FIRST DIVISION

[G.R. NO. 141818 : June 22, 2006]

INSULAR SAVINGS BANK, Petitioner, v. FAR EAST BANK AND TRUST

COMPANY, Respondent.

Judiciarys Action on ADR

1. Far East Bank and Trust Company (FEBTC) filed a complaint against Home
Bankers Trust and Company (HBTC) with the Philippine Clearing House
Corporation's (PCHC) Arbitration Committee.

2. FEBTC sought to recover from the petitioner, the sum of P25,200,000.00

representing the total amount of the three checks drawn and debited against
its clearing account. HBTC sent these checks to respondent for clearing by
operation of the PCHC clearing system. Thereafter, FEBTC dishonored the
checks for insufficiency of funds and returned the checks to HBTC. However,
the latter refused to accept them since the checks were returned after the
reglementary regional clearing period.

3. Before the termination of the arbitration proceedings, FEBTC filed another

complaint with the RTC for Sum of Money and Damages with Preliminary
Attachment.

4. Aware of the arbitration proceedings between respondent and petitioner, the

RTC suspended the proceedings in the case against all the defendants
pending the decision of the Arbitration Committee.

5. PCHC Arbitration Committee rendered its decision in favor of FEBTC. The

motion for reconsideration filed by petitioner was denied by the Arbitration
Committee.

6. Consequently, to appeal the decision of the Arbitration Committee, petitioner

filed a Petition for Review. In an order, the RTC directed both petitioner and
respondent to file their respective memoranda, after which, said petition
would be deemed submitted for resolution.

7. Petitioner filed a Motion to Dismiss Petition for Review for Lack of Jurisdiction.
RTC rendered the dismissal of the petition. The RTC denied petitioner's
motion for reconsideration, hence, this petition.
 8. Petitioner contends that the civil case was merely suspended to await the
outcome of the arbitration and need not be docketed as a separate action.

ISSUE:

Whether or not RTC erred in dismissing the petition for lack of jurisdiction on
the ground that it should have been docketed as a separate case?

RULING:

The Philippine Clearing House Corporation was created to facilitate the

clearing of checks of member banks. Among these member banks exists
a compromissoire, or an arbitration agreement embedded in their contract
wherein they consent that any future dispute or controversy between its
PCHC participants involving any check would be submitted to the
Arbitration Committee for arbitration. Petitioner and respondent are members
of PCHC, thus they underwent arbitration proceedings.

The PCHC has its own Rules of Procedure for Arbitration (PCHC Rules).
However, this is governed by Republic Act No. 876, also known as The Arbitration
Law and supplemented by the Rules of Court.

As provided in the PCHC Rules, the findings of facts of the decision or award
rendered by the Arbitration Committee shall be final and conclusive upon all the
parties in said arbitration dispute. Under Article 2044 of the New Civil Code, the
validity of any stipulation on the finality of the arbitrators' award or decision is
recognized. However, 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. Consequently, the decision of the Arbitration
Committee is subject to judicial review.

Furthermore, petitioner had several judicial remedies available at its disposal

after the Arbitration Committee denied its Motion for Reconsideration. In this
instance, petitioner did not avail of any of the abovementioned remedies available
to it. Instead it filed a Petition for Review with the RTC where the civil case is
pending. Clearly, it erred in the procedure it chose for judicial review of the
arbitral award.

Consequently, the proper recourse of petitioner from the denial of its motion
for reconsideration by the Arbitration Committee is to file either a motion to vacate
the arbitral award with the RTC, a Petition for Review with the Court of Appeals
under Rule 43 of the Rules of Court, or a petition for certiorari under Rule 65 of the
Rules of Court. In the case at bar, petitioner filed a Petition for Review with the RTC
when the same should have been filed with the Court of Appeals under Rule 43 of
the Rules of Court. Thus, the RTC of Makati did not err in dismissing the
Petition for Review for lack of jurisdiction but not on the ground that
petitioner should have filed a separate case from Civil Case No. 92-145 but
on the necessity of filing the correct petition in the proper court.

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. 39 It must be
borne in mind that arbitration proceedings are mainly governed by the
Arbitration Law and suppletorily by the Rules of Court.

G.R. No. 174938, October 01, 2014

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

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

1. BF Corporation filed a collection complaint with the RTC against Shangri-La

and the members of its board of directors. BF Corporation alleged that 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 started defaulting in payment. 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. BF
Corporation alleged that despite repeated demands, Shangri-La refused to
pay the balance owed to it.
3. Shangri-Las directors 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 clause provided in its contract.
4. BF Corporation opposed the motion to suspend proceedings which was
denied by the RTC. Subsequently, CA and Supreme Court reversed and
ordered the submission of the dispute to arbitration.
5. Another issue arose as BF Corporation and Shangri-La failed to agree as to
the law that should govern the arbitration proceedings. RTC issued the order
directing the parties to conduct the proceedings in accordance with Republic
Act No. 876.
 6. Both parties sought to clarify the term, "parties," and whether Shangri-La's
directors should be included in the arbitration proceedings
7. Trial court issued the order directing service of demands for arbitration upon
all defendants in BF Corporation's complaint, including Shangri-La's
directors.
8. Petitioners filed a petition for certiorari with CA alleging grave abuse of
discretion in the issuance of orders compelling them to submit to arbitration
proceedings despite being third parties to the contract. CA dismissed
petitioners' petition for certiorari.
9. The Arbitral Tribunal's decision, absolving petitioners from liability, and its
binding effect on BF Corporation, have rendered this case moot and
academic.

Whether petitioners should be made parties to the arbitration proceedings despite

being third party to the contract?

RULING:

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. Thus, we rule that petitioners may be compelled to submit to the
arbitration proceedings in accordance with Shangri-La and BF Corporation's
agreement.

The Supreme Court reiterated that it 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. It was
later institutionalized by the approval of Republic Act No. 876, 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.: cralawred

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.

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:chanRoblesvirtualLawlibrary

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.

Thus, if there is an interpretation that would render effective an arbitration

clause for purposes of avoiding litigation and expediting resolution of the
dispute, that interpretation shall be adopted.

Furthermore, the 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. 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. 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.

However, in ruling that petitioners may be compelled to submit to the

arbitration proceedings, we are not overturning Heirs of Angus to 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 has also recognized that 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.

G.R. No. 212081, February 23, 2015

DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES

(DENR), Petitioner, v. UNITED PLANNERS CONSULTANTS, INC.
(UPCI), Respondent.

1. DENR, through the Land Management Bureau (LMB), entered into an

Agreement for Consultancy Services with UPCI in connection with the LMBs
Land Resource Management Master Plan Project (LRMMP). Under the
Consultancy Agreement, petitioner committed to pay total contract price of
P4,337,141.00, based on a predetermined percentage corresponding to the
particular stage of work accomplished.
2. UPCI completed the work required, which DENR formally accepted. However,
DENR was able to pay only 47% of the total contract price.Subsequently COA
released a report finding the contract price of the Agreement to be excessive.
3. For failure to pay its obligation under the Consultancy Agreement despite
repeated demands, UPCI instituted a Complaint against DENR before the RTC.
4. The case was subsequently referred to arbitration pursuant to the arbitration
clause of the Consultancy Agreement which petitioner did not oppose.
5. During the preliminary conference, the parties agreed to adopt the CIAC
Revised Rules Governing Construction Arbitration (CIAC Rules) to govern the
arbitration proceedings.
6. On the due date for submission of the draft decisions, however, only
respondent complied with the given deadline, while petitioner moved for
extension of time which was denied by the Arbitral Tribunal and deemed its
non-submission as a waiver. But declared that it would still consider
petitioners draft decision if submitted before May 7, 2010, or the expected
date of the final awards promulgation. Petitioner filed its draft decision23 only
on May 7, 2010.
7. The Arbitral Tribunal rendered its Award24 dated May 7, 2010 in favor of UPCI
8. Unconvinced, petitioner filed a motion for reconsideration, 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.
9. Consequently, petitioner filed before the RTC a Motion for Reconsideration
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.
10. RTC confirmed the Arbitral Award, from this order, petitioner did not
file a motion for reconsideration. Respondent moved for the issuance of a
writ of execution, to which no comment/opposition was filed by petitioner
despite the RTCs directive therefor. RTC granted respondents motion.
11. Petitioner moved to quash the writ of execution which was denied by
the RTC.
 12. RTC denied petitioners motion to quash. 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.
13. Dissatisfied, it filed a petition for certiorari48 before the CA, that the
RTC acted with grave abuse of discretion in confirming and ordering the
execution of the Arbitral Award. The CA dismissed the certiorari petition that
it was filed out of time, having been filed way beyond 15 days from notice of
the RTCs Order, in violation of Rule 19.2852 in relation to Rule 19.853 of said
Rules.Aggrieved, petitioner filed the instant petition.

The Issue Before the Court

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

The Courts Ruling

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.56cralawred

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.57cralawred

Rule 1.1 of the Special ADR Rules lists down the instances when the said rules shall
apply, such as to (b) Referral to Alternative Dispute Resolution (ADR)

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.60cralawred

In the case at bar, 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 provided grounds.

Moreover, the parties may appeal the final award to the CA through a petition for
review under Rule 43 of the Rules of Court.67cralawred

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, 68 Rule 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.

During the confirmation proceedings, petitioners did not oppose the RTCs
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
respondents 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.

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 awards execution.

Further, let it be clarified that contrary to petitioners 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 petitioners
filing of its certiorari petition in CA-G.R. SP No. 126458 was made nearly two
months after its receipt of the RTCs Order dated July 9, 2012, or on September 10,
2012,81 said petition was clearly dismissible.82cralawred

G.R. No. 198226, July 18, 2014

ABOITIZ TRANSPORT SYSTEM CORPORATION AND ABOITIZ SHIPPING

CORPORATION, Petitioners, v. CARLOS A. GOTHONG LINES, INC. AND VICTOR S.
CHIONGBIAN, Respondents.

G.R. NO. 198228

ABOITIZ TRANSPORT SYSTEM CORPORATION, Petitioner, v. CARLOS A. GOTHONG LINES, INC. AND
VICTOR S. CHIONGBIAN, Respondents.

1. ASC, CAGLI, and William Lines, Inc. (WLI), principally owned by the Aboitiz, Gothong, and
Chiongbian families, respectively, entered into an Agreement. In the said Agreement, ASC and
CAGLI agreed to transfer their shipping assets to WLI in exchange for the latters shares of capital
stock. The parties likewise agreed that WLI would run the merged shipping business and be
renamed WG&A, Inc.
2. Pertinently, Section 11.06 of the Agreement provides that all disputes arising out of or in connection
with the Agreement shall be finally settled by arbitration in accordance with Republic Act No. (RA)
876, and that each of the parties shall appoint one arbitrator, and the three arbitrators would then
appoint the fourth arbitrator who shall act as Chairman.
3. A letter from Chiongbian and addressed to Gothong, states that WLI committed to acquire from
CAGLIs inventory certain spare parts and materials not exceeding P400 Million. In this relation, a
valuation of CAGLIs inventory was conducted wherein it was shown that the same amounted to
P514 Million. But WLI only paid CAGLI the amount of P400 Million as agreed upon in the Agreement.
4. Dissatisfied, CAGLI sent to WLI various letters demanding that the latter pay or return the inventory
that it received in excess of P400 Million.
Red

5. Sometime in 2002, the Chiongbian and Gothong families decided to sell their respective interests in
WLI/WG&A to the Aboitiz family. Thereafter, the corporate name of WLI/WG&A was changed to
ATSC.
6. Six (6) years later, CAGLI sent a letter to ATSC demanding that the latter pay the excess inventory
it delivered to WLI. CAGLI likewise demanded AEV and Chiongbian that they refer their dispute to
arbitration. In response, AEV countered that the excess inventory had already been returned to
CAGLI and that it should not be included in the dispute, considering that it is an entity separate and
distinct from ATSC.
7. Thus, CAGLI was constrained to file a complaint and AEV to compel them to submit to arbitration.
8. RTC dismissed the complaint only with respect to AEV for lack of cause of action, but not as to the
other defendants. Thereafter, the RTC directed CAGLI, Chiongbian, ATSC, and ASC to proceed to
arbitration, and accordingly, the parties appointed their respective arbitrators.
 9. Meanwhile, ATSC filed a Motion for Reconsideration/To Exclude praying that respondent Chiongbian
be excluded from the arbitration proceedings since the latter was not a party to the Agreement.
10. Pending resolution of the said motion, CAGLI filed a Notice of Dismissal to withdraw its which was
granted by the RTC pursuant to Section of Rule 17 of Rules of Court. Dissatisfied, ATSC and ASC
moved for reconsideration which was, however, denied.
11. Separately, the RTC issued an Order, denying ATSCs Motion for Reconsideration/To Exclude, holding
that the issue raised in the said motion has been rendered moot and academic in view of the
confirmation of CAGLIs notice of dismissal. Hence, the instant petitions.

The Issues Before the Court

The issues for the Courts resolution are as follows: (a) whether or not the RTC was correct in confirming
CAGLIs notice of dismissal and, consequently, dismissing the case without prejudice; and (b) whether or not
respondent Chiongbian should be excluded from the arbitration proceedings.

The Courts Ruling

The petition is meritorious.

A. Propriety of CAGLIs Notice of Dismissal.

At the outset, the Court notes that the nature of the complaint filed by CAGLI before the RTC is for the
enforcement of an arbitration agreement, governed by Section 6 of RA 876.

In the case of Gonzales v. Climax Mining, Ltd. (Gonzales),29 the Court had instructed that the
special proceeding under the above-quoted provision is the procedural mechanism for the
enforcement of the contract to arbitrate. 30 RA 876 explicitly confines the courts authority only to pass
upon the issue of whether there is or there is no agreement in writing providing for arbitration. If there is
such agreement, the court shall issue an order summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof; otherwise, the proceeding shall be dismissed. 31 To stress,
such proceeding is merely a summary remedy to enforce the agreement to arbitrate and the duty of the
court is not to resolve the merits of the parties claims but only to determine if they should proceed to
arbitration or not.32
cralawred

In the present case, the records show that the primary relief sought for in CAGLIs complaint, i.e., to compel
the parties to submit to arbitration,33 had already been granted by the RTC through its Order34 dated
February 26, 2010. Undeniably, such Order partakes of a judgment on the merits of the complaint for the
enforcement of the arbitration agreement.

At this point, although no responsive pleading had been filed by ATSC, 35 it is the rules on appeal, or other
proceedings after rendition of a judgment or final order no longer those on notice of dismissal that come
into play. Verily, upon the rendition of a judgment or final order,36 the period before service of the answer or
of a motion for summary judgment, mentioned in Section 1 37 of Rule 17 of the Rules of Court when a notice
of dismissal may be filed by the plaintiff, no longer applies. As a consequence, a notice of dismissal filed by
the plaintiff at such judgment stage should no longer be entertained or confirmed.

In view of the foregoing, it was an error on the part of the RTC to have confirmed the notice of dismissal and
to have dismissed the complaint without prejudice.

B. Parties covered by Arbitration Proceedings.

Section 2 of RA 876 specifies who may be subjected to arbitration. In Gonzales, the Court explained that
[d]isputes do not go to arbitration unless and until the parties have agreed to abide by the
arbitrators decision. Necessarily, a contract is required for arbitration to take place and to be binding.38
Furthermore, in Del Monte Corporation USA v. Court of Appeals, 39 the Court stated that [t]he provision to
submit to arbitration any dispute arising therefrom and the relationship of the parties is part of that
contract. As a rule, contracts are respected as the law between the contracting parties and
produce effect as between them, their assigns and heirs.40 Succinctly put, only those parties
who have agreed to submit a controversy to arbitration who, as against each other, may be
compelled to submit to arbitration.
In the present case, Section 11.06 of the Agreement embodies the Arbitration Agreement among the
parties.The three parties to the Agreement and necessarily to the arbitration agreement embodied therein
are: (a) ASC, (b) CAGLI, and (c) WLI/WG&A/ATSC. Contracts, like the subject arbitration agreement,
take effect only between the parties, their assigns and heirs.42 Respondent Chiongbian, having merely
physically signed the Agreement as a representative of WLI, is not a party thereto and to the arbitration
agreement contained therein. Neither is he an assignee or an heir of any of the parties to the arbitration
agreement. Hence, respondent Chiongbian cannot be included in the arbitration proceedings.

SECOND DIVISION

G.R. No. 198075, September 04, 2013

KOPPEL, INC. (FORMERLY KNOWN AS KPL AIRCON, INC.), Petitioner, v. MAKATI ROTARY CLUB
FOUNDATION, INC., Respondent.

1. Fedders Koppel, Incorporated (FKI), a manufacturer of air-conditioning products, was the registered
owner of a parcel of land located in Paraaque City (subject land) including buildings and other
improvements. In 1975, FKI5 bequeathed the subject land (exclusive of the improvements thereon)
in favor of Makati Rotary Club Foundation by way of a conditional donation. The respondent
accepted the donation with all of its conditions.
2. One of the conditions of the donation required the Makati Rotary to lease the subject land back to
FKI under terms specified in their Deed of Donation. The Deed of Donation also stipulated that the
lease over the subject property is renewable for another period of twenty-five (25) years upon
mutual agreement of FKI and the respondent. In which case, the amount of rent shall be
determined in accordance with item 2(g) of the Deed of Donation and in case disagreement the
matter shall be referred to a Board of three Arbitrators appointed and with powers in accordance
with the Arbitration Law of the Philippines, Republic Act 878.
3. FKI and respondent executed another contract of lease (2000 Lease Contract and 2005 Lease
Contract) covering the subject land both containing the arbitration clause.
4. FKI sold all its rights and properties relative to its business in favor of Koppel and executed
an Assignment and Assumption of Lease and Donation assigning all of its interests and obligations
under the Amended Deed of Donation and the 2005 Lease Contract in favor of petitioner.
5. Koppel discontinued the payment of the rent and donation under the 2005 Lease Contract that the
rental stipulations of the 2005 Lease Contract, and even of the 2000 Lease Contract, cannot be
given effect because they violated one of the material conditions of the donation of the subject
land. For petitioner, the rental stipulations of both the 2000 Lease Contract and 2005 Lease
Contract cannot be enforced as they are clearly, in view of their exorbitant exactions.
6. Respondent sent demand letters and further intimated of cancelling the 2005 Lease Contract should
petitioner fail to settle the said obligations.
7. Petitioner refused to comply with the demands of the respondent. Instead, petitioner filed with the
RTC a complaint for the rescission or cancellation of the Deed of Donation and Amended Deed of
Donation against the respondent.
8. On the other hand, respondent filed an unlawful detainer case 43 against the petitioner before the
MeTC. In answer, petitioner, contends among others, the lack of jurisdiction of MeTC until the
disagreement between the parties is first referred to arbitration pursuant to the arbitration clause of
the 2005 Lease Contract.
9. MeTC refused to dismiss the action on the ground that the dispute is subject to arbitration, it
nonetheless sided with the petitioner. RTC reversed the MeTC and ordered the eviction of the
petitioner from the subject land.
10. Petitioner appealed to the Court of Appeals which affirmed the decision of the RTC.

Curiously, despite the lucidity of the arbitration clause of the 2005 Lease Contract, the petitioner, as well as
the MeTC, RTC and the Court of Appeals, vouched for the non-application of the same in the instant case
 OUR RULING

Independently of the merits of the case, the MeTC, RTC and Court of Appeals all erred in overlooking the
significance of the arbitration clause incorporated in the 2005 Lease Contract. As the Court sees it, that is a
fatal mistake.

Present Dispute is Arbitrable Under the Arbitration Clause of the 2005 Lease Agreement
Contract

One cannot escape the conclusion that, under the foregoing premises, the dispute between the petitioner
and respondent arose from the application or execution of the 2005 Lease Contract. Undoubtedly, such kinds
of dispute are covered by the arbitration clause of the 2005 Lease Contract to wit: chanrobles virtua1aw 1ibrary

19. Governing Law The provisions of this [2005 Lease Contract] shall be governed, interpreted and
construed in all aspects in accordance with the laws of the Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this [2005 Lease Contract]
shall be submitted to a board of three (3) arbitrators constituted in accordance with the
arbitration law of the Philippines. The decision of the majority of the arbitrators shall be binding
upon [FKI and respondent].69 (Emphasis supplied)

To the mind of this Court, such stipulation is clear and is comprehensive enough so as to include
virtually any kind of conflict or dispute that may arise from the 2005 Lease Contract including the one that
presently besets petitioner and respondent. The application of the arbitration clause of the 2005 Lease
Contract in this case carries with it certain legal effects.

Having hurdled all the challenges against the application of the arbitration clause of the 2005
Lease Agreement in this case, We shall now proceed with the discussion of its legal effects.

The Court in Gonzales held that a panel of arbitrator is bereft of jurisdiction over the complaint for
declaration of nullity/or termination of the subject contracts on the grounds of fraud and oppression
attendant to the execution of the addendum contract and the other contracts emanating from it, and that
the complaint should have been filed with the regular courts as it involved issues which are judicial in
nature. However, it did not simply base its rejection of the complaint for arbitration on the ground that the
issue raised therein, i.e., the validity of contracts, is per se non-arbitrable. The real consideration behind the
ruling was the limitation that was placed by R.A. No. 7942 upon the jurisdiction of the PA-MGB as
an arbitral body. Gonzales rejected the complaint for arbitration because the issue raised therein is not
a mining dispute per R.A. No. 7942 and it is for this reason, and only for this reason, that such issue is
rendered non-arbitrable before the PA-MGB.

Second. Furthermore, petitioner may still invoke the arbitration clause of the 2005 Lease
Contract notwithstanding the fact that it assails the validity of such contract. This is due to the doctrine of
separability. Under the doctrine of separability, an arbitration agreement is considered as independent of the
ra

main contract.92 Being a separate contract in itself, the arbitration agreement may thus be invoked
regardless of the possible nullity or invalidity of the main contract. 93
cralaw virtualaw library

Third. The operation of the arbitration clause in this case is not at all defeated by the failure of the
petitioner to file a formal request or application therefor with the MeTC. We find that the filing of a
request pursuant to Section 24 of R.A. No. 9285 is not the sole means by which an arbitration clause may
be validly invoked in a pending suit. The request referred to in the above provision is, in turn,
implemented by the Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules).

Attention must be paid to the salient wordings of Rule 4.1. It reads: [a] party to a pending action
filed in violation of the arbitration agreement x x x may request the court to refer the parties to arbitration
in accordance with such agreement. In using the word may to qualify the act of filing a request under
Section 24 of R.A. No. 9285, the Special ADR Rules clearly did not intend to limit the invocation of
an arbitration agreement in a pending suit solely via such request. After all, non-compliance
with an arbitration agreement is a valid defense to any offending suit and, as such, may even be
raised in an answer as provided in our ordinary rules of procedure.95 cralaw virtualaw library

In this case, it is conceded that petitioner was not able to file a separate request of arbitration
before the MeTC. However, it is equally conceded that the petitioner, as early as in its Answer with
Counterclaim, had already apprised the MeTC of the existence of the arbitration clause in the 2005 Lease
Contract96 and, more significantly, of its desire to have the same enforced in this case. 97 This act of petitioner
is enough valid invocation of his right to arbitrate.

Fourth. The fact that the petitioner and respondent already underwent through JDR proceedings before the
RTC, will not make the subsequent conduct of arbitration between the parties unnecessary or circuitous. The
JDR system is substantially different from arbitration proceedings. The failure of the parties in conflict to
reach an amicable settlement before the JDR may, in fact, be supplemented by their resort to arbitration
where a binding resolution to the dispute could finally be achieved. This situation precisely finds application
to the case at bench.

Since there really are no legal impediments to the application of the arbitration clause of
the 2005 Contract of Lease in this case, We find that the instant unlawful detainer action was
instituted in violation of such clause. R.A 876, therefore, should have governed the fate of the parties. 1ibrary

It is clear that under the law, the instant unlawful detainer action should have been stayed; 101 the petitioner
and the respondent should have been referred to arbitration pursuant to the arbitration clause of the 2005
Lease Contract. The MeTC, however, did not do so in violation of the lawwhich violation was, in turn,
affirmed by the RTC and Court of Appeals on appeal.

The violation by the MeTC of the clear directives under R.A. Nos. 876 and 9285 renders invalid all
proceedings it undertook in the ejectment case after the filing by petitioner of its Answer with Counterclaim
the point when the petitioner and the respondent should have been referred to arbitration. This case must,
therefore, be remanded to the MeTC and be suspended at said point. Inevitably, the decisions of the MeTC,
RTC and the Court of Appeals must all be vacated and set aside.

The petitioner and the respondent must then be referred to arbitration pursuant to the arbitration clause of
the 2005 Lease Contract.

[G.R. NO. 126619 : December 20, 2006]

UNIWIDE SALES REALTY AND RESOURCES CORPORATION, Petitioner, v. TITAN-IKEDA

CONSTRUCTION AND DEVELOPMENT CORPORATION, Respondent.

1. The case originated from an action for a sum of money filed by Titan-Ikeda Construction and
Development Corporation (Titan) against Uniwide Sales Realty and Resources Corporation (Uniwide)
with the RTC arising from Uniwide's non-payment of certain claims billed by Titan after completion
of three projects covered by agreements they entered into with each other.

2. Upon Uniwide's motion to dismiss/suspend proceedings and Titan's open court manifestation
agreeing to the suspension, the civil case was suspended for it to undergo arbitration.

3. Titan's complaint was thus re-filed with the CIAC. Before the CIAC, Uniwide filed an answer which
was later amended and re-amended, denying the material allegations of the complaint, with
counterclaims for refund of overpayments, actual and exemplary damages, and attorney's fees. The
agreements between Titan and Uniwide are briefly described below.

4. An Arbitral Tribunal consisting of a chairman and two members was created in accordance with the
CIAC Rules of Procedure Governing Construction Arbitration. It conducted a preliminary conference
with the parties and thereafter issued a Terms of Reference (TOR) which was signed by the parties.
The tribunal also conducted an ocular inspection, hearings, and received the evidence of the parties
consisting of affidavits which were subject to cross-examination. Arbitral Tribunal promulgated a
Decision.
 5. Uniwide filed a motion for reconsideration which was denied by the CIAC. It accordingly filed a
Petition for Review with the Court of Appeals which was likewise denied by the Court of Appeals.

6. Hence, Uniwide comes to this Court via a Petition for Review under Rule 45. The issues submitted
for resolution of this Court are as follows:15 (1) Whether Uniwide is entitled to a return of the
amount it allegedly paid by mistake to Titan for additional works done on Project 1; (2) Whether
Uniwide is liable for the payment of the Value-Added Tax (VAT) on Project 1; (3) Whether Uniwide is
entitled to liquidated damages for Projects 1 and 3; and (4) Whether Uniwide is liable for
deficiencies in Project 2.

RULING:

As a rule, findings of fact of administrative agencies and quasi-judicial bodies, which have acquired
expertise because their jurisdiction is confined to specific matters, are generally accorded not only respect,
but also finality, especially when affirmed by the Court of Appeals. 16 In particular, factual findings of
construction arbitrators are final and conclusive and not reviewable by this Court on appeal. 17 This rule,
however admits of certain exceptions.

In David v. Construction Industry and Arbitration Commission,18 we ruled that, as exceptions, factual
findings of construction arbitrators may be reviewed by this Court when the petitioner proves affirmatively
that: (1) the award was procured by corruption, fraud or other undue means; (2) there was evident
partiality or corruption of the arbitrators or of any of them; (3) the arbitrators were guilty of misconduct in
refusing to hear evidence pertinent and material to the controversy; (4) one or more of the arbitrators were
disqualified to act as such under Section nine of Republic Act No. 876 and willfully refrained from disclosing
such disqualifications or of any other misbehavior by which the rights of any party have been materially
prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual,
final and definite award upon the subject matter submitted to them was not made. 19

Other recognized exceptions are as follows: (1) when there is a very clear showing of grave abuse of
discretion20 resulting in lack or loss of jurisdiction as when a party was deprived of a fair opportunity to
present its position before the Arbitral Tribunal or when an award is obtained through fraud or the corruption
of arbitrators,21 (2) when the findings of the Court of Appeals are contrary to those of the CIAC, 22 and (3)
when a party is deprived of administrative due process.23

In the present case, only the first issue presented for resolution of this Court is a question of law
while the rest are factual in nature. However, we do not hesitate to inquire into these factual issues for the
reason that the CIAC and the Court of Appeals, in some matters, differed in their findings.

We now proceed to discuss the issues in seriatim.

Payment by Mistake for Project 1

Liability for the Value-Added Tax (VAT)

Uniwide insists that the CIAC should have applied Section 5, Rule 10 of the Rules of Court. 40 On
this matter, the Court of Appeals held that the CIAC is an arbitration body, which is not
necessarily bound by the Rules of Court.

Furthermore, Uniwide asserts, the CIAC should have applied procedural rules such as Section 5, Rule 10
with more liberality because it was an administrative tribunal free from the rigid technicalities of regular
courts.42
On this point, the CIAC held:

The Rule of Procedure Governing Construction Arbitration promulgated by the CIAC contains no provision on
the application of the Rules of Court to arbitration proceedings, even in a suppletory capacity. Hypothetically
admitting that there is such a provision, suppletory application is made only if it would not contravene a
specific provision in the arbitration rules and the spirit thereof. The Tribunal holds that such importation of
the Rules of Court provision on amendment to conform to evidence would contravene the spirit,
if not the letter of the CIAC rules. This is for the reason that the formulation of the Terms of Reference is
done with the active participation of the parties and their counsel themselves. The TOR is further required to
be signed by all the parties, their respective counsel and all the members of the Arbitral Tribunal. Unless the
issues thus carefully formulated in the Terms of Reference were expressly showed [sic] to be amended,
issues outside thereof may not be resolved. As already noted in the Decision, "no attempt was ever made by
the [Uniwide] to modify the TOR in order to accommodate the issues related to its belated counterclaim" on
this issue. (Emphasis supplied.)

Arbitration has been defined as "an arrangement for taking and abiding by the judgment of selected persons
in some disputed matter, instead of carrying it to established tribunals of justice, and is intended to avoid
the formalities, the delay, the expense and vexation of ordinary litigation." 43Voluntary arbitration, on the
other hand, involves the reference of a dispute to an impartial body, the members of which are chosen by
the parties themselves, which parties freely consent in advance to abide by the arbitral award issued after
proceedings where both parties had the opportunity to be heard. The basic objective is to provide a speedy
and inexpensive method of settling disputes by allowing the parties to avoid the formalities, delay, expense
and aggravation which commonly accompany ordinary litigation, especially litigation which goes through the
entire hierarchy of courts.44 As an arbitration body, the CIAC can only resolve issues brought before it by the
parties through the TOR which functions similarly as a pre-trial brief. Thus, if Uniwide's claim for liquidated
damages was not raised as an issue in the TOR or in any modified or amended version of it, the CIAC cannot
make a ruling on it. The Rules of Court cannot be used to contravene the spirit of the CIAC rules, whose
policy and objective is to "provide a fair and expeditious settlement of construction disputes through a non-
judicial process which ensures harmonious and friendly relations between or among the parties." 45

Further, a party may not be deprived of due process of law by an amendment of the complaint as provided
in Section 5, Rule 10 of the Rules of Court. In this case, as noted by the Court of Appeals, Uniwide only
introduced and quantified its claim for liquidated damages in its memorandum submitted to the CIAC at the
end of the arbitration proceeding. Verily, Titan was not given a chance to present evidence to counter
Uniwide's claim for liquidated damages.

It is worthy to stress our ruling in Hi-Precision Steel Center, Inc. v. Lim Kim Steel Builders, Inc. 54which was
reiterated in David v. Construction Industry and Arbitration Commission,55 that:

x x x Executive Order No. 1008 created an arbitration facility to which the construction industry in the
Philippines can have recourse. The Executive Order was enacted to encourage the early and
expeditious settlement of disputes in the construction industry, a public policy the
implementation of which is necessary and important for the realization of national development
goals.

Aware of the objective of voluntary arbitration in the labor field, in the construction industry, and in any
other area for that matter, the Court will not assist one or the other or even both parties in any effort to
subvert or defeat that objective for their private purposes. The Court will not review the factual findings of
an arbitral tribunal upon the artful allegation that such body had "misapprehended facts" and will not pass
upon issues which are, at bottom, issues of fact, no matter how cleverly disguised they might be as "legal
questions." The parties here had recourse to arbitration and chose the arbitrators themselves; they must
have had confidence in such arbitrators. The Court will not, therefore, permit the parties to relitigate before
it the issues of facts previously presented and argued before the Arbitral Tribunal, save only where a clear
showing is made that, in reaching its factual conclusions, the Arbitral Tribunal committed an error so
egregious and hurtful to one party as to constitute a grave abuse of discretion resulting in lack or loss of
jurisdiction. Prototypical examples would be factual conclusions of the Tribunal which resulted in deprivation
of one or the other party of a fair opportunity to present its position before the Arbitral Tribunal, and an
award obtained through fraud or the corruption of arbitrators. Any other, more relaxed rule would result in
setting at naught the basic objective of a voluntary arbitration and would reduce arbitration to a largely
inutile institution. (Emphasis supplied.)

[G.R. No. 175404 : January 31, 2011]

CARGILL PHILIPPINES, INC., PETITIONER, VS. SAN FERNANDO REGALA TRADING, INC.,
RESPONDENT.

1. San Fernando Regala Trading, Inc. filed with the RTC a Complaint for Rescission of Contract with
Damages[3] against Cargill Philippines, Inc. It alleged that it was engaged in buying and selling of
molasses and petitioner was one of its various sources from whom it purchased molasses.
2. it entered into a contract with petitioner, wherein it was agreed upon that respondent would
purchase from petitioner 12,000 metric tons of Thailand origin cane blackstrap molasses at the price
of US$192 per metric ton. Petitioner, as seller, failed to comply with its obligations under the
contract, despite demands from respondent, thus, the latter prayed for rescission of the contract
and payment of damages.
3. Petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary
Arbitration,[4] wherein it argued that the alleged contract between the parties was never
consummated because respondent never returned the proposed agreement bearing its written
acceptance or conformity nor did respondent open the Irrevocable Letter of Credit at sight.
Petitioner contended that the controversy between the parties was whether or not the alleged
contract between the parties was legally in existence and the RTC was not the proper forum to
ventilate such issue. It claimed that the contract contained an arbitration clause, that respondent
must first comply with the arbitration clause before resorting to court, thus, the RTC must either
dismiss the case or suspend the proceedings and direct the parties to proceed with arbitration,
pursuant to R.A. No. 876, or the Arbitration Law.
4. Respondent argued that the RTC has jurisdiction over the action for rescission of contract and could
not be changed by the subject arbitration clause. It cited cases wherein arbitration clauses, such as
the subject clause in the contract, had been struck down as void for being contrary to public policy
since it provided that the arbitration award shall be final and binding on both parties, thus, ousting
the courts of jurisdiction.
5. RTC rendered an Order denying petitioners motion. The RTC said that the provision directed the
court concerned only to stay the action or proceeding brought upon an issue arising out of an
agreement providing for the arbitration thereof, but did not impose the sanction of dismissal.
However, the RTC did not find the suspension of the proceedings warranted, since the arbitration
clause in question contravened these procedures, i.e., the arbitration clause contemplated an
arbitration proceeding in New York before a non-resident arbitrator (American Arbitration
Association); that the arbitral award shall be final and binding on both parties. The RTC said that to
apply Section 7 of the Arbitration Law to such an agreement would result in disregarding the other
sections of the same law and rendered them useless and mere surplusages.
6. Petitioner filed a petition for certiorari with the CA which denied the same and affirming the RTC
Orders. However, the CA did not find illegal or against public policy the arbitration clause so as to
render it null and void or ineffectual. Hence, this petition.

Petitioner alleges that the CA committed an error of law in ruling that arbitration cannot proceed
despite the fact that: (a) it had ruled, in its assailed decision, that the arbitration clause is valid,
enforceable and binding on the parties;

We now proceed to the substantive issue of whether the CA erred in finding that this case cannot be brought
under the arbitration law for the purpose of suspending the proceedings in the RTC.

RULING:

Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in
our jurisdiction.[16] R.A. No. 876[17] authorizes arbitration of domestic disputes. Foreign arbitration, as a
system of settling commercial disputes of an international character, is likewise recognized. [18] The
enactment of R.A. No. 9285 on April 2, 2004 further institutionalized the use of alternative dispute resolution
systems, including arbitration, in the settlement of disputes. [19]

A contract is required for arbitration to take place and to be binding. [20] Submission to arbitration is a
contract [21] and a clause in a contract providing that all matters in dispute between the parties shall be
referred to arbitration is a contract.[22] The provision to submit to arbitration any dispute arising therefrom
and the relationship of the parties is part of the contract and is itself a contract. [23]

In this case, the contract sued upon by respondent provides for an arbitration clause.

Applying the Gonzales ruling, an arbitration agreement which forms part of the main contract shall not be
regarded as invalid or non-existent just because the main contract is invalid or did not come into existence,
since the arbitration agreement shall be treated as a separate agreement independent of the main contract.
To reiterate. a contrary ruling would suggest that a party's mere repudiation of the main contract is sufficient
to avoid arbitration and that is exactly the situation that the separability doctrine sought to avoid. Thus, we
find that even the party who has repudiated the main contract is not prevented from enforcing its arbitration
clause.

Moreover, it is worthy to note that respondent filed a complaint for rescission of contract and damages with
the RTC. In so doing, respondent alleged that a contract exists between respondent and petitioner. It is that
contract which provides for an arbitration clause which states that "any dispute which the Buyer and Seller
may not be able to settle by mutual agreement shall be settled before the City of New York by the American
Arbitration Association. The arbitration agreement clearly expressed the parties' intention that any dispute
between them as buyer and seller should be referred to arbitration. It is for the arbitrator and not the
courts to decide whether a contract between the parties exists or is valid.

Respondents argument is misplaced and respondent cannot rely on the Gonzales case to support its
argument.

In Gonzales, we affirmed the CA's finding that the Panel of Arbitrators who, under R.A. No. 7942 of the
Philippine Mining Act of 1995, has exclusive and original jurisdiction to hear and decide mining disputes,
such as mining areas, mineral agreements, FTAAs or permits and surface owners, occupants and
claimholders/concessionaires, is bereft of jurisdiction over the complaint for declaration of nullity of the
addendum contract; thus, the Panels' jurisdiction is limited only to those mining disputes which raised
question of facts or matters requiring the technical knowledge and experience of mining authorities. We
found that since the complaint filed before the DENR Panel of Arbitrators charged respondents with
disregarding and ignoring the addendum contract, and acting in a fraudulent and oppressive manner against
petitioner, the complaint filed before the Panel was not a dispute involving rights to mining areas, or was it a
dispute involving claimholders or concessionaires, but essentially judicial issues. We then said that the Panel
of Arbitrators did not have jurisdiction over such issue, since it does not involve the application of technical
knowledge and expertise relating to mining. It is in this context that we said that:

Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the parties
as to some provisions of the contract between them, which needs the interpretation and the application of
that particular knowledge and expertise possessed by members of that Panel. It is not proper when one of
the parties repudiates the existence or validity of such contract or agreement on the ground of fraud or
oppression as in this case. The validity of the contract cannot be subject of arbitration proceedings.
Allegations of fraud and duress in the execution of a contract are matters within the jurisdiction of the
ordinary courts of law. These questions are legal in nature and require the application and interpretation of
laws and jurisprudence which is necessarily a judicial function. [29]

In fact, We even clarified in our resolution on Gonzales' motion for reconsideration that "when we declared
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." We made such clarification in our resolution of
the motion for reconsideration after ruling that the parties in that case can proceed to arbitration under the
Arbitration Law, as provided under the Arbitration Clause in their Addendum Contract. cralaw

WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2006 and the Resolution dated
November 13, 2006 of the Court of Appeals in CA-G.R. SP No. 50304 are REVERSED and SET ASIDE. The
parties are hereby ORDERED to SUBMIT themselves to the arbitration of their dispute, pursuant to their
July 11, 1996 agreement. cralaw

SO ORDERED.

[G.R. NO. 146717 : May 19, 2006]

TRANSFIELD PHILIPPINES, INC., Petitioner, v. LUZON HYDRO

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

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 Decision 1 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

1. LHC claims that Transfield Philippines, Inc. (TPI) is guilty of forum-shopping

when it filed the several suits. 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 another civil case, and even asked for the
dismissal of the other case based on this ground. Moreover, TPI argues that
LHC is relitigating the very same causes of action in the ICC Case, and even
manifesting therein that it will present evidence earlier presented before the
arbitral tribunal.

2. 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

3. Said motion was opposed by LHC arguing that the respective memoranda of
the parties are sufficient for the Court to resolve the issue of forum-
shopping.

4. 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

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

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

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.

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.