You are on page 1of 37

A.

International Commercial Arbitration

1. Korea Technologies Co., v. Hon. Alberto A. Lerma and Pacific General Steel Manufacturing Corporation
(G.R. No. 143581, Jan. 7, 2008.),

KOREA TECHNOLOGIES CO., LTD., Petitioner, - versus - HON. ALBERTO A. LERMA, in TINGA, and his capacity as Presiding Judge of Branch
256 of Regional Trial Court of Muntinlupa City, and PACIFIC GENERAL STEEL MANUFACTURING CORPORATION, Respondents.
[SECOND DIVISION G.R. No. 143581 January 7, 2008, VELASCO, JR., J.]

Facts:
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in the supply and installation of Liquefied Petroleum Gas
(LPG) Cylinder manufacturing plants, while private respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic corporation. PGSMC and
KOGIES executed a Contract [March 5, 1997 contract] whereby KOGIES would set up an LPG Cylinder Manufacturing Plant in Carmona, Cavite. The contract
was executed in the Philippines. The parties executed, in Korea, an Amendment for Contract No. KLP-970301 [March 5, 1997 contract] amending the terms of
payment [KOGIES will ship the machinery and facilities necessary for manufacturing LPG cylinders for which PGSMC would pay USD 1,224,000; KOGIES
would install and initiate the operation of the plant for which PGSMC bound itself to pay USD 306,000 upon the plants production of the 11-kg. LPG cylinder
samples; Total contract price amounted to USD 1,530,000.]

Subsequently, the machineries, equipment, and facilities for the manufacture of LPG cylinders were shipped, delivered, and installed in the Carmona
plant. PGSMC paid KOGIES USD 1,224,000. However, gleaned from the Certificate executed by the parties after the installation of the plant, the initial
operation could not be conducted as PGSMC encountered financial difficulties affecting the supply of materials, thus forcing the parties to agree that KOGIES
would be deemed to have completely complied with the terms and conditions of the March 5, 1997 contract. For the remaining balance of USD306,000 for the
installation and initial operation of the plant, PGSMC issued two postdated checks. When KOGIES deposited the checks, these were dishonored for the
reason PAYMENT STOPPED. Thus, KOGIES sent a demand letter to PGSMC threatening criminal action for violation of Batas Pambansa Blg. 22 in case of
nonpayment.

The wife of PGSMCs President faxed a letter to KOGIES President who was then staying at a Makati City hotel. She complained that not only did
KOGIES deliver a different brand of hydraulic press from that agreed upon but it had not delivered several equipment parts already paid for. PGSMC
replied that the two checks it issued KOGIES were fully funded but the payments were stopped for reasons previously made known to KOGIES. PGSMC
informed KOGIES that PGSMC was canceling their Contract dated March 5, 1997 on the ground that KOGIES had altered the quantity and lowered
the quality of the machineries and equipment it delivered to PGSMC, and that PGSMC would dismantle and transfer the machineries, equipment, and
facilities installed in the Carmona plant.

PGSMC filed before the Office of the Public Prosecutor an Affidavit-Complaint for Estafa docketed as I.S. No. 98-03813 against Mr. Dae Hyun Kang,
President of KOGIES. KOGIES wrote PGSMC informing the latter that PGSMC could not unilaterally rescind their contract nor dismantle and transfer the
machineries and equipment on mere imagined violations by KOGIES. It also insisted that their disputes should be settled by arbitration as agreed upon in
Article 15, the arbitration clause of their contract. KOGIES instituted an Application for Arbitration before the Korean Commercial Arbitration Board
(KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract as amended. KOGIES filed a Complaint for Specific Performance against PGSMC before the
Muntinlupa City Regional Trial Court (RTC). The RTC granted a temporary restraining order (TRO).

PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled to the TRO because Art. 15, the arbitration clause, was null
and void for being against public policy as it ousts the local courts of jurisdiction over the instant controversy [among others]. RTC issued an Order
denying the application for a writ because Art. 15 of the Contract as amended was invalid as it tended to oust the trial court or any other court
jurisdiction over any dispute that may arise between the parties. KOGIES points out that the arbitration clause under Art. 15 of the Contract as
amended was a valid arbitration stipulation under Art. 2044 of the Civil Code and as held by this Court in Chung Fu Industries (Phils.), Inc. The trial
court issued an Order denying KOGIES motion for reconsideration of the RTC Order.

KOGIES filed before the Court of Appeals (CA) a petition for certiorari seeking annulment of the RTC Orders and praying for the issuance of writs of
prohibition, mandamus, and preliminary injunction to enjoin the RTC and PGSMC from inspecting, dismantling, and transferring the machineries and equipment
in the Carmona plant, and to direct the RTC to enforce the specific agreement on arbitration to resolve the dispute. the CA rendered the assailed
Decision affirming the RTC Orders and dismissing the petition for certiorari filed by KOGIES. On the issue of the validity of the arbitration clause, the CA
agreed with the lower court that an arbitration clause which provided for a final determination of the legal rights of the parties to the contract by
arbitration was against public policy.

Hence, we have this Petition for Review on Certiorari under Rule 45.

ISSUE: WHETHER OR NOT THE ART. 15 OF THE CONTRACT [ARBITRATION CLAUSE] IS VALID.

HELD: YES. [RULING ON PROCEDURAL ISSUES NOT COVERED BY THIS SUMMARY, PLS READ FULL TXT ON THIS 😊]

Article 15. Arbitration. All disputes, controversies, or differences which may arise between the parties, out of or in relation to or in connection with
this Contract or for the breach thereof, shall finally be settled by arbitration in Seoul, Korea in accordance with the Commercial Arbitration Rules of the Korean
Commercial Arbitration Board. The award rendered by the arbitration(s) shall be final and binding upon both parties concerned.

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 refer to instances where a compromise or an arbitral award, as applied to Art.
2044 pursuant to Art. 2043, may be voided, rescinded, or annulled, but these would not denigrate the finality of the arbitral award.

The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not been shown to be contrary to any law, or against morals, good
customs, public order, or public policy. There has been no showing that the parties have not dealt with each other on equal footing. We find no reason why the
arbitration clause should not be respected and complied with by both parties.

ARBITRATION CLAUSE NOT CONTRARY TO PUBLIC POLICY


The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in accordance with the Commercial Arbitration Rules of the
KCAB, and that the arbitral award is final and binding, is not contrary to public policy. this Court had occasion to rule that an arbitration clause to resolve
differences and breaches of mutually agreed contractual terms is valid. we held that [i]n this jurisdiction, arbitration has been held valid and constitutional. Even
before the approval on June 19, 1953 of Republic Act No. 876, this Court has countenanced the settlement of disputes through arbitration. Republic Act No. 876
was adopted to supplement the New Civil Codes provisions on arbitration. Being an inexpensive, speedy and amicable method of settling
disputes, arbitration along with mediation, conciliation and negotiation is encouraged by the Supreme Court. Aside from unclogging judicial dockets,
arbitration also hastens the resolution of disputes, especially of the commercial kind. It is thus regarded as the wave of the future in international civil
and commercial disputes. Brushing aside a contractual agreement calling for arbitration between the parties would be a step backward. courts should
liberally construe arbitration clauses. Provided such clause is susceptible of an interpretation that covers the asserted dispute, an order to arbitrate should be
granted. Any doubt should be resolved in favor of arbitration.

RA 9285 INCORPORATED THE UNCITRAL MODEL LAW TO WHICH WE ARE A SIGNATORY

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.

While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a procedural law which has a retroactive effect. KOGIES
filed its application for arbitration before the KCAB on July 1, 1998 and it is still pending because no arbitral award has yet been rendered. Thus, RA 9285 is
applicable to the instant case. Well-settled is the rule that procedural laws are construed to be applicable to actions pending and undetermined at the time of their
passage, and are deemed retroactive in that sense and to that extent. As a general rule, the retroactive application of procedural laws does not violate any personal
rights because no vested right has yet attached nor arisen from them. Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL
Model Law are the following:

(1) The RTC must refer to arbitration in proper cases: Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the subject of
arbitration pursuant to an arbitration clause, and mandates the referral to arbitration in such cases

(2) Foreign arbitral awards must be confirmed by the RTC: Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to be
final and binding are not immediately enforceable or cannot be implemented immediately. Sec. 35 of the UNCITRAL Model Law stipulates the requirement for
the arbitral award to be recognized by a competent court for enforcement, which court under Sec. 36 of the UNCITRAL Model Law may refuse recognition or
enforcement on the grounds provided for. foreign arbitral awards when confirmed by the RTC are deemed not as a judgment of a foreign court but as a foreign
arbitral award, and when confirmed, are enforced as final and executory decisions of our courts of law. Thus, it can be gleaned that the concept of a final and
binding arbitral award is similar to judgments or awards given by some of our quasi-judicial bodies whose final judgments are stipulated to be final and binding,
but not immediately executory in the sense that they may still be judicially reviewed, upon the instance of any party. Therefore, the final foreign arbitral awards
are similarly situated in that they need first to be confirmed by the RTC.

(3) The RTC has jurisdiction to review foreign arbitral awards: Thus, while the RTC does not have jurisdiction over disputes governed by arbitration
mutually agreed upon by the parties, still the foreign arbitral award is subject to judicial review by the RTC which can set aside, reject, or vacate it. In this sense,
what this Court held in Chung Fu Industries (Phils.), Inc. relied upon by KOGIES is applicable insofar as the foreign arbitral awards, while final and binding, do
not oust courts of jurisdiction since these arbitral awards are not absolute and without exceptions as they are still judicially reviewable. Chapter 7 of RA 9285 has
made it clear that all arbitral awards, whether domestic or foreign, are subject to judicial review on specific grounds provided for.

(4) Grounds for judicial review different in domestic and foreign arbitral awards: The differences between a final arbitral award from an international or
foreign arbitral tribunal and an award given by a local arbitral tribunal are the specific grounds or conditions that vest jurisdiction over our courts to review the
awards. For foreign or international arbitral awards which must first be confirmed by the RTC, the grounds for setting aside, rejecting or vacating the award by
the RTC are provided under Art. 34(2) of the UNCITRAL Model Law. For final domestic arbitral awards, which also need confirmation by the RTC pursuant to
Sec. 23 of RA 876 and shall be recognized as final and executory decisions of the RTC, they may only be assailed before the RTC and vacated on the grounds
provided under Sec. 25 of RA 876.

(5) RTC decision of assailed foreign arbitral award appealable: Thereafter, the CA decision may further be appealed or reviewed before this Court through a
petition for review under Rule 45 of the Rules of Court.

PGSMC HAS REMEDIES TO PROTECT ITS INTERESTS

Based on the foregoing features of RA 9285, PGSMC must submit to the foreign arbitration as it bound itself through the subject contract. While it may
have misgivings on the foreign arbitration done in Korea by the KCAB, it has available remedies under RA 9285. Its interests are duly protected by the law
which requires that the arbitral award that may be rendered by KCAB must be confirmed here by the RTC before it can be enforced. it must be noted that there is
nothing in the subject Contract which provides that the parties may dispense with the arbitration clause.

UNILATERAL RESCISSION IMPROPER AND ILLEGAL

Having ruled that the arbitration clause of the subject contract is valid and binding on the parties, and not contrary to public policy; consequently, being
bound to the contract of arbitration, a party may not unilaterally rescind or terminate the contract for whatever cause without first resorting to arbitration. The
issues arising from the contract between PGSMC and KOGIES on whether the equipment and machineries delivered and installed were properly installed and
operational in the plant in Carmona, Cavite; the ownership of equipment and payment of the contract price; and whether there was substantial compliance by
KOGIES in the production of the samples, given the alleged fact that PGSMC could not supply the raw materials required to produce the sample LPG cylinders,
are matters proper for arbitration. Indeed, we note that on July 1, 1998, KOGIES instituted an Application for Arbitration before the KCAB
in Seoul, Korea pursuant to Art. 15 of the Contract as amended. Thus, it is incumbent upon PGSMC to abide by its commitment to arbitrate.

ISSUE ON OWNERSHIP OF PLANT PROPER FOR ARBITRATION


It is settled that questions of fact cannot be raised in an original action for certiorari. Whether or not there was full payment for the machineries and
equipment and installation is indeed a factual issue prohibited by Rule 65. However, what appears to constitute a grave abuse of discretion is the order of the
RTC in resolving the issue on the ownership of the plant when it is the arbitral body (KCAB) and not the RTC which has jurisdiction and authority over the said
issue. The RTCs determination of such factual issue constitutes grave abuse of discretion and must be reversed and set aside.

RTC HAS INTERIM JURISDICTION TO PROTECT THE RIGHTS OF THE PARTIES

Anent the Order denying the issuance of the injunctive writ paving the way for PGSMC to dismantle and transfer the equipment and machineries, we
find it to be in order considering the factual milieu of the instant case.

Firstly, while the issue of the proper installation of the equipment and machineries might well be under the primary jurisdiction of the arbitral body to
decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction to hear and grant interim measures to protect vested rights of the parties: “It is not incompatible
with an arbitration agreement for a party to request, before constitution of the tribunal, from a Court to grant such measure. xxx Any party may request
that provisional relief be granted against the adverse party. xxx Such relief may be granted: to prevent irreparable loss or injury xxx The order shall be
binding upon the parties.”

Art. 17(2) of the UNCITRAL Model Law on ICA defines an interim measure of protection as: (2) An interim measure is any temporary measure,
whether in the form of an award or in another form, by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral
tribunal orders a party to:
(a) Maintain or restore the status quo pending determination of the dispute;
(b) Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself;
(c) Provide a means of preserving assets out of which a subsequent award may be satisfied; or
(d) Preserve evidence that may be relevant and material to the resolution of the dispute.

As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to the courts for provisional reliefs. The Rules of the ICC, which
governs the parties arbitral dispute, allows the application of a party to a judicial authority for interim or conservatory measures. Likewise, Section 14 of
Republic Act (R.A.) No. 876 (The Arbitration Law) recognizes the rights of any party to petition the court to take measures to safeguard and/or conserve any
matter which is the subject of the dispute in arbitration. In addition, R.A. 9285, otherwise known as the Alternative Dispute Resolution Act of 2004, allows the
filing of provisional or interim measures with the regular courts whenever the arbitral tribunal has no power to act or to act effectively. It is thus beyond cavil
that the RTC has authority and jurisdiction to grant interim measures of protection.

Secondly, considering that the equipment and machineries are in the possession of PGSMC, it has the right to protect and preserve the equipment and
machineries in the best way it can. Considering that the LPG plant was non-operational, PGSMC has the right to dismantle and transfer the equipment and
machineries either for their protection and preservation or for the better way to make good use of them which is ineluctably within the management discretion of
PGSMC.
Thirdly, and of greater import is the reason that maintaining the equipment and machineries in Worths property is not to the best interest of PGSMC
due to the prohibitive rent while the LPG plant as set-up is not operational. PGSMC was losing PhP322,560 as monthly rentals or PhP3.87M for 1998 alone
without considering the 10% annual rent increment in maintaining the plant.

Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the preservation or transfer of the equipment and machineries as
an interim measure, yet on hindsight, the July 23, 1998 Order of the RTC allowing the transfer of the equipment and machineries given the non-recognition by
the lower courts of the arbitral clause, has accorded an interim measure of protection to PGSMC which would otherwise been irreparably damaged.

Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial amount based on the contract. Moreover, KOGIES is amply protected
by the arbitral action it has instituted before the KCAB, the award of which can be enforced in our jurisdiction through the RTC. Besides, by our decision,
PGSMC is compelled to submit to arbitration pursuant to the valid arbitration clause of its contract with KOGIES.

PGSMC TO PRESERVE THE SUBJECT EQUIPMENT AND MACHINERIES

Finally, while PGSMC may have been granted the right to dismantle and transfer the subject equipment and machineries, it does not have the right to
convey or dispose of the same considering the pending arbitral proceedings to settle the differences of the parties. PGSMC therefore must preserve and maintain
the subject equipment and machineries with the diligence of a good father of a family until final resolution of the arbitral proceedings and enforcement of the
award, if any.

2. TRANSFIELD PHILIPPINES, INC., vs. LUZON HYDRO CORPORATION, G.R.. No. 146717 May 19, 2006
Ds

TRANSFIELD PHILIPPINES, INC. V. LUZON HYDRO CORPORATION (2006)


FACTS:
The adjudication of this case proved to be a two-stage process as its constituent parts involve two segregate but equally important issues: the first stage relating to
the merits, specifically the question of the propriety of calling on the securities during the pendency of the arbitral proceedings, was resolved in favour of Luzon
Hydro Corporation (LHC) with the Court’s Decision, and the second stage involving the issue of forum-shopping. The disposal of the forum-shopping charge is
crucial to the parties to this case on account of its profound effect on the final outcome of the international arbitral proceedings which they have chosen as their
principal dispute resolution mechanism
Luzon Hydro Corporation (LHC) claims that Transfield Philippines, Inc. (TPI) is guilty of forum-shopping when it filed the following suits:
Civil Case No. 04-332 RTC Makati- for confirmation, recognition and enforcement of
Philippines the Third Partial Award in case 11264 TE/MW,
(filed on March 19, 2004) ICC International Court of
Arbitration, entitled Transfield Philippines, Inc. v.
Luzon Hydro Corporation.

ICC Case No. International Court of a request for arbitration pursuant to the Turnkey
11264/TE/MW, Transfield Philippines, Arbitration, International Contract between LHC and TPI
Inc. v. Luzon Hydro Corporation Chamber of
Commerce (ICC)- Singapore

(November 3, 2000)

G.R. No. Supreme Court- an appeal by certiorari with prayer for


146717, Transfield Philippines, Inc. v. Philippines TRO/preliminary prohibitory and mandatory
Luzon Hydro Corporation, Australia injunction, of the Court of Appeals Decision
and New Zealand Banking Group
Limited and Security Bank Corp.

(February 5, 2001)

TPI claims that it is LHC which is guilty of forum-shopping when it raised the issue of forum shopping not only in this case, but also in Civil Case No. 04-332,
and even asked for the dismissal of the other case based on this ground.
TPI filed its Manifestation and Reiterative Motion to set the case for oral argument, where it manifested that the International Chamber of Commerce (ICC)
arbitral tribunal had issued its Final Award ordering LHC to pay TPI US$24,533,730.00 (including the US$17,977,815.00 proceeds of the two standby letters of
credit).
TPI also submitted a copy thereof with a Supplemental Petition to the RTC, seeking recognition and enforcement of the said award.
TPIs verified petition in Civil Case No. 04-332, filed on 19 March 2004, was captioned as one For: Confirmation, Recognition and Enforcement of Foreign
Arbitral Award in Case 11264 TE/MW, ICC International Court of Arbitration, Transfield Philippines, Inc. v. Luzon Hydro Corporation (Place of arbitration:
Singapore). In the said petition, TPI prayed that the corresponding writ of execution to enforce Third Partial Award be enforced.

According to LHC, the filing of the above case constitutes forum-shopping since it is the same claim for the return of US$17.9 Million which TPI made before
the ICC Arbitral Tribunal and before this Court.
LHC adds that while Civil Case No. 04-332 is styled as an action for money, the Third Partial Award used as basis of the suit does not authorize TPI to seek a
writ of execution for the sums drawn on the letters of credit. LHC further argues that said award does not even contain an order for the payment of money, but
instead has reserved the quantification of the amounts for a subsequent determination. In fact, even the Fifth Partial Award, does not contain such orders.

LHC insists that the declarations or the partial awards issued by the ICC Arbitral Tribunal do not constitute orders for the payment of money and are not intended
to be enforceable as such, but merely constitute amounts which will be included in the Final Award and will be taken into account in determining the actual
amount payable to the prevailing party

ISSUE(S):
1. Whether the parties are guilty of forum shopping.
2. Whether the pendency of arbitral proceedings foreclose the resort to the courts for provisional reliefs.
3. Whether the partial awards issued by the ICC Arbitral Tribunal constitute orders for the payment of money hence cannot be enforced as such.

RULING:
1. The Court RESOLVES to DISMISS the charges of forum-shopping filed by both parties against each other.
For forum-shopping to exist, there must be (a) identity of parties, or at least such parties as represent the same interests in both actions; (b) identity of rights
asserted and relief prayed for, the relief being founded on the same facts; and (c) the identity of the two preceding particulars is such that any judgment rendered
in the other action will, regardless of which party is successful, amount to res judicata in the action under consideration.

ARBITRATION CASE (ICC Case No. CIVIL CASE No. 04-332 INSTANT PETITION
11264) (Supreme Court)

CAUSES OF -an arbitral proceeding commenced pursuant to - filed to enjoin LHC from -puts in issue the propriety of
ACTION the Turnkey Contract between TPI and LHC calling on the securities and drawing on the letters of credit
-to determine the primary issue of whether the respondent banks from during the pendency of the
(SC: No identity delays in the construction of the project were transferring or paying the arbitral case, and of course,
of causes of excused delays, which would consequently securities in case LHC calls absent a final determination by
action) render valid TPIs claims for extension of time on them. the ICC Arbitral tribunal.
to finish the project

-Together with the primary issue to be settled in


the arbitration case is the equally important - issuance of a writ of
question of monetary awards to the aggrieved execution to enforce the
party. Third Partial Award.
PARTIES involves TPI and LHC, the parties to the TPI and LHC only, they -includes Security Bank and
Turnkey Contract. being the parties to the ANZ Bank, the banks sought to
(SC: No identity arbitration agreement be enjoined from releasing the
of parties) whose partial award is funds of the letters of credit.
sought to be enforced.

2. The pendency of arbitral proceedings does not foreclose resort to the courts for provisional reliefs. The Rules of the ICC, which governs the parties’ arbitral
dispute, allows the application of a party to a judicial authority for interim or conservatory measures.

Likewise, Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Law) recognizes the rights of any party to petition the court to take measures to safeguard
and/or conserve any matter which is the subject of the dispute in arbitration. In addition, R.A. 9285, otherwise known as the Alternative Dispute Resolution Act
of 2004, allows the filing of provisional or interim measures with the regular courts whenever the arbitral tribunal has no power to act or to act effectively.

3. R.A. No. 9825 provides that international commercial arbitrations shall be governed by the Model Law on International Commercial Arbitration (Model Law)
adopted by the United Nations Commission on International Trade Law (UNCITRAL).

Moreover, the New York Convention, to which the Philippines is a signatory, governs the recognition and enforcement of foreign arbitral awards. The
applicability of the New York Convention in the Philippines was confirmed in Section 42 of R.A. 9285. Said law also provides that the application for the
recognition and enforcement of such awards shall be filed with the proper RTC.

Declarations in Third Partial Award do not constitute order for payment of money

While TPIs resort to the RTC for recognition and enforcement of the Third Partial Award sanctioned by both the New York Convention and R.A. 9285, its
application for enforcement, however, was premature, to say the least. True, the ICC Arbitral Tribunal had indeed ruled that LHC wrongfully drew upon the
securities, yet there is no order for the payment or return of the proceeds of the said securities. In fact, Paragraph 2142, which is the final paragraph of the Third
Partial Award, reads:

2142. All other issues, including any issues as to quantum and costs, are reserved to a future award.

In Re: Fifth Partial Award


The Fifth Partial Award issued by the Tribunal contains, among others, a declaration that while LHC wrongfully drew on the securities, the drawing
was made in good faith, under the mistaken assumption that the contractor, TPI, was in default. Thus, the tribunal ruled that while the amount drawn must be
returned, TPI is not entitled to any damages or interests due to LHCs drawing on the securities. Also, the tribunal in this Award declared:
The declarations do not constitute orders for the payment of money and are not intended to be enforceable as such. They merely constitute
amounts which will be included in the Final Award and will be taken into account in determining the actual amount payable
Final Award already constitutes orders for the payment of money
Finally, on 9 August 2005, the ICC Arbitral tribunal issued its Final Award, in essence awarding US$24,533,730.00, which included TPIs claim
of U$17,977,815.00 for the return of the securities from LHC.

The fact that the ICC Arbitral tribunal included the proceeds of the securities shows that it intended to make a final determination/award as to the said issue only
in the Final Award and not in the previous partial awards. This supports LHCs position that when the Third Partial Award was released and Civil Case No. 04-
332 was filed, TPI was not yet authorized to seek the issuance of a writ of execution since the quantification of the amounts due to TPI had not yet been settled
by the ICC Arbitral tribunal. Notwithstanding the fact that the amount of proceeds drawn on the securities was not disputed the application for the enforcement of
the Third Partial Award was precipitately filed. To repeat, the declarations made in the Third Partial Award do not constitute orders for the payment of money.

3. Agan vs. PIATCO, G.R. No. 155001, May 5, 2003


4. Tuna Processing Inc. vs. Phil. Kingford, Inc., (GRN 185582, 2/29/2012)

Tuna Processing, Inc. vs. Philippine Kingford, Inc.

FACTS:

Kanemitsu Yamaoka is the co-patentee of U.S. Patent No. 5,484,619, Philippine Letters Patent No. 31138, and Indonesian Patent No. ID0003911, collectively
known to as the Yamaoka Patent. As licensor, he and five (5) Philippine tuna processors, namely, Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy
Gina Tuna Resources, Santa Cruz Seafoods, Inc., and respondent Kingford entered into a Memorandum of Agreement (MOA) wherein the 5 tuna processors
were allowed to practice the processes claimed in Yamaoka Patent, enforce the patent and collect royalties.

For the implementation of the objective of the Agreement, Tuna Processors, Inc. (TPI), was established in the State of California. Due to a series of events, the
licensees, including respondent Kingford, withdrew from TPI and correspondingly defaulted on their obligations. 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, with the following award:

13.1 Within thirty (30) days from the date of transmittal of this Award to the Parties, pursuant to the terms of this award, the total sum to be
paid by RESPONDENT KINGFORD to CLAIMANT TPI, is the sum of ONE MILLION SEVEN HUNDRED FIFTY THOUSAND
EIGHT HUNDRED FORTY SIX DOLLARS AND TEN CENTS ($1,750,846.10).
(A) For breach of the MOA by not paying past due assessments, RESPONDENT KINGFORD shall pay CLAIMANT the total sum
of TWO HUNDRED TWENTY NINE THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS AND NINETY CENTS
($229,355.90) which is 20% of MOA assessments since September 1, 2005[;]

(B) For breach of the MOA in failing to cooperate with CLAIMANT TPI in fulfilling the objectives of the MOA, RESPONDENT
KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED SEVENTY ONE THOUSAND FOUR HUNDRED NINETY
DOLLARS AND TWENTY CENTS ($271,490.20)[;][14] and
(C) For violation of THE LANHAM ACT and infringement of the YAMAOKA 619 PATENT, RESPONDENT KINGFORD shall
pay CLAIMANT the total sum of ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS
($1,250,000.00). xxx

To enforce such, petitioner TPI filed a Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before the RTC of Makati City. The
petition was raffled to Branch 150 presided by Judge Elmo M. Alameda.

Kingford filed a Motion to Dismiss.[16] After the court denied the motion for lack of merit, Kingford sought for the inhibition of Judge Alameda and moved for
the reconsideration of the order denying the motion.

The case was re-raffled, in turn, granted respondents Motion for Reconsideration and dismissed the petition on the ground that the petitioner lacked legal capacity
to sue in the Philippines

TPI now seeks to nullify, in this instant Petition for Review on Certiorari under Rule 45, the order of the trial court dismissing its Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award.

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

Contention of RTC:

The RTC dismissed the Petition due to lack of legal capacity invoking Sec. 133 of the Corporation Code.

Sec. 133. Doing business without a license. - No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall
be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued
or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.

TPI has been doing business in the Philippines, without a license to do so issued by the concerned government agency of the Republic of the Philippines hence
TPI cannot be permitted to maintain or intervene in any action, suit or proceedings in any court or administrative agency of the Philippines

Contention of TPI:

TPI invoked Republic Act 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, the Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award should be recognized.

the Alternative Dispute Resolution Act of 2004 shall apply in this case as it is a law especially enacted to actively promote party autonomy in the resolution of
disputes or the freedom of the party to make their own arrangements to resolve their disputes.[29] It specifically provides exclusive grounds available to the party
opposing an application for recognition and enforcement of the arbitral award.

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; or
(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; or
(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; or
(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.

Clearly, not one of these exclusive grounds touched on the capacity to sue of the party seeking the recognition and enforcement of the award.

Rule 13.1 of the Special Rules of Court on Alternative Dispute Resolution likewise provides that any party to a foreign arbitration may petition the court to
recognize and enforce a foreign arbitral award. Capacity to sue is not included in the required contents of the petition.
B. Labor Dispute (with CBA)

5. Manila Electric Company vs. Hon Secretary of Labor Leonardo Quisumbing and MERALCO EMPLOYEES AND WORKERS ASSOCIATION
(MEWA), G.R. No. 127598. August 1, 2000

[G.R. No. 127598. August 1 2000]


MANILA ELECTRIC COMPANY, petitioner, vs. THE HONORABLE SECRETARY OF LABOR
LEONARDO QUISUMBING AND MERALCO EMPLOYEES AND WORKERS ASSOCIATION
(MEWA), respondents.

YNARES-SANTIAGO, J.:

 In a Supreme Court Resolution, a motion for reconsideration is PARTIALLY GRANTED and the assailed Decision is MODIFIED as follows: (1)
the arbitral award shall retroact from December 1, 1995 to November 30, 1997; and (2) the award of wage is increased from the original amount of One
Thousand Nine Hundred Pesos (P1,900.00) to Two Thousand Pesos (P2,000.00) for the years 1995 and 1996. In the assailed resolution, it was held:

Labor laws are silent as to when an arbitral award in a labor dispute where the Secretary (of Labor and Employment) had assumed
jurisdiction by virtue of Article 263 (g) of the Labor Code shall retroact.

In general, a CBA negotiated within six months after the expiration of the existing CBA retroacts to the day immediately following such date
and if agreed thereafter, the effectivity depends on the agreement of the parties.

On the other hand, the law is silent as to the retroactivity of a CBA arbitral award or that granted not by virtue of the mutual agreement of the
parties but by intervention of the government.

Despite the silence of the law, the Court rules herein that CBA arbitral awards granted after six months from the expiration of the last CBA
shall retroact to such time agreed upon by both employer and the employees or their union.

Absent such an agreement as to retroactivity, the award shall retroact to the first day after the six-month period following the expiration of
the last day of the CBA should there be one.
In the absence of a CBA, the Secretarys determination of the date of retroactivity as part of his discretionary powers over arbitral awards
shall control.

 Petitioner Arguments:

- While it alludes to the Secretary’s discretionary powers only in the absence of a CBA, Article 253-A of the Labor Code always presupposes the
existence of a prior or subsisting CBA; hence the exercise by the Secretary of his discretionary powers will never come to pass.
- The Resolution contravenes the jurisprudential rule laid down in the cases of Union of Filipro Employees v. NLRC,[1] Pier 8 Arrastre and
Stevedoring Services v. Roldan-Confesor[2] and St. Luke s Medical Center v. Torres.
- The Supreme Court erred in holding that the effectivity of CBA provisions are automatically retroactive. In the absence of an agreement between
the parties, an arbitrated CBA takes on the nature of any judicial or quasi-judicial award; it operates and may be executed only prospectively
unless there are legal justifications for its retroactive application.
- Petitioner assigns as error this Courts interpretation of certain acts of petitioner as consent to the retroactive application of the arbitral award.
- The Resolution is internally flawed because when it held that the award shall retroact to the first day after the six-month period following the
expiration of the last day of the CBA, the reckoning date should have been June 1, 1996, not December 1, 1995, which is the last day of the three-
year lifetime of the economic provisions of the CBA.
- The retroactive application of the arbitral award will cost it no less than P800 Million. Thus, petitioner prays that the two-year term of the CBA be
fixed from December 28, 1996 to December 27, 1998
- On the award of P2,000.00 be paid to petitioners rank-and-file employees during this two-year period: Petitioner prays that the award of P2,000.00
be made to retroact to June 1, 1996 as the effectivity date of the CBA.

 Respondent’s arguments:

- The Motion for Partial Modification was unauthorized inasmuch as Mr. Manuel M. Lopez, President of petitioner corporation, has categorically
stated in a memorandum to the rank-and-file employees that management will comply with this Courts ruling and will not file any motion for
reconsideration;
- The assailed Resolution should be modified to conform to the St. Lukes ruling, to the effect that, in the absence of a specific provision of law
prohibiting retroactivity of the effectivity of arbitral awards issued by the Secretary of Labor pursuant to Article 263(g) of the Labor Code, he is
deemed vested with plenary and discretionary powers to determine the effectivity thereof.

HELD: the Motion for Partial Modification is GRANTED. The Resolution of February 22, 2000 is PARTIALLY MODIFIED as follows:

(a) the arbitral award shall retroact to the two-year period from June 1, 1996 to May 31, 1998;

(b) the increased wage award of Two Thousand Pesos (P2,000.00) shall be paid to the rank-and-file employees during the said two-year period.
This Resolution is subject to the monetary advances granted by petitioner to said employees during the pendency of this case, assuming such advances
had actually been distributed to them.

- This Court has re-examined the assailed portion of the Resolution in this case vis--vis the rulings cited by petitioner. Invariably, these cases
involve Articles 253-A in relation to Article 263 (g)[4]of the Labor Code. Article 253-A is hereunder reproduced for ready reference:

ART. 253-A. Terms of a collective bargaining agreement. --- xxx Any agreement on such other provisions of the Collective Bargaining
Agreement entered into within six (6) months from the date of expiry of the term of such other provisions as fixed in such Collective
Bargaining Agreement, shall retroact to the day immediately following such date. If any such agreement is entered into beyond six months,
the parties shall agree on the duration of retroactivity thereof.

- In resolving the motions for reconsideration in this case, this Court took into account the fact that petitioner belongs to an industry imbued with
public interest. As such, this Court cannot ignore the enormous cost that petitioner will have to bear as a consequence of the full
retroaction of the arbitral award to the date of expiry of the CBA, and the inevitable effect that it would have on the national economy.

On the other hand, under the policy of social justice, the law bends over backward to accommodate the interests of the working class on the
humane justification that those with less privilege in life should have more in law.

- Balancing these two contrasting interests, this Court turned to the dictates of fairness and equitable justice and thus arrived at a formula
that would address the concerns of both sides.

Hence, this Court held that the arbitral award in this case be made to retroact to the first day after the six-month period following the
expiration of the last day of the CBA, i.e., from June 1, 1996 to May 31, 1998.

This Court, therefore, maintains the foregoing rule in the assailed Resolution pro hac vice (for or on this occasion only).

- It must be clarified, however, that consonant with this rule, the two-year effectivity period must start from June 1, 1996 up to May 31, 1998,
not December 1, 1995 to November 30, 1997.
- During the interregnum between the expiration of the economic provisions of the CBA and the date of effectivity of the arbitral award, it is
understood that the hold-over principle shall govern, viz:

"[I]t shall be the duty of both parties to keep the status quo and to continue in full force and effect the terms and conditions of the existing
agreement during the 60-day freedom period and/or until a new agreement is reached by the parties." Despite the lapse of the formal
effectivity of the CBA the law still considers the same as continuing in force and effect until a new CBA shall have been validly executed.[16]
- This Court finds that petitioners prayer, that the award of Two Thousand Pesos shall be paid to rank-and-file employees during the two-year
period, is well-taken. The award does not extend to supervisory employees of petitioner.

6. CIRTEK EMPLOYEES LABOR UNION-FEDERATION OF FREE WORKERS v. CIRTEK ELECTRONICS, INC., G.R. No. 190515 , November
15, 2010

G.R. No. 190515 November 15, 2010

CIRTEK EMPLOYEES LABOR UNION-FEDERATION OF FREE WORKERS, Petitioner,

vs.

CIRTEK ELECTRONICS, INC., Respondent.

CARPIO MORALES, J.:

FACTS: Cirtek Electronics, Inc. (respondent), had an existing Collective Bargaining Agreement (CBA) with Cirtek Employees Labor Union-Federation of Free
Workers (petitioner) for the period January 1, 2001 up to December 31, 2005. Prior to the 3rd year of the CBA, the parties renegotiated its economic provisions
but failed to reach a settlement, particularly on the issue of wage increases. Petitioner thereupon declared a bargaining deadlock and filed a Notice of Strike with
the National Conciliation and Mediation Board-Regional Office No. IV. Respondent, upon the other hand, filed a Notice of Lockout on June 16, 2004.

While the conciliation proceedings were ongoing, respondent placed seven union officers including the President, a Vice President, the Secretary and the
Chairman of the Board of Directors under preventive suspension for allegedly spearheading a boycott of overtime work. The officers were eventually dismissed
from employment, prompting petitioner to file another Notice of Strike which was, after conciliation meetings, converted to a voluntary arbitration case. The
dismissal of the officers was later found to be legal, hence, petitioner appealed.

In the meantime, as amicable settlement of the CBA was deadlocked, petitioner went on strike on June 20, 2005. By Order dated June 23, 2005, the Secretary of
Labor assumed jurisdiction over the controversy and issued a Return to Work Order.

Before the Secretary of Labor could rule on the controversy, respondent created a Labor Management Council (LMC) through which it concluded with the
remaining officers of petitioner a Memorandum of Agreement (MOA) providing for daily wage increases of ₱6.00 per day effective January 1, 2004 and ₱9.00
per day effective January 1, 2005. Petitioner submitted the MOA via Motion and Manifestation to the Secretary of Labor, alleging that the remaining officers
signed the MOA under respondent’s assurance that should the Secretary order a higher award of wage increase, respondent would comply.

By Order dated March 16, 2006, the Secretary of Labor resolved the CBA deadlock by awarding a wage increase of from ₱6.00 to ₱10.00 per day effective
January 1, 2004 and from ₱9.00 to ₱15.00 per day effective January 1, 2005, and adopting all other benefits as embodied in the MOA.
Respondent moved for a reconsideration of the Decision as petitioner’s vice-president submitted a "Muling Pagpapatibay ng Pagsang-ayon sa Kasunduan na may
Petsang ika-4 ng Agosto 2005," stating that the union members were waiving their rights and benefits under the Secretary’s Decision. Reconsideration of the
Decision was denied. Hence, respondent filed a petition for certiorari before the Court of Appeals.

CA ruled in favor of respondent and accordingly set aside the Decision of the Secretary of Labor. It held that the Secretary of Labor gravely abused his discretion
in not respecting the MOA. MR was denied. Hence, this petition.

ISSUES: 1) whether the Secretary of Labor is authorized to give an award higher than that agreed upon in the MOA, and

2) whether the MOA was entered into and ratified by the remaining officers of petitioner under the condition, which was not incorporated in the MOA, that
respondent would honor the Secretary of Labor’s award in the event that it is higher.

RULING: The Court resolves both issues in the affirmative.

It is well-settled that the Secretary of Labor, in the exercise of his power to assume jurisdiction under Art. 263 (g)11 of the Labor Code, may resolve all issues
involved in the controversy including the award of wage increases and benefits. While an arbitral award cannot per se be categorized as an agreement voluntarily
entered into by the parties because it requires the intervention and imposing power of the State thru the Secretary of Labor when he assumes jurisdiction, the
arbitral award can be considered an approximation of a collective bargaining agreement which would otherwise have been entered into by the parties, hence, it
has the force and effect of a valid contract obligation.

That the arbitral award was higher than that which was purportedly agreed upon in the MOA is of no moment. For the Secretary, in resolving the CBA
deadlock, is not limited to considering the MOA as basis in computing the wage increases. He could, as he did, consider the financial documents submitted
by respondent as well as the parties’ bargaining history and respondent’s financial outlook and improvements as stated in its website.

The appellate court’s brushing aside of the "Paliwanag" and the minutes of the meeting that resulted in the conclusion of the MOA because they were not verified
and notarized, thus violating, so the appellate court reasoned, the rules on parol evidence, does not lie. Like any other rule on evidence, parol evidence should not
be strictly applied in labor cases.

While a contract constitutes the law between the parties, this is so in the present case with respect to the CBA, not to the MOA in which even the union’s
signatories had expressed reservations thereto. But even assuming arguendo that the MOA is treated as a new CBA, since it is imbued with public interest, it
must be construed liberally and yield to the common good.

While the terms and conditions of a CBA constitute the law between the parties, it is not, however, an ordinary contract to which is applied the
principles of law governing ordinary contracts. A CBA, as a labor contract within the contemplation of Article 1700 of the Civil Code of the Philippines
which governs the relations between labor and capital, is not merely contractual in nature but impressed with public interest, thus, it must yield to the
common good. As such, it must be construed liberally rather than narrowly and technically, and the courts must place a practical and realistic construction upon
it, giving due consideration to the context in which it is negotiated and purpose which it is intended to serve.
WHEREFORE, the petition is GRANTED. The Decision dated September 24, 2009 and the Resolution dated December 2, 2009 of the Court of Appeals are
REVERSED and SET ASIDE and the Order dated March 16, 2006 and Resolution dated August 12, 2008 of the Secretary of Labor are REINSTATED.

SO ORDERED.

C. Construction Arbitration

7. (MCWD vs. MACTAN ROCK INDUSTRIES, INC., (G.R. NO. 172438, JULY 4, 2012)

Doctrine: Jurisdiction of CIAC

The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the law. It cannot be fixed by the will of the parties to the
dispute, nor can it be expanded or diminished by stipulation or agreement. The text of Section 4 of E.O. No. 1008 is broad enough to cover any dispute arising
from, or connected with, construction contracts, whether these involve mere contractual money claims or execution of the works. This jurisdiction cannot be
altered by stipulations restricting the nature of construction disputes, appointing another arbitral body, or making that body’s decision final and binding.

Thus, unless specifically excluded, all incidents and matters relating to construction contracts are deemed to be within the jurisdiction of the CIAC.
Based on the previously cited provision outlining the CIACs jurisdiction, it is clear that with regard to contracts over which it has jurisdiction, the only matters
that have been excluded by law are disputes arising from employer-employee relationships, which continue to be governed by the Labor Code of the Philippines.
Moreover, this is consistent with the policy against split jurisdiction.

Parties:

Petitioner Metropolitan Cebu Water District (MCWD) is a government-owned and controlled corporation , is mandated to supply water within its
service area in the cities of Cebu, Talisay, Mandaue, and Lapu-Lapu and the municipalities of Compostela, Liloan, Consolacion, and Cordova in the Province of
Cebu.

Respondent Metro Rock Industries, Inc. (MRII) is a domestic corporation with principal office address at the 2nd Level of the Waterfront Cebu Hotel
and Casino, Lahug, Cebu City.

Facts:
MCWD entered into a Water Supply Contract (the Contract) with MRII wherein it was agreed that the latter would supply MCWD with potable water,
in accordance with the World Health Organization (WHO) standard or the Philippine national standard, with a minimum guaranteed annual volume.

MRII filed a Complaint against MCWD with the CIAC. MRII sought the reformation of Clause 17 of the Contract, or the Price Escalation/De-
Escalation Clause, in order to include Capital Cost Recovery in the price escalation formula, and to have such revised formula applied from 1996 when the
bidding was conducted, instead of from the first day when MRII started selling water to MCWD. It also sought the payment of the unpaid price
escalation/adjustment, and the payment of unpaid variation/extra work order and interest/cost of money up to December 31, 2003.

MCWD filed its Answer dated April 27, 2004, which included a motion to dismiss the complaint on the ground that the CIAC had no jurisdiction over
the case, as the Contract was not one for construction or infrastructure.

Decision of the CIAC

The CIAC decision, ordering the reformation of Clause 17 of the Water Supply Contract and ordering Respondent Metropolitan Cebu Water District to
pay Claimant, Mactan Rock Industries, Inc[.] under the reformed Clause 17 of the Water Supply Contract, the net amount of Php12,126,296.70 plus legal interest
of six percent (6%) per annum from the (sic) March 15, 2004, the date of filling (sic) of the case with the Construction Industry Arbitration Commission, the rate
increased to twelve percent (12%) per annum from the date the herein Decision have (sic) become final and executory until the foregoing amounts shall have
been fully paid[.]

Decision of the CA in CA-G.R. SP No. 85579 - Petition for certiorari under Rule 65 with the Court
of Appeals questioning the jurisdiction of the CIAC

Meanwhile, on October 28, 2005, the CA in its decision in the First Petition upheld the jurisdiction of the CIAC over the case. The CA held that when
parties agree to settle their disputes arising from or connected with construction contracts, the CIAC acquires primary jurisdiction. Citing Philrock Inc. v.
Construction Industry Arbitration Commission, the CA stated that the CIAC may resolve not only the merits of such controversies, but may also award damages,
interest, attorneys fees, and expenses of litigation, when appropriate. And, Second, the CA held that the claims in question fall under the jurisdiction of the CIAC.
Thus:

MCWDs motion for reconsideration of the decision in the First Petition was still pending when it filed the petition for review under Rule 43 (Second
Petition) appealing the decision of the CIAC. The motion for reconsideration was eventually denied in a Resolution dated May 3, 2006. MCWD did not appeal
from the denial of the motion. It, thus, became final and executory.

Decision of the CA in CA-G.R. CEB SP. No. 00623 Petition for review under Rule 43 appealing
the decision of the CIAC
MCWD filed a petition for review under Rule 43 with the CA which was docketed as CA-G.R. CEB SP. No. 00623. The CA, however, dismissed the
petition in its Decision dated February 20, 2006. The Court therein stated that the issue of jurisdiction had already been resolved by the 18th Division in the First
Petition, where the CA upheld the jurisdiction of the CIAC over Arbitration Case No. 12-2004.

Citing jurisprudence, the CA also ruled that there being an arbitration clause in the Contract, the action for reformation of contract instituted by MRII
in this case fell squarely within the jurisdiction of the CIAC, not the courts. In relation to this, the CA noted that the present rule is that courts will look with
favor upon amicable agreements to settle disputes through arbitration, and will only interfere with great reluctance to anticipate or nullify the action of the
arbitrator. MCWD being a signatory and a party to the Water Supply Contract, it cannot escape its obligation under the arbitration clause.

The CA also held that the CIAC did not err in their finding. MCWD filed a motion for reconsideration but it was denied in the CA Resolution
dated March 30, 2006.

Issue: WON CIAC had no jurisdiction over the case.

Held: CIAC had jurisdiction over the case.

The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines, whether the disputes arise before or after the completion of the contract, or after the abandonment or breach thereof. These
disputes may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary
arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship; violation of the terms of
agreement; interpretation and/or application of contractual provisions; amount of damages and penalties; commencement time and delays; maintenance and
defects; payment default of employer or contractor and changes in contract cost.

Excluded from the coverage of this law are disputes arising from employer-employee relationships which shall continue to be covered by the Labor
Code of the Philippines.

In its Decision in the First Petition, the CA affirmed the arbitral body’s finding in CIAC Case No. 12-2004 that the case was within its jurisdiction.
Such decision having become final, it is beyond the jurisdiction of this Court, or any court or body, for that matter, to review or modify, even supposing for the
sake of argument, that it is indeed erroneous.

The jurisdiction of the CIAC may include but is not limited to underscoring the expansive character of the CIAC’s jurisdiction. Very clearly, the CIAC
has jurisdiction over a broad range of issues and claims arising from construction disputes, including but not limited to claims for unrealized profits and
opportunity or business losses. What E.O. No. 1008 emphatically excludes is only disputes arising from employer-employee relationships. CIAC has been held to
have jurisdiction over the Contract, it follows that it has jurisdiction to order the reformation of the Contract as well.

MCWD can validly refuse to participate in the arbitration proceedings, but the CIAC could still proceed with the case even if the MCWD refused to
participate in the arbitration proceedings.

8. PRO BUILDERS, INC., vs. TG UNIVERSAL BUSINESS VENTURES, INC.,(G.R. No. 194960, February 03, 2016

G.R. No. 194960


February 3, 2016

Ponente: Perez, J.:

Petition: This Petition for Review on Certiorari assails the Decision dated 13 October 2010 and Resolution dated 16 December 2010 issued by the Court of
Appeals in CA-G.R. SP No. 106407 which modified the Decision of the Arbitral Tribunal of the Construction Industry Arbitration Commission (CIAC).

Parties of the case:


Petitioner: Pro Builders ,Inc.
Respondent: TG Universal Business Ventures, Inc.

Facts:

On 29 May 2007, TG Universal Business Ventures, Inc. (TG) entered into an Owner-Contractor Agreement (Agreement) with Pro Builders, Inc. (Pro Builders)
for the construction of a 15-storey building at Asiatown LT. Park in Lahug, Cebu City. In consideration of the sum of Seventy Million Pesos (P70,000,000.00),
Pro Builders undertook to provide the labor, materials and equipment, and to perform all structural works for the project. On the other hand, TG undertook to pay
Pro Builders a down payment of Twenty-One Million Pesos (P21,000,000.00), or equivalent to 30% of the amount of contract. Pursuant to the Agreement, the
completion of the project is slated on 31 May 2008 but is subject to extension upon request of Pro Builders to TG, through its Project Manager, Prime Edifice,
Inc., on the grounds of force majeure or fortuitous event and/or additional work approved by TG, or any other special circumstances as may be determined by
TG. Upon signing of the Agreement, Pro Builders posted a performance bond obtained from Prudential Guarantee and Assurance, Inc.

The Notice of Award was issued to Pro Builders on 15 May 2007. The project site was turned over to Pro Builders on 22 May 2007. The construction was set to
officially begin on 1 June 2007.

On 19 June 2007, Pro Builders received the 30% down payment equivalent to P21,000,000.00.
Extremely unsatisfied with the progress of the works, TG took over the project, hired another contractor to finish the work, and demanded the balance of its
overpayment from Pro Builders. Due to the dismal performance of Pro Builders, TG invoked Article 9 of the Agreement or the Option to Complete Work
Takeover. Pro Builders refused to turn over the works and demanded the payment of its unpaid progress billings.

The parties failed to reach an amicable settlement, prompting TG to file a Request for Arbitration with the CIAC praying for the payment of cost to complete the
project, amounting to P13,489,807.48.1 On the other hand, Pro Builders counterclaimed for the payment of damages amounting to P10,700,092.11.2

Arbitral Tribunal's Decision (1 October 2008)

The Arbitral Tribunal found that both parties failed to comply with their respective obligations and responsibilities under the Agreement. It also ruled that Pro
Builders is entitled to P2, 104,642.11 as the amount of unpaid accomplishment by subtracting the P21,000.000.00 down payment from the total accomplishment
of P23, 104,642.11.

TG filed a petition for review with the Court of Appeals challenging in part the Decision of the Arbitral Tribunal.

The Court of Appeals Decision (13 October 2010)

The Court of Appeals rendered the assailed Decision favoring TG. It found that all inadequate performance was attributable to Pro Builders alone. Pro Builders
filed a motion for reconsideration but it was denied by the appellate court

Issues:
1) Whether or not the Supreme Court shall take cognizance to review issues based on question of fact.
2) Whether or not Pro Builders is entitled to the unpaid work accomplishment wholly based on progress billings submitted to TG Universal through its
Project Manager, Prime Edifice, Inc.

1 P5,582,92 l. l 0 - unconsumed down payment (21,000,000.00 - 15,417,078.90 assessed value of Pro Builders accomplishment as of
15 October 2007); P7, 771,553 .04 - additional expenses by engaging another contractor; P135,333.34 - miscellaneous expenses
(violation of Asiatown's guidelines, damage to property, lot rental); P700,000.00 -Litigation expenses; and P300,000.00-Attorney’s
fees.

2 P2,104,642.11 - Unpaid work accomplishment (P23, 104,642.11-21,000,000.00); P5,000,000.00 - compensatory damages; P1,500,00.00 -
rental deposit of the forms and scaffoldings for the period of one year; P157,000.00 -surety bond; P142,000.00- construction all risk bond;
P96,450.00- performance bond; P1,000,000.00- litigation expenses; P500,000.00- exemplary damages; and P200,000.00- attorney’s fees.
Held:

1) Yes. Only when the factual findings of the Court of Appeals and the trial court are contradictory. The factual finding of the Court of Appeals is contrary to
the Arbitral Tribunal. This necessitates a review of the evidence adduced in this case.

On the Procedural Issue

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. Section 19 thereof declares the arbitral award of the CIAC as final and unappealable, except on questions of law, which are appealable to the
Supreme Court. By virtue of 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 Court of Appeals 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. Hence, the Court of Appeals is correct in taking cognizance of
TG's appeal filed via petition for review.

2) Yes. The Arbitral Tribunal's expertise is well recognized in the field of construction arbitration, as CIAC is indeed the body upon which the law vested with
exclusive jurisdiction over any dispute arising from, or connected with construction contracts.

The progress billings prepared by Pro Builders provide an accurate summary of Pro Builders' accomplishments. Article 5.03 of the Agreement states: 3

Clearly, it is the Project Manager's responsibility to evaluate, certify and recommend the payment of the progress billings. Pursuant to the Agreement, the
appropriate recommendation should be completed within fifteen (15) calendar days from receipt of complete billing documents. Pro Builders sent four (4)

3 5.03 The CONTRACTOR shall submit to the OWNER through the PROJECT MANAGER progress billing based on actual accomplishment of
the various phases of the PROJECT. The PROJECT MANAGER shall process, certify to the correctness of, and make appropriate
recommendations, and based on the recommendations, the OWNER shall make the actual payments. The appropriate recommendation
shall be completed within fifteen (15) calendar days from receipt of complete billing documents. Final Payment shall be made in
accordance with Article 17 of this Agreement.
progress billings to TG from August to October 2007. None of these progress billings were acted upon, paid or contested by TG in violation of the
Agreement. On account of TG's failure to act upon the progress billings, it had effectively waived its right to question the accuracy and veracity of Pro Builders'
computation, thus the amounts stated in the progress billings are deemed valid and binding on TG.

In F.F. Cruz & Co., Inc. v. HR Construction Corp., the Court held that the owner is barred from contesting the contractor's valuation of the completed
works when it waived its right to demand the joint measurement requirement. In the same vein, truly with more reason should it be concluded that TG had
effectively waived its right to contest the computations in the progress billings since it failed to even act, one way or the other, on the progress billings within the
time allowed under the Agreement.

As shown by the numbers, Pro Builders is entitled to payment of P2, 104.,642.11 for unpaid accomplishment of works, which amount is arrived at by
subtracting the 30% down payment from the total unpaid billings and adding the change order.

9. NATIONAL TRANSMISSION CORPORATION, vs. ALPHAOMEGA INTEGRATED CORPORATION, G.R. No. 184295 July 30, 2014
10. STRONGHOLD INSURANCE COMPANY, INC. v. SPOUSES RUNE AND LEA STROEM, G.R. No. 204689, January 21, 2015

STRONGHOLD INSURANCE COMPANY, INC. v. SPOUSES RUNE AND LEA STROEM, G.R. No. 204689, January 21, 2015

This case involves the proper invocation of the Construction Industry Arbitration Committee's (CIAC) jurisdiction through an arbitration clause in a
construction contract. The main issue here is whether the dispute liability of a surety under a performance bond is connected to a construction contract and,
therefore, falls under the exclusive jurisdiction of the CIAC.

FACTS:

Spouses Rune and Lea Stroem entered into an Owners-Contractor Agreement with Asis-Leif & Company, Inc. for the construction of a two-storey house on the
lot owned by Spouses Stroem in Antipolo, Rizal. The Contractor, as required by the Agreement, secured a performance bond from Stronghold Insurance
Company for Php4.5 million. The project was not finished on time, prompting the Owner to file a complaint in court against the Contractor and the Surety. The
spouses Stroem filed a Complaint (with Prayer for Preliminary Attachment) for breach of contract and for sum of money with a claim for damages against Asis-
Leif, Ms. Cynthia Asis-Leif, and Stronghold. Only Stronghold was served summons. Ms. Cynthia Asis-Leif allegedly absconded and moved out of the country.

The Regional Trial Court rendered a judgment in favor of the Spouses Stroem. The trial court ordered Stronghold to pay the Spouses Stroem Php4,500,000.00
with 6% legal interest from the time of first demand. CA affirmed the lower court and increased the attorney's fees awarded to the Stroem spouses.

ISSUE:
Whether or not the dispute should have been brought to arbitration under the rules of the Construction Industry Arbitration Commission, in light of the arbitration
clause in the Agreement.

HELD:

The Supreme Court rejected this argument ruling that “contracts take effect only between the parties, their assigns and heirs” and, not being a party to the
Agreement, the Surety cannot invoke the arbitration clause and the jurisdiction of the CIAC.

RATIO:

Executive Order No. 1008 is clear in defining the exclusive jurisdiction of the CIAC:

SEC. 35. Coverage of the Law. - Construction disputes which fall within the original and exclusive jurisdiction of the Construction Industry Arbitration
Commission shall include those between or among parties to, or who are otherwise bound by, an arbitration agreement, directly or by reference whether such
parties are project owner, contractor, subcontractor, quantity surveyor, bondsman or issuer of an insurance policy in a construction project.

This court has previously held that a performance bond, which is meant "to guarantee the supply of labor, materials, tools, equipment, and necessary supervision
to complete the project[,]" is significantly and substantially connected to the construction contract and, therefore, falls under the jurisdiction of the CIAC.

In the Prudential v. Anscor case:

In the case at bar, the performance bond was silent with regard to arbitration. On the other hand, the construction contract was clear as to arbitration in the
event of disputes. Applying the said doctrine, we rule that the silence of the accessory contract in this case could only be construed as acquiescence to the main
contract. The construction contract breathes life into the performance bond. We are not ready to assume that the performance bond contains reservations with
regard to some of the terms and conditions in the construction contract where in fact it is silent. On the other hand, it is more reasonable to assume that the
party who issued the performance bond carefully and meticulously studied the construction contract that it guaranteed, and if it had reservations, it would have
and should have mentioned them in the surety contract.

It was clear in the Prudential case that the Agreement incorporated the performance bond contract; thus, it must be interpreted along with the rest of the
Agreement.

In the Stroem case, the SC ruled that:

1. The performance bond contract was not deemed incorporated in the main contract. The Bond contract merely referenced the Agreement.

2. In terms of jurisdiction, where a surety in a construction contract actively participates in a collection suit, it is estopped from raising jurisdiction later. The
Surety has submitted to the jurisdiction of the Court through its active participation.
{* The Stronghold case suggests that persons entering into agreements which are ancillary to a main agreement (e.g. a performance bond) should be aware of the
risk that they may be impleaded in arbitration proceedings under the main agreement (even if they are not themselves parties thereto) if said agreement contains
language incorporating the said ancillary agreement. Steps should be taken by said persons to clarify, whether in the main agreement or in the ancillary
agreement, that they do not agree to be bound – if this is the case, by the arbitration clause of the main agreement.}

{ * There are two acts which may vest the CIAC with jurisdiction over a construction dispute. One is the presence of an arbitration clause in a construction
contract, and the other is the agreement by the parties to submit the dispute to the CIAC.}

11. GERARDO LANUZA, JR. AND ANTONIO O. OLBES, v. BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS,
RUFO B. COLAYCO, MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS, G.R. No. 174938, October 01, 2014

GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners,


vs.
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B. COLAYCO, MAXIMO G. LICAUCO III, AND
BENJAMIN C. RAMOS, Respondents.

FACTS:

Preliminaries: This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006 decision and October 5, 2006 resolution. The Court of Appeals affirmed
the trial court's decision holding that petitioners, as director, should submit themselves as parties to the arbitraition proceedings between BF Corporation and
Shangri-La Properties, Inc. (Shangri-La).

The Case:

Facts:

In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against Shangri-Land the members of its board of directors: Alfredo C.
Ramos, Rufo B.Colayco, Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo G. Licauco III, and Benjamin C. Ramos. 1

BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it entered into agreements with Shangri-La wherein it undertook to
construct for Shangri-La a mall and a multilevel parking structure along EDSA.
Shangri-La had been consistent in paying BF Corporation in accordance with its progress billing statements.3 However, by October 1991, Shangri-La started
defaulting in payment.4

BF Corporation alleged that Shangri-La induced BF Corporation to continue with the construction of the buildings using its own funds and credit despite
Shangri-La’s default.5 According to BF Corporation, ShangriLa misrepresented that it had funds to pay for its obligations with BF Corporation, and the delay in
payment was simply a matter of delayed processing of BF Corporation’s progress billing statements.6

BF Corporation eventually completed the construction of the buildings.7 Shangri-La allegedly took possession of the buildings while still owing BF
Corporation an outstanding balance.8

BF Corporation alleged that despite repeated demands, Shangri-La refused to pay the balance owed to it.9 It also alleged that the Shangri-La’s directors were in
bad faith in directing Shangri-La’s affairs. Therefore, they should be held jointly and severally liable with Shangri-La for its obligations as well as for the
damages that BF Corporation incurred as a result of Shangri-La’s default.10

On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III, and Benjamin C. Ramos filed a motion to suspend the proceedings
in view of BF Corporation’s failure to submit its dispute to arbitration, in accordance with the arbitration clauseprovided in its contract, quoted in the motion as
follows:

35. Arbitration

(1) Provided always that in case any dispute or difference shall arise between the Owner or the Project Manager on his behalf and the Contractor, either during
the progress or after the completion or abandonment of the Works as to the construction of this Contract or as to any matter or thing of whatsoever nature arising
there under or inconnection therewith (including any matter or thing left by this Contract to the discretion of the Project Manager or the withholding by the
Project Manager of any certificate to which the Contractor may claim to be entitled or the measurement and valuation mentioned in clause 30(5)(a) of these
Conditions or the rights and liabilities of the parties under clauses 25, 26, 32 or 33 of these Conditions), the owner and the Contractor hereby agree to exert all
efforts to settle their differences or dispute amicably. Failing these efforts then such dispute or difference shall be referred to arbitration in accordance with the
rules and procedures of the Philippine Arbitration Law.

xxx xxx xxx

(6) The award of such Arbitrators shall be final and binding on the parties. The decision of the Arbitrators shall be a condition precedent to any right of legal
action that either party may have against the other. . . . 12 (Underscoring in the original)
On August 19, 1993, BF Corporation opposed the motion to suspend proceedings. 13

RTC- In the November 18, 1993 order, the Regional Trial Court denied the motion to suspend proceedings.

On December 8, 1993, petitioners filed an answer to BF Corporation’s complaint, with compulsory counter claim against BF Corporation and crossclaim against
Shangri-La.15 They alleged that they had resigned as members of Shangri-La’s board of directors as of July 15, 1991.16

After the Regional Trial Court denied on February 11, 1994 the motion for reconsideration of its November 18, 1993 order, Shangri-La, Alfredo C. Ramos, Rufo
B. Colayco,Maximo G. Licauco III, and Benjamin Ramos filed a petition for certiorari with the Court of Appeals. 17

COURT OF APPEALS- On April 28, 1995, the Court of Appeals granted the petition for certiorari and ordered the submission of the dispute to arbitration. 18

Aggrieved by the Court of Appeals’ decision, BF Corporation filed a petition for review on certiorari with this court.19On March 27, 1998, this court affirmed the
Court of Appeals’ decision, directing that the dispute be submitted for arbitration.20

ARBITRATION PROCEEDINGS- Another issue arose after BF Corporation had initiated arbitration proceedings. BF Corporation and Shangri-La failed to
agree as to the law that should govern the arbitration proceedings.21 On October 27, 1998, the trial court issued the order directing the parties to conduct the
proceedings in accordance with Republic Act No. 876.22

Shangri-La filed an omnibus motion and BF Corporation an urgent motion for clarification, both seeking to clarify the term, "parties," and whether Shangri-La’s
directors should be included in the arbitration proceedings and served with separate demands for arbitration. 23

Petitioners filed their comment on Shangri-La’s and BF Corporation’s motions, praying that they be excluded from the arbitration proceedings for being non-
parties to Shangri-La’s and BF Corporation’s agreement.24

REVERTED TO RTC- On July 28, 2003, the trial court issued the order directing service of demands for arbitration upon all defendants in BF Corporation’s
complaint.25 According to the trial court, Shangri-La’s directors were interested parties who "must also be served with a demand for arbitration to give them the
opportunity to ventilate their side of the controversy, safeguard their interest and fend off their respective positions."26 Petitioners’ motion for reconsideration
ofthis order was denied by the trial court on January 19, 2005.27

COURT OF APPEALS AGAIN- Court of Appeals, alleging grave abuse of discretion in the issuance of orders compelling them to submit to arbitration
proceedings despite being third parties to the contract between Shangri-La and BF Corporation.28
In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners’ petition for certiorari. The Court of Appeals ruled that ShangriLa’s directors were
necessary parties in the arbitration proceedings.30 According to the Court of Appeals:

[They were] deemed not third-parties to the contract as they [were] sued for their acts in representation of the party to the contract pursuant to Art. 31 of the
Corporation Code, and that as directors of the defendant corporation, [they], in accordance with Art. 1217 of the Civil Code, stand to be benefited or injured by
the result of the arbitration proceedings, hence, being necessary parties, they must be joined in order to have complete adjudication of the controversy.
Consequently, if [they were] excluded as parties in the arbitration proceedings and an arbitral award is rendered, holding [Shangri-La] and its board of directors
jointly and solidarily liable to private respondent BF Corporation, a problem will arise, i.e., whether petitioners will be bound bysuch arbitral award, and this will
prevent complete determination of the issues and resolution of the controversy. 31

The Court of Appeals further ruled that "excluding petitioners in the arbitration proceedings . . . would be contrary to the policy against multiplicity of suits."32

The dispositive portion of the Court of Appeals’ decision reads:

ISSUE: Whether petitioners should be made parties to the arbitration proceedings, pursuant to the arbitration clause provided in the contract between
BF Corporation and Shangri-La.

PETITIONERS- Petitioners argue that they cannot be held personally liable for corporate acts or obligations. 36 The corporation is a separate being, and nothing
justifies BF Corporation’s allegation that they are solidarily liable with Shangri-La.37Neither did they bind themselves personally nor did they undertake to
shoulder Shangri-La’s obligations should it fail in its obligations.38 BF Corporation also failed to establish fraud or bad faith on their part. 39

Petitioners also argue that they are third parties to the contract between BF Corporation and Shangri-La.40Provisions including arbitration stipulations should bind
only the parties.41 Based on our arbitration laws, parties who are strangers to an agreement cannot be compelled to arbitrate. 42

Petitioners point out that our arbitration laws were enacted to promote the autonomy of parties in resolving their disputes. 43 Compelling them to submit to
arbitration is against this purpose and may be tantamount to stipulating for the parties.44

Separate comments on the petition werefiled by BF Corporation, and Maximo G. Licauco III, Alfredo C.Ramos and Benjamin C. Ramos.45

Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos agreed with petitioners that Shangri-La’sdirectors, being non-parties to the contract, should
not be made personally liable for Shangri-La’s acts.46 Since the contract was executed only by BF Corporation and Shangri-La, only they should be affected by
the contract’s stipulation.47 BF Corporation also failed to specifically allege the unlawful acts of the directors that should make them solidarily liable with
Shangri-La for its obligations.48
Meanwhile, in its comment, BF Corporation argued that the courts’ ruling that the parties should undergo arbitration "clearly contemplated the inclusion of the
directors of the corporation[.]"49 BF Corporation also argued that while petitioners were not parties to the agreement, they were still impleaded under Section 31
of the Corporation Code.50Section 31 makes directors solidarily liable for fraud, gross negligence, and bad faith. 51 Petitioners are not really third parties to the
agreement because they are being sued as Shangri-La’s representatives, under Section 31 of the Corporation Code.52

BF Corporation further argued that because petitioners were impleaded for their solidary liability, they are necessary parties to the arbitration proceedings. 53 The
full resolution of all disputes in the arbitration proceedings should also be done in the interest of justice. 54

Shangri-la- In its memorandum, Shangri-La argued that petitioners were impleaded for their solidary liability under Section 31 of the Corporation Code. Shangri-
La added that their exclusion from the arbitration proceedings will result in multiplicity of suits, which "is not favored in this jurisdiction."60 It pointed out that
the case had already been mooted by the termination of the arbitration proceedings, which petitioners actively participated in.61 Moreover, BF Corporation
assailed only the correctness of the Arbitral Tribunal’s award and not the part absolving Shangri-La’s directors from liability.62

BF Corporation filed a counter-manifestation with motion to dismiss63 in lieu of the required memorandum.

In its counter-manifestation, BF Corporation pointed out that since "petitioners’ counterclaims were already dismissed with finality, and the claims against them
were likewise dismissed with finality, they no longer have any interest orpersonality in the arbitration case. Thus, there is no longer any need to resolve the
present Petition, which mainly questions the inclusion of petitioners in the arbitration proceedings." 64 The court’s decision in this case will no longer have any
effect on the issue of petitioners’ inclusion in the arbitration proceedings. 65

HELD:

The petition must fail.

The Arbitral Tribunal’s decision, absolving petitioners from liability, and its binding effect on BF Corporation, have rendered this case moot and academic.

The mootness of the case, however, had not precluded us from resolving issues so that principles may be established for the guidance of the bench, bar, and the
public. In De la Camara v. Hon. Enage,66 this court disregarded the fact that petitioner in that case already escaped from prison and ruled on the issue of
excessive bails:

While under the circumstances a ruling on the merits of the petition for certiorari is notwarranted, still, as set forth at the opening of this opinion, the fact that this
case is moot and academic should not preclude this Tribunal from setting forth in language clear and unmistakable, the obligation of fidelity on the part of lower
court judges to the unequivocal command of the Constitution that excessive bail shall not be required.67
This principle was repeated in subsequent cases when this court deemed it proper to clarify important matters for guidance. 68

Thus, we rule that petitioners may be compelled to submit to the arbitration proceedings in accordance with Shangri-Laand BF Corporation’s agreement, in order
to determine if the distinction between Shangri-La’s personality and their personalities should be disregarded.

This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to avoid litigation and settle disputes amicably and more expeditiously by
themselves and through their choice of arbitrators.

The policy in favor of arbitration has been affirmed in our Civil Code, 69 which was approved as early as 1949. It was later institutionalized by the approval of
Republic Act No. 876,70 which expressly authorized, made valid, enforceable, and irrevocable parties’ decision to submit their controversies, including incidental
issues, to arbitration. This court recognized this policy in Eastboard Navigation, Ltd. v. Ysmael and Company, Inc.: 71

As a corollary to the question regarding the existence of an arbitration agreement, defendant raises the issue that, even if it be granted that it agreed to submit its
dispute with plaintiff to arbitration, said agreement is void and without effect for it amounts to removing said dispute from the jurisdiction of the courts in which
the parties are domiciled or where the dispute occurred. It is true that there are authorities which hold that "a clause in a contract providing that all matters in
dispute between the parties shall be referred to arbitrators and to them alone, is contrary to public policy and cannot oust the courts of jurisdiction" (Manila
Electric Co. vs. Pasay Transportation Co., 57 Phil., 600, 603), however, there are authorities which favor "the more intelligent view that arbitration, as an
inexpensive, speedy and amicable method of settling disputes, and as a means of avoiding litigation, should receive every encouragement from the courts which
may be extended without contravening sound public policy or settled law" (3 Am. Jur., p. 835). Congress has officially adopted the modern view when it
reproduced in the new Civil Code the provisions of the old Code on Arbitration. And only recently it approved Republic Act No. 876 expressly authorizing
arbitration of future disputes.72 (Emphasis supplied)

In view of our policy to adopt arbitration as a manner of settling disputes, arbitration clauses are liberally construed to favor arbitration. Thus, in LM Power
Engineering Corporation v. Capitol Industrial Construction Groups, Inc., 73 this court said:

Being an inexpensive, speedy and amicable method of settling disputes, arbitration — along with mediation, conciliation and negotiation — is encouraged by the
Supreme Court. Aside from unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially of the commercial kind. It is thus regarded
as the "wave of the future" in international civil and commercial disputes. Brushing aside a contractual agreement calling for arbitration between the parties
would be a step backward.

Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods, courts should liberally construe arbitration clauses. Provided
such clause is susceptible of an interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any doubt should be resolved in favor of
arbitration.74(Emphasis supplied)
A more clear-cut statement of the state policy to encourage arbitration and to favor interpretations that would render effective an arbitration clause was later
expressed in Republic Act No. 9285:75

SEC. 2. Declaration of Policy.- It is hereby declared the policy of the State to actively promote party autonomy in the resolution of disputes or the freedom of the
party to make their own arrangements to resolve their disputes. Towards this end, the State shall encourage and actively promote the use of Alternative Dispute
Resolution (ADR) as an important means to achieve speedy and impartial justice and declog court dockets. As such, the State shall provide means for the use of
ADR as an efficient tool and an alternative procedure for the resolution of appropriate cases. Likewise, the State shall enlist active private sector participation in
the settlement of disputes through ADR. This Act shall be without prejudice to the adoption by the Supreme Court of any ADR system, such as mediation,
conciliation, arbitration, or any combination thereof as a means of achieving speedy and efficient means of resolving cases pending before all courts in the
Philippines which shall be governed by such rules as the Supreme Court may approve from time to time.

....

SEC. 25. Interpretation of the Act.- In interpreting the Act, the court shall have due regard to the policy of the law in favor of arbitration.Where action is
commenced by or against multiple parties, one or more of whomare parties who are bound by the arbitration agreement although the civil action may continue as
to those who are not bound by such arbitration agreement. (Emphasis supplied)

Thus, if there is an interpretation that would render effective an arbitration clause for purposes ofavoiding litigation and expediting resolution of the dispute, that
interpretation shall be adopted. Petitioners’ main argument arises from the separate personality given to juridical persons vis-à-vis their directors, officers,
stockholders, and agents. Since they did not sign the arbitration agreement in any capacity, they cannot be forced to submit to the jurisdiction of the Arbitration
Tribunal in accordance with the arbitration agreement. Moreover, they had already resigned as directors of Shangri-Laat the time of the alleged default.

Indeed, as petitioners point out, their personalities as directors of Shangri-La are separate and distinct from Shangri-La.

A corporation is an artificial entity created by fiction of law.76 This means that while it is not a person, naturally, the law gives it a distinct personality and treats
it as such. A corporation, in the legal sense, is an individual with a personality that is distinct and separate from other persons including its stockholders, officers,
directors, representatives,77 and other juridical entities. The law vests in corporations rights,powers, and attributes as if they were natural persons with physical
existence and capabilities to act on their own.78 For instance, they have the power to sue and enter into transactions or contracts. Section 36 of the Corporation
Code enumerates some of a corporation’s powers, thus:

Section 36. Corporate powers and capacity.– Every corporation incorporated under this Code has the power and capacity:

1. To sue and be sued in its corporate name;

2. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate ofincorporation;
3. To adopt and use a corporate seal;

4. To amend its articles of incorporation in accordance with the provisions of this Code;

5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in accordance with this Code;

6. In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to
admit members to the corporation if it be a non-stock corporation;

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including
securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject
to the limitations prescribed by law and the Constitution;

8. To enter into merger or consolidation with other corporations as provided in this Code;

9. To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes:
Provided, That no corporation, domestic or foreign, shall give donations in aid of any political party or candidate or for purposes of partisan political
activity;

10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees; and

11. To exercise such other powers asmay be essential or necessary to carry out its purpose or purposes as stated in its articles of incorporation. (13a)

Because a corporation’s existence is only by fiction of law, it can only exercise its rights and powers through itsdirectors, officers, or agents, who are all natural
persons. A corporation cannot sue or enter into contracts without them.

A consequence of a corporation’s separate personality is that consent by a corporation through its representatives is not consent of the representative, personally.
Its obligations, incurred through official acts of its representatives, are its own. A stockholder, director, or representative does not become a party to a contract
just because a corporation executed a contract through that stockholder, director or representative.

Hence, a corporation’s representatives are generally not bound by the terms of the contract executed by the corporation. They are not personally liable for
obligations and liabilities incurred on or in behalf of the corporation.
Petitioners are also correct that arbitration promotes the parties’ autonomy in resolving their disputes. This court recognized in Heirs of Augusto Salas, Jr. v.
Laperal Realty Corporation79 that an arbitration clause shall not apply to persons who were neither parties to the contract nor assignees of previous parties, thus:

A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on arbitration, binds the parties thereto, as well as their assigns and
heirs. But only they.80 (Citations omitted)

Similarly, in Del Monte Corporation-USA v. Court of Appeals,81 this court ruled:

The provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of that contract and is itself a contract. As a rule,
contracts are respected as the law between the contracting parties and produce effect as between them, their assigns and heirs. Clearly, only parties to the
Agreement . . . are bound by the Agreement and its arbitration clause as they are the only signatories thereto. 82 (Citation omitted)

This court incorporated these rulings in Agan, Jr. v. Philippine International Air Terminals Co., Inc. 83 and Stanfilco Employees v. DOLE Philippines, Inc., et al.84

As a general rule, therefore, a corporation’s representative who did not personally bind himself or herself to an arbitration agreement cannot be forced to
participate in arbitration proceedings made pursuant to an agreement entered into by the corporation. He or she is generally not considered a party to that
agreement.

However, there are instances when the distinction between personalities of directors, officers,and representatives, and of the corporation, are disregarded. We call
this piercing the veil of corporate fiction.

Piercing the corporate veil is warranted when "[the separate personality of a corporation] is used as a means to perpetrate fraud or an illegal act, or as a vehicle
for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues." 85 It is also warranted in alter ego cases "where a
corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation."86

When corporate veil is pierced, the corporation and persons who are normally treated as distinct from the corporation are treated as one person, such that when
the corporation is adjudged liable, these persons, too, become liable as if they were the corporation.

Among the persons who may be treatedas the corporation itself under certain circumstances are its directors and officers. Section 31 of the Corporation Code
provides the instances when directors, trustees, or officers may become liable for corporate acts:

Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict
with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which
has been reposed inhim in confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the
corporation and must account for the profits which otherwise would have accrued to the corporation. (n)

Based on the above provision, a director, trustee, or officer of a corporation may be made solidarily liable with it for all damages suffered by the corporation, its
stockholders or members, and other persons in any of the following cases:

a) The director or trustee willfully and knowingly voted for or assented to a patently unlawful corporate act;

b) The director or trustee was guilty of gross negligence or bad faith in directing corporate affairs; and

c) The director or trustee acquired personal or pecuniary interest in conflict with his or her duties as director or trustee.

Solidary liability with the corporation will also attach in the following instances:

a) "When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto";87

b) "When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation";88 and

c) "When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action." 89

When there are allegations of bad faith or malice against corporate directors or representatives, it becomes the duty of courts or tribunals to determine if these
persons and the corporation should be treated as one. Without a trial, courts and tribunals have no basis for determining whether the veil of corporate fiction
should be pierced. Courts or tribunals do not have such prior knowledge. Thus, the courts or tribunals must first determine whether circumstances exist towarrant
the courts or tribunals to disregard the distinction between the corporation and the persons representing it. The determination of these circumstances must be
made by one tribunal or court in a proceeding participated in by all parties involved, including current representatives of the corporation, and those persons
whose personalities are impliedly the sameas the corporation. This is because when the court or tribunal finds that circumstances exist warranting the piercing of
the corporate veil, the corporate representatives are treated as the corporation itself and should be held liable for corporate acts. The corporation’s distinct
personality is disregarded, and the corporation is seen as a mere aggregation of persons undertaking a business under the collective name of the corporation.
Hence, when the directors, as in this case, are impleaded in a case against a corporation, alleging malice orbad faith on their part in directing the affairs of the
corporation, complainants are effectively alleging that the directors and the corporation are not acting as separate entities. They are alleging that the acts or
omissions by the corporation that violated their rights are also the directors’ acts or omissions. 90 They are alleging that contracts executed by the corporation are
contracts executed by the directors. Complainants effectively pray that the corporate veilbe pierced because the cause of action between the corporation and the
directors is the same.

In that case, complainants have no choice but to institute only one proceeding against the parties.1âwphi1 Under the Rules of Court, filing of multiple suits for a
single cause of action is prohibited. Institution of more than one suit for the same cause of action constitutes splitting the cause of action, which is a ground for
the dismissal ofthe others. Thus, in Rule 2:

Section 3. One suit for a single cause of action. — A party may not institute more than one suit for a single cause of action. (3a)

Section 4. Splitting a single cause of action;effect of. — If two or more suits are instituted on the basis of the same cause of action, the filing of one or a judgment
upon the merits in any one is available as a ground for the dismissal of the others. (4a)

It is because the personalities of petitioners and the corporation may later be found to be indistinct that we rule that petitioners may be compelled to submit to
arbitration.

However, in ruling that petitioners may be compelled to submit to the arbitration proceedings, we are not overturning Heirs of Augusto Salas wherein this court
affirmed the basic arbitration principle that only parties to an arbitration agreement may be compelled to submit to arbitration. In that case, this court
recognizedthat persons other than the main party may be compelled to submit to arbitration, e.g., assignees and heirs. Assignees and heirs may be considered
parties to an arbitration agreement entered into by their assignor because the assignor’s rights and obligations are transferred to them upon assignment. In other
words, the assignor’s rights and obligations become their own rights and obligations. In the same way, the corporation’s obligations are treated as the
representative’s obligations when the corporate veil is pierced. Moreover, in Heirs of Augusto Salas, this court affirmed its policy against multiplicity of suits and
unnecessary delay. This court said that "to split the proceeding into arbitration for some parties and trial for other parties would "result in multiplicity of suits,
duplicitous procedure and unnecessary delay."91 This court also intimated that the interest of justice would be best observed if it adjudicated rights in a single
proceeding.92 While the facts of that case prompted this court to direct the trial court to proceed to determine the issues of thatcase, it did not prohibit courts from
allowing the case to proceed to arbitration, when circumstances warrant.

Hence, the issue of whether the corporation’s acts in violation of complainant’s rights, and the incidental issue of whether piercing of the corporate veil is
warranted, should be determined in a single proceeding. Such finding would determine if the corporation is merely an aggregation of persons whose liabilities
must be treated as one with the corporation.

However, when the courts disregard the corporation’s distinct and separate personality from its directors or officers, the courts do not say that the corporation, in
all instances and for all purposes, is the same as its directors, stockholders, officers, and agents. It does not result in an absolute confusion of personalities of the
corporation and the persons composing or representing it. Courts merely discount the distinction and treat them as one, in relation to a specific act, in order to
extend the terms of the contract and the liabilities for all damages to erring corporate officials who participated in the corporation’s illegal acts. This is done so
that the legal fiction cannot be used to perpetrate illegalities and injustices.

Thus, in cases alleging solidary liability with the corporation or praying for the piercing of the corporate veil, parties who are normally treated as distinct
individuals should be made to participate in the arbitration proceedings in order to determine ifsuch distinction should indeed be disregarded and, if so, to
determine the extent of their liabilities.

In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed to prove the existence of circumstances that render petitioners and the
other directors solidarily liable. It ruled that petitioners and Shangri-La’s other directors were not liable for the contractual obligations of Shangri-La to BF
Corporation. The Arbitral Tribunal’s decision was made with the participation of petitioners, albeit with their continuing objection. In view of our discussion
above, we rule that petitioners are bound by such decision.

WHEREFORE, the petition is DENIED. The Court of Appeals' decision of May 11, 2006 and resolution of October 5, 2006 are AFFIRMED.

SO ORDERED.