KOREA TECHNOLOGIES CO.
, LTD the Contract was invalid as it tended to oust the court jurisdiction over any dispute that
vs.
HON. ALBERTO A. LERMA and PACIFIC GENERAL STEEL MANUFACTURING
CORPORATION
G.R. No. 143581
January 7, 2008
Parties:
• Petitioner - Korea Technologies Co., Ltd. (KOGIES), Korean corporation engaged in the
supply and installation of LPG Cylinder manufacturing plants
• Respondent - Pacific General Steel Manufacturing Corp. (PGSMC), domestic
Underlying transaction:
• Contact to set up a manufacturing plant at Carmona, Cavite
• USD 1,224,000 - KOGIES will ship the machinery and facilities necessary for manufacturing
LPG cylinders
• USD 306,000 - install and initiate the operation of the plant
Events:
• KORGIES shipped and installed the necessary facilities but initial operation could not be
conducted as PGSMC encountered financial difficulties affecting the supply of materials.
This forced the parties to agree that KOGIES would be deemed to have completely
complied with the terms and conditions of the contract
• PGSMC issued two postdated checks for the balance of the contract price. When KOGIES
deposited the checks, these were dishonored for the reason PAYMENT STOPPED.
• PGSMC claimed the stop payment order was due to its discovery that that the quantity and
quality stipulated was different from what was delivered by KOGIES.
• PGSMC then informed KOGIES that it was cancelling their contract based on said ground
and that it would dismantle and transfer the machines installed at the plant. Thereafter,
PGSMC then filed a complaint for estafa against KORGIES.
• KOGIES told PGSMC that it could not unilaterally rescind the contract or dismantle and
transfer the M & E.
• PGSMC reiterated its threat of dismantling; thus 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 (for PGSMC to submit to arbitration?),
against PGSMC before the Muntinlupa RTC.
• KOGIES averred, among others, that PGSMC violated Art. 15 of their Contract, as
amended, by unilaterally rescinding the contract without resorting to arbitration. KOGIES
also asked that PGSMC be restrained from dismantling and transferring the machinery and
equipment.
• RTC issued TRO.
• In opposing the TRO, PGSMC argued that KOGIES was not entitled to it since the
arbitration clause was null and void for being against public policy as it ousts the local
courts of jurisdiction over the case.
• PGSMC filed its Answer and claimed that it can dismantle and transfer the equipment
because it had already paid for it in full.
• RTC issued an order denying the application for a writ of preliminary injunction holding that
KOGIES no longer had proprietary rights over the equipment. RTC also held that Art. 15 of
may arise between the parties.
• KOGIES filed a MR.
• RTC denied the MR and granted the PGSMC's Motion for Inspection of Things to determine
whether there was indeed alteration of the quantity and lowering of quality of the
machineries and equipment, and whether these were properly installed.
• KOGIES filed a petition for certiorari with the CA seeking to annul the orders denying the
injunctive writ and granting the inspection, to enjoin inspection, dismantling and
transferring of the equipment, and to direct the RTC to enforce the specific agreement on
arbitration to resolve the dispute.
• CA affirmed the decision
Issue: Whether the arbitration clause was was null and void
• No. The lower courts erred in finding that the arbitration clause was void.
Arbitration clause not contrary to public policy
• 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 and Art. 2044 of the Civil Code sanctions the validity of mutually agreed arbitral
clause or the finality and binding effect of an arbitral award.
• 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.
• Arbitration along with mediation, conciliation, and negotiation, being inexpensive, speedy
and less hostile methods have long been favored by the SC. Courts should liberally
construe arbitration clauses. Any doubt should be resolved in favor of arbitration.
• As signatory to the Arbitration Rules of the UNCITRAL Model Law on International
Commercial Arbitration, the Philippines committed itself to be bound by the Model Law. We
have even incorporated the Model Law in the ADR Law of 2004.
• Although RA 9285 was passed only in 2004, it nonetheless applies in the instant case
(1997-98), which is still pending, since it is a procedural law that has a retroactive effect.
Pertinent features of RA 9285 applying and incorporating the UNCITRAL Model Law
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
• While foreign arbitral awards may be mutually stipulated by the parties in the
arbitration clause to be final and binding, they are not immediately enforceable or
cannot be implemented immediately.
• Sec. 35 of the Model Law contains 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.
• Sec. 35: An arbitral award, irrespective of the country in which it was made, shall be
recognized as binding and shall be enforced upon application to the competent court,
subject to the provisions of this article and of article 36.
 • Sec. 42 of 9285 incorporates the provision and provides that recognition and
enforcement of arbitral awards covered by the NY Convention shall be filed with the
Regional Trial Court
• 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.

3. The RTC has jurisdiction to review foreign arbitral awards

• Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific
authority and jurisdiction to set aside, reject, or vacate a foreign arbitral award on
grounds provided under Art. 34(2) of the UNCITRAL Model Law.
• Thus, while the RTC does not have jurisdiction over disputes governed by
arbitration mutually agreed upon by the parties, still the foreign arbitral award
is subject to judicial review by the RTC which can set aside, reject, or vacate it.
• 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.

4. RTC decision of assailed foreign arbitral award appealable

• Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved
party in cases where the RTC sets aside, rejects, vacates, modifies, or corrects an
arbitral award
• 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.

• Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign
arbitration as it bound itself through the subject contract.

• Unilateral rescission improper and illegal

• 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.
• Where an arbitration clause in a contract is availing, neither of the parties can unilaterally
treat the contract as rescinded since whatever infractions or breaches by a party or
differences arising from the contract must be brought first and resolved by arbitration,
and not through an extrajudicial rescission or judicial action.
• Corollarily, the trial court gravely abused its discretion in granting PGSMCs Motion for
Inspection of Things on September 21, 1998, as the subject matter of the motion is G.R. No. 161957 January 22, 2007
under the primary jurisdiction of the mutually agreed arbitral body, the KCAB in Korea.
• Sheriff is not technically competent to ascertain the actual status of the equipment and
JORGE GONZALES and PANEL OF ARBITRATORS
machineries as installed in the plant.
vs.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN
• Issue on ownership of plant proper for arbitration
PHILIPPINES MINING INC.
• Question of fact; not within the ambit of certiorari
• RTC committed grave abuse of discretion 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 x--------------------------------------------------------------------------------- x
authority over the said issue.
G.R. No. 167994 January 22, 2007
JORGE GONZALES is to be treated as a separate agreement and the arbitration agreement does not
vs. automatically terminate when the contract of which it is part comes to an end.
HON. OSCAR B. PIMENTEL, in his capacity as PRESIDING JUDGE of BR. 148 of the REGIONAL The separability of the arbitration agreement is especially significant to the
TRIAL COURT of MAKATI CITY, and CLIMAX-ARIMCO MINING CORPORATION determination of whether the invalidity of the main contract also nullifies the arbitration
clause. Indeed, the doctrine denotes that the invalidity of the main contract, also referred to
as the container contract, does not affect the validity of the arbitration agreement.
FACTS Irrespective of the fact that the main contract is invalid, the arbitration clause/agreement still
The case is a consolidation of two petitions rooted in the same disputed Addendum remains valid and enforceable.
Contract entered into by the parties. The separability of the arbitration clause is confirmed in Art. 16(1) of the UNCITRAL
In GR No. 161957, the Court had held that the DENR Panel of Arbitrators had no Model Law and Art. 21(2) of the UNCITRAL Arbitration Rules.
jurisdiction over the complaint for the annulment of the Addendum Contract on grounds of The SC held in Manila Electric Co. v. Pasay Transportation Co. that a submission to
fraud and violation of the Constitution and that the action should have been brought before arbitration is a contract. A clause in a contract providing that all matters in dispute between
the regular courts as it involved judicial issues. the parties shall be referred to arbitration is a contract, and in Del Monte Corporation-USA v.
Both parties filed separate motions for reconsideration. Gonzales averred that the Court of Appeals, that “[t]he provision to submit to arbitration any dispute arising therefrom
DENR Panel of Arbitrators has jurisdiction because the case involves a mining dispute that and the relationship of the parties is part of that contract and is itself a contract. As a rule,
properly falls within the ambit of the Panel’s authority. On the other hand, Climax Mining Ltd., contracts are respected as the law between the contracting parties and produce effect as
et al., citing American jurisprudence and the UNCITRAL Model Law, argued that the between them, their assigns and heirs.”
arbitration clause in the Addendum Contract should be treated as an agreement independent
of the other terms of the contract, and that a claimed rescission of the main contract does not
avoid the duty to arbitrate.
In GR No. 167994, Gonzales challenged the order of the RTC requiring him to
proceed with the arbitration proceedings which was sought by Climax-Arimco while the
complaint for the nullification of the Addendum Contract was pending before the DENR Panel
of Arbitrators. Gonzales argued that the Addendum Contract was void, thus the arbitration
clause contained therein was likewise void ab initio. He contended that any issue as to the
nullity, inoperativeness, or incapability of performance of the arbitration clause/agreement
raised by one of the parties to the alleged arbitration agreement must be determined by the
court prior to referring them to arbitration.
However, Climax-Arimco countered that Gonzales’s attack on or repudiation of the
Addendum Contract is not a ground to deny effect to the arbitration clause in the Contract.
Section 2, par. 1 of RA 876 itself considers the arbitration stipulation an independent contract
in its own rightwhose enforcement may be prevented only on grounds which legally make the
arbitration agreement itself revocable.
Likewise, Climax-Arimco emphasized that in Sec. 24 of RA 9285, the court, instead of
trying the case, may, on request of either or both parties, refer the parties to arbitration,
unless it finds that the arbitration agreement is null and void, inoperative or incapable of
being performed. Arbitration may even be ordered in the same suit brought upon a matter
covered by an arbitration agreement even without waiting for the outcome of the issue of the
validity of the arbitration agreement. Art. 8 of the UNCITRAL Model Law states that where a
court before which an action is brought in a matter which is subject of an arbitration
agreement refers the parties to arbitration, the arbitral proceedings may proceed even while
the action is pending.

ISSUE
Whether the question of validity of the Addendum Contract affects the applicability or
enforceability of the arbitration clause contained therein

HELD
NO. The doctrine of separability, or severability as other writers call it, enunciates
that an arbitration agreement is independent of the main contract. The arbitration agreement