLRC, et al., 8 on
the settled premise that the judgments of courts and
awards of quasi-judicial agencies must become final
at some definite time, this Court ruled that the
awards of voluntary arbitrators determine the rights
of parties; hence, their decisions have the same
legal effect as judgments of a court
Section 9 of B.P. Blg. 129, as amended by Republic
Act No. 7902, provides that the CA shall exercise:
(B) Exclusive appellate jurisdiction over all final
judgments, decisions, resolutions, orders or awards
of Regional Trial Courts and quasi-judicial agencies,
instrumentalities, boards or commissions, including
the Securities and Exchange Commission, the
Employees Compensation Commission and the Civil
Service Commission, except those falling within the
appellate jurisdiction of the Supreme Court in
accordance with the Constitution, the Labor Code of
the Philippines under Presidential Decree No. 442,
as amended, the provisions of this Act, and of
subparagraph (1) of the third paragraph and
subparagraph (4) of the fourth paragraph of Section
17 of the Judiciary Act of 1948.
Assuming that the voluntary arbitrator or the panel of
voluntary arbitrators may not strictly be considered
as a quasi-judicial agency, board or commission, still
both he and the panel are comprehended within the
concept of a "quasi-judicial instrumentality." It may
even be stated that it was to meet the very situation
presented by the quasi-judicial functions of the
voluntary arbitrators here, as well as the subsequent
arbitrator/arbitral tribunal operating under the CIAC,
that the broader term "instrumentalities" was
purposely included in the provision.
An "instrumentality" is anything used as a means or
agency. Thus, the terms governmental "agency" or
"instrumentality" are synonymous in the sense that
either of them is a means by which a government
acts, or by which a certain government act or
function is performed. The word "instrumentality,"
with respect to a state, contemplates an authority to
which the state delegates governmental power for
the performance of a state function. An individual
person, like an administrator or executor, is a judicial
instrumentality in the settling of an estate, in the
same manner that a sub-agent appointed by a
bankruptcy court is an instrumentality of the court,
and a trustee in bankruptcy of a defunct corporation
is an instrumentality of the state.

The voluntary arbitrator no less performs a state


function pursuant to a governmental power
delegated to him under the provisions in the Labor
Code and he falls, therefore, within the
contemplation of the term "instrumentality" in Sec. 9
of B.P. 129. The fact that his functions and powers
are provided for in the Labor Code does not place
him within the exceptions to said Sec. 9 since he is a
quasi-judicial instrumentality as contemplated
therein. It will be noted that, although the Employees
Compensation Commission is also provided for in
the Labor Code, Circular No. 1-91, which is the
forerunner of the present Revised Administrative
Circular No. 1-95, laid down the procedure for the
appealability of its decisions to the CA under the
foregoing rationalization, and this was later adopted
by Republic Act No. 7902 in amending Sec. 9 of
B.P. 129.
A fortiori, the decision or award of the voluntary
arbitrator or panel of arbitrators should likewise be
appealable to the CA, in line with the procedure
outlined in Revised Administrative Circular No. 1-95,
just like those of the quasi-judicial agencies, boards
and commissions enumerated therein.
This would be in furtherance of, and consistent with,
the original purpose of Circular No. 1-91 to provide a
uniform procedure for the appellate review of
adjudications of all quasi-judicial entities not
expressly excepted from the coverage of Sec. 9 of
B.P. 129 by either the Constitution or another
statute. Nor will it run counter to the legislative
intendment that decisions of the NLRC be
reviewable directly by the Supreme Court since,
precisely, the cases within the adjudicative
competence of the voluntary arbitrator are excluded
from the jurisdiction of the NLRC or the labor arbiter.
In the same vein, it is worth mentioning that under
Section 22 of RA 876, also known as the Arbitration
Law, arbitration is deemed a special proceeding of
which the court specified in the contract or
submission, or if none be specified, the RTC for the
province or city in which one of the parties resides or
is doing business, or in which the arbitration is held,
shall have jurisdiction. A party to the controversy
may, at any time within one (1) month after an award
is made, apply to the court having jurisdiction for an
order confirming the award and the court must
grant such order unless the award is vacated,
modified or corrected.
In effect, this equates the award or decision of the
voluntary arbitrator with that of the regional trial
court. Consequently, in a petition for certiorari from

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that award or decision, the CA must be deemed to


have concurrent jurisdiction with the Supreme Court.
As a matter of policy, this Court shall henceforth
remand to the CA petitions of this nature for proper
disposition.

Is it any other misbehavior"?

CLASS NOTES:

2) Ground for termination of mandate.

If an arbitrator and an RTC judge are of the same


level, how come a party can ask an RTC judge to
vacate an award made by an arbitrator?
The explanation is found in assigned cases and in
the Special ADR Rules.

Not a ground for appeal.


1) The arbitral tribunal is defective.

Rule 8.1. Who may request termination and on what grounds.


Any of the parties to an arbitration may request for the termination
of the mandate of an arbitrator where an arbitrator becomes de
jure or de facto unable to perform his function or for other reasons
fails to act without undue delay and that arbitrator, upon request
of any party, fails or refuses to withdraw from his office.

Is it because the RTC does not rule on the merits


but on the validity of the arbitration proceedings?
Is it because the equality presupposes the
competence of the arbitral tribunal?
Is it because the equality extends to the award not
the body or tribunal?
Xam: Upon the rendition of the award, the
jurisdiction of the arbitral tribunal over the dispute
ends. There is no jurisdiction over its enforcement.

In termination of mandate, a substitute is appointed


according to the manner in which the arbitrator
replaced was appointed.

What the RTC is doing is enforcing the award, not


exercising its power of review.

3) Sec. 14 All arbitrators should be present in all


hearings.
4) In commercial arbitration ground for setting
aside (if arbitration not conducted according to
the agreement of the parties).

Yet the law cannot simply grant the right to the


courts to simply enforce the award without
summarily looking into the extrinsic validity of the
award.
Cases for next meeting (August 6, 2010):
12) Toyota Motor Phils. Corp. V. CA, 216 SCRA 336
13) Heirs of Agusto L. Salas, Jr. v. Laperal Realty
Corp., 302 SCRA 620
14) Del Monte Corp. USA v. CA, 351 SCRA 373
15) Homebankers Savings and Trust Co. v. CA, 318
SCRA 558

Class Notes - August 20, 2010


What is the legal significance if one of the
arbitrators has been absent for an unreasonable
length of time?

Notes:
- Cannot ask for a commitment not to get an
injunction in the Philippines. Jurisdiction over the
issue is defined by the arbitration clause. (Mindanao
Portland)

Bundle of documents starting point in


preliminary conference, to enable the parties to
know what the evidence at issue. Also include
witness statement (judicial affidavit).
No formal offer.
Gonzales v. Climax Mining Ltd., 512 SCRA 148
(2007)
Petitioners: Pedro Gonzales alleges nullity
and Panel of Arbitrators
Respondents: Climax Mining Ltd, Climax Arimco
Mining Corp and Australasian Philippines Mining
wants to arbitrate
Facts:

Leeway not to confirm the award


Not a ground for vacation.
Is it a ground for vacation for evident partiality? No,
its not evident.

This is a consolidation of two petitions rooted in the


same disputed Addendum Contract entered into by
the parties.
The first case arose from COMPLAINT FOR THE
ANNULMENT OF THE ADDENDUM CONTRACT

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on grounds of fraud and violation of the Constitution


filed by Gonzales before the DENR Panel of
Arbitrators. The SC held that the DENR Panel of
Arbitrators had no jurisdiction over the complaint
and that the action should have been brought
before the regular courts as it involved judicial
issues.

Gonzales avers in his MR 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 Panels authority.
Respondents filed their Partial MR seeking
reconsideration of that part of the Decision holding
that the case should not be brought for
arbitration under RA. 876. Respondents 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.
The second case, on the other hand, stemmed
from the PETITION TO COMPEL ARBITRATION
filed by respondent before the RTC of Makati City
while the complaint for the nullification of the
Addendum Contract was pending before the
DENR Panel of Arbitrators.
Climax-Arimco had sent Gonzales a Demand for
Arbitration pursuant to Clause 19.1 of the
Addendum Contract and also in accordance with
Sec. 5 of R.A. No. 876. The petition for arbitration
was subsequently filed and Climax-Arimco sought
an order to compel the parties to arbitrate pursuant
to the said arbitration clause.
Gonzales filed an Answer with Counterclaim
questioning the validity of the Addendum
Contract containing the arbitration clause. He
alleged that the contract is void in view of ClimaxArimcos 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.
Climax-Arimco then filed a motion to resolve its
pending motion to compel arbitration. The RTC
denied the same. RTC required Gonzales to
proceed with arbitration proceedings and
appointing retired CA Justice Jorge Coquia as sole
arbitrator.

Climax-Arimco mentions that the special civil action


for certiorari employed by Gonzales is available only
where there is no appeal or any plain, speedy, and
adequate remedy in the ordinary course of law
against the challenged orders or acts. ClimaxArimco then points out that R.A. No. 876 provides
for an appeal from such orders. Climax-Arimco
adds 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 further
notes that Gonzaless attack on or repudiation of the
Addendum Contract also is not a ground to deny
effect to the arbitration clause in the Contract. The
arbitration agreement is separate and severable
from the contract evidencing the parties
commercial or economic transaction, it stresses.
Climax-Arimco emphasizes that the summary
proceeding to compel arbitration under Sec. 6 of
R.A. No. 876 should not be confused with the
procedure in Sec. 24 of R.A. No. 9285.
Sec. 6 of R.A. No. 876 refers to an application to
compel arbitration where the courts authority is
limited to resolving the issue of whether there is or
there is no agreement in writing providing for
arbitration.
Sec. 24 of R.A. No. 9285 refers to an ordinary action
which covers a matter that appears to be
arbitrable or subject to arbitration under the
arbitration agreement.
Issue: WON it is proper for the RTC to order the
parties to arbitrate even though the defendant has
raised the twin issues of the validity and nullity
of the Addendum Contract
Held: YES
1) PETITION TO COMPEL ARBITRATION - SC
ruled 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.
a) 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.

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b) Second, the separability of the arbitration


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, Gonzaless petition for
certiorari should be dismissed.
REMEDIAL LAW
We address the Rule 65 petition in Petition to
Compel Arbitration first from the remedial law
perspective. It deserves to be dismissed on
procedural grounds, as it was filed in lieu of
appeal which is the prescribed remedy and at that
far beyond the reglementary period. There is no
merit to Gonzaless argument that the use of the
permissive term "may" in Sec. 29, R.A. No. 876 in
the filing of appeals does not prohibit nor discount
the filing of a petition for certiorari under Rule 65.
Proper interpretation of the aforesaid provision
of law shows that the term "may" refers only to
the filing of an appeal, not to the mode of review
to be employed.

CONSENSUAL NATURE
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 arbitrators 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
(Section 2).
CONTRACTUAL NATURE
Thus, we held in Manila Electric Co. v. Pasay
Transportation Co. that a submission to arbitration
is a contract. A clause in a contract providing
that all matters in dispute between the parties
shall be referred to arbitration is a contract. In
Del Monte Corporation-USA v. CA we held that that
"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."
SPECIAL PROCEEDING
The special proceeding under Sec. 6 of R.A. No.
876 recognizes the contractual nature of
arbitration clauses or agreements.
JURISDICTION & COURT ACTION

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. CA. 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." The cited case also stressed that the
proceedings are summary in nature.
SEPARABILITY
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 CorporationUSA v. CA: 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.

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.
The separability of the arbitration clause is
confirmed in Art. 16(1) of the UNCITRAL Model
Law and Art. 21(2) of the UNCITRAL Arbitration
Rules.
2) ANNULMENT OF ADDENDUM CONTRACT:
The adjudication of the petition arising from the
Petition to Compel Arbitration effectively
modifies part of the Decision arising from the
Annulment case. 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

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clause itself. We add that when it was declared


in the first case 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.
The MR of Gonzales in the first case should also
be denied. These are the same issues that
Gonzales raised in his Rule 45 petition in the first
case which were already resolved against him. The
question of whether Gonzales had ceded his claims
over the mineral deposits in the Addendum Area of
Influence is a factual question which is not proper
for determination before this Court. The CA likewise
found that Gonzaless complaint alleged fraud but
did not provide any particulars to substantiate it. As
to the issue of prescription, Gonzaless claims of
fraud and misrepresentation attending the execution
of the Addendum Contract are grounds for the
annulment of a voidable contract under the Civil
Code. Under Art. 1391 of the Code, an action for
annulment shall be brought within four years, in the
case of fraud, beginning from the time of the
discovery of the same. However, the time of the
discovery of the alleged fraud is not clear from
the allegations of Gonzaless complaint.
STUDY NOTES:
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 the
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 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 first opportunity to rule
upon
such
issues.

parties to arbitration pursuant to Republic Act No. 9285 bearing in


mind that such arbitration agreement is the law between the
parties and that they are expected to abide by it in good faith.
Further, the courts shall not refuse to refer parties to arbitration for
reasons including, but not limited to, the following:
b. The court is in a better position to resolve the dispute subject
of arbitration
f. One or more of the issues are legal and one or more of the
arbitrators are not lawyers
(B) Where court intervention is allowed under ADR Laws or the
Special ADR Rules, courts shall not refuse to grant relief, as
provided herein, for any of the following reasons:
a. Prior to the constitution of the arbitral tribunal, the court finds
that the principal action is the subject of an arbitration agreement;
or
b. The principal action is already pending before an arbitral
tribunal.
The Special ADR Rules recognize the principle of separability
of the arbitration clause, which means that said clause shall be
treated as an agreement independent of the other terms of the
contract of which it forms part. A decision that the contract is null
and void shall not entail ipso jure the invalidity of the arbitration
clause.

CLASS NOTES:
1) Take note of the facts of the case illustrates
realities in arbitration.
2) Special proceeding of arbitration in the case
(read original) citing Sec. 6, thus NO pre-trial

Oil & Natural Gas Commission v. CA, 293 SCRA


26 (1998)
Petitioner: Oil and Natural Gas Commission - India
Respondents: CA and Pacific Cement Company Inc
- Phils
Facts:

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.

The parties entered into a contract where private


respondent undertook to supply the petitioner
4300 metric tons of oil well cement. In
consideration, petitioner bound itself to pay the
amount of $477,300. The oil well cement was loaded
on board the ship MV Surutana Nava at Surigao.
However, due to a dispute between the shipowner
and the private respondent, the cargo was held
up in Bangkok. Notwithstanding the fact that the
private respondent had already received payment
and despite several demands made by the
petitioner, the private respondent failed to deliver
the oil well cement.

Rule 2.2. Policy on arbitration. (A) Where the parties have


agreed to submit their dispute to arbitration, courts shall refer the

Negotiations ensued and they agreed that private


respondent will replace the oil well cement with

Where the court is asked to make a determination of whether the


arbitration agreement is null and void, inoperative or incapable of
being performed, under this policy of judicial restraint, the court
must make no more than a prima facie determination of that
issue.

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Class G cement cost free. However, said cement


did not conform to the parties specifications. The
petitioner informed private respondent that it was
referring its claim to an arbitrator pursuant to
Clause 16 of their contract8.
The chosen arbitrator, Shri N.N. Malhotra, resolved
the dispute in petitioner's favor. Petitioner filed
before the Court of Civil Judge in Dehra Dun, India
for the execution of the award. Subsequently, the
said court directed the private respondent to pay
the filing fees in order that the latter's objections
could be given consideration. Instead of paying the
required filing fees, the private respondent sent
the following communication addressed to the
Civil judge of Dehra Dun inquiring as to the amount
of filing fees. The foreign court refused to admit
private respondents objections for non failure of
filing fees and ruled in favor of petitioner.

The RTC dismissed the complaint for lack of a


valid cause of action. It found the referral of the
dispute between the parties to the arbitrator
under Clause 16 of their contract erroneous.
According to the contract, all questions, disputes
and differences, arising under out of or in
connection with this supply order, shall be
subject to the EXCLUSIVE JURISDICTION OF THE
COURT, within the local limits of whose
jurisdiction and the place from which this supply
order is situated." The RTC characterized the
erroneous submission of the dispute to the arbitrator
as a "mistake of law or fact amounting to want of
jurisdiction". The CA affirmed.
Issue: WON the arbitrator had jurisdiction over the
dispute between the parties
Held:

NO

Petitioner filed a complaint with the RTC of


Surigao City for the enforcement of the
judgment.

Ratio: The dispute between the parties had its


origin in the non-delivery of the 4,300 metric tons of
oil well cement to the petitioner.

Private respondent moved to dismiss the complaint


on the following grounds: (1) plaintiffs lack of legal
capacity to sue; (2) lack of cause of action; and
(3) plaintiffs claim or demand has been waived,
abandoned, or otherwise extinguished.

First of all, the petitioner has misquoted the said


phrase, shrewdly inserting a comma between the
words "supply order/contract" and "design" where
none actually exists.

Except where otherwise provided in the supply


order/contract all questions and disputes, relating to the
meaning of the specification designs, drawings and
instructions herein before mentioned and as to quality of
workmanship of the items ordered or as to any other
question, claim, right or thing whatsoever, in any way arising
out of or relating to the supply order/contract (NO COMMA!!!)
design, drawing, specification, instruction or these conditions or
otherwise concerning the materials or the execution or
failure to execute the same during stipulated/extended period
or after the completion/abandonment thereof shall be referred
to the sole arbitration of the persons appointed by Member of the
Commission at the time of dispute. It will be no objection to any
such appointment that the arbitrator so appointed is a
Commission employer (sic) that he had to deal with the matter to
which the supply or contract relates and that in the course of his
duties as Commission's employee he had expressed views on all
or any of the matter in dispute or difference.
The arbitrator to whom the matter is originally referred being
transferred or vacating his office or being unable to act for any
reason the Member of the Commission shall appoint another
person to act as arbitrator in accordance with the terms of the
contract/supply order. Such person shall be entitled to proceed
with reference from the stage at which it was left by his
predecessor. Subject as aforesaid the provisions of the Arbitration
Act, 1940, or any Statutory modification or re-enactment there of
and the rules made there under and for the time being in force
shall apply to the arbitration proceedings under this clause.
The arbitrator may with the consent of parties enlarge the time,
from time to time, to make and publish the award.
The venue for arbitration shall be at Dehra dun.

The petitioner also insists that the non-delivery of


the cargo is not only covered by the foregoing
phrase but also by the phrase, ". . . or otherwise
concerning the materials or the execution or failure
to execute the same during the stipulated/extended
period or after completion/abandonment thereof . .
.".
According to the maxim noscitur a sociis, where a
particular word or phrase is ambiguous in itself
or is equally susceptible of various meanings, its
correct construction may be made clear and
specific by considering the company of the
words in which it is found or with which it is
associated, or stated differently, its obscurity or
doubt may be reviewed by reference to associated
words.
A close examination of Clause 16 reveals that it
covers three matters which may be submitted to
arbitration namely,
(1) all questions and disputes, relating to the
meaning of the specification designs, drawings
and instructions herein before mentioned and as
to quality of workmanship of the items ordered;
or

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(2) any other question, claim, right or thing


whatsoever, in any way arising out of or relating
to the supply order/contract design, drawing,
specification, instruction or these conditions; or
(3) otherwise concerning the materials or the
execution or failure to execute the same during
stipulated/extended
period
or
after
the
completion/abandonment thereof.
The first and second categories unmistakably refer
to questions and disputes relating to the design,
drawing, instructions, specifications or quality of
the materials of the supply/order contract.
In accordance with the doctrine of noscitur a sociis,
this reference to the supply order/contract must
be construed in the light of the preceding words with
which it is associated, meaning to say, as being
limited only to the design, drawing, instructions,
specifications or quality of the materials of the
supply order/contract.
The non-delivery of the oil well cement is
definitely not in the nature of a dispute arising
from the failure to execute the supply order/contract
design, drawing, instructions, specifications or
quality of the materials.
That Clause 16 should pertain only to matters
involving the technical aspects of the contract is
but a logical inference considering that the
underlying purpose of a referral to arbitration is
for such technical matters to be deliberated
upon by a person possessed with the required
skill and expertise which may be otherwise
absent in the regular courts.
This Court agrees with the appellate court in its
ruling that the non-delivery of the oil well cement is a
matter properly cognizable by the regular courts
as stipulated by the parties in Clause 15.
The provisions of a contract should not be read
in isolation from the rest of the instrument but,
on the contrary, interpreted in the light of the
other related provisions. The whole and every
part of a contract must be considered in fixing
the meaning of any of its harmonious whole.
The petitioner's interpretation that Clause 16 is of
such latitude as to contemplate even the nondelivery of the oil well cement would in effect render
Clause 15 a mere superfluity. A perusal of Clause
16 shows that the parties did not intend

arbitration to be the sole means of settling


disputes.
The petitioner then asseverates that granting, for the
sake of argument, that the non-delivery of the oil
well cement is not a proper subject for arbitration,
the failure of the replacement cement to conform to
the specifications of the contract is a matter clearly
falling within the ambit of Clause 16. In this
contention, we find merit. When the 4,300 metric
tons of oil well cement were not delivered to the
petitioner, an agreement was forged between the
latter and the private respondent that Class "G"
cement would be delivered to the petitioner as
replacement. Upon inspection, however, the
replacement cement was rejected as it did not
conform to the specifications of the contract. Only
after this latter circumstance was the matter brought
before the arbitrator. Undoubtedly, what was
referred to arbitration was no longer the mere nondelivery of the cargo at the first instance but also
the failure of the replacement cargo to conform
to the specifications of the contract, a matter
clearly within the coverage of Clause 16.
What inspires credulity is not that the replacement
was done in the spirit of liberality but that it was
undertaken precisely because of the private
respondent's recognition of its duty to do so under
the supply order/contract, Clause 16 of which
remains in force and effect until the full execution
thereof.
Issue: WON the judgment of the foreign court is
enforceable in the Philippines
Held:

Yes

Ratio: As specified in the order of the Civil Judge


of Dehra Dun, "Award Paper No. 3/B-1 shall be a
part of the decree". This is a categorical declaration
that the foreign court adopted the findings of facts
and law of the arbitrator as contained in the latter's
Award Paper. Award Paper No. 3/B-1, contains an
exhaustive discussion of the respective claims and
defenses of the parties, and the arbitrator's
evaluation of the same. Inasmuch as the foregoing
is deemed to have been incorporated into the
foreign court's judgment the appellate court was in
error when it described the latter to be a
"simplistic decision containing literally, only the
dispositive portion".
The constitutional mandate that no decision shall be
rendered by any court without expressing therein
dearly and distinctly the facts and the law on which it

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is based does not preclude the validity of


"memorandum decisions" which adopt by reference
the findings of fact and conclusions of law contained
in the decisions of inferior tribunals.
Hence, even in this jurisdiction, incorporation by
reference is allowed if only to avoid the
cumbersome reproduction of the decision of the
lower courts, or portions thereof, in the decision
of the higher court. This is particularly true when
the decision sought to be incorporated is a lengthy
and thorough discussion of the facts and
conclusions arrived at, as in this case, where Award
Paper No. 3/B-1 consists of eighteen (18) single
spaced pages.
Furthermore, the recognition to be accorded a
foreign judgment is not necessarily affected by the
fact that the procedure in the courts of the country in
which such judgment was rendered differs from that
of the courts of the country in which the judgment is
relied on. This Court has held that matters of
remedy and procedure are governed by the lex
fori or the internal law of the forum.
In the instant case, the private respondent does not
deny the fact that it was notified by the foreign court
to file its objections to the petition, and
subsequently, to pay legal fees in order for its
objections to be given consideration. Instead of
paying the legal fees, however, the private
respondent sent a communication to the foreign
court inquiring about the correct amount of fees to
be paid. On the pretext that it was yet awaiting the
foreign court's reply, almost a year passed without
the private respondent paying the legal fees. We
cannot subscribe to the private respondent's
claim that the foreign court violated its right to
due process when it failed to reply to its queries
nor when the latter rejected its objections for a
clearly meritorious ground.
STUDY NOTES:
Rule 2.2. Policy on arbitration. (A) Where the parties have
agreed to submit their dispute to arbitration, courts shall refer the
parties to arbitration pursuant to Republic Act No. 9285 bearing in
mind that such arbitration agreement is the law between the
parties and that they are expected to abide by it in good faith.
Further, the courts shall not refuse to refer parties to arbitration for
reasons including, but not limited to, the following:
b. The court is in a better position to resolve the dispute subject
of arbitration;
e. The place of arbitration is in a foreign country

Class Notes:
1) International Arbitration

2) Assessment of the Arbitration Clause


a) Valid
b) Void
3) Issues
a) Contract of Adhesion
b) Consensuality whether or not this was met
c) Article 2045 giving one party more power
in the appointment of the arbitrator

What if the place of international arbitration were the


Philippines?
What if the place of international arbitration were
still India, but the applicable law is Philippine
law, how do you enforce the award (India: apply
civil court)?
Party: File a petition for recognition and enforcement
under
Judge: Would you enforce the award?
Can Philippines refuse on the ground of public
policy?

How do you assail an award?


Domestic grounds for vacate
International Award grounds for setting aside
When is it proper to set aside, when is it proper
to refuse recognition?
Possible finals question.
Sec. 42. Application of the New York Convention
The New York Convention shall govern the recognition and
enforcement of arbitral awards covered by the said Convention.
The recognition and enforcement of such arbitral awards shall be
filled with regional trial court in accordance with the rules of
procedure to be promulgated by the Supreme Court. Said
procedural rules shall provide that the party relying on the award
or applying for its enforcement shall file with the court the original
or authenticated copy of the award and the arbitration agreement.
If the award or agreement is not made in any of the official
languages, the party shall supply a duly certified translation
thereof into any of such languages.
The applicant shall establish that the country in which foreign
arbitration award was made is a party to the New York
Convention.
If the application for rejection or suspension of enforcement of an
award has been made, the regional trial court may, if it considers
it proper, vacate its decision and may also, on the application of
the party claiming recognition or enforcement of the award, order
the party to provide appropriate security.
Sec. 43. Recognition and Enforcement of Foreign Arbitral
Awards Not Covered by the New York Convention. - The
recognition and enforcement of foreign arbitral awards not
covered by the New York Convention shall be done in accordance
with procedural rules to be promulgated by the Supreme Court.

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The Court may, grounds of comity and reciprocity, recognize and


enforce a nonconvention award as a convention award.
Sec. 44. Foreign Arbitral Award Not Foreign Judgment. - A
foreign arbitral award when confirmed by a court of a foreign
country, shall be recognized and enforced as a foreign arbitral
award and not a judgment of a foreign court.
A foreign arbitral award, when confirmed by the regional trial
court, shall be enforced as a foreign arbitral award and not as a
judgment of a foreign court.
A foreign arbitral award, when confirmed by the regional trial
court, shall be enforced in the same manner as final and
executory decisions of courts of law of the Philippines.
Article 35 - [Recognition and enforcement]
1) An arbitral award, irrespective of the country in which it was
made, shall be recognised 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.
Article 33 - [Correction and interpretation of award;
additional award]
1) Within thirty days of receipt of the award, unless another period
of time has been agreed upon by the parties:
a) a party, with notice to the other party, may request the arbitral
tribunal to correct in the award any errors in computation, any
clerical or typographical errors or any errors of similar nature;
b) if so agreed by the parties, a party, with notice to the other
party, may request the arbitral tribunal to give an interpretation of
a specific point or part of the award.
If the arbitral tribunal considers the request to be justified, it shall
make the correction or give the interpretation within thirty days of
receipt of the request. The interpretation shall form part of the
award.
2) The arbitral tribunal may correct any error of the type referred
to in paragraph 1)a) of this article on its own initiative within thirty
days of the date of the award.
3) Unless otherwise agreed by the parties a party with notice to
the other party, may request, within thirty days of receipt of the
award, the arbitral tribunal to make an additional award as to
claims presented in the arbitral proceedings but omitted from the
award. If the arbitral tribunal considers the request to be justified,
it shall make the additional award within sixty days.
4) The arbitral tribunal may extend, if necessary, the period of
time within which it shall make a correction, interpretation or an
additional award under paragraph (1) or (3) of this article.
5) The provisions of article 31 shall apply to a correction or
interpretation of the award or to an additional award.
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.
Article 36 - [Grounds for refusing recognition or
enforcement]
1) Recognition or enforcement of an arbitral award, irrespective of
the country in which it was made, may be refused only:

a) at the request of the party against whom it is invoked, if that


party furnishes to the competent court where recognition or
enforcement is sought proof that:
i) a party to the arbitration agreement referred to in article 7 was
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
ii) 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
iii) the award deals with a 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 recognised and enforced;
or
iv) 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
v) 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; or
b) if the court finds that:
i) the subject-matter of the dispute is not capable of settlement by
arbitration under the law of this State; or
ii) the recognition or enforcement of the award would be contrary
to the public policy of this State.
2) If an application for setting aside or suspension of an award
has been made to a court referred to in paragraph (1)(a)(v) of this
article, the court where recognition or enforcement is sought may,
if it considers it proper, adjourn its decision and may also, on the
application of the party claiming recognition or enforcement of the
award, order the other party to provide appropriate security.
Article 34 - [Application for setting side as exclusive
recourse against arbitral award]
1) Recourse to a court against an arbitral award may be made
only by an application for setting aside in accordance with
paragraphs (2) and (3) of this article.
2) An arbitral award may be set aside by the court specified in
article 6 only if:
a) the party making the application furnishes proof that:
i) a party to the arbitration agreement referred to in article 7 was
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 this State; or
ii) the party making the application 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
iii) the award deals with a dispute not contemplated by or not
falling within the terms of the submission to arbitration, or 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, only
that part of the award which contains decisions on matters not
submitted to arbitration may be set aside; or
iv) the composition of the arbitral tribunal or the arbitral procedure
was not in accordance with the agreement of the parties, unless
such agreement was in conflict with a provision of this Law from
which the parties cannot derogate, or, failing such agreement,
was not in accordance with this Law; or
b) the court finds that:
i) the subject-matter of the dispute is not capable of settlement by
arbitration under the law of this State; or,
ii) the award is in conflict with the public policy of this State.
3) An application for setting aside may not be made after three
months have elapsed from the date on which the party making

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that application had received the award or, if a request had been
made under article 33, from the date on which that request had
been disposed of by the arbitral tribunal.
4) The court, when asked to set aside an award, may where
appropriate and so requested by a party, suspend the setting
aside proceedings for a period of time determined by it in order to
give the arbitral tribunal an opportunity to resume the arbitral
proceedings or to take such other action as in the arbitral
tribunal's opinion will eliminate the grounds for setting aside.
Rule 13.4. Governing law and grounds to refuse recognition and
enforcement. The recognition and enforcement of a foreign
arbitral award shall be governed by the 1958 New York
Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (the New York Convention) and this Rule. The
court may, upon grounds of comity and reciprocity, recognize and
enforce a foreign arbitral award made in a country that is not a
signatory to the New York Convention as if it were a Convention
Award.
A Philippine court shall not set aside a foreign arbitral award but
may refuse it recognition and enforcement on any or all of the
following grounds:
a. The party making the application to refuse recognition and
enforcement of the award furnishes proof that:
(i). A party to the arbitration agreement was under some
incapacity; or the said agreement is not valid under the law to
which the parties have subjected it or, failing any indication
thereof, under the law of the country where the award was made;
or
(ii). The party making the application 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
(iii). The award deals with a dispute not contemplated by or not
falling within the terms of the submission to arbitration, or 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, only
that part of the award which contains decisions on matters not
submitted to arbitration may be set aside; or
(iv). 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 arbitration took place; or

a.

The party making the application furnishes proof that:

(i). A party to the arbitration agreement was under some


incapacity, or the said agreement is not valid under the law to
which the parties have subjected it or, failing any indication
thereof, under Philippine law; or
(ii). The party making the application to set aside or resist
enforcement 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
(iii). The award deals with a dispute not contemplated by or not
falling within the terms of the submission to arbitration, or 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, only
that part of the award which contains decisions on matters not
submitted to arbitration may be set aside or only that part of the
award which contains decisions on matters submitted to
arbitration may be enforced; or
(iv). The composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the
parties, unless such agreement was in conflict with a provision of
Philippine law from which the parties cannot derogate, or, failing
such agreement, was not in accordance with Philippine law;
b.

The court finds that:

(i). The subject-matter of the dispute is not capable of


settlement by arbitration under the law of the Philippines; or
(ii). The recognition or enforcement of the award would be
contrary to public policy.
In deciding the petition, the Court shall disregard any other
ground to set aside or enforce the arbitral award other than those
enumerated
above.
The petition to set-aside or a pleading resisting the enforcement
of an arbitral award on the ground that a party was a minor or an
incompetent shall be filed only on behalf of the minor or
incompetent and shall allege that (a) the other party to arbitration
had knowingly entered into a submission or agreement with such
minor or incompetent, or (b) the submission to arbitration was
made by a guardian or guardian ad litem who was not authorized
to
do
so
by
a
competent
court.

(v). 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
that award was made; or

Magellan Capital Mgt. Corp. v. Zosa, 355 SCRA


157 (2001)

b.

Petitioners:
Magellan
Capital
Management
Corporation and Magellan Capital Holdings
Corporation
Respondents: Rolando Zosa and Hon. Jose
Soberano Jr

The court finds that:

(i). The subject-matter of the dispute is not capable of


settlement or resolution by arbitration under Philippine law; or
(ii). The recognition or enforcement of the award would be
contrary to public policy.
The court shall disregard any ground for opposing the recognition
and enforcement of a foreign arbitral award other than those
enumerated above.
Rule 12.4. Grounds to set aside or resist enforcement. The
court may set aside or refuse the enforcement of the arbitral
award only if:

Facts:
Under a management agreement, Magellan Capital
Holdings Corporation [MCHC] appointed Magellan
Capital Management Corporation [MCMC] as
manager for the operation of its business and
affairs. MCMC, and M. Zosa entered into an
"Employment Agreement" designating Zosa as

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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
pursuant to the provisions of the Employment
Agreement. The grounds for termination of
employment are also provided in the Employment
Agreement.
The majority of MCHC's Board of Directors decided
not to re-elect Zosa as President and CEO of
MCHC on account of loss of trust and confidence
arising from alleged violation of the resolution issued
by MCHC's board of directors and of the noncompetition clause of the Employment Agreement.
Nevertheless, Zosa was elected to a new position
as MCHC's Vice-Chairman/Chairman for New
Ventures Development.
Zosa communicated his resignation from the
position of Vice-Chairman under paragraph 7 of the
Employment Agreement 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 the
resignation but instead informed him that the
Employment Agreement is being terminated on
acountr of breach thereof.
Zosa invoked the Arbitration Clause of the
Employment Agreement9. He designated his brother,
Atty. Francis Zosa as his representative in the
arbitration panel. MCHC designated Atty. Inigo S.
Fojas and MCMC nominated Atty. Enrique I.
Quiason as their representatives l. However, instead
of submitting the dispute to arbitration, Zosa filed an
action for damages against petitioners before the
RTC of Cebu to enforce his benefits under the
Employment Agreement.
Petitioners filed an MTD. The RTC denied the MTD
on the ground that (1) the validity and legality of
9

"23. Arbitration. In the event that any dispute, controversy or


claim arises out of or under any provisions of this Agreement,
then the parties hereto agree to submit such dispute, controversy
or claim to arbitration as set forth in this Section and the
determination to be made in such arbitration shall be final and
binding. Arbitration shall be effected by a panel of three
arbitrators. The Manager, Employee and Corporation shall
designate one (1) arbitrator who shall, in turn, nominate and elect
who among them shall be the chairman of the committee. Any
such arbitration, including the rendering of an arbitration award,
shall take place in Metro Manila. The arbitrators shall interpret this
Agreement in accordance with the substantive laws of the
Republic of the Philippines. The arbitrators shall have no power to
add to, subtract from or otherwise modify the terms of Agreement
or to grant injunctive relief of any nature. Any judgment upon the
award of the arbitrators may be entered in any court having
jurisdiction thereof, with costs of the arbitration to be borne
equally by the parties, except that each party shall pay the fees
and expenses of its own counsel in the arbitration."

the arbitration provision can only be determined


after trial on the merits; and (2) the amount of
damages claimed, which is over P100,000.00, falls
within the jurisdiction of the RTC. The RTC issued
a pre-trial order designating only one issue: WON
the Arbitration Clause was void. Petitioners filed a
Motion Ad Cautelam for the clarification of the
pretrial order, as well as another on the validity of
the clause. The RTC denied.
Petitioners filed a petition for certiorari and
prohibition before the CA. The CA gave due course
to the petition. Petitioners filed a motions for partial
reconsideration of the CA decision praying (1) for
the dismissal of the case in the trial court, on the
ground of lack of jurisdiction, and (2) that the parties
be directed to submit their dispute to arbitration in
accordance with the Employment Agreement dated
March 1994. The CA denied the motion for partial
reconsideration for lack of merit.
The RTC later declared the arbitration clause as
partially void and of no effect insofar as it concerns
the composition of the panel of arbitrators.
Issue: WON the SEC has jurisdiction over the case
Held:

No

Ratio: The controversy does not in anyway involve


the election/appointment of officers of petitioner
MCHC, as claimed by petitioners in their assignment
of errors. Zosa's amended complaint focuses heavily
on the illegality of the Employment Agreement's
"Arbitration Clause" initially invoked by him in
seeking his termination benefits under Section 8 of
the employment contract. And under RA 876, it is
the regional trial court which exercises jurisdiction
over questions relating to arbitration.
"The determination and validity of the agreement is
not a matter intrinsically connected with the
regulation and internal affairs of corporations; it is
rather an ordinary case to be decided in accordance
with the general laws, and do not require any
particular expertise or training to interpret and
apply.
Furthermore, the decision of the CA affirming the
trial court's assumption of jurisdiction over the case
has become the "law of the case" which now binds
the petitioners. The "law of the case" doctrine has
been defined as "a term applied to an established
rule that when an appellate court passes on a
question and remands the cause to the lower court
for further proceedings, the question there settled
becomes the law of the case upon subsequent
appeal."

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Issue: WON the composition of arbitrators is valid


Held:
Ratio: The Court finds the trial court's observations
on why the composition of the panel of arbitrators
should be voided, incisively correct so as to merit
our approval. Thus,
"From the memoranda of both sides, the Court is of
the view that the defendants [petitioner] MCMC and
MCHC represent the same interest. There is no
quarrel that both defendants are entirely two
different corporations with personalities distinct and
separate from each other and that a corporation has
a personality distinct and separate from those
persons composing the corporation as well as from
that of any other legal entity to which it may be
related.
"But as the defendants [herein petitioner] 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 plaintiff. The
arbitration law, as all other laws, is intended for the
good and welfare of everybody. In fact, what is being
challenged by the plaintiff herein is not the law itself
but the provision of the Employment Agreement
based on the said law, which is the arbitration clause
but only as regards the composition of the panel of
arbitrators.
"From the arbitration clause, it appears that the two
(2) defendants [petitioners] (MCMC and MCHC)
have one (1) arbitrator each to compose the panel of
three (3) arbitrators. As the defendant MCMC is the
Manager of defendant MCHC, its decision or vote in
the arbitration proceeding would naturally and
certainly be in favor of its employer and the
defendant MCHC would have to protect and
preserve its own interest; hence, the two (2) votes of
both defendants (MCMC and MCHC) would certainly
be against the lone arbitrator for the plaintiff [herein
defendant]. Hence, apparently, plaintiff [defendant]
would never get or receive justice and fairness in the
arbitration proceedings from the panel of arbitrators
as provided in the aforequoted arbitration clause. In
fairness and justice to the plaintiff [defendant], the
two defendants (MCMC and MCHC) [herein
petitioners] which represent the same interest
should be considered as one and should be entitled
to only one arbitrator to represent them in the
arbitration proceedings. 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, "Any 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 dispute or controversy between the defendants
(MCMC and MCHC) [herein petitioners] and the
plaintiff [herein defendant] should be settled in the
arbitration proceeding in accordance with the
Employment Agreement, but under the panel of
three (3) arbitrators, one (1) arbitrator to represent
the plaintiff, one (1) arbitrator to represent both
defendants (MCMC and MCHC) [herein petitioners]
and the third arbitrator to be chosen by the plaintiff
[defendant Zosa] and defendants
[petitioners].
In this connection, petitioners' attempt to put
respondent in estoppel in assailing the arbitration
clause must be struck down. For one, this issue of
estoppel, as likewise noted by the CA, found its way
for the first time only on appeal. 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. Thus, in the relatively
recent case of Phil. Federation of Credit
Cooperatives, Inc. (PFCCI) and Fr. Benedicto
Jayoma vs. NLRC and Victoria Abril, we had the
occasion to stress that "where a contract of
employment, being a contract of adhesion, is
ambiguous, any ambiguity therein should be
construed strictly against the party who prepared it."
And, finally, Zosa never submitted himself to
arbitration proceedings (as there was none yet)
before bewailing the composition of the panel of
arbitrators. He in fact, 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.
Arbitration proceedings are designed to level the
playing field among the parties in pursuit of a
mutually acceptable solution to their conflicting
claims. 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.
BF Corporation v. CA, 288 SCRA 267 (1998)
Parties executed an Agreement for the Execution of
Builders Work for the EDSA Plaza Project
BF filed Complaint for collection
SPI filed MTS
TC denied too late
CA annulled TC order
1) Certiorari proper QoL (jurisdiction); QoF
(existence or arbitration clause) CA annulled

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

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RTC order saying that invoking the arbitration


clause was too late
2) Arbitration clause exists, even if the parties did
not sign the Conditions of Contract, since they
signed the Articles of Agreement
3) No default in invoking the provisions of the
arbitration clause within a reasonable time
after the dispute has arisen and attempts to
settle amicably have failed.

BF Corporation v. CA, 288 SCRA 267 (1998)

BF Corp vs CA
Date: March 27, 1998
Petitioner: BF Corporation
Respondents: CA, Shangri-la Properties Inc, Rufo
Colayco, Alfredo Ramos, Maximo Licauco, et al

Facts:
Petitioner and respondent Shangri-la Properties, Inc.
entered into an agreement whereby the latter
engaged the former to construct the main structure
of the "EDSA Plaza Project," a shopping mall
complex in Mandaluyong. Petitioner incurred delay
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 I"
of the Project. Hence, SPI proposed the renegotiation of the agreement between them.
Petitioner and SPI entered into a written agreement
denominated as "Agreement for the Execution of
Builder's Work for the EDSA Plaza Project." Said
agreement would cover the construction work on
said project as of May 1, 1991 until its eventual
completion. According to SPI, 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.
Petitioner filed with the RTC of Pasig a complaint for
collection of the balance due under the construction
agreement. SPI and its co-defendants filed a motion
to suspend proceedings instead of filing an answer.
The motion was anchored on defendants' allegation
that the formal trade contract for the construction 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.
Petitioner opposed said motion claiming that there
was no formal contract between the parties although

they entered into an agreement defining their rights


and obligations in undertaking the project.
Thereafter, upon a finding that an arbitration clause
indeed exists, the lower court denied the motion to
suspend proceedings as the Conditions of Contract
was not duly executed or signed by the parties, and
the failure of the defendants to submit any signed
copy of the said document,.
The lower court then ruled that, assuming that the
arbitration clause was valid and binding, still, it was
"too late in the day for defendants to invoke
arbitration. Considering the fact that under the
supposed Arbitration Clause invoked by defendants,
it is required that "Notice of the demand for
arbitration of a dispute shall be filed in writing with
the other party . . . . in no case . . . . later than the
time of final payment . . . "which apparently, had
elapsed because defendants have failed to file any
written notice of any demand for arbitration during
the said long period of one year and eight months.
The CA annulled the orders of the RTC.
Issue: WON a petition for certiorari is proper
Held:

Yes

Ratio: The rule that the special civil action of


certiorari may not be invoked as a substitute for the
remedy of appeal. The Court has likewise ruled that
"certiorari will not be issued to cure errors in
proceedings or correct erroneous conclusions of law
or fact. As long as a court acts within its jurisdiction,
any alleged errors committed in the exercise of its
jurisdiction will amount to nothing more than errors
of judgment which are reviewable by timely appeal
and not by a special civil action of certiorari."
The question of jurisdiction, which is a question of
law depends on the determination of the existence
of the arbitration clause, which is a question of fact.
In the instant case, the lower court found that there
exists an arbitration clause. However, it ruled that in
contemplation of law, said arbitration clause does
not exist. It is that mode of appeal taken by private
respondents before the CA that is being questioned
by the petitioners before this Court. But at the heart
of said issue is the question of whether there exists
an Arbitration Clause because if an Arbitration
Clause does not exist, then private respondents took
the wrong mode of appeal before the CA.
For this Court to be able to resolve the question of
whether private respondents took the proper mode
of appeal, which, incidentally, is a question of law,

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

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Salma F. Angkaya | AY 2010-2011, 1st semester


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then it has to answer the core issue of whether there


exists an Arbitration Clause which, admittedly, is a
question of fact.
Moreover, where a rigid application of the rule that
certiorari cannot be a substitute for appeal will result
in a manifest failure or miscarriage of justice, the
provisions of the Rules of Court which are technical
rules may be relaxed. As we shall show hereunder,
had the CA dismissed the petition for certiorari, the
issue of whether or not an arbitration clause exists in
the contract would not have been resolved in
accordance with evidence extant in the record of the
case. Consequently, this would have resulted in a
judicial rejection of a contractual provision agreed by
the parties to the contract.
In the same vein, this Court holds that the question
of the existence of the arbitration clause in the
contract between petitioner and private respondents
is a legal issue that must be determined in this
petition for review on certiorari.
Issue: WON an arbitration clause exists
Held:
Ratio: 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.
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. 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 attest.
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.
The flaw in petitioner's contentions therefore lies in
its having segmented the various components of the
whole contract between the parties into several
parts. This notwithstanding, petitioner ironically
admits the execution of the Articles of Agreement.
Notably, too, the lower court found that the said
Articles of Agreement "also provides that the
'Contract Documents' therein listed 'shall be deemed
an integral part of this Agreement,' and one of the
said documents is the 'Conditions of Contract' which
contains the Arbitration Clause.'" It is this Articles of
Agreement that was duly signed by Rufo B. Colayco,
president of private respondent SPI, and Bayani F.
Fernando, president of petitioner corporation. The
same agreement was duly subscribed before notary
public Nilberto R. Briones. In other words, the
subscription of the principal agreement effectively
covered the other documents incorporated by
reference therein.
This Court likewise does not find that the CA erred in
ruling that private respondents were not in default in
invoking the provisions of the arbitration clause
which 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, SPI should have
paid its liabilities tinder the contract in accordance

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

40

Salma F. Angkaya | AY 2010-2011, 1st semester


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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, 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 SPI's request for arbitration might appear an
afterthought as it was made after it had filed the
motion to suspend proceedings, it was because
petitioner acted 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 RA 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

Class Notes:

Arbitration clause in a Container Clause merely


initialed by one party. Held: Valid. The main
agreement, the articles of agreement, was signed by
the CEO.
It did not contain arb clause.
What it included are references to ____, conditions
of contract.
What did Shangrila file in the RTC after DS filed
the action for specific performance?
Motion to Suspend, based on RA 876, Sec.7 (Stay
of civil action); RA 9285, Sec. 24, not later than pretrial.
What if this place was an international arbitration
and the place of arbitration is the Philippines?
Would you have arrived at the same answer?
Article 8 - [Arbitration agreement and substantive claim
before court]
1) A court before which an action is brought in a matter which is
the subject of an arbitration agreement shall, if a party so
requests not later than when submitting his first statement on the
substance of the dispute, refer the parties to arbitration unless it
finds that the agreement is null and void, inoperative or incapable
of being performed.
2) Where an action referred to in paragraph (1) of this article has
been brought, arbitral proceedings may nevertheless be
commenced or continued, and an award may be made, while the
issue is pending before the court.

Next 5 meetings
CIAC
UNCINTRAL / ICC
NY Convention
Slideshow

Class Notes August 27, 2010


Recap: Which proceedings are summary and
which are not?
Covered by Summary Procedure:
1) Judicial Relief Involving the Issue of Existence,
Validity or Enforceability of the Arbitration
Agreement;
2) Referral to ADR;
3) Interim Measures of Protection;
4) Appointment of Arbitrator;
5) Challenge to Appointment of Arbitrator;
6) Termination of Mandate of Arbitrator;
7) Assistance in Taking Evidence;
8) Confidentiality/Protective Orders; and

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

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9) Deposit and Enforcement of Mediated


Settlement Agreements.

petition for certiorari questioning the merits of


an arbitral award.

Not Covered by Summary Procedure:

See case APT v. CA

1) Confirmation, Correction or Vacation of Award in


Domestic Arbitration
2) Recognition and Enforcement or Setting Aside
of an Award in International Commercial
Arbitration
3) Recognition and Enforcement of a Foreign
Arbitral Award

As a rule, the award of an arbitrator cannot be set


aside for mere errors of judgment either as to the
law or as to the facts. Courts are without power
to amend or overrule merely because of
disagreement with matters of law or facts
determined by the arbitrators. They will not
review the findings of law and fact contained in
an award, and will not undertake to substitute
their judgment for that of the arbitrators, since
any other rule would make an award the
commencement, not the end, of litigation. Errors
of law and fact, or an erroneous decision of matters
submitted to the judgment of the arbitrators, are
insufficient to invalidate an award fairly and honestly
made. Judicial review of an arbitration is thus, more
limited than judicial review of a trial. (Asset
Privatization Trust vs CA)

If the arbitration clause is found void, how will


the parties resolve their dispute? Can one party
go right away to the court? Is it not an issue that
must be threshed out before the arbitral
tribunal?
What
about
the
competencecompetence principle?
See Gonzales and Magellan case
See 3.12, 2.2
Note:
Separability clause protects the arbitration clause,
not the container contract. (Carla)
Before commencement go to court, prim facie
finding
After commencement go to court, questioning the
ruling of the arbitral tribunals ruling on its jurisdiction
Go to court
If court has declared that arbitration clause is void,
Sir, its clear if sabay, but what if the court has
ALREADY declared the arbitration clause as
void.
Sir: Consider Article 5 of the Civil Code.
If its void, can it give rise to a right?
If its void due to lack of due process VOID.
Purpose granting the court the power to declare it
void
Whether arbitration commencement has started or
not
Purpose of RA 9285 whether luto or not
Whether you will allow to proceed first and let us see
the result
Note: You cannot assail the arbitral award as to the
merits.
Rule 19.7. No appeal or certiorari on the merits of
an arbitral award. An agreement to refer a dispute
to arbitration shall mean that the arbitral award shall
be final and binding. Consequently, a party to an
arbitration is precluded from filing an appeal or a

If you do not want judicial review (cite the


abovementioned ratio); if you want judicial
review, cite the following)
Nonetheless, the arbitrators' award is not absolute
and without exceptions. The arbitrators cannot
resolve issues beyond the scope of the submission
agreement. The parties to such an agreement are
bound by the arbitrators' award only to the extent
and in the manner prescribed by the contract and
only if the award is rendered in conformity thereto.
Thus, Sections 24 and 25 of the Arbitration Law
provide grounds for vacating, rescinding or
modifying an arbitration award. Where the conditions
described in Articles 2038, 2039, and 1040 of CC
applicable to compromises and arbitration are
attendant, the arbitration award may also be
annulled.
It should be stressed that while a court is precluded
from overturning an award for errors in the
determination of factual issues, nevertheless, if an
examination of the record reveals no support
whatever for the arbitrators determinations, their
award must be vacated, in the same manner, an
award must be vacated if it was made in manifest
disregard of the law. (Asset Privatization Trust vs
CA)

Korea Technologies Co. Ltd. v. Lerma, 542 SCRA


1 (2008)

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Petitioner: Korea Technologies Co Ltd


Respondents: Hon. Alberto Lerma and Pacific
General Steel Manufacturing Corporation
Facts:
Petitioner Korea is a Korean corporation which is
engaged in the supply and installation of LPG
Cylinder manufacturing plants, while private
respondent is a domestic corporation. The parties
executed a contract in the Philippines whereby
KOGIES would set up an LPG Cylinder
Manufacturing Plant in Carmona, Cavite. The parties
executed in Korea an Amendment of the Contract
regarding the terms of payment.
However, gleaned from the Certificate executed by
the parties 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 the contract. For the remaining
balance of USD306,000 for the installation and initial
operation of the plant, PGSMC issued two
postdated checks.
When KOGIES deposited the checks, they were
dishonored. KOGIES sent a demand letter to
PGSMC threatening to file a case for BP22. The
wife of PGSMCs President faxed a letter to
KOGIES President complaining that KOGIES
delivered a different brand of hydraulic press and
did not deliver several equipment parts.
PGSMC informed KOGIES that it will be cancelling
their contract on grounds of alteration in the
quantity and lowered quality of the machineries.
PGSMC filed an Affidavit-Complaint for Estafa
against the President of Kogies. KOGIES informed
PGSMC that the latter could not unilaterally
rescind the contract. It also insisted that the
disputes should be settled by arbitration pursuant
to the contract. KOGIES instituted an Application
for Arbitration before the Korean Commercial
Arbitration Board pursuant to Art 15 of the
Contract.
KOGIES also filed a complaint for specific
performance before the Muntinlupa RTC. KOGIES
averred that PGSMC violated Art. 15 10of their
10

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

Contract by unilaterally rescinding the contract


without resorting to arbitration.
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. The
RTC issued an Order denying the application for a
writ of preliminary injunction, reasoning that PGSMC
had paid KOGIES USD 1,224,000, the value of the
machineries and equipment as shown in the contract
such that KOGIES no longer had proprietary rights
over them. And finally, the RTC 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.
Later, the trial court issued an Order (1) granting
PGSMCs motion for inspection; (2) denying
KOGIES MR of the July 23, 1998 RTC Order; and
(3) denying KOGIES motion to dismiss PGSMCs
compulsory counterclaims as these counterclaims
fell
within
the
requisites
of
compulsory
counterclaims.
KOGIES filed a petition for certiorari before the CA
praying that PGSMC be enjoined from dismantling
the machineries and that the RTC enforce the
specific agreement on arbitration to resolve the
dispute.
The CA affirmed the RTC Orders and dismissed the
petition. On the issue of the validity of the arbitration
clause, the CA 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.
Issue: WON the arbitration clause is valid
Held:

Yes

Ratio: 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 CC 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
accordance with the Commercial Arbitration Rules of the Korean
Commercial Arbitration Board. The award rendered by the
arbitration(s) shall be final and binding upon both parties
concerned. (Emphasis supplied.)

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Salma F. Angkaya | AY 2010-2011, 1st semester


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2038, 2039 and 2040. Arts. 2038, 2039, and 2040


refer to instances where a compromise or an
arbitral award, as applied to Art. 2044 pursuant
to Art. 2043, may be voided, rescinded, or
annulled, but these would not denigrate the
finality of the arbitral award.
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.
Arbitration clause 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.
Consistent with the 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.
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.
RA 9285 incorporated the UNCITRAL Model law
to which we are a signatory
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 UNCITRAL, the Philippines committed itself to
be bound by the Model Law. We have even
incorporated the Model Law in RA 9285.
While RA 9285 was passed only in 2004, it
nonetheless applies in the instant case since it is a

procedural law which has a retroactive effect.


Likewise, KOGIES filed its application for arbitration
before the KCAB on July 1, 1998 and it is still
pending because no arbitral award has yet been
rendered. Thus, RA 9285 is applicable to the instant
case. Well-settled is the rule that procedural laws
are construed to be applicable to actions pending
and undetermined at the time of their passage, and
are deemed retroactive in that sense and to that
extent. As a general rule, the retroactive application
of procedural laws does not violate any personal
rights because no vested right has yet attached nor
arisen from them. 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.
(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. Sec. 35 of
the UNCITRAL Model Law stipulates the
requirement for the arbitral award to be recognized
by a competent court for enforcement, which court
under Sec. 36 of the UNCITRAL Model Law may
refuse recognition or enforcement on the grounds
provided for. RA 9285 incorporated these provisos
to Secs. 42, 43, and 44 relative to Secs. 47 and 48.
It is now clear that foreign 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. Thus, it
can be gleaned that the concept of a final and
binding arbitral award is similar to judgments or
awards given by some of our quasi-judicial bodies,
like the NLRC and Mines Adjudication Board, whose
final judgments are stipulated to be final and binding,
but not immediately executory in the sense that they
may still be judicially reviewed, upon the instance of
any party.
Therefore, the final foreign arbitral
awards are similarly situated in that they need first to
be confirmed by the RTC.
(3) The RTC has jurisdiction to review foreign
arbitral awards. Sec. 42 in relation to Sec. 45 of RA
9285 designated and vested the RTC with specific
authority and jurisdiction to set aside, reject, or

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

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vacate a foreign arbitral award on grounds provided


under Art. 34(2) of the UNCITRAL Model Law.
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. In this sense, what this
Court held in Chung Fu Industries relied upon by
KOGIES is applicable insofar as the foreign arbitral
awards, while final and binding, do not oust courts of
jurisdiction since these arbitral awards are not
absolute and without exceptions as they are still
judicially reviewable. 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.
(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.
(5) RTC decision of assailed foreign arbitral
award appealable. Sec. 46 of RA 9285 provides for
an appeal before the CA as the remedy of an
aggrieved party in cases where the RTC sets aside,
rejects, vacates, modifies, or corrects an arbitral
award. The losing party who appeals from the
judgment of the court confirming an arbitral award
shall be required by the appellate court to post a
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.
Thereafter, the CA decision may further be appealed
or reviewed before this Court through a petition for
review under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests
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 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.
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, is still judicially reviewable under certain
conditions provided for by the UNCITRAL Model
Law on ICA as applied and incorporated in RA 9285.
Finally, it must be noted that there is nothing in the
subject Contract which provides that the parties may
dispense with the arbitration clause.
Issue: WON the unilateral rescission is proper
Held:

No

Ratio: What this Court held in UP v. De Los


Angeles and reiterated in succeeding cases, that
the act of treating a contract as rescinded on
account of infractions by the other contracting party
is valid albeit provisional as it can be judicially
assailed, is not applicable to the instant case on
account of a valid stipulation on arbitration. Where
an arbitration clause in a contract is availing,
neither of the parties can unilaterally treat the
contract as rescinded since whatever infractions
or breaches by a party or differences arising
from the contract must be brought first and
resolved by arbitration, and not through an
extrajudicial rescission or judicial action.
The issues arising from the contract between
PGSMC and KOGIES on whether the equipment
and machineries delivered and installed were
properly installed and operational in the plant in
Carmona, Cavite; the ownership of equipment and
payment of the contract price; and whether there
was substantial compliance by KOGIES in the
production of the samples, given the alleged fact
that PGSMC could not supply the raw materials
required to produce the sample LPG cylinders, are
matters proper for arbitration. Indeed, we note that
on July 1, 1998, KOGIES instituted an Application
for Arbitration before the KCAB in Seoul, Korea
pursuant to Art. 15 of the Contract as amended.
Thus, it is incumbent upon PGSMC to abide by its
commitment to arbitrate.

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

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Issue: WON the issue on ownership of plant is


proper for arbitration
Held:

Yes

Ratio: It is settled that questions of fact cannot be


raised in an original action for certiorari. Whether or
not there was full payment for the machineries and
equipment and installation is indeed a factual issue
prohibited by Rule 65. However, what appears to
constitute a grave abuse of discretion is the order of
the RTC in resolving the issue on the ownership of
the plant when it is the arbitral body (KCAB) and not
the RTC which has jurisdiction and authority over
the said issue. The RTCs determination of such
factual issue constitutes grave abuse of discretion
and must be reversed and set aside.
Issue: What are the interim measures which the
RTC can issue
Ratio: Firstly, while the issue of the proper
installation of the equipment and machineries might
well be under the primary jurisdiction of the arbitral
body to decide, yet the RTC under Sec. 28 of RA
9285 has jurisdiction to hear and grant interim
measures to protect vested rights of the parties.
Art. 17(2) of the UNCITRAL Model Law on ICA
defines an interim measure of protection as:(2) An
interim measure is any temporary measure,
whether in the form of an award or in another form,
by which, at any time prior to the issuance of the
award by which the dispute is finally decided, the
arbitral tribunal orders a party to: (a) Maintain or
restore the status quo pending determination of the
dispute;
(b) Take action that would prevent, or refrain from
taking action that is likely to cause, current or
imminent harm or prejudice to the arbitral process
itself;
(c) Provide a means of preserving assets out of
which a subsequent award may be satisfied; or
(d) Preserve evidence that may be relevant and
material to the resolution of the dispute.
Art. 17 J of UNCITRAL Model Law on ICA also
grants courts power and jurisdiction to issue interim
measures. In the recent 2006 case of Transfield
Philippines, Inc. v. Luzon Hydro Corporation, we
were explicit that even the pendency of an arbitral
proceeding does not foreclose resort to the courts
for provisional reliefs. We explicated this way:

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
RA 876 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 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. It is thus beyond
cavil that the RTC has authority and jurisdiction to
grant interim measures of protection.
Secondly, considering that the equipment and
machineries are in the possession of PGSMC, it has
the right to protect and preserve the equipment and
machineries in the best way it can. Considering that
the LPG plant was non-operational, PGSMC has the
right to dismantle and transfer the equipment and
machineries either for their protection and
preservation or for the better way to make good use
of them which is ineluctably within the management
discretion of PGSMC.
Thirdly, and of greater import is the reason that
maintaining the equipment and machineries in
Worths property is not to the best interest of
PGSMC due to the prohibitive rent while the LPG
plant as set-up is not operational. PGSMC was
losing PhP322,560 as monthly rentals or PhP3.87M
for 1998 alone without considering the 10% annual
rent increment in maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on
motions or petitions relating to the preservation or
transfer of the equipment and machineries as an
interim measure, yet on hindsight, the July 23, 1998
Order of the RTC allowing the transfer of the
equipment and machineries given the nonrecognition by the lower courts of the arbitral clause,
has accorded an interim measure of protection to
PGSMC which would otherwise been irreparably
damaged.
Fifth, KOGIES is not unjustly prejudiced as it has
already been paid a substantial amount based on
the contract. Moreover, KOGIES is amply protected
by the arbitral action it has instituted before the
KCAB, the award of which can be enforced in our
jurisdiction through the RTC. Besides, by our
decision, PGSMC is compelled to submit to
arbitration pursuant to the valid arbitration clause of
its contract with KOGIES.

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

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PGSMC to preserve the subject equipment and


machineries
Finally, while PGSMC may have been granted the
right to dismantle and transfer the subject equipment
and machineries, it does not have the right to
convey or dispose of the same considering the
pending arbitral proceedings to settle the differences
of the parties. PGSMC therefore must preserve and
maintain the subject equipment and machineries
with the diligence of a good father of a family until
final resolution of the arbitral proceedings and
enforcement of the award, if any.
CLASS NOTES:
Arbitration is valid pursuant to Article 2044 of the
Civil Code. Concept of a final and binding award
similar to final judgments by a QJA.
Art. 2044. Any stipulation that the arbitrators' award or decision
shall be final, is valid, without prejudice to Articles 2038, 2039,
and 2040.
Art. 2038. A compromise in which there is mistake, fraud,
violence, intimidation, undue influence, or falsity of documents, is
subject to the provisions of Article 1330 of this Code.
However, one of parties cannot set up a mistake of fact as against
the other if the latter, by virtue of the compromise, has withdrawn
from a litigation already commenced. (1817a)
Art. 2039. When the parties compromise generally on all
differences which they might have with each other, the discovery
of documents referring to one or more but not to all of the
questions settled shall not itself be a cause for annulment or
rescission of the compromise, unless said documents have been
concealed by one of the parties.
But the compromise may be annulled or rescinded if it refers only
to one thing to which one of the parties has no right, as shown by
the newly-discovered documents. (n)
Art. 2040. If after a litigation has been decided by a final
judgment, a compromise should be agreed upon, either or both
parties being unaware of the existence of the final judgment, the
compromise may be rescinded.

Voidable:
Fraud
Violence
Mistake
Undue Influence
Intimidation

provisional, other party may challenge the validity in


court.
This case, however, was not applied to Korea on
account of a valid stipulation on arbitration.
Sir: It would seem that if you agree to arbitrate, then
your hands will become tied.
Note the denial of preliminary injunction by RTC
Muntinlupa Court said its proper because the
arbitral tribunal was not yet constituted.
Assuming that the Korean Company proceeded
to commence the arbitration in Korea, can he ask
for the same preliminary injunction from the
arbitral tribunal in Korea? Can it issue an interim
award opposite from the RTC of Muntinlupa?
Theoretically, yes. Basis? Rule 5.13
Practically speaking, how will Korea enforce it (not to
dismantle and remove)?
Rule 5.13. Modification, amendment, revision or revocation of
courts previously issued interim measure of protection. Any
court order granting or denying interim measure/s of protection is
issued without prejudice to subsequent grant, modification,
amendment, revision or revocation by the arbitral tribunal as may
be
warranted.
An interim measure of protection issued by the arbitral tribunal
shall, upon its issuance be deemed to have ipso jure modified,
amended, revised or revoked an interim measure of protection
previously issued by the court to the extent that it is inconsistent
with the subsequent interim measure of protection issued by the
arbitral
tribunal.
Rule 5.14. Conflict or inconsistency between interim measure of
protection issued by the court and by the arbitral tribunal. Any
question involving a conflict or inconsistency between an interim
measure of protection issued by the court and by the arbitral
tribunal shall be immediately referred by the court to the arbitral
tribunal which shall have the authority to decide such question.

So how can you enforce such interim award?


Note Rule 5.16 assistance in the enforcement of
interim award. Invoke 5.13 and 5.14. What if he
denies again?
Rule 19.1. Motion for reconsideration, when allowed. A party
may ask the Regional Trial to reconsider its ruling on the
following:
d. Granting or denying a party an interim measure of protection

Was there a new doctrine laid down in the Korea


case? Is there anything that modified, qualified
what is otherwise a settled doctrine in civil law?

Rule 19.12. Appeal to the Court of Appeals.An appeal to the


Court of Appeals through a petition for review under this Special
Rule shall only be allowed from the following final orders of the
Regional Trial Court:
a.
Granting or denying an interim measure of protection;

Unilateral rescission / resolution doctrine in UP v. De


Los Angeles, thus, under 1191 one party may
rescind if other party is unable to comply with his
obligation (Unilateral rescission) but this is

Rule 19.26. Certiorari to the Court of Appeals. When the


Regional Trial Court, in making a ruling under the Special ADR
Rules, has acted without or in excess of its jurisdiction, or with
grave abuse of discretion amounting to lack or excess of

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jurisdiction, and there is no appeal or any plain, speedy, and


adequate remedy in the ordinary course of law, a party may file a
special civil action for certiorari to annul or set aside a ruling of the
Regional Trial Court.
A special civil action for certiorari may be filed against the
following orders of the court.
d. Granting or refusing an interim relief;

Toyota Motor Phils. Corp. V. CA, 216 SCRA 336


(1992)
Petitioner: Toyota Motors Philippines Corporation
Respondents: CA, Hon. Fernando Gorospe and Sun
Valley Manufacturing and Development Corp
Facts:
Both Toyota and Sun Valley are the registered
owners of two adjoining parcels of land formerly
owned by Delta Motors Corp (DMC) situated in La
Huerta, Paraaque, Metro Manila which they
purchased from the APT.
Part of the duly parcelled Delta I property
was sold to Toyota through public bidding for the
amount of P95,385,000. After its purchase, Toyota
constructed a concrete hollow block (CHB) perimeter
fence around its alleged property. Another part of
the parcelled Delta I was purchased by Sun Valley
from APT for the bid price of P124,349,767. Relying
upon the title description of its property and the
surveys it had commissioned, Sun Valley claimed
that Toyota's perimeter fence overlaps Sun Valley's
property.
Toyota filed a case against APT and Sun
Valley before the Makati RTC for the reformation
of the Deed of Sale executed between Toyota
and APT. Sun Valley filed an MTD, on the ground
that the Toyota complaint failed to state a cause
of action against it (1) since it was not a party to
the contract, and (2) the complaint was in effect
a collateral attack on its title.
Judge Tensuan denied the MTD eventually
and granted Toyotas application for injunction and
granted a writ of preliminary injunction enjoining
Sun Valley from proceeding with the destruction and
removal of Toyota's walls and directed Sun Valley to
restore the premises to the status quo ante. The CA
affirmed ruling that misjoinder of parties is not a
ground for the dismissal of the case.
Sun Valley, on the other hand, filed a case
for recovery of possession of the disputed 723
square meters boundary with the Makati RTC.
Toyota filed an MTD on the ground that the RTC has
no jurisdiction over the case since the complaint was
a simple ejectment case cognizable by the MTC.
Sun Valley later sought to amend the complaint,
which was granted by Judge Gorospe. Toyota went

to the CA on certiorari questioning the admission of


the amended complaint.
The CA denied due course to the Toyota
petition on the finding that the amendment of Sun
Valley's complaint was a valid one as Sun Valley's
action was not for unlawful detainer but an accion
publiciana. Furthermore, the supplemental petitions
filed by Toyota assailing the prohibitory and
mandatory injunctive writ were not ruled upon as
they were expunged from the records because of
Toyota's failure to attach a motion to admit these
supplemental petitions.
Issue:
Who as between Judge Tensuan or Judge Gorospe
has jurisdiction over the dispute
Ratio:
Toyota filed an action for reformation on September
11, 1991, before Judge Tensuan alleging that the
true intentions of the parties were not expressed in
the instrument. The instrument sought to be
reformed is the deed of sale executed by APT in
favor of Toyota. Sun Valley was impleaded in order
to obtain complete relief since it was the owner of
the adjacent lot.
It would appear that Toyota was correct in
impleading Sun Valley as party defendant. However,
these principles are not applicable under the
particular circumstances of this case. Under the
facts of the present case, Toyota's action for
reformation is dismissible as against Sun Valley.
Attention must first be brought to the fact
that the contract of sale executed between APT
and Toyota provides an arbitration clause.11
The contention that the arbitration clause
has become disfunctional because of the
presence of third parties is untenable. Contracts
are respected as the law between the contracting
11

5. In case of disagreement or conflict arising out of this


Contract, the parties hereby undertake to submit the matter for
determination by a committee of experts, acting as arbitrators, the
composition of which shall be as follows:
a) One member to be appointed by the VENDOR;
b) One member to be appointed by the VENDEE;
c) One member, who shall be a lawyer, to be appointed by both of
the aforesaid parties;
The members of the Arbitration Committee shall be appointed not
later than three (3) working days from receipt of a written notice
from either or both parties. The Arbitration Committee shall
convene not later than three (3) weeks after all its members have
been appointed and proceed with the arbitration of the dispute
within three (3) calendar months counted therefrom. By written
mutual agreement by the parties hereto, such time limit for the
arbitration may be extended for another calendar month. The
decision of the Arbitration Committee by majority vote of at least
two (2) members shall be final and binding upon both the
VENDOR and the VENDEE;

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parties. As such, the parties are thereby


expected to abide with good faith in their
contractual commitments. Toyota is therefore
bound to respect the provisions of the contract it
entered into with APT.
Having been apprised of the presence of the
arbitration clause in the motion to dismiss filed by
APT, Judge Tensuan should have at least
suspended the proceedings and directed the
parties to settle their dispute by arbitration.
Judge Tensuan should have not taken cognizance
of the case.
But the more apparent reason which
warrants the dismissal of the action as against Sun
Valley is the fact that the complaint for reformation
amounts to a collateral attack on Sun Valley's title. It
is disputed that Sun Valley has a Torrens title
registered in its name by virtue of its purchase of the
land from APT. Well-settled is the rule that a
certificate of title can not be altered, modified, or
cancelled except in a direct proceeding in
accordance with law.
Assuming that Toyota is afforded the relief
prayed for in the Tensuan court, the latter can not
validly order the contested portion to be taken out
from the Sun Valley's TCT and award it in favor of
Toyota.
An action for reformation is in personam, not
in rem even when real estate is involved. It is merely
an equitable relief granted to the parties where
through mistake or fraud, the instrument failed to
express the real agreement or intention of the
parties. While it is a recognized remedy afforded by
courts of equity it may not be applied if it is contrary
to well-settled principles or rules. It is a long
standing principle that equity follows the law. It is
applied in the abscence of and never against
statutory law. Courts are bound by rules of law and
have no arbitrary discretion to disregard them.
Courts of equity must proceed with utmost caution
especially when rights of third parties may intervene.
Thus in the instant case, vis-a-vis well-settled
principles or rules in land registration, the equitable
relief of reformation may not come into play in order
to transfer or appropriate a piece of land that one
claims to own but which is titled in the name of a
third party.
On the other hand, Sun Valley filed an
action for reconveyance against Toyota to recover
possession of the strip of land encroached upon and
occupied by the latter. What Sun Valley seeks in its
complaint is the recovery of possession de jure and
not merely possession de facto. Toyota moved to
dismiss on the assumption that the complaint was
one for unlawful detainer cognizable by the MTC.
We do not find any reversible error in the
decision of the CA where it upheld Judge Gorospe's

order denying Toyota's motion to dismiss. An


amendment to a complaint before a responsive
pleading is filed, is a matter of right. Whether or not
the complaint was amended, Sun Valley's complaint
was one for accion publiciana cognizable by the
RTC. Its right over the land is premised on the
certificate of title registered in its name after it had
purchased said land from APT. As the registered
owner it had the right of possession of said land
illegally occupied by another
With the finding that Toyota's action for
reformation is dismissable as it is in effect a
collateral attack on Sun Valley's title, Sun Valley's
action for recovery of possession filed before Judge
Gorospe now stands to be the proper forum where
the following dispute may be tried or heard.
Issue: Who as between the parties has the rightful
possession of the land
Ratio:
In actions involving realty, preliminary
injunction will lie only after the plaintiff has fully
established his title or right thereto by a proper
action for the purpose. To authorize a temporary
injunction, the complainant must make out at least a
prima facie showing of a right to the final relief.
Preliminary injunction will not issue to protect a right
not in esse.
Two requisites are necessary if a preliminary
injunction is to issue, namely, the existence of the
right to be protected, and the facts against which the
injunction is to be directed, are violative of said right.
In particular, for a writ of preliminary injunction to
issue, the existence of the right and the violation
must appear in the allegations of the complaint and
an injunction is proper also when the plaintiff
appears to be entitled to the relief demanded in his
complaint. Furthermore, the complaint for injunctive
relief must be construed strictly against the pleader.
In the instant case the existence of a "clear
positive right" especially calling for judicial protection
has been shown by Sun Valley.
Toyota's claim over the disputed property is
anchored on the fact of its purchase of the property
from APT, that from the circumstances of the
purchase and the intention of the parties, the
property including the disputed area was sold to it.
Sun Valley, on the other hand has TCT No. 49019 of
the Registry of Deeds of Paraaque embracing the
aforesaid property in its name, having been validly
acquired also from APT by virtue of a Deed of Sale
executed in its favor on December 5, 1990.
There are other circumstances in the case
which militate against Toyota's claim for legal
possession over the disputed area. The fact that
Toyota has filed a suit for reformation seeking the
inclusion of the 723 square meters strip of land is

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sufficient to deduce that it is not entitled to take over


the piece of property it now attempts to appropriate
for itself. As early as September, 1988 prior to the
construction of the perimeter fence, Toyota was
already aware of the discrepancies in the property's
description in the title and the actual survey.
Despite such notification, Toyota continued
to build the perimeter fence. It is highly doubtful
whether Toyota may be considered a builder in good
faith to be entitled to protection under Article 448 of
the Civil Code.
The records also reveal that Toyota's own surveyor,
the Certeza Surveying & Acrophoto Systems, Inc.
confirmed in its reports dated April 1 and April 5,
1991 that Toyota's perimeter fence overlaps the
boundaries of Sun Valley's lot.
Even communication exchanges between
and among APT, Toyota & Sun Valley show that the
parties are certainly aware that the ownership of the
disputed property more properly pertains to Sun
Valley. Moreover, Sun Valley puts forth evidence
that Toyota has altered the boundaries of its own
property by moving the monuments erected thereon
by APT's surveyor Geo-Resources and Consultancy,
Inc. when Lot 2 was initially surveyed in August
1988.
There is therefore sufficient and convincing
proof that Sun Valley has a clear legal right to
possession in its favor to warrant the issuance of a
writ of preliminary/mandatory injunction. Sun Valley's
TCT gives it that right to possession. On the other
hand, Toyota has not established its right over the
said property except for the assertion that there was
a mistake in an instrument which purportedly should
have included the questioned strip of land.
As between the two (2) parties, Sun Valley has a
better right. Under the circumstances, therefore, and
considering that the clear legal right of Toyota to
possession of the disputed area has not been
established sufficient to grant the prayed for relief, a
writ of preliminary mandatory injunction may be
issued pendente lite.

CLASS NOTES:
What was the effect of a 3rd Party on the
arbitration clause?
The contention that the arbitration clause has
become disfunctional because of the presence of
third parties is untenable. Contracts are respected
as the law between the contracting parties. As such,
the parties are thereby expected to abide with good
faith in their contractual commitments. Toyota is
therefore bound to respect the provisions of the
contract it entered into with APT.

Sir: In other words, the presence of a 3rd Party (Sun


Valley) does not render the arbitration clause
dysfunctional.

Heirs of Agusto L. Salas, Jr. v. Laperal Realty


Corp., 302 SCRA 620 (1999)
Petitioners: Heirs of Augusto Salas, et al
Respondents: Laperal Realty Corporation, Rockway
Real Estate Corporation et al
Facts:
Salas, Jr. was the registered owner of a vast tract of
land in Lipa City. He entered into an OwnerContractor Agreement
with Laperal Realty
Corporation to render and provide complete
construction services on his land. Salas, Jr.
executed an 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.
Later, Salas, Jr. left his home in the morning
for a business trip to Nueva Ecija. He never
returned. Teresita Diaz Salas filed with the Makati
RTC a verified petition for the declaration of
presumptive death of her husband, Salas, Jr., who
had then been missing for more than seven (7)
years. The petition was granted.
Meantime, Laperal Realty subdivided the
land of Salas, Jr. and sold subdivided portions
thereof to the other respondents.
Petitioners as heirs of Salas, Jr. filed in the
RTC of Lipa City a Complaint for declaration of
nullity of sale, reconveyance, cancellation of
contract, accounting and damages against
respondents. Laperal filed an MTD on the ground
that petitioners failed to submit their grievance to
arbitration as required under Article VI of the
Agreement12. The RTC dismissed the complaint for
non-compliance with the foregoing arbitration
clause.
Issue: WON the dismissal of the case was proper
Held:

No

Ratio: In a catena of cases inspired by Justice


Malcolm's provocative dissent in Vega v. San Carlos
Milling Co., this Court has recognized arbitration
12

Art. 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.

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agreements as valid, binding, enforceable and not


contrary to public policy so much so that when there
obtains a written provision for arbitration which is not
complied with, the trial court should suspend the
proceedings and order the parties to proceed to
arbitration in accordance with the terms of their
agreement. Arbitration is the "wave of the future" in
dispute resolution. To brush aside a contractual
agreement calling for arbitration in case of
disagreement between parties would be a step
backward.
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 Laperal Realty are certainly
bound by the Agreement. If Laperal 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 since 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 18 or in this case, against the heirs of the
original party to the Agreement. However, Rockway
Real Estate Corporation, South Ridge Village, Inc.,
Maharami Development Corporation, spouses
Abrajano, spouses Lava, Oscar Dacillo, Eduardo
Vacuna, Florante de la Cruz and Jesus Vicente
Capellan are not assignees of the rights of Laperal
under the Agreement to develop Salas, Jr.'s land
and sell the same. They are, rather, buyers of the
land that Laperal Realty was given the authority to
develop and sell under the Agreement. As such,
they are not "assigns" contemplated in Art. 1311 CC
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.'s
land when Laperal Realty subdivided it and sold
portions thereof to respondent lot buyers. Thus, they
instituted action against both 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 RA 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, 20 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.
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 Laperal
Realty and trial for the respondent lot buyers, or to
hold trial in abeyance pending arbitration between
petitioners and 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.

Del Monte Corp. USA v. CA, 351 SCRA 373 (2001)


Petitioners: Del Monte-USA, Paul Derby Jr, Daniel
Collins and Luis Hidalgo
Respondents: CA, Judge Bienvenido Reyes,
Montebueno Marketing Inc, Liong Liong C. Sy and
Sabrosa Foods
Facts: In a Distributorship Agreement, petitioner
appointed Montebueno Marketing, Inc. (MMI) as the
sole and exclusive distributor of its Del Monte
products in the Philippines for a period of 5 years,
renewable for 2 consecutive 5 year periods with the
consent of the parties. The agreement provided for
an arbitration clause13.
The appointment of MMI was published in
several newspapers in the country. MMI appointed
Sabrosa Foods, Inc. (SFI), with the approval of
petitioner, as MMI's marketing arm to concentrate on
its marketing and selling function as well as to
manage its critical relationship with the trade.
MMI, SFI and MMI's Managing Director
Liong Liong C. Sy filed a Complaint against
petitioners before the RTC of Malabon for violations
of Arts. 20, 21 and 23 CC. DMC-USA products
continued to be brought into the country by
parallel importers despite the appointment of MMI
as the sole and exclusive distributor of Del Monte
products
thereby
causing
them
great
13

12. GOVERNING LAW AND ARBITRATION 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

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embarrassment and substantial damage. They


alleged that the products brought into the country by
these importers were aged, damaged, fake or
counterfeit, so that they had to cause the
publication of a "warning to the trade" paid
advertisement in leading newspapers.
Private
respondents 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 respondents claimed that they
had exhausted all possible avenues for an amicable
resolution and settlement of their grievances.
Petitioners filed a Motion to Suspend
Proceedings invoking the arbitration clause in
their Agreement with private respondents. The trial
court deferred consideration of the motion as the
grounds alleged therein did not constitute the
suspension of the proceedings considering that the
action was for damages with prayer for the issuance
of Writ of Preliminary Attachment and not on the
Distributorship Agreement.
Later, 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." The CA affirmed and
ruled that the alleged damaging acts recited in the
Complaint, constituting petitioners' causes of action,
required the interpretation of Art. 21 CC and that in
determining whether petitioners had violated it
"would require a full blown trial" making arbitration
"out of the question."
Issue: WON the dispute warrants
compelling them to submit to arbitration.

an

order

Held:
Ratio: 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.
Private respondents claim, on the other
hand, that their causes of action are rooted in Arts.
20, 21 and 23 of the CC the determination of which
demands a full blown trial, as correctly held by the
CA. 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 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.
Private respondents further contend that the
arbitration clause centers more on venue rather
than on arbitration.
There is no doubt that arbitration is valid
and constitutional in our jurisdiction. 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. 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 Senate, giving reciprocal recognition and
allowing enforcement of international arbitration
agreements between parties of different nationalities
within a contracting state.
A careful examination of the instant case
shows that the arbitration clause in the
Distributorship Agreement between petitioner DMCUSA 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 DMCUSA 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

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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 DMCUSA 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
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.

CLASS NOTES:
Court found that the arbitration clause is valid and
that the dispute is arbitrable, but nevertheless did
not order the arbitration.

Do you agree with this decision?


NO.
RA 9285, Sec. 25 Interpretation of the Act
In interpreting the Act, the court shall have due regard to the
policy of the law in favor of arbitration. Where action is
commenced by or against multiple parties, one or more of whom
are parties who are bound by the arbitration agreement although
the civil action may continue as to those who are not bound by
such arbitration agreement.
Rule 2.2. Policy on arbitration. (A) Where the parties have
agreed to submit their dispute to arbitration, courts shall refer the
parties to arbitration pursuant to Republic Act No. 9285 bearing in
mind that such arbitration agreement is the law between the
parties and that they are expected to abide by it in good faith.
Further, the courts shall not refuse to refer parties to arbitration
for reasons including, but not limited to, the following:
c. The referral would result in multiplicity of suits;
Rule 4.7. Multiple actions and parties. The court shall not
decline to refer some or all of the parties to arbitration for any of
the following reasons:
a. Not all of the disputes subject of the civil action may be
referred to arbitration;
b. Not all of the parties to the civil action are bound by the
arbitration agreement and referral to arbitration would result in
multiplicity of suits;
c. The issues raised in the civil action could be speedily and
efficiently resolved in its entirety by the court rather than in
arbitration;
d. Referral to arbitration does not appear to be the most prudent
action; or
e. The stay of the action would prejudice the rights of the
parties to the civil action who are not bound by the
arbitration agreement.
The court may, however, issue an order directing the inclusion
in arbitration of those parties who are not bound by the
arbitration agreement but who agree to such inclusion
provided those originally bound by it do not object to their
inclusion.

Sir:
Problem with this decision is that it will kill arbitration.
A party may simply implead other parties and claim
that they are not parties to the arbitration clause.
READ UNITRAL ARBITRATION RULES and ICC
ARBITRATION RULES

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

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Class Notes September 3, 2010 c/o Adrian


What is the Rule on Multiple Parties?
Binding between the parties, assigns and heirs
(1311, Civil Code).
Can the court motu proprio separate the parties?
What is the impact of presence of third parties?
Rule 4.7. Multiple actions and parties. The court shall not
decline to refer some or all of the parties to arbitration for any of
the following reasons:
a. Not all of the disputes subject of the civil action may be
referred to arbitration;
b. Not all of the parties to the civil action are bound by the
arbitration agreement and referral to arbitration would result in
multiplicity of suits;
c. The issues raised in the civil action could be speedily and
efficiently resolved in its entirety by the court rather than in
arbitration;
d. Referral to arbitration does not appear to be the most prudent
action; or
e. The stay of the action would prejudice the rights of the
parties to the civil action who are not bound by the
arbitration agreement.
The court may, however, issue an order directing the inclusion
in arbitration of those parties who are not bound by the
arbitration agreement but who agree to such inclusion
provided those originally bound by it do not object to their
inclusion.

How did the court rule on the issue in the case of


Toyota?
The presence of third parties does not render the
Arbitration Clause dysfunctional.
What about in Salas? Are the facts the same?

Are the vendees bound by the Arbitration clause


contained in the contract between Laperal Realty
and Salas, JR?
SALAS NO : because the vendees are not
"assignees." (UNDER 1311 OF THE CIVIL CODE)
The buyers are not bound, although they are
successors-in-interest, they are not assigns.
ME : is a subrogee under through an insurance
contract an assign? (see california case,
What is the effect of the Del Monte Ruling?
Individuals who are NOT real parties in interest were
impleaded. And the court ruled that the court
proceeding should continue. A party may simply put
arbitration into naught by impleading certain parties.

Del Monte case : (MMC --- my cause of action is


TORT (20-21 NCC) -- sir wanted to address this.
What if a party files a motion to suspend
proceedings on the ground that there is an
existing Arbitration Agreement?
The court should grant a motion to suspend
proceedings and order the parties to proceed to
arbitration.
9285 Sec. 25. Interpretation of the Act. - In interpreting the Act,
the court shall have due regard to the policy of the law in favor of
arbitration. Where action is commenced by or against multiple
parties, one or more of whom are parties who are bound by
the arbitration agreement although, the civil action may
continue as to those who are not bound by such arbitration
agreement.

(-ME- the jurisdiction of the court is determined by


the allegations in the pleadings True - MMC)
Still : MMC --- my cause of action is TORT (2021 NCC) -- sir wanted to address this. -- AUTEA This is a spurious argument. Article 21, says any
damage. Why is there damage? "Although I am the
Exclusive Distributor, Del monte allowed the entry of
subpar products." It is the distributorship agreement
that caused damage.
(ANECDOTE: the first two students who recited
"AGREED" on the Del Monte Ruling. Sir was
surprised.)
DANGEROUS IMPLICATION OF DELMONTE again, is the vulnerability of the Arbitration Clause to
a party defeating it by impleading other parties. This
is what gave rise to SECTION 25 of RA 9285.
---- WHAT IS THE PRESENT STATE OF THE
RULE WITH RESPECT TO THE PRESENC OF
PARTIES?
See RULE 2.2. Special ADR Rules
? ADR RULE - Rule 4.5. Court action. After
hearing, the court shall stay the action and,
considering the statement of policy embodied in
Rule 2.4, above, refer the parties to arbitration if it
finds prima facie, based on the pleadings and
supporting documents submitted by the parties, that
there is an arbitration agreement and that the
subject-matter of the dispute is capable of
settlement or resolution by arbitration in accordance
with Section 6 of the ADR Act. Otherwise, the court
shall continue with the judicial proceedings.

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What is the impact of KOREA regarding


reciprocal obligations under 1191 (CIVIL CODE)?
if there is a delay on the part of one of the parties,
the other party may rescind the contract.

Can the court reverse the dispositive portion of the


Arbitral Award? NO - court cannot substitute.

APT v. CA
Is this in act of judicial legislation?

ASSAILING AN ARBITRAL AWARD


What are the grounds for assailing a DOMESTIC
ARBITRATION AWARD?
See RA 876 Sec. 24. Grounds for vacating award. In any one of the following
cases, the court must make an order vacating the award upon the
petition of any party to the controversy when such party proves
affirmatively that in the arbitration proceedings;
(a) The award was procured by corruption, fraud, or other undue
means; or
(b) That there was evident partiality or corruption in the arbitrators
or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to
postpone the hearing upon sufficient cause shown, or in refusing
to hear evidence pertinent and material to the controversy; that
one or more of the arbitrators was disqualified to act as such
under section nine hereof, and willfully refrained from disclosing
such disqualifications or of any other misbehavior by which the
rights of any party have been materially prejudiced; or
(d) That 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.

"As a rule, the award of an arbitrator cannot be set


aside for mere errors of judgment either as to the
law or as to the facts. Courts are without power to
amend or overrule merely because of disagreement
with matters of law or facts determined by the
arbitrators. They will not review the findings of law
and fact contained in an award, and will not
undertake to substitute their judgment for that of the
arbitrators, since any other rule would make an
award the commencement, not the end, of litigation.
Errors of law and fact, or an erroneous decision of
matters submitted to the judgment of the arbitrators,
are insufficient to invalidate an award fairly and
honestly made. Judicial review of an arbitration is,
thus, more limited than judicial review of a trial."
How did they come to arbitration?
How did it become a Rule 65 case?
THERE was an ORDER confirming. Petition under
rule 65 Was availed of.
Is this valid?
See Section 29. CF: ruling in APT vs CA:

Is this an exclusive listing? NO, see 11.4 of


Special ADR rules
The award may also be vacated on any or all of the following
grounds:
a. The arbitration agreement did not exist, or is invalid for any
ground for the revocation of a contract or is otherwise
unenforceable; or
b. A party to arbitration is a minor or a person judicially declared
to be incompetent.

Are these additions?


No, see section of RA 876:
Sec. 2. Persons and matters subject to arbitration. XXX Such
submission or contract shall be valid, enforceable and irrevocable,
save upon such grounds as exist at law for the revocation of any
contract.
XXX
A controversy cannot be arbitrated where one of the parties to the
controversy is an infant, or a person judicially declared to be
incompetent, unless the appropriate court having jurisdiction
approve a petition for permission to submit such controversy to
arbitration made by the general guardian or guardian ad litem of
the infant or of the incompetent.

Under the present state of the law, are there


other grounds?

Section 29 of Republic Act No. 876, provides that: . . . 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 provision, however, does not preclude a party aggrieved by
the arbitral award from resorting to the extraordinary remedy of
certiorari under Rule 65 where, as in this case, the RTC to which
the award was submitted for confirmation has acted without
jurisdiction or with grave abuse of discretion and there is no
appeal, nor any plain, speedy remedy in the course of law. In the
instant case, the respondent court erred in dismissing the special
civil action for certiorari, it being clear from the pleadings and the
evidence that the trial court lacked jurisdiction and/or committed
grave abuse of discretion in taking cognizance of private
respondents' motion to confirm the arbitral award and, worse, in
confirming said award which is grossly and patently not in accord
with the arbitration agreement, as will be hereinafter
demonstrated.
Rule 19.7. No appeal or certiorari on the merits of an arbitral
award. An agreement to refer a dispute to arbitration shall
mean that the arbitral award shall be final and binding.
Consequently, a party to an arbitration is precluded from filing an
appeal or a petition for certiorari questioning the merits of an
arbitral award.
Rule 19.26. -- Certiorari to the Court of Appeals. When the
Regional Trial Court, in making a ruling under the Special ADR

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Rules, has acted without or in excess of its jurisdiction, or


with grave abuse of discretion amounting to lack or excess
of jurisdiction, and there is no appeal or any plain, speedy, and
adequate remedy in the ordinary course of law, a party may file a
special civil action for certiorari to annul or set aside a ruling of
the Regional Trial Court.
A special civil action for certiorari may be filed against the
following orders of the court.
XXX
f. Confirming, vacating or correcting a domestic arbitral
award;
g. Suspending the proceedings to set aside an international
commercial arbitral award and referring the case back to the
arbitral tribunal;
h. Allowing a party to enforce an international commercial
arbitral award pending appeal;
i. Adjourning or deferring a ruling on whether to set aside,
recognize and or enforce an international commercial arbitral
award;
j. Allowing a party to enforce a foreign arbitral award pending
appeal; and
k. Denying a petition for assistance in taking evidence.

Note : "...and there is no appeal") SEE: 19.12 -Appeal to the Court of Appeals.An appeal to the Court of
Appeals through a petition for review under this Special Rule shall
only be allowed from the following final orders of the Regional
Trial Court:
XXXConfirming, vacating or correcting a domestic arbitral
award;

Kung ako yung kalaban and the other party files a


certiorari, but there is an appeal.
-So how do we use 19.26?
-- ME : LUZON DEVELOPMENT BANK prescribes
the mode --FINAL - and not subject to review. 00
APPEAL -What is the object of an appeal What are you trying to say? --

Petition v. Motion to Vacate


Petition filed in a court which has no jurisidiction
over the dispute; original; after dismissal (see APT)
Motion filed in a court which has jurisdiction over
the dispute; continuation of proceedings; e.g.
proceeding in the court was suspended / referred to
arbitration

Is a Motion or Petition to Vacate governed by


summary procedure?
No. See 1.3.
Rule 1.3. Summary proceedings in certain cases.The
proceedings in the following instances are summary in nature and
shall be governed by this provision:
a. Judicial Relief Involving the Issue of Existence, Validity or
Enforceability of the Arbitration Agreement;
b. Referral to ADR;
c. Interim Measures of Protection;
d. Appointment of Arbitrator;
e. Challenge to Appointment of Arbitrator;
f. Termination of Mandate of Arbitrator;
g. Assistance in Taking Evidence;
h. Confidentiality/Protective Orders; and
i. Deposit and Enforcement of Mediated Settlement
Agreements.

Must it be verified? Can it be verified by the


lawyer?
Yes. See 1.4. It can be verified by a lawyer. See
1.11(f).
Rule 1.4. Verification and submissions. Any pleading, motion,
opposition, comment, defense or claim filed under the Special
ADR Rules by the proper party shall be supported by verified
statements that the affiant has read the same and that the factual
allegations therein are true and correct of his own personal
knowledge or based on authentic records and shall contain as
annexes
the
supporting
documents.
The annexes to the pleading, motion, opposition, comment,
defense or claim filed by the proper party may include a legal
brief, duly verified by the lawyer submitting it, stating the pertinent
facts, the applicable law and jurisprudence to justify the necessity
for
the
court
to
rule
upon
the
issue
raised.

ADAMSON, CHUNGFU, NATIONAL STEEL -HOME BANKER'S ASSOCIATION.

No Class September 10, 2010

Class Notes September 17, 2010

f. Verification shall mean a certification under oath by a party


or a person who has authority to act for a party that he has read
the pleading/motion, and that he certifies to the truth of the facts
stated therein on the basis of his own personal knowledge or
authentic documents in his possession. When made by a lawyer,
verification shall mean a statement under oath by a lawyer signing
a pleading/motion for delivery to the Court or to the parties that he
personally prepared the pleading/motion, that there is sufficient
factual basis for the statements of fact stated therein, that there is
sufficient basis in the facts and the law to support the prayer for
relief therein, and that the pleading/motion is filed in good faith
and is not interposed for delay.

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Is there an Appointing Authority in adhoc


arbitration?
Yes. 6.1 (c).
Rule 6.1. When the court may act as Appointing Authority. The
court shall act as Appointing Authority only in the following
instances:
a. Where any of the parties in an institutional arbitration failed or
refused to appoint an arbitrator or when the parties have failed to
reach an agreement on the sole arbitrator (in an arbitration before
a sole arbitrator) or when the two designated arbitrators have
failed to reach an agreement on the third or presiding arbitrator (in
an arbitration before a panel of three arbitrators), and the
institution under whose rules arbitration is to be conducted fails or
is unable to perform its duty as appointing authority within a
reasonable time from receipt of the request for appointment;
b. In all instances where arbitration is ad hoc and the parties
failed to provide a method for appointing or replacing an
arbitrator, or substitute arbitrator, or the method agreed upon is
ineffective, and the National President of the Integrated Bar of the
Philippines (IBP) or his duly authorized representative fails or
refuses to act within such period as may be allowed under the
pertinent rules of the IBP or within such period as may be agreed
upon by the parties, or in the absence thereof, within thirty (30)
days from receipt of such request for appointment;
c. Where the parties agreed that their dispute shall be resolved
by three arbitrators but no method of appointing those arbitrators
has been agreed upon, each party shall appoint one arbitrator
and the two arbitrators thus appointed shall appoint a third
arbitrator. If a party fails to appoint his arbitrator within thirty (30)
days of receipt of a request to do so from the other party, or if the
two arbitrators fail to agree on the third arbitrator within a
reasonable time from their appointment, the appointment shall be
made by the Appointing Authority. If the latter fails or refuses to
act or appoint an arbitrator within a reasonable time from receipt
of the request to do so, any party or the appointed arbitrator/s
may request the court to appoint an arbitrator or the third
arbitrator as the case may be.
RA 9285, Sec. 26 Meaning of Appointing Authority
"Appointing Authority" as used in the Model Law shall mean the
person or institution named in the arbitration agreement as the
appointing authority; or the regular arbitration arbitration institution
under whose rules the arbitration is agreed to be conducted.
Where the parties have agreed to submit their dispute to
institutional arbitration rules, and unless they have agreed to a
different procedure, they shall be deemed to have agreed to
procedure under such arbitration rules for the selection and
appointment of arbitrators. In ad hoc arbitration, the default
appointment of an arbitrator shall be made by the National
President of the Integrated Bar of the Philippines (IBP) or his duly
authorized representative.
RA 9285, Sec. 27 What Functions May be Performed by
Appointing Authority
The functions referred to in Articles 11(3), 11(4), 13(3) and 14(1)
of the Model Law shall be performed by the Appointing Authority,
unless the latter shall fail or refuse to act within thirty (30) days
from receipt of the request in which case the applicant may renew
the application with the Court.
RA 876, Sec. 8 Appointment of arbitrators
If, in the contract for arbitration or in the submission described in
section two, provision is made for a method of naming or

appointing an arbitrator or arbitrators, such method shall be


followed; but if no method be provided therein the Court of First
Instance shall designate an arbitrator or arbitrators.
The Court of First Instance shall appoint an arbitrator or
arbitrators, as the case may be, in the following instances:
(a) If the parties to the contract or submission are unable to
agree upon a single arbitrator; or
(b) If an arbitrator appointed by the parties is unwilling or unable
to serve, and his successor has not been appointed in the manner
in which he was appointed; or
(c) If either party to the contract fails or refuses to name his
arbitrator within fifteen days after receipt of the demand for
arbitration; or
(d) If the arbitrators appointed by each party to the contract, or
appointed by one party to the contract and by the proper Court,
shall fail to agree upon or to select the third arbitrator.
(e) The court shall, in its discretion appoint one or three
arbitrators, according to the importance of the controversy
involved in any of the preceding cases in which the agreement is
silent as to the number of arbitrators.
(f) Arbitrators appointed under this section shall either accept or
decline their appointments within seven days of the receipt of their
appointments. In case of declination or the failure of an arbitrator
or arbitrators to duly accept their appointments the parties or the
court, as the case may be, shall proceed to appoint a substitute or
substitutes for the arbitrator or arbitrators who decline or failed to
accept his or their appointments.

Problem:
Claimant appoints an arbitrator. Respondent refuses
to name his arbitrator. Claimant asks IBP to appoint
in behalf of Respondent, which IBP did. Can
Respondent ask for an injunction enjoining the
commencement of the injunction on the ground that
it did not appoint an arbitrator? Can a court enjoin
arbitration proceedings?
Rule 3.18. Court action. (B) No injunction of arbitration
proceedings. The court shall not enjoin the arbitration
proceedings during the pendency of the petition.

What is the petition contemplated in Rule


3.18?
Petition concerning the existence, validity or
enforceability of the arbitration agreement. This
concerns the jurisdiction of the arbitral tribunal.
Rule 5.6. Type of interim measure of protection that a court may
grant.The following, among others, are the interim measures of
protection that a court may grant:
a.

Preliminary injunction directed against a party to arbitration;

RA 9285, Sec. 28 Grant of Interim Measure of Protection


(a) It is not incompatible with an arbitration agreement for a party
to request, before constitution of the tribunal, from a Court an
interim measure of protection and for the Court to grant such
measure. After constitution of the arbitral tribunal and during

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arbitral proceedings, a request for an interim measure of


protection or modification thereof, may be made with the arbitral
tribunal or to the extent that the arbitral tribunal has no power to
act or is unable to act effectively, the request may be made with
the Court. The arbitral tribunal is deemed constituted when the
sole arbitrator or the third arbitrator who has been nominated, has
accepted the nomination and written communication of said
nomination and acceptance has been received by the party
making request.
(b) The following rules on interim or provisional relief shall be
observed:
(1) Any party may request that provision relief be granted against
the adverse party:
(2) Such relief may be granted:
(i) to prevent irreparable loss or injury:
(ii) to provide security for the performance of any obligation;
(iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or omission.
(3) The order granting provisional relief may be conditioned upon
the provision of security or any act or omission specified in the
order.
(4) Interim or provisional relief is requested by written application
transmitted by reasonable means to the Court or arbitral tribunal
as the case may be and the party against whom the relief is
sought, describing in appropriate detail the precise relief, the party
against whom the relief is requested, the grounds for the relief,
and evidence supporting the request.
(5) The order shall be binding upon the parties.
(6) Either party may apply with the Court for assistance in
Implementing or enforcing an interim measure ordered by an
arbitral tribunal.
(7) A party who does not comply with the order shall be liable for
all damages resulting from noncompliance, including all
expenses, and reasonable attorney's fees, paid in obtaining the
order's judicial enforcement.

Xam: No. Prohibition not injunction.

performance of subject contract, it was stipulated


therein that the issue(s) shall be submitted for
resolution before a single arbitrator chosen by both
parties. Apart from the construction agreement,
Chung Fu and Roblecor entered into two (2) other
ancillary contracts, for the construction of a
dormitory and support facilities and for the
installation of electrical, water and hydrant systems
at the plant site.
However, Roblecor failed to complete the
work despite the extension of time allowed it by
Chung Fu. Subsequently, the latter had to take over
the construction. Claiming an unsatisfied account of
P10,500,000.00 and unpaid progress billings of
P2,370,179.23, Roblecor filed a petition for
Compulsory Arbitration with prayer for TRO before
the RTC, pursuant to the arbitration clause in the
construction agreement. Chung Fu moved to dismiss
the petition and further prayed for the quashing of
the restraining order.
Subsequent negotiations between the
parties eventually led to the formulation of an
arbitration agreement. The RTC approved the
agreement. Engr. Willardo Asuncion was appointed
as the sole arbitrator.
Arbitrator Asuncion ordered petitioners to
immediately pay respondent P16,108,801.00. He
declared the award as final and unappealable,
pursuant to the Arbitration Agreement precluding
judicial review of the award.
Roblecor moved for the confirmation of said
award. On the other hand, Chung Fu moved to
remand the case for further hearing and asked for a
reconsideration of the judgment award claiming that
Arbitrator Asuncion committed twelve (12) instances
of grave error by disregarding the provisions of the
parties' contract. The lower court denied petitioners
motion to remand and granted Roblecors Motion for
Confirmation of Award. The CA affirmed.
Issue: WON the arbitration award is beyond the
ambit of the court's power of judicial review.

Chung Fu Industries vs CA (1992)

Held:

Petitioner: Chung Fu Industries, et al


Respondents: CA, Hon. Francisco Velez and
Roblecor Philippines Inc

Ratio: Sparse though the law and jurisprudence


may be on the subject of arbitration in the
Philippines, it was nonetheless recognized in the
Spanish Civil Code; specifically, the provisions on
compromises made applicable to arbitrations under
Articles 1820 and 1821. Although said provisions
were repealed by implication with the repeal of the
Spanish Law of Civil Procedure, these and
additional ones were reinstated in the present Civil
Code.
Arbitration found a fertile field in the
resolution of labor-management disputes in the

Ponente: Romero
Facts: Petitioner Chung Fu Industries and Roblecor
Philippines, Inc. forged a construction agreement
whereby respondent committed to construct and
finish on December 31, 1989, petitioner 's
industrial/factory complex in Cavite for P42,000,000.
In the event of disputes arising from the

No

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Philippines. Although early on, CA 103 (1936)


provided for compulsory arbitration as the state
policy to be administered by the CIR, in time such a
modality gave way to voluntary arbitration. The
Industrial Peace Act which was passed in 1953 as
RA875, favored the policy of free collective
bargaining and resort to grievance procedure, in
particular, as the preferred mode of settling disputes
in industry. It was accepted and enunciated more
explicitly in the Labor Code, which was passed on
November 1, 1974 as PD
442, with the
amendments later introduced by RA6715 (1989).
That there was a growing need for a law
regulating arbitration in general was acknowledged
when RA876 (1953), otherwise known as the
Arbitration Law, was passed. "Said Act was
obviously adopted to supplement not to supplant
the New Civil Code on arbitration. It expressly
declares that "the provisions of chapters one and
two, Title XIV, Book IV of the Civil Code shall remain
in force."
In recognition of the pressing need for an
arbitral machinery for the early and expeditious
settlement of disputes in the construction industry, a
CIAC was created by EO 1008, enacted on
February 4, 1985.
In practice nowadays, absent an agreement
of the parties to resolve their disputes via a
particular mode, it is the regular courts that remain
the fora to resolve such matters. However, the
parties may opt for recourse to third parties,
exercising their basic freedom to "establish such
stipulation, clauses, terms and conditions as they
may deem convenient, provided they are not
contrary to law, morals, good customs, public order
or public policy." In such a case, resort to the
arbitration process may be spelled out by them in a
contract in anticipation of disputes that may arise
between them. Or this may be stipulated in a
submission agreement when they are actually
confronted by a dispute. Whatever be the case, such
recourse to an extrajudicial means of settlement is
not intended to completely deprive the courts of
jurisdiction.
But certainly, the stipulation to refer all future
disputes to an arbitrator or to submit an ongoing
dispute to one is valid. Being part of a contract
between the parties, it is binding and enforceable in
court in case one of them neglects, fails or refuses
to arbitrate. Going a step further, in the event that
they declare their intention to refer their differences
to arbitration first before taking court action, this
constitutes a condition precedent, such that where a
suit has been instituted prematurely, the court shall
suspend the same and the parties shall be directed
forthwith to proceed to arbitration. A court action

may likewise be proven where the arbitrator has not


been selected by the parties.
Under present law, may the parties who
agree to submit their disputes to arbitration further
provide that the arbitrators' award shall be final,
unappealable and executory?
Article 2044 of the Civil Code recognizes the
validity of such stipulation, thus: Any stipulation that
the arbitrators' award or decision shall be final is
valid, without prejudice to Articles 2038, 2039 and
2040.
Similarly,
the
Construction
Industry
Arbitration Law provides that the arbitral award "shall
be final and inappealable except on questions of law
which shall be appealable to the Supreme Court."
Under the original Labor Code, voluntary
arbitration awards or decisions were final,
unappealable and executory. "However, voluntary
arbitration awards or decisions on money claims,
involving an amount exceeding P100,000 or 40% of
the paid-up capital of the respondent employer,
whichever is lower, maybe appealed to the NLRC on
any of the following grounds: (a) abuse of discretion;
and (b) gross incompetence." It is to be noted that
the appeal in the instances cited were to be made to
the NLRC and not to the courts.
With the subsequent deletion of the
provision from the LC, the voluntary arbitrator is now
mandated to render an award or decision within 20
calendar days from the date of submission of the
dispute and such decision shall be final and
executory after 10 calendar days from receipt of the
copy of the award or decision by the parties.
Where the parties agree that the decision of
the arbitrator shall be final and unappealable as in
the instant case, the pivotal inquiry is whether
subject arbitration award is indeed beyond the ambit
of the court's power of judicial review. We rule in the
negative. It is stated explicitly under Art. 2044 CC
that the finality of the arbitrators' award is not
absolute and without exceptions. Where the
conditions described in Articles 203814, 2039 and

14

Art. 2038. A compromise in which there is mistake, fraud,


violence, intimidation, undue influence, or falsity of
documents, is subject to the provisions of Article 1330 of this
Code.
However, one of parties cannot set up a mistake of fact as against
the other if the latter, by virtue of the compromise, has withdrawn
from a litigation already commenced. (1817a)
Art. 2039. When the parties compromise generally on all
differences which they might have with each other, the discovery
of documents referring to one or more but not to all of the
questions settled shall not itself be a cause for annulment or
rescission of the compromise, unless said documents have
been concealed by one of the parties.

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2040 applicable to both compromises and


arbitrations are obtaining, the arbitrators' award may
be annulled or rescinded. 19 Additionally, under
Sections 24 and 25 of the Arbitration Law, there are
grounds for vacating, modifying or rescinding an
arbitrator's award. Thus, if and when the factual
circumstances referred to in the above-cited
provisions are present, judicial review of the award is
properly warranted.
What if courts refuse or neglect to inquire
into the factual milieu of an arbitrator's award to
determine whether it is in accordance with law or
within the scope of his authority? How may the
power of judicial review be invoked? This is where
the proper remedy is certiorari under Rule 65 of the
Revised Rules of Court. It is to be borne in mind,
however, that this action will lie only where a grave
abuse of discretion or an act without or in excess of
jurisdiction on the part of the voluntary arbitrator is
clearly shown. For "the writ of certiorari is an extraordinary remedy and that certiorari jurisdiction is not
to be equated with appellate jurisdiction. In a special
civil action of certiorari, the Court will not engage in
a review of the facts found nor even of the law as
interpreted or applied by the arbitrator unless the
supposed errors of fact or of law are so patent and
gross and prejudicial as to amount to a grave abuse
of discretion or an exces de pouvoir on the part of
the arbitrator."
Even decisions of administrative agencies
which are declared "final" by law are not exempt
from judicial review when so warranted. It should be
stressed, too, that voluntary arbitrators, by the
nature of their functions, act in a quasi-judicial
capacity. It stands to reason, therefore, that their
decisions should not be beyond the scope of the
power of judicial review of this Court.
After closely studying the list of errors, as
well as petitioners' discussion of the same in their
Motion to Remand Case For Further Hearing and
Reconsideration and Opposition to Motion for
Confirmation of Award, we find that petitioners have
amply made out a case where the voluntary
arbitrator failed to apply the terms and provisions of
the Construction Agreement which forms part of the
law applicable as between the parties, thus
But the compromise may be annulled or rescinded if it refers only
to one thing to which one of the parties has no right, as
shown by the newly-discovered documents. (n)
Art. 2040. If after a litigation has been decided by a final
judgment, a compromise should be agreed upon, either or both
parties being unaware of the existence of the final judgment,
the compromise may be rescinded.
Ignorance of a judgment which may be revoked or set aside
is not a valid ground for attacking a compromise.

committing a grave abuse of discretion.


Furthermore,
in
granting
unjustified
extra
compensation to respondent for several items, he
exceeded his powers all of which would have
constituted ground for vacating the award under
Section 24 (d) of the Arbitration Law.
But the respondent trial court's refusal to
look into the merits of the case, despite prima facie
showing of the existence of grounds warranting
judicial review, effectively deprived petitioners of
their opportunity to prove or substantiate their
allegations. In so doing, the trial court itself
committed grave abuse of discretion. Likewise, the
appellate court, in not giving due course to the
petition, committed grave abuse of discretion.
Respondent courts should not shirk from exercising
their power to review, where under the applicable
laws and jurisprudence, such power may be
rightfully exercised; more so where the objections
raised against an arbitration award may properly
constitute grounds for annulling, vacating or
modifying said award under the laws on arbitration.

Adamson vs CA (1994)
Petitioners: Dr. Lucas Adamson and Adamson
Management Corporation
Respondents: CA and Apac Holding Limited
Facts: Adamson Management Corporation and
Lucas Adamson on the one hand, and APAC
Holdings Limited on the other, entered into a
contract whereby the former sold 99.97% of
outstanding common shares of stocks of Adamson
and Adamson, Inc. to the latter for P24,384,600 plus
the Net Asset Value of Adamson and Adamson, Inc.
as of June 19, 1990. But the parties failed to agree
on a reasonable Net Asset Value. This prompted
them to submit the case for arbitration in accordance
with RA 876.
The Arbitration Committee rendered a
decision finding the Net Asset Value of the Company
to be P167,118. The Arbitration Committee
disregarded petitioners' argument. According to the
Committee, however, the amount of P5,146,000
which was claimed as initial NAV by petitioners, was
merely an estimate of the Company's NAV as of
February 28, 1990 which was still subject to financial
developments until June 19, 1990, the cut-off date.
Aside from deciding the amount of NAV, the
Committee also held that any ambiguity in the
contract should not necessarily be interpreted
against private respondents because the parties had
stipulated that the draft of the agreement was
submitted to petitioners for approval and that the

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latter even proposed changes which were eventually


incorporated in the final form of the Agreement.
APAC Holdings Ltd. filed a petition for
confirmation of the arbitration award before the
Makati RTC. Petitioners opposed the petition and
prayed for the nullification, modification and/or
correction of the same, alleging that the arbitrators
committed evident partiality and grave abuse of
discretion. The RTC vacated the arbitration award.
The CA reversed.
Issue: WON the
arbitration award
Held:

CA

erred

in

affirming

the

No

Ratio: The CA, in reversing the trial court's


decision held that the nullification of the decision of
the Arbitration Committee was not based on the
grounds provided by the Arbitration Law and that ". .
. petitioners herein have failed to substantiate with
any evidence their claim of partiality. Significantly,
even as respondent judge ruled against the
arbitrators' award, he could not find fault with their
impartiality and integrity. Evidently, the nullification
of the award rendered at the case at bar was made
not on the basis of any of the grounds provided by
law."
Assailing the above conclusion, petitioners
argue that ". . . evident partiality is a state of mind
that need not be proved by direct evidence but may
be inferred from the circumstances of the case. It is
related to intention which is a mental process, an
internal state of mind that must be judged by the
person's conduct and acts which are the best index
of his intention." They pointed out that from the
following circumstances may be inferred the
arbitrators' evident partiality:
1. the material difference between the results of the
arbitrators' computation of the NAV and that of
petitioners;
2. the alleged piecemeal interpretation by the
arbitrators of the Agreement which went beyond the
clear provisions of the contract and negated the
obvious intention of the parties;
3. reliance by the arbitrators on the financial
statements and reports submitted by SGV which,
according to petitioners, acted solely for the interests
of private respondents; and
4. the finding of the trial court that "the arbitration
committee has advanced no valid justification to
warrant a departure from the well-settled rule in
contract interpretation that if the terms of the
contract are clear and leave no doubt upon the
intention of the contracting parties the literal
meaning of its interpretation shall control."

We find no reason to depart from the Court


of Appeal's conclusion.
Petitioners herein failed to prove their
allegation of partiality on the part of the arbitrators.
Proofs other than mere inferences are needed to
establish evident partiality. That they were
disadvantaged by the decision of the Arbitration
Committee does not prove evident partiality.
Too much reliance has been accorded by
petitioners on the decision of the trial court.
However, we find that the same is but an adaptation
of the arguments of petitioners to defeat the petition
for confirmation of the arbitral award in the trial court
by private respondent. The trial court itself stated as
follows: To allay any fear of petitioner that its reply
and opposition, dated 11 June 1991, has not been
taken into account in resolving this case, it will be
well to state that the court has carefully read the
same and, what is more, it has also read
respondents' comment, dated 19 June 1991,
wherein they made convincing arguments which are
likewise adopted and incorporated herein by
reference.
The justifications advanced by the trial court
for vacating the arbitration award are the following:
(a) ". . . that the arbitration committee had advanced
no valid justification to warrant a departure from the
well-settled rule in contract interpretation that if the
terms of the contract are clear and leave no doubt
upon the intention of the contracting parties the
literal meaning of its interpretation shall control; (b)
that the final NAV of P47,121,468.00 as computed
by herein petitioners was well within APAC's normal
investment level which was at least US$1 million and
to say that the NAV was merely P167,118.00 would
negate Clause 6 of the Agreement which provided
that the purchaser would deposit in escrow
P5,146,000.00 to be held for two (2) years and to be
used to satisfy any actual or contingent liability of the
vendor under the Agreement; (c) that the provision
for an escrow account negated any idea of the NAV
being less than P5,146,000.00; and (d) that herein
private respondent, being the drafter of the
Agreement could not avoid performance of its
obligations by raising ambiguity of the contract, or its
failure to express the intention of the parties, or the
difficulty of performing the same.
It is clear therefore, that the award was
vacated not because of evident partiality of the
arbitrators but because the latter interpreted the
contract in a way which was not favorable to herein
petitioners and because it considered that herein
private respondents, by submitting the controversy
to arbitration, was seeking to renege on its
obligations under the contract.
That the award was unfavorable to
petitioners herein did not prove evident partiality.

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That the arbitrators


resorted to contract
interpretation neither constituted a ground for
vacating
the
award
because
under
the
circumstances, the same was necessary to settle the
controversy between the parties regarding the
amount of the NAV. The SC finds that the
interpretation made by the arbitrators did not create
a new contract, as alleged by herein petitioners but
was a faithful application of the provisions of the
Agreement. Neither was the award arbitrary for it
was based on the statements prepared by the SGV
which was chosen by both parties to be the
"auditors."
The trial court held that private respondent
could not shirk from performing its obligations on
account of the difficulty of complying with the terms
of the contract. It said further that the contract may
be harsh but private respondent could not excuse
itself from performing its obligations on account of
the ambiguity of the contract because as its drafter,
private respondent was well aware of the
implications of the Agreement. We note herein that
during the arbitration proceedings, the parties
agreed that the contract as prepared by private
respondent, was submitted to petitioners for
approval. Petitioners, therefore, are presumed to
have studied the provisions of the Agreement and
agreed to its import when they approved and signed
the same. When it was submitted to arbitration to
settle the issue regarding the computation of the
NAV, petitioners agreed to be bound by the
judgment of the arbitration committee, except in
cases where the grounds for vacating the award
existed. Petitioners cannot now refuse to perform its
obligation after realizing that it had erred in its
understanding of the Agreement.
Petitioners also assailed the arbitrator's
reliance upon the financial statements submitted by
SGV as they allegedly served the interests of private
respondents and did not reflect the true intention of
the parties. We agree with the observation made by
the arbitrators that SGV, being a reputable firm, it
should be presumed to have prepared the
statements in accordance with sound accounting
principles. Petitioners have presented no proof to
establish that SGV's computation was erroneous
and biased.
Petitioners likewise pointed out that the
computation of the arbitrators leads to the absurd
result of petitioners incurring great expense just to
sell its properties. In arguing that the NAV could not
be less than P5,146,000, petitioners quote Clause
(B) of the Agreement as follows:
CLAUSE 3(B)
The consideration for the purchase of the Sale
Shares by the Purchaser shall be equivalent to the
Net Asset Value of the Company, . . . which the

parties HAVE FIXED at P5,146,000.00 prior to


Adjustments . . .
However, such quotation is incomplete and,
therefore, misleading. The full text of the above
provision as quoted by the arbitration committee
reads as follows:
(B) The consideration for the purchase of the Sale
Shares by the purchaser shall be equivalent to the
Net Asset Value of the Company, without the
Property, which the parties have fixed at P5,146,000
prior to Adjustments plus P24,384,600. The
consideration for the sale of the Sale Shares by the
Vendor, is the acquisition of the property by the
Vendor, through Aloha, from the Company at
historical cost plus all Taxes due on said transfer of
Property, and the release of all collaterals of the
Vendor securing the RSBS Credit Facility. However,
in the implementation of this Agreement, the parties
shall designate the amounts specified in Clause 5 as
the purchaser prices in the pro-forma deeds of sale
and other documents required to effect the transfers
contemplated in this Agreement.
Thus, petitioner cannot claim that the
consideration for private respondent's acquisition of
the outstanding common shares of stock was
grossly inadequate. If the NAV as computed was
small, the result was not due to error in the
computations made by the arbitrators but due to the
extent of the liabilities being borne by petitioners.
During the arbitration proceedings, the committee
found that petitioner has been suffering losses since
1983, a fact which was not denied by petitioner. We
cannot sustain the argument of petitioners that the
amount of P5,146,000.00 was an initial NAV as of
February 28, 1990 to which should still be added the
value of tangible assets (excluding the land) and of
intangible assets. If indeed the P5,146,000.00 was
the initial NAV as of February 28, 1990, then as of
said date, the total assets and liabilities of the
company have already been set off against each
other. NET ASSET VALUE is arrived at only after
deducting TOTAL LIABILITIES from TOTAL
ASSETS. "TOTAL ASSETS" includes those that are
tangible and intangible. If the amount of the tangible
and intangible assets would still be added to the
"initial NAV," this would constitute double counting.
Unless the company acquired new assets from
February 28, 1990 up to June 19, 1990, no value
corresponding to tangible and intangible assets may
be added to the NAV.
We also note that the computation by
petitioners of the NAV did not reflect the liabilities of
the company. The term "net asset value" indicates
the amount of assets exceeding the liabilities as
differentiated from total assets which include the
liabilities. If petitioners were not satisfied, they could

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have presented their own financial statements to


rebut SGV's report but this, they did not do.
Lastly, in assailing the decision of the Court
of Appeals, petitioners would have this Court believe
that the respondent court held that the decision of
the arbitrators was not subject to review by the
courts. This was not the position taken by the
respondent court.
The Court of Appeals, in its decision stated,
thus:
It is settled that arbitration awards are subject to
judicial review. In the recent case of Chung Fu
Industries (Philippines), Inc., et. al. v. Court of
Appeals, Hon Francisco X. Velez, et. al., G. R. No.
96283, February 25, 1992, the Supreme Court
categorically ruled that:
It is stated expressly under Art. 2044 of the
Civil Code that the finality of the arbitrators' award is
not absolute and without exceptions. Where the
conditions described in Articles 2038, 2039 and
2040 applicable to both compromises and
arbitrations are obtaining, the arbitrators' award may
be annulled or rescinded. Additionally, under
Sections 24 and 25 of the Arbitration Law, there are
grounds for vacating, modifying or rescinding an
arbitrators' award. Thus, if and when the factual
circumstances referred to in the above-cited
provisions are present, judicial review of the award is
properly warranted.
Clearly, though recourse to the courts may
be availed of by parties aggrieved by decisions or
awards rendered by arbitrator/s, the extent of such is
neither absolute nor all encompassing. . . .
It is clear then that the Court of Appeals reversed
the trial court not because the latter reviewed the
arbitration award involved herein, but because the
respondent appellate court found that the trial court
had no legal basis for vacating the award.

rules of procedure [19.7] to be promulgated by the Supreme Court


only on those grounds enumerated in Section 2515 of Republic Act
No. 876. Any other ground raised against a domestic arbitral
award shall be disregarded by the regional trial court.
RA 876, Sec. 24. Grounds for vacating award {P-A-G-E}
In any one of the following cases, the court must make an order
vacating the award upon the petition of any party to the
controversy when such party proves affirmatively that in the
arbitration proceedings;
(a) The award was procured by corruption, fraud, or other undue
means; or
(b) That there was evident partiality or corruption in the
arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to
postpone the hearing upon sufficient cause shown, or in refusing
to hear evidence pertinent and material to the controversy; that
one or more of the arbitrators was disqualified to act as such
under section nine hereof, and willfully refrained from disclosing
such disqualifications or of any other misbehavior by which the
rights of any party have been materially prejudiced; or
(d) That 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.
Where an award is vacated, the court, in its discretion, may direct
a new hearing either before the same arbitrators or before a new
arbitrator or arbitrators to be chosen in the manner provided in the
submission or contract for the selection of the original arbitrator or
arbitrators, and any provision limiting the time in which the
arbitrators may make a decision shall be deemed applicable to
the new arbitration and to commence from the date of the court's
order.
Where the court vacates an award, costs, not exceeding fifty
pesos and disbursements may be awarded to the prevailing party
and the payment thereof may be enforced in like manner as the
payment of costs upon the motion in an action.
Rule 19.7. No appeal or certiorari on the merits of an arbitral
award. An agreement to refer a dispute to arbitration shall
mean that the arbitral award shall be final and binding.
Consequently, a party to an arbitration is precluded from filing an
appeal or a petition for certiorari questioning the merits of an
arbitral award.

What is the option of the court after vacating the


award?
CLASS NOTES:
How do you assess the Chung Fu Rule in light of
the new Special ADR Rules?
In Chung Fu, the SC said that TC should have
looked into the merits of the case, after a prima facie
showing of the existence of grounds warranting
judicial review.
If a court, after vacating an award, reverse the
award?
No. See 19.7
RA 9285, Sec. 41. Vacation Award
A party to a domestic arbitration may question the arbitral award
with the appropriate regional trial court in accordance with the

Rule 11.9. Court action. Unless a ground to vacate an arbitral


award under Rule 11.5 above is fully established, the court shall
confirm
the
award.
An arbitral award shall enjoy the presumption that it was made
and released in due course of arbitration and is subject to
confirmation
by
the
court
In resolving the petition or petition in opposition thereto in
accordance with these Special ADR Rules, the court shall either
confirm or vacate the arbitral award. The court shall not disturb
the arbitral tribunals determination of facts and/or interpretation of
law.
In a petition to vacate an award or in petition to vacate an award
in opposition to a petition to confirm the award, the petitioner may
simultaneously apply with the Court to refer the case back to the
15

Should be Section 25 of RA 876.

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same arbitral tribunal for the purpose of making a new or revised


award or to direct a new hearing, or in the appropriate case, order
the new hearing before a new arbitral tribunal, the members of
which shall be chosen in the manner provided in the arbitration
agreement or submission, or the law. In the latter case, any
provision limiting the time in which the arbitral tribunal may make
a decision shall be deemed applicable to the new arbitral tribunal.
In referring the case back to the arbitral tribunal or to a new
arbitral tribunal pursuant to Rule 24 of Republic Act No. 876,
the court may not direct it to revise its award in a particular
way, or to revise its findings of fact or conclusions of law or
otherwise encroach upon the independence of an arbitral
tribunal in the making of a final award.

National Steel Corporation vs RTC of Lanao


Date: March 11, 1999
Petitioner: National Steel Corporation
Respondents: RTC of Lanao del Norte and E.
Willkom Enterprises Inc
Ponente: Purisima
Facts: Edward Willkom Enterprises Inc. together
with Ramiro Construction and National Steel
Corporation executed a contract whereby the former
jointly undertook the Contract for Site Development
for the latter's Integrated Iron and Steel Mills
Complex to be established at Iligan City.
Sometime in 1983, the services of Ramiro
Construction was terminated and EWEI took over
Ramiro's contractual obligation. Due to this,
extensions of time for the termination of the project,
initially agreed to be finished on July 17, 1983, were
granted by NSC. Differences later arose, EWEI filed
a civil casebefore the RTC of Lanao del Norte,
Branch 06 praying for the payments of
P458,381.001 with interest from the time of delay;
the price adjustment as provided by PD 1594; and
exemplary damages in the amount of P50,000.00
and attorney's fees.
The court upon joint motion of both parties
had issued an order dismissing the complaint and
counterclaim . . . in view of the desire of both parties
to implement Sec. 19 of the contract, providing for a
resolution of any conflict by arbitration. After series
of hearings, the Arbitrators rendered the decision
which is the subject matter of these present causes
of action, both initiated separately by the herein
contending parties, substantial portion of which
directs NSC to pay EWEI. The RTC affirmed.
Issue: WON the court acted with grave abuse of
discretion in not vacating the arbitrator's award.
Held:
Ratio: A stipulation to refer all future disputes or to
submit an ongoing dispute to an arbitrator is valid.
RA 876, otherwise known as the Arbitration Law,

was enacted by Congress since there was a growing


need for a law regulating arbitration in general.
he parties in the present case, upon entering
into a Contract for Site Development, mutually
agreed that any dispute arising from the said
contract shall be submitted for arbitration. Explicit is
Paragraph 19 of subject contract. Thereunder, if a
dispute should arise from the contract, the
Arbitration Board shall assume jurisdiction and
conduct hearings. After the Board comes up with a
decision, the parties may immediately implement the
same by treating it as an amicable settlement.
However, if one of the parties refuses to comply or is
dissatisfied with the decision, he may file a Petition
to Vacate the Arbitrator's decision before the trial
court. On the other hand, the winning party may ask
the trial court's confirmation to have such decision
enforced.
It should be stressed that voluntary
arbitrators, by the nature of their functions, act in a
quasi-judicial capacity. As a rule, findings of facts by
quasi-judicial bodies, which have acquired expertise
because their jurisdiction is confined to specific
matters, are accorded not only respect but even
finality if they are supported by substantial evidence,
even if not overwhelming or preponderant. As the
petitioner has availed of Rule 65, the Court will not
review the facts found nor even of the law as
interpreted or applied by the arbitrator unless the
supposed errors of facts or of law are so patent and
gross and prejudicial as to amount to a grave abuse
of discretion or an excess de pouvoir on the part of
the arbitrators.
Thus, in a Petition to Vacate Arbitrator's
Decision before the trial court, regularity in the
performance of official functions is presumed and
the complaining party has the burden of proving the
existence of any of the grounds for vacating the
award, as provided for by Sections 24 of the
Arbitration Law.
The grounds relied upon by the petitioner
were the following (a) That there was evident
partiality in the assailed decision of the Arbitrators in
favor of the respondent; and (b) That there was
mistaken appreciation of the facts and application of
the law by the Arbitrators. These were the very same
grounds alleged by NSC before the trial court in their
Petition to Vacate the Arbitration Award and which
petitioner is reiterating in this petition under scrutiny.
Petitioner's allegation that there was evident
partiality is untenable. It is anemic of evidentiary
support. In the case of Adamson vs. Court of
Appeals, 232 SCRA 602, in upholding the decision
of the Board of Arbitrators, this Court ruled that the
fact that a party was disadvantaged by the decision
of the Arbitration. Committee does not prove evident
partiality. Proofs other than mere inference are

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needed to establish evident partiality. Here,


petitioner merely averred evident partiality without
any proof to back it up. Petitioner was never
deprived of the right to present evidence nor was
there any showing that the Board showed signs of
any bias in favor of EWEI.
Indeed, the allegation of evident partiality is
not well-taken because the petitioner failed to
substantiate the same.
Anent the issue of mistaken appreciation of
facts and law of the case, the petitioner theorizes
that the awards made by the Board were
unsubstantiated and the same were a plain
misapplication of the law and even contrary to
jurisprudence. To have a clearer understanding of
the petition, this Court will try to discuss individually
the awards made by the Board, and determine if
there was grave abuse of discretion on the part of
the trial court when it adopted such awards in toto.
I. P458,381.00 representing EWEI's last billing
No. 16 with interest thereon at the rate of 1-1/4%
per month from January 1, 1985 to actual date of
payment;
Petitioner seeks to bar payment of the said
amount to EWEI. Since the latter failed to complete
the works as agreed upon, NSC had the right to
withhold such amount. The same will be used to
cover the cost differential paid to another contractor
who finished the work allegedly left uncompleted by
EWEI. Said work cost NSC P1,225,000, and should
be made chargeable to EWEI's receivables on Final
Billing No. 16 issued to NSC.
The query here therefore is whether there
was failure on the part of EWEI to complete the work
agreed upon. This will determine whether Final
Billing No. 16 can be made chargeable to the cost
differential paid by NSC to another contractor.
After a series of hearings, the Board of
Arbitrators concluded that the work was completed
by EWEI. As correctly stated To authenticate the
extent of unfinished work, quantity, unit cost
differential and amount, NSC was required to submit
copies of payment vouchers and/or job awards
extended to the other contractor engaged to
complete the works. The best efforts by NSC despite
the multiplicity of accounting/auditing/engineering
records required in a corporate complex failed to
produce documentary proofs from their Iligan or
Makati office despite repeated requests. NSC failed
to substantiate such allusion of completion by
another contractor three unfinished items of works,
actual quantities accomplished and unit cost
differential paid chargeable against EWEI.
To affirm the work items, quantity, unit cost
differential and amount of unfinished work left
behind by EWEI, NSC in serving notice of contract
termination to EWEI should have instead specifically

cited these obligations in detail for EWEI to


perform/comply within 30 days, such failure to
perform/comply should have constituted as an event
in default that would have justified termination of
contract of NSC with EWEI. If at all, this unfinished
work may be additional/extra work awarded in 1984
to another contractor at prices higher than the unit
price tendered by EWEI in 1982 and/or the
discrepancy between actual quantities of work
accomplished per plans versus estimated quantities
of work covered by separate contract as expansion
of the original project.
Furthermore, under the contract sued upon,
it is clear that should the Owner feel that the work
agreed upon was not completed by the contractor, it
is incumbent upon the OWNER to send to
CONTRACTOR a letter within seven (7) days after
completion of the inspection to specify the objections
thereto. 9 NSC failed to comply with such
requirement, and therefore it would be unfair to
refuse payment to EWEI, considering that the latter
had faithfully submitted Final Billing No. 16 believing
that its work had been completed because NSC did
not call its attention to any objectionable aspect of
their project.
But, what cannot be upheld is the Board's
imposition of a 1-1/4% interest per month from
January 1, 1985 to actual date of payment. There is
nothing in the said contract to justify or authorize
such an award. The trial court should have therefore
disregarded the same and instead, applied the legal
rate of 6% per annum, from Jan. 1, 1985 until this
decision becomes final and executory. This is so
because the legal rate of interest on monetary
obligations not arising from loans or forebearance of
credits or goods is 6% 10 per annum in the absence
of any stipulation to the contrary.
(II) Price escalation with the interest rate of 11/4% per month from 1 January 1985 to actual
date of payment.
Petitioner contends that EWEI is not entitled
to price escalation absent any stipulation to that
effect in the contract under which, the contract price
is fixed, citing Paragraph 2 thereof, which stipulates:
2. CONTRACT PRICE applicable unit prices
above fixed are based on the assumption that the
disposal areas for cleared, grubbed materials,
debris, excess filling materials and other matters that
are to be disposed of or are within the boundary
limits of the site, as designated in Annex A hereof. In
the event that disposal areas fixed and designated in
Annex A are diverted and transferred to such other
areas as would be outside the limits of the site as
would require additional costs to the contractor, then
Owner shall be liable for such additional hauling
costs of P1.45/km/m3."

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The phrase "prices above fixed" means that


the contract price of the work shall be that agreed
upon by the parties at the time of the execution of
the contract, which is the law between them
provided it is not contrary to law, morals, good
customs, public order, or public policy. (Article 1306,
New Civil Code). It cannot be inferred therefrom,
however, that the parties are prohibited from
imposing future increases or price escalation. It is a
cardinal rule in the interpretation of contracts that "if
the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the
literal meaning of its stipulations shall control. 11
But price escalation is expressly allowed
under Presidential Decree 1594, which law allows
price escalation in all contracts involving government
projects including contracts entered into by
government entities and instrumentalities and
Government Owned or Controlled Corporations
(GOCCs). It is a basic rule in contracts that law is
deemed written into the contract between the
parties. And when there is no prohibitory clause on
price escalation, the Court will allow payment
therefor. Thus, petitioner cannot rely on the case of
Llama Development Corporation vs. Court of
Appeals and National Steel Corporation, GR 88093,
Resolution, Third Division, 20 Sept 1989. It is not
applicable here since in that case, the contract
explicitly provided that the contract price stipulated
was fixed, inclusive of all costs and not subject to
escalation. This, in effect, waived the provisions of
PD 1594. The case under scrutiny is different as the
disputed contract does not contain a similar
provision.
In a vain attempt to evade said law's
application, they would like the Court to believe that
it is an acquired asset corporation and not a
government owned or controlled corporation so that
they are not within the coverage of PD 1594.
Whether NSC is an asset-acquired corporation or a
government owned or controlled corporation is of no
moment. It is not determinative of the pivot of
inquiry. It bears emphasizing that during the
hearings conducted by the Board of Arbitrators,
there was presented documentary evidence to show
that NSC, despite its being allegedly an asset
acquired corporation, allowed price escalation to
another contractor, Geo Transport and Construction,
Inc. (GTCI). As said in the decision of a Board of
Arbitrators:
On the other hand, there was documentary
evidence presented that NSC granted Geo
Transport and Construction, Inc. (GTCI), the other
favored contractor working side by side with EWEI
on the site development project during the same
period the GTCE was granted upon request and
paid by NSC an actual sum of P6.9 million as price

adjustment compensation even without the benefit of


escalation provision in the contract but allowed in
accordance with PD NO. 1594 enforceable among
government controlled or owned corporation. The
statement is embodied in an affidavit (Exhibit "111h") submitted by affiant Jose M. Mesina, Asst. to the
President and Legal Counsel of GTCI, submitted to
the Arbitrators upon solicitation of EWEI, copy to
NSC, on 3 October 1991. NSC did not assail the
affidavit upon receipt of such document as evidence
until the hearing of 19 December 1991 when the
affidavit was branded by NSC counsel as incorrect
and hearsay. Within 7 days reglamentary period
after receipt of affidavit in 3 October 1991, the NSC
had the recourse to contest the affidavit even
preferably charge the affiant for slander if NSC could
disprove the statements as untrue.
If Petitioner seeks to refute such evidence, it
should have done so before the Board of Arbitrators,
during the hearings. To raise the issue now is futile.
However, the same line of reasoning with
respect to the first award should be used in
disregarding the interest rate of 1-1/4%. The legal
rate of 6% per annum should be similarly applied to
the price escalation to be computed from Jan. 1,
1985 until this decision becomes final and
executory.
(III) The award of P50,000 as exemplary damages
and P350,000 as attorney's fees;
The exemplary damages and attorneys fees
awarded by the Board of Arbitrators should be
deleted in light of the circumstances surrounding the
case.
The requirements for an award of exemplary
damages, are: (1) they may be imposed by way of
example in addition to compensatory damages, and
only after the claimants right to them has been
established; (2) that they cannot be recovered as a
matter of right, their determination depending upon
the amount of compensatory damages that may be
awarded to the claimant; (3) the act must be
accompanied by bad faith or done in a wanton,
fraudulent, oppressive or malevolent manner.
EWEI cannot claim that NSC acted in bad
faith or in a wanton manner when it refused payment
of the Final Billing No. 16. The belief that the work
was never completed by EWEI and that it (NSC) had
the right to make it chargeable to the cost differential
paid by the latter to another contractor was neither
wanton nor done in evident bad faith. The payment
of legal rate of interest will suffice to compensate
EWEI of whatever prejudice it suffered by reason of
the delay caused by NSC. As regards the award of
attorney's fees, award for attorney's fees without
justification is a "conclusion without a premise, its
basis being improperly left to .

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Special thanks to Krizelle Poblacion for her great digests!

CLASS NOTES:
National Steel Corporation is problematic. Supreme
Court is wrong in substituting its own judgment.

Next Friday:
1) CIAC
EO 1008 series of 1985, as amended
China Chiang Jiang Energy Corp (Phils) v. Rosal
Infrastructure Builders, G.R. 125706, 30 September
1996
2) Appeals
Study ADR Rules very intensively. They
substantially modified the appellate process.
Take note of the wording of the Special ADR Rules
enjoining or refusing to enjoining
Section 1, Rule 43, Rules of Court gives the
impression that you can appeal from an arbitral
award
Whereas Special ADR Rules review of the trial
courts action
Hi Precision Steel 228 SCRA 397
ABS CBN v. World 544 SCRA 308
3) Rule A

Class Notes September 24, 2010


*Where the law extends to you a remedy of
appeal, but the ICC Rules of Arbitration prohibits
you from taking an appeal (28.6), is there still a
remedy for appeal or not?
Its waived! Article 1159 of the Civil Code!
Under the Special ADR Rules, can one appeal
from an arbitral award?
See ABSCBN.

ABS CBN vs WINS


Date: February 11, 2008
Petitioner: ABS CBN Corporation
Respondents: World Interactive Network Systems
Japan Co, Ltd
Facts: ABS-CBN Broadcasting Corporation entered
into a licensing agreement with World Interactive
Network Systems Japan Co., Ltd., a foreign
corporation licensed under the laws of Japan. Under

the agreement, respondent was granted the


exclusive license to distribute and sublicense the
distribution of TFC in Japan. A dispute arose
between the parties when petitioner accused
respondent of inserting nine episodes of WINS
WEEKLY, a weekly 35-minute community news
program for Filipinos in Japan, into the TFC
programming from March to May 2002. Petitioner
claimed that these were unauthorized insertions
constituting a material breach of their agreement.
Consequently, petitioner notified respondent of its
intention to terminate the agreement effective June
10, 2002.
Respondent filed an arbitration suit pursuant to
the arbitration clause of its agreement with
petitioner. It contended that the airing of WINS
WEEKLY was made with petitioner's prior approval.
It also alleged that petitioner only threatened to
terminate their agreement because it wanted to
renegotiate the terms thereof to allow it to demand
higher fees. Respondent also prayed for damages.
The parties appointed Prof Tadiar to act as sole
arbitrator. The arbitrator found in favor of
respondent. He held that petitioner gave its approval
to respondent for the airing of WINS WEEKLY as
shown by a series of written exchanges between the
parties. He also ruled that, had there really been a
material breach of the agreement, petitioner should
have terminated the same instead of sending a mere
notice to terminate said agreement.
Petitioner filed in the CA a petition for review
under Rule 43 or, in the alternative, a petition for
certiorari under Rule 65, with application for TRO
and writ of preliminary injunction. Respondent, on
the other hand, filed a petition for confirmation of
arbitral award before RTC of QC.
Petitioner filed a supplemental petition in the CA
seeking to enjoin the RTC of QC from further
proceeding with the hearing of respondent's petition
for confirmation of arbitral award. After the petition
was admitted by the appellate court, the RTC of QC
issued an order holding in abeyance any further
action on respondent's petition as the assailed
decision of the arbitrator had already become the
subject of an appeal in the CA. Respondent filed a
MR but no resolution has been issued by the lower
court to date. The CA dismissed the petition for lack
of jurisdiction. It stated that as the TOR itself
provided that the arbitrator's decision shall be final
and unappealable and that no MR shall be filed,
then the petition for review must fail. It ruled that it is
the RTC which has jurisdiction over questions

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relating to arbitration. It held that the only instance it


can exercise jurisdiction over an arbitral award is an
appeal from the trial court's decision confirming,
vacating or modifying the arbitral award.
Issue: WON an aggrieved party in a voluntary
arbitration dispute may avail of a Rule 43 or Rule 65
instead of a petition to vacate the award in the RTC

Held:
Ratio: RA 876 itself mandates that it is the RTC,
which has jurisdiction over questions relating to
arbitration such as a petition to vacate an arbitral
award. The law itself clearly provides that the RTC
must issue an order vacating an arbitral award only
in any one of the . . . cases enumerated therein.
Under the legal maxim in statutory construction
expressio unius est exclusio alterius, the explicit
mention of one thing in a statute means the
elimination of others not specifically mentioned. As
RA 876 did not expressly provide for errors of fact
and/or law and grave abuse of discretion (proper
grounds for a petition for review under Rule 43 and a
petition for certiorari under Rule 65, respectively) as
grounds for maintaining a petition to vacate an
arbitral award in the RTC, it necessarily follows that
a party may not avail of the latter remedy on the
grounds of errors of fact and/or law or grave abuse
of discretion to overturn an arbitral award.
In cases not falling under any of the grounds
to vacate an award, the Court has already made
several pronouncements that a petition for review
under Rule 43 or a petition for certiorari under Rule
65 may be availed of in the CA. Which one would
depend on the grounds relied upon by petitioner.

In Luzon Development Bank v. Association


of Luzon Development Bank Employees, the Court
held that a voluntary arbitrator is properly classified
as a quasi-judicial instrumentality and is, thus,
within the ambit of Section 9 (3) of the Judiciary
Reorganization Act, as amended.
As such,
decisions handed down by voluntary arbitrators fall
within the exclusive appellate jurisdiction of the CA.
This decision was taken into consideration in
approving Section 1 of Rule 43 of the Rules of
Court.
This rule was cited in Sevilla Trading
Company v. Semana, Manila Midtown Hotel v.
Borromeo, and Nippon Paint Employees UnionOlalia v. Court of Appeals. These cases held that the

proper remedy from the adverse decision of a


voluntary arbitrator, if errors of fact and/or law are
raised, is a petition for review under Rule 43 of the
Rules of Court. Thus, petitioner's contention that it
may avail of a petition for review under Rule 43
under the circumstances of this case is correct.
As to petitioner's arguments that a petition
for certiorari under Rule 65 may also be resorted to,
we hold the same to be in accordance with the
Constitution and jurisprudence. It is well within the
power and jurisdiction of the Court to inquire
whether any instrumentality of the Government,
such as a voluntary arbitrator, has gravely abused
its discretion in the exercise of its functions and
prerogatives. Any agreement stipulating that the
decision of the arbitrator shall be final and
unappealable and that no further judicial recourse
if either party disagrees with the whole or any part of
the arbitrator's award may be availed of cannot be
held to preclude in proper cases the power of judicial
review which is inherent in courts. We will not
hesitate to review a voluntary arbitrator's award
where there is a showing of grave abuse of authority
or discretion and such is properly raised in a petition
for certiorari and there is no appeal, nor any plain,
speedy remedy in the course of law.
Significantly, Insular Savings Bank v.
FEBTC definitively outlined several judicial remedies
an aggrieved party to an arbitral award may
undertake:
(1) a petition in the proper RTC to issue an order to
vacate the award on the grounds provided for in
Section 24 of RA 876;
(2) a petition for review in the CA under Rule 43 of
the Rules of Court on questions of fact, of law,
or mixed questions of fact and law; and
(3) a petition for certiorari under Rule 65 of the Rules
of Court should the arbitrator have acted without
or in excess of his jurisdiction or with grave
abuse of discretion amounting to lack or excess
of jurisdiction.
Nevertheless, although petitioners position
on the judicial remedies available to it was correct,
we sustain the dismissal of its petition by the CA.
The remedy petitioner availed of, entitled alternative
petition for review under Rule 43 or petition for
certiorari under Rule 65, was wrong.

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Time and again, we have ruled that the


remedies of appeal and certiorari are mutually
exclusive and not alternative or successive. Proper
issues that may be raised in a petition for review
under Rule 43 pertain to errors of fact, law or mixed
questions of fact and law. While a petition for
certiorari under Rule 65 should only limit itself to
errors of jurisdiction, that is, grave abuse of
discretion amounting to a lack or excess of
jurisdiction. Moreover, it cannot be availed of where
appeal is the proper remedy or as a substitute for a
lapsed appeal.
A careful reading of the assigned errors
reveals that the real issues calling for the CA's
resolution were less the alleged grave abuse of
discretion exercised by the arbitrator and more
about the arbitrators appreciation of the issues and
evidence presented by the parties. Therefore, the
issues clearly fall under the classification of errors of
fact and law questions which may be passed upon
by the CA via a petition for review under Rule 43.
Petitioner cleverly crafted its assignment of errors in
such a way as to straddle both judicial remedies,
that is, by alleging serious errors of fact and law (in
which case a petition for review under Rule 43 would
be proper) and grave abuse of discretion (because
of which a petition for certiorari under Rule 65 would
be permissible).
It must be emphasized that every lawyer
should be familiar with the distinctions between the
two remedies for it is not the duty of the courts to
determine under which rule the petition should fall.
Petitioner's ploy was fatal to its cause. An appeal
taken either to this Court or the CA by the wrong or
inappropriate mode shall be dismissed. Thus, the
alternative petition filed in the CA, being an
inappropriate mode of appeal, should have been
dismissed outright by the CA.

Hi Precision Steel vs Lim Kim Steel


Date: December 13, 1993
Petitioner: Hi Precision Steel Center Inc
Respondents: Lim Kim Steel Builders and CIAC
Facts: Petitioner entered into a contract with private
respondent under which the latter as Contractor was
to complete a P21 M construction project owned by
the former within a period of 153 days, i.e. from 8
May 1990 to 8 October 1990. The project completion
date was first moved to 4 November 1990. On that
date, however, only 75.8674% of the project was
actually completed. Petitioner attributed this non-

completion to Steel Builders which allegedly had


frequently incurred delays during the original
contract period and the extension period. Steel
Builders insisted that the delays in the project were
either excusable or due to Hi-Precision's own fault
and issuance of change orders. The project was
taken over on 7 November 1990, and eventually
completed on February 1991, by Hi-Precision.
Steel Builders filed a "Request for
Adjudication" with CIAC. In its Complaint filed with
the CIAC, Steel Builders sought payment of its
unpaid progress buildings, alleged unearned profits
and other receivables. Hi-Precision, upon the other
hand, in its Answer and Amended Answer, claimed
actual and liquidated damages, reimbursement of
alleged additional costs it had incurred in order to
complete the project and attorney's fees.
The CIAC formed an Arbitral Tribunal with
three (3) members. After the arbitration proceeding,
the Arbitral Tribunal rendered a unanimous ordering
petitioner to pay the Contractor the amount of
P6,400,717.83 and all other claims of the parties
against each other are deemed compensated and
offset. Upon MR, the Arbitral Tribunal issued an
Order which reduced the net amount due to
contractor Steel Builders to P6,115,285.83. In its
Award, the Arbitral Tribunal stated that it was guided
by Articles 1169, 1192 and 2215 CC. With such
guidance, the arbitrators concluded that (a) both
parties were at fault, though the Tribunal could not
point out which of the parties was the first infractor;
and (b) the breaches by one party affected the
discharge of the reciprocal obligations of the other
party. With mutual fault as a principal premise, the
Arbitral Tribunal denied (a) petitioner's claims for the
additional costs allegedly incurred to complete the
project; and (b) private respondent's claim for profit it
had failed to earn because of petitioner's take over
of the project.
Petitioner now asks this Court to set aside
the Award, contending basically that it was Steel
Builders who had defaulted on its contractual
undertakings and so could not be the injured party
and should not be allowed to recover any losses it
may have incurred in the project. Petitioner insists it
is still entitled to damages, and claims that the
Arbitral Tribunal committed grave abuse of discretion
when it allowed certain claims by Steel Builders and
offset them against claims of Hi-Precision.
Issue: WON the CIAC should be impleaded
Held:

No

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Ratio: We note that the Arbitral Tribunal has not


been impleaded as a respondent in the Petition at
bar. The CIAC has indeed been impleaded;
however, the Arbitral Award was not rendered by the
CIAC, but rather by the Arbitral Tribunal. Moreover,
under Section 20 of EO 1008, it is the Arbitral
Tribunal, or the single Arbitrator, with the
concurrence of the CIAC, which issues the writ of
execution requiring any sheriff or other proper officer
to execute the award. The Arbitral Tribunal which
rendered the Award sought to be reviewed and set
aside, should be impleaded even though the
defense of its Award would presumably have to be
carried by the prevailing party.
Petitioner Hi-Precision apparently seeks
review of both under Rule 45 and Rule 65 of the
Rules of Court. We do not find it necessary to rule
which of the two: a petition for review under Rule 45
or a petition for certiorari under Rule 65 is
necessary under Executive Order No. 1008, as
amended; this issue was, in any case, not squarely
raised by either party and has not been properly and
adequately litigated.
Issue: WON petitioner is entitled to relief
Held:

under the aegis of the CIAC. Consideration of the


animating purpose of voluntary arbitration in general,
and arbitration under the aegis of the CIAC in
particular, requires us to apply rigorously the above
principle embodied in Section 19 that the Arbitral
Tribunal's findings of fact shall be final and
inappealable.
Voluntary arbitration involves the reference
of a dispute to an impartial body, the members of
which are chosen by the parties themselves, which
parties freely consent in advance to abide by the
arbitral award issued after proceedings where both
parties had the opportunity to be heard. The basic
objective is to provide a speedy and inexpensive
method of settling disputes by allowing the parties to
avoid the formalities, delay, expense and
aggravation which commonly accompany ordinary
litigation, especially litigation which goes through the
entire hierarchy of courts. EO1008 created an
arbitration facility to which the construction industry
in the Philippines can have recourse. The EO was
enacted to encourage the early and expeditious
settlement of disputes in the construction industry, a
public policy the implementation of which is
necessary and important for the realization of
national development goals.

No

Ratio: Hi-Precision may be seen to be making two


(2) basic arguments:
(a) Petitioner asks this Court to correct legal errors
committed by the Arbitral Tribunal, which at the
same time constitute grave abuse of discretion
amounting to lack of jurisdiction on the part of the
Arbitral Tribunal; and
(b) Should the supposed errors petitioner asks us to
correct be characterized as errors of fact, such
factual errors should nonetheless be reviewed
because there was "grave abuse of discretion" in the
misapprehension of facts on the part of the Arbitral
Tribunal.
EO 1008, as amended, provides, in its
Section 19, as follows: Sec. 19. Finality of Awards.
The arbitral award shall be binding upon the
parties. It shall be final and inappealable except on
questions of law which shall be appealable to the
Supreme Court.
Section 19 makes it crystal clear that
questions of fact cannot be raised in proceedings
before the Supreme Court which is not a trier of
facts in respect of an arbitral award rendered

Aware of the objective of voluntary


arbitration in the labor field, in the construction
industry, and in any other area for that matter, the
Court will not assist one or the other or even both
parties in any effort to subvert or defeat that
objective for their private purposes. The Court will
not review the factual findings of an arbitral tribunal
upon the artful allegation that such body had
"misapprehended the facts" and will not pass upon
issues which are, at bottom, issues of fact, no matter
how cleverly disguised they might be as "legal
questions." The parties here had recourse to
arbitration and chose the arbitrators themselves;
they must have had confidence in such arbitrators.
The Court will not, therefore, permit the parties to
relitigate before it the issues of facts previously
presented and argued before the Arbitral Tribunal,
save only where a very clear showing is made that,
in reaching its factual conclusions, the Arbitral
Tribunal committed an error so egregious and
hurtful to one party as to constitute a grave abuse
of discretion resulting in lack or loss of jurisdiction.
Prototypical examples would be factual conclusions
of the Tribunal which resulted in deprivation of one
or the other party of a fair opportunity to present its
position before the Arbitral Tribunal, and an award
obtained through fraud or the corruption of
arbitrators. Any other, more relaxed, rule would
result in setting at naught the basic objective of a

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voluntary arbitration and would reduce arbitration to


a largely inutile institution.

The first "legal issue" submitted by the


Petition is the claimed misapplication by the Arbitral
Tribunal of the first and second paragraphs of Article
1911 CC. Hi-Precision contends energetically that it
is the injured party and that Steel Builders was the
obligor who did not comply with what was incumbent
upon it, such that Steel Builders was the party in
default and the entity guilty of negligence and delay.
As the injured party, Hi-Precision maintains that it
may choose between the fulfillment or rescission of
the obligation in accordance with Article 1191, and is
entitled to damages in either case. Thus, HiPrecision continues, when the contractor Steel
Builders defaulted on the 153rd day of the original
contract period, Hi-Precision opted for specific
performance and gave Steel Builders a 30-day
extension period with which to complete the project.

A second "legal issue" sought to be raised


by petitioner Hi-Precision relates to the supposed
failure of the Arbitral Tribunal to apply the doctrines
of estoppel and waiver as against Steel Builders.
The Arbitral Tribunal, after declaring that the parties
were mutually at fault, proceeded to enumerate the
faults of each of the parties. One of the faults
attributed to petitioner Hi-Precision is that it had
failed to give the contractor Steel Builders the
required 15-day notice for termination of the
contract. This was clearly a finding of fact on the part
of the Tribunal, supported by the circumstance that
per the record, petitioner had offered no proof that it
had complied with such 15-day notice required
under Article 28.01 of the General Conditions of
Contract forming part of the Contract Documents.
Petitioner Hi-Precision's argument is that a written
Agreement dated 16 November 1990 with Steel
Builders concerning the take over of the project by
Hi-Precision, constituted waiver on the part of the
latter of its right to a 15-day notice of contract
termination. Whether or not that Agreement dated
16 November 1990 (a document not submitted to
this Court) is properly characterized as constituting
waiver on the part of Steel Builders, may be
conceded to be prima facie a question of law; but, if
it is, and assuming arguendo that the Arbitral
Tribunal had erred in resolving it, that error clearly
did not constitute a grave abuse of discretion
resulting in lack or loss of jurisdiction on the part of
the Tribunal.

What petitioner Hi-Precision, in its above


argument, disregards is that the determination of
whether Hi-Precision or Steel Builders was the
"injured party" is not to be resolved by an application
of Article 1191. That determination is eminently a
question of fact, for it requires ascertainment and
identification of which the two (2) contending parties
had first failed to comply with what is incumbent
upon it. In other words, the supposed misapplication
of Article 1191, while ostensibly a "legal issue," is
ultimately a question of fact, i.e., the determination
of the existence or non-existence of a fact or set of
facts in respect of which Article 1191 may be
properly applied. Thus, to ask this Court to correct a
claimed misapplication or non-application of Article
1191 is to compel this Court to determine which of
the two (2) contending parties was the "injured party"
or the "first infractor." As noted earlier, the Arbitral
Tribunal after the prolonged arbitration proceeding,
was unable to make that factual determination and
instead concluded that both parties had committed
breaches of their respective obligations. We will not
review, and much less reverse, that basic factual
finding of the Arbitral Tribunal.

A third "legal issue" posed by Hi-Precision


relates to the supposed failure on the part of the
Arbitral Tribunal "to uphold the supremacy of 'the law
between the parties' and enforce it against private
respondent [Steel Builders]." The "law between that
parties"
here
involved
is
the
"Technical
Specifications" forming part of the Contract
Documents. Hi-Precision asserts that the Arbitral
Tribunal did not uphold the "law between the
parties," but instead substituted the same with "its
[own] absurd inference and 'opinion' on mud." Here
again, petitioner is merely disguising a factual
question as a "legal issue," since petitioner is in
reality asking this Court to review the physical
operations relating, e.g., to site preparation carried
out by the contractor Steel Builders and to determine
whether such operations were in accordance with
the Technical Specifications of the project. The
Arbitral Tribunal resolved Hi-Precision's claim by
finding that Steel Builders had complied substantially
with the Technical Specifications. This Court will not
pretend that it has the technical and engineering
capability to review the resolution of that factual
issue by the Arbitral Tribunal.

Examination of the Petition at bar reveals


that it is essentially an attempt to re-assert and relitigate before this Court the detailed or itemized
factual claims made before the Arbitral Tribunal
under a general averment that the Arbitral Tribunal
had "misapprehended the facts" submitted to it. In
the present Petition, too, Hi-Precision claims that the
Arbitral Tribunal had committed grave abuse of
discretion amounting to lack of jurisdiction in
reaching its factual and legal conclusions.

Law 160A Alternative Dispute Resolution (Prof. A. Autea)


Salma F. Angkaya | AY 2010-2011, 1st semester
Special thanks to Krizelle Poblacion for her great digests!

Finally, the Petition asks this Court to


"review serious errors in the findings of fact of the
[Arbitral Tribunal]." In this section of its Petition, HiPrecision asks us to examine each item of its own
claims which the Arbitral Tribunal had rejected in its
Award, and each claim of the contractor Steel
Builders which the Tribunal had granted. In respect
of each item of the owner's claims and each item of
the contractor's claims, Hi-Precision sets out its
arguments, to all appearances the same arguments
it had raised before the Tribunal. As summarized in
the Arbitral Award, Contractor's Claims were as
follows:
We consider that in asking this Court to go
over each individual claim submitted by it and each
individual countering claim submitted by Steel
Builders to the Arbitral Tribunal, petitioner HiPrecision is asking this Court to pass upon claims
which are either clearly and directly factual in nature
or require previous determination of factual issues.
This upon the one hand. Upon the other hand, the
Court considers that petitioner Hi-Precision has
failed to show any serious errors of law amounting to
grave abuse of discretion resulting in lack of
jurisdiction on the part of the Arbitral Tribunal, in
either the methods employed or the results reached
by the Arbitral Tribunal, in disposing of the detailed
claims of the respective parties.
CHINA CHIANG

Was there an arbitration clause in China


Chiang?
CIAC jurisdiction vs. ICC jurisdiction?
Sir doesnt know exactly what the answer is.
How is the UNCITRAL different from ICC
Rules?
Uncitral no petition for review; adhoc; but
theres nothing to prevent party to adopt
institutional; final and binding (32.2)
ICC with petition for review; insituttional; final
and binding (28.6), but ICC is more strongly
worded.

71

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REPUBLIC OF THE PHILIPPINES


REGIONAL TRIAL COURT
NATIONAL CAPITAL JUDICIAL REGION
QUEZON CITY, BRANCH _____

MANUFACTURING CORPORATION
Petitioner,
Sp .Proc. No. _____________
For:
Enforcement of Arbitration
Agreement

- versus SUPPLIER CORPORATION


Respondents.
x----------------------------------------------x

PETITION FOR ENFORCEMENT


OF ABITRATION AGREEMENT
Petitioner MANUFACTURING CORPORATION, by counsel, respectfully states that:
I.

PARTIES

1.
Petitioner MANUFACTURING CORPORATION is a domestic corporation with business address at 123 High Rise, Gil
Puyat Street, Makati City, where it may be served with pleadings, motions and other processes.
2.
Respondent SUPPLIER CORPORATION is a domestic corporation with business address at 456 Low Rise, Makati
Avenue, Makati City, where it may be served with pleadings, motions and other processes.
II.

FACTS

3.

On November 20, 2010, P & R entered into a contract for the construction of a building.

4.

Contained in the construction contract (Attached as Annex A) is an arbitration clause in the following tenor:
32. ARBITRATION

32.1 If at any time a dispute or claim arises out of or in connection with the Agreement the parties shall endeavor to settle
such amicably, failing which it shall be referred to arbitration by a single arbitrator in London, such arbitrator to be appo inted by
agreement between the Lines within 14 days after service by one Line upon the other of a notice specifying the nature of the
dispute or claim and requiring reference of such dispute or claim to arbitration pursuant to this Article.
5.

On February 20, 2010, a dispute arose regarding the construction contract.

6.

P sent R a Demand for Arbitration (Attached Annex B) but R failed to respond within fifteen (15) days after receipt

7.

On May 15, 2010, P filed with the Clerk of the Court of the RTC, a copy of the demand for arbitration under the xxx

thereof.

PRAYER
WHEREFORE, in view of the foregoing, petitioner respectfully prays that this Honorable Court issue an order directing that the
arbitration agreement be enforced in the manner provided for in the arbitration of clause of the container contract.
Petitioner also prays for such other reliefs as may be deemed just or equitable under the premises.
Respectfully submitted.
Quezon City; 29 July 2010.
ATTY. ANNA MARIE F. ROXAS
IBP Lifetime Member No. 12345; Pasig City
PTR No. 67890; 08/01/10; Pasig City
SC Roll No. 55555
MCLE No. III 22222

Law 160A Alternative Dispute Resolution (Prof. A. Autea)

73

Salma F. Angkaya | AY 2010-2011, 1st semester


Special thanks to Krizelle Poblacion for her great digests!

VERIFICATION16
AND CERTIFICATION OF NON-FORUM SHOPPING

I, JUAN DE LA CRUZ, of legal age, single, Filipino, with residence and postal address at 31 Lacson St., Quezon City, after being
duly sworn on oath in accordance with law, hereby voluntarily depose and say:
1.

That I am the Petitioner in the above-entitled case;

2.

That I have caused the preparation of the foregoing Petition;

3.
That I have read the contents thereof and the same are true and correct to the best of my knowledge and based on
authentic records in my possession;
4.

That I certify to the authenticity of the documents attached to the Petition;

5.
That I hereby certify that I have not commenced any action or proceeding involving the same issues in the Supreme
Court, the Court of Appeals, or any tribunal or agency;
6.
That if I should hereafter learn that a similar action or proceeding has been filed or is pending before the Supreme Court,
the Court of Appeals, or any tribunal or agency, I undertake to immediately report the same within five (5) days therefrom to the court or
agency wherein the original pleading and sworn certification contemplated in Administrative Circular No. 04-94 of the Supreme Court has been
filed.
JUAN DE LA CRUZ
Affiant

- JURAT - SECRETARYS CERTIFICATE -

ATTESTED:
xxxxxx
President
PLUS: Jurat
- EXPLANATION -

REQUEST FOR AND NOTICE OF HEARING -

Copy Furnished:

xxxxx

16

When made by a lawyer, verification shall mean a statement under oath by a lawyer signing a pleading/motion for delivery to t he Court or to
the parties that he personally prepared the pleading/motion, that there is sufficient factual basis for the statements of fact stated therein, that
there is sufficient basis in the facts and the law to support the prayer for relief therein, and that the pleading/motion is filed in good faith and is
not interposed for delay.

Formatted: Font: (Default) Arial, 8 pt, English (Philippines)