CHRISTIAN JADE C.

HENSON LLB-2
ALTERNATIVE DISPUTE RESOLUTION

1. KOPPEL, INC. VS. MAKATI ROTARY CLUB FOUNDATION, INC.

G.R. No. 198075
September 4, 2013

FACTS:

Fedders Koppel, Incorporatied (FKI), an air-conditioning manufacturer, owned a parcel of

land located in Paranaque City which housed buildings and improvements dedicated to the business
of FKI. 1975 – FKI left the land to Makati Rotary Club Foundation (MRCF) by way of a
conditional donation; MRCF accepted all the conditions [May 26, 1975] FKI and MRCF executed a
deed of donation evidencing their consensus.

Conditions of the Donation:

Respondent would lease the land back to FKI under the terms of the donation

o Period of lease is for 25 years or until May 25, 2000; renewable for another 25
years upon mutual agreement
o Rent paid by FKI for the 1st 25 years is P40,126 per annum.
o Rental for the 2nd 25 years shall be the subject of a mutual agreement; if cannot
agree, then it be submitted to a panel of 3 arbitrators in accordance to arbitration
law in the Philippines.
 Fair market value should not exceed beyod 25% of the original value
 Rental for the 2nd 25 years shall not exceed 3% of the fair market value of
the land

[Oct 1976] FKI and MRCF executed an amended deed of donation that reiterated the provisions of
the deed of donation. By virtue of the lease agreement as stipulated in the deed of donation and the
amended one, FKI continued to possess and use the land.

2000 Lease Contract

2 days prior to the expiration of the deed of donation and the amended one, FKI and MRCF
executed another contract of lease Parties agreed with conditions of this contract
o a new 5 year contract
o annual rents ranging from P4,000,000 (1st year) to P4,900,000 (5th year)
o contained arbitration clause in case of disagreement about the interpretation,
application and execution of the lease.
o Board of 3 arbitrators in accordance of the arbitration laws of the Philippines.
o Governed by laws of the Philippines

2005 Lease Contract

Created after the expiration of the 2000 lease contract

 o Fixed rent of P4,200,000 annually for 5 years
o FKI must make an annual donation of money to MRCF P3m (1st year) to P3.9m (5th
year)
o Contained arbitration clause in case of disagreement about the interpretation,
application and execution of the lease.
o Board of 3 arbitrators in accordance of the arbitration laws of the Philippines.
o Governed by laws of the Philippines

The Assignment and Koppel’s Refusal to Pay

FKI faithfully complied and paid rentals and the donations for 3 years in the 2005 lease
contract, but in [June 2008] FKI sold its rights and properties to Koppel, Inc. (Koppel). FKI and
MRCF executed an assignment and assumption of lease and donation where KFI formally assigned
all of its interests and obligations in favor of Koppel. The following year Koppel refused to pay the
rent and donation under the 2005 lease contract because it violated the material conditions of the
donation of the land in the donation and amended deed of donation; clearly the rents in 2000 &
2005 lease contract were exorbitant

o The two 25 years were the only material conditions of the donation of the subject
land
o While the lease for the 2nd 25 year was not fixed in the deed of donation and the
amended one, both deeds nevertheless prescribed rules and limitations which
should be complied with – what is referred here is the 3% max increase

Demand Letters

[June 1, 2009] MRCF sent the 1st demand letter notifying petitioner of its default and the
demand for its settlement (P8.394m) , failure to comply would mean the termination of the 2005
contract; letter was received on the next day [Sept 22, 2009] Koppel sent a reply expressing
disagreement over the rental stipulations since there were excessive and against the mandated deed
of donation and the amended one; the offered to pay only P80,502.79 [Sept 25, 2009] MRCF sent
the 2nd demand letter which reiterated the demand to pay obligations, added that the failure to do
so within 7 days Koppel is demanded to vacate the premises less MRCF take legal steps. [Sept 30,
2009] Koppel refused to comply with the demand and instead filed a case before the RTC of
Paranaque a complaint for the rescission or cancellation of the deed of donation and amended deed
of donation against the respondent.

The Ejectment Suit

- [Oct 5, 2009] MRCF filed an unlawful detainer case against Koppel before the MeTC of
Paranaque.
- [Nov 4, 2000] Koppel filed an answer with compulsory counterclaim and reiterated its
objection to the stipulations in the 2005 contract for being violative of material conditions
of the deed of donation and amended deed of donation
o Used the defense that MeTC had no jurisdiction because the 1st demand letter had
no demand to vacate the premises and therefore refusal to comply does not give rise
to an action for unlawful detainer
o Even if the MeTC was able to acquire jurisdiction, it may not exercise the sane
until the disagreement between the parties is 1st referred to arbitration
 o Furthermore, there can be no ejectment since the 2005 lease contract is null and
void.
ISSUE:
WON the 2005 Lease Contract is arbitratble

RULING:
YES, all of the arguments are bereft of merit for they have erred in overlooking the
significance of the arbitration clause incorporated in the 2005 lease contract.

The arbitration clause of the 2005 Lease Contract stipulates that "any disagreement" as to
the " interpretation, application or execution " of the 2005 Lease Contract ought to be submitted to
arbitration.70 To the mind of this Court, such stipulation is clear and is comprehensive enough so as
to include virtually any kind of conflict or dispute that may arise from the 2005 Lease Contract
including the one that presently besets petitioner and respondent.

The application of the arbitration clause of the 2005 Lease Contract in this case carries with
it certain legal effects. However, before discussing what these legal effects are, We shall first deal
with the challenges posed against the application of such arbitration clause.

FIRST. While the validity of the contract may still be in question, the 2005 lease agreement
would not be rendered non-arbitrable.
SECOND. Petitioner may still invoke the arbitration clause of the2005 Lease
Contract notwithstanding the fact that it assails the validity of such contract. This is due to
the doctrine of separability. Under the doctrine of separability, an arbitration agreement is
considered as independent of the main contract. Being a separate contract in itself, the arbitration
agreement may thus be invoked regardless of the possible nullity or invalidity of the main contract.
THIRD. The operation of the arbitration clause in this case is not at all defeated by the
failure of the Petitioner to file a formal “request” or application therefor with the MeTC. SC finds
that the filing of a “request” pursuant to Section 24 of R.A. No. 9285 is not the sole means by
which an arbitration clause may be validly invoked in a pending suit.
Section 24 of R.A. No. 9285 reads:

In this case, it is conceded that Petitioner was not able to file a separate “request” of
arbitration before the MeTC. However, it is equally conceded that the Petitioner, as early as in
its Answer with Counterclaim, had already apprised the MeTC of the existence of the arbitration
clause in the 2005 Lease Contractand, more significantly, of its desire to have the same enforced in
this case. This act of Petitioner is enough valid invocation of his right to arbitrate.
FOURTH. The fact that the Petitioner and Respondent already underwent through JDR
proceedings before the RTC, will not make the subsequent conduct of arbitration between the
parties unnecessary or circuitous. The JDR system is substantially different from arbitration
proceedings.
2. J PLUS DEVELOPMENT ASIA CORPORATION V. UTILITY ASSURANCE
CORPORATION
G.R. NO. 199650
JUNE 26, 2013

FACTS:

Petitioner J Plus Asia Development Corporation and Seven Shades of Blue Trading and
Services, entered into a Construction Agreement, whereby the latter undertook to build the former's
72-room condominium/hotel (Condotel Building 25). The project was to be completed within one
year reckoned from the first calendar day after signing of the Notice of Award and Notice to
Proceed and receipt of down payment. The down payment was fully paid. Payment of the balance
of the contract price will be based on actual work finished within 15 days from receipt of the
monthly progress billings. Mabuhay also submitted the required Performance Bond in the amount
equivalent to 20% down payment. Mabunay commenced work at the project site.

Mabunay commenced work at the project site on January 7, 2008. Petitioner paid up to the
7th monthly progress billing sent by Mabunay. As of September 16, 2008, petitioner had paid the
total amount of ₱15,979,472.03 inclusive of the 20% down payment. However, as of said date,
Mabunay had accomplished only 27.5% of the project.

On November 19, 2008, petitioner terminated the contract and sent demand letters to
Mabunay and respondent surety. As its demands went unheeded, petitioner filed a Request for
Arbitration before the Construction Industry Arbitration Commission (CIAC). Petitioner prayed that
Mabunay and respondent be ordered to pay the sums of ₱8,980,575.89 as liquidated damages and
₱2,379,441.53 corresponding to the unrecouped down payment or overpayment petitioner made to
Mabunay.

In his Answer, Mabunay claimed that the delay was caused by retrofitting and other
revision works ordered by Joo Han Lee. He asserted that he actually had until April 30, 2009 to
finish the project since the 365 days period of completion started only on May 2, 2008 after clearing
the retrofitted old structure. Hence, the termination of the contract by petitioner was premature and
the filing of the complaint against him was baseless, malicious and in bad faith.

Respondent, on the other hand, filed a motion to dismiss on the ground that petitioner has
no cause of action and the complaint states no cause of action against it. The CIAC denied the
motion to dismiss. Respondent’s motion for reconsideration was likewise denied.

In its Answer Ex Abundante Ad Cautelam With Compulsory Counterclaims and Cross-

claims, respondent argued that the performance bond merely guaranteed the 20% down payment
and not the entire obligation of Mabunay under the Construction Agreement. Since the value of the
project’s accomplishment already exceeded the said amount, respondent’s obligation under the
performance bond had been fully extinguished. As to the claim for alleged overpayment to
Mabunay, respondent contended that it should not be credited against the 20% down payment
which was already exhausted and such application by petitioner is tantamount to reviving an
obligation that had been legally extinguished by payment. Respondent also set up a cross-claim
against Mabunay who executed in its favor an Indemnity Agreement whereby Mabunay undertook
to indemnify respondent for whatever amounts it may be adjudged liable to pay petitioner under the
surety bond.

Both petitioner and respondent submitted their respective documentary and testimonial
evidence. Mabunay failed to appear in the scheduled hearings and to present his evidence despite
due notice to his counsel of record. The CIAC thus declared that Mabunay is deemed to have
waived his right to present evidence.

On February 2, 2010, the CIAC rendered its Decision16 and made the following award:

Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby
adjudges, orders and directs:

1. Respondents Mabunay and Utassco to jointly and severally pay claimant the following:

a) ₱4,469,969.90, as liquidated damages, plus legal interest thereon at the rate of

6% per annum computed from the date of this decision up to the time this decision becomes
final, and 12% per annum computed from the date this decision becomes final until fully
paid, and

b) ₱2,379,441.53 as unrecouped down payment plus interest thereon at the rate of

6% per annum computed from the date of this decision up to the time this decision becomes
final, and 12% per annum computed from the date this decision becomes final until fully
paid.

It being understood that respondent Utassco’s liability shall in no case exceed ₱8.4 million.

2. Respondent Mabunay to pay to claimant the amount of ₱98,435.89, which is respondent

Mabunay’s share in the arbitration cost claimant had advanced, with legal interest thereon from
January 8, 2010 until fully paid.

3. Respondent Mabunay to indemnify respondent Utassco of the amounts respondent

Utassco will have paid to claimant under this decision, plus interest thereon at the rate of 12% per
annum computed from the date he is notified of such payment made by respondent Utassco to
claimant until fully paid, and to pay Utassco ₱100,000.00 as attorney’s fees.

Dissatisfied, respondent filed in the CA a petition for review under Rule 43 of the 1997
Rules of Civil Procedure, as amended. However, the CA reversed the CIAC’s ruling that Mabunay
had incurred delay which entitled petitioner to the stipulated liquidated damages and unrecouped
down payment.

ISSUE:

whether or not CIAC arbitral award need not be confirmed by the regional trial court to be
executory.
RULING:

A CIAC arbitral award need not be confirmed by the regional trial court to be executory as
provided under E.O. No. 1008.

Executive Order (EO) No. 1008 vests upon the CIAC original and exclusive jurisdiction
over disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines, whether the dispute arises before or after the completion of the
contract, or after the abandonment or breach thereof. By express provision of Section 19 thereof, the
arbitral award of the CIAC is final and unappealable, except on questions of law, which are
appealable to the Supreme Court. With the amendments introduced by R.A. No. 7902 and
promulgation of the 1997 Rules of Civil Procedure, as amended, the CIAC was included in the
enumeration of quasi-judicial agencies whose decisions or awards may be appealed to the CA in a
petition for review under Rule 43. Such review of the CIAC award may involve either questions of
fact, of law, or of fact and law.
3. CHUNG FU INDUSTRIES (PHILS) V. COURT OF APPEALS
G.R NO. 96283
FEBRUARY 25, 1992

FACTS:
May 17, 1989: petitioner Chung Fu Industries and private respondents Roblecor Philippines
forged a construction agreement wherein Roblecor committed to construct and finish on Dec. 31,
1989, Chung Fu’s industrial/factory complex in Tanawan, Cavite in consideration of P42M. It was
stipulated also that in the event of disputes, the parties will be subjected to an arbitration resolution,
wherein the arbitrator will be chosen by both parties.
Apart from the construction agreement, the parties also entered into ancillary contracts for the
construction of a dormitory and support facilities with a contract price of 3, 875, 285.00 to be
completed on or before October 31, 1989 and the other dated Aug. 12, 1989 for the installation of
electrical, water and hydrant systems at the plant site, priced at 12.1M and requiring completion
thereof one month after civil works have been finished. However, Roblecor failed to complete the
work despite the extension allowed by Chung Fu. Subsequently, Chung Fu had to take over the
construction when it had become evident that Roblecor was not in a position to fulfill the
obligation.
Claiming an unsatisfied account of P10, 500, 000 and unpaid progress billings of P 2, 370,
179.23, Roblecor filed a petition for Compulsory Arbitration with prayer for TRO before
respondent 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 which
includes that the “decision of the arbitrator shall be final and unappealable, therefore, there shall be
no further judicial recourse if either party disagrees with the whole or any part of the arbitrator’s
award”.
RTC approved the arbitration agreement and Asuncion was appointed as the sole arbitrator
Arbitrator ruled in favor of the contractor Roblecor. Chung Fu moved to remand the case for further
hearing and asked for a reconsideration of the judgment award claiming that Asuncion committed
12 instances of grave error by disregarding the provisions of the parties’ contract. RTC denied
Chung Fu’s Motion to Remand and approved Roblecor’s Motion for Confirmation of Award
Chung Fu elevated the case to CA which denied the petition. Hence, this petition to the
Supreme Court

ISSUES:
WON the subject arbitration award is beyond the ambit of the court’s power of judicial

RULING:
No.
 It’s stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrator’s
award is not absolute and without exceptions. Where the conditions described in Arts. 2038, 2039
and 2040 applicable to both compromises and arbitrations are obtaining, the arbitrators’ award may
be annulled or rescinded.
Additionally, Sections 24 and 25 of the Arbitration Law provide grounds for vacating,
Modifying or rescinding an arbitrator’s award. Even decisions of administrative agencies which are
declared “final” by law are not exempt from judicial review when so warranted.
SC finds that Chung Fu has 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 committing a grave abuse of discretion.
Furthermore, in granting unjustified extra compensation to responded 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. Petition granted. Case remanded to the court of origin for
further hearing.
4. CALIFORNIA AND HAWAIIAN SUGAR vs. PIONEER INSURANCE
GR No. 139273
Nov 28, 2000

FACTS:
Nov 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. Nov 30, 1990 – discharging of cargo from vessel to barges commenced.
From the barges, the cargo was allegedly offloaded, rebagged and reloaded on consignee’s delivery
trucks. Pioneer Insurance, 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 above-
mentioned shipment was insured with Pioneer Insurance against all risk in the amount of
P19,976,404.00.
Due to the alleged refusal of California and Hawaiian et al. to settle their respective liabilities,
Pioneer, as insurer, paid the consignee Metro Manila Feed Miller’s Association. March 26, 1992 -
as alleged subrogee of Metro, Pioneer filed a complaint for damages against California and
Hawaiian et al. Within the reglementary period to file an Answer, California and Hawaiian et al.
filed a Motion to Dismiss the complaint on the ground that Pioneer’s claim is premature, the same
being arbitrable.
Pioneer filed its Opposition thereto and California and Hawaiian et al. filed their Reply to
Opposition. RTC issued an Order deferring the hearing on the Motion to Dismiss until the trial and
directing petitioners to file their Answer. California and Hawaiian et al. then moved to reconsider
said Order which was, however, denied by the RTC on the ground that the reason relied upon by
California and Hawaiian et al. in its Motion to Dismiss and Motion for Reconsideration was a
matter of defense which they must prove with their evidence.
California and Hawaiian et al. filed their Answer with Counterclaim and Cross-claim alleging
therein that Pioneer did not comply with the arbitration clause of the charter party; hence, the
complaint was allegedly prematurely filed. The trial court set the case for pre-trial on November
26, 1993.
Nov 15 & 16, 1993 – California and Hawaiian et al. 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. Pioneer did not file an Opposition to the
said Motion to Set for Preliminary Hearing.
RTC: denied the motion to set for preliminary hearing. California and Hawaiian et al.’s MR was
denied by the RTC. California and Hawaiian et al. filed a petition for certiorari with the CA. CA:
ruled that the arbitration clause did not bind Pioneer Insurance, which is a mere subrogee of Metro
Manila Feed Millers Association citing Pan Malayan Insurance vs. CA. Hence, this petition.

ISSUE:
WON the RTC erred in denying California and Hawaiian et al.’s Motion to set for
preliminary hearing and the arbitration clause is binding to Pioneer Insurance
RULING:
True, Section 6, Rule 16 of the 1997 Rules, 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 of the same Rule, which requires courts to
resolve a motion to dismiss and prohibits them from deferring its resolution on the ground of
indubitability. Clearly then, 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.
Indeed, the present Rules are consistent with Section 5, Rule 16 of the pre-1997 Rules of
Court, because both presuppose that no motion to dismiss had been filed; or in the case of the pre-
1997 Rules, if one has been filed, it has not been unconditionally denied. Hence, the ground
invoked may still be pleaded as an affirmative defense even if the defendant’s Motion to Dismiss
has been filed but not definitely resolved, or if it has been deferred as it could be under the pre-1997
Rules.
A preliminary hearing is not mandatory, but subject to the discretion of the trial court. We
note that the trial court deferred the resolution of petitioners’ Motion to Dismiss because of a single
issue. It was apparently unsure whether the charter party that the bill of lading referred to was
indeed the Baltimore Berth Grain Charter Party submitted by petitioners.
Considering that there was only one question, which may even be deemed to be the very
touchstone of the whole case, the trial court had no cogent reason to deny the Motion for
Preliminary Hearing. Indeed, it committed grave abuse of discretion when it denied a preliminary
hearing on a simple issue of fact that could have possibly settled the entire case. Verily, where a
preliminary hearing appears to suffice, there is no reason to go on to trial.
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. Petition granted, CA decision reversed. Case remanded to the RTC
for preliminary hearing of California and Hawaiian et al.’s affirmative defense.
5. ASSET PRIVATIZATION TRUST VS. COURT OF APPEALS
G.R NO. 121171
DECEMBER 29, 1998

FACTS:
Pursuant to a Mortgage Trust Agreement, the Development Bank of the Philippines and the
Philippine National Bank foreclosed the assets of the Marinduque Mining and Industrial
Corporation. The assets were sold to Philippine National Bank and later transferred to the Asset
Privatization Trust (APT).
In February 1985, Jesus Cabarrus, Sr., together with other stockholders of Marinduque
Mining and Industrial Corporation, filed a derivative suit against Development Bank of the
Philippines and Philippine National Bank before the Regional Trial Court of Makati for Annulment
of Foreclosures, Specific Performance and Damages. In the course of the trial, Marinduque Mining
and Industrial Corporation and Asset Privatization Trust as successor in interest of Development
Bank of the Philippines and Philippine National Bank, agreed to submit the case to arbitration by
entering into a Compromise and Arbitration Agreement. This agreement was approved by the trial
court and the complaint was corollarily dismissed.
Thereafter, the Arbitration Committee rendered a decision ordering Asset Privatization
Trust to pay Marinduque Mining and Industrial Corporation damages and arbitration costs in the
amount of P2.5 Billion, P13,000,000.00 of which is for moral and exemplary damages.
On motion of Cabarrus and the other stockholders of Marinduque Mining and Industrial
Corporation, the trial court confirmed the Arbitration Committee’s award. Its motion for
reconsideration having been denied, Asset Privatization Trust filed a special civil action for
certiorari with the Court of Appeals. It was likewise denied. Hence, this petition for review on
certiorari.

ISSUE:
whether the respondent judge committed grave abuse of discretion and acted without or in
excess of jurisdiction, in issuing the questioned orders confirming the arbitral award and denying
the motion for reconsideration of order of award.

RULING:
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. 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.
Nonetheless, the arbitrators awards is not absolute and without exceptions. The arbitrators cannot
resolve issues beyond the scope of the submission agreement.
 While a court is precluded from overturning an award for errors in 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.
6. AGAN JR. VS. PHIL INTERNATIONAL AIR TERMINAL CO., INC
G.R. No. 155001.
May 5, 2003

FACTS:
In 1989, The DOTC conducted studies on NAIA’s capability to cope with the traffic
development up to 2010. In 1993, business tycoons Gokongwei, Gotianun, Sy, Tan, Ty, and
Yuchengco formed the Asia’s Emerging Dragon Group (AEDC) and submitted an unsolicited
proposal to the Government through the DOTC/MIAA for the development of NAIA Terminal III
under a Build-Operate-Transfer Agreement (BOT) under BOT Law (RA6957, amended by RA
7718). DOTC began the bidding process for the NAIA Terminal III project by forming the PBAC
(Prequalification Bids and Awards Committee). AEDC’s primary competitor was the PAIRCARGO
consortium (composed of Pair Cargo, PAGS, and Security Bank) filed their bid, which AEDC
questioned since the former allegedly lacked financial capability.
PAIRCARGO Consortium was awarded the Contract because it offered a higher guaranteed
payment to the government. Later on, PAIRCARGO changed its name to PIATCO (Phil. Int’l
Airport Terminals Co. Inc. Post- bidding, the government and PIATCO signed the 1997 Concession
Agreement for the NAIA Terminal III project, and a subsequent Amended & Revised Concession
Agreement + supplements of the said 1997 Concession Agreement were entered into.
The Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO, through its
President, Henry T. Go, signed the “Concession Agreement for the Build-Operate-and-Transfer
Arrangement of the Ninoy Aquino International Airport Passenger Terminal III” (1997 Concession
Agreement). The Government and PIATCO signed an Amended and Restated Concession
Agreement (ARCA).
Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The First
Supplement was signed on August 27, 1999; the Second Supplement on September 4, 2000; and the
Third Supplement on June 22, 2001. Meanwhile, the MIAA which is charged with the maintenance
and operation of the NAIA Terminals I and II, had existing concession contracts with various
service providers to offer international airline airport services, such as in-flight catering, passenger
handling, ramp and ground support, aircraft maintenance and provisions, cargo handling and
warehousing, and other services, to several international airlines at the NAIA.
Consequently, the workers of the international airline service providers, claiming that they
stand to lose their employment upon the implementation of the questioned agreements, filed before
this Court a petition for prohibition to enjoin the enforcement of said agreements.
During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on
November 29, 2002, in her speech at the 2002 Golden Shell Export Awards at Malacañang Palace,
stated that she will not “honor (PIATCO) contracts which the Executive Branch’s legal offices have
concluded (as) null and void.” Respondent PIATCO filed its Comments to the present petitions.
Several petitions of prohibition filed by NAIA Terminal I & II’s int’l service providers, their
employees, and congressmen alleging that the 1997 Concession Agreement, the ARCA, & its
supplements are contrary to the Constitution, BOT Law, & its IRR.
ISSUE:
Whether or not the arbitration step taken by PIATCO will not oust this Court of its
jurisdiction over the cases.

RULING:
In Del Monte Corporation-USA v. Court of Appeals, even after finding that the arbitration
clause in the Distributorship Agreement in question is valid and the dispute between the parties is
arbitrable, this Court affirmed the trial courts decision denying petitioners Motion to Suspend
Proceedings pursuant to the arbitration clause under the contract. In so ruling, this Court held that as
contracts produce legal effect between the parties, their assigns and heirs, only the parties to the
Distributorship Agreement are bound by its terms, including the arbitration clause stipulated
therein. This Court ruled that arbitration proceedings could be called for but only with respect to the
parties to the contract in question. Considering that there are parties to the case who are neither
parties to the Distributorship Agreement nor heirs or assigns of the parties thereto, this Court, citing
its previous ruling in Salas, Jr. v. Laperal Realty Corporation,[21] held that to tolerate the splitting of
proceedings by allowing arbitration as to some of the parties on the one hand and trial for the others
on the other hand would, in effect, result in multiplicity of suits, duplicitous procedure and
unnecessary delay.[22] Thus, we ruled that the interest of justice would best be served if the trial
court hears and adjudicates the case in a single and complete proceeding.
It is established that petitioners in the present cases who have presented legitimate interests
in the resolution of the controversy are not parties to the PIATCO Contracts. Accordingly, they
cannot be bound by the arbitration clause provided for in the ARCA and hence, cannot be
compelled to submit to arbitration proceedings. A speedy and decisive resolution of all the critical
issues in the present controversy, including those raised by petitioners, cannot be made before an
arbitral tribunal. The object of arbitration is precisely to allow an expeditious determination of a
dispute. This objective would not be met if this Court were to allow the parties to settle the cases by
arbitration as there are certain issues involving non-parties to the PIATCO Contracts which the
arbitral tribunal will not be equipped to resolve.