G.R. No.

182248

December 18, 2008

EQUITABLE PCI BANKING CORPORATION,1 GEORGE L. GO, PATRICK D. GO,

GENEVIEVE W.J. GO, FERDINAND MARTIN G. ROMUALDEZ, OSCAR P. LOPEZ-
DEE, RENE J. BUENAVENTURA, GLORIA L. TAN-CLIMACO, ROGELIO S. CHUA,
FEDERICO C. PASCUAL, LEOPOLDO S. VEROY, WILFRIDO V. VERGARA,
EDILBERTO V. JAVIER, ANTHONY F. CONWAY, ROMULAD U. DY TANG, WALTER
C. WESSMER, and ANTONIO N. COTOCO vs. RCBC CAPITAL CORPORATION

The Facts

Petitioners Equitable PCI Bank, Inc. (EPCIB) and the individual shareholders of
Bankard, Inc., as sellers, and respondent 5 RCBC Capital Corporation (RCBC), as buyer,
executed a Share Purchase Agreement (SPA) for the purchase of petitioners interests in
Bankard, representing 226,460,000 shares, for the price of PhP 1,786,769,400. To
expedite the purchase, RCBC agreed to dispense with the conduct of a due diligence
audit on the financial status of Bankard. RCBC deposited the stipulated downpayment
amount in an escrow account after which it was given full management and operational
control of Bankard. June 2, 2000 is also considered by the parties as the Closing Date
referred to in the SPA.

Sometime in September 2000, RCBC had Bankards accounts audited, creating for the
purpose an audit team and the conclusion was that the warranty, as contained in Section
5(h) of the SPA (simply Sec. 5[h] hereinafter), was correct. RCBC paid the balance of the
contract price. The corresponding deeds of sale for the shares in question were executed
in January 2001. Thereafter RCBC informed petitioners of its having overpaid the
purchase price of the subject shares, claiming that there was an overstatement of
valuation of accounts amounting to PhP 478 million, resulting in the overpayment of
over PhP 616 million. Thus, RCBC claimed that petitioners violated their warranty, as
sellers, embodied in Sec. 5(g) of the SPA (Sec. 5[g] hereinafter). RCBC, in accordance
with Sec. 10 of the SPA, filed a Request for Arbitration dated May 12, 2004 with the ICC-
ICA.

In the request, RCBC charged Bankard with deviating from, contravening and not
following generally accepted accounting principles and practices in maintaining their
books. Arbitration in the ICC-ICA proceeded after the formation of the arbitration
tribunal consisting of retired Justice Santiago M. Kapunan, nominated by petitioners;
Neil Kaplan, RCBCs nominee; an d Sir Ian Barker, appointed by the ICC-ICA. After
drawn out proceedings with each party alleging deviation and non-compliance by the
other with arbitration rules, the tribunal, with Justice Kapunan dissenting, rendered a
Partial Award . On the matter of prescription, the tribunal held that RCBCs claim is not
time-barred, the claim properly falling under the contemplation of Sec. 5(g) and not Sec.
5(h). As such, the tribunal concluded, RCBCs claim was filed within the three (3) -year
period under Sec. 5(g) and that the six (6)month period under Sec. 5(h) did not apply.
The tribunal also exonerated RCBC from laches, the latter having sought relief within
the three (3)-year period prescribed in the SPA. Notably, the tribunal considered the
rescission of the SPA and ASPA as impracticable and "totally out of the question." RCBC
filed with the RTC a Motion to Confirm Partial Award. The RTC issued the first assailed
order confirming the Partial Award and denying the adverted separate motions to vacate
and to suspend and inhibit. From this order, petitioners sought reconsideration, but
their motion was denied by the RTC .

Issue: WON there is manifest disregard of the law by the ICC-ICA

Held: The petition must be denied.

This is a procedural miscue for petitioners who erroneously bypassed the Court of
Appeals (CA) in pursuit of its appeal. While this procedural gaffe has not been raised by
RCBC, still we would be remiss in not pointing out the proper mode of appeal from a
decision of the RTC confirming, vacating, setting aside, modifying, or correcting an
arbitral award. Rule 45 is not the remedy available to petitioners as the proper mode of
appeal assailing the decision of the RTC confirming as arbitral award is an appeal before
the CA pursuant to Sec. 46 of Republic Act No. (RA) 9285, otherwise known as the
Alternative Dispute Resolution Act of 2004, or completely, An Act to Institutionalize the
Use of an Alternative Dispute Resolution System in the Philippines and to Establish the
Office for Alternative Dispute Resolution, and for other Purposes, promulgated on April
2, 2004 and became effective on April 28, 2004 after its publication on April 13, 2004.
In Korea Technologies Co., Ltd v. Lerma, we explained, inter alia, that the RTC decision
of an assailed arbitral award is appealable to the CA and may further be appealed to this
Court.

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

The Court Will Not Overturn an Arbitral Award Unless It Was Made in Manifest
Disregard of the Law Following Asset Privatization Trust vs CA, , errors in law and fact
would not generally justify the reversal of an arbitral award. A party asking for the
vacation of an arbitral award must show that any of the grounds for vacating,
rescinding, or modifying an award are present or that the arbitral award was made in
manifest disregard of the law. Otherwise, the Court is duty-bound to uphold an arbitral
award. The instant petition dwells on the alleged manifest disregard of the law by the
ICC-ICA. The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros law" in the
following wise:
18

expounded on the phrase "manifest disregard of the

This court has emphasized that manifest disregard of the law is a very narrow standard
of review. Anaconda Co. th v. District Lodge No. 27, 693 F.2d 35 (6 Cir.1982). A mere
error in interpretation or application of the law is insufficient. Anaconda, 693 F.2d at
37-38. Rather, the decision must fly in the face of clearly established legal precedent.
When faced with questions of law, an arbitration panel does not act in manifest
disregard of the law unless (1) the applicable legal principle is clearly defined and not
subject to reasonable debate; and (2) the arbitrators refused to heed that legal principle.

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

the law," the arbiters findings must clearly and unequivocally violate an established
legal precedent. Anything less would not suffice. A review of petitioners arguments
would, however, show that their arguments are bereft of merit. Thus, the Partial Award
cannot be vacated. RCBCs Claim Is Not Time-Barred The Court upholds the conclusion
of the tribunal and rules that the claim of RCBC under Sec. 5(g) is not time-barred.
Petitioners Were Not Denied Due Process Petitioners assert that "the arbitrators partial
award admitted and used the Summaries as evidence, and held on the basis of the
information contained in them that petitioners were in breach of their warranty in
GAAP compliance."

Petitioners position is bereft of merit. The petitioners afforded the opportunity to refute
the summaries and pieces of evidence submitted by RCBC which became the bases of
the experts opinion. Petitioners right to due process was not breached. Sec. 15 of RA
876 or the Arbitration Law provides that: Section 15. Hearing by arbitrators.
Arbitrators may, at the commencement of the hearing, ask both parties for brief
statements of the issues in controversy and/or an agreed statement of facts. Thereafter
the parties may offer such evidence as they desire, and shall produce such additional
evidence as the arbitrators shall require or deem necessary to an understanding and
determination of the dispute.

The arbitrators shall be the sole judge of the relevancy and materiality of the evidence
offered or produced, and shall not be bound to conform to the Rules of Court pertaining
to evidence. Arbitrators shall receive as exhibits in evidence any document which the
parties may wish to submit and the exhibits shall be properly identified at the time of
submission. All exhibits shall remain in the custody of the Clerk of Court during the
course of the arbitration and shall be returned to the parties at the time the award is
made. The arbitrators may make an ocular inspection of any matter or premises which
are in dispute, but such inspection shall be made only in the presence of all parties to
the arbitration, unless any party who shall have received notice thereof fails to appear,
in which event such inspection shall be made in the absence of such party. (Emphasis
supplied.)

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

shall not be fettered by the rigid technicalities of procedure, albeit they are, at all times
required, to adhere to the basic concepts of fair play. The right to cross-examine is not
an indispensable aspect of due process. RCBC Is Not Estopped from Questioning the
Financial Condition of Bankard On estoppel, petitioners contend that RCBC is now
precluded from denying the fairness and accuracy of said accounts since it did not seek
price reduction under Sec. 5(h). Lastly, they ass everate that RCBC continued with
Bankards accounting policies and practices and found them to conform to the generally
accepted accounting principles, contrary to RCBCs allegations. Petitioners contention
is not meritorious.

The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good
faith, and justice; and its purpose is to forbid one to speak against ones own acts,
representations, or commitments to the injury of one to whom they were 72 directed
and who reasonably relied on them. The elements of estoppel pertaining to the party
estopped are: (1) conduct which amounts to a false representation or concealment of
material facts, or, at least, which calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party subsequently attempts to
assert; (2) intention, or at least expectation, that such conduct shall be acted upon by 74
the other party; and (3) knowledge, actual or constructive, of the actual facts. In the case
at bar, the first element of estoppel in relation to the party sought to be estopped is not
present. Petitioners position is that "RCBC was aware of the manner in which the
Bankard accounts were recorded, well before it 75 consummated the SPA by taking
delivery of the shares and paying the outstanding 80% balance of the contract price."

The Arbitral Tribunal explained in detail why estoppel is not present in the case at bar.
In summary, the tribunal properly ruled that petitioners failed to prove that the
formation of the Transition Committee and the conduct of the audit by Rubio and
Legaspi were admissions or representations by RCBC that it would not pursue a claim
under Sec. 5(g) and that petitioners relied on such representation to their detriment.
The SC agrees with the findings of the tribunal that estoppel is not present in the
situation at bar. It becomes evident from all of the foregoing findings that the ICC-ICA is
not guilty of any manifest disregard of the law on estoppel. As shown above, the findings
of the ICC-ICA in the Partial Award are well-supported in law and grounded on facts.
The Partial Award must be upheld. The member of the three-person arbitration panel
was selected by petitioners, while another was respondents cho ice. The respective
interests of the parties, therefore, are very much safeguarded in the arbitration
proceedings. Any suggestion, therefore, on the partiality of the arbitration tribunal has
to be dismissed. #
FIRST DIVISION
[ G.R. NO. 156660, August 24, 2009 ]
ORMOC SUGARCANE PLANTERS' ASSOCIATION, INC.
(OSPA),OCCIDENTAL LEYTE FARMERS MULTI-PURPOSE COOPERATIVE,
INC. (OLFAMCA), UNIFARM MULTI-PURPOSE COOPERATIVE, INC.
(UNIFARM) AND ORMOC NORTH DISTRICT IRRIGATION MULTI-
PURPOSE COOPERATIVE, INC. (ONDIMCO), PETITIONERS, VS. THE
COURT OF APPEALS (SPECIAL FORMER SIXTH DIVISION), HIDECO
SUGAR MILLING CO., INC., AND ORMOC SUGAR MILLING CO., INC.,
RESPONDENTS.

FACTS:

Petitioners are associations organized by and whose members are individual sugar
planters (Planters). The membership of each association follows: 264 Planters were
members of OSPA; 533 Planters belong to OLFAMCA; 617 Planters joined UNIFARM;
760 Planters enlisted with ONDIMCO; and the rest belong to BAP-MPC which did not
join the lawsuit.

Respondents Hideco Sugar Milling Co., Inc. (Hideco) and Ormoc Sugar Milling Co, Inc.
(OSCO) are sugar centrals engaged in grinding and milling sugarcane delivered to them
by numerous individual sugar planters, who may or may not be members of an
association such as petitioners.

Petitioners assert that the relationship between respondents and the individual sugar
planters is governed by milling contracts. To buttress this claim, petitioners presented
representative samples of the milling contracts.

Notably, Article VII of the milling contracts provides that 34% of the sugar and molasses
produced from milling the Planter's sugarcane shall belong to the centrals (respondents)
as compensation, 65% thereof shall go to the Planter and the remaining 1% shall go the
association to which the Planter concerned belongs, as aid to the said association. The
1% aid shall be used by the association for any purpose that it may deem fit for its
members, laborers and their dependents. If the Planter was not a member of any
association, then the said 1% shall revert to the centrals. Article XIV, paragraph B[4]
states that the centrals may not, during the life of the milling contract, sign or execute
any contract or agreement that will provide better or more benefits to a Planter, without
the written consent of the existing and recognized associations except to Planters whose
plantations are situated in areas beyond thirty (30) kilometers from the mill. Article XX
provides that all differences and controversies which may arise between the parties
concerning the agreement shall be submitted for discussion to a Board of Arbitration,
consisting of five (5) members--two (2) of which shall be appointed by the centrals, two
(2) by the Planter and the fifth to be appointed by the four appointed by the parties.

On June 4, 1999, petitioners, without impleading any of their individual members, filed
twin petitions with the RTC for Arbitration under R.A. 876, Recovery of Equal
Additional Benefits, Attorney's Fees and Damages, against HIDECO and OSCO,
docketed as Civil Case Nos. 3696-O and 3697-O, respectively.

Petitioners claimed that respondents violated the Milling Contract when they gave to
independent planters who do not belong to any association the 1% share, instead of
reverting said share to the centrals. Petitioners contended that respondents unduly
accorded the independent Planters more benefits and thus prayed that an order be
issued directing the parties to commence with arbitration in accordance with the terms
of the milling contracts. They also demanded that respondents be penalized by
increasing their member Planters' 65% share provided in the milling contract by 1%, to
66%.

Respondents filed a motion to dismiss on ground of lack of cause of action because

petitioners had no milling contract with respondents. According to respondents, only
some eighty (80) Planters who were members of OSPA, one of the petitioners, executed
milling contracts. Respondents and these 80 Planters were the signatories of the milling
contracts. Thus, it was the individual Planters, and not petitioners, who had legal
standing to invoke the arbitration clause in the milling contracts. Petitioners, not being
privy to the milling contracts, had no legal standing whatsoever to demand or sue for
arbitration.

On August 26, 1999, the RTC issued a Joint Order denying the motion to dismiss,
declaring the existence of a milling contract between the parties, and directing
respondents to nominate two arbitrators to the Board of Arbitrators, to wit:
When these cases were called for hearing today, counsels for the petitioners and
respondents argued their respective stand. The Court is convinced that there is an
existing milling contract between the petitioners and respondents and these planters are
represented by the officers of the associations. The petitioners have the right to sue in
behalf of the planters.

This Court, acting on the petitions, directs the respondents to nominate two arbitrators
to represent HIDECO/HISUMCO and OSCO in the Board of Arbitrators within fifteen
(15) days from receipt of this Order. xxx

However, if the respondents fail to nominate their two arbitrators, upon proper motion
by the petitioners, then the Court will be compelled to use its discretion to appoint the
two (2) arbitrators, as embodied in the Milling Contract and R.A. 876.

Their subsequent motion for reconsideration having been denied by the RTC in its Joint
Order dated October 29, 1999, respondents elevated the case to the CA through a
Petition for Certiorari with Prayer for the Issuance of Temporary Restraining Order
and/or Writ of Preliminary Injunction.

On December 7, 2001, the CA rendered its challenged Decision, setting aside the
assailed Orders of the RTC. The CA held that petitioners neither had an existing contract
with respondents nor were they privy to the milling contracts between respondents and
the individual Planters. In the main, the CA concluded that petitioners had no legal
personality to bring the action against respondents or to demand for arbitration.

Petitioners filed a motion for reconsideration, but it too was denied by the CA in its
Resolution dated October 30, 2002. Thus, the instant petition.

At the outset, it must be noted that petitioners filed the instant petition for certiorari
under Rule 65 of the Rules of Court, to challenge the judgment of the CA.

ISSUE:

Whether or not petitioners sugar planters' associations are clothed with legal personality
to file a suit against, or demand arbitration from, respondents in their own name
without impleading the individual Planters.
RULING:

On this point, SC agrees with the findings of the CA.

Section 2 of R.A. No. 876 (the Arbitration Law) pertinently provides:

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

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

The foregoing provision speaks of two modes of arbitration: (a) an agreement to submit
to arbitration some future dispute, usually stipulated upon in a civil contract between
the parties, and known as an agreement to submit to arbitration, and (b) an agreement
submitting an existing matter of difference to arbitrators, termed the submission
agreement. Article XX of the milling contract is an agreement to submit to arbitration
because it was made in anticipation of a dispute that might arise between the parties
after the contract's execution.

Except where a compulsory arbitration is provided by statute, the first step toward the
settlement of a difference by arbitration is the entry by the parties into a valid
agreement to arbitrate. An agreement to arbitrate is a contract, the relation of the
parties is contractual, and the rights and liabilities of the parties are controlled by the
law of contracts. In an agreement for arbitration, the ordinary elements of a valid
contract must appear, including an agreement to arbitrate some specific thing, and an
agreement to abide by the award, either in express language or by implication.

The requirements that an arbitration agreement must be written and subscribed by the
parties thereto were enunciated by the Court in B.F. Corporation v. CA.

During the proceedings before the CA, it was established that there were more than two
thousand (2,000) Planters in the district at the time the case was commenced at the
RTC in 1999. The CA further found that of those 2,000 Planters, only about eighty (80)
Planters, who were all members of petitioner OSPA, in fact individually executed milling
contracts with respondents. No milling contracts signed by members of the other
petitioners were presented before the CA.

By their own allegation, petitioners are associations duly existing and organized under
Philippine law, i.e. they have juridical personalities separate and distinct from that of
their member Planters. It is likewise undisputed that the eighty (80) milling contracts
that were presented were signed only by the member Planter concerned and one of the
Centrals as parties. In other words, none of the petitioners were parties or signatories to
the milling contracts. This circumstance is fatal to petitioners' cause since they anchor
their right to demand arbitration from the respondent sugar centrals upon the
arbitration clause found in the milling contracts. There is no legal basis for petitioners'
purported right to demand arbitration when they are not parties to the milling
contracts, especially when the language of the arbitration clause expressly grants the
right to demand arbitration only to the parties to the contract.

Simply put, petitioners do not have any agreement to arbitrate with respondents. Only
eighty (80) Planters who were all members of OSPA were shown to have such an
agreement to arbitrate, included as a stipulation in their individual milling contracts.
The other petitioners failed to prove that any of their members had milling contracts
with respondents, much less, that respondents had an agreement to arbitrate with the
petitioner associations themselves.

Even assuming that all the petitioners were able to present milling contracts in favor of
their members, it is undeniable that under the arbitration clause in these contracts it is
the parties thereto who have the right to submit a controversy or dispute to arbitration.

Section 4 of R.A. 876 provides:

Section 4. Form of Arbitration Agreement - A contract to arbitrate a controversy

thereafter arising between the parties, as well as a submission to arbitrate an
existing controversy, shall be in writing and subscribed by the party sought to be
charged, or by his lawful agent.

The making of a contract or submission for arbitration described in section two

hereof, providing for arbitration of any controversy, shall be deemed a consent of
the parties to the jurisdiction of the Court of First Instance of the province or city
where any of the parties resides, to enforce such contract of submission.

The formal requirements of an agreement to arbitrate are therefore the following: (a) it
must be in writing and (b) it must be subscribed by the parties or their representatives.
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.

Petitioners would argue that they could sue respondents, notwithstanding the fact that
they were not signatories in the milling contracts because they are the recognized
representatives of the Planters.

This claim has no leg to stand on since petitioners did not sign the milling contracts at
all, whether as a party or as a representative of their member Planters. The individual
Planter and the appropriate central were the only signatories to the contracts and there
is no provision in the milling contracts that the individual Planter is authorizing the
association to represent him/her in a legal action in case of a dispute over the milling
contracts.

Moreover, even assuming that petitioners are indeed representatives of the member
Planters who have milling contracts with the respondents and assuming further that
petitioners signed the milling contracts as representatives of their members, petitioners
could not initiate arbitration proceedings in their own name as they had done in the
present case. As mere agents, they should have brought the suit in the name of the
principals that they purportedly represent. Even if Section 4 of R.A. No. 876 allows the
agreement to arbitrate to be signed by a representative, the principal is still the one who
has the right to demand arbitration.

Indeed, Rule 3, Section 2 of the Rules of Court requires suits to be brought in the name
of the real party in interest, to wit:

Sec. 2. Parties in interest. A real party in interest is the party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the avails
of the suit. Unless otherwise authorized by law or these Rules, every action must
be prosecuted or defended in the name of the real party in interest.

As held in Oco v. Limbaring that:

As applied to the present case, this provision has two requirements: 1) to institute an
action, the plaintiff must be the real party in interest; and 2) the action must be
prosecuted in the name of the real party in interest. Necessarily, the purposes of this
provision are 1) to prevent the prosecution of actions by persons without any right, title
or interest in the case; 2) to require that the actual party entitled to legal relief be the
one to prosecute the action; 3) to avoid a multiplicity of suits; and 4) to discourage
litigation and keep it within certain bounds, pursuant to sound public policy.

Interest within the meaning of the Rules means material interest or an

interest in issue to be affected by the decree or judgment of the case, as
distinguished from mere curiosity about the question involved. One having no material
interest to protect cannot invoke the jurisdiction of the court as the plaintiff in an action.
When the plaintiff is not the real party in interest, the case is dismissible on
the ground of lack of cause of action.
xxx xxx xxx

The parties to a contract are the real parties in interest in an action upon it,
as consistently held by the Court. Only the contracting parties are bound by the
stipulations in the contract; they are the ones who would benefit from and
could violate it. Thus, one who is not a party to a contract, and for whose benefit it
was not expressly made, cannot maintain an action on it. One cannot do so, even
if the contract performed by the contracting parties would incidentally
inure to one's benefit. (emphasis ours)

In Uy v. Court of Appeals, it was held that the agents of the parties to a contract do not
have the right to bring an action even if they rendered some service on behalf of their
principals. To quote from that decision:
 ...[Petitioners] are mere agents of the owners of the land subject of the sale. As
agents, they only render some service or do something in representation or on
behalf of their principals. The rendering of such service did not make
them parties to the contracts of sale executed in behalf of the latter. Since a
contract may be violated only by the parties thereto as against each other, the
real parties-in-interest, either as plaintiff or defendant, in an action
upon that contract must, generally, either be parties to said contract.
(emphasis and words in brackets ours)

The main cause of action of petitioners in their request for arbitration with the RTC is
the alleged violation of the clause in the milling contracts involving the proportionate
sharing in the proceeds of the harvest. Petitioners essentially demand that respondents
increase the share of the member Planters to 66% to equalize their situation with those
of the non-member Planters. Verily, from petitioners' own allegations, the party who
would be injured or benefited by a decision in the arbitration proceedings will be the
member Planters involved and not petitioners. In sum, petitioners are not the real
parties in interest in the present case.

Assuming petitioners had properly brought the case in the name of their members who
had existing milling contracts with respondents, petitioners must still prove that they
were indeed authorized by the said members to institute an action for and on the
members' behalf. In the same manner that an officer of the corporation cannot bring
action in behalf of a corporation unless it is clothed with a board resolution authorizing
an officer to do so, an authorization from the individual member planter is a sine qua
non for the association or any of its officers to bring an action before the court of law.
The mere fact that petitioners were organized for the purpose of advancing the interests
and welfare of their members does not necessarily mean that petitioners have the
authority to represent their members in legal proceedings, including the present
arbitration proceedings.

As we see it, petitioners had no intention to litigate the case in a representative capacity,
as they contend. All the pleadings from the RTC to this Court belie this claim. Under
Section 3 of Rule 3, where the action is allowed to be prosecuted by a representative, the
beneficiary shall be included in the title of the case and shall be deemed to be the real
party in interest. As repeatedly pointed out earlier, the individual Planters were not even
impleaded as parties to this case. In addition, petitioners need a power-of-attorney to
represent the Planters whether in the lawsuit or to demand arbitration. None was ever
presented here.
24. DFA v. Falcon

Petitioner: DFA & BSP

Respondent: Judge Falcon & BCA International Corporation
Ponente: Leonardo- De Castro

Doctrine: An injury is considered irreparable if it is of such constant and

frequent recurrence that no fair and reasonable redress can be had
therefor in a court of law, or where there is no standard by which their
amount can be measured with reasonable accuracy, that is, it is not
susceptible of mathematical computation. It is considered irreparable
injury when it cannot be adequately compensated in damages due to the
nature of the injury itself or the nature of the right or property injured or
when there exists no certain pecuniary standard for the measurement of
damages.

Short Facts: DFA and BCA entered into an agreement for the implementation of
machine readable passport and visa project. Dispute arose between DFA and BCA/PPC
(BCAs assignee) due to alleged breaches by both parties. DFA terminated its contract
with BCA. BCA sent a notice of default against DFA. BCA filed for arbitration with
PDRCI. During the pendency of the Request for Arbitration, DFA and BSP entered into
an agreement for the latter to provide passports compliant with international standards
(E-Passports). BCA thereafter filed for a Petition for Interim Relief with the RTC of
Pasig. TRO and thereafter a writ of preliminary injunction were issued by RTC directed
against DFA. DFA filed the instant case alleging that TC committed GAD.

Facts:
DFA needed to implement the Machine Readable Passport and Visa Project under
the BOT scheme. Thus, the PBAC (Prequalification, Bids and Awards Committee)
published an invitation to prequalify and bid for the supply of the needed machine
readable passports and visas, and conducted the public bidding for the MRP/V
Project.
PBAC found BCAs bid to be the sole complying bid; hence, it permitted the DFA to
engage in direct negotiations with BCA.
BCA, in compliance with the Notice of Award (NOA), incorporated a project
company, the Philippine Passport Corporation (PPC) to undertake and implement
the MRP/V Project.
A Build-Operate-Transfer Agreement (BOT Agreement) between DFA and PPC was
signed. The BOT Agreement was later amended to include the following changes. 1

1Section 9.05. The PPC has posted in favor of the DFA the performance security required for Phase 1 of the MRP/V Project and shall be deemed,
for all intents and purposes, to be full compliance by BCA with the provisions of this Article 9.
Section 20.15. It is clearly and expressly understood that BCA may assign, cede and transfer all of its rights and obligations under this Amended
BOT Agreement to PPC, as fully as if PPC is the original signatory to this Amended BOT Agreement, provided however that BCA shall
 An Assignment Agreement was executed by BCA and PPC whereby BCA assigned its
rights arising from the Amended BOT Agreement to PPC.

MRP/V Project was divided into 6 phases,2 with each phase having a different set of
timeline and due dates.

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

DFA sent a Notice of Termination to BCA and PPC due to their alleged failure to
submit proof of financial capability to complete the entire MRP/V Project in
accordance with the financial warranty under Section 5.02(A) of the Amended BOT
Agreement. DFA likewise demanded for liquidated damages.

BCA sent a letter to the DFA demanding that it immediately reconsider and revoke
its previous notice of termination, otherwise, BCA would be compelled to declare the
DFA in default pursuant to the Amended BOT Agreement.

When the DFA failed to respond to said letter, BCA issued its own Notice of Default
against the DFA, stating that if the default is not remedied within 90 days, BCA will
be constrained to terminate the MRP/V Project and hold the DFA liable for damages.

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

nonetheless be jointly and severally liable with PPC for the performance of all the obligations and liabilities under this Amended BOT
Agreement.
Project Completion dates were likewise changed which set the completion of the implementation phase of the project within 18 to 23 months
from date of effectivity of the Amended BOT agreement.
2
Phase 1: Project Planning Phase; Phase 2: Implementation of MRP/V Project at the Central Facility; Phase 3: Implementation of
MRP/V Project at the Regional Consular Offices; Phase 4: Full Implementation, including Foreign Service Posts; Phase 5: In
Service Phase; Phase 6: Transition/Turnover
 Thereafter, the DFA and the BSP entered into a Memorandum of Agreement for the
latter to provide the former passports compliant with international standards. The
BSP then solicited bids for the supply, delivery, installation and commissioning of a
system for the production of Electronic Passport Booklets or e-Passports

Thus, BCA filed a Petition for Interim Relief under Section 28 of the Alternative
Dispute Resolution Act of 2004 (R.A. No. 9285), with the Regional Trial Court (RTC)
of Pasig praying for the issuance of TRO restraining DFA and BSP from awarding a
new contract to implement the Project or if such contract has been awarded, from
implementing such projects.

DFA filed an Opposition (to the Application for Temporary Restraining Order and/or
Writ of Preliminary Injunction alleging that:
o BCA has no cause of action: MRP/V is not the same as the contract with BSP
which is for the supply of electronic passports.
o RTC is prohibited from issuing a TRO pursuant to RA 8975.

The TC, after summarily hearing the parties oral arguments on BCAs application for
TRO, TC ordered the issuance of the TRO. DFA filed an MR.

After notice and hearing, an order granting BCAs application for preliminary
injunction was issued by TC.

DFA and BSP filed the instant Petition for Certiorari and prohibition with a prayer
for issuance of TRO and/or a writ of preliminary injunction, imputing GAD on the
trial court when it granted interim relief to BCA and issued the WPI.
o Main allegation: RTC is prohibited under RA 8975 Section 3 to issue a TRO
and a writ of preliminary injunction against national government projects
such as ePassport project.

TRO prayed for by DFA and BSP was granted.

Issues:
1. Whether an information and communication technology project (such as ePassport
Project), which does not conform to our traditional notion of the term
infrastructure, is covered by the prohibition on the issuance of court injunctions
found in Republic Act No. 8975? NO
2. Whether the trial courts issuance of writ of injunction was proper? NO

Ratio:
1. Section 3 of RA 8975 provides that court, aside from the Supreme Court, may enjoin
a national government project unless the matter is one of extreme urgency
involving a constitutional issue such that unless the act complained of is enjoined,
grave injustice or irreparable injury would arise.
National government project has three types under Section 2(a) of RA 8975:
a. Current and future national government infrastructure projects, engineering
works and service contracts, including projects undertaken by
government-owned and controlled corporations;
b. All projects covered by R.A. No. 6975, as amended by R.A. No. 7718, or the
BuildOperateandTransfer (BOT) Law; and
c. Other related and necessary activities, such as site acquisition, supply and/or
installation of equipment and materials, implementation, construction,
completion, operation, maintenance, improvement repair and rehabilitation,
regardless of the source of funding.

Is the ePassport project covered under (b) projects covered under BOT
laws? NO
SC pointed out that DFA represented to TC that ePassport Project is a BOT project
but in their Petition before the SC, DFA merely claims that the project is a national
government project under RA 8974.
o The TC, relying on the representation of DFA and agreeing with the
contention of BCA, ruled as follows: The prohibition against issuance of TRO
and/or writ of preliminary injunction under RA 8975 applies only to
national government infrastructure project covered by the BOT Law.
The national government projects covered under the BOT are enumerated
under Sec. 2 of RA 6957, as amended, otherwise known as the BOT Law.
Notably, it includes information technology networks and database
infrastructure. In relation to information technology projects, infrastructure
projects refer to the civil works components thereof.
We cannot uphold the theory of BCA and the trial court that the definition of the
term infrastructure project in Republic Act No. 91843 should be applied to the BOT
Law.4
o Section 5 of Republic Act No. 9184 prefaces the definition of the terms
therein, including the term infrastructure project, with the following phrase:
For purposes of this Act
o There is no legal or rational basis to apply the definition of the term
infrastructure project in one statute (RA 9184) to another statute enacted
years before (BOT law) and which already defined the types of projects it
covers.

There is a legislative intent to treat information technology projects differently under

the BOT Law and the Government Procurement Reform Act.

3 RA 9184: infrastructure projects include the construction, improvement, rehabilitation, demolition, repair, restoration or
maintenance of roads and bridgescivil works components of information technology projects xxx
4 RA 7718 (amended RA 6957): private sector infrastructure or development projects are those normally financed and operated
by the public sector but which will now be wholly or partly implemented by the private sector, including but not limited
toinformation technology networks and database infrastructure xxx
 o Under the BOT Law, wherein the projects are to be privately funded, the
entire information technology project, including the civil works
component and the technological aspect thereof, is considered an
infrastructure or development project and treated similarly as traditional
infrastructure projects. All the rules applicable to traditional infrastructure
projects are also applicable to information technology projects.
o In contrast, under Republic Act No. 9184 or the Government Procurement
Reform Act, which contemplates projects to be funded by public funds, the
term infrastructure project was limited to only the civil works
component of information technology projects.
Civil works are subject to the provisions on infrastructure projects.
Technological are covered by the provisions of procurement of goods.

Petitioners presented no proof that the ePassport Project was a BOT project. On the
contrary, evidence adduced by both sides tended to show that the ePassport Project
was a procurement contract under Republic Act No. 9184
o Being a government procurement contract under Republic Act No. 9184, only
the civil works component of the e-Passport Project would be considered
an infrastructure project that may not be the subject of a lower court-issued
writ of injunction under Republic Act No. 8975

Is the ePassport project covered under (a) engineering works or a service

contract or as related and necessary activities? NO
Service contract refers to infrastructure contracts entered into by any department,
office or agency of the national government with private entities and nongovernment
organizations for services related or incidental to the functions and operations of the
department, office or agency concerned.
On the other hand, the phrase other related and necessary activities obviously
refers to activities related to a government infrastructure, engineering works, service
contract or project under the BOT Law

In other words, to be considered a service contract or related activity, petitioners

must show that the e-Passport Project is an infrastructure project or necessarily
related to an infrastructure project
o DFA failed to do this. There is nothing on record to indicate that the ePassport
Project has a civil works component or is necessarily related to an
infrastructure project.
o Within the context of Republic Act No. 9184which is the governing law for
the e-Passport Projectthe said Project is not an infrastructure project that is
protected from lower court issued injunctions under Republic Act No. 8975,
which, to reiterate, has for its purpose the expeditious and efficient
implementation and completion of government infrastructure projects.

In short: The prohibition in Republic Act No. 8975 is inoperative in so far as the
ePassport is concerned, since petitioners failed to prove that the e-Passport Project is
national government project as defined therein.
2. With respect to petitioners contention that BCA will suffer no grave and irreparable
injury so as to justify the grant of injunctive relief, the Court finds that this particular
argument merits consideration.
Under the BOT Law and the Amended BOT Agreement, in the event of default on the
part of the government (in this case, the DFA) or on the part of the proponent, the
non defaulting party is allowed to terminate the agreement, again subject to proper
compensation in the manner set forth in the agreement.
o Even if we hypothetically accept BCAs contention that the DFA terminated
the Amended BOT Agreement without any default or wrongdoing on BCAs
part, it is not indubitable that BCA is entitled to injunctive relief.

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

Time and again, this Court has held that to be entitled to injunctive relief the party
seeking such relief must be able to show grave, irreparable injury that is not
capable of compensation.
o WPI is resorted to only when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any standard compensation
o Two requisites are necessary if a preliminary injunction is to issue, namely:
the existence of a right to be protected and
the facts against which the injunction is to be directed are violative of
said right.
o It must be shown that the invasion of the right sought to be protected is
material and substantial, that the right of complainant is clear and
unmistakable and that there is an urgent and paramount necessity for the
writ to prevent serious damage.
o An injury is considered irreparable if it is of such constant and frequent
recurrence that no fair and reasonable redress can be had therefor in a court
of law, or where there is no standard by which their amount can be measured
with reasonable accuracy, that is, it is not susceptible of mathematical
computation. It is considered irreparable injury when it cannot be
adequately compensated in damages due to the nature of the injury itself
or the nature of the right or property injured or when there exists no certain
pecuniary standard for the measurement of damages.

In this case, whether this is a termination by the DFA alone without fault on the part
of BCA or a termination due to default on the part of either party, the BOT Law and
the Amended BOT Agreement lay down the measure of compensation to be paid
under the appropriate circumstances.

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

Other points noted by SC [dahil bibo yung nagsulat ng kaso]:

In seeking to enjoin the government from awarding or implementing a machine
readable passport project or any similar electronic passport or visa project and
praying for the maintenance of the status quo ante pending the resolution on the
merits of BCAs Request for Arbitration, BCA effectively seeks to enjoin the
termination of the Amended BOT Agreement for the MRP/V Project. There is no
doubt that the MRP/V Project is a project covered by the BOT Law and, in turn,
considered a national government project under Republic Act No. 8795.
o As national government project, TCs are prohibited from issuing a TRO or
WPI against the government to restrain or prohibit the termination or
rescission of any such national contract/project.5
For if a project proponent is allowed to enjoin the termination of its
contract on the ground that it is contesting the validity of said
termination, then the government will be unable to enter into a new
contract with any other party while the controversy is pending
litigation. Obviously, a courts grant of injunctive relief in such an
instance is prejudicial to public interest since government would be
indefinitely hampered in its duty to provide vital public goods and
services in order to preserve the private proprietary rights of the
project proponent.
o Although BCA did not specifically pray for the trial court to enjoin the
termination of the Amended BOT Agreement and thus, there is no
direct violation of Republic Act No. 8795, a grant of injunctive relief as prayed
for by BCA will indirectly contravene the same statute.

BCA contends that if no injunctive relief will be issued in its favor, the award of
ePassport project would be tantamount to a violation of property without due
process of the law.
o The relationship of DFA to BCA is primarily contractual and their dispute
involves the adjudication of contractual rights. The propriety of the DFAs
acts, in relation to the termination of the Amended BOT Agreement, should
be gauged against the provisions of the contract itself

BCAs petition for interim relief before the trial court is essentially a petition
for a provisional remedy ancillary to its Request for Arbitration in
PDRCI. BCA specifically prayed that the trial court grant it interim relief pending
the constitution of the arbitral tribunal in the said PDRCI case. Unfortunately,
during the pendency of this case, PDRCI Case was dismissed for lack of jurisdiction,
in view of the lack of agreement between the parties to arbitrate before the PDRCI
 o The dismissal of the principal action thus results in the denial of the prayer
for the issuance of the writ. x x x. In view of intervening circumstances, BCA
can no longer be granted injunctive relief and the civil case before the trial
court should be accordingly dismissed

PIONEER INSURANCE AND SURETY CORPORATION vs. KEPPEL CEBU

SHIPYARD, INC

FACTS: WG & A JEBSENS SHIPMGMT. Owner/Operator of M/V "SUPERFERRY 3"

and KEPPEL CEBU SHIPYARD, INC. (KCSI) enter into an agreement that the
Drydocking and Repair of the above-named vessel ordered by the Owners Authorized
Representative shall be carried out under the Keppel Cebu Shipyard Standard
Conditions of Contract for Ship repair, guidelines and regulations on safety and security
issued by Keppel Cebu Shipyard.

In the course of its repair, M/V "Superferry 3" was gutted by fire. Claiming that the
extent of the damage was pervasive, WG&A declared the vessels damage as a "total
constructive loss" and, hence, filed an insurance claim with Pioneer.

Pioneer paid the insurance claim of WG&A, which in turn, executed a Loss and
Subrogation Receipt in favor of Pioneer.

Pioneer tried to collect from KCSI, but the latter denied any responsibility for the loss of
the subject vessel. As KCSI continuously refused to pay despite repeated demands,
Pioneer, filed a Request for Arbitration before the Construction Industry Arbitration
Commission CIAC seeking for payment of U.S.$8,472,581.78 plus interest, among
others.

The CIAC rendered its Decision declaring both WG&A and KCSI guilty of negligence, the
CIAC ordered KCSI to pay Pioneer the amount of P25,000,000.00, with interest at 6%
per annum. Both Keppel and Pioneer appealed to the CA.

The cases were consolidated in the CA. the CA rendered a decision dismissing
petitioners claims in its entirety. Keppel was declared as equally negligent.

ISSUE:
To whom may negligence over the fire that broke out on board M/V "Superferry 3" be
imputed? What is the extent of the damage, if any?

RULING:

1. The issue of negligence

Undeniably, the immediate cause of the fire was the hot work done by Angelino Sevillejo
(Sevillejo) on the accommodation area of the vessel, specifically on Deck A. As
established before the CIAC

Pioneer contends that KCSI should be held liable because Sevillejo was its employee
who, at the time the fire broke out, was doing his assigned task, and that KCSI was solely
responsible for all the hot works done on board the vessel. We rule in favor of Pioneer.

At the time of the fire, Sevillejo was an employee of KCSI and was subject to the latters
direct control and supervision.There was a lapse in KCSIs supervision of Sevillejos
work at the time the fire broke out.

KCSI failed to exercise the necessary degree of caution and foresight called for by the
circumstances.

The circumstances, taken collectively, yield the inevitable conclusion that Sevillejo was
negligent in the performance of his assigned task. His negligence was the proximate
cause of the fire on board M/V "Superferry 3." As he was then definitely engaged in the
performance of his assigned tasks as an employee of KCSI, his negligence gave rise to
the vicarious liability of his employer43 under Article 2180 of the Civil Code.

KCSI failed to prove that it exercised the necessary diligence incumbent upon it to rebut
the legal presumption of its negligence in supervising Sevillejo.44 Consequently, it is
responsible for the damages caused by the negligent act of its employee, and its liability
is primary and solidary.

2. Damages

In marine insurance, a constructive total loss occurs under any of the conditions set
forth in Section 139 of the Insurance Code, which provides

Sec. 139. A person insured by a contract of marine insurance may abandon the thing
insured, or any particular portion hereof separately valued by the policy, or otherwise
separately insured, and recover for a total loss thereof, when the cause of the loss is a
peril insured against:

(a) If more than three-fourths thereof in value is actually lost, or would have to be
expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths; x x x.

It cannot be denied that M/V "Superferry 3" suffered widespread damage from the fire
that occurred on February 8, 2000, a covered peril under the marine insurance policies
obtained by WG&A from Pioneer. The estimates given by the three disinterested and
qualified shipyards show that the damage to the ship would exceed P270,000,000.00,
or of the total value of the policies P360,000,000.00. These estimates constituted
credible and acceptable proof of the extent of the damage sustained by the vessel.

Considering the extent of the damage, WG&A opted to abandon the ship and claimed
the value of its policies. Pioneer, finding the claim compensable, paid the claim, with
WG&A issuing a Loss and Subrogation Receipt evidencing receipt of the payment of the
insurance proceeds from Pioneer.

The Loss and Subrogation Receipt issued by WG&A to Pioneer is the best evidence of
payment of the insurance proceeds to the former, and no controverting evidence was
presented by KCSI to rebut the presumed authority of the signatory to receive such
payment.
DOCTRINE Applicability of the UNCITRAL Model Law in the Philippines, As
signatory to the Arbitration Rules of the UNCITRAL Model Law on International
Commercial Arbitration[1][41] of the United Nations Commission on International
Trade Law (UNCITRAL) in the New York Convention on June 21, 1985, the Philippines
committed itself to be bound by the Model Law.
The UNCITRAL Model Law is incorporated in RA 9285, hence, arbitration clause not
contrary to public policy. The pertinent features of RA 9285 incorporating the
UNCITRAL Model Law:
1. The RTC must refer to arbitration in proper cases;
2. Foreign arbitral awards must be confirmed by the RTC in accordance with the
rules of procedure to be promulgated by the Supreme Court;
3. The RTC has jurisdiction to review foreign arbitral awards on provided
specific grounds;
4. Grounds for judicial review different in domestic and foreign arbitral awards,
grounds for foreign arbitral awards are provided under Art. 34 (2) of the
UNCITRAL Model Law while domestic arbitral awards are provided under
Sec. 25 of RA 876; and
5. RTC decision of assailed foreign arbitral award appealable to the Court of
Appeals which may further be reviewed by the Supreme Court under Rule 45.

6. Korean Technologies Co. Ltd. Vs Hon. Alberto Lerma

7.
8. FACTS:
9. Korea Technologies Co., Ltd. [Korea Tech], a Korean corporation, entered into a
contract with Pacific General Steel Manufacturing Corporation [Pacific General],
a domestic corporation, whereby Korea Tech undertook to ship and install in
Pacific Generals site in Carmona, Cavite the machinery and facilities necessary
for manufacturing LPG cylinders, and to initially operate the plant after it is
installed. The plant, after completion of installation, could not be operated by
Pacific General due to its financial difficulties affecting the supply of
materials. The last payments made by Pacific General to Korea Tech consisted of
postdated checks which were dishonored upon presentment. According to Pacific
General, it stopped payment because Korea Tech had delivered a hydraulic press
which was different in kind and of lower quality than that agreed upon. Korea
Tech also failed to deliver equipment parts already paid for by it. It threatened to
cancel the contract with Korea Tech and dismantle the Carmona plant. Korea
Tech initiated arbitration before the Korea Commercial Arbitration Board
[KCAB] in Seoul, Korea and, at the same time, commenced a civil action before
 the Regional Trial Court [the trial court] where it prayed that Pacific General be
restrained from dismantling the plant and equipment. Pacific General opposed
the application and argued that the arbitration clause was null and void, being
contrary to public policy as it ousts the local court of jurisdiction. It also alleged
that Korea Tech was not entitled to the payment of the amount covered by the
two checks, and that Korea Tech was liable for damages.

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

Meanwhile, Pacific General filed a motion for inspection of things to determine

whether there was indeed alteration of the quantity and lowering of quality of the
machineries and equipment and whether these were properly installed. Korea
Tech opposed the motion arguing that these issues were proper for determination
in the arbitration proceeding.

The court denied the motion to dismiss and granted the motion for inspection of
things. The court also directed the Branch Sheriff to proceed with the inspection
of the machineries and equipment in the plant. The Branch Sheriff later reported
his finding that the enumerated machineries and equipment were not fully and
properly installed.

Korea Tech filed a petition for certiorari before the Court of Appeals [CA]. The
court dismissed the petition and held that an arbitration clause which provided
for a final determination of the legal rights of the parties to the contract by
arbitration was against public policy.

10. ISSUE:
11. Whether or not the arbitration clause stated in Article 15 of the contract is
to be deemed null and void

12. HELD/Ratio:
13. The arbitration clause is valid. It has not been shown to be contrary to any law,
or against morals, good customs, public order or public policy. The arbitration
clause stipulates that the arbitration must be done in Seoul, Korea in accordance
with the Commercial Arbitration Rules of the KCAB, and that the award is final
and binding. This is not contrary to public policy. The court finds no reason why
the arbitration clause should not be respected and complied with by both
parties.
 14. This ruling, the Court said, is consonant with the declared policy in Section 2 of
the ADR Act that the State (shall) actively promote party autonomy in the
resolution of disputes or the freedom of the parties to make their own
arrangements to resolve their disputes. Citing Section 24 of the ADR Act, the
Court said the trial court does not have jurisdiction over disputes that are
properly the subject of arbitration pursuant to an arbitration clause. In the earlier
case of BF Corporation v. Court of Appeals and Shangri-la Properties,
Inc., where the trial court refused to refer the parties to arbitration
notwithstanding the existence of an arbitration agreement between them, the
Supreme Court said the trial court had prematurely exercised its jurisdiction over
the case.

15. The Court further emphasized that a submission to arbitration is a contract. As a

rule, contracts are respected as the law between the contracting parties and
produce effect between them, their assigns and heirs. Courts should liberally
review arbitration clauses. Any doubt should be resolved in favor of arbitration.

With regard the Termination of contract with arbitration clause, A party may not
unilaterally rescind or terminate the contract (that contains an arbitration clause) for
whatever cause without first resorting to arbitration. The rule allowing extrajudicial
rescission of a contract in case of breachdoes not apply when the contract contains a
valid arbitration clause as the issues arising from such alleged breaches of the contract
by a party must be brought first and resolved by arbitration. Thus, the issues arising
from the contract between Korea Tech and Pacific General on whether the equipment
and machineries delivered and installed were properly installed and operational in
Carmona and other issues related thereto are proper for arbitration. Pacific Generals
counterclaim for damages Where the issue of validity of the arbitration clause or of its
proper scope is submitted to a trial court in a petition to compel arbitration, the
Arbitration Law confines the courts authority to pass upon issue such in a summary
proceeding. The trial court must refrain from taking up the claim of the contending
parties for damages which may be ventilated in a separate proceeding at the appropriate
time and venue.

The Enforcement of award in a domestic or international arbitration manifests

that an arbitral award in a domestic or international arbitration is subject to
enforcement by a court upon application of the prevailing party for the confirmation or
recognition and enforcement of an award. Under Section 42 of the ADR Act, The
recognition and enforcement of such (foreign) arbitral awards shall be filed with the
Regional Trial Court in accordance with the rules of procedure to be promulgated by the
Supreme Court. An arbitral award is immediately executory upon the lapse of the
period provided by law. For an award rendered in domestic or non-international
arbitration, unless a petition to vacate the award is filed within thirty (30) days from the
date of serve upon the latter, the award is subject to confirmation by the court. For an
award rendered in a domestic, international arbitration, the period for filing an
application to set it aside is not later than three (3) months from the date the applicant
received the award, otherwise the court shall recognize and enforce it.

There is obviously confusion between or among the following:

(a) The 1958 New York Convention;

(b) The UNCITRAL Model Law on International Commercial Arbitration; and

(c) The UNCITRAL Arbitration Rules.

 Tuna Processing vs Philippine Kingford

FACTS:

Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine Letters Patent, and an

Indonesian Patent, entered into a Memorandum of Agreement (MOA) with five
Philippine tuna processors including Respondent Philippine Kingford, Inc.
(KINGFORD). The MOA provides for the enforcing of the abovementioned patents,
granting licenses under the same, and collecting royalties, and for the establishment of
herein Petitioner Tuna Processors, Inc. (TPI).
Due to a series of events not mentioned in the Petition, the tuna processors, including
Respondent KINGFORD, withdrew from Petitioner TPI and correspondingly reneged on
their obligations. Petitioner TPI submitted the dispute for arbitration before the
International Centre for Dispute Resolution in the State of California, United States and
won the case against Respondent KINGFORD.

To enforce the award, Petitioner TPI filed a Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award before the RTC of Makati City. Respondent
KINGFORD filed a Motion to Dismiss, which the RTC denied for lack of merit.
Respondent KINGFORD then sought for the inhibition of the RTC judge, Judge
Alameda, and moved for the reconsideration of the order denying the Motion. Judge
Alameda inhibited himself notwithstanding [t]he unfounded allegations and
unsubstantiated assertions in the motion. Judge Ruiz, to which the case was re-raffled,
in turn, granted Respondent KINGFORDSs Motion for Reconsideration and dismissed
the Petition on the ground that Petitioner TPI lacked legal capacity to sue in the
Philippines. Petitioner TPI is a corporation established in the State of California and not
licensed to do business in the Philippines.
Hence, the present Petition for Review on Certiorari under Rule 45.

ISSUE:

Whether or not a foreign corporation not licensed to do business in the Philippines, but
which collects royalties from entities in the Philippines, sue here to enforce a foreign
arbitral award?

ARGUMENT:
Petitioner TPI contends that it is entitled to seek for the recognition and enforcement of
the subject foreign arbitral award in accordance with RA No. 9285 (Alternative Dispute
Resolution Act of 2004), the Convention on the Recognition and Enforcement of
Foreign Arbitral Awards drafted during the United Nations Conference on International
Commercial Arbitration in 1958 (New York Convention), and the UNCITRAL Model
Law on International Commercial Arbitration (Model Law), as none of these specifically
requires that the party seeking for the enforcement should have legal capacity to sue.

RULING:

YES. Petitioner TPI, although not licensed to do business in the Philippines, may seek
recognition and enforcement of the foreign arbitral award in accordance with the
provisions of the Alternative Dispute Resolution Act of 2004. A foreign corporations
capacity to sue in the Philippines is not material insofar as the recognition and
enforcement of a foreign arbitral award is concerned.
The Resolution of the RTC is REVERSED and SET ASIDE.

RATIO DECIDENDI:

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

1. Recognition and enforcement of the award may be refused, at the request of the party
against whom it is invoked, only if that party furnishes to the competent authority where
the recognition and enforcement is sought, proof that:

a. The parties to the agreement referred to in Article II were, under the law applicable to
them, under some incapacity, or the said agreement is not valid under the law to which
the parties have subjected it or, failing any indication thereon, under the law of the
country where the award was made;

b. The party against whom the award is invoked was not given proper notice of the
appointment of the arbitrator or of the arbitration proceedings or was otherwise unable
to present his case;
c. The award deals with a difference not contemplated by or not falling within the terms
of the submission to arbitration, or it contains decisions on matters beyond the scope of
the submission to arbitration, provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted, that part of the award which
contains decisions on matters submitted to arbitration may be recognized and enforced;

d. The composition of the arbitral authority or the arbitral procedure was not in
accordance with the agreement of the parties, or, failing such agreement, was not in
accordance with the law of the country where the arbitration took place; or

e. The award has not yet become binding on the parties, or has been set aside or
suspended by a competent authority of the country in which, or under the law of which,
that award was made.

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

competent authority in the country where recognition and enforcement is sought finds
that:

a. The subject matter of the difference is not capable of settlement by arbitration under
the law of that country; or

b. The recognition or enforcement of the award would be contrary to the public policy of
that country.

Not one of the abovementioned exclusive grounds touched on the capacity to sue of the
party seeking the recognition and enforcement of the award.

Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution,

which was promulgated by the Supreme Court, likewise support this position.
Rule 13.1 of the Special Rules provides that [a]ny party to a foreign arbitration may
petition the court to recognize and enforce a foreign arbitral award. The contents of
such petition are enumerated in Rule 13.5. Capacity to sue is not included. Oppositely,
in the rule on local arbitral awards or arbitrations in instances where the place of
arbitration is in the Philippines, it is specifically required that a petition to determine
any question concerning the existence, validity and enforceability of such arbitration
agreement available to the parties before the commencement of arbitration and/or a
petition for judicial relief from the ruling of the arbitral tribunal on a preliminary
question upholding or declining its jurisdiction after arbitration has already
commenced should state [t]he facts showing that the persons named as petitioner or
respondent have legal capacity to sue or be sued.
Indeed, it is in the best interest of justice that in the enforcement of a
foreign arbitral award, the Court deny availment by the losing party of the rule that
bars foreign corporations not licensed to do business in the
Philippines from maintaining a suit in Philippine courts. When a party enters
into a contract containing a foreign arbitration clause and, as in this
case, in fact submits itself to arbitration, it becomes bound by the contract, by the
arbitration and by the result of arbitration, conceding thereby the capacity of
the other party to enter into the contract, participate in the arbitration and cause the
implementation of the result. Although not on all fours with the instant case, also
worthy to consider is the wisdom of then Associate Justice Flerida Ruth P. Romero in
her Dissenting Opinion in Asset Privatization Trust v. Court of Appeals [1998], to wit:

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

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

Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected
not because it is favored over domestic laws and procedures, but because Republic Act
No. 9285 has certainly erased any conflict of law question.
Finally, even assuming, only for the sake of argument, that the RTC correctly observed
that the Model Law, not the New York Convention, governs the subject arbitral award,
Petitioner TPI may still seek recognition and enforcement of the award in Philippine
court, since the Model Law prescribes substantially identical exclusive grounds for
refusing recognition or enforcement.