LHC claims that Transfield Philippines, Inc.

(TPI) is guilty of forum-

TRANSFIELD PHILIPPINES INC V. LUZON HYDRO CORPORATION 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.

SPECIAL SECOND DIVISION
Luzon Hydro Corporation filed before the International Court of
Arbitration, International Chamber of Commerce (ICC) a request
G.R. No. 146717 May 19, 2006
for arbitration dated 3 November 2000 pursuant to the Turnkey
Contract between LHC and TPI;
TRANSFIELD PHILIPPINES, INC., Petitioner,
vs.
3. G.R. No. 146717, Transfield Philippines, Inc. v. Luzon Hydro
LUZON HYDRO CORPORATION, AUSTRALIA AND NEW
Corporation, Australia and New Zealand Banking Group
ZEALAND BANKING GROUP LIMITED and SECURITY BANK
Limited and Security Bank Corp. filed on 5 February 2001, which
CORPORATION, Respondents.
was an appeal by certiorari with prayer for TRO/preliminary
prohibitory and mandatory injunction, of the Court of Appeals
RESOLUTION
Decision dated 31 January 2001 in CA-G.R. SP No. 61901.

TINGA, J.:
a. CA-G.R. SP No. 61901 was a petition for review of the
Decision in Civil Case No. 00-1312, wherein TPI claimed
The adjudication of this case proved to be a two-stage process as its
that LHC’s call on the securities was premature
constituent parts involve two segregate but equally important issues. The
considering that the issue of default has not yet been
first stage relating to the merits of the case, specifically the question of
resolved with finality; the petition was however denied by
the propriety of calling on the securities during the pendency of the
the Court of Appeals;
arbitral proceedings, was resolved in favor of Luzon Hydro Corporation
(LHC) with the Court’s Decision1 of 22 November 2004. The second
b. Civil Case No. 00-1312 was a complaint for injunction
stage involving the issue of forum-shopping on which the Court required
with prayer for temporary restraining order and/or writ of
the parties to submit their respective memoranda2 is disposed of in this
preliminary injunction dated 5 November 2000, which
Resolution.
sought to restrain LHC from calling on the securities and
respondent banks from transferring or paying of the
The disposal of the forum-shopping charge is crucial to the parties to this
securities; the complaint was denied by the RTC.
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
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.1avvphil.net However, it does not resolve 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 SO ORDERED.

168. The Tribunal makes the following declarations: DANTE O. TINGA

Associate Justice
xxx
WE CONCUR:
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 REYNATO S. PUNO
claimed by TPI in respect of the drawdown of the securities. Associate Justice
Chairman
x x x.32
MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.
Finally, on 9 August 2005, the ICC Arbitral tribunal issued its Final Award, Associate Justice Asscociate Justice
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 MINITA V. CHICO-NAZARIO
Associate Justice
The fact that the ICC Arbitral tribunal included the proceeds of the
securities shows that it intended to make a final determination/award as ATTESTATION
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 I attest that the conclusions in the above Resolution were reached in
was released and Civil Case No. 04-332 was filed, TPI was not yet consultation before the case was assigned to the writer of the opinion of
authorized to seek the issuance of a writ of execution since the the Court’s Division.
quantification of the amounts due to TPI had not yet been settled by the
ICC Arbitral tribunal. Notwithstanding the fact that the amount of REYNATO S. PUNO
proceeds drawn on the securities was not disputed the application for the Associate Justice
enforcement of the Third Partial Award was precipitately filed. To repeat, Chairman, Second Division
the declarations made in the Third Partial Award do not constitute orders
for the payment of money. CERTIFICATION

Anent the claim of TPI that it was LHC which committed forum-shopping, Pursuant to Article VIII, Section 13 of the Constitution, and the Division
suffice it to say that its bare allegations are not sufficient to sustain the Chairman’s Attestation, it is hereby certified that the conclusions in the
charge. above Resolution were reached in consultation before the case was
assigned to the writer of the opinion of the Court.
WHEREFORE, the Court RESOLVES to DISMISS the charges of forum-
shopping filed by both parties against each other. ARTEMIO V. PANGANIBAN
Chief Justice
No pronouncement as to costs.

Footnotes
1
443 SCRA 307.
2 363 SCRA 207, 217.
Resolution dated 27 April 2005, rollo, 1213-1219.
3 14Korea Exchange Bank v. Hon. Rogelio C. Gonzales, et al.,
The growth of international commercial arbitration (ICA) is both
a rejection of the non-binding conciliation and mediation process
and a retreat from the vicissitudes and uncertainties of
international business litigation. More positively, the mechanism
offers predictability and neutrality as a forum and allows the
parties to select and shape the procedures and costs of dispute
resolution. On the other hand, ICA procedures are often informal
and not laden with legal rights. R. H. Folsom, M. W. Gordon, J. A.
Spanogle, Jr., International Business Transactions, pp. 1113-
1114 (2nd ed., 1 year published).
4 The award purportedly held that LHC wrongfully drew on the
securities; and that TPI is entitled to the return of the said sums,
liquidated damages, and liquidation costs.
5
Rollo, pp. 1289-1293.
6
ANZ Bank’s Motion to be Excused, id. at 1220; Security Bank’s
Motion to be Excused, temporary rollo.
7 and shall not affect the relevant powers reserved to
Motion for Leave to Set Case for Oral Argument, id. at 1747-
1751.
8 without delay to the Secretariat. The Secretariat shall
Opposition, id. at 1757-1760.
9
Id. at 1763-1767.
10
Id. at 1823-1829.
11
TPI also submitted a copy of the Award, id. at 1768-1818.
12
Mondragon Leisure and Resorts Corporation v. United Coconut
Planters Bank, G.R. No. 154187, 14 April 2004, 427 SCRA 585,
590.
13
Roxas v. Court of Appeals, G.R. No. 139337, 15 August 2001,
G.R. Nos. 142286-87, 15 April 2005, 456 SCRA 224,
243, citing Benedicto v. Court of Appeals, G.R. No. 125359, 4
September 2001, 364 SCRA 334.
15
Rollo, p. 1270.
16
Id. at 1267.
17
Art. 23 (2), Rules of Arbitration of the International Chamber of
Commerce provides:
Before the file is transmitted to the Arbitral tribunal and in
appropriate circumstances even thereafter, the parties
may apply to any competent judicial authority for interim
or conservatory measures. The application of a party to
a judicial authority for such measure or for the
implementation of any such measure ordered by an
Arbitral tribunal shall not be deemed to be an
infringement or a waiver of the arbitration agreement
the Arbitral tribunal. Any such application and any
measures taken by the judicial authority must be notified
inform the Arbitral tribunal thereof. (emphasis supplied)
18Section 14. Subpoena and subpoena duces tecum. -
Arbitrators shall have the power to require any person to attend a
hearing as a witness. They shall have the power to subpoena
 26
witnesses and documents when the relevancy of the testimony Rep. Act No. 9285, Sec. 19.
and the materiality thereof has been demonstrated to the
arbitrators. Arbitrators may also require the retirement of any 27
Convention on the Recognition and Enforcement of Foreign
witness during the testimony of any other witness. All of the Arbitral Awards, signed at New York on 10 June 1958, and
arbitrators appointed in any controversy must attend all the ratified by the Philippines under Senate Resolution No. 71.
hearings in that matter and hear all the allegations and proofs of
the parties; but an award by the majority of them is valid unless 28
Rollo, p. 663.
the concurrence of all of them is expressly required in the
submission or contract to arbitrate. The arbitrator or arbitrators 29
Id. at 1685-1703.
shall have the power at any time, before rendering the
award, without prejudice to the rights of any party to petition 30
Id. at 1703-1705.
the court to take measures to safeguard and/or conserve any
matter which is the subject of the dispute in 31
Id. at 1741.
arbitration. (Emphasis supplied.)
32
Id. at 1741-1742.
19
Sec. 28, R..A. No. 9285. Grant of Interim Measure of
Protection. (a) It is not incompatible with an arbitration agreement 33
Final Award, id. at 1768-1815.
for a party to request, before constitution of the tribunal, from a
Court an interim measure of protection and for the Court to grant GONZALEZ V CLIMAX MINING LTD.
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 SPECIAL SECOND DIVISION
arbitral tribunal or to the extent that the arbitral tribunal has
no power to act or is unable to act effectively, the request
may be made with the Court. x x x. (Emphasis supplied.) JORGE GONZALES and G.R. No. 161957
PANEL OF ARBITRATORS,
20
Rollo, p. 672. Petitioners, Present:

21
Id. at 680. PUNO, C. J.,
Chairperson,
22 Id. at 661. - versus AUSTRIA-MARTINEZ,
CALLEJO,
23 Third Partial Award, id. at 114-664. SR.,
TINGA, and
24
Id. at 1685-1743. NAZARIO, JJ.
CLIMAX MINING LTD.,
25
Id. at 1665-66. CLIMAX-ARIMCO MINING CORP.,
and AUSTRALASIAN PHILIPPINES Promulgated:
MINING INC.,
Respondents. January 22, 2007
x--------------------------------------------------------------------------------- x
JORGE GONZALES, G.R. No. 167994
Petitioner,
- versus
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.
x-------------------------- --------------------------------------------------- x
R E S O L U T I ON
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
2005[1] 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
Reconsideration[2] 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 Panels 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 Clarification[3] 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 jurisprudence[5] 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 Gonzaless
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 Gonzaless
having impugn[ed] the existence or validity of the addendum
contract. If so, it supposedly conveys the idea that Gonzaless
unilateral repudiation of the contract or mere allegation of its
invalidity is all it takes to avoid arbitration. Hence, respondents
submit that the courts 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 partys motion for
[7]
reconsideration/clarification. 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.
161957[10] 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 19.1[11] 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-Arimcos 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.
On 18 May 2000, the RTC issued an order declaring Gonzaless
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
Gonzaless 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 courts
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.[23] Climax-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. Gonzaless proposition
contradicts both the trial courts limited jurisdiction and the
summary nature of the proceeding itself.
Climax-Arimco further notes that Gonzaless 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 Contractfraud and oppression in the execution
thereofare 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 courts 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 Law[24] 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-Arimcos Motion for Partial Reconsideration and/or
Clarification in G.R. No. 161957 and Gonzaless 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 Gonzaless 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 Appeals[28] 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 Corporations 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, Gonzaless 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 arbitrators 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
Appeals[37] 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 Florida[42] 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 quorightly 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 x[43]
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 & Cs motion, and the U.S. Supreme Court affirmed.
The U.S. Supreme Court did not address Prima Paints
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
Actwhich 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
thereofthe 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. Gonzaless 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, Gonzaless 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
partys 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.
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 Gonzaless
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-
Arimcos 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, Gonzaless 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 Gonzaless 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. MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.
167994 is DISMISSED. Such dismissal effectively renders Associate Justice Associate Justice
superfluous formal action on the Motion for Partial
Reconsideration and/or Clarification filed by Climax Mining Ltd.,
et al. in G.R. No. 161957.
MINITA V. CHICO-NAZARIO
The Motion for Reconsideration filed by Jorge Gonzales Associate Justice
in G.R. No. 161957 is DENIED WITH FINALITY. CERTIFICATION
PURSUANT TO ARTICLE VIII, SECTION 13 OF THE CONSTITUTION, IT IS
SO ORDERED. HEREBY CERTIFIED THAT THE CONCLUSIONS IN THE ABOVE
RESOLUTION WERE REACHED IN CONSULTATION BEFORE THE CASE
WAS ASSIGNED TO THE WRITER OF THE OPINION OF THE COURT.

REYNATO S. PUNO
CHIEF JUSTICE
DANTE O.
TINGA
Associate
Justice
[1]Gonzales
v. Climax Mining Ltd., G.R. No. 161957, 28
February 2005.

[2]Rollo
(G.R. No. 161957), pp. 715-741.

[3]Id.
WE CONCUR: at 700-706.

[4]The
pertinent portion of the assailed decision reads:

Petitioner also disagrees with the Court

of Appeals ruling that the case should be
brought for arbitration under Rep. Act [No.] 876,
REYNATO S. PUNO pursuant to the arbitration clause in
Chief Justice the Addendum Contract which states that [a]ll
Chairperson disputes arising out of or in connection with the
Contract, which cannot be settled amicably

among the Parties, shall finally be settled under
R.A. No. 876. He points out that respondents
Climax and APMI are not parties to
the Addendum Contract and are thus not bound
by the arbitration clause in said contract.
We agree that the case should not be
brought under the ambit of the Arbitration Law,
but for a different reason. The question of
validity of the contract containing the agreement
to submit to arbitration will affect the applicability
of the arbitration clause itself. A party cannot
rely on the contract and claim rights or
obligations under it and at the same time impugn
its existence or validity. Indeed, litigants are
enjoined from taking inconsistent positions. As
previously discussed, the complaint should have
been filed before the regular courts as it involved
issues which are judicial in nature. Rollo [G.R.
No. 161957], p. 695
[5]4
AM JUR 2d, at 136, and AMERICAN LAW REPORTS,
ANNOTATED, 3 ALR2d 425 to 426.
[6]Art.
16(1) thereof states: The arbitral tribunal may rule
on its own jurisdiction, including any objections with respect to the
existence or validity of the arbitration agreement. For that
purpose, an arbitration clause which forms part of a contract shall
be treated as an agreement independent of the other terms of the
contract. A decision by the arbitral tribunal that the contract is null
and void shall not entail ipso jure the invalidity of the arbitration
clause. The Model Law was adopted in Republic Act No. 9285 or
the Alternative Dispute Resolution Act of 2004 (in Sec. 19
thereof).
[7]Resolution of 15 June 2005, rollo (G.R. No. 161957), p.
767.
[8]Id.
at 780-790.
[9]
Id. at 832-838.
[10]
Rollo (G.R. No. 167994), pp. 3-24.
[11]Clause 19.1 of the Addendum Contract, rollo (G.R. No.
167994), p. 87. It reads: All disputes arising out of or in
connection with the Contract, which cannot be settled amicable
among the Parties, shall be finally settled under Republic Act No.
876, otherwise known as The Arbitration Law, as may be
amended from time to time. It is agreed, however, that at all
events and notwithstanding any provision of Republic Act No.
876, only one arbitrator shall be appointed by all the Parties. For
purposes of such appointment and at all proceedings hereunder,
each of the CLAIMOWNER and ARIMCO shall have one
vote. AUMEX, GEOPHILIPPINES and INMEX shall jointly have
only one vote and, for purposes hereof, GEOPHILIPPINES and
INMEX hereby irrevocably constitute AUMEX as their attorney-in-
fact, in their place, name and stead, to exercise the voting right
granted hereunder. If the CLAIMOWNER, ARIMCO and AUMEX
fail to agree on an arbitrator within 30 days from the date they first
begin considering persons to act as arbitrator, such arbitrator
shall be appointed by the appropriate court in accordance with
Republic Act No. 876.The Parties agree that the venue of the
arbitration and all actions under the Contract shall be Metro
Manila, Philippines. The Parties further agree that the decision of
the arbitrator shall be binding and enforceable upon the Parties
and that no judicial action may be instituted by any Party against
any other Party under the Contract except as provided in this
Clause 19.1.
[12]Rollo
(G.R. No. 167994), pp. 250-322.
[13]Id.
at 517.
[14]Id. at 518-520.
[15]Id.
at 525.
[16]Id.
at 526.
 Court by petition for review on certiorari in
[17]Id. at 381. accordance with Rule 45. Moreover, Section 29
limits the appeal to questions of law, another
[18]
Id. indication that it is referring to an appeal by
certiorari under Rule 45 which, indeed, is the
[19]
Id. at 527-530. customary manner of reviewing such issues. On
the other hand, the extraordinary remedy of
[20]
Id. at 30-35. certiorari under Rule 65 may be availed of by a
party where there is no appeal, nor any plain,
[21]
Id. at 39. speedy, and adequate remedy in the course of
law, and under circumstances where a tribunal,
[22]
G.R. No. 103200, 31 August 1994, 236 SCRA 78. board or officer exercising judicial functions, has
acted without or in excess of its or his
[23]
Id. at 91. jurisdiction, or with grave abuse of discretion.

[24]
Sec. 19 of R.A. No. 9258 adopts the UNCITRAL Model
[27]Rollo
Law for international commercial arbitration, while Sec. 33 of R.A. (G.R. No. 167994), pp. 364-365.
No. 9258 makes certain portions of the UNCITRAL Model Law,
[28]351
including Art. 8, applicable to domestic arbitration. Phil. 508 (1998).

[25]Nippon
Paint Employees Union-Olalia v. Court of [29]Rollo (G.R. No. 167994), p. 365.
Appeals, G.R. No. 159010, 19 November 2004, 443 SCRA 286,
291. [30]Supra note 28, at 518-519.

[26]Justice Romero, in his dissenting opinion in Asset

[31]Supra
Privatizatoin Trust v. Court of Appeals, 360 Phil. 768, 824-825 note 28 at 520-521.
(1998), had occasion to discuss the mode of review under Sec.
29 of R.A. No. 876: [32]Estate of Salud Jimenez v. Philippine Export
Processing Zone, 402 Phil. 271, 284 (2001).
The term certiorari in [Sec. 29 of R.A.
[33]CIVIL
No. 876] refers to an ordinary appeal under Rule CODE, Book IV, Title XIV, Chapter 2.
45, not the special action of certiorari under Rule
[34]National
65. It is an appeal, as Section 29 proclaims. The Union Fire Insurance Company of Pittsburgh
proper forum for this action is, under the old and v. Stolt-Nielsen Philippines, Inc., G.R. No. 87958, 26 April 1990,
the new rules of procedure, the Supreme 184 SCRA 682.
Court. Thus, Section 2(c) of Rule 41 of the 1997
[35]57
Rules of Civil Procedure states that, In all cases Phil. 600 (1932).
where only questions of law are raised or
[36]Id.
involved, the appeal shall be to the Supreme at 603.
 [37]404 Phil. 192 (2001). [49]388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967).

[38] [50]
Id. at 201. S.J. WARE, ALTERNATIVE DISPUTE RESOLUTION
(2001 ed.), pp. 45-46, citing Prima Paint,supra.
[39]
Supra note 22.
[51]Supra note 49, 380 U.S., at 404.
[40]
Supra note 22 at 91.
[52]
Order of 25 June 2002, rollo (G.R. No. 161957), p. 612.
[41]
Id.
[53]Rollo (G.R. No. 161957), pp. 194-201.
[42]
126 Phil. 78 (1967).
[54]
Id. at 199.
[43]
Id. at 84-85.
[55]See CIVIL CODE, Art. 1390.
[44]
Supra note 35.
KOREA TECHNOLOGIES V. LERMA
[45]Supra note 37.

[46]P.
Republic of the Philippines
CAPPER, INTERNATIONAL ARBITRATION: A
HANDBOOK (3rd ed., 2004), p. 12. SUPREME COURT

[47]Id. Accordingly, the termination or avoidance (for Manila

example, following a fraudulent misrepresentation) of a contract
which was initially valid will not affect the validity of the arbitration
agreement. The doctrine also recognizes in this way the wish of
the parties to have disputes arising out of their contract settled by
arbitration, even if that contract is no longer in SECOND DIVISION
existence. Id. at 81.

In the U.S., a distinction has been drawn between legal

doctrines relating to enforceability of contracts and legal doctrines
relating to whether a contract is formed. Making this distinction, KOREA TECHNOLOGIES CO., G.R. No. 143581
some courts have applied Prima Paint Corp. v. Flood and
ConKlin, infra note 49, to voidable-contract arguments, but not to LTD.,
no-contract agreements involving for example forgery. S.J. Ware,
infra note 50 at 49. Petitioner,

[48]Supra
Present:
note 46, at 81.
- versus - QUISUMBING, J., Chairperson, hastening the resolution of their dispute, the parties wittingly or
unwittingly prolonged the controversy.
CARPIO,

CARPIO MORALES,
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean
HON. ALBERTO A. LERMA, in TINGA, and corporation which is engaged in the supply and installation of Liquefied
Petroleum Gas (LPG) Cylinder manufacturing plants, while private
his capacity as Presiding Judge of VELASCO, JR., JJ.
respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a
Branch 256 of Regional Trial domestic corporation.

Court of Muntinlupa City, and
PACIFIC GENERAL STEEL Promulgated:
MANUFACTURING
CORPORATION,
Respondents. January 7, 2008
x-----------------------------------------------------------------------------------------x
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
On March 5, 1997, PGSMC and KOGIES executed a
Contract[1] 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,
1997[2] 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 plants
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
Lease[3]with Worth Properties, Inc. (Worth) for use of Worths 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 Certificate[4] 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 letter[6] to PGSMC threatening criminal action for violation
of Batas Pambansa Blg. 22 in case of nonpayment. On the same date,
the wife of PGSMCs 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. 98-117[8] 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
Counterclaim[9] 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 plaintiffs
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 PGSMCs 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
Dismiss[13] answering PGSMCs memorandum of July 22, 1998 and
seeking dismissal of PGSMCs counterclaims, KOGIES, on August 4,
1998, filed its Motion for Reconsideration[14] 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
Things[16] 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 PGSMCs motion for inspection; (2) denying KOGIES motion for
reconsideration of the July 23, 1998 RTC Order; and (3) denying
KOGIES motion to dismiss PGSMCs compulsory counterclaims as these
counterclaims fell within the requisites of compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for
Reconsideration[17] of the September 21, 1998 RTC Order granting
inspection of the plant and denying dismissal of PGSMCs 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
certiorari[18] 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 Petition[20] in CA-
G.R. SP No. 49249 informing the CA about the October 19, 1998RTC
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 Sheriffs
Report[21] 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
Decision[22] 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, 1998Orders. 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 COURTS FINDING ON
THE SAME QUESTION WAS IMPROPERLY RAISED IN
THE PETITION BELOW;
 b. DECLARING AS NULL AND VOID THE and cross claims were amended effective August 16, 2004
ARBITRATION CLAUSE IN ARTICLE 15 OF THE
CONTRACT BETWEEN THE PARTIES FOR BEING KOGIES strongly argues that when PGSMC filed the
CONTRARY TO PUBLIC POLICY AND FOR OUSTING counterclaims, it should have paid docket fees and filed a certificate of
THE COURTS OF JURISDICTION; non-forum shopping, and that its failure to do so was a fatal defect.

c. DECREEING PRIVATE RESPONDENTS We disagree with KOGIES.

COUNTERCLAIMS TO BE ALL COMPULSORY NOT
NECESSITATING PAYMENT OF DOCKET FEES AND As aptly ruled by the CA, the counterclaims of PGSMC were
CERTIFICATION OF NON-FORUM SHOPPING; incorporated in its Answer with Compulsory Counterclaim dated July 17,
1998 in accordance with Section 8 of Rule 11, 1997 Revised Rules of
d. RULING THAT THE PETITION WAS FILED Civil Procedure, the rule that was effective at the time the Answer with
PREMATURELY WITHOUT WAITING FOR THE Counterclaim was filed. Sec. 8 on existing counterclaim or cross-
RESOLUTION OF THE MOTION FOR claim states, A compulsory counterclaim or a cross-claim that a
RECONSIDERATION OF THE ORDER DATED defending party has at the time he files his answer shall be contained
SEPTEMBER 21, 1998 OR WITHOUT GIVING THE therein.
TRIAL COURT AN OPPORTUNITY TO CORRECT
ITSELF;
On July 17, 1998, at the time PGSMC filed its Answer
e. PROCLAIMING THE TWO ORDERS incorporating its counterclaims against KOGIES, it was not liable to pay
DATED JULY 23 AND SEPTEMBER 21, 1998 NOT TO filing fees for said counterclaims being compulsory in nature. We stress,
BE PROPER SUBJECTS OF CERTIORARI AND however, that effective August 16, 2004 under Sec. 7, Rule 141, as
PROHIBITION FOR BEING INTERLOCUTORY IN amended by A.M. No. 04-2-04-SC, docket fees are now required to be
NATURE; paid in compulsory counterclaim or cross-claims.

f. NOT GRANTING THE RELIEFS AND As to the failure to submit a certificate of forum
REMEDIES PRAYED FOR IN HE (SIC) PETITION AND, shopping, PGSMCs Answer is not an initiatory pleading which requires a
INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY certification against forum shopping under Sec. 5[24] of Rule 7, 1997
WITHOUT MERIT.[23] 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 PGSMCs compulsory counterclaims.
The Courts Ruling
Interlocutory orders proper subject of certiorari
The petition is partly meritorious.
Citing Gamboa v. Cruz,[25] the CA also pronounced that certiorari
Before we delve into the substantive issues, we shall first tackle and Prohibition are neither the remedies to question the propriety of an
the procedural issues. 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
The rules on the payment of docket fees for counterclaims 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 RTCs 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 2040[33] 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 Codes 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, arbitrationalong with
mediation, conciliation and negotiationis 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 Arbitration[41] of the United Nations Commission on
International Trade Law (UNCITRAL) in the New York Convention
on June 21, 1985, the Philippines committed itself to be bound by the
Model Law. We have even incorporated the Model Law in Republic Act
No. (RA) 9285, otherwise known as the Alternative Dispute Resolution
Act of 2004 entitled An Act to Institutionalize the Use of an Alternative
Dispute Resolution System in the Philippines and to Establish the Office
for Alternative Dispute Resolution, and for Other Purposes, promulgated
on April 2, 2004. Secs. 19 and 20 of Chapter 4 of the Model Law are the
pertinent provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL
ARBITRATION
SEC. 19. Adoption of the Model Law on
International Commercial Arbitration.International
commercial arbitration shall be governed by the Model
Law on International Commercial Arbitration (the Model
Law) adopted by the United Nations Commission on
International Trade Law on June 21, 1985 (United Nations
Document A/40/17) and recommended for enactment by
the General Assembly in Resolution No. 40/72 approved
on December 11, 1985, copy of which is hereto attached
as Appendix A.
SEC. 20. Interpretation of Model Law.In
interpreting the Model Law, regard shall be had to its
international origin and to the need for uniformity in its
interpretation and resort may be made to the travaux
preparatories and the report of the Secretary General of
the United Nations Commission on International Trade
Law dated March 25, 1985 entitled, International
Commercial Arbitration: Analytical Commentary on Draft
Trade identified by reference number A/CN. 9/264.
While RA 9285 was passed only in 2004, it nonetheless applies in
the instant case since it is a procedural law which has a retroactive
effect. Likewise, KOGIES filed its application for arbitration before the
KCAB on July 1, 1998 and it is still pending because no arbitral award
has yet been rendered. Thus, RA 9285 is applicable to the instant
case. Well-settled is the rule that procedural laws are construed to be
applicable to actions pending and undetermined at the time of their
passage, and are deemed retroactive in that sense and to that extent. As
a general rule, the retroactive application of procedural laws does not
violate any personal rights because no vested right has yet attached nor
arisen from them.[42]
Among the pertinent features of RA 9285 applying and
incorporating the UNCITRAL Model Law are the following:
(1) The RTC must refer to arbitration in proper cases
Under Sec. 24, the RTC does not have jurisdiction over disputes
that are properly the subject of arbitration pursuant to an arbitration
clause, and mandates the referral to arbitration in such cases, thus:
SEC. 24. Referral to Arbitration.A court before
which an action is brought in a matter which is the subject
matter of an arbitration agreement shall, if at least one
party so requests not later than the pre-trial conference,
 or upon the request of both parties thereafter, refer the
parties to arbitration unless it finds that the arbitration
agreement is null and void, inoperative or incapable of
being performed.
(2) Foreign arbitral awards must be confirmed by the RTC
Foreign arbitral awards while mutually stipulated by the parties in
the arbitration clause to be final and binding are not immediately
enforceable or cannot be implemented immediately. Sec. 35[43] 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 partys
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 876[44] and shall be recognized as
final and executory decisions of the RTC,[45] they may only be assailed
before the RTC and vacated on the grounds provided under Sec. 25 of
RA 876.[46]
(5) RTC decision of assailed foreign arbitral award appealable
Sec. 46 of RA 9285 provides for an appeal before the CA as the
remedy of an aggrieved party in cases where the RTC sets aside, rejects,
vacates, modifies, or corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral
Awards.A decision of the Regional Trial Court confirming,
vacating, setting aside, modifying or correcting an arbitral
award may be appealed to the Court of Appeals in
accordance with the rules and procedure to be
promulgated by the Supreme Court.
The losing party who appeals from the judgment
of the court confirming an arbitral award shall be required
by the appellate court to post a counterbond executed in
favor of the prevailing party equal to the amount of the
award in accordance with the rules to be promulgated by
the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed
before this Court through a petition for review under Rule 45 of the Rules
of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC must
submit to the foreign arbitration as it bound itself through the subject
contract. While it may have misgivings on the foreign arbitration done
in Korea by the KCAB, it has available remedies under RA 9285. Its
interests are duly protected by the law which requires that the arbitral
award that may be rendered by KCAB must be confirmed here by the
RTC before it can be enforced.

With our disquisition above, petitioner is correct in its contention
that an arbitration clause, stipulating that the arbitral award is final and
binding, does not oust our courts of jurisdiction as the international
arbitral award, the award of which is not absolute and without exceptions,
is still judicially reviewable under certain conditions provided for by
the UNCITRAL Model Law on ICA as applied and incorporated in RA
9285.
Finally, it must be noted that there is nothing in the subject
Contract which provides that the parties may dispense with the arbitration
clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the subject contract is
valid and binding on the parties, and not contrary to public policy;
consequently, being bound to the contract of arbitration, a party may not
unilaterally rescind or terminate the contract for whatever cause without
first resorting to arbitration.
What this Court held in University of the Philippines v. De Los
Angeles[47] and reiterated in succeeding cases,[48] that the act of treating
a contract as rescinded on account of infractions by the other contracting
party is valid albeit provisional as it can be judicially assailed, is not
applicable to the instant case on account of a valid stipulation on
arbitration. Where an arbitration clause in a contract is availing, neither of
the parties can unilaterally treat the contract as rescinded since whatever
infractions or breaches by a party or differences arising from the contract
must be brought first and resolved by arbitration, and not through an
extrajudicial rescission or judicial action.
The issues arising from the contract between PGSMC and
KOGIES on whether the equipment and machineries delivered and
installed were properly installed and operational in the plant in Carmona,
Cavite; the ownership of equipment and payment of the contract price;
and whether there was substantial compliance by KOGIES in the
production of the samples, given the alleged fact that PGSMC could not
supply the raw materials required to produce the sample LPG cylinders,
are matters proper for arbitration. Indeed, we note that on July 1, 1998,
KOGIES instituted an Application for Arbitration before the KCAB
in Seoul, Korea pursuant to Art. 15 of the Contract as amended. Thus, it
is incumbent upon PGSMC to abide by its commitment to arbitrate.
Corollarily, the trial court gravely abused its discretion in granting
PGSMCs 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.
Petitioners 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 RTCs 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
Such relief may be granted:
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 (i) to prevent irreparable loss or injury;
factual milieu of the instant case.
(ii) to provide security for the performance of any
Firstly, while the issue of the proper installation of the equipment obligation;
and machineries might well be under the primary jurisdiction of the
(iii) to produce or preserve any evidence; or
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 (iv) to compel any other appropriate act or
the parties. Sec. 28 pertinently provides: omission.

SEC. 28. Grant of interim Measure of

Protection.(a) It is not incompatible with an arbitration (c) The order granting provisional relief may be
agreement for a party to request, before constitution conditioned upon the provision of security or any act or
of the tribunal, from a Court to grant such omission specified in the order.
measure. After constitution of the arbitral tribunal and
during arbitral proceedings, a request for an interim
measure of protection, or modification thereof, may be
(d) Interim or provisional relief is requested by
made with the arbitral or to the extent that the arbitral
written application transmitted by reasonable means to
tribunal has no power to act or is unable to act
the Court or arbitral tribunal as the case may be and the
effectivity, the request may be made with the
party against whom the relief is sought, describing in
Court. The arbitral tribunal is deemed constituted when
appropriate detail the precise relief, the party against
the sole arbitrator or the third arbitrator, who has been
whom the relief is requested, the grounds for the relief,
nominated, has accepted the nomination and written
and the evidence supporting the request.
communication of said nomination and acceptance has
been received by the party making the request.

(e) The order shall be binding upon the

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

(f) Either party may apply with the Court for

assistance in implementing or enforcing an interim
Any party may request that provisional relief be
measure ordered by an arbitral tribunal.
granted against the adverse party.
 (g) A party who does not comply with the order
shall be liable for all damages resulting from (d) Preserve evidence that may be relevant and material
noncompliance, including all expenses, and reasonable to the resolution of the dispute.
attorney's fees, paid in obtaining the orders judicial
enforcement. (Emphasis ours.)
Art. 17 J of UNCITRAL Model Law on ICA also grants courts
power and jurisdiction to issue interim measures:
Art. 17(2) of the UNCITRAL Model Law on ICA defines an interim
measure of protection as:
Article 17 J. Court-ordered interim measures

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:
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:
(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
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
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.
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
family[51] until final resolution of the arbitral proceedings and enforcement
of the award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in that:

Thirdly, and of greater import is the reason that maintaining the

equipment and machineries in Worths property is not to the best interest (1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249
of PGSMC due to the prohibitive rent while the LPG plant as set-up is not is REVERSED and SET ASIDE;
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. (2) The September 21, 1998 and October 19, 1998 RTC Orders
in Civil Case No. 98-117 are REVERSED and SET ASIDE;
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
(3) The parties are hereby ORDERED to submit themselves to
Order of the RTC allowing the transfer of the equipment and machineries
the arbitration of their dispute and differences arising from the subject
given the non-recognition by the lower courts of the arbitral clause, has
Contract before the KCAB; and
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 (4) PGSMC is hereby ALLOWED to dismantle and transfer the
paid a substantial amount based on the contract. Moreover, KOGIES is equipment and machineries, if it had not done so, and ORDERED to
amply protected by the arbitral action it has instituted before the KCAB, preserve and maintain them until the finality of whatever arbitral award is
the award of which can be enforced in our jurisdiction through the given in the arbitration proceedings.
RTC. Besides, by our decision, PGSMC is compelled to submit to
arbitration pursuant to the valid arbitration clause of its contract with
KOGIES.
 No pronouncement as to costs. Chairperson

SO ORDERED.

ANTONIO T. CARPIO CONCHITA CARPIO MORALES

PRESBITERO J. VELASCO, JR. Associate Justice Associate Justice

Associate Justice

DANTE O. TINGA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of
the Courts Division.

WE CONCUR: LEONARDO A. QUISUMBING

LEONARDO A. QUISUMBING Associate Justice
Associate Justice
 [5]
Chairperson Id. at 207.
[6] Id. at 221.
[7]
Id. at 222.
[8]
Id. at 47-51; dated July 1, 1998.
[9] Id. at 66-82.
[10]
Id. at 97.
[11] Id. at 83-89.

CERTIFICATION [12]
G.R. No. 96283, February 25, 1992, 206 SCRA 545.
[13]
Rollo, pp. 108-111.
[14]
Id. at 98-100.
[15] Supra note 12.
Pursuant to Section 13, Article VIII of the Constitution, and the Division
[16]
Chairpersons Attestation, I certify that the conclusions in the above Rollo, pp. 101-105.
[17]
Decision had been reached in consultation before the case was assigned Id. at 113-115.
[18]
to the writer of the opinion of the Courts Division. Id. at 120-146; dated October 9, 1998.
[19] Id. at 119.
[20]
Id. at 116-118.
[21] Id. at 266-268.

[22] Id. at 40. Penned by Associate Justice Elvi John S. Asuncion

and concurred in by Associate Justices Ma. Alicia Austria-Martinez and

Portia Alio-Hormachuelos.
[23] Id. at 16-17; original in boldface.

REYNATO S. PUNO [24]SEC. 5. Certification against forum shopping.The plaintiff or

principal party shall certify under oath in the complaint or other
Chief Justice initiatory pleading asserting a claim for relief, or in a sworn certification
annexed thereto and simultaneously filed therewith: (a) that he has not
theretofore commenced any action or filed any claim involving the same
issues in any court, tribunal or quasi-judicial agency and, to the best of
his knowledge, no such other action or claim is pending therein; (b) if
there is such other pending action or claim, a complete statement of the
present status thereof; and (c) if he should thereafter learn that the same
[1]
Id. at 58-65; signed by KOGIES President Dae Hyun Kang and or similar action or claim has been filed or is pending, he shall report that
PGSMC President Honorio Santiago. fact within five (5) days therefrom to the court where his aforesaid
[2] Id. at 94.
complaint or initiatory pleading has been filed. (Emphasis supplied.)
[3] Id. at 208-218; signed by PGSMC President Honorio Santiago

and Worth President Wilson L. Chua. Failure to comply with the foregoing requirements shall not be
[4] Id. at 95; signed by KOGIES President Dae Hyun Kang and
curable by mere amendment of the complaint or other initiatory pleading
PGSMC President Honorio Santiago. but shall be cause for the dismissal of the case without prejudice, unless
otherwise provided, upon motion and after hearing. The submission of a
false certification or non-compliance with any of the undertakings therein
shall constitute indirect contempt of court, without prejudice to the
corresponding administrative and criminal actions. If the acts of the party
or his counsel clearly constitute willful and deliberate forum shopping, the
same shall be ground for summary dismissal with prejudice and shall
constitute direct contempt, as well as a cause for administrative
sanctions.
[25]
G.R. No. L-56291, June 27, 1988, 162 SCRA 642.
[26]
Rollo, p. 45.
[27]
La Tondea Distillers, Inc. v. Ponferrada, G.R. No. 109656,
November 21, 1996, 264 SCRA 540; Mendoza v. Court of Appeals, G.R.
No. 81909, September 5, 1991, 201 SCRA 343; MB Finance Corporation
v. Abesamis, G.R. No. 93875, March 22, 1991, 195 SCRA
592; Quisumbing v. Gumban, G.R. No. 85156, February 5, 1991, 193
SCRA 520.
[28]
G.R. No. 146079, July 20, 2001, 361 SCRA 672, 680-681,
citing Go v. Court of Appeals, G.R. No. 128954, October 8, 1998, 297
SCRA 574.
[29] I Regalado, REMEDIAL LAW COMPENDIUM 502 (2002).
[30] Id. at 721 (8th rev. ed.).
[31] Art. 2038. A compromise in which there is mistake, fraud,
violence, intimidation, undue influence, or falsity of documents is subject
to the provisions of Article 1330 [voidable] of this Code.
However, one of the parties cannot set up a mistake of fact as
against the other if the latter, by virtue of the compromise, has withdrawn
from a litigation already commenced.
[32] Art. 2039. When the parties compromise generally on all
differences which they might have with each other, the discovery of
documents referring to one or more but not to all of the questions settled
shall not itself be a cause for annulment or rescission of the compromise,
unless said documents have been concealed by one of the parties.
But the compromise may be annulled or rescinded if it refers only
to one thing to which one of the parties has no right, as shown by the
newly-discovered documents.
[33] Art. 2040. If after a litigation has been decided by a final
judgment, a compromise should be agreed upon, either or both parties
being unaware of the existence of the final judgment, the compromise
may be rescinded.
Ignorance of a judgment which may be revoked or set aside is not
a valid ground for attacking a compromise.
[34]
Art. 2043. The provisions of the preceding Chapter upon
compromises shall also be applicable to arbitrations.
[35] G.R. No. 161957 and G.R. No. 167994, January 22, 2007, 512
SCRA 148; citing Manila Electric Co. v. Pasay Transportation Co., 57
Phil. 600 (1932).
[36]
Id. at 603.
[37]
G.R. No. 136154, February 7, 2001, 351 SCRA 373, 381.
[38]
102 Phil. 1 (1957).
[39] G.R. No. 120105, March 27, 1998, 288 SCRA 267, 286.
[40]
G.R. No. 141833, March 26, 2003, 399 SCRA 562, 569-570;
citations omitted.
[41]
Adopted by the UNCITRAL 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 11 December
1985. Subsequently amended on July 7, 2006.
[42] In the Matter to Declare in Contempt of Court Hon. Simeon A.
Datumanong, Secretary of DPWH, G.R. No. 150274, August 4, 2006,
497 SCRA 626, 636-637; citing Calacala v. Republic, G.R. No.
154415, July 28, 2005, 464 SCRA 438, 446.
[43] Id. Art. 35(1) 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.
[44] An Act to Authorize the Making of Arbitration and Submission
Agreements, to Provide for the Appointment of Arbitrators and the
Procedure for Arbitration in Civil Controversies, and for Other Purposes
(1953).
[45] RA 9285, Sec. 40.
[46] Id., Sec. 41.
[47] G.R. No. L-28602, September 29, 1970, 35 SCRA 102.
[48] See Lorenzo Shipping Corp. v. BJ Marthel International, Inc.,
G.R. No. 145483. November 19, 2004, 443 SCRA 163; Subic Bay
Metropolitan Authority v. Universal International Group of Taiwan, G.R.
No. 131680, September 14, 2000, 340 SCRA 359; Philippine National
Construction Corp. v. Mars Construction Enterprises, Inc., G.R. No.
133909, February 15, 2000, 325 SCRA 624; Cheng v. Genato, G.R. No.
129760, December 29, 1998, 300 SCRA 722; Goldenrod, Inc. v. Court of
Appeals, G.R. No. 126812, November 24, 1998, 299 SCRA 141; Adelfa
Properties, Inc. v. Court of Appeals, G.R. No. 111238, January 25, 1995;
240 SCRA 565; Bowe v. Court of Appeals, G.R. No. 95771, March 19,
1993, 220 SCRA 158; Lim v. Court of Appeals, G.R. No. 85733, February
23, 1990, 182 SCRA 564.
[49]
Suarez v. NLRC, G.R. No. 124723, July 31, 1998, 293 SCRA
496, 502.
[50]
G.R. No. 146717, May 19, 2006, 490 SCRA 14, 20-21.

[51]
Cf. Article 1173 of the Civil Code.