DOCTRINE Applicability of the UNCITRAL Model Law in the Philippines, As signatory to the Arbitration Rules of the UNCITRAL Model

l Law on International Commercial Arbitration[1][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. The UNCITRAL Model Law is incorporated in RA 9285, hence, arbitration clause not contrary to public policy. The pertinent features of RA 9285 incorporating the UNCITRAL Model Law: 1. The RTC must refer to arbitration in proper cases; 2. Foreign arbitral awards must be confirmed by the RTC in accordance with the rules of procedure to be promulgated by the Supreme Court; 3. The RTC has jurisdiction to review foreign arbitral awards on provided specific grounds; 4. Grounds for judicial review different in domestic and foreign arbitral awards, grounds for foreign arbitral awards are provided under Art. 34 (2) of the UNCITRAL Model Law while domestic arbitral awards are provided under Sec. 25 of RA 876; and 5. RTC decision of assailed foreign arbitral award appealable to the Court of Appeals which may further be reviewed by the Supreme Court under Rule 45.
6. 7. 8. 9. Korean Technologies Co. Ltd. Vs Hon. Alberto Lerma FACTS: Korea Technologies Co., Ltd. [Korea Tech], a Korean corporation, entered into a contract with Pacific General Steel Manufacturing Corporation [Pacific General], a domestic corporation, whereby Korea Tech undertook to ship and install in Pacific Generals site in Carmona, Cavite the machinery and facilities necessary for manufacturing LPG cylinders, and to initially operate the plant after it is installed. The plant, after completion of installation, could not be operated by Pacific General due to its financial difficulties affecting the supply of materials. The last payments made by Pacific General to Korea Tech consisted of postdated checks which were dishonored upon presentment. According to Pacific General, it stopped payment because Korea Tech had delivered a hydraulic press which was different in kind and of lower quality than that agreed upon. Korea Tech also failed to deliver equipment parts already paid for by it. It threatened to cancel the contract with Korea Tech and dismantle the Carmona plant. Korea Tech initiated arbitration before the Korea Commercial Arbitration Board [KCAB] in Seoul, Korea and, at the same time, commenced a civil action before the Regional Trial Court [the trial court] where it prayed that Pacific General be restrained from dismantling the plant and equipment. Pacific General opposed the application and argued that the arbitration clause was null and void, being contrary to public policy as it ousts the local court of jurisdiction. It also alleged that Korea Tech was not entitled to the payment of the amount covered by the two checks, and that Korea Tech was liable for damages. The trial court denied the application for preliminary injunction and declared the arbitration agreement null and void. Korea Tech moved to dismiss the counterclaims for damages. Meanwhile, Pacific General filed a motion for inspection of things 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. Korea Tech opposed the motion arguing that these issues were proper for determination in the arbitration proceeding. The court denied the motion to dismiss and granted the motion for inspection of things. The court also directed the Branch Sheriff to proceed with the inspection of the machineries and equipment in the plant. The Branch Sheriff later reported his finding that the enumerated machineries and equipment were not fully and properly installed. Korea Tech filed a petition for certiorari before the Court of Appeals [CA]. The court dismissed the petition and held 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. ISSUE: Whether or not the arbitration clause stated in Article 15 of the contract is to be deemed null and void HELD/Ratio: The arbitration clause is valid. It has not been shown to be contrary to any law, or against morals, good customs, public order or public policy. The arbitration clause stipulates that the arbitration must be done in Seoul, Korea in accordance with the Commercial Arbitration Rules of the KCAB, and that the award is final and binding. This is not contrary to public policy. The court finds no reason why the arbitration clause should not be respected and complied with by both parties.

10. 11. 12. 13.

14. This ruling, the Court said, is consonant with the declared policy in Section 2 of the ADR Act that the State (shall) actively promote party autonomy in the resolution of disputes or the freedom of the parties to make their own arrangements to resolve their disputes. Citing Section 24 of the ADR Act, the Court said the trial court does not have jurisdiction over disputes that are properly the subject of arbitration pursuant to an arbitration clause. In the earlier case of BF Corporation v. Court of Appeals and Shangri-la Properties, Inc., where the trial court refused to refer the parties to arbitration notwithstanding the existence of an arbitration agreement between them, the Supreme Court said the trial court had prematurely exercised its jurisdiction over the case. 15. The Court further emphasized that a submission to arbitration is a contract. As a rule, contracts are respected as the law between the contracting parties and produce effect between them, their assigns and heirs. Courts should liberally review arbitration clauses. Any doubt should be resolved in favor of arbitration.

With regard the Termination of contract with arbitration clause, A party may not unilaterally rescind or terminate the contract (that contains an arbitration clause) for whatever cause without first resorting to arbitration. The rule allowing extrajudicial rescission of a contract in case of breachdoes not apply when the contract contains a valid arbitration clause as the issues arising from such alleged breaches of the contract by a party must be brought first and resolved by arbitration. Thus, the issues arising from the contract between Korea Tech and Pacific General on whether the equipment and machineries delivered and installed were properly installed and operational in Carmona and other issues related thereto are proper for arbitration. Pacific Generals counterclaim for damages Where the issue of validity of the arbitration clause or of its proper scope is submitted to a trial court in a petition to compel arbitration, the Arbitration Law confines the courts authority to pass

upon issue such in a summary proceeding. The trial court must refrain from taking up the claim of the contending parties for damages which may be ventilated in a separate proceeding at the appropriate time and venue.

The Enforcement of award in a domestic or international arbitration manifests that an arbitral award in a domestic or international arbitration is subject to enforcement by a court upon application of the prevailing party for the confirmation or recognition and enforcement of an award. Under Section 42 of the ADR Act, The recognition and enforcement of such (foreign) arbitral awards shall be filed with the Regional Trial Court in accordance with the rules of procedure to be promulgated by the Supreme Court. An arbitral award is immediately executory upon the lapse of the period provided by law. For an award rendered in domestic or noninternational arbitration, unless a petition to vacate the award is filed within thirty (30) days from the date of serve upon the latter, the award is subject to confirmation by the court. For an award rendered in a domestic, international arbitration, the period for filing an application to set it aside is not later than three (3) months from the date the applicant received the award, otherwise the court shall recognize and enforce it. There is obviously confusion between or among the following: (a) The 1958 New York Convention; (b) The UNCITRAL Model Law on International Commercial Arbitration; and (c) The UNCITRAL Arbitration Rules.