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Korea Technologies Co., Ltd. vs.

Lerma
Facts:
Korea Technologies Co., Ltd. [Korea Tech], a Korean corporation,
entered into a contract with Pacific General Steel Manufacturing
Corporation [Pacific General], a domestic corporation. The contract
was executed in the Philippines. It also contains an Arbitration
Clause which provided that disputes must be referred to a tribunal
body in Korea.
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 last payments made by Pacific General to Korea Tech consisted of
postdated checks which were dishonored upon presentment., 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.
Korea Tech initiated arbitration before the Korea Commercial
Arbitration Board [KCAB] in Seoul, Korea.
Pacific General opposed the application and argued that the
arbitration clause was null and void, being contrary to public policy as
it ousts the local court of jurisdiction.
The trial court declared the arbitration agreement null and void.
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.
Issue:
Whether or not the arbitration clause stated in Article 15 of the contract
is to be deemed null and void.

Whether or not the RTC is oust of its jurisdiction on a foreign arbitral


award.
HELD:
Established in this jurisdiction is the rule that the law of the place
where the contract is made governs. Lex loci contractus. The contract
in this case was perfected here in the Philippines. Therefore, our laws
ought to govern. Nonetheless, Art. 2044 of the Civil Code sanctions
the validity of mutually agreed arbitral clause or the finality and
binding effect of an arbitral award. Art. 2044 provides, Any
stipulation that the arbitrators award or decision shall be final, is
valid, without prejudice to Articles 2038, 2039 and 2040. Arts.
2038, 2039, and 2040 abovecited refer to instances where a
compromise or an arbitral award, as applied to Art. 2044 pursuant to
Art. 2043, may be voided, rescinded, or annulled, but these would not
denigrate the finality of the arbitral award.
For domestic arbitration proceedings, we have particular agencies to
arbitrate disputes arising from contractual relations. In case a foreign
arbitral body is chosen by the parties, the arbitration rules of our
domestic arbitration bodies would not be applied. As signatory to the
Arbitration Rules of the UNCITRAL Model Law on International
Commercial Arbitration of the 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. We have even incorporated the Model Law in Republic
Act No. (RA) 9285, otherwise known as the Alternative Dispute
Resolution Act of 2004 entitled 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. Secs. 19 and 20 of Chapter 4
of the Model Law are the pertinent provisions.

Under Sec. 24, the RTC does not have jurisdiction over disputes that
are properly the subject of arbitration pursuant to an arbitration
clause, and mandates the referral to arbitration in such cases, thus:
SEC. 24. Referral to Arbitration.A court before which an action is
brought in a matter which is the subject matter of an arbitration
agreement shall, if at least one party so requests not later than the
pre-trial conference, or upon the request of both parties thereafter,
refer the parties to arbitration unless it finds that the arbitration
agreement is null and void, inoperative or incapable of being
performed.
While the RTC does not have jurisdiction over disputes governed by
arbitration mutually agreed upon by the parties, still the foreign
arbitral award is subject to judicial review by the RTC which can set
aside, reject, or vacate it. In this sense, what this Court held in Chung
Fu Industries (Phils.), Inc., 206 SCRA 545 (1992), relied upon by
KOGIES is applicable insofar as the foreign arbitral awards, while
final and binding, do not oust courts of jurisdiction since these
arbitral awards are not absolute and without exceptions as they are
still judicially reviewable. Chapter 7 of RA 9285 has made it clear that
all arbitral awards, whether domestic or foreign, are subject to
judicial review on specific grounds provided for.

DORIS A. ABLE
LLB 4