Korea Tech vs.

RTC
Facts:

dishonored for the reason "PAYMENT STOPPED."

Petitioner Korea Technologies Co., Ltd. (KOGIES) is

a Korean corporation which is engaged in the
supply and installation of Liquefied Petroleum Gas
(LPG)

Cylinder

private

manufacturing

respondent

Pacific

plants,

while

General

Steel

Manufacturing Corp. (PGSMC) is a domestic

corporation. PGSMC and KOGIES executed a
Contract whereby KOGIES would set up an LPG
Cylinder Manufacturing Plant in Carmona, Cavite.
The contract was executed in the Philippines. The
parties executed, in Korea, an Amendment for
Contract No. KLP-970301 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. PGSMC entered into a Contract of
Lease 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. Subsequently, the
machineries, equipment, and facilities for the
manufacture of LPG cylinders were shipped,
delivered, and installed in the Carmona plant.
PGSMC paid KOGIES USD 1,224,000. However,
gleaned from the Certificate executed by the
parties, after the installation of the plant, the
initial operation could not be conducted as
PGSMC encountered financial difficulties affecting
the supply of materials, thus forcing the parties to
agree that KOGIES would be deemed to have
completely

complied

with

the

terms

and

conditions of the March 5, 1997 contract. For the

remaining

balance

of

USD306,000

for

the

installation and initial operation of the plant,

PGSMC issued two postdated checks: (1) BPI
Check No. 0316412 dated January 30, 1998 for
PhP4,500,000; and (2) BPI Check No. 0316413
dated March 30, 1998 for PhP4,500,000. When
KOGIES

deposited

the

checks,

these

were

KOGIES

sent

demand

letter

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 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. On June 1,
1998, PGSMC informed KOGIES that PGSMC was
canceling their Contract 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 AffidavitComplaint for Estafa docketed as I.S. No. 9803813 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 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 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. KOGIES averred that

The arbitration clause which stipulates that the

PGSMC violated Art. 15 of their Contract, as

arbitration must be done in Seoul, Korea in

amended, by unilaterally rescinding the contract

accordance with the Commercial Arbitration Rules

without resorting to arbitration. KOGIES also

of the KCAB, and that the arbitral award is final

asked that PGSMC be restrained from dismantling

and binding, is not contrary to public policy. In the

and transferring the machinery and equipment

1957 case ofEastboard Navigation Ltd. v. Juan

installed in the plant which the latter threatened

Ysmael and Co., Inc., this Court had occasion to

to do on July 4, 1998. On July 9, 1998, PGSMC

rule

filed an opposition to the TRO arguing that

differences and breaches of mutually agreed

KOGIES was not entitled to the TRO since Art. 15,

contractual terms is valid. In BF Corporation v.

the arbitration clause, was null and void for being

Court

against public policy as it ousts the local courts of

jurisdiction, arbitration has been held valid and

jurisdiction over the instant controversy.

Issue:

constitutional. Even before the approval on June

that

of

an

arbitration

Appeals,

we

clause

held

that

to

resolve

"[i]n

this

19, 1953 of Republic Act No. 876, this Court has

Whether or not arbitration clause is null and void

as being contrary to public policy and for ousting

countenanced the settlement of disputes through

arbitration. Republic Act No. 876 was adopted to

the courts of jurisdiction.

Held:
Petitioners contention is correct.

supplement the New Civil Code's provisions on

Established in this jurisdiction is the rule that the

Corporation v. Capitol Industrial Construction

law of the place where the contract is made

Groups, Inc., we declared that:

arbitration." And

in LM

Power

Engineering

governs. Lex loci contractus. The contract in this

Being

case was perfected here in the Philippines.

and amicable method of settling

Therefore, our laws ought to govern. Nonetheless,

disputes, arbitration along with

Art. 2044 of the Civil Code sanctions the validity

mediation,

of mutually agreed arbitral clause or the finality

negotiation is encouraged by

and binding effect of an arbitral award. Art. 2044

the Supreme Court. Aside from

provides, Any stipulation that the arbitrators'

unclogging

award or decision shall be final, is valid, without

arbitration

prejudice to Articles 2038, 2039 and 2040. The

resolution of disputes, especially

above

of the commercial kind. It is thus

compromise or an arbitral award, as applied to

regarded as the "wave of the

Art. 2044 pursuant to Art. 2043, may be voided,

future" in international civil and

rescinded, or annulled, but these would not

commercial

denigrate the finality of the arbitral award. The

aside a contractual agreement

arbitration clause was mutually and voluntarily

calling for arbitration between

agreed upon by the parties. It has not been

the

shown to be contrary to any law, or against

backward.

morals, good customs, public order, or public

Consistent

policy. There has been no showing that the

mentioned policy of encouraging

parties have not dealt with each other on equal

alternative

footing. We find no reason why the arbitration

methods, courts should liberally

clause should not be respected and complied with

construe

by both parties.

Provided

cited

refer

to

instances

where

an

inexpensive,

speedy

conciliation

judicial
also

dockets,

hastens

disputes.

parties would

with

the

Brushing

be a step

the

dispute

above-

resolution

arbitration
such

and

clauses.

clause

is

Arbitration clause not contrary to public

susceptible of an interpretation

policy

that covers the asserted dispute,

an order to arbitrate should be

granted. Any doubt should be

retroactive application of procedural laws does

resolved in favor of arbitration.40

not violate any personal rights because no vested

Having said that the instant arbitration clause is

not against public policy, we come to the

right has yet attached nor arisen from them.

(1) The RTC must refer to arbitration in proper

question on what governs an arbitration clause

cases

specifying that in case of any dispute arising from

Under Sec. 24, the RTC does not have jurisdiction

the contract, an arbitral panel will be constituted

over disputes that are properly the subject of

in a foreign country and the arbitration rules of

arbitration pursuant to an arbitration clause, and

the foreign country would govern and its award

mandates the referral to arbitration in such cases.

shall be final and binding.

(2) Foreign arbitral awards must be confirmed

RA 9285 incorporated the UNCITRAL Model

by the RTC

law

Foreign arbitral awards while mutually stipulated

to which we are a signatory

by the parties in the arbitration clause to be final

For domestic arbitration proceedings, we have

and binding are not immediately enforceable or

particular agencies to arbitrate disputes arising

cannot

from contractual relations. In case a foreign

35 43 of the UNCITRAL Model Law stipulates the

arbitral body is chosen by the parties, the

requirement

for

the

arbitration rules of

recognized

by

our

domestic

arbitration

be

implemented

immediately.

arbitral

award

competent

Sec.

to

court

be
for

bodies would not be applied. As signatory to the

enforcement, which court under Sec. 36 of the

Arbitration Rules of the UNCITRAL Model Law on

UNCITRAL Model Law may refuse recognition or

International Commercial Arbitration of the United

enforcement on the grounds provided for. RA

Nations Commission on International Trade Law

9285 incorporated these provisos to Secs. 42, 43,

(UNCITRAL) in the New York Convention on June

and 44 relative to Secs. 47 and 48.

21, 1985, the Philippines committed itself to be

It is now clear that foreign arbitral awards when

bound

even

confirmed by the RTC are deemed not as a

incorporated the Model Law in Republic Act No.

judgment of a foreign court but as a foreign

(RA) 9285, otherwise known as the Alternative

arbitral award, and when confirmed, are enforced

Dispute Resolution Act of 2004 entitled An Act to

as final and executory decisions of our courts of

Institutionalize the Use of an Alternative Dispute

law.

Resolution System in the Philippines and to

Thus, it can be gleaned that the concept of a final

Establish

Dispute

and binding arbitral award is similar to judgments

Resolution, and for Other Purposes, promulgated

or awards given by some of our quasi-judicial

on April 2, 2004. Secs. 19 and 20 of Chapter 4 of

bodies,

the Model Law are the pertinent provisions:

Commission and Mines Adjudication Board, whose

While RA 9285 was passed only in 2004, it

final judgments are stipulated to be final and

nonetheless applies in the instant case since it is

binding, but not immediately executory in the

a procedural law which has a retroactive effect.

sense that they may still be judicially reviewed,

Likewise,

for

upon the instance of any party. Therefore, the

arbitration before the KCAB on July 1, 1998 and it

final foreign arbitral awards are similarly situated

is still pending because no arbitral award has yet

in that they need first to be confirmed by the RTC.

been rendered. Thus, RA 9285 is applicable to the

(3) The RTC has jurisdiction to review

instant

by

the

the

Model

Office

KOGIES

case.

Law.

for

filed

Well-settled

We

have

Alternative

its

is

application

the

rule

that

like

the

National

Labor

Relations

foreign arbitral awards.

procedural laws are construed to be applicable to

Sec.

42

in

relation

to

Sec.

45

of RA

actions pending and undetermined at the time of

9285 designated and vested the RTC with specific

their passage, and are deemed retroactive in that

authority and jurisdiction to set aside, reject, or

sense and to that extent. As a general rule, the

vacate a foreign arbitral award on grounds

provided under Art. 34 (2) of the UNCITRAL Model

jurisdiction over our courts to review the awards.

Law.

For foreign or international arbitral awards which

Thus, while the RTC does not have jurisdiction

must first be confirmed by the RTC, the grounds

over disputes governed by arbitration mutually

for setting aside, rejecting or vacating the award

agreed upon by the parties, still the foreign

by the RTC are provided under Art. 34 (2) of the

arbitral award is subject to judicial review by the

UNCITRAL Model Law. For final domestic arbitral

RTC which can set aside, reject, or vacate it. In

awards, which also need confirmation by the RTC

this sense, what this Court held in Chung Fu

pursuant to Sec. 23 of RA 876 and shall be

Industries (Phils.), Inc. relied upon by KOGIES is

recognized as final and executory decisions of the

applicable insofar as the foreign arbitral awards,

RTC, they may only be assailed before the RTC

while final and binding, do not oust courts of

and vacated on the grounds provided under Sec.

jurisdiction since these arbitral awards are not

25 of RA 876.

absolute and without exceptions as they are still

(5) RTC decision of assailed foreign arbitral

judicially reviewable. Chapter 7 of RA 9285 has

award appealable

made it clear that all arbitral awards, whether

Sec. 46 of RA 9285 provides for an appeal before

domestic or foreign, are subject to judicial review

the CA as the remedy of an aggrieved party in

on specific grounds provided for.

cases where the RTC sets aside, rejects, vacates,

(4) Grounds for judicial review different in

domestic and foreign arbitral awards

modifies,

or

corrects

an

arbitral

award.

Thereafter, the CA decision may further be

The differences between a final arbitral award

appealed or reviewed before this Court through a

from an international or foreign arbitral tribunal

petition for review under Rule 45 of the Rules of

and an award given by a local arbitral tribunal are

Court.

the specific grounds or conditions that vest