Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 96283 February 25, 1992

CHUNG FU INDUSTRIES (PHILIPPINES) INC., its Directors and Officers namely: HUANG KUO-
CHANG, HUANG AN-CHUNG, JAMES J.R. CHEN, TRISTAN A. CATINDIG, VICENTE B.
AMADOR, ROCK A.C. HUANG, JEM S.C. HUANG, MARIA TERESA SOLIVEN and VIRGILIO M.
DEL ROSARIO, petitioners,

vs.

COURT OF APPEALS, HON. FRANCISCO X. VELEZ (Presiding Judge, Regional Trail Court of
Makati [Branch 57]) and ROBLECOR PHILIPPINES, INC., respondents.

ROMERO, J.:

This is a special civil action for certiorari seeking to annul the Resolutions of the Court of
Appeals* dated October 22, 1990 and December 3, 1990 upholding the Orders of July 31, 1990 and
August 23, 1990 of the Regional Trial Court of Makati, Branch 57, in Civil Case No. 90-1335.
Respondent Court of Appeals affirmed the ruling of the trial court that herein petitioners, after
submitting themselves for arbitration and agreeing to the terms and conditions thereof, providing that
the arbitration award shall be final and unappealable, are precluded from seeking judicial review of
subject arbitration award.

It appears that on May 17, 1989, petitioner Chung Fu Industries (Philippines) (Chung Fu for brevity)
and private respondent Roblecor Philippines, Inc. (Roblecor for short) forged a construction
agreement 1 whereby respondent contractor committed to construct and finish on December 31,
1989, petitioner corporation's industrial/factory complex in Tanawan, Tanza, Cavite for and in
consideration of P42,000,000.00. In the event of disputes arising from the performance of subject
contract, it was stipulated therein that the issue(s) shall be submitted for resolution before a single
arbitrator chosen by both parties.

Apart from the aforesaid construction agreement, Chung Fu and Roblecor entered into two (2) other
ancillary contracts, to wit: one dated June 23, 1989, for the construction of a dormitory and support
facilities with a contract price of P3,875,285.00, to be completed on or before October 31,
1989; 2 and the other dated August 12, 1989, for the installation of electrical, water and hydrant
systems at the plant site, commanding a price of P12.1 million and requiring completion thereof one
month after civil works have been finished. 3

However, respondent Roblecor failed to complete the work despite the extension of time allowed it
by Chung Fu. Subsequently, the latter had to take over the construction when it had become evident
that Roblecor was not in a position to fulfill its obligation.
Claiming an unsatisfied account of P10,500,000.00 and unpaid progress billings of P2,370,179.23,
Roblecor on May 18, 1990, filed a petition for Compulsory Arbitration with prayer for Temporary
Restraining Order before respondent Regional Trial Court, pursuant to the arbitration clause in the
construction agreement. Chung Fu moved to dismiss the petition and further prayed for the quashing
of the restraining order.

Subsequent negotiations between the parties eventually led to the formulation of an arbitration
agreement which, among others, provides:

2. The parties mutually agree that the arbitration shall proceed in accordance with
the following terms and conditions: —

xxx xxx xxx

d. The parties mutually agree that they will abide by the decision of
the arbitrator including any amount that may be awarded to either
party as compensation, consequential damage and/or interest
thereon;

e. The parties mutually agree that the decision of the arbitrator shall
be final and unappealable. Therefore, there shall be no further judicial
recourse if either party disagrees with the whole or any part of the
arbitrator's award.

f. As an exception to sub-paragraph (e) above, the parties mutually

agree that either party is entitled to seek judicial assistance for
purposes of enforcing the arbitrator's award;

xxx xxx xxx 4

(Emphasis supplied)

Respondent Regional Trial Court approved the arbitration agreement thru its Order of May 30, 1990.
Thereafter, Engr. Willardo Asuncion was appointed as the sole arbitrator.

On June 30, 1990, Arbitrator Asuncion ordered petitioners to immediately pay respondent contractor,
the sum of P16,108,801.00. He further declared the award as final and unappealable, pursuant to
the Arbitration Agreement precluding judicial review of the award.

Consequently, Roblecor moved for the confirmation of said award. On the other hand, Chung Fu
moved to remand the case for further hearing and asked for a reconsideration of the judgment award
claiming that Arbitrator Asuncion committed twelve (12) instances of grave error by disregarding the
provisions of the parties' contract.

Respondent lower court denied Chung Fu's Motion to Remand thus compelling it to seek
reconsideration therefrom but to no avail. The trial court granted Roblecor's Motion for Confirmation
of Award and accordingly, entered judgment in conformity therewith. Moreover, it granted the motion
for the issuance of a writ of execution filed by respondent.

Chung Fu elevated the case via a petition for certiorari to respondent Court of Appeals. On October
22,1990 the assailed resolution was issued. The respondent appellate court concurred with the
findings and conclusions of respondent trial court resolving that Chung Fu and its officers, as
signatories to the Arbitration Agreement are bound to observe the stipulations thereof providing for
the finality of the award and precluding any appeal therefrom.

A motion for reconsideration of said resolution was filed by petitioner, but it was similarly denied by
respondent Court of Appeals thru its questioned resolution of December 3, 1990.

Hence, the instant petition anchored on the following grounds:

First

Respondents Court of Appeals and trial Judge gravely abused their discretion and/or
exceeded their jurisdiction, as well as denied due process and substantial justice to
petitioners, — (a) by refusing to exercise their judicial authority and legal duty to
review the arbitration award, and (b) by declaring that petitioners are estopped from
questioning the arbitration award allegedly in view of the stipulations in the parties'
arbitration agreement that "the decision of the arbitrator shall be final and
unappealable" and that "there shall be no further judicial recourse if either party
disagrees with the whole or any part of the arbitrator's award."

Second

Respondent Court of Appeals and trial Judge gravely abused their discretion and/or
exceeded their jurisdiction, as well as denied due process and substantial justice to
petitioner, by not vacating and annulling the award dated 30 June 1990 of the
Arbitrator, on the ground that the Arbitrator grossly departed from the terms of the
parties' contracts and misapplied the law, and thereby exceeded the authority and
power delegated to him. (Rollo, p. 17)

Allow us to take a leaf from history and briefly trace the evolution of arbitration as a mode of dispute
settlement.

Because conflict is inherent in human society, much effort has been expended by men and
institutions in devising ways of resolving the same. With the progress of civilization, physical combat
has been ruled out and instead, more specific means have been evolved, such as recourse to the
good offices of a disinterested third party, whether this be a court or a private individual or
individuals.

Legal history discloses that "the early judges called upon to solve private conflicts were primarily the
arbiters, persons not specially trained but in whose morality, probity and good sense the parties in
conflict reposed full trust. Thus, in Republican Rome, arbiter and judge (judex) were synonymous.
The magistrate or praetor, after noting down the conflicting claims of litigants, and clarifying the
issues, referred them for decision to a private person designated by the parties, by common
agreement, or selected by them from an apposite listing (the album judicium) or else by having the
arbiter chosen by lot. The judges proper, as specially trained state officials endowed with own power
and jurisdiction, and taking cognizance of litigations from beginning to end, only appeared under the
Empire, by the so-called cognitio extra ordinem." 5

Such means of referring a dispute to a third party has also long been an accepted alternative to
litigation at common law. 6
Sparse though the law and jurisprudence may be on the subject of arbitration in the Philippines, it
was nonetheless recognized in the Spanish Civil Code; specifically, the provisions on compromises
made applicable to arbitrations under Articles 1820 and 1821.7 Although said provisions were
repealed by implication with the repeal of the Spanish Law of Civil Procedure, 8 these and additional ones
were reinstated in the present Civil Code. 9

Arbitration found a fertile field in the resolution of labor-management disputes in the Philippines.
Although early on, Commonwealth Act 103 (1936) provided for compulsory arbitration as the state
policy to be administered by the Court of Industrial Relations, in time such a modality gave way to
voluntary arbitration. While not completely supplanting compulsory arbitration which until today is
practiced by government officials, the Industrial Peace Act which was passed in 1953 as Republic
Act No. 875, favored the policy of free collective bargaining, in general, and resort to grievance
procedure, in particular, as the preferred mode of settling disputes in industry. It was accepted and
enunciated more explicitly in the Labor Code, which was passed on November 1, 1974 as
Presidential Decree No. 442, with the amendments later introduced by Republic Act No. 6715
(1989).

Whether utilized in business transactions or in employer-employee relations, arbitration was gaining

wide acceptance. A consensual process, it was preferred to orders imposed by government upon
the disputants. Moreover, court litigations tended to be time-consuming, costly, and inflexible due to
their scrupulous observance of the due process of law doctrine and their strict adherence to rules of
evidence.

As early as the 1920's, this Court declared:

In the Philippines fortunately, the attitude of the courts toward arbitration agreements
is slowly crystallizing into definite and workable form. . . . The rule now is that unless
the agreement is such as absolutely to close the doors of the courts against the
parties, which agreement would be void, the courts will look with favor upon such
amicable arrangements and will only with great reluctance interfere to anticipate or
nullify the action of the arbitrator. 10

That there was a growing need for a law regulating arbitration in general was acknowledged when
Republic Act No. 876 (1953), otherwise known as the Arbitration Law, was passed. "Said Act was
obviously adopted to
supplement — not to supplant — the New Civil Code on arbitration. It expressly declares that "the
provisions of chapters one and two, Title XIV, Book IV of the Civil Code shall remain in force." 11

In recognition of the pressing need for an arbitral machinery for the early and expeditious settlement
of disputes in the construction industry, a Construction Industry Arbitration Commission (CIAC) was
created by Executive Order No. 1008, enacted on February 4, 1985.

In practice nowadays, absent an agreement of the parties to resolve their disputes via a particular
mode, it is the regular courts that remain the fora to resolve such matters. However, the parties may
opt for recourse to third parties, exercising their basic freedom to "establish such stipulation, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order or public policy." 12 In such a case, resort to the arbitration process may
be spelled out by them in a contract in anticipation of disputes that may arise between them. Or this
may be stipulated in a submission agreement when they are actually confronted by a dispute.
Whatever be the case, such recourse to an extrajudicial means of settlement is not intended to
completely deprive the courts of jurisdiction. In fact, the early cases on arbitration carefully spelled
out the prevailing doctrine at the time, thus: ". . . a clause in a contract providing that all matters in
dispute between the parties shall be referred to arbitrators and to them alone is contrary to public
policy and cannot oust the courts of Jurisdiction." 13

But certainly, the stipulation to refer all future disputes to an arbitrator or to submit an ongoing
dispute to one is valid. Being part of a contract between the parties, it is binding and enforceable in
court in case one of them neglects, fails or refuses to arbitrate. Going a step further, in the event that
they declare their intention to refer their differences to arbitration first before taking court action, this
constitutes a condition precedent, such that where a suit has been instituted prematurely, the court
shall suspend the same and the parties shall be directed forthwith to proceed to arbitration. 14

A court action may likewise be proven where the arbitrator has not been selected by the parties. 15

Under present law, may the parties who agree to submit their disputes to arbitration further provide
that the arbitrators' award shall be final, unappealable and executory?

Article 2044 of the Civil Code recognizes the validity of such stipulation, thus:

Any stipulation that the arbitrators' award or decision shall be final is valid, without
prejudice to Articles 2038, 2039 and 2040.

Similarly, the Construction Industry Arbitration Law provides that the arbitral award "shall be final and
inappealable except on questions of law which shall be appealable to the Supreme Court." 16

Under the original Labor Code, voluntary arbitration awards or decisions were final, unappealable
and executory. "However, voluntary arbitration awards or decisions on money claims, involving an
amount exceeding One Hundred Thousand Pesos (P100,000.00) or forty-percent (40%) of the paid-
up capital of the respondent employer, whichever is lower, maybe appealed to the National Labor
Relations Commission on any of the following grounds: (a) abuse of discretion; and (b) gross
incompetence." 17 It is to be noted that the appeal in the instances cited were to be made to the
National Labor Relations Commission and not to the courts.

With the subsequent deletion of the above-cited provision from the Labor Code, the voluntary
arbitrator is now mandated to render an award or decision within twenty (20) calendar days from the
date of submission of the dispute and such decision shall be final and executory after ten (10)
calendar days from receipt of the copy of the award or decision by the parties. 18

Where the parties agree that the decision of the arbitrator shall be final and unappealable as in the
instant case, the pivotal inquiry is whether subject arbitration award is indeed beyond the ambit of
the court's power of judicial review.

We rule in the negative. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the
arbitrators' award is not absolute and without exceptions. Where the conditions described in Articles
2038, 2039 and 2040 applicable to both compromises and arbitrations are obtaining, the arbitrators'
award may be annulled or rescinded. 19 Additionally, under Sections 24 and 25 of the Arbitration Law,
there are grounds for vacating, modifying or rescinding an arbitrator's award. 20 Thus, if and when the
factual circumstances referred to in the above-cited provisions are present, judicial review of the
award is properly warranted.

What if courts refuse or neglect to inquire into the factual milieu of an arbitrator's award to determine
whether it is in accordance with law or within the scope of his authority? How may the power of
judicial review be invoked?
This is where the proper remedy is certiorari under Rule 65 of the Revised Rules of Court. It is to be
borne in mind, however, that this action will lie only where a grave abuse of discretion or an act
without or in excess of jurisdiction on the part of the voluntary arbitrator is clearly shown. For "the
writ of certiorari is an extra-ordinary remedy and that certiorari jurisdiction is not to be equated with
appellate jurisdiction. In a special civil action of certiorari, the Court will not engage in a review of the
facts found nor even of the law as interpreted or applied by the arbitrator unless the supposed errors
of fact or of law are so patent and gross and prejudicial as to amount to a grave abuse of discretion
or an exces de pouvoir on the part of the arbitrator." 21

Even decisions of administrative agencies which are declared "final" by law are not exempt from
judicial review when so warranted. Thus, in the case of Oceanic Bic Division (FFW), et al. v. Flerida
Ruth P. Romero, et al., 22 this Court had occasion to rule that:

. . . Inspite of statutory provisions making "final" the decisions of certain

administrative agencies, we have taken cognizance of petitions questioning these
decisions where want of jurisdiction, grave abuse of discretion, violation of due
process, denial of substantial justice or erroneous interpretation of the lawwere
brought to our attention . . . 23 (Emphasis ours).

It should be stressed, too, that voluntary arbitrators, by the nature of their functions, act in a quasi-
judicial capacity. 24 It stands to reason, therefore, that their decisions should not be beyond the scope
of the power of judicial review of this Court.

In the case at bar, petitioners assailed the arbitral award on the following grounds, most of which
allege error on the part of the arbitrator in granting compensation for various items which apparently
are disputed by said petitioners:

1. The Honorable Arbitrator committed grave error in failing to apply the terms and
conditions of the Construction Agreement, Dormitory Contract and Electrical
Contract, and in using instead the "practices" in the construction industry;

2. The Honorable Arbitrator committed grave error in granting extra compensation to

Roblecor for loss of productivity due to adverse weather conditions;

3. The Honorable Arbitrator committed grave error in granting extra compensation to

Roblecor for loss due to delayed payment of progress billings;

4. The Honorable Arbitrator committed grave error in granting extra compensation to

Roblecor for loss of productivity due to the cement crisis;

5. The Honorable Arbitrator committed grave error in granting extra compensation to

Roblecor for losses allegedly sustained on account of the failed coup d'état;

6. The Honorable Arbitrator committed grave error in granting to Roblecor the

amount representing the alleged unpaid billings of Chung Fu;

7. The Honorable Arbitrator committed grave error in granting to Roblecor the

amount representing the alleged extended overhead expenses;
 8. The Honorable Arbitrator committed grave error in granting to Roblecor the
amount representing expenses for change order for site development outside the
area of responsibility of Roblecor;

9. The Honorable Arbitrator committed grave error in granting to Roblecor the cost of
warehouse No. 2;

10. The Honorable Arbitrator committed grave error in granting to Roblecor extra
compensation for airduct change in dimension;

11. The Honorable Arbitrator committed grave error in granting to Roblecor extra
compensation for airduct plastering; and

12. The Honorable Arbitrator committed grave error in awarding to Roblecor

attorney's fees.

After closely studying the list of errors, as well as petitioners' discussion of the same in their Motion
to Remand Case For Further Hearing and Reconsideration and Opposition to Motion for
Confirmation of Award, we find that petitioners have amply made out a case where the voluntary
arbitrator failed to apply the terms and provisions of the Construction Agreement which forms part of
the law applicable as between the parties, thus committing a grave abuse of discretion. Furthermore,
in granting unjustified extra compensation to respondent for several items, he exceeded his powers
— all of which would have constituted ground for vacating the award under Section 24 (d) of the
Arbitration Law.

But the respondent trial court's refusal to look into the merits of the case, despite prima
facie showing of the existence of grounds warranting judicial review, effectively deprived petitioners
of their opportunity to prove or substantiate their allegations. In so doing, the trial court itself
committed grave abuse of discretion. Likewise, the appellate court, in not giving due course to the
petition, committed grave abuse of discretion. Respondent courts should not shirk from exercising
their power to review, where under the applicable laws and jurisprudence, such power may be
rightfully exercised; more so where the objections raised against an arbitration award may properly
constitute grounds for annulling, vacating or modifying said award under the laws on arbitration.

WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated October
22, 1990 and December 3, 1990 as well as the Orders of respondent Regional Trial Court dated July
31, 1990 and August 23, 1990, including the writ of execution issued pursuant thereto, are hereby
SET ASIDE. Accordingly, this case is REMANDED to the court of origin for further hearing on this
matter. All incidents arising therefrom are reverted to the status quo ante until such time as the trial
court shall have passed upon the merits of this case. No costs.

SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

SPECIAL SECOND DIVISION

G.R. No. 161957 January 22, 2007

JORGE GONZALES and PANEL OF ARBITRATORS, Petitioners,

vs.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN PHILIPPINES
MINING INC.,Respondents.

x--------------------------------------------------------------------------------- x

G.R. No. 167994 January 22, 2007

JORGE GONZALES, Petitioner,

vs.
HON. OSCAR B. PIMENTEL, in his capacity as PRESIDING JUDGE of BR. 148 of the
REGIONAL TRIAL COURT of MAKATI CITY, and CLIMAX-ARIMCO MINING
CORPORATION, Respondents.

RESOLUTION

TINGA, J.:

This is a consolidation of two petitions rooted in the same disputed Addendum Contract entered into
by the parties. In G.R. No. 161957, the Court in its Decision of 28 February 20051 denied the Rule 45
petition of petitioner Jorge Gonzales (Gonzales). It held that the DENR Panel of Arbitrators had no
jurisdiction over the complaint for the annulment of the Addendum Contract on grounds of fraud and
violation of the Constitution and that the action should have been brought before the regular courts
as it involved judicial issues. Both parties filed separate motions for reconsideration. Gonzales avers
in his Motion for Reconsideration2 that the Court erred in holding that the DENR Panel of Arbitrators
was bereft of jurisdiction, reiterating its argument that the case involves a mining dispute that
properly falls within the ambit of the Panel’s authority. Gonzales adds that the Court failed to rule on
other issues he raised relating to the sufficiency of his complaint before the DENR Panel of
Arbitrators and the timeliness of its filing.

Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for Partial Reconsideration
and/or Clarification3 seeking reconsideration of that part of the Decision holding that the case should
not be brought for arbitration under Republic Act (R.A.) No. 876, also known as the Arbitration
Law.4 Respondents, citing American jurisprudence5 and the UNCITRAL Model Law,6 argue that the
arbitration clause in the Addendum Contract should be treated as an agreement independent of the
other terms of the contract, and that a claimed rescission of the main contract does not avoid the
duty to arbitrate. Respondents add that Gonzales’s argument relating to the alleged invalidity of the
Addendum Contract still has to be proven and adjudicated on in a proper proceeding; that is, an
action separate from the motion to compel arbitration. Pending judgment in such separate action, the
Addendum Contract remains valid and binding and so does the arbitration clause therein.
Respondents add that the holding in the Decision that "the case should not be brought under the
ambit of the Arbitration Law" appears to be premised on Gonzales’s having "impugn[ed] the
existence or validity" of the addendum contract. If so, it supposedly conveys the idea that Gonzales’s
unilateral repudiation of the contract or mere allegation of its invalidity is all it takes to avoid
arbitration. Hence, respondents submit that the court’s holding that "the case should not be brought
under the ambit of the Arbitration Law" be understood or clarified as operative only where the
challenge to the arbitration agreement has been sustained by final judgment.

Both parties were required to file their respective comments to the other party’s motion for
reconsideration/clarification.7 Respondents filed their Comment on 17 August 2005,8 while Gonzales
filed his only on 25 July 2006.9

On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May 2005, or while the motions
for reconsideration in G.R. No. 16195710 were pending, wherein Gonzales challenged the orders of
the Regional Trial Court (RTC) requiring him to proceed with the arbitration proceedings as sought
by Climax-Arimco Mining Corporation (Climax-Arimco).

On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were consolidated upon the
recommendation of the Assistant Division Clerk of Court since the cases are rooted in the same
Addendum Contract.

We first tackle the more recent case which is G.R. No. 167994. It stemmed from the petition to
compel arbitration filed by respondent Climax-Arimco before the RTC of Makati City on 31 March
2000 while the complaint for the nullification of the Addendum Contract was pending before the
DENR Panel of Arbitrators. On 23 March 2000, Climax-Arimco had sent Gonzales a Demand for
Arbitration pursuant to Clause 19.111 of the Addendum Contract and also in accordance with Sec. 5
of R.A. No. 876. The petition for arbitration was subsequently filed and Climax-Arimco sought an
order to compel the parties to arbitrate pursuant to the said arbitration clause. The case, docketed as
Civil Case No. 00-444, was initially raffled to Br. 132 of the RTC of Makati City, with Judge Herminio
I. Benito as Presiding Judge. Respondent Climax-Arimco filed on 5 April 2000 a motion to set the
application to compel arbitration for hearing.

On 14 April 2000, Gonzales filed a motion to dismiss which he however failed to set for hearing. On
15 May 2000, he filed an Answer with Counterclaim,12 questioning the validity of the Addendum
Contract containing the arbitration clause. Gonzales alleged that the Addendum Contract containing
the arbitration clause is void in view of Climax-Arimco’s acts of fraud, oppression and violation of the
Constitution. Thus, the arbitration clause, Clause 19.1, contained in the Addendum Contract is also
null and void ab initio and legally inexistent.
1awphi1.net

On 18 May 2000, the RTC issued an order declaring Gonzales’s motion to dismiss moot and
academic in view of the filing of his Answer with Counterclaim.13

On 31 May 2000, Gonzales asked the RTC to set the case for pre-trial.14 This the RTC denied on 16
June 2000, holding that the petition for arbitration is a special proceeding that is summary in
nature.15 However, on 7 July 2000, the RTC granted Gonzales’s motion for reconsideration of the 16
June 2000 Order and set the case for pre-trial on 10 August 2000, it being of the view that Gonzales
had raised in his answer the issue of the making of the arbitration agreement.16

Climax-Arimco then filed a motion to resolve its pending motion to compel arbitration. The RTC
denied the same in its 24 July 2000 order.

On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio I. Benito for "not
possessing the cold neutrality of an impartial judge."17 On 5 August 2000, Judge Benito issued an
Order granting the Motion to Inhibit and ordered the re-raffling of the petition for arbitration.18 The
case was raffled to the sala of public respondent Judge Oscar B. Pimentel of Branch 148.
On 23 August 2000, Climax-Arimco filed a motion for reconsideration of the 24 July 2000
Order.19 Climax-Arimco argued that R.A. No. 876 does not authorize a pre-trial or trial for a motion to
compel arbitration but directs the court to hear the motion summarily and resolve it within ten days
from hearing. Judge Pimentel granted the motion and directed the parties to arbitration. On 13
February 2001, Judge Pimentel issued the first assailed order requiring Gonzales to proceed with
arbitration proceedings and appointing retired CA Justice Jorge Coquia as sole arbitrator.20

Gonzales moved for reconsideration on 20 March 2001 but this was denied in the Order dated 7
March 2005.21

Gonzales thus filed the Rule 65 petition assailing the Orders dated 13 February 2001 and 7 March
2005 of Judge Pimentel. Gonzales contends that public respondent Judge Pimentel acted with grave
abuse of discretion in immediately ordering the parties to proceed with arbitration despite the proper,
valid, and timely raised argument in his Answer with Counterclaim that the Addendum Contract,
containing the arbitration clause, is null and void. Gonzales has also sought a temporary restraining
order to prevent the enforcement of the assailed orders directing the parties to arbitrate, and to direct
Judge Pimentel to hold a pre-trial conference and the necessary hearings on the determination of
the nullity of the Addendum Contract.

In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:

Sec. 6. Hearing by court.—A party aggrieved by the failure, neglect or refusal of another to perform
under an agreement in writing providing for arbitration may petition the court for an order directing
that such arbitration proceed in the manner provided for in such agreement. Five days notice in
writing of the hearing of such application shall be served either personally or by registered mail upon
the party in default. The court shall hear the parties, and upon being satisfied that the making of the
agreement or such failure to comply therewith is not in issue, shall make an order directing the
parties to proceed to arbitration in accordance with the terms of the agreement. If the making of the
agreement or default be in issue the court shall proceed to summarily hear such issue. If the finding
be that no agreement in writing providing for arbitration was made, or that there is no default in the
proceeding thereunder, the proceeding shall be dismissed. If the finding be that a written provision
for arbitration was made and there is a default in proceeding thereunder, an order shall be made
summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.

The court shall decide all motions, petitions or applications filed under the provisions of this Act,
within ten (10) days after such motions, petitions, or applications have been heard by it.

Gonzales also cites Sec. 24 of R.A. No. 9285 or the "Alternative Dispute Resolution Act of 2004:"

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.

According to Gonzales, the above-quoted provisions of law outline the procedure to be followed in
petitions to compel arbitration, which the RTC did not follow. Thus, referral of the parties to
arbitration by Judge Pimentel despite the timely and properly raised issue of nullity of the Addendum
Contract was misplaced and without legal basis. Both R.A. No. 876 and R.A. No. 9285 mandate that
any issue as to the nullity, inoperativeness, or incapability of performance of the arbitration
clause/agreement raised by one of the parties to the alleged arbitration agreement must be
determined by the court prior to referring them to arbitration. They require that the trial court first
determine or resolve the issue of nullity, and there is no other venue for this determination other than
a pre-trial and hearing on the issue by the trial court which has jurisdiction over the case. Gonzales
adds that the assailed 13 February 2001 Order also violated his right to procedural due process
when the trial court erroneously ruled on the existence of the arbitration agreement despite the
absence of a hearing for the presentation of evidence on the nullity of the Addendum Contract.

Respondent Climax-Arimco, on the other hand, assails the mode of review availed of by Gonzales.
Climax-Arimco cites Sec. 29 of R.A. No. 876:

Sec. 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 an appeal, including the judgment thereon
shall be governed by the Rules of Court in so far as they are applicable.

Climax-Arimco mentions that the special civil action for certiorari employed by Gonzales is available
only where there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of
law against the challenged orders or acts. Climax-Arimco then points out that R.A. No. 876 provides
for an appeal from such orders, which, under the Rules of Court, must be filed within 15 days from
notice of the final order or resolution appealed from or of the denial of the motion for reconsideration
filed in due time. Gonzales has not denied that the relevant 15-day period for an appeal had elapsed
long before he filed this petition for certiorari. He cannot use the special civil action of certiorari as a
remedy for a lost appeal.

Climax-Arimco adds that an application to compel arbitration under Sec. 6 of R.A. No. 876 confers
on the trial court only a limited and special jurisdiction, i.e., a jurisdiction solely to determine (a)
whether or not the parties have a written contract to arbitrate, and (b) if the defendant has failed to
comply with that contract. Respondent cites La Naval Drug Corporation v. Court of Appeals,22 which
holds that in a proceeding to compel arbitration, "[t]he arbitration law explicitly confines the court’s
authority only to pass upon the issue of whether there is or there is no agreement in writing providing
for arbitration," and "[i]n the affirmative, the statute ordains that the court shall issue an order
‘summarily directing the parties to proceed with the arbitration in accordance with the terms
thereof.’"23Climax-Arimco argues that R.A. No. 876 gives no room for any other issue to be dealt with
in such a proceeding, and that the court presented with an application to compel arbitration may
order arbitration or dismiss the same, depending solely on its finding as to those two limited issues.
If either of these matters is disputed, the court is required to conduct a summary hearing on it.
Gonzales’s proposition contradicts both the trial court’s limited jurisdiction and the summary nature
of the proceeding itself.

Climax-Arimco further notes that Gonzales’s attack on or repudiation of the Addendum Contract also
is not a ground to deny effect to the arbitration clause in the Contract. The arbitration agreement is
separate and severable from the contract evidencing the parties’ commercial or economic
transaction, it stresses. Hence, the alleged defect or failure of the main contract is not a ground to
deny enforcement of the parties’ arbitration agreement. Even the party who has repudiated the main
contract is not prevented from enforcing its arbitration provision. R.A. No. 876 itself treats the
arbitration clause or agreement as a contract separate from the commercial, economic or other
transaction to be arbitrated. The statute, in particular paragraph 1 of Sec. 2 thereof, considers the
arbitration stipulation an independent contract in its own right whose enforcement may be prevented
only on grounds which legally make the arbitration agreement itself revocable, thus:

Sec. 2. Persons and matters subject to arbitration.—Two or more persons or parties may submit to
the arbitration of one or more arbitrators any controversy existing, between them at the time of the
submission and which may be the subject of an action, or the parties to any contract may in such
contract agree to settle by arbitration a controversy thereafter arising between them. Such
submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist
at law for the revocation of any contract.

xxxx

The grounds Gonzales invokes for the revocation of the Addendum Contract—fraud and oppression
in the execution thereof—are also not grounds for the revocation of the arbitration clause in the
Contract, Climax-Arimco notes. Such grounds may only be raised by way of defense in the
arbitration itself and cannot be used to frustrate or delay the conduct of arbitration proceedings.
Instead, these should be raised in a separate action for rescission, it continues.

Climax-Arimco emphasizes that the summary proceeding to compel arbitration under Sec. 6 of R.A.
No. 876 should not be confused with the procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A. No.
876 refers to an application to compel arbitration where the court’s authority is limited to resolving
the issue of whether there is or there is no agreement in writing providing for arbitration, while Sec.
24 of R.A. No. 9285 refers to an ordinary action which covers a matter that appears to be arbitrable
or subject to arbitration under the arbitration agreement. In the latter case, the statute is clear that
the court, instead of trying the case, may, on request of either or both parties, refer the parties to
arbitration, unless it finds that the arbitration agreement is null and void, inoperative or incapable of
being performed. Arbitration may even be ordered in the same suit brought upon a matter covered
by an arbitration agreement even without waiting for the outcome of the issue of the validity of the
arbitration agreement. Art. 8 of the UNCITRAL Model Law24 states that where a court before which
an action is brought in a matter which is subject of an arbitration agreement refers the parties to
arbitration, the arbitral proceedings may proceed even while the action is pending.

Thus, the main issue raised in the Petition for Certiorari is whether it was proper for the RTC, in the
proceeding to compel arbitration under R.A. No. 876, to order the parties to arbitrate even though
the defendant therein has raised the twin issues of validity and nullity of the Addendum Contract
and, consequently, of the arbitration clause therein as well. The resolution of both Climax-Arimco’s
Motion for Partial Reconsideration and/or Clarification in G.R. No. 161957 and Gonzales’s Petition
for Certiorari in G.R. No. 167994 essentially turns on whether the question of validity of the
Addendum Contract bears upon the applicability or enforceability of the arbitration clause contained
therein. The two pending matters shall thus be jointly resolved.

We address the Rule 65 petition in G.R. No. 167994 first from the remedial law perspective. It
deserves to be dismissed on procedural grounds, as it was filed in lieu of appeal which is the
prescribed remedy and at that far beyond the reglementary period. It is elementary in remedial law
that the use of an erroneous mode of appeal is cause for dismissal of the petition for certiorari and it
has been repeatedly stressed that a petition for certiorari is not a substitute for a lost appeal. As its
nature, a petition for certiorari lies only where there is "no appeal," and "no plain, speedy and
adequate remedy in the ordinary course of law."25 The Arbitration Law specifically provides for an
appeal by certiorari, i.e., a petition for review under certiorari under Rule 45 of the Rules of Court
that raises pure questions of law.26 There is no merit to Gonzales’s argument that the use of the
permissive term "may" in Sec. 29, R.A. No. 876 in the filing of appeals does not prohibit nor discount
the filing of a petition for certiorari under Rule 65.27 Proper interpretation of the aforesaid provision of
law shows that the term "may" refers only to the filing of an appeal, not to the mode of review to be
employed. Indeed, the use of "may" merely reiterates the principle that the right to appeal is not part
of due process of law but is a mere statutory privilege to be exercised only in the manner and in
accordance with law.
Neither can BF Corporation v. Court of Appeals28 cited by Gonzales support his theory. Gonzales
argues that said case recognized and allowed a petition for certiorari under Rule 65 "appealing the
order of the Regional Trial Court disregarding the arbitration agreement as an acceptable
remedy."29 The BF Corporation case had its origins in a complaint for collection of sum of money
filed by therein petitioner BF Corporation against Shangri-la Properties, Inc. (SPI). SPI moved to
suspend the proceedings alleging that the construction agreement or the Articles of Agreement
between the parties contained a clause requiring prior resort to arbitration before judicial
intervention. The trial court found that an arbitration clause was incorporated in the Conditions of
Contract appended to and deemed an integral part of the Articles of Agreement. Still, the trial court
denied the motion to suspend proceedings upon a finding that the Conditions of Contract were not
duly executed and signed by the parties. The trial court also found that SPI had failed to file any
written notice of demand for arbitration within the period specified in the arbitration clause. The trial
court denied SPI's motion for reconsideration and ordered it to file its responsive pleading. Instead of
filing an answer, SPI filed a petition for certiorari under Rule 65, which the Court of Appeals,
favorably acted upon. In a petition for review before this Court, BF Corporation alleged, among
others, that the Court of Appeals should have dismissed the petition for certiorari since the order of
the trial court denying the motion to suspend proceedings "is a resolution of an incident on the
merits" and upon the continuation of the proceedings, the trial court would eventually render a
decision on the merits, which decision could then be elevated to a higher court "in an ordinary
appeal."30

The Court did not uphold BF Corporation’s argument. The issue raised before the Court was
whether SPI had taken the proper mode of appeal before the Court of Appeals. The question before
the Court of Appeals was whether the trial court had prematurely assumed jurisdiction over the
controversy. The question of jurisdiction in turn depended on the question of existence of the
arbitration clause which is one of fact. While on its face the question of existence of the arbitration
clause is a question of fact that is not proper in a petition for certiorari, yet since the determination of
the question obliged the Court of Appeals as it did to interpret the contract documents in accordance
with R.A. No. 876 and existing jurisprudence, the question is likewise a question of law which may
be properly taken cognizance of in a petition for certiorari under Rule 65, so the Court held.31

The situation in B.F. Corporation is not availing in the present petition. The disquisition in B.F.
Corporation led to the conclusion that in order that the question of jurisdiction may be resolved, the
appellate court had to deal first with a question of law which could be addressed in a certiorari
proceeding. In the present case, Gonzales’s petition raises a question of law, but not a question of
jurisdiction. Judge Pimentel acted in accordance with the procedure prescribed in R.A. No. 876
when he ordered Gonzales to proceed with arbitration and appointed a sole arbitrator after making
the determination that there was indeed an arbitration agreement. It has been held that as long as a
court acts within its jurisdiction and does not gravely abuse its discretion in the exercise thereof, any
supposed error committed by it will amount to nothing more than an error of judgment reviewable by
a timely appeal and not assailable by a special civil action of certiorari.32 Even if we overlook the
employment of the wrong remedy in the broader interests of justice, the petition would nevertheless
be dismissed for failure of Gonzalez to show grave abuse of discretion.

Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in
our jurisdiction. The Civil Code is explicit on the matter.33 R.A. No. 876 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.34 The enactment of R.A. No. 9285 on 2 April 2004 further institutionalized
the use of alternative dispute resolution systems, including arbitration, in the settlement of disputes.
Disputes do not go to arbitration unless and until the parties have agreed to abide by the arbitrator’s
decision. Necessarily, a contract is required for arbitration to take place and to be binding. R.A. No.
876 recognizes the contractual nature of the arbitration agreement, thus:

Sec. 2. Persons and matters subject to arbitration.—Two or more persons or parties may submit to
the arbitration of one or more arbitrators any controversy existing, between them at the time of the
submission and which may be the subject of an action, or the parties to any contract may in such
contract agree to settle by arbitration a controversy thereafter arising between them. Such
submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist
at law for the revocation of any contract.

Such submission or contract may include question arising out of valuations, appraisals or other
controversies which may be collateral, incidental, precedent or subsequent to any issue between the
parties.

A controversy cannot be arbitrated where one of the parties to the controversy is an infant, or a
person judicially declared to be incompetent, unless the appropriate court having jurisdiction approve
a petition for permission to submit such controversy to arbitration made by the general guardian or
guardian ad litem of the infant or of the incompetent. [Emphasis added.]

Thus, we held in Manila Electric Co. v. Pasay Transportation Co.35 that a submission to arbitration is
a contract. A clause in a contract providing that all matters in dispute between the parties shall be
referred to arbitration is a contract,36 and in Del Monte Corporation-USA v. Court of Appeals37 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. As a rule, contracts are respected as the law
between the contracting parties and produce effect as between them, their assigns and heirs."38

The special proceeding under Sec. 6 of R.A. No. 876 recognizes the contractual nature of arbitration
clauses or agreements. It provides:

Sec. 6. Hearing by court.—A party aggrieved by the failure, neglect or refusal of another to perform
under an agreement in writing providing for arbitration may petition the court for an order directing
that such arbitration proceed in the manner provided for in such agreement. Five days notice in
writing of the hearing of such application shall be served either personally or by registered mail upon
the party in default. The court shall hear the parties, and upon being satisfied that the making of the
agreement or such failure to comply therewith is not in issue, shall make an order directing the
parties to proceed to arbitration in accordance with the terms of the agreement. If the making of the
agreement or default be in issue the court shall proceed to summarily hear such issue. If the finding
be that no agreement in writing providing for arbitration was made, or that there is no default in the
proceeding thereunder, the proceeding shall be dismissed. If the finding be that a written provision
for arbitration was made and there is a default in proceeding thereunder, an order shall be made
summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.

The court shall decide all motions, petitions or applications filed under the provisions of this Act,
within ten days after such motions, petitions, or applications have been heard by it. [Emphasis
added.]

This special proceeding is the procedural mechanism for the enforcement of the contract to arbitrate.
The jurisdiction of the courts in relation to Sec. 6 of R.A. No. 876 as well as the nature of the
proceedings therein was expounded upon in La Naval Drug Corporation v. Court of Appeals.39 There
it was held that R.A. No. 876 explicitly confines the court's authority only to the determination of
whether or not there is an agreement in writing providing for arbitration. In the affirmative, the statute
ordains that the court shall issue an order "summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof." If the court, upon the other hand, finds that no such
agreement exists, "the proceeding shall be dismissed."40 The cited case also stressed that the
proceedings are summary in nature.41 The same thrust was made in the earlier case of Mindanao
Portland Cement Corp. v. McDonough Construction Co. of Florida42 which held, thus:

Since there obtains herein a written provision for arbitration as well as failure on respondent's part to
comply therewith, the court a quo rightly ordered the parties to proceed to arbitration in accordance
with the terms of their agreement (Sec. 6, Republic Act 876). Respondent's arguments touching
upon the merits of the dispute are improperly raised herein. They should be addressed to the
arbitrators. This proceeding is merely a summary remedy to enforce the agreement to arbitrate. The
duty of the court in this case is not to resolve the merits of the parties' claims but only to determine if
they should proceed to arbitration or not. x x x x43

Implicit in the summary nature of the judicial proceedings is the separable or independent character
of the arbitration clause or agreement. This was highlighted in the cases of Manila Electric Co. v.
Pasay Trans. Co.44 and Del Monte Corporation-USA v. Court of Appeals.45

The doctrine of separability, or severability as other writers call it, enunciates that an arbitration
agreement is independent of the main contract. The arbitration agreement is to be treated as a
separate agreement and the arbitration agreement does not automatically terminate when the
contract of which it is part comes to an end.46

The separability of the arbitration agreement is especially significant to the determination of whether
the invalidity of the main contract also nullifies the arbitration clause. Indeed, the doctrine denotes
that the invalidity of the main contract, also referred to as the "container" contract, does not affect
the validity of the arbitration agreement. Irrespective of the fact that the main contract is invalid, the
arbitration clause/agreement still remains valid and enforceable.47

The separability of the arbitration clause is confirmed in Art. 16(1) of the UNCITRAL Model Law and
Art. 21(2) of the UNCITRAL Arbitration Rules.48

The separability doctrine was dwelt upon at length in the U.S. case of Prima Paint Corp. v. Flood &
Conklin Manufacturing Co.49 In that case, Prima Paint and Flood and Conklin (F & C) entered into a
consulting agreement whereby F & C undertook to act as consultant to Prima Paint for six years,
sold to Prima Paint a list of its customers and promised not to sell paint to these customers during
the same period. The consulting agreement contained an arbitration clause. Prima Paint did not
make payments as provided in the consulting agreement, contending that F & C had fraudulently
misrepresented that it was solvent and able for perform its contract when in fact it was not and had
even intended to file for bankruptcy after executing the consultancy agreement. Thus, F & C served
Prima Paint with a notice of intention to arbitrate. Prima Paint sued in court for rescission of the
consulting agreement on the ground of fraudulent misrepresentation and asked for the issuance of
an order enjoining F & C from proceeding with arbitration. F & C moved to stay the suit pending
arbitration. The trial court granted F & C’s motion, and the U.S. Supreme Court affirmed.

The U.S. Supreme Court did not address Prima Paint’s argument that it had been fraudulently
induced by F & C to sign the consulting agreement and held that no court should address this
argument. Relying on Sec. 4 of the Federal Arbitration Act—which provides that "if a party [claims to
be] aggrieved by the alleged failure x x x of another to arbitrate x x x, [t]he court shall hear the
parties, and upon being satisfied that the making of the agreement for arbitration or the failure to
comply therewith is not in issue, the court shall make an order directing the parties to proceed to
arbitration x x x. If the making of the arbitration agreement or the failure, neglect, or refusal to
perform the same be in issue, the court shall proceed summarily to the trial thereof"—the U.S. High
Court held that the court should not order the parties to arbitrate if the making of the arbitration
agreement is in issue. The parties should be ordered to arbitration if, and only if, they have
contracted to submit to arbitration. Prima Paint was not entitled to trial on the question of whether an
arbitration agreement was made because its allegations of fraudulent inducement were not directed
to the arbitration clause itself, but only to the consulting agreement which contained the arbitration
agreement.50 Prima Paint held that "arbitration clauses are ‘separable’ from the contracts in which
they are embedded, and that where no claim is made that fraud was directed to the arbitration
clause itself, a broad arbitration clause will be held to encompass arbitration of the claim that the
contract itself was induced by fraud."51

There is reason, therefore, to rule against Gonzales when he alleges that Judge Pimentel acted with
grave abuse of discretion in ordering the parties to proceed with arbitration. Gonzales’s argument
that the Addendum Contract is null and void and, therefore the arbitration clause therein is void as
well, is not tenable. First, the proceeding in a petition for arbitration under R.A. No. 876 is limited
only to the resolution of the question of whether the arbitration agreement exists. Second, the
separability of the arbitration clause from the Addendum Contract means that validity or invalidity of
the Addendum Contract will not affect the enforceability of the agreement to arbitrate. Thus,
Gonzales’s petition for certiorari should be dismissed.

This brings us back to G.R. No. 161957. The adjudication of the petition in G.R. No. 167994
effectively modifies part of the Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now
hold that the validity of the contract containing the agreement to submit to arbitration does not affect
the applicability of the arbitration clause itself. A contrary ruling would suggest that a party’s mere
repudiation of the main contract is sufficient to avoid arbitration. That is exactly the situation that the
separability doctrine, as well as jurisprudence applying it, seeks to avoid. We add that when it was
declared in G.R. No. 161957 that the case should not be brought for arbitration, it should be clarified
that the case referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators,
which was for the nullification of the main contract on the ground of fraud, as it had already been
determined that the case should have been brought before the regular courts involving as it did
judicial issues.

The Motion for Reconsideration of Gonzales in G.R. No. 161957 should also be denied. In the
motion, Gonzales raises the same question of jurisdiction, more particularly that the complaint for
nullification of the Addendum Contract pertained to the DENR Panel of Arbitrators, not the regular
courts. He insists that the subject of his complaint is a mining dispute since it involves a dispute
concerning rights to mining areas, the Financial and Technical Assistance Agreement (FTAA)
between the parties, and it also involves claimowners. He adds that the Court failed to rule on other
issues he raised, such as whether he had ceded his claims over the mineral deposits located within
the Addendum Area of Influence; whether the complaint filed before the DENR Panel of Arbitrators
alleged ultimate facts of fraud; and whether the action to declare the nullity of the Addendum
Contract on the ground of fraud has prescribed. 1avvphi1.net

These are the same issues that Gonzales raised in his Rule 45 petition in G.R. No. 161957 which
were resolved against him in the Decision of 28 February 2005. Gonzales does not raise any new
argument that would sway the Court even a bit to alter its holding that the complaint filed before the
DENR Panel of Arbitrators involves judicial issues which should properly be resolved by the regular
courts. He alleged fraud or misrepresentation in the execution of the Addendum Contract which is a
ground for the annulment of a voidable contract. Clearly, such allegations entail legal questions
which are within the jurisdiction of the courts.
The question of whether Gonzales had ceded his claims over the mineral deposits in the Addendum
Area of Influence is a factual question which is not proper for determination before this Court. At all
events, moreover, the question is irrelevant to the issue of jurisdiction of the DENR Panel of
Arbitrators. It should be pointed out that the DENR Panel of Arbitrators made a factual finding in its
Order dated 18 October 2001, which it reiterated in its Order dated 25 June 2002, that Gonzales
had, "through the various agreements, assigned his interest over the mineral claims all in favor of
[Climax-Arimco]" as well as that without the complainant [Gonzales] assigning his interest over the
mineral claims in favor of [Climax-Arimco], there would be no FTAA to speak of."52 This finding was
affirmed by the Court of Appeals in its Decision dated 30 July 2003 resolving the petition for
certiorari filed by Climax-Arimco in regard to the 18 October 2001 Order of the DENR Panel.53

The Court of Appeals likewise found that Gonzales’s complaint alleged fraud but did not provide any
particulars to substantiate it. The complaint repeatedly mentioned fraud, oppression, violation of the
Constitution and similar conclusions but nowhere did it give any ultimate facts or particulars relative
to the allegations.54

Sec. 5, Rule 8 of the Rules of Court specifically provides that in all averments of fraud, the
circumstances constituting fraud must be stated with particularity. This is to enable the opposing
party to controvert the particular facts allegedly constituting the same. Perusal of the complaint
indeed shows that it failed to state with particularity the ultimate facts and circumstances constituting
the alleged fraud. It does not state what particulars about Climax-Arimco’s financial or technical
capability were misrepresented, or how the misrepresentation was done. Incorporated in the body of
the complaint are verbatim reproductions of the contracts, correspondence and government
issuances that reportedly explain the allegations of fraud and misrepresentation, but these are, at
best, evidentiary matters that should not be included in the pleading.

As to the issue of prescription, Gonzales’s claims of fraud and misrepresentation attending the
execution of the Addendum Contract are grounds for the annulment of a voidable contract under the
Civil Code.55 Under Art. 1391 of the Code, an action for annulment shall be brought within four years,
in the case of fraud, beginning from the time of the discovery of the same. However, the time of the
discovery of the alleged fraud is not clear from the allegations of Gonzales’s complaint. That being
the situation coupled with the fact that this Court is not a trier of facts, any ruling on the issue of
prescription would be uncalled for or even unnecessary.

WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is DISMISSED. Such dismissal
effectively renders superfluous formal action on the Motion for Partial Reconsideration and/or
Clarification filed by Climax Mining Ltd., et al. in G.R. No. 161957.

The Motion for Reconsideration filed by Jorge Gonzales in G.R. No. 161957 is DENIED WITH
FINALITY.

SO ORDERED.

DANTE O. TINGA
Associate Justice
G.R. No. 141833 March 26, 2003

LM POWER ENGINEERING CORPORATION, petitioner,

vs.
CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent.

PANGANIBAN, J.:

Alternative dispute resolution methods or ADRs -- like arbitration, mediation, negotiation and
conciliation -- are encouraged by the Supreme Court. By enabling parties to resolve their disputes
amicably, they provide solutions that are less time-consuming, less tedious, less confrontational, and
more productive of goodwill and lasting relationships.1

The Case

Before us is a Petition for Review on Certiorari2 under Rule 45 of the Rules of Court, seeking to set
aside the January 28, 2000 Decision of the Court of Appeals3 (CA) in CA-GR CV No. 54232. The
dispositive portion of the Decision reads as follows:

"WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties
are ORDERED to present their dispute to arbitration in accordance with their Sub-contract
Agreement. The surety bond posted by [respondent] is [d]ischarged."4

The Facts

On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent Capitol
Industrial Construction Groups Inc. entered into a "Subcontract Agreement" involving electrical work
at the Third Port of Zamboanga.5

On April 25, 1985, respondent took over some of the work contracted to petitioner.6 Allegedly, the
latter had failed to finish it because of its inability to procure materials.7

Upon completing its task under the Contract, petitioner billed respondent in the amount of
P6,711,813.90.8Contesting the accuracy of the amount of advances and billable accomplishments
listed by the former, the latter refused to pay. Respondent also took refuge in the termination clause
of the Agreement.9 That clause allowed it to set off the cost of the work that petitioner had failed to
undertake -- due to termination or take-over -- against the amount it owed the latter.

Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati (Branch 141) a
Complaint10 for the collection of the amount representing the alleged balance due it under the
Subcontract. Instead of submitting an Answer, respondent filed a Motion to Dismiss,11 alleging that
the Complaint was premature, because there was no prior recourse to arbitration.

In its Order12 dated September 15, 1987, the RTC denied the Motion on the ground that the dispute
did not involve the interpretation or the implementation of the Agreement and was, therefore, not
covered by the arbitral clause.13

After trial on the merits, the RTC14 ruled that the take-over of some work items by respondent was
not equivalent to a termination, but a mere modification, of the Subcontract. The latter was ordered
to give full payment for the work completed by petitioner.
 Ruling of the Court of Appeals

On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration. The
appellate court held as arbitrable the issue of whether respondent’s take-over of some work items
had been intended to be a termination of the original contract under Letter "K" of the Subcontract. It
ruled likewise on two other issues: whether petitioner was liable under the warranty clause of the
Agreement, and whether it should reimburse respondent for the work the latter had taken over.15

Hence, this Petition.16

The Issues

In its Memorandum, petitioner raises the following issues for the Court’s consideration:

"A

Whether or not there exist[s] a controversy/dispute between petitioner and respondent regarding the
interpretation and implementation of the Sub-Contract Agreement dated February 22, 1983 that
requires prior recourse to voluntary arbitration;

"B

In the affirmative, whether or not the requirements provided in Article III 1 of CIAC Arbitration Rules
regarding request for arbitration ha[ve] been complied with[.]"17

The Court’s Ruling

The Petition is unmeritorious.

First Issue:
Whether Dispute Is Arbitrable

Petitioner claims that there is no conflict regarding the interpretation or the implementation of the
Agreement. Thus, without having to resort to prior arbitration, it is entitled to collect the value of the
services it rendered through an ordinary action for the collection of a sum of money from respondent.
On the other hand, the latter contends that there is a need for prior arbitration as provided in the
Agreement. This is because there are some disparities between the parties’ positions regarding the
extent of the work done, the amount of advances and billable accomplishments, and the set off of
expenses incurred by respondent in its take-over of petitioner’s work.

We side with respondent. Essentially, the dispute arose from the parties’ ncongruent positions on
whether certain provisions of their Agreement could be applied to the facts. The instant case
involves technical discrepancies that are better left to an arbitral body that has expertise in those
areas. In any event, the inclusion of an arbitration clause in a contract does not ipso facto divest the
courts of jurisdiction to pass upon the findings of arbitral bodies, because the awards are still
judicially reviewable under certain conditions.18

In the case before us, the Subcontract has the following arbitral clause:
 "6. The Parties hereto agree that any dispute or conflict as regards to interpretation and
implementation of this Agreement which cannot be settled between [respondent] and
[petitioner] amicably shall be settled by means of arbitration x x x."19

Clearly, the resolution of the dispute between the parties herein requires a referral to the provisions
of their Agreement. Within the scope of the arbitration clause are discrepancies as to the amount of
advances and billable accomplishments, the application of the provision on termination, and the
consequent set-off of expenses.

A review of the factual allegations of the parties reveals that they differ on the following questions:
(1) Did a take-over/termination occur? (2) May the expenses incurred by respondent in the take-over
be set off against the amounts it owed petitioner? (3) How much were the advances and billable
accomplishments?

The resolution of the foregoing issues lies in the interpretation of the provisions of the Agreement.
According to respondent, the take-over was caused by petitioner’s delay in completing the work.
Such delay was in violation of the provision in the Agreement as to time schedule:

"G. TIME SCHEDULE

"[Petitioner] shall adhere strictly to the schedule related to the WORK and complete the
WORK within the period set forth in Annex C hereof. NO time extension shall be granted by
[respondent] to [petitioner] unless a corresponding time extension is granted by [the Ministry
of Public Works and Highways] to the CONSORTIUM."20

Because of the delay, respondent alleges that it took over some of the work contracted to petitioner,
pursuant to the following provision in the Agreement:

"K. TERMINATION OF AGREEMENT

"[Respondent] has the right to terminate and/or take over this Agreement for any of the
following causes:

xxx xxx xxx

‘6. If despite previous warnings by [respondent], [petitioner] does not execute the
WORK in accordance with this Agreement, or persistently or flagrantly neglects to
carry out [its] obligations under this Agreement."21

Supposedly, as a result of the "take-over," respondent incurred expenses in excess of the contracted
price. It sought to set off those expenses against the amount claimed by petitioner for the work the
latter accomplished, pursuant to the following provision:

"If the total direct and indirect cost of completing the remaining part of the WORK exceed the
sum which would have been payable to [petitioner] had it completed the WORK, the amount
of such excess [may be] claimed by [respondent] from either of the following:

‘1. Any amount due [petitioner] from [respondent] at the time of the termination of this
Agreement."22
The issue as to the correct amount of petitioner’s advances and billable accomplishments involves
an evaluation of the manner in which the parties completed the work, the extent to which they did it,
and the expenses each of them incurred in connection therewith. Arbitrators also need to look into
the computation of foreign and local costs of materials, foreign and local advances, retention fees
and letters of credit, and taxes and duties as set forth in the Agreement. These data can be gathered
from a review of the Agreement, pertinent portions of which are reproduced hereunder:

"C. CONTRACT PRICE AND TERMS OF PAYMENT

xxx xxx xxx

"All progress payments to be made by [respondent] to [petitioner] shall be subject to a

retention sum of ten percent (10%) of the value of the approved quantities. Any claims by
[respondent] on [petitioner] may be deducted by [respondent] from the progress payments
and/or retained amount. Any excess from the retained amount after deducting [respondent’s]
claims shall be released by [respondent] to [petitioner] after the issuance of [the Ministry of
Public Works and Highways] of the Certificate of Completion and final acceptance of the
WORK by [the Ministry of Public Works and Highways].

xxx xxx xxx

"D. IMPORTED MATERIALS AND EQUIPMENT

"[Respondent shall open the letters of credit for the importation of equipment and materials
listed in Annex E hereof after the drawings, brochures, and other technical data of each
items in the list have been formally approved by [the Ministry of Public Works and Highways].
However, petitioner will still be fully responsible for all imported materials and equipment.

"All expenses incurred by [respondent], both in foreign and local currencies in connection
with the opening of the letters of credit shall be deducted from the Contract Prices.

xxx xxx xxx

"N. OTHER CONDITIONS

xxx xxx xxx

"2. All customs duties, import duties, contractor’s taxes, income taxes, and other taxes that
may be required by any government agencies in connection with this Agreement shall be for
the sole account of [petitioner]."23

Being an inexpensive, speedy and amicable method of settling disputes,24 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.25 It is thus regarded as the "wave of the future" in international civil and commercial
disputes.26 Brushing aside a contractual agreement calling for arbitration between the parties would
be a step backward.27

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.28 Any doubt
should be resolved in favor of arbitration.29

Second Issue:
Prior Request for Arbitration

According to petitioner, assuming arguendo that the dispute is arbitrable, the failure to file a formal
request for arbitration with the Construction Industry Arbitration Commission (CIAC) precluded the
latter from acquiring jurisdiction over the question. To bolster its position, petitioner even cites our
ruling in Tesco Services Incorporated v. Vera.30 We are not persuaded.

Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration indeed
required the submission of a request for arbitration, as follows:

"SECTION. 1. Submission to Arbitration -- Any party to a construction contract wishing to

have recourse to arbitration by the Construction Industry Arbitration Commission (CIAC)
shall submit its Request for Arbitration in sufficient copies to the Secretariat of the CIAC;
PROVIDED, that in the case of government construction contracts, all administrative
remedies available to the parties must have been exhausted within 90 days from the time the
dispute arose."

Tesco was promulgated by this Court, using the foregoing provision as reference.

On the other hand, Section 1 of Article III of the new Rules of Procedure Governing Construction
Arbitration has dispensed with this requirement and recourse to the CIAC may now be availed of
whenever a contract "contains a clause for the submission of a future controversy to arbitration," in
this wise:

"SECTION 1. Submission to CIAC Jurisdiction — An arbitration clause in a construction

contract or a submission to arbitration of a construction dispute shall be deemed an
agreement to submit an existing or future controversy to CIAC jurisdiction, notwithstanding
the reference to a different arbitration institution or arbitral body in such contract or
submission. When a contract contains a clause for the submission of a future controversy to
arbitration, it is not necessary for the parties to enter into a submission agreement before the
claimant may invoke the jurisdiction of CIAC."

The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-91 and 3-93.31

The difference in the two provisions was clearly explained in China Chang Jiang Energy Corporation
(Philippines) v. Rosal Infrastructure Builders et al.32 (an extended unsigned Resolution) and
reiterated in National Irrigation Administration v. Court of Appeals,33 from which we quote thus:

"Under the present Rules of Procedure, for a particular construction contract to fall within the
jurisdiction of CIAC, it is merely required that the parties agree to submit the same to
voluntary arbitration Unlike in the original version of Section 1, as applied in the Tesco case,
the law as it now stands does not provide that the parties should agree to submit disputes
arising from their agreement specifically to the CIAC for the latter to acquire jurisdiction over
the same. Rather, it is plain and clear that as long as the parties agree to submit to voluntary
arbitration, regardless of what forum they may choose, their agreement will fall within the
jurisdiction of the CIAC, such that, even if they specifically choose another forum, the parties
will not be precluded from electing to submit their dispute before the CIAC because this right
has been vested upon each party by law, i.e., E.O. No. 1008."34
Clearly, there is no more need to file a request with the CIAC in order to vest it with jurisdiction to
decide a construction dispute.

The arbitral clause in the Agreement is a commitment on the part of the parties to submit to
arbitration the disputes covered therein. Because that clause is binding, they are expected to abide
by it in good faith.35 And because it covers the dispute between the parties in the present case, either
of them may compel the other to arbitrate.36

Since petitioner has already filed a Complaint with the RTC without prior recourse to arbitration, the
proper procedure to enable the CIAC to decide on the dispute is to request the stay or suspension of
such action, as provided under RA 876 [the Arbitration Law].37

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.

SO ORDERED.
G.R. No. 146717 May 19, 2006

TRANSFIELD PHILIPPINES, INC., Petitioner,

vs.
LUZON HYDRO CORPORATION, AUSTRALIA AND NEW ZEALAND BANKING GROUP
LIMITED and SECURITY BANK CORPORATION, Respondents.

RESOLUTION

TINGA, J.:

The adjudication of this case proved to be a two-stage process as its constituent parts involve two
segregate but equally important issues. The first stage relating to the merits of the case, specifically
the question of the propriety of calling on the securities during the pendency of the arbitral
proceedings, was resolved in favor of Luzon Hydro Corporation (LHC) with the Court’s Decision1 of
22 November 2004. The second stage involving the issue of forum-shopping on which the Court
required the parties to submit their respective memoranda2 is disposed of in this Resolution.

The disposal of the forum-shopping charge is crucial to the parties to this case on account of its
profound effect on the final outcome of the international arbitral proceedings which they have chosen
as their principal dispute resolution mechanism.3

LHC claims that Transfield Philippines, Inc. (TPI) is guilty of forum-shopping when it filed the
following suits:

1. Civil Case No. 04-332 filed on 19 March 2004, pending before the Regional Trial Court
(RTC) of Makati, Branch 56 for confirmation, recognition and enforcement of the Third Partial
Award in case 11264 TE/MW, ICC International Court of Arbitration, entitled Transfield
Philippines, Inc. v. Luzon Hydro Corporation.4

2. ICC Case No. 11264/TE/MW, Transfield Philippines, Inc. v. Luzon Hydro Corporation filed
before the International Court of Arbitration, International Chamber of Commerce (ICC) a
request for arbitration dated 3 November 2000 pursuant to the Turnkey Contract between
LHC and TPI;

3. G.R. No. 146717, Transfield Philippines, Inc. v. Luzon Hydro Corporation, Australia and
New Zealand Banking Group Limited and Security Bank Corp. filed on 5 February 2001,
which was an appeal by certiorari with prayer for TRO/preliminary prohibitory and mandatory
injunction, of the Court of Appeals Decision dated 31 January 2001 in CA-G.R. SP No.
61901.

a. CA-G.R. SP No. 61901 was a petition for review of the Decision in Civil Case No.
00-1312, wherein TPI claimed that LHC’s call on the securities was premature
considering that the issue of default has not yet been resolved with finality; the
petition was however denied by the Court of Appeals;

b. Civil Case No. 00-1312 was a complaint for injunction with prayer for temporary
restraining order and/or writ of preliminary injunction dated 5 November 2000, which
sought to restrain LHC from calling on the securities and respondent banks from
transferring or paying of the securities; the complaint was denied by the RTC.
On the other hand, TPI claims that it is LHC which is guilty of forum-shopping when it raised the
issue of forum-shopping not only in this case, but also in Civil Case No. 04-332, and even asked for
the dismissal of the other case based on this ground. Moreover, TPI argues that LHC is relitigating in
Civil Case No. 04-332 the very same causes of action in ICC Case No. 11264/TE/MW, and even
manifesting therein that it will present evidence earlier presented before the arbitral tribunal.5

Meanwhile, ANZ Bank and Security Bank moved to be excused from filing a memorandum. They
claim that with the finality of the Court’s Decision dated 22 November 2004, any resolution by the
Court on the issue of forum-shopping will not materially affect their role as the banking entities
involved are concerned.6 The Court granted their respective motions.

On 1 August 2005, TPI moved to set the case for oral argument, positing that the resolution of the
Court on the issue of forum-shopping may have significant implications on the interpretation of the
Alternative Dispute Resolution Act of 2004, as well as the viability of international commercial
arbitration as an alternative mode of dispute resolution in the country.7 Said motion was opposed by
LHC in its opposition filed on 2 September 2005, with LHC arguing that the respective memoranda
of the parties are sufficient for the Court to resolve the issue of forum-shopping.8 On 28 October
2005, TPI filed its Manifestation and Reiterative Motion9 to set the case for oral argument, where it
manifested that the International Chamber of Commerce (ICC) arbitral tribunal had issued its Final
Award ordering LHC to pay TPI US$24,533,730.00 (including the US$17,977,815.00 proceeds of the
two standby letters of credit). TPI also submitted a copy thereof with a Supplemental Petition10 to the
Regional Trial Court (RTC), seeking recognition and enforcement of the said award.11

The essence of forum-shopping is the filing of multiple suits involving the same parties for the same
cause of action, either simultaneously or successively, for the purpose of obtaining a favorable
judgment.12 Forum-shopping has likewise been defined as the act of a party against whom an
adverse judgment has been rendered in one forum, seeking and possibly getting a favorable opinion
in another forum, other than by appeal or the special civil action of certiorari, or the institution of two
or more actions or proceedings grounded on the same cause on the supposition that one or the
other court would make a favorable disposition.13

Thus, for forum-shopping to exist, there must be (a) identity of parties, or at least such parties as
represent the same interests in both actions; (b) identity of rights asserted and relief prayed for, the
relief being founded on the same facts; and (c) the identity of the two preceding particulars is such
that any judgment rendered in the other action will, regardless of which party is successful, amount
to res judicata in the action under consideration.14

There is no identity of causes of action between and among the arbitration case, the instant petition,
and Civil Case No. 04-332.

The arbitration case, ICC Case No. 11264 TE/MW, is an arbitral proceeding commenced pursuant to
the Turnkey Contract between TPI and LHC, to determine the primary issue of whether the delays in
the construction of the project were excused delays, which would consequently render valid TPI’s
claims for extension of time to finish the project. Together with the primary issue to be settled in the
arbitration case is the equally important question of monetary awards to the aggrieved party.

On the other hand, Civil Case No. 00-1312, the precursor of the instant petition, was filed to enjoin
LHC from calling on the securities and respondent banks from transferring or paying the securities in
case LHC calls on them. However, in view of the fact that LHC collected the proceeds, TPI, in its
appeal and petition for review asked that the same be returned and placed in escrow pending the
resolution of the disputes before the ICC arbitral tribunal.15
While the ICC case thus calls for a thorough review of the facts which led to the delay in the
construction of the project, as well as the attendant responsibilities of the parties therein, in contrast,
the present petition puts in issue the propriety of drawing on the letters of credit during the pendency
of the arbitral case, and of course, absent a final determination by the ICC Arbitral tribunal.
Moreover, as pointed out by TPI, it did not pray for the return of the proceeds of the letters of credit.
What it asked instead is that the said moneys be placed in escrow until the final resolution of the
arbitral case. Meanwhile, in Civil Case No. 04-332, TPI no longer seeks the issuance of a provisional
relief, but rather the issuance of a writ of execution to enforce the Third Partial Award.

Neither is there an identity of parties between and among the three (3) cases. The ICC case only
involves TPI and LHC logically since they are the parties to the Turnkey Contract. In comparison, the
instant petition includes Security Bank and ANZ Bank, the banks sought to be enjoined from
releasing the funds of the letters of credit. The Court agrees with TPI that it would be ineffectual to
ask the ICC to issue writs of preliminary injunction against Security Bank and ANZ Bank since these
banks are not parties to the arbitration case, and that the ICC Arbitral tribunal would not even be
able to compel LHC to obey any writ of preliminary injunction issued from its end.16 Civil Case No.
04-322, on the other hand, logically involves TPI and LHC only, they being the parties to the
arbitration agreement whose partial award is sought to be enforced.

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.17 Likewise, Section
14 of Republic Act (R.A.) No. 876 (The Arbitration Law)18 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.19

TPI’s verified petition in Civil Case No. 04-332, filed on 19 March 2004, was captioned as one "For:
Confirmation, Recognition and Enforcement of Foreign Arbitral Award in Case 11264 TE/MW, ICC
International Court of Arbitration, ‘Transfield Philippines, Inc. v. Luzon Hydro Corporation (Place of
arbitration: Singapore)."20 In the said petition, TPI prayed:

1. That the THIRD PARTIAL AWARD dated February 18, 2004 in Case No. 11264/TE/MW
made by the ICC International Court of Arbitration, the signed original copy of which is hereto
attached as Annex "H" hereof, be confirmed, recognized and enforced in accordance with
law.

2. That the corresponding writ of execution to enforce Question 31 of the said Third Partial
Award, be issued, also in accordance with law.

3. That TPI be granted such other relief as may be deemed just and equitable, and allowed,
in accordance with law.21

The pertinent portion of the Third Partial Award22 relied upon by TPI were the answers to Questions
10 to 26, to wit:

"Question 30 Did TPI [LHC] wrongfully draw upon the security?

Yes
"Question 31 Is TPI entitled to have returned to it any sum wrongfully taken by LHC for liquidated
damages?

Yes

"Question 32 Is TPI entitled to any acceleration costs?

TPI is entitled to the reasonable costs TPI incurred after Typhoon Zeb as a result of LHC’s 5
February 1999 Notice to Correct.23

According to LHC, the filing of the above case constitutes forum-shopping since it is the same claim
for the return of US$17.9 Million which TPI made before the ICC Arbitral Tribunal and before this
Court. LHC adds that while Civil Case No. 04-332 is styled as an action for money, the Third Partial
Award used as basis of the suit does not authorize TPI to seek a writ of execution for the sums
drawn on the letters of credit. Said award does not even contain an order for the payment of money,
but instead has reserved the quantification of the amounts for a subsequent determination, LHC
argues. In fact, even the Fifth Partial Award,24 dated 30 March 2005, does not contain such orders.
LHC insists that the declarations or the partial awards issued by the ICC Arbitral Tribunal do not
constitute orders for the payment of money and are not intended to be enforceable as such, but
merely constitute amounts which will be included in the Final Award and will be taken into account in
determining the actual amount payable to the prevailing party.25

R.A. No. 9825 provides that international commercial arbitrations shall be governed shall be
governed by the Model Law on International Commercial Arbitration ("Model Law") adopted by the
United Nations Commission on International Trade Law (UNCITRAL).26 The UNCITRAL Model Law
provides:

ARTICLE 35. Recognition and enforcement

(1) An arbitral award, irrespective of the country in which it was made, shall be recognized as
binding and, upon application in writing to the competent court, shall be enforced subject to
the provisions of this article and of article 36.

(2) The party relying on an award or applying for its enforcement shall supply the duly
authenticated original award or a duly certified copy thereof, and the original arbitration
agreement referred to in article 7 or a duly certified copy thereof. If the award or agreement
is not made in an official language of this State, the party shall supply a duly certified
translation thereof into such language.

Moreover, the New York Convention,27 to which the Philippines is a signatory, governs the
recognition and enforcement of foreign arbitral awards. The applicability of the New York Convention
in the Philippines was confirmed in Section 42 of R.A. 9285. Said law also provides that the
application for the recognition and enforcement of such awards shall be filed with the proper RTC.
While TPI’s resort to the RTC for recognition and enforcement of the Third Partial Award is
sanctioned by both the New York Convention and R.A. 9285, its application for enforcement,
however, was premature, to say the least. True, the ICC Arbitral Tribunal had indeed ruled that LHC
wrongfully drew upon the securities, yet there is no order for the payment or return of the proceeds
of the said securities. In fact, Paragraph 2142, which is the final paragraph of the Third Partial
Award, reads:

2142. All other issues, including any issues as to quantum and costs, are reserved to a future
award.28
Meanwhile, the tribunal issued its Fifth Partial Award29 on 30 March 2005. It contains, among others,
a declaration that while LHC wrongfully drew on the securities, the drawing was made in good faith,
under the mistaken assumption that the contractor, TPI, was in default. Thus, the tribunal ruled that
while the amount drawn must be returned, TPI is not entitled to any damages or interests due to
LHC’s drawing on the securities.30 In the Fifth Partial Award, the tribunal ordered:

6. Order

6.1 General

166. This Fifth Partial Award deals with many issues of quantum. However, it does not resolve
1avv phil.net

them all. The outstanding quantum issues will be determined in a future award. It will contain a
reconciliation of the amounts awarded to each party and a determination of the net amount payable
to Claimant or Respondent, as the case may be.

167. In view of this the Tribunal will make no orders for payment in this Fifth Partial Award. The
Tribunal will make a number of declarations concerning the quantum issues it has resolved in this
Award together with the outstanding liability issues. The declarations do not constitute orders for
the payment of money and are not intended to be enforceable as such. They merely
constitute amounts which will be included in the Final Award and will be taken into account
in determining the actual amount payable.31 (Emphasis Supplied.)

Further, in the Declarations part of the award, the tribunal held:

6.2 Declarations

168. The Tribunal makes the following declarations:

xxx

3. LHC is liable to repay TPI the face value of the securities drawn down by it, namely, $17,977,815.
It is not liable for any further damages claimed by TPI in respect of the drawdown of the securities.

x x x.32

Finally, on 9 August 2005, the ICC Arbitral tribunal issued its Final Award, in essence awarding
US$24,533,730.00, which included TPI’s claim of U$17,977,815.00 for the return of the securities
from LHC.33

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

Anent the claim of TPI that it was LHC which committed forum-shopping, suffice it to say that its bare
allegations are not sufficient to sustain the charge.
WHEREFORE, the Court RESOLVES to DISMISS the charges of forum-shopping filed by both
parties against each other.

No pronouncement as to costs.

SO ORDERED.

DANTE O. TINGA
Associate Justice
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 preparatoriesand 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 Angeles47 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. 212081 February 23, 2015

DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES (DENR), Petitioner,

vs.
UNITED PLANNERS CONSULTANTS , INC. (UPCI), Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 is the Decision2 dated March 26, 2014 of the Court of
Appeals (CA) in CA-G.R. SP No. 126458 which dismissed the petition for certiorari filed by petitioner
the Department of Environment and Natural Resources (petitioner).

The Facts

On July 26, 1993, petitioner, through the Land Management Bureau (LMB), entered into an
Agreement for Consultancy Services3 (Consultancy Agreement) with respondent United Planners
Consultants, Inc. (respondent) in connection with the LMB' s Land Resource Management Master
Plan Project (LRMMP).4 Under the Consultancy Agreement, petitioner committed to pay a total
contract price of ₱4,337,141.00, based on a predetermined percentage corresponding to the
particular stage of work accomplished.5

In December 1994, respondent completed the work required, which petitioner formally accepted on
December 27, 1994.6 However, petitioner was able to pay only 47% of the total contract price in the
amount of ₱2,038,456.30.7

On October 25, 1994, the Commission on Audit (COA) released the Technical Services Office
Report8 (TSO) finding the contract price of the Agreement to be 84.14% excessive.9 This
notwithstanding, petitioner, in a letter dated December 10, 1998, acknowledged its liability to
respondent in the amount of ₱2,239,479.60 and assured payment at the soonest possible time.10

For failure to pay its obligation under the Consultancy Agreement despite repeated demands,
respondent instituted a Complaint11 against petitioner before the Regional Trial Court of Quezon City,
Branch 222 (RTC), docketed as Case No. Q-07-60321.12

Upon motion of respondent, the case was subsequently referred to arbitration pursuant to the
arbitration clause of the Consultancy Agreement,13 which petitioner did not oppose.14 As a result, Atty.
Alfredo F. Tadiar, Architect Armando N. Alli, and Construction Industry Arbitration Commission
(CIAC) Accredited Arbitrator Engr. Ricardo B. San Juan were appointed as members of the Arbitral
Tribunal. The court-referred arbitration was then docketed as Arbitration Case No. A-001.15

During the preliminary conference, the parties agreed to adopt the CIAC Revised Rules Governing
Construction Arbitration16 (CIAC Rules) to govern the arbitration proceedings.17 They further agreed
to submit their respective draft decisions in lieu of memoranda of arguments on or before April 21,
2010, among others.18

On the due date for submission of the draft decisions, however, only respondent complied with the
given deadline,19while petitioner moved for the deferment of the deadline which it followed with
another motion for extension of time, asking that it be given until May 11, 2010 to submit its draft
decision.20
In an Order21 dated April 30, 2010, the Arbitral Tribunal denied petitioner’s motions and deemed its
non-submission as a waiver, but declared that it would still consider petitioner’s draft decision if
submitted before May 7, 2010, or the expected date of the final award’s promulgation.22 Petitioner
filed its draft decision23 only on May 7, 2010.

The Arbitral Tribunal rendered its Award24 dated May 7, 2010 (Arbitral Award) in favor of respondent,
directing petitioner to pay the latter the amount of (a) ₱2,285,089.89 representing the unpaid
progress billings, with interest at the rate of 12% per annum from the date of finality of the Arbitral
Award upon confirmation by the RTC until fully paid; (b) ₱2,033,034.59 as accrued interest thereon;
(c) ₱500,000.00 as exemplary damages; and (d) ₱150,000.00 as attorney’s fees.25 It also ordered
petitioner to reimburse respondent its proportionate share in the arbitration costs as agreed upon in
the amount of ₱182,119.44.26

Unconvinced, petitioner filed a motion for reconsideration,27 which the Arbitral Tribunal merely noted
without any action, claiming that it had already lost jurisdiction over the case after it had submitted to
the RTC its Report together with a copy of the Arbitral Award.28

Consequently, petitioner filed before the RTC a Motion for Reconsideration29 dated May 19, 2010
(May 19, 2010 Motion for Reconsideration)and a Manifestation and Motion30 dated June 1, 2010
(June 1, 2010 Manifestation and Motion), asserting that it was denied the opportunity to be heard
when the Arbitral Tribunal failed to consider its draft decision and merely noted its motion for
reconsideration.31 It also denied receiving a copy of the Arbitral Award by either electronic or
registered mail.32 For its part, respondent filed an opposition thereto and moved for the
confirmation33 of the Arbitral Award in accordance with the Special Rules of Court on Alternative
Dispute Resolution (Special ADR Rules).34

In an Order35 dated March 30, 2011, the RTC merely noted petitioner’s aforesaid motions, finding
that copies of the Arbitral Award appear to have been sent to the parties by the Arbitral Tribunal,
including the OSG, contrary to petitioner’s claim. Onthe other hand, the RTC confirmed the Arbitral
Award pursuant to Rule 11.2 (A)36 of the Special ADR Rules and ordered petitioner to pay
respondent the costs of confirming the award, as prayed for, in the total amount of ₱50,000.00. From
this order, petitioner did not file a motion for reconsideration.

Thus, on June 15, 2011, respondent moved for the issuance of a writ of execution, to which no
comment/opposition was filed by petitioner despite the RTC’s directive therefor. In an Order37 dated
September 12, 2011, the RTC granted respondent’s motion.38

Petitioner moved to quash39 the writ of execution, positing that respondent was not entitled to its
monetary claims. It also claimed that the issuance of said writ was premature since the RTC should
have first resolved its May 19, 2010 Motion for Reconsideration and June 1, 2010 Manifestation and
Motion, and not merely noted them, thereby violating its right to due process.40

The RTC Ruling

In an Order41 dated July 9, 2012, the RTC denied petitioner’s motion to quash.

It found no merit in petitioner’s contention that it was denied due process, ruling that its May 19,
2010 Motion for Reconsideration was a prohibited pleading under Section 17.2,42 Rule 17 of the
CIAC Rules. It explained that the available remedy to assail an arbitral award was to file a motion for
correction of final award pursuant to Section 17.143 of the CIAC Rules, and not a motion for
reconsideration of the said award itself.44 On the other hand, the RTC found petitioner’s June 1, 2010
Manifestation and Motion seeking the resolution of its May 19, 2010 Motion for Reconsideration to
be defective for petitioner’s failure to observe the three day notice rule.45 Having then failed to avail of
the remedies attendant to an order of confirmation, the Arbitral Award had become final and
executory.46

On July 12, 2012, petitioner received the RTC’s Order dated July 9, 2012 denying its motion to
quash.47

Dissatisfied, it filed on September 10, 2012a petition for certiorari48 before the CA, docketed as CA-
G.R. SP No. 126458, averring in the main that the RTC acted with grave abuse of discretion in
confirming and ordering the execution of the Arbitral Award.

The CA Ruling

In a Decision49 dated March 26, 2014, the CA dismissed the certiorari petition on two (2) grounds,
namely: (a) the petition essentially assailed the merits of the Arbitral Award which is prohibited under
Rule 19.750 of the Special ADR Rules;51 and (b) the petition was filed out of time, having been filed
way beyond 15 days from notice of the RTC’s July 9, 2012 Order, in violation of Rule 19.2852 in
relation to Rule 19.853 of said Rules which provide that a special civil action for certiorari must be filed
before the CA within 15 days from notice of the judgment, order, or resolution sought to be annulled
or set aside (or until July 27, 2012). Aggrieved, petitioner filed the instant petition.

The Issue Before the Court

The core issue for the Court’s resolution is whether or not the CA erred in applying the provisions of
the Special ADR Rules, resulting in the dismissal of petitioner’s special civil action for certiorari.

The Court’s Ruling

The petition lacks merit.

I.

Republic Act No. (RA) 9285,54 otherwise known as the Alternative Dispute Resolution Act of 2004,"
institutionalized the use of an Alternative Dispute Resolution System (ADR System)55 in the
Philippines. The Act, however, was without prejudice to the adoption by the Supreme Court of any
ADR system as a means of achieving speedy and efficient means of resolving cases pending before
all courts in the Philippines.56

Accordingly, A.M. No. 07-11-08-SC was created setting forth the Special Rules of Court on
Alternative Dispute Resolution (referred herein as Special ADR Rules) that shall govern the
procedure to be followed by the courts whenever judicial intervention is sought in ADR proceedings
in the specific cases where it is allowed.57

Rule 1.1 of the Special ADR Rules lists down the instances when the said rules shall apply, namely:
"(a) Relief on the issue of Existence, Validity, or Enforceability of the Arbitration Agreement; (b)
Referral to Alternative Dispute Resolution ("ADR"); (c) Interim Measures of Protection; (d)
Appointment of Arbitrator; (e) Challenge to Appointment of Arbitrator; (f) Termination of Mandate of
Arbitrator; (g) Assistance in Taking Evidence; (h) Confirmation, Correction or Vacation of Award in
Domestic Arbitration; (i) Recognition and Enforcement or Setting Aside of an Award in International
Commercial Arbitration; (j) Recognition and Enforcement of a Foreign Arbitral Award; (k)
Confidentiality/Protective Orders; and (l) Deposit and Enforcement of Mediated Settlement
Agreements."58

Notably, the Special ADR Rules do not automatically govern the arbitration proceedings itself. A
pivotal feature of arbitration as an alternative mode of dispute resolution is that it is a product of party
autonomy or the freedom of the parties to make their own arrangements to resolve their own
disputes.59 Thus, Rule 2.3 of the Special ADR Rules explicitly provides that "parties are free to agree
on the procedure to be followed in the conduct of arbitral proceedings. Failing such agreement, the
arbitral tribunal may conduct arbitration in the manner it considers appropriate."60

In the case at bar, the Consultancy Agreement contained an arbitration clause.61 Hence, respondent,
after it filed its complaint, moved for its referral to arbitration62 which was not objected to by
petitioner.63 By its referral to arbitration, the case fell within the coverage of the Special ADR Rules.
However, with respect to the arbitration proceedings itself, the parties had agreed to adopt the CIAC
Rules before the Arbitral Tribunal in accordance with Rule 2.3 of the Special ADR Rules.

On May 7, 2010, the Arbitral Tribunal rendered the Arbitral Award in favor of respondent. Under
Section 17.2, Rule 17 of the CIAC Rules, no motion for reconsideration or new trial may be sought,
but any of the parties may file a motion for correction64 of the final award, which shall interrupt the
running of the period for appeal,65 based on any of the following grounds, to wit: a. an evident
miscalculation of figures, a typographical or arithmetical error;

b. an evident mistake in the description of any party, person, date, amount, thing or property
referred to in the award;

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

d. where the arbitrators have failed or omitted to resolve certain issue/s formulated by the
parties in the Terms of Reference (TOR) and submitted to them for resolution, and

e. where the award is imperfect in a matter of form not affecting the merits of the
controversy.

The motion shall be acted upon by the Arbitral Tribunal or the surviving/remaining members.66

Moreover, the parties may appeal the final award to the CA through a petition for review under
Rule43 of the Rules of Court.67

Records do not show that any of the foregoing remedies were availed of by petitioner. Instead, it
filed the May 19, 2010 Motion for Reconsideration of the Arbitral Award, which was a prohibited
pleading under the Section 17.2,68Rule 17 of the CIAC Rules, thus rendering the same final and
executory.

Accordingly, the case was remanded to the RTC for confirmation proceedings pursuant to Rule 11 of
the Special ADR Rules which requires confirmation by the court of the final arbitral award. This is
consistent with Section 40, Chapter 7 (A) of RA 9285 which similarly requires a judicial confirmation
of a domestic award to make the same enforceable:

SEC. 40. Confirmation of Award.– The confirmation of a domestic arbitral award shall be governed
by Section 2369of R.A. 876.70
A domestic arbitral award when confirmed shall be enforced in the same manner as final and
executory decisions of the regional trial court.

The confirmation of a domestic award shall be made by the regional trial court in accordance with
the Rules of Procedure to be promulgated by the Supreme Court.

A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided
under E.O. No. 1008. (Emphases supplied)

During the confirmation proceedings, petitioners did not oppose the RTC’s confirmation by filing a
petition to vacate the Arbitral Award under Rule 11.2 (D)71 of the Special ADR Rules. Neither did it
seek reconsideration of the confirmation order in accordance with Rule 19.1 (h) thereof. Instead,
petitioner filed only on September 10, 2012 a special civil action for certiorari before the CA
questioning the propriety of (a) the RTC Order dated September 12, 2011 granting respondent’s
motion for issuance of a writ of execution, and (b) Order dated July 9,2012 denying its motion to
quash. Under Rule 19.26 of the Special ADR Rules, "[w]hen the Regional Trial Court, in making a
ruling under the Special ADR Rules, has acted without or in excess of its jurisdiction, or with grave
abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or any plain,
speedy, and adequate remedy in the ordinary course of law, a party may file a special civil action for
certiorari to annul or set aside a ruling of the Regional Trial Court." Thus, for failing to avail of the
foregoing remedies before resorting to certiorari, the CA correctly dismissed its petition.

II.

Note that the special civil action for certiorari described in Rule 19.26 above may be filed to annul or
set aside the following orders of the Regional Trial Court.

a. Holding that the arbitration agreement is in existent, invalid or unenforceable;

b. Reversing the arbitral tribunal’s preliminary determination upholding its jurisdiction;

c. Denying the request to refer the dispute to arbitration;

d. Granting or refusing an interim relief;

e. Denying a petition for the appointment of an arbitrator;

f. Confirming, vacating or correcting a domestic arbitral award;

g. Suspending the proceedings to set aside an international commercial arbitral award and
referring the case back to the arbitral tribunal;

h. Allowing a party to enforce an international commercial arbitral award pending appeal;

i. Adjourning or deferring a ruling on whether to set aside, recognize and or enforce an

international commercial arbitral award;

j. Allowing a party to enforce a foreign arbitral award pending appeal; and

k. Denying a petition for assistance in taking evidence. (Emphasis supplied)

Further, Rule 19.772 of the Special ADR Rules precludes a party to an arbitration from filing a petition
for certiorari questioning the merits of an arbitral award.

If so falling under the above-stated enumeration, Rule 19.28 of the Special ADR Rules provide that
said certiorari petition should be filed "with the [CA] within fifteen (15) days from notice of the
judgment, order or resolution sought to be annulled or set aside. No extension of time to file the
petition shall be allowed."

In this case, petitioner asserts that its petition is not covered by the Special ADR Rules (particularly,
Rule 19.28 on the 15-day reglementary period to file a petition for certiorari) but by Rule 65 of the
Rules of Court (particularly, Section 4 thereof on the 60-day reglementary period to file a petition for
certiorari), which it claimed to have suppletory application in arbitration proceedings since the
Special ADR Rules do not explicitly provide for a procedure on execution. The position is untenable.

Execution is fittingly called the fruit and end of suit and the life of the law. A judgment, if left
unexecuted, would be nothing but an empty victory for the prevailing party.73

While it appears that the Special ADR Rules remain silent on the procedure for the execution of a
confirmed arbitral award, it is the Court’s considered view that the Rules’ procedural mechanisms
cover not only aspects of confirmation but necessarily extend to a confirmed award’s execution in
light of the doctrine of necessary implication which states that every statutory grant of power, right or
privilege is deemed to include all incidental power, right or privilege. In Atienza v. Villarosa,74 the
doctrine was explained, thus:

No statute can be enacted that can provide all the details involved in its application. There is always
1âwphi1

an omission that may not meet a particular situation. What is thought, at the time of enactment, to be
an all embracing legislation may be inadequate to provide for the unfolding of events of the future.
So-called gaps in the law develop as the law is enforced. One of the rules of statutory construction
used to fill in the gap is the doctrine of necessary implication. The doctrine states that what is implied
in a statute is as much a part thereof as that which is expressed. Every statute is understood, by
implication, to contain all such provisions as may be necessary to effectuate its object and purpose,
or to make effective rights, powers, privileges or jurisdiction which it grants, including all such
collateral and subsidiary consequences as may be fairly and logically inferred from its terms. Ex
necessitate legis. And every statutory grant of power, right or privilege is deemed to include all
incidental power, right or privilege. This is so because the greater includes the lesser, expressed in
the maxim, in eo plus sit, simper inest et minus.75 (Emphases supplied)

As the Court sees it, execution is but a necessary incident to the Court’s confirmation of an arbitral
award. To construe it otherwise would result in an absurd situation whereby the confirming court
previously applying the Special ADR Rules in its confirmation of the arbitral award would later shift to
the regular Rules of Procedure come execution. Irrefragably, a court’s power to confirm a judgment
award under the Special ADR Rules should be deemed to include the power to order its execution
for such is but a collateral and subsidiary consequence that may be fairly and logically inferred from
the statutory grant to regional trial courts of the power to confirm domestic arbitral awards.

All the more is such interpretation warranted under the principle of ratio legis est anima which
provides that a statute must be read according to its spirit or intent,76 for what is within the spirit is
within the statute although it is not within its letter, and that which is within the letter but not within the
spirit is not within the statute.77 Accordingly, since the Special ADR Rules are intended to achieve
speedy and efficient resolution of disputes and curb a litigious culture,78every interpretation thereof
should be made consistent with these objectives.
Thus, with these principles in mind, the Court so concludes that the Special ADR Rules, as far as
practicable, should be made to apply not only to the proceedings on confirmation but also to the
confirmed award’s execution.

Further, let it be clarified that – contrary to petitioner’s stance – resort to the Rules of Court even in a
suppletory capacity is not allowed. Rule 22.1 of the Special ADR Rules explicitly provides that "[t]he
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."79 Besides, Rule 1.13 thereof provides that "[i]n situations where no
specific rule is provided under the Special ADR Rules, the court shall resolve such matter summarily
and be guided by the spirit and intent of the Special ADR Rules and the ADR Laws."

As above-mentioned, the petition for certiorari permitted under the Special ADR Rules must be filed
within a period of fifteen (15) days from notice of the judgment, order or resolution sought to be
annulled or set aside.80 Hence, since petitioner’s filing of its certiorari petition in CA-G.R. SP No.
126458 was made nearly two months after its receipt of the RTC’s Order dated July 9, 2012,or on
September 10, 2012,81 said petition was clearly dismissible.82

III.

Discounting the above-discussed procedural considerations, the Court still finds that the certiorari
petition had no merit.

Indeed, petitioner cannot be said to have been denied due process as the records undeniably show
that it was accorded ample opportunity to ventilate its position. There was clearly nothing out of line
when the Arbitral Tribunal denied petitioner’s motions for extension to file its submissions having
failed to show a valid reason to justify the same or in rendering the Arbitral Award sans petitioner’s
draft decision which was filed only on the day of the scheduled promulgation of final award on May
7, 2010.83 The touchstone of due process is basically the opportunity to be heard. Having been given
such opportunity, petitioner should only blame itself for its own procedural blunder.

On this score, the petition for certiorari in CA-G.R. SP No. 126458 was likewise properly dismissed.

IV.

Nevertheless, while the Court sanctions the dismissal by the CA of the petition for certiorari due to
procedural infirmities, there is a need to explicate the matter of execution of the confirmed Arbitral
Award against the petitioner, a government agency, in the light of Presidential Decree No. (PD)
144584 otherwise known as the "Government Auditing Code of the Philippines." Section 26 of PD
1445 expressly provides that execution of money judgment against the Government or any of its
subdivisions, agencies and instrumentalities is within the primary jurisdiction of the COA, to wit:

SEC. 26. General jurisdiction. The authority and powers of the Commission shall extend to and
comprehend all matters relating to auditing procedures, systems and controls, the keeping of the
general accounts of the Government, the preservation of vouchers pertaining thereto for a period of
ten years, the examination and inspection of the books, records, and papers relating to those
accounts; and the audit and settlement of the accounts of all persons respecting funds or property
received or held by them in an accountable capacity, as well as the examination, audit, and
settlement of all debts and claims of any sort due from or owing to the Government or any of its
subdivisions, agencies and instrumentalities. The said jurisdiction extends to all government-owned
or controlled corporations, including their subsidiaries, and other self-governing boards,
commissions, or agencies of the Government, and as herein prescribed, including non-governmental
entities subsidized by the government, those funded by donation through the government, those
required to pay levies or government share, and those for which the government has put up a
counterpart fund or those partly funded by the government. (Emphases supplied)

From the foregoing, the settlement of respondent’s money claim is still subject to the primary
jurisdiction of the COA despite finality of the confirmed arbitral award by the RTC pursuant to the
Special ADR Rules.85 Hence, the respondent has to first seek the approval of the COA of their
monetary claim. This appears to have been complied with by the latter when it filed a "Petition for
Enforcement and Payment of Final and Executory Arbitral Award"86before the COA. Accordingly, it is
now the COA which has the authority to rule on this latter petition. WHEREFORE, the petition is
DENIED. The Decision dated March 26, 2014 of the Court of Appeals in CA-G.R. SP No. 126458
which dismissed the petition for certiorari filed by petitioner the Department of Environment and
Natural Resources is hereby AFFIRMED.

SO ORDERED.

ESTELA M. PERLAS-BERNABE
Associate Justice
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 DF A 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 petitioner sought to terminate the Agreement.

Respondent 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, respondent 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, respondent manifested that it shall file an Amended Statement of Claims so
that its claim may conform to the evidence they have presented.4

Petitioner 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, petitioner 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, respondent 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, respondent 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, petitioner 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, respondent 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.

Petitioner 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,22docketed 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,28Interim 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. 1âwphi 1

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. 174938 October 1, 2014

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

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

DECISION

LEONEN, J.:

Corporate representatives may be compelled to submit to arbitration proceedings pursuant to a

contract entered into by the corporation they represent if there are allegations of bad faith or malice
in their acts representing the corporation.

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

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

BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it entered into
agreements with Shangri-La wherein it undertook to construct for Shangri-La a mall and a multilevel
parking structure along EDSA.2

Shangri-La had been consistent in paying BF Corporation in accordance with its progress billing
statements.3However, by October 1991, Shangri-La started defaulting in payment.4

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

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

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

On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III, and
Benjamin C. Ramos filed a motion to suspend the proceedings in view of BF Corporation’s failure to
submit its dispute to arbitration, in accordance with the arbitration clauseprovided in its contract,
quoted in the motion as follows:11

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

xxx xxx xxx

(6) The award of such Arbitrators shall be final and binding on the parties. The decision of the
Arbitrators shall be a condition precedent to any right of legal action that either party may have
against the other. . . .12 (Underscoring in the original)

On August 19, 1993, BF Corporation opposed the motion to suspend proceedings.13

In the November 18, 1993 order, the Regional Trial Court denied the motion to suspend
proceedings.14

On December 8, 1993, petitioners filed an answer to BF Corporation’s complaint, with compulsory

counter claim against BF Corporation and crossclaim against Shangri-La.15 They alleged that they
had resigned as members of Shangri-La’s board of directors as of July 15, 1991.16

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

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

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

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

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

Petitioners filed their comment on Shangri-La’s and BF Corporation’s motions, praying that they be
excluded from the arbitration proceedings for being non-parties to Shangri-La’s and BF
Corporation’s agreement.24
On July 28, 2003, the trial court issued the order directing service of demands for arbitration upon all
defendants in BF Corporation’s complaint.25 According to the trial court, Shangri-La’s directors were
interested parties who "must also be served with a demand for arbitration to give them the
opportunity to ventilate their side of the controversy, safeguard their interest and fend off their
respective positions."26 Petitioners’ motion for reconsideration ofthis order was denied by the trial
court on January 19, 2005.27

Petitioners filed a petition for certiorari with the Court of Appeals, alleging grave abuse of discretion
in the issuance of orders compelling them to submit to arbitration proceedings despite being third
parties to the contract between Shangri-La and BF Corporation.28

In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners’ petition for certiorari. The
Court of Appeals ruled that ShangriLa’s directors were necessary parties in the arbitration
proceedings.30 According to the Court of Appeals:

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

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

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

WHEREFORE, the petition is DISMISSED. The assailed orders dated July 28, 2003 and January 19,
2005 of public respondent RTC, Branch 157, Pasig City, in Civil Case No. 63400, are AFFIRMED.33

The Court of Appeals denied petitioners’ motion for reconsideration in the October 5, 2006
resolution.34

On November 24, 2006, petitioners filed a petition for review of the May 11, 2006 Court of Appeals
decision and the October 5, 2006 Court of Appeals resolution.35

The issue in this case is whether petitioners should be made parties to the arbitration proceedings,
pursuant to the arbitration clause provided in the contract between BF Corporation and Shangri-La.

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

Petitioners also argue that they are third parties to the contract between BF Corporation and
Shangri-La.40Provisions including arbitration stipulations should bind only the parties.41 Based on our
arbitration laws, parties who are strangers to an agreement cannot be compelled to arbitrate.42
Petitioners point out thatour arbitration laws were enacted to promote the autonomy of parties in
resolving their disputes.43 Compelling them to submit to arbitration is against this purpose and may
be tantamount to stipulating for the parties.44

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

Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos agreed with petitioners that
Shangri-La’sdirectors, being non-parties to the contract, should not be made personally liable for
Shangri-La’s acts.46 Since the contract was executed only by BF Corporation and Shangri-La, only
they should be affected by the contract’s stipulation.47 BF Corporation also failed to specifically allege
the unlawful acts of the directors that should make them solidarily liable with Shangri-La for its
obligations.48

Meanwhile, in its comment, BF Corporation argued that the courts’ ruling that the parties should
undergo arbitration "clearly contemplated the inclusion of the directors of the corporation[.]"49 BF
Corporation also argued that while petitioners were not parties to the agreement, they were still
impleaded under Section 31 of the Corporation Code.50Section 31 makes directors solidarily liable for
fraud, gross negligence, and bad faith.51 Petitioners are not really third parties to the agreement
because they are being sued as Shangri-La’s representatives, under Section 31 of the Corporation
Code.52

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

In the manifestation dated September 6, 2007, petitioners informed the court that the Arbitral
Tribunal had already promulgated its decision on July 31, 2007.55 The Arbitral Tribunal denied BF
Corporation’s claims against them.56Petitioners stated that "[they] were included by the Arbitral
Tribunal in the proceedings conducted . . . notwithstanding [their] continuing objection thereto. . .
."57 They also stated that "[their] unwilling participation in the arbitration case was done ex abundante
ad cautela, as manifested therein on several occasions."58 Petitioners informed the court that they
already manifested with the trial court that "any action taken on [the Arbitral Tribunal’s decision]
should be without prejudice to the resolution of [this] case."59

Upon the court’s order, petitioners and Shangri-La filed their respective memoranda. Petitioners and
Maximo G. Licauco III, Alfredo C. Ramos, and Benjamin C. Ramos reiterated their arguments that
they should not be held liable for Shangri-La’s default and made parties to the arbitration
proceedings because only BF Corporation and Shangri-La were parties to the contract.

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

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

memorandum.

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

The petition must fail.

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

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

While under the circumstances a ruling on the merits of the petition for certiorari is notwarranted,
still, as set forth at the opening of this opinion, the fact that this case is moot and academic should
not preclude this Tribunal from setting forth in language clear and unmistakable, the obligation of
fidelity on the part of lower court judges to the unequivocal command of the Constitution that
excessive bail shall not be required.67

This principle was repeated in subsequent cases when this court deemed it proper to clarify
important matters for guidance.68

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

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

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

As a corollary to the question regarding the existence of an arbitration agreement, defendant raises
the issue that, even if it be granted that it agreed to submit its dispute with plaintiff to arbitration, said
agreement is void and without effect for it amounts to removing said dispute from the jurisdiction of
the courts in which the parties are domiciled or where the dispute occurred. It is true that there are
authorities which hold that "a clause in a contract providing that all matters in dispute between the
parties shall be referred to arbitrators and to them alone, is contrary to public policy and cannot oust
the courts of jurisdiction" (Manila Electric Co. vs. Pasay Transportation Co., 57 Phil., 600, 603),
however, there are authorities which favor "the more intelligent view that arbitration, as an
inexpensive, speedy and amicable method of settling disputes, and as a means of avoiding litigation,
should receive every encouragement from the courts which may be extended without contravening
sound public policy or settled law" (3 Am. Jur., p. 835). Congress has officially adopted the modern
view when it reproduced in the new Civil Code the provisions of the old Code on Arbitration. And
only recently it approved Republic Act No. 876 expressly authorizing arbitration of future
disputes.72 (Emphasis supplied)
In view of our policy to adopt arbitration as a manner of settling disputes, arbitration clauses are
liberally construed to favor arbitration. Thus, in LM Power Engineering Corporation v. Capitol
Industrial Construction Groups, Inc.,73 this court said:

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

Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods,
courts should liberally construe arbitration clauses. Provided such clause is susceptible of an
interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any doubt
should be resolved in favor of arbitration.74(Emphasis supplied)

A more clear-cut statement of the state policy to encourage arbitration and to favor interpretations
that would render effective an arbitration clause was later expressed in Republic Act No. 9285:75

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

....

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

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

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

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

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

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

2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate ofincorporation;

3. To adopt and use a corporate seal;

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

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

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

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

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

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

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

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

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

A consequence of a corporation’s separate personality is that consent by a corporation through its

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

Hence, a corporation’s representatives are generally not bound by the terms of the contract
executed by the corporation. They are not personally liable for obligations and liabilities incurred on
or in behalf of the corporation.

Petitioners are also correct that arbitration promotes the parties’ autonomy in resolving their
disputes. This court recognized in Heirs of Augusto Salas, Jr. v. Laperal Realty Corporation79 that an
arbitration clause shall not apply to persons who were neither parties to the contract nor assignees
of previous parties, thus:

A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on

arbitration, binds the parties thereto, as well as their assigns and heirs. But only they.80 (Citations
omitted)

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

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

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

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

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

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

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

Among the persons who may be treatedas the corporation itself under certain circumstances are its
directors and officers. Section 31 of the Corporation Code provides the instances when directors,
trustees, or officers may become liable for corporate acts:
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly
vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or
bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its stockholders or members and other
persons.

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

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

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

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

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

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

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

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

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

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

In that case, complainants have no choice but to institute only one proceeding against the
parties. Under the Rules of Court, filing of multiple suits for a single cause of action is prohibited.
1âwphi1

Institution of more than one suit for the same cause of action constitutes splitting the cause of action,
which is a ground for the dismissal ofthe others. Thus, in Rule 2:

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

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

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

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

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

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

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

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

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

SO ORDERED.

MARVIC M.V.F. LEONEN

Associate Justice