G.R. No.

143581             January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,

vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of
Regional Trial Court of Muntinlupa City, and PACIFIC GENERAL STEEL
MANUFACTURING CORPORATION, respondents.

DECISION

VELASCO, JR., J.:

In our jurisdiction, the policy is to favor alternative methods of resolving disputes,

particularly in civil and commercial disputes. Arbitration along with mediation,
conciliation, and negotiation, being inexpensive, speedy and less hostile methods have
long been favored by this Court. The petition before us puts at issue an arbitration
clause in a contract mutually agreed upon by the parties stipulating that they would
submit themselves to arbitration in a foreign country. Regrettably, instead of hastening
the resolution of their dispute, the parties wittingly or unwittingly prolonged the
controversy.

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.

On March 5, 1997, PGSMC and KOGIES executed a Contract1 whereby KOGIES would

set up an LPG Cylinder Manufacturing Plant in Carmona, Cavite. The contract was
executed in the Philippines. On April 7, 1997, the parties executed, in Korea, an
Amendment for Contract No. KLP-970301 dated March 5, 19972 amending the terms of
payment. The contract and its amendment stipulated that 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 plant’s production of the
11-kg. LPG cylinder samples. Thus, the total contract price amounted to USD
1,530,000.

On October 14, 1997, PGSMC entered into a Contract of Lease3 with Worth

Properties, Inc. (Worth) for use of Worth’s 5,079-square meter property with a 4,032-
square meter warehouse building to house the LPG manufacturing plant. The monthly
rental was PhP 322,560 commencing on January 1, 1998 with a 10% annual increment
clause. 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 Certificate4 executed by the parties on January 22, 1998,
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: (1) BPI Check No. 0316412 dated January
30, 1998 for PhP 4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 for
PhP 4,500,000.5

When KOGIES deposited the checks, these were dishonored for the reason
"PAYMENT STOPPED." Thus, on May 8, 1998, KOGIES sent a demand letter6 to
PGSMC threatening criminal action for violation of Batas Pambansa Blg. 22 in case of
nonpayment. On the same date, the wife of PGSMC’s President faxed a letter dated
May 7, 1998 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.

On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully
funded but the payments were stopped for reasons previously made known to
KOGIES.7

On June 1, 1998, 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. Five days later, 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.

On June 15, 1998, 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.

On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1,
1998 letter threatening that the machineries, equipment, and facilities installed in the
plant would be dismantled and transferred on July 4, 1998. Thus, on July 1, 1998,
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.

On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil
Case No. 98-1178 against PGSMC before the Muntinlupa City Regional Trial Court
(RTC). The RTC granted a temporary restraining order (TRO) on July 4, 1998, which
was subsequently extended until July 22, 1998. In its complaint, KOGIES alleged that
PGSMC had initially admitted that the checks that were stopped were not funded but
later on claimed that it stopped payment of the checks for the reason that "their value
was not received" as the former allegedly breached their contract by "altering the
quantity and lowering the quality of the machinery and equipment" installed in the plant
and failed to make the plant operational although it earlier certified to the contrary as
shown in a January 22, 1998 Certificate. Likewise, KOGIES averred 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 installed in the plant which
the latter threatened to do on July 4, 1998.

On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not
entitled to the TRO since 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.

On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim9 asserting
that it had the full right to dismantle and transfer the machineries and equipment
because it had paid for them in full as stipulated in the contract; that KOGIES was not
entitled to the PhP 9,000,000 covered by the checks for failing to completely install and
make the plant operational; and that KOGIES was liable for damages amounting to PhP
4,500,000 for altering the quantity and lowering the quality of the machineries and
equipment. Moreover, PGSMC averred that it has already paid PhP 2,257,920 in rent
(covering January to July 1998) to Worth and it was not willing to further shoulder the
cost of renting the premises of the plant considering that the LPG cylinder
manufacturing plant never became operational.

After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an
Order denying the application for a writ of preliminary injunction, reasoning that PGSMC
had paid KOGIES USD 1,224,000, the value of the machineries and equipment as
shown in the contract such that KOGIES no longer had proprietary rights over them.
And finally, the RTC held that 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’ prayer for an injunctive writ was denied.10 The
dispositive portion of the Order stated:

WHEREFORE, in view of the foregoing consideration, this Court believes and so

holds that no cogent reason exists for this Court to grant the writ of preliminary
injunction to restrain and refrain defendant from dismantling the machineries and
facilities at the lot and building of Worth Properties, Incorporated at Carmona,
Cavite and transfer the same to another site: and therefore denies plaintiff’s
application for a writ of preliminary injunction.
On July 29, 1998, KOGIES filed its Reply to Answer and Answer to
Counterclaim.11 KOGIES denied it had altered the quantity and lowered the quality of
the machinery, equipment, and facilities it delivered to the plant. It claimed that it had
performed all the undertakings under the contract and had already produced certified
samples of LPG cylinders. It averred that whatever was unfinished was PGSMC’s fault
since it failed to procure raw materials due to lack of funds. KOGIES, relying on Chung
Fu Industries (Phils.), Inc. v. Court of Appeals,12 insisted that the arbitration clause was
without question valid.

After KOGIES filed a Supplemental Memorandum with Motion to Dismiss13 answering

PGSMC’s memorandum of July 22, 1998 and seeking dismissal of PGSMC’s
counterclaims, KOGIES, on August 4, 1998, filed its Motion for Reconsideration14 of the
July 23, 1998 Order denying its application for an injunctive writ claiming that the
contract was not merely for machinery and facilities worth USD 1,224,000 but was for
the sale of an "LPG manufacturing plant" consisting of "supply of all the machinery and
facilities" and "transfer of technology" for a total contract price of USD 1,530,000 such
that the dismantling and transfer of the machinery and facilities would result in the
dismantling and transfer of the very plant itself to the great prejudice of KOGIES as the
still unpaid owner/seller of the plant. Moreover, 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.15

In the meantime, PGSMC filed a Motion for Inspection of Things16 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 opposed the
motion positing that the queries and issues raised in the motion for inspection fell under
the coverage of the arbitration clause in their contract.

On September 21, 1998, the trial court issued an Order (1) granting PGSMC’s motion
for inspection; (2) denying KOGIES’ motion for reconsideration of the July 23, 1998
RTC Order; and (3) denying KOGIES’ motion to dismiss PGSMC’s compulsory
counterclaims as these counterclaims fell within the requisites of compulsory
counterclaims.

On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration17 of the

September 21, 1998 RTC Order granting inspection of the plant and denying dismissal
of PGSMC’s compulsory counterclaims.

Ten days after, on October 12, 1998, without waiting for the resolution of its October 2,
1998 urgent motion for reconsideration, KOGIES filed before the Court of Appeals (CA)
a petition for certiorari18 docketed as CA-G.R. SP No. 49249, seeking annulment of the
July 23, 1998 and September 21, 1998 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.

In the meantime, on October 19, 1998, the RTC denied KOGIES’ urgent motion for
reconsideration and directed the Branch Sheriff to proceed with the inspection of the
machineries and equipment in the plant on October 28, 1998.19

Thereafter, KOGIES filed a Supplement to the Petition20 in CA-G.R. SP No. 49249

informing the CA about the October 19, 1998 RTC Order. It also reiterated its prayer for
the issuance of the writs of prohibition, mandamus and preliminary injunction which was
not acted upon by the CA. KOGIES asserted that the Branch Sheriff did not have the
technical expertise to ascertain whether or not the machineries and equipment
conformed to the specifications in the contract and were properly installed.

On November 11, 1998, the Branch Sheriff filed his Sheriff’s Report21 finding that the
enumerated machineries and equipment were not fully and properly installed.

The Court of Appeals affirmed the trial court and declared

the arbitration clause against public policy

On May 30, 2000, the CA rendered the assailed Decision22 affirming the RTC Orders
and dismissing the petition for certiorari filed by KOGIES. The CA found that the RTC
did not gravely abuse its discretion in issuing the assailed July 23, 1998 and September
21, 1998 Orders. Moreover, the CA reasoned that KOGIES’ contention that the total
contract price for USD 1,530,000 was for the whole plant and had not been fully paid
was contrary to the finding of the RTC that PGSMC fully paid the price of USD
1,224,000, which was for all the machineries and equipment. According to the CA, this
determination by the RTC was a factual finding beyond the ambit of a petition for
certiorari.

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.

On the issue of nonpayment of docket fees and non-attachment of a certificate of non-

forum shopping by PGSMC, the CA held that the counterclaims of PGSMC were
compulsory ones and payment of docket fees was not required since the Answer with
counterclaim was not an initiatory pleading. For the same reason, the CA said a
certificate of non-forum shopping was also not required.

Furthermore, the CA held that the petition for certiorari had been filed prematurely since
KOGIES did not wait for the resolution of its urgent motion for reconsideration of the
September 21, 1998 RTC Order which was the plain, speedy, and adequate remedy
available. According to the CA, the RTC must be given the opportunity to correct any
alleged error it has committed, and that since the assailed orders were interlocutory,
these cannot be the subject of a petition for certiorari.
Hence, we have this Petition for Review on Certiorari under Rule 45.

The Issues

Petitioner posits that the appellate court committed the following errors:

a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE

MACHINERY AND FACILITIES AS "A QUESTION OF FACT" "BEYOND THE
AMBIT OF A PETITION FOR CERTIORARI" INTENDED ONLY FOR
CORRECTION OF ERRORS OF JURISDICTION OR GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS OF JURISDICTION,
AND CONCLUDING THAT THE TRIAL COURT’S FINDING ON THE SAME
QUESTION WAS IMPROPERLY RAISED IN THE PETITION BELOW;

b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE

15 OF THE CONTRACT BETWEEN THE PARTIES FOR BEING "CONTRARY
TO PUBLIC POLICY" AND FOR OUSTING THE COURTS OF JURISDICTION;

c. DECREEING PRIVATE RESPONDENT’S COUNTERCLAIMS TO BE ALL

COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES AND
CERTIFICATION OF NON-FORUM SHOPPING;

d. RULING THAT THE PETITION WAS FILED PREMATURELY WITHOUT

WAITING FOR THE RESOLUTION OF THE MOTION FOR
RECONSIDERATION OF THE ORDER DATED SEPTEMBER 21, 1998 OR
WITHOUT GIVING THE TRIAL COURT AN OPPORTUNITY TO CORRECT
ITSELF;

e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND SEPTEMBER 21,

1998 NOT TO BE PROPER SUBJECTS OF CERTIORARI AND PROHIBITION
FOR BEING "INTERLOCUTORY IN NATURE;"

f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE (SIC)

PETITION AND, INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY
"WITHOUT MERIT."23

The Court’s Ruling

The petition is partly meritorious.

Before we delve into the substantive issues, we shall first tackle the procedural issues.

The rules on the payment of docket fees for counterclaims

and cross claims were amended effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the counterclaims, it should have paid
docket fees and filed a certificate of non-forum shopping, and that its failure to do so
was a fatal defect.

We disagree with KOGIES.

As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its Answer
with Compulsory Counterclaim dated July 17, 1998 in accordance with Section 8 of
Rule 11, 1997 Revised Rules of Civil Procedure, the rule that was effective at the time
the Answer with Counterclaim was filed. Sec. 8 on existing counterclaim or cross-claim
states, "A compulsory counterclaim or a cross-claim that a defending party has at the
time he files his answer shall be contained therein."

On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims
against KOGIES, it was not liable to pay filing fees for said counterclaims being
compulsory in nature. We stress, however, that effective August 16, 2004 under Sec. 7,
Rule 141, as amended by A.M. No. 04-2-04-SC, docket fees are now required to be
paid in compulsory counterclaim or cross-claims.

As to the failure to submit a certificate of forum shopping, PGSMC’s Answer is not an

initiatory pleading which requires a certification against forum shopping under Sec.
524 of Rule 7, 1997 Revised Rules of Civil Procedure. It is a responsive pleading, hence,
the courts a quo did not commit reversible error in denying KOGIES’ motion to dismiss
PGSMC’s compulsory counterclaims.

Interlocutory orders proper subject of certiorari

Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari and Prohibition are

neither the remedies to question the propriety of an interlocutory order of the trial
court."26 The CA erred on its reliance on Gamboa. Gamboa involved the denial of a
motion to acquit in a criminal case which was not assailable in an action for certiorari
since the denial of a motion to quash required the accused to plead and to continue with
the trial, and whatever objections the accused had in his motion to quash can then be
used as part of his defense and subsequently can be raised as errors on his appeal if
the judgment of the trial court is adverse to him. The general rule is that interlocutory
orders cannot be challenged by an appeal.27 Thus, in Yamaoka v. Pescarich
Manufacturing Corporation, we held:

The proper remedy in such cases is an ordinary appeal from an adverse

judgment on the merits, incorporating in said appeal the grounds for assailing the
interlocutory orders. Allowing appeals from interlocutory orders would result in
the ‘sorry spectacle’ of a case being subject of a counterproductive ping-pong to
and from the appellate court as often as a trial court is perceived to have made
an error in any of its interlocutory rulings. However, where the assailed
interlocutory order was issued with grave abuse of discretion or patently
 erroneous and the remedy of appeal would not afford adequate and expeditious
relief, the Court allows certiorari as a mode of redress.28

Also, appeals from interlocutory orders would open the floodgates to endless occasions
for dilatory motions. Thus, where the interlocutory order was issued without or in excess
of jurisdiction or with grave abuse of discretion, the remedy is certiorari.29

The alleged grave abuse of discretion of the respondent court equivalent to lack of
jurisdiction in the issuance of the two assailed orders coupled with the fact that there is
no plain, speedy, and adequate remedy in the ordinary course of law amply provides
the basis for allowing the resort to a petition for certiorari under Rule 65.

Prematurity of the petition before the CA

Neither do we think that KOGIES was guilty of forum shopping in filing the petition for
certiorari. Note that KOGIES’ motion for reconsideration of the July 23, 1998 RTC Order
which denied the issuance of the injunctive writ had already been denied. Thus,
KOGIES’ only remedy was to assail the RTC’s interlocutory order via a petition for
certiorari under Rule 65.

While the October 2, 1998 motion for reconsideration of KOGIES of the September 21,
1998 RTC Order relating to the inspection of things, and the allowance of the
compulsory counterclaims has not yet been resolved, the circumstances in this case
would allow an exception to the rule that before certiorari may be availed of, the
petitioner must have filed a motion for reconsideration and said motion should have
been first resolved by the court a quo. The reason behind the rule is "to enable the
lower court, in the first instance, to pass upon and correct its mistakes without the
intervention of the higher court."30

The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant,
equipment, and facilities when he is not competent and knowledgeable on said matters
is evidently flawed and devoid of any legal support. Moreover, there is an urgent
necessity to resolve the issue on the dismantling of the facilities and any further delay
would prejudice the interests of KOGIES. Indeed, there is real and imminent threat of
irreparable destruction or substantial damage to KOGIES’ equipment and machineries.
We find the resort to certiorari based on the gravely abusive orders of the trial court
sans the ruling on the October 2, 1998 motion for reconsideration to be proper.

The Core Issue: Article 15 of the Contract

We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration
clause. It provides:

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. (Emphasis supplied.)

Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null
and void.

Petitioner is correct.

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." (Emphasis supplied.)

Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a compromise or

an arbitral award, as applied to Art. 2044 pursuant to Art. 2043,34 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. In Gonzales v. Climax Mining Ltd.,35 we
held that submission to arbitration is a contract and that a clause in a contract providing
that all matters in dispute between the parties shall be referred to arbitration is a
contract.36 Again in Del Monte Corporation-USA v. Court of Appeals, we likewise ruled
that "[t]he 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."37

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 has sanctioned the
validity of arbitration clauses in a catena of cases. In the 1957 case of Eastboard
Navigation Ltd. v. Juan Ysmael and Co., Inc.,38 this Court had occasion to rule that an
arbitration clause to resolve differences and breaches of mutually agreed contractual
terms is valid. In BF Corporation v. Court of Appeals, 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
Code’s provisions on arbitration."39 And in LM Power Engineering Corporation v. Capitol
Industrial Construction Groups, Inc., we declared that:
 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.40

Having said that the instant arbitration clause is not against public policy, we come to
the question on what governs an arbitration clause specifying that in case of any dispute
arising from the contract, an arbitral panel will be constituted in a foreign country and
the arbitration rules of the foreign country would govern and its award shall be final and
binding.

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 Arbitration41 of the United Nations Commission on International Trade Law
(UNCITRAL) in the New York Convention on June 21, 1985, the Philippines committed
itself to be bound by the Model Law. We have even incorporated the Model Law in
Republic Act No. (RA) 9285, otherwise known as the Alternative Dispute Resolution Act
of 2004 entitled An Act to Institutionalize the Use of an Alternative Dispute Resolution
System in the Philippines and to Establish the Office for Alternative Dispute Resolution,
and for Other Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4 of
the Model Law are the pertinent provisions:

CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION

SEC. 19. Adoption of the Model Law on International Commercial Arbitration.––

International commercial arbitration shall be governed by the Model Law on
International Commercial Arbitration (the "Model Law") adopted by the United
Nations Commission on International Trade Law on June 21, 1985 (United
Nations Document A/40/17) and recommended for enactment by the General
Assembly in Resolution No. 40/72 approved on December 11, 1985, copy of
which is hereto attached as Appendix "A".
 SEC. 20. Interpretation of Model Law.––In interpreting the Model Law, regard
shall be had to its international origin and to the need for uniformity in its
interpretation and resort may be made to the travaux preparatories and the report
of the Secretary General of the United Nations Commission on International
Trade Law dated March 25, 1985 entitled, "International Commercial Arbitration:
Analytical Commentary on Draft Trade identified by reference number A/CN.
9/264."

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. Likewise, 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.42

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, thus:

SEC. 24. Referral to Arbitration.––A court before which an action is brought in a

matter which is the subject matter of an arbitration agreement shall, if at least
one party so requests not later than the pre-trial conference, or upon the request
of both parties thereafter, refer the parties to arbitration unless it finds that the
arbitration agreement is null and void, inoperative or incapable of being
performed.

(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. 3543 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. RA 9285 incorporated these provisos to Secs. 42, 43, and 44
relative to Secs. 47 and 48, thus:
SEC. 42. Application of the New York Convention.––The New York Convention
shall govern the recognition and enforcement of arbitral awards covered by said
Convention.

The recognition and enforcement of such arbitral awards shall be filed with
the Regional Trial Court in accordance with the rules of procedure to be
promulgated by the Supreme Court. Said procedural rules shall provide that the
party relying on the award or applying for its enforcement shall file with the court
the original or authenticated copy of the award and the arbitration agreement. If
the award or agreement is not made in any of the official languages, the party
shall supply a duly certified translation thereof into any of such languages.

The applicant shall establish that the country in which foreign arbitration award
was made in party to the New York Convention.

xxxx

SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered

by the New York Convention.––The recognition and enforcement of foreign
arbitral awards not covered by the New York Convention shall be done in
accordance with procedural rules to be promulgated by the Supreme Court. The
Court may, on grounds of comity and reciprocity, recognize and enforce a non-
convention award as a convention award.

SEC. 44. Foreign Arbitral Award Not Foreign Judgment.––A foreign arbitral

award when confirmed by a court of a foreign country, shall be recognized and
enforced as a foreign arbitral award and not as a judgment of a foreign court.

A foreign arbitral award, when confirmed by the Regional Trial Court, shall be
enforced in the same manner as final and executory decisions of courts of law of
the Philippines

xxxx

SEC. 47. Venue and Jurisdiction.––Proceedings for recognition and enforcement

of an arbitration agreement or for vacations, setting aside, correction or
modification of an arbitral award, and any application with a court for arbitration
assistance and supervision shall be deemed as special proceedings and shall be
filed with the Regional Trial Court (i) where arbitration proceedings are
conducted; (ii) where the asset to be attached or levied upon, or the act to be
enjoined is located; (iii) where any of the parties to the dispute resides or has his
place of business; or (iv) in the National Judicial Capital Region, at the option of
the applicant.

SEC. 48. Notice of Proceeding to Parties.––In a special proceeding for

recognition and enforcement of an arbitral award, the Court shall send notice to
 the parties at their address of record in the arbitration, or if any part cannot be
served notice at such address, at such party’s last known address. The notice
shall be sent al least fifteen (15) days before the date set for the initial hearing of
the application.

It is now clear that 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, like the National Labor
Relations Commission and Mines Adjudication Board, 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

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. Secs. 42 and 45
provide:

SEC. 42. Application of the New York Convention.––The New York Convention

shall govern the recognition and enforcement of arbitral awards covered by said
Convention.

The recognition and enforcement of such arbitral awards shall be filed with
the Regional Trial Court in accordance with the rules of procedure to be
promulgated by the Supreme Court. Said procedural rules shall provide that the
party relying on the award or applying for its enforcement shall file with the court
the original or authenticated copy of the award and the arbitration agreement. If
the award or agreement is not made in any of the official languages, the party
shall supply a duly certified translation thereof into any of such languages.

The applicant shall establish that the country in which foreign arbitration award
was made is party to the New York Convention.

If the application for rejection or suspension of enforcement of an award has

been made, the Regional Trial Court may, if it considers it proper, vacate its
decision and may also, on the application of the party claiming recognition or
enforcement of the award, order the party to provide appropriate security.

xxxx
 SEC. 45. Rejection of a Foreign Arbitral Award.––A party to a foreign arbitration
proceeding may oppose an application for recognition and enforcement of the
arbitral award in accordance with the procedures and rules to be promulgated by
the Supreme Court only on those grounds enumerated under Article V of the
New York Convention. Any other ground raised shall be disregarded by the
Regional Trial Court.

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 87644 and shall be recognized as final and executory decisions of the
RTC,45 they may only be assailed before the RTC and vacated on the grounds provided
under Sec. 25 of RA 876.46

(5) 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, thus:

SEC. 46. Appeal from Court Decision or Arbitral Awards.—A decision of the

Regional Trial Court confirming, vacating, setting aside, modifying or correcting
an arbitral award may be appealed to the Court of Appeals in accordance with
the rules and procedure to be promulgated by the Supreme Court.

The losing party who appeals from the judgment of the court confirming an
arbitral award shall be required by the appellate court to post a counterbond
 executed in favor of the prevailing party equal to the amount of the award in
accordance with the rules to be promulgated by the Supreme Court.

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

Thus, 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.

With our disquisition above, petitioner is correct in its contention that an arbitration
clause, stipulating that the arbitral award is final and binding, does not oust our courts of
jurisdiction as the international arbitral award, the award of which is not absolute and
without exceptions, is still judicially reviewable under certain conditions provided for by
the UNCITRAL Model Law on ICA as applied and incorporated in RA 9285.

Finally, 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.

What this Court held in University of the Philippines v. De Los Angeles 47 and reiterated
in succeeding cases,48 that the act of treating a contract as rescinded on account of
infractions by the other contracting party is valid albeit provisional as it can be
judicially assailed, is not applicable to the instant case on account of a valid
stipulation on 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.

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.

Corollarily, the trial court gravely abused its discretion in granting PGSMC’s Motion for
Inspection of Things on September 21, 1998, as the subject matter of the motion is
under the primary jurisdiction of the mutually agreed arbitral body, the KCAB in Korea.

In addition, whatever findings and conclusions made by the RTC Branch Sheriff from
the inspection made on October 28, 1998, as ordered by the trial court on October 19,
1998, is of no worth as said Sheriff is not technically competent to ascertain the actual
status of the equipment and machineries as installed in the plant.

For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders
pertaining to the grant of the inspection of the equipment and machineries have to be
recalled and nullified.

Issue on ownership of plant proper for arbitration

Petitioner assails the CA ruling that the issue petitioner raised on whether the total
contract price of USD 1,530,000 was for the whole plant and its installation is beyond
the ambit of a Petition for Certiorari.

Petitioner’s position is untenable.

It is settled that questions of fact cannot be raised in an original action for

certiorari.49 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 RTC’s
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 July 23, 1998 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. Sec. 28 pertinently provides:
 SEC. 28. Grant of interim Measure of Protection.—(a) 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. After constitution of the
arbitral tribunal and during arbitral proceedings, a request for an interim measure
of protection, or modification thereof, may be made with the arbitral or to the
extent that the arbitral tribunal has no power to act or is unable to act
effectivity, the request may be made with the Court. The arbitral tribunal is
deemed constituted when the sole arbitrator or the third arbitrator, who has been
nominated, has accepted the nomination and written communication of said
nomination and acceptance has been received by the party making the request.

(b) The following rules on interim or provisional relief shall be observed:

Any party may request that provisional relief be granted against the adverse
party.

Such relief may be granted:

(i) to prevent irreparable loss or injury;

(ii) to provide security for the performance of any obligation;

(iii) to produce or preserve any evidence; or

(iv) to compel any other appropriate act or omission.

(c) The order granting provisional relief may be conditioned upon the provision of
security or any act or omission specified in the order.

(d) Interim or provisional relief is requested by written application transmitted by

reasonable means to the Court or arbitral tribunal as the case may be and the
party against whom the relief is sought, describing in appropriate detail the
precise relief, the party against whom the relief is requested, the grounds for the
relief, and the evidence supporting the request.

(e) The order shall be binding upon the parties.

(f) Either party may apply with the Court for assistance in implementing or
enforcing an interim measure ordered by an arbitral tribunal.

(g) A party who does not comply with the order shall be liable for all damages
resulting from noncompliance, including all expenses, and reasonable attorney's
fees, paid in obtaining the order’s judicial enforcement. (Emphasis ours.)

Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim measure" of
protection as:
 Article 17. Power of arbitral tribunal to order interim measures

xxx xxx xxx

(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.

Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction to
issue interim measures:

Article 17 J. Court-ordered interim measures

A court shall have the same power of issuing an interim measure in relation to
arbitration proceedings, irrespective of whether their place is in the territory of
this State, as it has in relation to proceedings in courts. The court shall exercise
such power in accordance with its own procedures in consideration of the
specific features of international arbitration.

In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation, we
were explicit that even "the pendency of an arbitral proceeding does not foreclose resort
to the courts for provisional reliefs." We explicated this way:

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.50
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 Worth’s 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 family51 until final resolution of the
arbitral proceedings and enforcement of the award, if any.

WHEREFORE, this petition is PARTLY GRANTED, in that:

(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET
ASIDE;

(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-
117 are REVERSED and SET ASIDE;
(3) The parties are hereby ORDERED to submit themselves to the arbitration of their
dispute and differences arising from the subject Contract before the KCAB; and

(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and

machineries, if it had not done so, and ORDERED to preserve and maintain them until
the finality of whatever arbitral award is given in the arbitration proceedings.

No pronouncement as to costs.

SO ORDERED.

Quisumbing,Chairperson Carpio, Carpio-Morales, Tinga, JJ., concur.

G.R. No. 225051

DEPARTMENT OF FOREIGN AFFAIRS (DFA), Petitioner

vs.
BCA CORPORATION INTERNATIONAL & AD HOC ARBITRAL TRIBUNAL,
composed of Chairman Danilo L. Concepcion and members, Custodio 0. Parlade
and Antonio P. Jamon, Jr., Respondents

DECISION

PERALTA, J.:

This is a petition for certiorari under Rule 65 of the Rules of Court, seeking to annul and
set aside Procedural Order No. 11 dated February 15, 2016 and Procedural Order No.
12 dated June 8, 2016, both issued by the UNCITRAL Ad Hoc Arbitral Tribunal in the
arbitration proceedings between petitioner Department of Foreign Affairs (DFA) and
respondent BCA International Corporation.

The facts are as follows:

In an Amended Build-Operate-Transfer (BOT) Agreement1 dated April 5,

2002 (Agreement), petitioner DFA awarded the Machine Readable Passport and Visa
Project (MRP/V Project) to respondent BCA International Corporation. In the course
of implementing the MRPN Project, conflict arose and DFA sought to terminate the
Agreement.

BCA International Corporation opposed the termination and filed a Request for
Arbitration on April 20, 2006. The Arbitral Tribunal was constituted on June 29, 2009.2

In its Statement of Claims3 dated August 24, 2009, BCA International Corporation

sought the following reliefs against petitioner: (a) a judgment nullifying and setting aside
the Notice of Termination dated December 9, 2005 of the DFA, including its demand to
BCA to pay liquidated damages equivalent to the corresponding performance security
bond posted by BCA; (b) a judgment confirming the Notice of Default dated December
22, 2005 issued by BCA to the DF A and ordering the DF A to perform its obligation
under the Amended BOT Agreement dated April 5, 2002 by approving the site of the
Central Facility at the Star Mall Complex in Shaw Boulevard, Mandaluyong City, within
five days from receipt of the Arbitral A ward; (c) a judgment ordering the DF A to pay
damages to BCA, reasonably estimated at ₱l00,000,000.00 as of this date, representing
lost business opportunities; financing fees, costs and commissions; travel expenses;
legal fees and expenses; and cost of arbitration, including the fees of the members of
the Arbitral Tribunal; and (d) other just or equitable relief.

On October 5, 2013, BCA International Corporation manifested that it shall file an

Amended Statement of Claims so that its claim may conform to the evidence they have
presented.4

DFA opposed respondent's manifestation, arguing that such amendment at the very
late stage of the proceedings will cause undue prejudice to its interests. However, the
Arbitral Tribunal gave respondent a period of time within which to file its Amended
Statement of Claims and gave petitioner time to formally interpose its objections.5

In the Amended Statement of Claims6 dated October 25, 2013, respondent interposed

the alternative relief that, in the event specific performance by petitioner was no longer
possible, petitioner prayed that the Arbitral Tribunal shall render judgment ordering
petitioner to pay respondent ₱l ,648,611,531.00, representing the net income
respondent is expected to earn under the Agreement, and ₱l00,000,000.00 as
exemplary, temperate or nominal damages.7

In an Opposition dated December 19, 2013, DFA objected to respondent's Amended

Statement of Claims, averring that its belated filing violates its right to due process and
will prejudice its interest and that the Tribunal has no jurisdiction over the alternative
reliefs sought by respondent.8

On August 6, 2014, BCA International Corporation filed a Motion to Withdraw

Amended Statement of Claims9 in the light of petitioner's opposition to the admission of
the Amended Statement of Claims and to avoid further delay in the arbitration of its
claims, without prejudice to the filing of such claims for liquidated and other damages at
the appropriate time and proceeding. Thereafter, respondent filed a motion to resume
proceedings.

However, on May 4, 2015, BCA International Corporation filed anew a Motion to

Admit Attached Amended Statement of Claims dated April 30, 2015, increasing the
actual damages sought to ₱390,000,000.00, plus an additional ₱l0,000,000.00 for
exemplary, temperate or nominal damages.10

On November 6, 2015, DFA filed an Opposition to the Motion to Admit Attached

Amended Statement of Claims.
In Procedural Order No. 1111 dated February 15, 2016, the Arbitral Tribunal granted
resp9ndept' s Motion to Admit Attached Amended Statement of Claims dated April 30,
2015 on the premise that respondent would no longer present any additional evidence-
in-chief. Petitioner was given a period of 20 days from receipt of the Order to file its
Answer to the Amended Statement of Claims and to manifest before the Tribunal if it will
present additional evidence in support of its Amended Answer in order for the Tribunal
to act accordingly.

Procedural Order No. 11 reads:

For resolution by the Tribunal is BCA's Motion to Admit the Amended Statement of
Claim dated 30 April 2015 objected to by DF A in its Opposition dated 6 November
2015.

BCA's Counsel made representations during the hearings that the Amendment is for the
simple purp.ose of making the Statement of Claim conform with what BCA believes it
was able to prove in the course of the proceedings and that the Amendment will no
longer require the presentation of any additional evidence-in-chief.

Without ruling on what BCA was able to prove, the Tribunal hereby grants the Motion to
Admit on the premise that BCA will no longer present any additional evidence-in-chief to
prove the bigger claim in the Amended Statement.

For the additional claim of 300 million pesos, BCA should pay the additional fee of 5%
or 15 million pesos. Having paid 12 million pesos, the balance of 3 million pesos shall
be payable upon submission of this case for resolution. No award shall be issued and
promulgated by the Tribunal unless the balance of 40% in the Arbitrators' fees for the
original Claim and Counterclaim, respectively, and the balance of 3 million for the
Amended Claim, are all fully paid by the parties.

DFA is hereby given the period of 20 days from receipt of this Order to file its Answer to
the Amended Statement of Complaint, and to manifest before this Tribunal if it will
present additional evidence in support of its Amended Answer in order for the Tribunal
to act accordingly.12

On February 18, 2016, BCA International Corporation filed a Motion for Partial
Reconsideration13 of Procedural Order No. 11 and prayed for the admission of its
Amended Statement of Claims by the Arbitral Tribunal without denying respondent's
right to present evidence on the actual damages, such as attorney's fees and legal cost
that it continued to incur.

On February 19, 2016, petitioner filed a Motion for Reconsideration of Procedural Order
No. 11 and, likewise, filed a Motion to Suspend Proceedings dated February 19, 2016.
Further, on February 29, 2016, petitioner filed its Comment/Opposition to respondent's
Motion for Partial Reconsideration of Procedural Order No. 11.
The Arbitral Tribunal, thereafter, issued Procedural Order No. 12 dated June 8, 2016,
which resolved respondent's Motion for Partial Reconsideration of Procedural Order No.
11, disallowing the presentation of additional evidence-in-chief by respondent to prove
the increase in the amount of its claim as a limitation to the Tribunals' decision granting
respondent's Motion to Amend its Statement of Claims. In Procedural Order No. 12, the
Tribunal directed the parties to submit additional documentary evidence in support of
their respective positions in relation to the Amended Statement of Claims and to which
the other party may submit its comment or objections.

Procedural Order No. 12 reads:

For resolution is the partial Motion for Reconsideration of the Tribunal's Procedural
Order No. 11 disallowing the presentation of additional evidence-in-chief by Claimant to
prove the increase in the amount of its Claim as a limitation to this Tribunal's decision
granting Claimant's Motion to Amend its Statement of Claims.

After a careful consideration of all the arguments presented by the Parties in their
pleadings, the Tribunal hereby decides to allow the submission of additional
documentary evidence by any Party in support of its position in relation to the Amended
Statement of Claims and to which the other may submit its comments or objections. The
Tribunal, however, will still not allow the taking of testimonial evidence from any witness
by any Party. The Tribunal allowed the amendment of the Statement of Claims but only
for the purpose of making the Statement of Claims conform with the evidence that had
already been presented, assuming that, indeed, it was the case. In resting its case,
Respondent must have already dealt with and addressed the evidence that had already
been presented by Claimant and that allegedly supports the amended Claim. However,
in order to give the Parties more opportunity to prove their respective positions,
additional evidence shall be accepted by the Tribunal, but only documentary evidence.

Wherefore, Procedural Order No. 11 is modified accordingly. The Claimant is given until
25 June 2016 to submit its additional documentary evidence in support of the Amended
Statement of Claims. Respondent is given until 15 July 2016 to file its Answer to the
Amended Statement of Claims, together with all the documentary evidence in support of
its position. Claimant is given until 30 July 2016 to comment or oppose the Answer and
the supporting documentary evidence, while Respondent is given until 14 August 2016
to file its comment or opposition to the Claimant's submission, together with any
supporting documentary evidence. Thereafter, hearing of the case shall be deemed
terminated. The periods allowed herein are non-extendible and the Tribunal will not act
on any motion for extension of time to comply.

The Parties shall submit their Formal Offer of Evidence, in the manner previously
agreed upon, on 20 September 2016 while their respective Memorandum shall be filed
on 20 October 2016. The Reply Memoranda of the Parties shall be filed on 20
November 2016. Thereafter, with or without the foregoing submissions, the case shall
be deemed submitted for Resolution.14
As Procedural Order No. 12 denied petitioner's motion for reconsideration of Procedural
Order No. 11, petitioner filed this petition for certiorari under Rule 65 of the Rules of
Court with application for issuance of a temporary restraining order and/or writ of
preliminary injunction, seeking to annul and set aside Procedural Order No. 11 dated
February 15, 2016 and Procedural Order No. 12 dated June 8, 2016.

DFA stated that it opted to file the petition directly with this court in view of the
immensity of the claim concerned, significance of the public interest involved in this
case, and the circumvention of the temporary restraining order issued by this Court
in Department of Foreign Affairs v. BCA International Corporation, docketed as G.R.
No. 210858. It cited Department of Foreign Affairs, et al. v. Hon. Judge
Falcon,15 wherein the Court overlooked the rule on hierarchy of courts and took
cognizance of the petition for certiorari.

Petitioner raised these issues:

THE AD HOC ARBITRAL TRIBUNAL COMMITTED GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ADMITTED THE
AMENDED STATEMENT OF CLAIMS DATED 30 APRIL 2015 NOTWITHSTANDING
THAT:

I. THE AMENDMENT CAUSES UNDUE DELAY AND PREJUDICE TO PETITIONER

DF A;

II. THE ALTERNATIVE RELIEF IN THE AMENDED STATEMENT OF CLAIMS FALLS

OUTSIDE THE SCOPE OF THE ARBITRATION CLAUSE; HENCE, OUTSIDE THE
JURISDICTION OF THE AD HOC ARBITRAL TRIBUNAL;

III. THE AMENDMENT CIRCUMVENTS THE TEMPORARY RESTRAINING ORDER

DATED 02 APRIL 2014 ISSUED BY THIS HONORABLE COURT IN G.R. NO. 210858;
AND

IV. PROCEDURAL ORDER NO. 12 DATED 8 JUNE 2016 VIOLATES PETITIONER

DFA'S RIGHT TO DUE PROCESS.16

Petitioner states that Article 20 of the 1976 UNCITRAL Arbitration Rules grants a
tribunal the discretion to deny a motion to amend where the tribunal "considers it
inappropriate to allow such amendment having regard to the delay in making it or
prejudice to the other party or any other circumstances." It further proscribes an
amendment where "the amended claim falls outside the scope of the arbitral clause or
separate arbitration agreement."

Petitioner contends that respondent's Motion to Admit Attached Amended Statement of

Claims dated April 30, 2015 should have been denied by the Arbitral Tribunal as there
has been delay and prejudice to it. Moreover, other circumstances such as fair and
efficient administration of the proceedings should have warranted the denial of the
motion to amend. Finally, the Arbitral Tribunal did not have jurisdiction over the
amended claims.

Petitioner prays that a temporary restraining order and/or writ of preliminary injunction
be issued enjoining the Arbitral Tribunal from implementing Procedural Order No. 11
dated February 15, 2016 and Procedural Order No. 12 dated June 8, 2016; that the said
Procedural Orders be nullified for having been rendered in violation of the 1976
UNCITRAL Arbitration Rules and this Court's Resolution dated April 2, 2014 rendered in
G.R. No. 210858; that respondent's Amended Statement of Claims dated April 30, 2015
be denied admission; and, if this Court affirms the admission of respondent's Amended
Statement of Claims, petitioner be allowed to present testimonial evidence to refute the
allegations and reliefs in the Amended Statement of Claims and to prove its additional
defenses or claims in its Answer to the Amended Statement of Claims or Amended
Statement of Defense with Counterclaims.

Petitioner contends that the parties in this case have agreed to refer any dispute to
arbitration under the 1976 UNCITRAL Arbitration Rules and to compel a party to be
bound by the application of a different rule on arbitration such as the Alternative Dispute
Resolution (ADR) Act of 2004 or Republic Act (RA) No. 9285 transgresses such vested
right and amounts to vitiation of consent to participate in the arbitration proceedings.

In its Comment, respondent contends that this Court has no jurisdiction to intervene in a
private arbitration, which is a special proceeding governed by the ADR Act of 2004, its
Implementing Rules and Regulations (JRR) and the Special Rules of Court on
Alternative Dispute Resolution (Special ADR Rules).

Respondent avers that petitioner's objections to the admission of its Amended

Statement of Claims by the Arbitral Tribunal, through the assailed Procedural Order
Nos. 11 and 12, are properly within the competence and jurisdiction of the Arbitral
Tribunal to resolve. The Arbitral Tribunal derives their authority to hear and resolve the
parties' dispute from the contractual consent of the parties expressed in Section 19. 02
of the Agreement.

In a Resolution dated July 25, 2016, the Court resolved to note the Office of the Solicitor
General's Very Urgent Motion for the Issuance of a Temporary Restraining Order and/or
Writ of Preliminary Injunction dated July 5, 2016.

In regard to the allegation that the Amended Statement of Claims circumvents the
temporary restraining order dated April 2, 2014 issued by the Court in DFA v. BCA
International Corporation, docketed as G.R. No. 210858, it should be pointed out that
the said temporary restraining order has been superseded by the Court's Decision
promulgated on June 29, 2016, wherein the Court resolved to partially grant the petition
and remand the case to the RTC of Makati City, Branch 146, to determine whether the
documents and records sought to be subpoenaed are protected by the deliberative
process privilege as explained in the Decision.
The issues to be resolved at the outset are which laws apply to the arbitration
proceedings and whether the petition filed before the Court is proper.

The Agreement provides for the resolution of dispute between the parties in Section
19.02 thereof, thus:

If the Dispute cannot be settled amicably within ninety (90) days by mutual discussion
as contemplated under Section 19.01 herein, the Dispute shall be settled with finality by
an arbitrage tribunal operating under International Law, hereinafter referred to as
the "Tribunal," under the UNCITRAL Arbitration Rules contained in Resolution 31/98
adopted by the United Nations General Assembly on December 15, 1976, and
entitled "Arbitration Rules on the United Nations Commission on the International Trade
Law." The DFA and BCA undertake to abide by and implement the arbitration award.
The place of arbitration shall be Pasay City, Philippines, or such other place as may
mutually be agreed upon by both parties. The Arbitration proceeding shall be conducted
in the English language.

Under Article 33 of the UNCITRAL Arbitration Rules governing the parties, "the arbitral
tribunal shall apply the law designated by the parties as applicable to the substance of
the dispute." "Failing such designation by the parties, the arbitral tribunal shall apply the
law determined by the conflict of laws rules which it considers applicable." Established
in this jurisdiction is the rule that the law of the place where the contract is made
governs, or lex loci contractus.17 As the parties did not designate the applicable law
and the Agreement was perfected in the Philippines, our Arbitration laws,
particularly, RA No. 876,18 RA No. 928519 and its IRR, and the Special ADR Rules
apply.20 The IRR of RA No. 9285 provides that "[t]he arbitral tribunal shall decide the
dispute in accordance with such law as is chosen by the parties. In the absence of such
agreement, Philippine law shall apply."21

In another earlier case filed by petitioner entitled Department of Foreign Affairs v. BCA

International Corporation,22 docketed as G.R. No. 210858, petitioner also raised as one
of its issues that the 1976 UNCITRAL Arbitration Rules and the Rules of Court apply to
the present arbitration proceedings, not RA No. 9285 and the Special ADR Rules. We
ruled therein thus:

Arbitration is deemed a special proceeding and governed by the special

provisions of RA 9285, its IRR, and the Special ADR Rules. RA 9285 is the general
law applicable to all matters and controversies to be resolved through alternative
dispute resolution methods. While enacted only in 2004, we held that RA 9285 applies
to pending arbitration proceedings since it is a procedural law, which has retroactive
effect.

xxxx

The IRR of RA 9285 reiterate that RA 9285 is procedural in character and applicable to
all pending arbitration proceedings. Consistent with Article 2046 of the Civil Code, the
Special ADR Rules were formulated and were also applied to all pending arbitration
proceedings covered by RA 9285, provided no vested rights are impaired. Thus,
contrary to DFA's contention, RA 9285, its IRR, and the Special ADR Rules are
applicable to the present arbitration proceedings. The arbitration between the DF A and
BCA is still pending, since no arbitral award has yet been rendered. Moreover, DF A did
not allege any vested rights impaired by the application of those procedural rules.

RA No. 9285 declares the policy of the State to actively promote pa1iy autonomy in the
resolution of disputes or the freedom of the parties to make their own arrangements to
resolve their disputes.23 Towards this end, the State shall encourage and actively
promote the use of Alternative Dispute Resolution as an important means to achieve
speedy and impartial justice and declog court dockets.24

Court intervention is allowed under RA No. 9285 in the following instances: (1) when a
party in the arbitration proceedings requests for an interim measure of protection;25 (2)
judicial review of arbitral awards26 by the Regional Trial Court (RTC); and (3) appeal
from the RTC decisions on arbitral awards to the Court of Appeals. 27

The extent of court intervention in domestic arbitration is specified in the IRR of RA

No. 9285, thus:

Art. 5.4. Extent of Court Intervention. In matters governed by this Chapter, no court shall
intervene except in accordance with the Special ADR Rules.

Court intervention in the Special ADR Rules is allowed through these remedies: (1)
Specific Court Relief, which includes Judicial Relief Involving the Issue of Existence,
Validity and Enforceability of the Arbitral Agreement,28 Interim Measures of
Protection,29 Challenge to the Appointment of Arbitrator,30 Termination of Mandate of
Arbitrator,31 Assistance in Taking Evidence,32 Confidentiality/Protective
Orders,33 Confirmation, Correction or Vacation of A ward in Domestic Arbitration,34 all to
be filed with the RTC; (2) a motion for reconsideration may be filed by a party with
the RTC on the grounds specified in Rule 19.1; (3) an appeal to the Court of
Appeals through a petition for review under Rule 19.2 or through a special civil
action for certiorari under Rule 19.26; and (4) a petition for certiorari with the
Supreme Court from a judgment or final order or resolution of the Court of
Appeals, raising only questions of law.

Under the Special ADR Rules, review by the Supreme Court of an appeal
by certiorari is not a matter of right, thus:

RULE 19.36. Review Discretionary. - A review by the Supreme Court is not a matter of

right, but of sound judicial discretion, which will be granted only for serious and
compelling reasons resulting in grave prejudice to the aggrieved party. The following,
while neither controlling nor fully measuring the court's discretion, indicate the serious
and compelling, and necessarily, restrictive nature of the grounds that will warrant the
exercise of the Supreme Court's discretionary powers, when the Court of Appeals:
a. Failed to apply the applicable standard or test for judicial review prescribed in these
Special ADR Rules in arriving at its decision resulting in substantial prejudice to the
aggrieved party;

b. Erred in upholding a final order or decision despite the lack of jurisdiction of the court
that rendered such final order or decision;

c. Failed to apply any provision, principle, policy or rule contained in these Special ADR
Rules resulting in substantial prejudice to the aggrieved party; and

d. Committed an error so egregious and harmful to a party as to amount to an

undeniable excess of jurisdiction.

The mere fact that the petitioner disagrees with the Court of Appeals' determination of
questions of fact, of law or both questions of fact and law, shall not warrant the exercise
of the Supreme Court's discretionary power. The error imputed to the Court of Appeals
must be grounded upon any of the above prescribed grounds for review or be closely
analogous thereto.

A mere general allegation that the Court of Appeals has committed serious and
substantial error or that it has acted with grave abuse of discretion resulting in
substantial prejudice to the petitioner without indicating with specificity the nature of
such error or abuse of discretion and the serious prejudice suffered by the petitioner on
account thereof, shall constitute sufficient ground for the Supreme Court to dismiss
outright the petition.

RULE 19.37. Filing of Petition with Supreme Court. - A party desiring to appeal

by certiorari from a judgment or final order or resolution of the Court of Appeals issued
pursuant to these Special ADR Rules may file with the Supreme Court a verified petition
for review on certiorari. The petition shall raise only questions of law, which must be
distinctly set forth.

It is clear that an appeal by certiorari to the Supreme Court is from a judgment or

final order or resolution of the Court of Appeals and only questions of law may be
raised. There have been instances when we overlooked the rule on hierarchy of courts
and took cognizance of a petition for certiorari alleging grave abuse of discretion by the
Regional Trial Court when it granted interim relief to a party and issued an Order
assailed by the petitioner, considering the transcendental importance of the issue
involved therein35 or to better serve the ends of justice when the case is determined on
the merits rather on technicality.36 However, in this case, the appeal by certiorari is
not from a final Order of the Court of Appeals or the Regional Trial Court, but
from an interlocutory order of the Arbitral Tribunal; hence, the petition must be
dismissed.

WHEREFORE, the Court resolves to DISMISS the petition for failure to observe the

rules on court intervention allowed by RA No. 9285 and the Special ADR Rules,
specifically Rule 19.36 and Rule 19.37 of the latter, in the pending arbitration
proceedings of the parties to this case.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

G.R. No. 87958               April 26, 1990

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURG, PA/AMERICAN

INTERNATIONAL UNDERWRITER (PHIL.) INC., petitioners,
vs.
STOLT-NIELSEN PHILIPPINES, INC. and COURT OF APPEALS, respondents.

Fajardo Law Offices for petitioners.

Sycip, Salazar, Hernandez & Gatmaitan for Stolt-Nielsen Phil., Inc.

MELENCIO-HERRERA, J.:

We uphold the ruling of respondent Court of Appeals that the claim or dispute herein is
arbitrable.

On 9 January 1985, United Coconut Chemicals, Inc. (hereinafter referred to as

SHIPPER) shipped 404.774 metric tons of distilled C6-C18 fatty acid on board MT
"Stolt Sceptre," a tanker owned by Stolt-Nielsen Philippines Inc. (hereinafter referred to
as CARRIER), from Bauan, Batangas, Philippines, consigned to "Nieuwe Matex" at
Rotterdam, Netherlands, covered by Tanker Bill of Lading BL No. BAT-1. The shipment
was insured under a marine cargo policy with Petitioner National Union Fire Insurance
Company of Pittsburg (hereinafter referred to as INSURER), a non-life American
insurance corporation, through its settling agent in the Philippines, the American
International Underwriters (Philippines), Inc., the other petitioner herein.

It appears that the Bill of Lading issued by the CARRIER contained a general statement
of incorporation of the terms of a Charter Party between the SHIPPER and Parcel
Tankers, Inc., entered into in Greenwich, Connecticut, U.S.A.

Upon receipt of the cargo by the CONSIGNEE in the Netherlands, it was found to be
discolored and totally contaminated. The claim filed by the United Coconut Chemicals,
Inc with the MT "Stolt Sceptre having been denied, the National Union Fire
Insurance Company of Pittsburg indemnified the United Coconut Chemicals, Inc
pursuant to the stipulation in the marine cargo policy covering said shipment.

On 21 April 1986, as subrogee of the United Coconut Chemicals, Inc, the National
Union Fire Insurance Company of Pittsburg filed suit against the MT "Stolt Sceptre,
before the Regional Trial Court of Makati, Branch 58 (RTC), for recovery of the sum of
P1,619,469.21, with interest, representing the amount the INSURER had paid the
SHIPPER-ASSURED. The MT "Stolt Sceptre moved to dismiss/suspend the
proceedings on the ground that the RTC had no jurisdiction over the claim the same
being an arbitrable one; that as subrogee of the SHIPPER-ASSURED, the National
Union Fire Insurance Company of Pittsburg is subject to the provisions of the Bill of
Lading, which includes a provision that the shipment is carried under and pursuant to
the terms of the Charter Party, dated 21 December 1984, between the SHIPPER-
ASSURED and Parcel Tankers, Inc. providing for arbitration.

The National Union Fire Insurance Company of Pittsburg opposed the

dismissal/suspension of the proceedings on the ground that it was not legally bound to
submit the claim for arbitration inasmuch as the arbitration clause provided in the
Charter Party was not incorporated into the Bill of Lading, and that the arbitration clause
is void for being unreasonable and unjust. On 28 July 1987, the RTC 1 denied the
Motion, but subsequently reconsidered its action on 19 November 1987, and deferred
resolution on the Motion to Dismiss/Suspend Proceedings until trial on the merits "since
the ground alleged in said motion does not appear to be indubitable."

The MT "Stolt Sceptre then resorted to a Petition for Certiorari and Prohibition with
prayer for Preliminary Injunction and/or Temporary Restraining Order before the
respondent Appellate Court seeking the annulment of the 19 November 1987 RTC
Order. On 12 April 1989, the CA 2 promulgated the Decision now under review, with the
following dispositive tenor:

WHEREFORE', the order of respondent Judge dated November 19, 1987

deferring resolution on petitioner Stolt-Nielsen's Motion to Dismiss/Suspend
Proceedings is hereby SET ASIDE; private respondent NUFIC (the INSURER) is
ordered to refer its claims for arbitration; and respondent Judge is directed to
suspend the proceedings in Civil case No. 13498 pending the return of the
corresponding arbitral award.

On 21 August 1989, we resolved to give due course and required the parties to submit
their respective Memoranda, which they have done, the last filed having been Noted on
23 October 1989.

First, herein petitioner-INSURER alleges that the RTC Order deferring resolution of the
CARRIER's Motion to Dismiss constitutes an interlocutory order, which can not be the
subject of a special civil action on certiorari and prohibition.

Generally, this would be true. However, the case before us falls under the exception.
While a Court Order deferring action on a motion to dismiss until the trial is interlocutory
and cannot be challenged until final judgment, still, where it clearly appears that the trial
Judge or Court is proceeding in excess or outside of its jurisdiction, the remedy of
prohibition would lie since it would be useless and a waste of time to go ahead with the
proceedings (University of Sto. Tomas vs. Villanueva, 106 Phil. 439,
[1959] citing Philippine International Fair, Inc., et al., vs. Ibanez, et al., 94 Phil. 424
[1954]; Enrique vs. Macadaeg, et al., 84 Phil. 674 [1949]; San Beda College vs. CIR, 97
Phil. 787 [1955]). Even a cursory reading of the subject Bill of Lading, in relation to the
Charter Party, reveals the Court's patent lack of jurisdiction to hear and decide the
claim.

We proceed to the second but more crucial issue: Are the terms of the Charter Party,
particularly the provision on arbitration, binding on the INSURER?

The National Union Fire Insurance Company of Pittsburg postulates that it cannot
be bound by the Charter Party because, as insurer, it is subrogee only with respect to
the Bill of Lading; that only the Bill of Lading should regulate the relation among the
INSURER, the holder of the Bill of Lading, and the CARRIER; and that in order to bind
it, the arbitral clause in the Charter Party should have been incorporated into the
Bill of Lading.

We rule against that submission.

The pertinent portion of the Bill of Lading in issue provides in part:

This shipment is carried under and pursuant to the terms of the Charter dated
December 21st 1984 at Greenwich, Connecticut, U.S.A. between Parcel
Tankers. Inc. and United Coconut Chemicals, Ind. as Charterer and all the terms
whatsoever of the said Charter except the rate and payment of freight specified
therein apply to and govern the rights of the parties concerned in this shipment.
Copy of the Charter may be obtained from the Shipper or Charterer. (Emphasis
supplied)

While the provision on arbitration in the Charter Party reads:

H. Special Provisions.

x x x           x x x          x x x

4. Arbitration. Any dispute arising from the making, performance or termination of

this Charter Party shall be settled in New York, Owner and Charterer each
appointing an arbitrator, who shall be a merchant, broker or individual
experienced in the shipping business; the two thus chosen, if they cannot agree,
shall nominate a third arbitrator who shall be an admiralty lawyer. Such
arbitration shall be conducted in conformity with the provisions and procedure of
the United States arbitration act, and a judgment of the court shall be entered
upon any award made by said arbitrator. Nothing in this clause shall be deemed
to waive Owner's right to lien on the cargo for freight, deed of freight, or
demurrage.
Clearly, the Bill of Lading incorporates by reference the terms of the Charter Party. It is
settled law that the charter may be made part of the contract under which the goods are
carried by an appropriate reference in the Bill of Lading (Wharton Poor, Charter Parties
and Ocean Bills of Lading (5th ed., p. 71). This should include the provision on
arbitration even without a specific stipulation to that effect. The entire contract
must be read together and its clauses interpreted in relation to one another and not by
parts. Moreover, in cases where a Bill of Lading has been issued by a carrier covering
goods shipped aboard a vessel under a charter party, and the charterer is also the
holder of the bill of lading, "the bill of lading operates as the receipt for the goods, and
as document of title passing the property of the goods, but not as varying the contract
between the charterer and the shipowner" (In re Marine Sulphur Queen, 460 F 2d 89,
103 [2d Cir. 1972]; Ministry of Commerce vs. Marine Tankers Corp. 194 F. Supp 161,
163 [S.D.N.Y. 1960]; Greenstone Shipping Co., S.A. vs. Transworld Oil, Ltd., 588 F
Supp [D.El. 1984]). The Bill of Lading becomes, therefore, only a receipt and not the
contract of carriage in a charter of the entire vessel, for the contract is the Charter Party
(Shell Oil Co. vs. M/T Gilda, 790 F 2d 1209, 1212 [5th Cir. 1986]; Home Insurance Co.
vs. American Steamship Agencies, Inc., G.R. No. L-25599, 4 April 1968, 23 SCRA 24),
and is the law between the parties who are bound by its terms and condition provided
that these are not contrary to law, morals, good customs, public order and public policy
(Article 1306, Civil Code).

As the respondent Appellate Court found, National Union Fire Insurance Company of
Pittsburg "cannot feign ignorance of the arbitration clause since it was already charged
with notice of the existence of the charter party due to an appropriate reference thereof
in the bill of lading and, by the exercise of ordinary diligence, it could have easily
obtained a copy thereof either from the shipper or the charterer.

We hold, therefore, that the National Union Fire Insurance Company of Pittsburg
cannot avoid the binding effect of the arbitration clause. By subrogation, it became
privy to the Charter Party as fully as the SHIPPER before the latter was indemnified,
because as subrogee it stepped into the shoes of the SHIPPER-ASSURED and is
subrogated merely to the latter's rights. It can recover only the amount that is
recoverable by the assured. And since the right of action of the SHIPPER-ASSURED is
governed by the provisions of the Bill of Lading, which includes by reference the terms
of the Charter Party, necessarily, a suit by the INSURER is subject to the same
agreements (see St. Paul Fire and Marine Insurance Co. vs. Macondray, G.R. No. L-
27796, 25 March 1976, 70 SCRA 122).

Stated otherwise, as the subrogee of the SHIPPER, the National Union Fire
Insurance Company of Pittsburg is contractually bound by the terms of the Charter
party. Any claim of inconvenience or additional expense on its part should not
render the arbitration clause unenforceable.

Arbitration, as an alternative mode of settling disputes, has long been recognized and
accepted in our jurisdiction (Chapter 2, Title XIV, Book IV, Civil Code). Republic Act No.
876 (The Arbitration Law) also expressly authorizes arbitration of domestic disputes.
Foreign arbitration as a system of settling commercial disputes of an international
character was likewise recognized when the Philippines adhered to the United Nations
"Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of
1958," under the 10 May 1965 Resolution No. 71 of the Philippine Senate, giving
reciprocal recognition and allowing enforcement of international arbitration agreements
between parties of different nationalities within a contracting state. Thus, it pertinently
provides:

1. Each Contracting State shall recognize an agreement in writing under which

the parties undertake to submit to arbitration all or any differences which have
arisen or which may arise between them in respect of a defined legal
relationship, whether contractual or not, concerning a subject matter capable of
settlement by arbitration.

2. The term "agreement in writing" shall include an arbitral clause in a contract or

an arbitration agreement, signed by the parties or contained in an exchange of
letters or telegrams.

3. The court of a Contracting State, when seized of an action in a matter in

respect of which the parties have made an agreement within the meaning of this
article, shall, at the request of one of the parties, refer the parties to arbitration,
unless it finds that the said agreement is null and void, inoperative or incapable
of being performed.

It has not been shown that the arbitral clause in question is null and void, inoperative, or
incapable of being performed. Nor has any conflict been pointed out between the
Charter Party and the Bill of Lading.

In fine, referral to arbitration in New York pursuant to the arbitration clause, and
suspension of the proceedings in Civil Case No. 13498 below, pending the return of the
arbitral award, is, indeed called for.

WHEREFORE, finding no reversible error in respondent Appellate Court's 12 April 1989

Decision, the instant Petition for Review on certiorari is DENIED and the said judgment
is hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

Padilla, Sarmiento and Regalado JJ., concur. Paras, J., took no part.

G.R. No. 185582               February 29, 2012

TUNA PROCESSING, INC., Petitioner,

vs.
PHILIPPINE KINGFORD, INC., Respondent.
 DECISION

PEREZ, J.:

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

In this Petition for Review on Certiorari under Rule 45,1 petitioner Tuna Processing, Inc.
(TPI), a foreign corporation not licensed to do business in the Philippines, prays that the
Resolution2 dated 21 November 2008 of the Regional Trial Court (RTC) of Makati City
be declared void and the case be remanded to the RTC for further proceedings. In the
assailed Resolution, the RTC dismissed petitioner’s Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award 3 against respondent Philippine
Kingford, Inc. (Kingford), a corporation duly organized and existing under the laws of the
Philippines,4 on the ground that petitioner lacked legal capacity to sue.5

The Antecedents

On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the "licensor"),

co-patentee of U.S. Patent No. 5,484,619, Philippine Letters Patent No. 31138, and
Indonesian Patent No. ID0003911 (collectively referred to as the "Yamaoka
Patent"),6 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 (collectively referred to as the "sponsors"/"licensees")7 entered
into a Memorandum of Agreement (MOA),8 pertinent provisions of which read:

1. Background and objectives. The Licensor, co-owner of U.S.Patent No.

5,484,619, Philippine Patent No. 31138, and Indonesian Patent No. ID0003911
xxx wishes to form an alliance with Sponsors for purposes of enforcing his three
aforementioned patents, granting licenses under those patents, and collecting
royalties.

The Sponsors wish to be licensed under the aforementioned patents in order to

practice the processes claimed in those patents in the United States, the
Philippines, and Indonesia, enforce those patents and collect royalties in
conjunction with Licensor.

xxx

4. Establishment of Tuna Processors, Inc. The parties hereto agree to the

establishment of Tuna Processors, Inc. ("TPI"), a corporation established in the
State of California, in order to implement the objectives of this Agreement.

5. Bank account. TPI shall open and maintain bank accounts in the United
States, which will be used exclusively to deposit funds that it will collect and to
 disburse cash it will be obligated to spend in connection with the implementation
of this Agreement.

6. Ownership of TPI. TPI shall be owned by the Sponsors and Licensor.

Licensor shall be assigned one share of TPI for the purpose of being elected as
member of the board of directors. The remaining shares of TPI shall be held by
the Sponsors according to their respective equity shares. 9

xxx

The parties likewise executed a Supplemental Memorandum of Agreement10 dated

15 January 2003 and an Agreement to Amend Memorandum of Agreement11 dated
14 July 2003.

Due to a series of events not mentioned in the petition, the licensees, including
respondent Kingford, withdrew from petitioner TPI and correspondingly reneged on
their obligations.12 Tuna Processing Inc. 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.13 Pertinent portions of the award read:

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

xxx15
To enforce the award, petitioner TPI filed on 10 October 2007 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.

At Branch 150, respondent Kingford filed a Motion to Dismiss.16 After the court denied
the motion for lack of merit,17  respondent Kingford sought for the inhibition of Judge
Alameda and moved for the reconsideration of the order denying the motion.18 Judge
Alameda inhibited himself notwithstanding "[t]he unfounded allegations and
unsubstantiated assertions in the motion."19 Judge Cedrick O. Ruiz of Branch 61, to
which the case was re-raffled, in turn, granted respondent’s Motion for Reconsideration
and dismissed the petition on the ground that the petitioner lacked legal capacity to sue
in the Philippines.20

Petitioner 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

The core issue in this case is whether or not the court a quo was correct in so
dismissing the petition on the ground of petitioner’s lack of legal capacity to sue.

Our Ruling

The petition is impressed with merit.

The Corporation Code of the Philippines expressly provides:

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.

It is pursuant to the aforequoted provision that the court a quo dismissed the

petition. Thus:

Herein plaintiff TPI’s "Petition, etc." acknowledges that it "is a foreign corporation
established in the State of California" and "was given the exclusive right to license or
sublicense the Yamaoka Patent" and "was assigned the exclusive right to enforce the
said patent and collect corresponding royalties" in the Philippines. TPI likewise admits
that it does not have a license to do business in the Philippines.
There is no doubt, therefore, in the mind of this Court that TPI has been doing business
in the Philippines, but sans a license to do so issued by the concerned government
agency of the Republic of the Philippines, when it collected royalties from "five (5)
Philippine tuna processors[,] namely[,] Angel Seafood Corporation, East Asia Fish Co.,
Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc. and respondent
Philippine Kingford, Inc." This being the real situation, TPI cannot be permitted to
maintain or intervene in any action, suit or proceedings in any court or administrative
agency of the Philippines." A priori, the "Petition, etc." extant of the plaintiff TPI should
be dismissed for it does not have the legal personality to sue in the Philippines.21

The petitioner counters, however, that it is entitled to seek for the recognition and
enforcement of the subject foreign arbitral award in accordance with Republic Act No.
9285 (Alternative Dispute Resolution Act of 2004),22 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),23 as none of these specifically requires that the party seeking for the enforcement
should have legal capacity to sue. It anchors its argument on the following:

In the present case, enforcement has been effectively refused on a ground not found in
the [Alternative Dispute Resolution Act of 2004], New York Convention, or Model
Law. It is for this reason that TPI has brought this matter before this most Honorable
Court, as it [i]s imperative to clarify whether the Philippines’ international obligations and
State policy to strengthen arbitration as a means of dispute resolution may be defeated
by misplaced technical considerations not found in the relevant laws.24

Simply put, how do we reconcile the provisions of the Corporation Code of the

Philippines on one hand, and the Alternative Dispute Resolution Act of 2004, the New
York Convention and the Model Law on the other?

In several cases, this Court had the occasion to discuss the nature and applicability of
the Corporation Code of the Philippines, a general law, viz-a-viz other special laws.
Thus, in Koruga v. Arcenas, Jr.,25 this Court rejected the application of the Corporation
Code and applied the New Central Bank Act. It ratiocinated:

Koruga’s invocation of the provisions of the Corporation Code is misplaced. In an earlier

case with similar antecedents, we ruled that:

"The Corporation Code, however, is a general law applying to all types of corporations,
while the New Central Bank Act regulates specifically banks and other financial
institutions, including the dissolution and liquidation thereof. As between a general and
special law, the latter shall prevail – generalia specialibus non derogant." (Emphasis
supplied)26

Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian

Reform Council,27 this Court held:
Without doubt, the Corporation Code is the general law providing for the formation,
organization and regulation of private corporations. On the other hand, RA 6657 is the
special law on agrarian reform. As between a general and special law, the latter shall
prevail—generalia specialibus non derogant.28

Following the same principle, the Alternative Dispute Resolution Act of 2004 shall

apply in this case as the Act, as its title - 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 - would suggest, 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.30

Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal law, applies in

the instant petition, we do not see the need to discuss compliance with international
obligations under the New York Convention and the Model Law. After all, both already
form part of the law.

In particular, the Alternative Dispute Resolution Act of 2004 incorporated the New York

Convention in the Act by specifically providing:

SEC. 42. Application of the New York Convention. - The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by the said
Convention.

xxx

SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration

proceeding may oppose an application for recognition and enforcement of the arbitral
award in accordance with the procedural rules to be promulgated by the Supreme Court
only on those grounds enumerated under Article V of the New York Convention. Any
other ground raised shall be disregarded by the regional trial court.

It also expressly adopted the Model Law, to wit:

Sec. 19. Adoption of the Model Law on International Commercial

Arbitration. International commercial arbitration shall be governed by the Model Law on
International Commercial Arbitration (the "Model Law") adopted by the United Nations
Commission on International Trade Law on June 21, 1985 xxx."

Now, does a foreign corporation not licensed to do business in the Philippines have
legal capacity to sue under the provisions of the Alternative Dispute Resolution Act of
2004? We answer in the affirmative.
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.

Pertinent provisions of the Special Rules of Court on Alternative Dispute

Resolution,31 which was promulgated by the Supreme Court, likewise support this
position.

Rule 13.1 of the Special Rules provides that "[a]ny party to a foreign arbitration may
petition the court to recognize and enforce a foreign arbitral award." The contents
of such petition are enumerated in Rule 13.5.32 Capacity to sue is not included.
Oppositely, in the Rule on local arbitral awards or arbitrations in instances where "the
place of arbitration is in the Philippines,"33 it is specifically required that a petition "to
determine any question concerning the existence, validity and enforceability of such
arbitration agreement"34 available to the parties before the commencement of arbitration
and/or a petition for "judicial relief from the ruling of the arbitral tribunal on a preliminary
question upholding or declining its jurisdiction"35 after arbitration has already
commenced should state "[t]he facts showing that the persons named as petitioner or
respondent have legal capacity to sue or be sued."36

Indeed, it is in the best interest of justice that in the enforecement of a foreign

arbitral award, we deny availment by the losing party of the rule that bars foreign
corporations not licensed to do business in the Philippines from maintaining a
suit in our courts. When a party enters into a contract containing a foreign arbitration
clause and, as in this case, in fact submits itself to arbitration, it becomes bound by the
contract, by the arbitration and by the result of arbitration, conceding thereby the
capacity of the other party to enter into the contract, participate in the arbitration and
cause the implementation of the result. Although not on all fours with the instant case,
also worthy to consider is the wisdom of then Associate Justice Flerida Ruth P. Romero
in her Dissenting Opinion in Asset Privatization Trust v. Court of Appeals,37 to wit:

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

and judicial circles here and abroad. If its tested mechanism can simply be
ignored by an aggrieved party, one who, it must be stressed, voluntarily and
actively participated in the arbitration proceedings from the very beginning, it will
destroy the very essence of mutuality inherent in consensual contracts.38

Clearly, on the matter of capacity to sue, a foreign arbitral award should be

respected not because it is favored over domestic laws and procedures, but
because Republic Act No. 9285 has certainly erased any conflict of law question.

Finally, even assuming, only for the sake of argument, that the court a quo correctly
observed that the Model Law, not the New York Convention, governs the subject arbitral
award,39 petitioner may still seek recognition and enforcement of the award in Philippine
court, since the Model Law prescribes substantially identical exclusive grounds for
refusing recognition or enforcement.40
Premises considered, petitioner TPI, although not licensed to do business in the
Philippines, may seek recognition and enforcement of the foreign arbitral award in
accordance with the provisions of the Alternative Dispute Resolution Act of 2004.

II

The remaining arguments of respondent Kingford are likewise unmeritorious.

First. There is no need to consider respondent’s contention that petitioner TPI

improperly raised a question of fact when it posited that its act of entering into a MOA
should not be considered "doing business" in the Philippines for the purpose of
determining capacity to sue. We reiterate that the foreign corporation’s capacity to sue
in the Philippines is not material insofar as the recognition and enforcement of a foreign
arbitral award is concerned.

Second. Respondent cannot fault petitioner for not filing a motion for reconsideration of
the assailed Resolution dated 21 November 2008 dismissing the case. We have, time
and again, ruled that the prior filing of a motion for reconsideration is not required
in certiorari under Rule 45.41

Third. While we agree that petitioner failed to observe the principle of hierarchy of

courts, which, under ordinary circumstances, warrants the outright dismissal of the
case,42 we opt to relax the rules following the pronouncement in Chua v. Ang,43 to wit:

[I]t must be remembered that [the principle of hierarchy of courts] generally applies to
cases involving conflicting factual allegations. Cases which depend on disputed facts for
decision cannot be brought immediately before us as we are not triers of facts.44 A strict
application of this rule may be excused when the reason behind the rule is not present
in a case, as in the present case, where the issues are not factual but purely
legal.1âwphi1 In these types of questions, this Court has the ultimate say so that we
merely abbreviate the review process if we, because of the unique circumstances of a
case, choose to hear and decide the legal issues outright.45

Moreover, the novelty and the paramount importance of the issue herein raised should
be seriously considered.46 Surely, there is a need to take cognizance of the case not
only to guide the bench and the bar, but if only to strengthen arbitration as a means of
dispute resolution, and uphold the policy of the State embodied in the Alternative
Dispute Resolution Act of 2004, to wit:

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. xxx
Fourth. As regards the issue on the validity and enforceability of the foreign arbitral
award, we leave its determination to the court a quo where its recognition and
enforcement is being sought.

Fifth. Respondent claims that petitioner failed to furnish the court of origin a copy of the
motion for time to file petition for review on certiorari before the petition was filed with
this Court.47 We, however, find petitioner’s reply in order. Thus:

26. Admittedly, reference to "Branch 67" in petitioner TPI’s "Motion for Time to File a
Petition for Review on Certiorari under Rule 45" is a typographical error. As correctly
pointed out by respondent Kingford, the order sought to be assailed originated from
Regional Trial Court, Makati City, Branch 61.

27. xxx Upon confirmation with the Regional Trial Court, Makati City, Branch 61, a copy
of petitioner TPI’s motion was received by the Metropolitan Trial Court, Makati City,
Branch 67. On 8 January 2009, the motion was forwarded to the Regional Trial Court,
Makati City, Branch 61.48

All considered, petitioner TPI, although a foreign corporation not licensed to do

business in the Philippines, is not, for that reason alone, precluded from filing
the  Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral
Award  before a Philippine court.

WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial Court,
Branch 61, Makati City in Special Proceedings No. M-6533 is
hereby REVERSED and SET ASIDE. The case is REMANDED to Branch 61 for further
proceedings.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice

G.R. No. 204197

FRUEHAUF ELECTRONICS PHILIPPINES CORPORATION, Petitioner,

vs.
TECHNOLOGY ELECTRONICS ASSEMBLY AND MANAGEMENT PACIFIC
CORPORATION, Respondent.

DECISION

BRION, J.:

The fundamental importance of this case lies in its delineation of the extent of
permissible judicial review over arbitral awards. We make this determination from the
prism of our existing laws on the subject and the prevailing state policy to uphold the
autonomy of arbitration proceedings.

This is a petition for review on certiorari of the Court of Appeals' (CA) decision in CA-

G.R. SP. No. 112384 that reversed an arbitral award and dismissed the arbitral
complaint for: lack of merit.1 The CA breached the bounds of its jurisdiction when it
reviewed the substance of the arbitral award outside of the permitted grounds under the
Arbitration Law.2

Brief Factual Antecedents

In 1978, Fruehauf Electronics Philippines Corp. (Fruehauf) leased several parcels of

land in Pasig City to Signetics Filipinas Corporation (Signetics) for a period of 25
years (until May 28, 2003). Signetics constructed a semiconductor assembly factory on
the land on its own account.

In 1983, Signetics ceased its operations after the Board of Investments (BOI) withdrew

the investment incentives granted to electronic industries based in Metro Manila.

In 1986, Team Holdings Limited (THL) bought Signetics. THL later changed its name
to Technology Electronics Assembly and Management Pacific Corp. (TEAM).

In March 1987, Fruehauf filed an unlawful detainer case against TEAM. In an effort to
amicably settle the dispute, both parties executed a Memorandum of
Agreement (MOA) on June 9, 1988.3 Under the MOA, TEAM undertook to pay Fruehauf
14.7 million pesos as unpaid rent (for the period of December 1986 to June 1988).

They also entered a 15-year lease contract4 (expiring on June 9, 2003) that was
renewable for another 25 years upon mutual agreement. The contract included an
arbitration agreement:5

17. ARBITRATION

In the event of any dispute o~ disagreement between the parties hereto involving the
interpretation or implementation of any provision of this Contract of Lease, the dispute
or disagreement shall be referred to arbitration by a three (3) member arbitration
committee, one member to be appointed by the LESSOR, another member to be
appointed by the LESSEE, and the third member to be appointed by these two
members. The arbitration shall be conducted in accordance with the Arbitration Law
(R.A. No. 876).

The contract also authorized TEAM to sublease the property. TEAM subleased the
property to Capitol Publishing House (Capitol) on December 2, 1996 after notifying
Fruehauf.

On May 2003, TEAM informed Fruehauf that it would not be renewing the lease. 6
On May 31, 2003, the sublease between TEAM and Capitol expired. However, Capitol
only vacated the premises on March 5, 2005. In the meantime, the master lease
between TEAM and Fruehauf expired on June 9, 2003.

On March 9, 2004, Fruehauf instituted SPProc. No.11449 before the Regional Trial

Court (RTC) for "Submission of an Existing Controversy for Arbitration." 7 It alleged: (1)
that when the lease expired, the property suffered from damage that required extensive
renovation; (2) that when the lease expired, TEAM failed to turn over the premises and
pay rent; and (3) that TEAM did not restore the property to its original condition as
required in the contract. Accordingly, the parties are obliged to submit the dispute to
arbitration pursuant to the stipulation in the lease contract.

The RTC granted the petition and directed the parties to comply with the arbitration
clause of the contract. 8

Pursuant to the arbitration agreement, the dispute was referred to a three-member

arbitration tribunal. TEAM and Fruehauf appointed one member each while the
Chairman was appointed by the first two members. The tribunal was formally
constituted ion September 27, 2004 with retired CA Justice Hector L. Hofileña, as
chairman, retired CA Justice Mariano M. Umali and Atty. Maria Clara B. Tankeh-
Asuncion as members.9

The parties initially submitted the following issues to the tribunal for resolution: 10

1. Whether or not TEAM had complied with its obligation to return the leased premises
to Fruehauf after the expiration of the lease on June 9, 2003.

1.1. What properties should be returned and in what condition?

2. Is TEAM liable for payment of rentals after June 9, 2003?

2.1. If so, how much and for what period?

3. Is TEAM liable for payment of real estate taxes, insurance, and other expenses on
the leased premises after June 9, 2003?

4. Who is liable for payment of damages and how much?

5. Who is liable for payment of attorney's fees and how much?

Subsequently, the following issues were also submitted for resolution after TEAM
proposed 11 their inclusion:

1. Who is liable for the expenses of arbitration, including arbitration fees?

 2. Whether or not TEAM has the obligation to return the premises to Fruehauf as
a "complete, rentable, and fully facilitized electronic plant."

The Arbitral Award12

On December 3, 2008, the arbitral tribunal awarded Fruehauf: (1) 8.2 million pesos as
(the balance of) unpaid rent from June 9, 2003 until March 5, 2005; and (2) 46.8 million
pesos as damages. 13

The tribunal found that Fruehauf made several demands for the return of the leased
premises before and after: the expiration of the lease14 and that there was no express or
implied renewal of the lease after June 9, 2003. It recognized that the sub-lessor,
Capitol, remained in possession of the lease. However, relying on the commentaries of
Arturo Tolentino on the subject, the tribunal held that it was not enough for lessor to
simply vacate the leased property; it is necessary that he place the thing at the disposal
of the lessor, so that the latter can receive it without any obstacle.  15

For failing to return the property' to Fruehauf, TEAM remained liable for the payment of
rents. However, if it can prove that Fruehauf received rentals from Capitol, TEAM can
deduct these from its liability. 16 Nevertheless, the award of rent and damages was
without prejudice to TEAM's right to seek redress from its sub-lessee, Capitol. 17

With respect to the improvements on the land, the tribunal viewed the situation from two
perspectives:

First, while the Contract admitted that Fruehauf was only leasing the land and not the
buildings and improvements thereon, it nevertheless obliged TEAM to deliver the
buildings, installations and other improvements existing at the inception of the lease
uponits expiration. 18

The other view, is that the MOA and the Contract recognized that TEAM owned the
existing improvements on the property and considered them as separate from the land
for the initial 15-year term of the lease. 19 However, Fruehauf had a vested right to
become the owner of these improvements at the end of the 15-year term.
Consequently, the contract specifically obligated TEAM not to remove, transfer, destroy,
or in any way alienate or encumber these improvements without prior written consent
from Fruehauf. 20

Either way, TEAM had the obligation to deliver the existing improvements on the land
upon the expiration of the lease. However, there was no obligation under the lease to
return the premises as a "complete, rentable, and fully facilitized electronics
plant."21Thus, TEAM's obligation was to vacate the leased property and deliver to
Fruehauf the buildings, improvements, and installations (including the machineries and
equipment existing thereon) in the same condition as when the lease commenced, save
for what had been lost or impaired by 1the lapse of time, ordinary wear and tear, or any
other inevitable cause. 22
The tribunal found TEAM negligent in the maintenance of the premises, machineries,
and equipment it was obliged to deliver to Fruehauf. 23 For this failure to conduct the
necessary repairs or to notify Fruehauf of their necessity, the tribunal held TEAM
accountable for damages representing the value of the repairs necessary to restore the
premises to a condition "suitable for the use to which it has been devoted' less their
depreciation expense.24

On the other issues, the tribunal held that TEAM had no obligation to pay real estate
taxes, insurance, and other expenses on the leased premises considering these
obligations can only arise from a renewal of the contract.25 Further, the tribunal refused:
to award attorney's fees, finding no evidence that either party acted in bad faith. 26 For
the same reason, it held both parties equally liable for the expenses of litigation,
including the arbitrators' fees. 27

TEAM moved for reconsideration28 which the tribunal denied. 29 Thus, TEAM petitioned

the RTC to partially vacate or modify the arbitral award.30 It argued that the tribunal
failed to properly appreciate the facts and the terms of the lease contract.

The RTC Ruling

On April 29, 2009, the RTC31 found insufficient legal grounds under Sections 24 and

25 of the Arbitration Law to modify or vacate the award.32 It denied the petition and
CONFIRMED, the arbitral award. 33 TEAM filed a Notice of Appeal.

On July 3, 2009,34 the RTC refused to give due course to the Notice of Appeal because
according to Section 29 35 of the Arbitration Law, an ordinary appeal under Rule 41 is
not the proper mode of appeal against an order confirming an arbitral award. 36

TEAM moved for reconsideration but the R TC denied the motion on November 15,
2009.37 Thus, TEAM filed a petition for certiorari38before the CA arguing that the RTC
gravely abused its discretion in: (1) denying due course to its notice of appeal; and (2)
denying the motion to partially vacate and/or modify the arbitral award.39

TEAM argued that an ordinary appeal under Rule 41 was the proper remedy against the
RTC's order confirming, modifying, correcting, or vacating an arbitral award. 40 It argued
that Rule 42 was not available because the order denying its motion to vacate was not
rendered in the exercise of the RTC's appellate jurisdiction. Further, Rule 43 only
applies to decisions of quasi-judicial bodies. Finally, an appeal under Rule 45 to the
Supreme Court would preclude it from raising questions of fact or mixed questions of
fact and law.41

TEAM maintained that it was appealing the RTC's order denying its petition to partially
vacate/modify the award, not the arbitral award itself. 42 Citing Rule 41, Section 13 of
the Rules of Court, the RTC's authority to dismiss the appeal is limited to instances
when it was filed out of time or when the appellant fails to pay the docket fees within the
reglementary period.43
TEAM further maintained that the RTC gravely abused its discretion by confirming the
Arbitral Tribunal's award when it evidently had legal and factual errors, miscalculations,
and ambiguities. 44

The petition was docketed as CA-G.R. SP. No.112384.

The CA decision  45

The CA initially dismissed the petition. 46 As the RTC did, it cited Section 29 of the
Arbitration Law:

Section 29. Appeals. - An appeal may be taken from an order made in a proceeding

under this Act, or from a judgment entered upon an award through certiorari
proceedings, but such appeals shall be limited to questions of law. The proceedings
upon such appeal, including the judgment thereon shall be governed by the Rules of
Court in so far as they are applicable.

It concluded that the appeal contemplated under the law is an appeal

by certiorari limited only to questions of law.47

The CA continued that TEAM failed to substantiate its claim as to the "evident
miscalculation of figures." It further held that disagreement with the arbitrators' factual
determinations and legal conclusions does not empower courts to amend or overrule
arbitral judgments.48

However, the CA amended its decision on October 25, 2012 upon a motion for
reconsideration.49

The CA held that Section 29 of the Arbitration Law does not preclude the aggrieved
party from resorting to other judicial remedies.50 Citing Asset Privatization Trust v. Court
of Appeals,51the CA held that the aggrieved party may resort to a petition
for certiorari when the R TC to which the award was submitted for confirmation Has
acted without jurisdiction, or with grave abuse of discretion and there is no appeal, nor
any plain, speedy remedy in the course of law.52

The CA further held that the mere filing of a notice of appeal is sufficient as the issues
raised in the appeal were not purely questions of law. 53 It further cited Section 46 of the
Alternative Dispute Resolution (ADR) Law:54

SEC. 46. Appeal from Court Decisions on Arbitral Awards. - A decision of the

regional trial court confirming, vacating, setting aside, modifying or correcting an arbitral
award may be appealed to the Court of Appeals in accordance with the rules of
procedure to be promulgated by the Supreme Court.

The losing party who appeals from the judgment of the court confirming an arbitral
award shall be required by the appellant court to post counterbond executed in favor of
the prevailing party equal to the amount of the award in accordance with the rules to be
promulgated by the Supreme Court. 55

However, the CA made no further reference to A.M. No. 07-11-08-SC, the Special
Rules of Court on Alternative Dispute Resolution (Special ADR Rules) which govern the
appeal procedure.

The CA further revisited the merits of the arbitral award and found several errors in law
and in fact. It held: (1) that TEAM was not obliged to pay rent because it was Capitol,
not TEAM, that remained in possession of the property upon the expiration of the
lease;56 and (2) that Fruehauf was not entitled to compensation for the repair$ on the
buildings because it did not become the owner of the building until after the expiration of
the lease. 57

Also citing Tolentino, the CA opined: (1) that a statement by the lessee that he has
abandoned the premises should, as a general rule, constitute sufficient compliance with
his duty to return the leased premises; and (2) that any new arrangement made by the
lessor with another person, such as the sub-lessor, operates as a resumption of his
possession.58

On the issue of damages, the CA held that TEAM can never be liable for the damages
for the repairs of the improvements on the premises because they were owned by
TEAM itself (through its predecessor, Signetics) when the lease commenced. 59

The CA REVERSED AND SET ASIDE the arbitral award and DISMISSED the arbitral

complaint for lack of merit.60

This CA action prompted Fruehauf to file the present petition for review.

The Arguments

Fruehauf argues that courts do riot have the power to substitute their judgment for that
of the arbitrators.61 It also insists that an ordinary appeal is not the proper remedy
against an RTC's order confirming, vacating, correcting or modifying an arbitral &ward
but a petition for review on certiorari under Rule 45. 62

Furthermore, TEAM's petition before the CA went beyond the permissible scope
of certiorari - the existence of grave abuse of discretion or errors jurisdiction - by
including questions of fact and law that challenged the merits of the arbitral award.63

However, Fruehauf inconsistently argues that the remedies against an arbitral award
are (1) a petition to vacate the award, (2) a petition for review under Rule 43 raising
questions of fact, of law, or mixed questions of fact and law, or (3) a petition
for certiorari under Rule 65.64 Fruehauf cites an article from the Philippine Dispute
Resolution Center65 and Insular Savings Bank v. Far East Bank and Trust, Co.66
TEAM counters that the CA correctly resolved the substantive issues of the case and
that the arbitral tribunal's errors were sufficient grounds to vacate or modify the
award.67 It insists that the RTC's misappreciation of the facts from a patently erroneous
award warranted an appeal under Rule 41.68

TEAM reiterates that it "disagreed with the arbitral award mainly on questions of
fact and not only on questions of law," specifically, "on factual matters relating to
specific provisions in the contract on ownership of structures and improvements
thereon, and the improper award of rentals and penalties." 69Even assuming that it
availed of the wrong mode of appeal, TEAM posits that its appeal should still have been
given due course in the interest of substantial justice. 70

TEAM assails the inconsistencies of Fruehauf’s position as to the available legal

remedies against an arbitral award.71 However, it maintains that Section 29 of the
Arbitration Law does not foreclose other legal remedies (aside from an appeal
by certiorari) against the RTC's order confirming or vacating an arbitral award pursuant
to Insular Savings Bank WINS) Japan Co., Ltd.  72

The Issues

This case raises the following questions:

1. What are the remedies or the modes of appeal against an unfavorable arbitral
award?

2. What are the available remedies from an RTC decision confirming, vacating,
modifying, or correcting an arbitral award?

3. Did the arbitral tribunal err in awarding Fruehauf damages for the repairs of the
building and rental fees from the expiration of the lease?

Our Ruling

The petition is meritorious.

Arbitration is an alternative mode of dispute resolution outside of the regular court

system. Although adversarial in character, arbitration is technically not litigation. It is a
voluntary process in which one or more arbitrators - appointed according to the parties'
agreement or according to the applicable rules of the Alternative Dispute
Resolution (ADR) Law - resolve a dispute by rendering an award. 73 While arbitration
carries many advantages over court litigation, in :many ways these advantages also
translate into its disadvantages.
Resort to arbitration is voluntary. It requires consent from both parties in the form of
an arbitration clause that pre-existed the dispute or a subsequent submission
agreement. This written arbitration agreement is an independent and legally
enforceable contract that must be complied with in good faith. By entering into an
arbitration agreement, the parties agree to submit their dispute to an arbitrator
(ortribunal) of their own choosing and be bound by the latter's resolution.

However, this contractual and consensual character means that the parties cannot
implead a third-party in the proceedings even if the latter's participation is necessary for
a complete settlement of the dispute. The tribunal does not have the power to compel a
person to participate in the arbitration proceedings without that person's consent. It also
has no authority to decide on issues that the parties did not submit (or agree to submit)
for its resolution.

As a purely private mode of dispute resolution, arbitration proceedings, including the

records, the evidence, and the arbitral award, are confidential 74 unlike court
proceedings which are generally public. This allows the parties to avoid negative
publicity and protect their privacy. Our law highly regards the confidentiality of arbitration
proceedings that it devised a judicial remedy to prevent or prohibit the unauthorized
disclosure of confidential information obtained therefrom. 75

The contractual nature of arbitral proceedings affords the parties I

substantial autonomy over the proceedings. The parties are free to agree on the
procedure to be observed during the proceedings. 76 This lends considerable flexibility
to arbitration ; proceedings as compared to court I litigation governed by the Rules of
Court.

The parties likewise appoint the arbitrators based on agreement. There are no other

legal requirements as to the competence or technical qualifications of an arbitrator.
Their only legal qualifications are: (1) being of legal age; (2) full-enjoyment of their civil
rights; and (3) the ability to read and write.77 The parties can tailor-fit the tribunal's
composition to the nature of their dispute. Thus, a specialized dispute can be resolved
by experts on the subject.

However, because arbitrators do not necessarily have a background in law, they cannot
be expected to have the legal mastery of a magistrate. There is a greater risk that an
arbitrator might misapply the law or misappreciate the facts en route to an erroneous
decision.

This risk of error is compounded by the absence of an effective appeal

mechanism. The errors of an arbitral tribunal are not subject to correction by the
judiciary. As a private alternative to court proceedings, arbitration is meant to be an
end, not the beginning, of litigation. 78Thus, the arbitral award is final and binding on
the parties by reason of their contract - the arbitration agreement. 79
An Arbitral Tribunal does not exercise
quasi-judicial powers

Quasi-judicial or administrative adjudicatory power is the power: (1) to hear and

determine questions of fact to which legislative policy is to apply, and (2) to decide in
accordance with the standards laid down by the law itself in enforcing and administering
the same law.80Quasi-judicial power is only exercised by administrative agencies - legal
organs of the government.

Quasi-judicial bodies can only exercise such powers and jurisdiction as are expressly or
by necessary implication conferred upon them by their enabling statutes.81 Like courts, a
quasi-judicial body's jurisdiction over a subject matter is conferred by law and exists
independently from the will of the parties. As government organs necessary for an
effective legal system, a quasi-judicial tribunal's legal existence, continues beyond the
resolution of a specific dispute. In other words, quasi-judicial bodies are creatures of
law.

As a contractual and consensual: body, the arbitral tribunal does not have any inherent
powers over the parties. It has no power to issue coercive writs or compulsory
processes. Thus, there is a need to resort to the regular courts for interim measures of
protection 82 and for the recognition or enforcement of the arbitral award. 83

The arbitral tribunal acquires jurisdiction over the parties and the subject matter through
stipulation. Upoh the rendition of the final award, the tribunal becomes functus
officio and - save for a few exceptions84 - ceases to have any further jurisdiction over
the dispute.85 The tribunal's powers (or in the case of ad hoc tribunals, their very
existence) stem from the obligatory force of the arbitration agreement and its ancillary
stipulations.86 Simply put, an arbitral tribunal is a creature of contract.

Deconstructing the view that arbitral

tribunals are quasi-judicial agencies

We are aware of the contrary view expressed by the late Chief Justice Renato Corona
in ABS-CBN Broadcasting Corporation v. World Interactive Network Systems
(WINS)Japan Co., Ltd.  87

The ABS-CBN Case opined that a voluntary arbitrator is a "quasi-judicial

instrumentality" of the government 88 pursuant to Luzon Development Bank v.
Association of Luzon Development Bank Employees,  89 Sevilla Trading Company v.
Sernana,  90 Manila Midtown Hotel v. Borromeo,  91 and Nippon Paint Employees Union-
Olalia v. Court of Appeals.  92 Hence, voluntary arbitrators are included in the Rule 43
jurisdiction of the Court of Appeals:

SECTION 1. Scope.-This Rule shall apply to appeals from judgments or final orders of

the Court of Tax Appeals and from awards, judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions.
Among these agencies are the Civil Service Commission, Central: Board of Assessment
Appeals, Securities and Exchange Commission, Office of the President, Land
Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunications Commission, Department of
Agrarian Reform under Republic Act No. 6657, Government Service Insurance System,
Employees Compensation Commission, Agricultural Inventions Board, Insurance
Commission, Philippine Atomic Energy Commission, Board of Investments,
Construction Industry Arbitration Commission, and voluntary arbitrators authorized
by law.93 (emphasis supplied)

Citing Insular Savings Bank v. Far East Bank and Trust Co.,  94 the ABS-CBN
Case pronounced that the losing party in an arbitration proceeding may avail of three
alternative remedies: (1) a petition to vacate the arbitral award before the RTC; (2) a
petition for review with the CA under Rule 43 of the Rules of Court raising questions of
fact, of law, or of both; and (3) a I petition for certiorari under Rule 65 should the
arbitrator act beyond its jurisdiction or with grave abuse of discretion. 95

At first glance, the logic of this position appears to be sound. However, a critical
examination of the supporting authorities would show that the conclusion is wrong.

First, the pronouncements made in the ABS-CBN Case and in the Insular Savings

Bank Case (which served as the authority for the ABS-CBN Case) were both obiter
dicta.

In the ABS-CBN Case, we sustained the CA's dismissal of the petition because it was
filed as an "alternative petition for review under Rule 43 or petition for certiorari under
Rule 65."  96 We held that it was an inappropriate mode of appeal because, a petition for
review and a petition for certiorari are mutually exclusive and not alternative or
successive.

In the Insular Savings Bank case, the lis mota of the case was the RTC's jurisdiction
over an appeal from an arbitral award. The parties to the arbitration agreement agreed
that the rules of the arbitration provider97 - which stipulated that the R TC shall have
jurisdiction to review arbitral awards - will govern the proceedings.98 The Court
ultimately held that the RTC does not have jurisdiction to review the merits of the award
because legal jurisdiction is conferred by law, not by mere agreement of the parties.

In both cases, the pronouncements as to the remedies against an arbitral award were
unnecessary for their resolution. Therefore, these are obiter dicta - judicial comments
made, in passing which are not essential to the resolution of the case and cannot
therefore serve as precedents.99

Second, even if we disregard the obiter dicta character of both pronouncements, a

more careful scrutiny deconstructs their legal authority.
The ABS-CBN Case committed the classic fallacy of equivocation. It equated the
term "voluntary arbitrator" used in Rule 43, Section 1 and in the cases of Luzon
Development Bank v. Association of Luzon Development Bank Employees, Sevilla
Trading Company v. Semana, Manila Midtown Hotel v. Borromeo, and Nippon Paint
Employees Union-Olalia v. Court of Appeals with the term "arbitrator/arbitration
tribunal."

The first rule of legal construction, verba legis, requires that, wherever possible, the
words used in the Constitution or in the statute must be given their ordinary
meaning except where technical terms are employed.  100Notably, all of the cases cited
in the ABS-CBN Case involved labor disputes.

The term "Voluntary Arbitrator" does not refer to an ordinary "arbitrator" who voluntarily

agreed to: resolve a dispute. It is a technical term with a specific definition under the
Labor Code:

Art. 212 Definitions. xxx

14. "Voluntary Arbitrator" means any' person accredited by the Board as such or any
person named or designated in the Collective Bargaining Agreement by the parties to
act as their Voluntary Arbitrator, or one chosen with or without the assistance of the
National Conciliation and Mediation Board, pursuant to a selection procedure agreed
upon in the Collective Bargaining Agreement, or any official that may be authorized by
the Secretary of Labor and Employment to act as Voluntary Arbitrator upon the written
request and agreement of the parties to a labor dispute. 101

Voluntary Arbitrators resolve labor disputes and grievances arising from the
interpretation of Collective Bargaining Agreements. 102 These disputes were specifically
excluded: from the coverage of both the Arbitration Law103 and the ADR Law. 104

Unlike purely commercial relationships, the relationship between capital and labor
are heavily impressed with public interest.  105Because of this, Voluntary Arbitrators
authorized to resolve labor disputes have been clothed with quasi-judicial authority.

On the other hand, commercial relationships covered by our commercial arbitration laws
are purely private and contractual in nature. Unlike labor relationships, they do not
possess the same compelling state interest that would justify state interference into the
autonomy of contracts. Hence, commercial arbitration is a purely private system of
adjudication facilitated by private citizens instead of government instrumentalities
wielding quasi-judicial powers.

Moreover, judicial or quasi-judicial jurisdiction cannot be conferred upon a tribunal by

the parties alone. The Labor Code itself confers subject-matter jurisdiction to Voluntary
Arbitrators. 106
Notably, the other arbitration body listed in Rule 43 - the Construction Industry
Arbitration Commission (CIAC) - is also a government agency107 attached to the
Department of Trade and Industry. 108 Its jurisdiction is likewise conferred by
statute. 109 By contrast, the subject-matter jurisdiction of commercial arbitrators is
stipulated by the parties.

These account for the legal differences between "ordinary" or "commercial" arbitrators
under the Arbitration Law and the ADR Law, and "voluntary arbitrators" under the Labor
Code. The two terms are not synonymous with each other. Interchanging them with one
another results in the logical fallacy of equivocation - using the same word with different
meanings.

Further, Rule 43, Section 1 enumerates quasi-judicial tribunals whose decisions are

appealable to the CA instead of the RTC. But where legislation provides for an appeal
from decisions of certain administrative bodies to the CA, it means that such bodies are
co-equal with the RTC in terms of rank and stature, logically placing them beyond the
control of the latter.  110

However, arbitral tribunals and the RTC are not co-equal bodies because the RTC is
authorized to confirm or to vacate (but not reverse) arbitral awards. 111 If we were to
deem arbitrators as included in the scope of Rule 43, we would effectively place it' on
equal footing with the RTC and remove arbitral awards from the scope of RTC review.

All things considered, there is no legal authority supporting the position that commercial
arbitrators are quasi-judicial bodies.

What are remedies from a final domestic

arbitral award?

The right to an appeal is neither' a natural right nor an indispensable component of due
process; it is a mere statutory privilege that cannot be invoked in the absence of an
enabling statute. Neither the Arbitration Law nor the ADR Law allows a losing party
to appeal from the arbitral award. The statutory absence of an appeal mechanism
reflects the State's policy of upholding the autonomy of arbitration proceedings
and their corresponding arbitral awards.

This Court recognized this when we enacted the Special Rules of Court on Alternative
Dispute Resolution in 2009: 112

Rule 2.1. General policies. -- It is the policy of the State to actively promote the use of
various modes of ADR and to respect party autonomy or the freedom of the parties to
make their own arrangements in the resolution of disputes with the greatest cooperation
of and the least intervention from the courts. xxx
The Court shall exercise the power of judicial review as provided by these Special ADR
Rules. Courts shall intervene only in the cases allowed by law or these Special
ADR Rules. 113

xxxx

Rule 19.7. No appeal or certiorari on the merits of an arbitral award - An agreement to

refer a dispute to arbitration shall mean that the arbitral award shall be final and binding.
Consequently, a party to an arbitration is precluded from filing an appeal or a
petition for certiorari questioning the merits of an arbitral award. 114 (emphasis
supplied)

More than a decade earlier in Asset Privatization Trust v. Court of Appeals, we

likewise defended the autonomy of arbitral awards through our policy of non-
intervention on their substantive merits:

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment
either as to the law or as to the facts. Courts are without power to amend or overrule
merely because of disagreement with matters of law or facts determined by the
arbitrators. They will not review the findings of law and fact contained in an award,
and will not undertake to substitute their judgment for that of the arbitrators, since
any other rule would make an award the commencement, not the end, of litigation.
Errors of law and fact, or an erroneous decision of matters submitted to the judgment of
the arbitrators, are insufficient to invalidate an award fairly and honestly
made. Judicial review of an arbitration is, thus, more limited than judicial review of a
trial. 115

Nonetheless, an arbitral award is not absolute. Rule 19.10 of the Special ADR Rules -
by referring to Section 24 of the Arbitration Law and Article 34 of the 1985 United
Nations Commission on International Trade Law (UNCITRAL) Model Law - recognizes
the very limited exceptions to the autonomy of arbitral awards:

Rule 19.10. Rule on judicial review on arbitration in the Philippines. - As a general

rule, the court can only vacate or set aside the decision of an arbitral tribunal upon a
clear showing' that the award suffers from any of the infirmities or grounds for vacating
an arbitral award under Section 24 of Republic Act No. 876 or under Rule 34 of the
Model Law in a domestic arbitration, or for setting aside an award in an international
arbitration under Article 34 of the Model Law, or for such other grounds provided under
these Special Rules.

If the Regional Trial Court is asked to set aside an arbitral award in a domestic or
international arbitration on any ground other than those provided in the Special
ADR Rules, the court shall entertain such ground for the setting aside or non-
recognition of the arbitral award only if the same amounts to a violation of public
policy.
The court shall not set aside or vacate the award of the arbitral tribunal merely on
the ground that the arbitral tribunal committed errors of fact, or of law, or of fact
and law, as the court cannot substitute its judgment for that of the arbitral
tribunal.116

The grounds for vacating a domestic arbitral award under Section 24 of the Arbitration
Law contemplate the following scenarios:

(a) when the award is procured by corruption, fraud, or other undue means; or

(b) there was evident partiality or corruption in the arbitrators or any of them; or

(c) the arbitrators were guilty of misconduct that materially prejudiced the rights
of any party; or

(d) the arbitrators exceeded their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter submitted to them was
not made. 117

The award may also be vacated if an arbitrator who was disqualified to act willfully
refrained from disclosing his disqualification to the parties. 118 Notably, none of these
grounds pertain to the correctness of the award but relate to the misconduct of
arbitrators.

The RTC may also set aside the arbitral award based on Article 34 of the UNCITRAL
Model Law. These grounds are reproduced in Chapter 4 of the Implementing Rules and
Regulations (IRR) of the 2004 ADR Act:

(i) the party making the application furnishes proof that:

(aa) a party to the arbitration agreement was 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
Philippines; or

(bb) the party making the application was not given proper notice of the
appointment of an arbitrator or of the arbitral proceedings or was
otherwise unable to present his case; or

(cc) the award deals with a dispute not contemplated by or not falling
within the terms of the submission to arbitration, or 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, only the part of the award which contains
decisions on matters not submitted to arbitration may be set aside; or
 (dd) the composition of the arbitral tribunal or the arbitral procedure was
not in accordance with the agreement of the parties, unless such
agreement was in conflict with a provision of ADR Act from which the
parties cannot derogate, or, failing such agreement, was not in
accordance with ADR Act; or

(ii) The Court finds that:

(aa) the subject-matter of the dispute is not capable of settlement by

arbitration under the law of the Philippines; or

(bb) the award is in conflict with the public policy of the Philippines. 119

Chapter 4 of the IRR of the, ADR Act applies particularly to International Commercial
Arbitration. However, the abovementioned grounds taken from the UNCITRAL, Model
Law are specifically made applicable to domestic arbitration by the Special ADR
Rules. 120

Notably, these grounds are not concerned with the correctness of the award; they go
into the validity of the arbitration agreement or the regularity of the arbitration
proceedings.

These grounds for vacating an arbitral award are exclusive. Under the ADR Law, courts
are obliged to disregard any other grounds invoked to set aside an award:

SEC. 41. Vacation Award. - A party to a domestic arbitration may question the arbitral
award with the appropriate regional trial court in accordance with the rules of procedure
to be promulgated by the Supreme Court only on those grounds enumerated in Section
25 of Republic Act No. 876. Any other ground raised against a domestic arbitral
award shall be disregarded by the regional trial court. 121

Consequently, the winning party can generally expect the enforcement of the award.
This is a stricter rule that makes Article 2044122 of the Civil Code regarding the finality of
an arbitral award redundant.

As established earlier, an arbitral: award is not appealable via Rule 43 because: (1)
there is no statutory basis for an appeal from the final award of arbitrators; (2)
arbitrators are not quasi-judicial bodies; and (3) the Special ADR Rules
specifically prohibit the filing of an appeal to question the merits of an arbitral
award.

The Special ADR Rules allow, the RTC to correct or modify an arbitral award pursuant
to Section 25 of the Arbitration Law. However, this authority cannot be interpreted as
jurisdiction to review the merits of the award. The RTC can modify or correct the
award only in the following cases:
 a. Where there was an evident miscalculation of figures or an evident mistake in
the description of any person, thing or property referred to in the award;

b. Where the arbitrators have awarded upon a matter not submitted to them, not
affecting the merits of the decision upon the matter submitted;

c. Where the arbitrators have omitted to resolve an issue submitted to them for
resolution; or

d. Where the award is imperfect in a matter of form not affecting the merits of the
controversy, and if it had been a commissioner's report, the defect could have
been amended or disregarded by the Court. 123

A losing party is likewise precluded from resorting to certiorari under Rule 65 of

the Rules of Court. 124 Certiorari is a prerogative writ designed to correct errors of
jurisdiction committed by a judicial or quasi-judicial body. 125 Because an arbitral tribunal
is not a government organ exercising judicial or quasi-judicial powers, it is removed
from the ambit of Rule 65.

Not even the Court's expanded certiorari jurisdiction under the

Constitution 126 can justify judicial intrusion into the merits of arbitral awards.
While the Constitution expanded the scope of certiorari proceedings, this power
remains limited to a review' of the acts of "any branch or instrumentality of the
Government." As a purely private creature of contract, an arbitral tribunal remains
outside the scope of certiorari.

Lastly, the Special ADR Rules are a self-contained body of rules. The parties
cannot invoke remedies and other provisions from the Rules of Court unless they
were incorporated in the Special ADR Rules:

Rule 22.1. Applicability of Rules of Court. - The provisions of the Rules of Court that

are applicable to the proceedings enumerated in Rule 1.1 of these Special ADR Rules
have either been included and incorporated in these Special ADR Rules or
specifically referred to herein.

In Connection with the above proceedings, the Rules of Evidence shall be liberally
construed to achieve the objectives of the Special ADR Rules. 127

Contrary to TEAM's position, the Special ADR Rules actually forecloses against other
remedies outside of itself. Thus, a losing party cannot assail an arbitral award through; a
petition for review under Rule 43 or a petition for certiorari under Rule 65 because these
remedies are not specifically permitted in the Special ADR Rules.

In sum, the only remedy against; a final domestic arbitral award is to file petition to
vacate or to modify/correct the award not later than thirty (30) days from the receipt of
the award. 128 Unless a ground to vacate has been established, the RTC must confirm
the arbitral award as a matter of course.

The remedies against an order

Confirming, vacating, correcting, or
modifying an arbitral award

Once the RTC orders the confirmation, vacation, or correction/modification of a

domestic arbitral award, the aggrieved party may move for reconsideration within a non-
extendible period of fifteen (15) days from receipt of the order. 129 The losing party may
also opt to appeal from the RTC's ruling instead.

Under the Arbitration Law, the mode of appeal was via petition for review on certiorari:

Section 29. Appeals. - An appeal may be taken from an order made in a proceeding

under this Act, or from a judgment entered upon an award
through certiorari proceedings, but such appeals shall be limited to questions of
law. The proceedings upon such appeal, including the judgment thereon shall be
governed by, the Rules of Court in so far as they are applicable.130

The Arbitration Law did not specify which Court had jurisdiction to entertain the appeal
but left the matter to be governed by the Rules of Court. As the appeal was limited to
questions of law and was described as "certiorari proceedings," the mode of appeal can
be interpreted as an Appeal By Certiorari to this Court under Rule 45.

When the ADR Law was enacted in 2004, it specified that the appeal shall be made to
the CA in accordance with the rules of procedure to be promulgated by this
Court. 131 The Special ADR Rules provided that the mode of appeal from the RTC's
order confirming, vacating, or correcting/modifying a domestic arbitral award was
through a petition for review with the CA. 132 However, the Special ADR Rules only
took effect on October 30, 2009.

In the present case, the R TC disallowed TEAM' s notice of appeal from the former's
decision confirming the arbitral award on July 3, 2009. TEAM moved for reconsideration
which was likewise denied on November 15, 2009. In the interim, the Special ADR
Rules became effective. Notably, the Special ADR Rules apply retroactively in light of its
procedural character. 133 TEAM filed its petition for certiorari soon after.

Nevertheless, whether we apply, Section 29 of the Arbitration Law, Section 46 of the

ADR Law, or Rule 19.12 of the Special ADR Rules, there is no legal basis that an
ordinary appeal (via notice of appeal) is the correct remedy from an order
confirming, vacating, or correcting an arbitral award. Thus, there is no merit in the
CA's ruling that the RTC gravely abused its discretion when it refused to give due
course to the notice of appeal.
The correctness or incorrectness
of the arbitral award

We have deliberately refrained from passing upon the merits of the arbitral award - not
because the award was erroneous - but because it would be improper. None of the
grounds to vacate an arbitral award are present in this case and as already established,
the merits of the award cannot be reviewed by the courts.

Our refusal to review the award is not a simple matter of putting procedural
technicalities over the substantive merits of a case; it goes into the very legal substance
of the issues. There is no law granting the judiciary authority to review the merits of an
arbitral award. If we were to insist on reviewing the correctness of the award: (or
consent to the CA's doing so), it would be tantamount to expanding our jurisdiction
without the benefit of legislation. This translates to judicial legislation - a breach of the
fundamental principle of separation of powers.

The CA reversed the arbitral award - an action that it has no power to do - because it
disagreed with the tribunal's factual findings and application of the law. However, the
alleged incorrectness of the award is insufficient cause to vacate the award, given the
State's policy of upholding the autonomy of arbitral awards.

The CA passed upon questions such as: (1) whether or not TEAM effectively returned
the property upon the expiration of the lease; (2) whether or not TEAM was liable to pay
rentals after the expiration of the lease; and (3) whether or not TEAM was liable to pay
Fruehauf damages corresponding to the cost of repairs. These were the same
questions that were specifically submitted to the arbitral tribunal for its resolution. 134

The CA disagreed with the tribunal's factual determinations and legal interpretation of
TEAM's obligations under the contract - particularly, that TEAM's obligation to turn over
the improvements on the land at the end of the lease in the same condition as when the
lease commenced translated to an obligation to make ordinary repairs necessary for its
preservation. 135

Assuming arguendo that the tribunal's interpretation of the contract was incorrect, the

errors would have been simple errors of law.1âwphi1 It was the tribunal - not the RTC
or the CA - that had jurisdiction and authority over the issue by virtue of the parties'
submissions; the CA's substitution of its own judgment for the arbitral award cannot be
more compelling than the overriding public policy to uphold the autonomy of arbitral
awards. Courts are precluded from disturbing an arbitral tribunal's factual findings and
interpretations of law. 136 The CA's ruling is an unjustified judicial intrusion in excess of
its jurisdiction - a judicial overreach. 137

Upholding the CA's ruling would weaken our alternative dispute resolution mechanisms
by allowing the courts to "throw their weight around" whenever they disagree with the
results. It erodes the obligatory force of arbitration agreements by allowing the losing
parties to "forum shop" for a more favorable ruling from the judiciary.
Whether or not the arbitral tribunal correctly passed upon the issues is irrelevant.
Regardless of the amount, of the sum involved in a case, a simple error of law remains
a simple error of law. Courts are precluded from revising the award in a particular way,
revisiting the tribunal's findings of fact or conclusions of law, or otherwise encroaching
upon the independence of an arbitral tribunal. 138At the risk of redundancy, we
emphasize Rule 19.10 of the Special ADR Rules promulgated by this Court en banc:

Rule 19.10. Rule on judicial review on arbitration in the Philippines. - As a general rule,

the court can only vacate or set aside the decision of an arbitral tribunal upon a
clear showing that the award suffers from any of the infirmities or grounds for
vacating an arbitral award under Section 24 of Republic Act No. 876 or under Rule
34 of the Model Law in a domestic arbitration, or for setting aside an award in an
international arbitration under Article 34 of the Model Law, or for such other grounds
provided under these Special Rules.

If the Regional Trial Court is asked to set aside an arbitral award in a domestic or
international arbitration on any ground other than those provided in the Special ADR
Rules, the court shall entertain such ground for the setting aside or non-recognition of
the arbitral award only if the same amounts to a violation of public policy.

The court shall not set aside or vacate the award of the arbitral tribunal merely on
the ground that the arbitral tribunal committed errors of fact, or of law, or of fact
and law, as the court cannot substitute its judgment for that of the arbitral
tribunal.

In other words, simple errors of fact, of law, or of fact and law committed by the arbitral
tribunal are not justiciable errors in this jurisdiction. 139

TEAM agreed to submit their disputes to an arbitral tribunal. It understood all the risks
- including the absence of an appeal mechanism - and found that its benefits (both legal
and economic) outweighed the disadvantages. Without a showing that any of the
grounds to vacate the award exists or that the same amounts to a violation of an
overriding public policy, the award is subject to confirmation as a matter of course. 140

WHEREFORE, we GRANT the petition. The CA's decision in CA-G. R. SP. No. 112384

is SET ASIDE and the RTC's order CONFIRMING the arbitral award in SP. Proc. No.
11449 is REINSTATED.

SO ORDERED.

ARTURO D. BRION
Associate Justice