2018-20890

I-BGCEve
Law 99 – Legal Bibliography
Finals Legal Memorandum

IN RE : Course of Action for Dispute Involving Appeals over

an Arbitral Award Given in favor of Baker Street, Inc.
FOR : Baker Street, Inc.
DATED : December 1, 2018

I. Background of the Case

The parties in the present case are the client, Baker Street, Inc. (hereinafter referred
to as “the Client”) and Moriarty Technology Corporation (hereinafter referred to as “MTC”).
The main dispute revolves around an Award that was given in favor of the Client in an
arbitration proceeding to resolve an issue between both parties.

The antecedent facts are as follows:

The two parties have entered in a Memorandum of Agreement (hereinafter referred
to as “MOA”) wherein the Client has agreed to lease a 2,000 square meter parcel of land to
MTC for a period of 25 years. As part of their agreement, the document provides in its
Article 15 that any dispute or disagreement shall be referred to arbitration by a three-member
arbitral tribunal, which shall be conducted in accordance with the Arbitration Law. Following
the execution of the MOA, MTC subleased 400 square meters to Holmes Publishing House;
this is coterminous with the MOA. Upon the expiration of the head lease, MTC turned over
the possession of the property to the Client. Despite this, HPH refused to vacate the land. The
Client then filed a Notice of Arbitration to settle such dispute between the parties. This was to
be done through arbitration proceedings before an arbitral tribunal.

Thereafter, the tribunal issued its award, made in favor of the Client and ordered
MTC to indemnify the former through the payment of unpaid rent and damages. In response
to this, MTC filed a Petition to Correct and/or Vacate the Arbitral Award before the Regional
Trial Court (hereinafter referred to as “RTC”), arguing that the tribunal committed an error in
its interpretation of the facts and the MOA. The RTC denied their petition on the ground that
it was inconsistent with Sections 24 and 25 of the Arbitration Law, and consequently
confirmed the arbitral award.

MTC filed a Notice of Appeal before the same court, which was not given due course
due to the fact that an ordinary appeal under Rule 41 of the Rules of Court is an improper
remedy to file an appeal to a decision confirming an arbitral award. MTC then filed a Petition
for Certiorari with the Court of Appeals (hereinafter referred to as “CA”) on the grounds
that: 1) the RTC erred in dismissing their appeal because they were not appealing the award

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itself, but the RTC’s decision in confirming said award and, 2) the RTC committed grave
abuse of discretion in confirming the award despite factual and legal errors.

The Client is inquiring as to the nature of the case; its legal implications, the extent of the
remedies available to both parties, as well as the proceedings before the Court of Appeals. In
this memorandum, the researcher will provide the legal background, as well as the
application of the concepts to the case at hand.

II. Statement of Issues

To resolve the above inquiries of the Client, this legal memorandum puts forward the
two issues:
1) Whether or not there are any remedies given the decisions made by both the
Arbitration Tribunal and the courts and,
2) Whether or not the client has any legal argument before the Court of Appeals

III. Discussion of Concepts

A. Background on Arbitration
It is inevitable for individuals and juridical entities to fall into disagreements. More
often than not, the parties resort to court litigation, which occurs when one party lodges a
complaint in the proper court against another party which the former alleges, has done some
form of damage to his person or property1. Despite this, a number of disadvantages, such as
its public nature and the costs2, have pushed for the creation of alternative dispute resolution
procedures.

Philippine statutory law has recognized these alternative modes of dispute resolution
through Republic Act No. 9285, otherwise known as the Alternative Dispute Resolution Act
of 2004 (hereinafter referred to as “ADR Act of 2004”). The law recognizes several modes of
dispute settlement outside the scope of the State, or autonomous, in a sense3. A few of those
that are mentioned in the ADR Act of 2004 are the evaluation of a third person, mini trial,
mediation and arbitration, the last being the subject of this case. According to the same law,
arbitration refers to a “voluntary dispute resolution process in which one or more arbitrators,
appointed in accordance with the agreement of the parties, or rules promulgated pursuant to
this Act, resolve a dispute by rendering an award.”4 In simple terms, arbitration is a private
mode of dispute settlement whereby the parties to said agreement select a third-party
individual who is to decide on the merits of an issue, without the intervention of the courts or
the State5.

Essentially, it is voluntary; the parties of the agreement have consented to the

settlement of disputes through arbitration. Such agreement is independent on any legal bind,

1
3 R. Fleishman, Sometimes You Can Pick Your Poison: Mediation, Arbitration or Litigation?, 2 (2014).
2
D. Taylor, Arbitration vs. Litigation: The Great Debate, (2016).
3
Rep. Act No. 9285 (2004), sec. 2.
4
Rep. Act No. 9285 (2004), sec. 3.
5
D. Taylor, Arbitration vs. Litigation: The Great Debate, (2016).

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and legal enforceable. The parties hereby bind themselves to the resolution of the arbitration
tribunal6. Because it is a private mode of dispute settlement, the proceedings are
confidential7. That being said, the parties essentially have the liberty to construct their
contractual relationship in a manner agreed upon by them consensually8.

This is the concept of party autonomy, which has also been recognized by
international legislation such as the United Nations Commission on International Trade Law
Model Law on International Commercial Arbitration (hereinafter referred to as “Model
Law”). It recognizes that the very characteristic that sets arbitration apart from other modes
of dispute settlement is the fact that it acts and decides absent any influence of the courts 9.
One of the consequences of the party autonomy that exists in arbitration proceedings is that
an ordinary appeal is not possible, as delineated in Philippine statutory law10; this will be
explained more in depth in the proceeding portions.

In arbitration proceedings, each party to the agreement shall agree upon a single
arbitrator, or the courts may do so if an agreement is not made11. Such arbitrators shall hear
the merits of the issue and shall render its decision as to the issue through an award, which
must be confirmed by the Regional Trial Court (being the court with jurisdiction over issues
involving arbitration proceedings) within one month after such award is made12.

B. Remedies Against an Unfavorable Arbitral Award

Generally, the award made by the tribunal shall be binding upon both parties13, save
in 2 cases, whereby an adverse party has presented before the court valid grounds to vacate,
modify or correct an award. In either of the two, the parties are precluded from filing an
appeal or a petition for certiorari questioning the merits of such award.

1. Vacating an Award (Rule 19.10 of the Special ADR Rules of 2009)

According to Rule 19.10 of the Special Alternative Dispute Resolution Rules of 2009
(hereinafter referred to as “Special ADR Rules of 2009”), the court may only vacate an
award,

“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

6
Fruehauf Electronics Philippines Corporation v. Technology Electronics Assembly and Management Pacific
Corporation, G.R. No. 204197, November 23, 2016, 810 SCRA 280 (2016).
7
Fruehauf Electronics Philippines Corporation v. Technology Electronics Assembly and Management Pacific
Corporation, G.R. No. 204197, November 23, 2016, 810 SCRA 280 (2016).
8
S. Fagbemi, The Doctrine of Party Autonomy in International Commercial Arbitration: Myth or Reality?, 6
Journal of Sustainable Development Law and Policy, 222 (2015).
9
4 H. Motomura, The Relationship Between Arbitration and Court Litigation in the United States, Hokkaido
University Collection of Scholarly and Academic Papers, 402 (1989).
10
S.Court Rules on ADR (2009).
11
Rep. Act No. 876 (1953), sec. 8.
12
Rep. Act No. 876 (1953), sec. 23.
13
S.Court Rules on ADR (2009), Rule 19.7.

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 domestic arbitration, or for setting aside an award in an intentional
arbitration under Article 34 of the Model Law, or for such other
grounds provided under these Special Rules.”14

The above provision contemplates 3 grounds for the vacation of an award, 1) the misconduct
of arbitrators, 2) the validity of the arbitration agreement and, 3) violation of public policy.

Under Section 24 of Republic Act No. 867, otherwise known as the Arbitration Law
(hereinafter referred to as “Arbitration Law”), the vacation of an award may be had if there is
misconduct among the arbitrators. The court may order the vacation of an award upon its
finding that:
1) The award was procured by corruption, fraud or any other undue means,
2) There exists evident partiality or corruption of the arbitrators,
3) Arbitrators committed misconduct, or was disqualified to act as such, or
4) Arbitrators exceeded their powers in making an award15.

In addition to this, Rule 34 of the Model Law provides that an arbitral award may be
set aside for reasons that affect the validity of the arbitration agreement. The court may set
aside an arbitral award if:
1) A party to the arbitration was under some incapacity,
2) One of the parties was not given proper notice of the arbitral proceedings,
3) The award includes decisions beyond scope of arbitration,
4) The composition of arbitral tribunal is not in accordance with agreement of the
parties,
5) The subject-matter of the dispute cannot be settled by arbitration, or
6) The award is against public policy16.

2. Modification/Correction of an Award (Section 25 of RA 867)

On the other hand, according to Section 25 of the Arbitration Law, the court may
order the modification or correction of an award if:
1) There was evident miscalculation of figures, descriptions of subject matter,
2) The arbitrators decided on matters beyond scope of arbitration, or
3) The award is imperfect in form17.

What is evident from the foregoing is that in either case, and in either statutory rule,
the courts are barred from ruling on the merits of the case. The autonomous nature of
arbitral proceedings protects it from the eyes of the law. This means that no appeal (whether
ordinary or through certiorari proceedings) can “justify judicial intrusion into the merits of

14
S.Court Rules on ADR (2009), Rule 19.10.
15
Rep. Act No. 876 (1953), sec. 24.
16
Model Law on International Commercial Arbitration, December 11, 1985, UNTS, Rule 34.
17
Rep. Act No. 876 (1953), sec. 25.

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arbitral awards.”18 Another important item to note is that the lists stated above are exhaustive
and exclusive, which means that any ground used that is not enumerated above will not be
given credence by the court19.

C. Appeal from Modification/Confirmation/Vacation of Award

Upon the Regional Trial Court’s decision to confirm, modify or vacate an award, an
appeal may be made by the aggrieved party within 15 days from receipt of such order via
petition for review on certiorari20. The mode of appeal dictated by law is specific as to the
nature, and its application is strict. Appeals filed through ordinary appeal proceedings were
consequently dismissed for being the improper proceedings for the nature of the case21.
Another limitation to such contemplated appeal is that the appeal shall be limited only to
questions of law22.

The determination of the court that holds jurisdiction over the matter rests upon the
date of the notice of appeal of the aggrieved party. The Special ADR Rules, which is the set
of implementing rules and regulations for the ADR Law of 2004, only took effect on October
30, 2009; it specifies that such appeal be made before the CA. Prior to the effectivity of the
Special ADR Rules, the Arbitration Law was intact, and this provided that such appeals be
made before the Supreme Court. Consistent with existing jurisprudence, the Special ADR
Rules shall be retroactively applied because it is procedural in nature. Therefore, regardless
of the date of appeal, it shall be filed before the CA.

IV. Application to the Case

After having discussed all concepts applicable to the case, a discussion will hereby be
presented to be applied directly to the facts of the present case.

Upon the filing of a Petition to Correct and/or Vacate the Arbitral Award by Moriarty
Technology Corporation, the Regional Trial Court dismissed it on the ground that it was
inconsistent with Sections 24 and 25 of the Arbitration Law. In this regard, the RTC was
correct in dismissing the petition for the reason that its arguments are not any of the proper
grounds listed in the Arbitration Law and the Model Law. As was earlier mentioned, the lists
are exclusive and are not in any way ambiguous as to its application. The courts are
instructed only to vacate or modify awards on specific grounds, and any action of the courts
granting a petition on grounds outside those listed will amount to grave abuse of discretion of
the courts. In this sense, the courts must exercise judicial restraint, or put limits to its power
to strike down decisions if it should act as an encroachment of the powers of other parties.

18
Fruehauf Electronics Philippines Corporation v. Technology Electronics Assembly and Management Pacific
Corporation, G.R. No. 204197, November 23, 2016, 810 SCRA 280 (2016).
19
Rep. Act No. 9285 (2004), sec. 41.
20
Rep. Act No. 876 (1953), sec. 29.
21
Fruehauf Electronics Philippines Corporation v. Technology Electronics Assembly and Management Pacific
Corporation, G.R. No. 204197, November 23, 2016, 810 SCRA 280 (2016).
22
Rep. Act No. 876 (1953), sec. 29.

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 In the earlier discussion, it was also mentioned that ordinary appeals made in courts
are not the proper proceedings to contest the decision of the RTC in confirming, modifying
or vacating an arbitral award. Only one remedy is available for appeals, and that is to file a
Petition for Review on Certiorari, which Moriarty Technology Corporation did before the
Court of Appeals. Even though MTC did so, and it appeared to be the proper proceedings, the
likelihood of success of their petition is slim to none. This is because of the concept of party
autonomy, which is, to reiterate, the concept that the law recognizes the independence of
arbitration tribunals, as well as its decisions. It is beyond the scope of judicial review. The
courts may only set aside the confirmation of an award on specific instances, and even so, the
courts are strictly instructed to restrain themselves from touching upon the substantive merits
of the case.

The arguments raised by MTC are that the arbitral tribunal erred in its appreciation of
the facts and its interpretation of the Memorandum of Agreement entered into by the parties;
in addition to the fact that these are not explicitly included in the grounds stated in law, these
also constitute substantive areas of the arbitration award. The Client may then argue before
the CA that the subject matter of the petition is substantive in nature, and is independently
decided on by the arbitration tribunal that was chosen by the parties. The Client may also
argue that the grounds given by the aggrieved party are not one of those enumerated in cases
for vacation, modification or correction of the award. Therefore, the courts must conclusively
dismiss such petition because it is beyond the scope of its power to adjudicate.

V. Conclusion
In conclusion, given existing laws and jurisprudence, the likelihood of success of the
Client Baker Street, Inc. is high because of the improper grounds that were alleged by the
aggrieved party in its petition for review on certiorari. Because of this, the original arbitral
award which was made in favor of BSI will be confirmed, and made final and executory
between the parties.

VI. Recommendation
We recommend that upon the institution of court proceedings before the Court of Appeals for
the petition for review on certiorari, the client make mention of the arguments stated above,
so as to secure the dismissal of the appeal of the award.