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LAW 160A

ALTERNATIVE DISPUTE RESOLUTION

Prof. Arthur Autea

Class Policies:
1) Final Exam – 40%
a) last day of our regular class – October
b) problem + objective
2) Class Participation – 60%
a) attendance – 2x
b) suprise quizzes
3) Final Exam 40%

Relevant Laws / Rules


1) RA 876 – Arbitration Law
2) EO No 1008 – CIA Law
3) RA 9285 - ADR Act of 2004
4) UNCITRAL Model Law
5) Special ADR Rules
6) UNCITRAL Arbitration Rules
7) ICC Arbitration Rules

Cases
1) Vega v. San Carlos Milling Co. Ltd, 51 Phil 908 (1924)
2) California & Hawaiian Sugar Co. v. Pioneer Insurance &
Surety Corp. 346 SCRA 214 (2000)
3) Associated Bank v. CA, 233 SCRA 137 (1994)
4) Bloomfield Academy v. CA, 237 SCRA 43 (1994)
5) Mindanao Portland Cement Corporation v. McDonough
Construction Co. of Florida, 90 SCRA 808 (1967)
6) Gonzales v. Climax Mining Ltd., 512 SCRA 148 (2007)
7) Oil & Natural Gas Commission v. CA, 293 SCRA 26 (1998)
8) Magellan Capital Mgt. Corp. v. Zosa, 355 SCRA 157 (2001)
9) BF Corporation v. CA, 288 SCRA 267 (1998)
10) Korea Technologies Co. Ltd. v. Lerma, 542 SCRA 1 (2008)
11) Luzon Development Bank v. Luzon Development Bank
Employees, 249 SCRA 162 (1995)
12) Toyota Motor Phils. Corp. V. CA, 216 SCRA 336
13) Heirs of Agusto L. Salas, Jr. v. Laperal Realty Corp., 302
SCRA 620
14) Del Monte Corp. USA v. CA, 351 SCRA 373 - WRONG
15) Homebankers Savings and Trust Co. v. CA, 318 SCRA 558
16) Chung Fu Industries Inc. V. CA, 206 SCRA ___
17) Adamson v. CA, 232 SCRA 602 (1994)
18) National Steel Corp. v. RTC of Lanao del Norte, 304 SCRA
595 (1999)
19) Asset Privatization Trust v. CA, 300 SCRA 579
20) China Chiang Jiang Energy Corp (Phils) v. Rosal
Infrastructure Builders, G.R. 125706, 30 September 1996
21) Hi Precision Steel, 228 SCRA 397
22) ABS CBN v. World, 544 SCRA 308
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 2
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Agreement + Representation in
Substantive Claim International Arbitration
10 – No. of arbitrators Sec. 23 – Confidentiality in
11 – Appointment Arbitration Proceedings
12 – Grounds for Sec. 24 – Referral to
Class Notes - June 11, 2010 challenge Arbitration
13 – Procedure for Sec. 25 – Interpretation of
challenge the Act
INTRODUCTION TO ALTERNATIVE MODES 14 – Unable to Sec. 26 – Meaning of
perform “Appointing Authority”
OF DISPUTE RESOLUTION
18 – Conduct of Sec. 27 – What Functions
hearings May be Performed by
ADR – alternative to conventional litigation 19 – Determination of Appointing Authority
Arbitration – only form of ADR that will result in a rules Sec. 28 – Grant of Interim
final, binding and enforceable award 29 to 32 – Measure of Protection
Mediation – facilitate communication, cannot Termination of Sec. 29 – Further Authority
impose resolution of the mediator proceedings for Arbitrator to Grant Interim
Measure of Protection
Conventional Arbitration Sec. 30 – Place of Arbitration
Sec. 31 – Language of the
Litigation Arbitration
Judgment Award
Final Judgment Final Award
Interlocutory Order Interim Award ARBITRATION
P v. D / P v. R Claimant v.
Respondent
Arbitration v. Litigation {PALPVA}
Stenographers Court Reporters
Arbitration Litigation
Arbitration clause – stipulation that parties wil
Private & confidential Public
submit dispute to arbitration
Parties may select Parties cannot agree
arbitrator on presiding officer;
Request for Arbitration – arbitrable dispute
Judge is raffled
Parties can select Philippine law governs
Legislative History:
governing law that will
determine their
1) RA 876 (1953) – Arbitration Law
substantive rights
2) New York Convention (1958)
a) Convention on the recognition & Procedure depends on Rules of Court applies
enforcement of foreign arbitral awards agreement
b) Need to prove authenticity only Venue depends on Rules of Court
e.g. NAIA 3 case agremeent governs; Venue may
3) RA 9285 (2004) – ADR Act of 2004 also depend on
a) Covers domestic & international arbitration agreement
b) Covers all forms of ADR Consensual Not consensual
4) EO No. 1008 (1985) – CIAC
a) Covers all disputes in the construction Note: A voluntary arbitrator has the same status as
industry an RTC judge.
5) Special ADR Rules (October 13, 2009)
a) Clarified problems in RA 876 and RA 9285 What is the nature of ADR?
6) UNCITRAL MODEL LAW – part of Philippine Consensual – cannot be compelled to submit to
law arbitration; but once you agree, you’re bound by it
a) Sec. 33 of ADR Act of 2004
What is an arbitration agreement?
Sec. 33 – Applicability to Domestic Arbitration Arbitration agreement – determines the rights,
obligations, procedure & rules;
Uncitral Model Law Preceding Ch. 4 - may be in a separate agreement or may be a
8 – Arbitration Sec. 22 – Legal clause in a contract
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 3
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PDRCI
1) Arbitration clause Singapore International Arbitration Centre
“Any dispute arising out of this contract shall be Hongkong International Arbitration Centre
resolved by arbitration.” ICSPI Disp.
American Arbitration Association
2) Container contract Japan Commercial Arbitration
Contract containing the arbitration clause Kuala Lumpur RCA
KCAB
Note: Doctrine of separability applies. ICC – International Court of Arbitration
ICA – not a court of adjudication
Rule 2.2. Policy on arbitration. XXX The Special ADR Rules
recognize the principle of separability of the arbitration clause, Sample arbitration clause:
which means that said clause shall be treated as an agreement
independent of the other terms of the contract of which it forms
“Any dispute arising out of this contract shall be
part. A decision that the contract is null and void shall not entail resolved by arbitration under the ICC Rules of
ipso jure the invalidity of the arbitration clause. Arbitration.”

Domestic v. International Arbitration Overview ICC Arbitration Rules / Principles:


1) Domestic – not International (RA 9285) 1) Submit request for arbitration
2) International – Article 1.3 (UNCITRAL Model 2) Assessment of non-refundable fee + cost of
Law) arbitration
a) Non-refundable fee - $2,500
RA 9285, Sec. 32. Law Governing Domestic Arbitration. - b) Arbitration cost
Domestic arbitration shall continue to be governed by Republic i) Fees of arbitrators – professional fees
Act No. 876, otherwise known as "The Arbitration Law" as
amended by this Chapter. The term "domestic arbitration" as
(1) 40% - chair
used herein shall mean an arbitration that is not international (2) 30% - members
as defined in Article (3) of the Model Law. ii) Claimant – 1
iii) Respondent – 1
Uncitral Model Law, Article 1 - xxx iv) Appointee of Appointing Authority - 1
3) An arbitration is international if: v) Administrative expenses
a) the parties to an arbitration agreement have at the time of the 3) Highly confidential
conclusion of that agreement, their places of business in
different States; or 4) Counsel in arbitration – does not have to be a
b) one of the following places is situated outside the State in lawyer
which the parties have their places of business: a) ADR Rates - $300 / hour
i) the place of arbitration if determined in, or pursuant to, the b) IBP Rates – P3,000 / appearance
arbitration agreement: i) Senior - P7 to 10T / hour
ii) any place where a substantial part of the obligations of the ii) Associate – P1-1,500 / hour
commercial relationship is to be performed or the place with
which the subject-matter of the dispute is most closely 5) ICA – can modify the form of the award
connected; or
c) the parties have expressly agreed that the subject-matter of See provisions, page 31.
the arbitration agreement relates to more than one country.
4) For the purposes of paragraph (3) of this article: What is the principle of Party Autonomy?
a) if a party has more than one place of business, the place of Party autonomy – freedom of the parties to
business is that which has the closest relationship to the
arbitration agreement; determine the rules / law governing the mode of
b) if a party does not have a place of business, reference is to be resolving their dispute
made to his habitual residence.
Rule 2.1. General policies. — It is the policy of the State to
Institutional v. Adhoc Arbitration actively promote the use of various modes of ADR and to respect
party autonomy or the freedom of the parties to make their own
1) Adhoc arbitration - arrangements in the resolution of disputes with the greatest
cooperation of and the least intervention from the courts. To this
2) Institutional – conducted under the auspices of end, the objectives of the Special ADR Rules are to encourage
an institution and promote the use of ADR, particularly arbitration and
mediation, as an important means to achieve speedy and efficient
resolution of disputes, impartial justice, curb a litigious culture and
Examples: to de-clog court dockets.
International Chamber of Commerce
CIAC RA 9285, Sec. 2 – Declaration of Policy
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-To actively promote party autonomy in the resolution of disputes 1. The proceedings before the Arbitral Tribunal shall be
or the freedom of the parties to make their own arrangements to governed by these Rules, and, where these Rules are silent, by
resolve their disputes any rules which the parties or, failing them, the Arbitral Tribunal
-To encourage and actively promote the use of may settle on, whether or not reference is thereby made to the
ADR to achieve speedy and impartial justice & de-clog court rules of procedure of a national law to be applied to the
dockets arbitration.

2. In all cases, the Arbitral Tribunal shall act fairly and impartially
Uncitral Model Law, Article 19 - [Determination of rules of and ensure that each party has a reasonable opportunity to
procedure] present its case.
1) Subject to the provisions of this Law, the parties are free to
agree on the procedure to be followed by the arbitral tribunal in ICC Rules, Article 17: Applicable Rules of Law
conducting the proceedings.
2) Failing such agreement, the arbitral tribunal may, subject to the 1. The parties shall be free to agree upon the rules of law to be
provisions of this Law, conduct the arbitration in such manner as it applied by the Arbitral Tribunal to the merits of the dispute. In the
considers appropriate. The power conferred upon the arbitral absence of any such agreement, the Arbitral Tribunal shall apply
tribunal includes the power to determine the admissibility, the rules of law which it determines to be appropriate.
relevance, materiality and weight of any evidence.
2. In all cases the Arbitral Tribunal shall take account of the
provisions of the contract and the relevant trade usages.
Uncitral Model Law, Article 28 - [Rules applicable to
substance of dispute] 3. The Arbitral Tribunal shall assume the powers of an amiable
1) The arbitral tribunal shall decide the dispute in accordance compositeur or decide ex aequo et bono only if the parties have
with such rules of law as are chosen by the parties as applicable agreed to give it such powers.
to the substance of the dispute. Any designation of the law or
legal system of a given State shall be construed, unless otherwise Next meeting:
expressed, as directly referring to the substantive law of that State
and not to its conflict of laws rules. RA 876
2) Failing any designation by the parties, the arbitral tribunal shall RA 9285
apply the law determined by the conflict of laws rules which it Special ADR Rules
considers applicable.
3) The arbitral tribunal shall decide ex aequo et bono1 or as UNCITRAL Model Law
amiable compositeur2 only if the parties have expressly
authorised it to do so.
4) In all cases, the arbitral tribunal shall decide in accordance with
the terms of the contract and shall take into account the usages
Class Notes - June 18, 2010
of the trade applicable to the transaction.
Appointment of Arbitrators (Domestic)
Uncitral Arbitration Rules, Applicable law, amiable ADR Law – Sec. 5 & Sec. 8
compositeur, Article 33
RA 876, Sec. 8 – Appointment of arbitrators
1. The arbitral tribunal shall apply the law designated by the
parties as applicable to the substance of the dispute. Failing such
If, in the contract for arbitration or in the submission described in
designation by the parties, the arbitral tribunal shall apply the law
section two, provision is made for a method of naming or
determined by the conflict of laws rules which it considers
appointing an arbitrator or arbitrators, such method shall be
applicable.
followed; but if no method be provided therein the Court of First
Instance shall designate an arbitrator or arbitrators.
2. The arbitral tribunal shall decide as amiable compositeur or ex
aequo et bono only if the parties have expressly authorised the
The Court of First Instance shall appoint an arbitrator or
arbitral tribunal to do so and if the law applicable to the arbitral
arbitrators, as the case may be, in the following instances:
procedure permits such arbitration.

(a) If the parties to the contract or submission are unable to


3. In all cases, the arbitral tribunal shall decide in accordance with
agree upon a single arbitrator; or
the terms of the contract and shall take into account the usages
of the trade applicable to the transaction.
(b) If an arbitrator appointed by the parties is unwilling or unable
to serve, and his successor has not been appointed in the manner
ICC Rules, Article 15: Rules Governing the Proceedings
in which he was appointed; or

(c) If either party to the contract fails or refuses to name his


arbitrator within fifteen days after receipt of the demand for
1
Latin for "according to the right and good" or "from equity and arbitration; or
conscience"
2
Clauses in arbitration agreements allowing the arbitrators to act (d) If the arbitrators appointed by each party to the contract, or
as "amiables compositeurs", permit the arbitrators to decide the appointed by one party to the contract and by the proper Court,
dispute according to the legal principles they believe to be just, shall fail to agree upon or to select the third arbitrator.
without being limited to any particular national law.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 5
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Rule 6.3. Venue. — The petition for appointment of arbitrator may


(e) The court shall, in its discretion appoint one or three be filed, at the option of the petitioner, in the Regional Trial Court
arbitrators, according to the importance of the controversy (a) where the principal place of business of any of the parties is
involved in any of the preceding cases in which the agreement is located, (b) if any of the parties are individuals, where those
silent as to the number of arbitrators. individuals reside, or (c) in the National Capital Region.

Rule 6.4. Contents of the petition. —The petition shall state the
(f) Arbitrators appointed under this section shall either accept or
following:
decline their appointments within seven days of the receipt of their
appointments. In case of declination or the failure of an arbitrator
or arbitrators to duly accept their appointments the parties or the a. The general nature of the dispute;
court, as the case may be, shall proceed to appoint a substitute or b. If the parties agreed on an appointment procedure, a
substitutes for the arbitrator or arbitrators who decline or failed to description of that procedure with reference to the agreement
accept his or their appointments. where such may be found;
c. The number of arbitrators agreed upon or the absence of any
Sec. 9 – Appointment of add’nal arbitrators agreement as to the number of arbitrators;
d. The special qualifications that the arbitrator/s must possess,
if any, that were agreed upon by the parties;
Where a submission or contract provides that two or more e. The fact that the Appointing Authority, without justifiable
arbitrators therein designated or to be thereafter appointed by the cause, has failed or refused to act as such within the time
parties, may select or appoint a person as an additional arbitrator, prescribed or in the absence thereof, within a reasonable time,
the selection or appointment must be in writing. Such additional from the date a request is made; and
arbitrator must sit with the original arbitrators upon the hearing. f. The petitioner is not the cause of the delay in, or failure of, the
appointment of the arbitrator.
RULE 6: APPOINTMENT OF ARBITRATORS
Apart from other submissions, the petitioner must attach to the
Rule 6.1. When the court may act as Appointing Authority. — The petition (a) an authentic copy of the arbitration agreement, and (b)
court shall act as Appointing Authority only in the following proof that the Appointing Authority has been notified of the filing
instances: of the petition for appointment with the court.

Rule 6.5. Comment/Opposition. — The comment/opposition must


a. Where any of the parties in an institutional arbitration failed or be filed within fifteen (15) days from service of the petition.
refused to appoint an arbitrator or when the parties have failed to
reach an agreement on the sole arbitrator (in an arbitration before Rule 6.6. Submission of list of arbitrators. — The court may, at its
a sole arbitrator) or when the two designated arbitrators have option, also require each party to submit a list of not less than
failed to reach an agreement on the third or presiding arbitrator (in three (3) proposed arbitrators together with their curriculum vitae.
an arbitration before a panel of three arbitrators), and the
institution under whose rules arbitration is to be conducted fails or Rule 6.7. Court action. — After hearing, if the court finds merit in
is unable to perform its duty as appointing authority within a the petition, it shall appoint an arbitrator; otherwise, it shall
reasonable time from receipt of the request for appointment; dismiss the petition.
b. In all instances where arbitration is ad hoc and the parties In making the appointment, the court shall have regard to such
failed to provide a method for appointing or replacing an considerations as are likely to secure the appointment of an
arbitrator, or substitute arbitrator, or the method agreed upon is independent and impartial arbitrator.
ineffective, and the National President of the Integrated Bar of the
Philippines (IBP) or his duly authorized representative fails or At any time after the petition is filed and before the court makes
refuses to act within such period as may be allowed under the an appointment, it shall also dismiss the petition upon being
pertinent rules of the IBP or within such period as may be agreed informed that the Appointing Authority has already made the
upon by the parties, or in the absence thereof, within thirty (30) appointment.
days from receipt of such request for appointment;
Rule 6.8. Forum shopping prohibited. — When there is a pending
c. Where the parties agreed that their dispute shall be resolved petition in another court to declare the arbitration agreement
by three arbitrators but no method of appointing those arbitrators inexistent, invalid, unenforceable, on account of which the
has been agreed upon, each party shall appoint one arbitrator respondent failed or refused to participate in the selection and
and the two arbitrators thus appointed shall appoint a third appointment of a sole arbitrator or to appoint a party-nominated
arbitrator. If a party fails to appoint his arbitrator within thirty (30) arbitrator, the petition filed under this rule shall be dismissed.
days of receipt of a request to do so from the other party, or if the
two arbitrators fail to agree on the third arbitrator within a Rule 6.9. Relief against court action. — If the court appoints an
reasonable time from their appointment, the appointment shall be arbitrator, the order appointing an arbitrator shall be immediately
made by the Appointing Authority. If the latter fails or refuses to executory and shall not be the subject of a motion for
act or appoint an arbitrator within a reasonable time from receipt reconsideration, appeal or certiorari. An order of the court denying
of the request to do so, any party or the appointed arbitrator/s the petition for appointment of an arbitrator may, however, be the
may request the court to appoint an arbitrator or the third subject of a motion for reconsideration, appeal or certiorari.
arbitrator as the case may be.

Rule 6.2. Who may request for appointment. — Any party to an How do you commence arbitration? (domestic)
arbitration may request the court to act as an Appointing Authority
in the instances specified in Rule 6.1 above. Sec. 5 – Preliminary procedure
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Arbitration v. Adjudication
Arbitration Agreement Submission <insert notes here>
Agreement Sir thinks the difference is only in the terminology,
(a) (c) until he saw the FIDIC.
(b) Default  (d) Neglect / Fail /
Refuse to arbitrate  Arbitration - (d) "Arbitration" means a voluntary
Follow (a) and (b) dispute resolution process in which one or more
arbitrators, appointed in accordance with the
RA 876, Sec. 5. Preliminary procedure. An arbitration agreement of the parties, or rules promulgated
shall be instituted by: pursuant to this Act, resolve a dispute by rendering
an award (RA 9285)
(a) In the case of a contract to arbitrate future In arbitration an independent, impartial third party
controversies by the service by either party upon the other hears both sides in a dispute and makes a decision
of a demand for arbitration in accordance with the
to resolve it. In most cases the arbitrator's decision
contract. Such demand shall be set forth the nature of the
controversy, the amount involved, if any, and the relief is legally binding on both sides, so it is not possible
sought, together with a true copy of the contract providing to go to court if you are unhappy with the decision.
for arbitration. The demand shall be served upon any party Arbitration is in many ways an alternative form of
either in person or by registered mail. In the event that the
contract between the parties provides for the appointment
court with procedural rules which govern issues such
of a single arbitrator, the demand shall be set forth a as disclosure of documents and evidence. But
specific time within which the parties shall agree upon arbitration is private rather than public. Hearings are
such arbitrator. If the contract between the parties less formal than court hearings, and some forms of
provides for the appointment of three arbitrators, one to be arbitration do not involve hearings but are decided
selected by each party, the demand shall name the on the basis of documents only.
arbitrator appointed by the party making the demand; and
shall require that the party upon whom the demand is
made shall within fifteen days after receipt thereof advise Adjudication - Adjudication involves an
in writing the party making such demand of the name of independent third party considering the claims of
the person appointed by the second party; such notice both sides and making a decision. The adjudicator is
shall require that the two arbitrators so appointed must usually an expert in the subject matter in dispute.
agree upon the third arbitrator within ten days from the Adjudicators are not bound by the rules of litigation
date of such notice.
or arbitration. Their decisions are often interim ones,
ie they can be finalised using arbitration or another
(b) In the event that one party defaults in answering the process. Adjudication decisions are usually binding
demand, the aggrieved party may file with the Clerk of the
on both parties by prior agreement.
Court of First Instance having jurisdiction over the parties,
a copy of the demand for arbitration under the contract to In relation to construction contracts, adjudication is a
arbitrate, with a notice that the original demand was sent statutory procedure by which any party to the
by registered mail or delivered in person to the party contract has a right to have a dispute decided by an
against whom the claim is asserted. Such demand shall
adjudicator, normally used to ensure payment. It is
set forth the nature of the controversy, the amount
involved, if any, and the relief sought, and shall be intended to be quicker and more cost effective than
accompanied by a true copy of the contract providing for litigation or arbitration. The right arises by virtue of
arbitration. the Housing Grants Construction and Regeneration
Act 1996.
(c) In the case of the submission of an existing Adjudication is also sometimes used to describe a
controversy by the filing with the Clerk of the Court of First
non-specific alternative dispute resolution process in
Instance having jurisdiction, of the submission agreement,
setting forth the nature of the controversy, and the amount which a third party makes a decision as to the best
involved, if any. Such submission may be filed by any way to resolve the dispute. In this sense,
party and shall be duly executed by both parties. ombudsmen, arbitrators and judges are all types of
adjudicators.
(d) In the event that one party neglects, fails or refuses to
arbitrate under a submission agreement, the aggrieved The aim of adjudication is to resolve disputed
party shall follow the procedure prescribed in issues in order to enable work to continue (either
subparagraphs (a) and (b) of this section. indefinitely or while awaiting the decision of a
judge or arbitrator). Arbitration is a more formal
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 7
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process, and the arbitrator's decision is legally


binding.

FIDIC (Federacion Internationale Des Ingenieurs


Conseil)
1) Dispute Adjudication Board
2) Relevant in contract negotiation
3) Different colors
a) Red
b) Blue
c) Green
d) Pink
e) Silver
i) 2 parties:
(1) Project owner – employer
(2) Contractor
ii) Contains an interesting provision saying
that an employer would not be liable
even if wrong information was given
iii) Contains an adjudication clause in the
following tenor: “Appeal from
adjudication may be taken to the
arbitrational panel under ICC Rules.”
iv) Three levels:
(1) Amicable settlement
(2) Adjudication
(3) Arbitration
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Art. 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in
MINI-TRIAL good faith.

What is a Mini-Trial?
"Mini-Trial" means a structured dispute resolution Principle of confidentiality in mediation
method in which the merits of a case are argued Extends to admissions made in mediation
before a panel comprising senior decision makers
with or without the presence of a neutral third person Sec. 9 - Confidentiality of Information
after which the parties seek a negotiated settlement
(RA 9285, Sec. 3(u)) Information obtained through mediation proceedings shall be
subject to the following principles and guidelines:
Note:
Senior decision makers meet, negotiated settlement (a) Information obtained through mediation shall be privileged
and confidential.

(b) A party, a mediator, or a nonparty participant may refuse to


EARLY NEUTRAL EVALUATION disclose and may prevent any other person from disclosing a
mediation communication.
What is Early Neutral Evaluation?
"Early Neutral Evaluation" means an ADR process (c) Confidential Information shall not be subject to discovery and
wherein parties and their lawyers are brought shall be inadmissible if any adversarial proceeding, whether
judicial or quasi-judicial, However, evidence or information that
together early in a pre-trial phase to present is otherwise admissible or subject to discovery does not become
summaries of their cases and receive a nonbinding inadmissible or protected from discovery solely by reason of its
assessment by an experienced, neutral person, with use in a mediation.
expertise in the subject in the substance of the
dispute (d) In such an adversarial proceeding, the following persons
involved or previously involved in a mediation may not be
compelled to disclose confidential information obtained during
Note: mediation: (1) the parties to the dispute; (2) the mediator or
Similar to a “pre-trial”; before the filing of the mediators; (3) the counsel for the parties; (4) the nonparty
complaint participants; (5) any persons hired or engaged in connection
with the mediation as secretary, stenographer, clerk or
assistant; and (6) any other person who obtains or possesses
MEDIATION confidential information by reason of his/her profession.

How are mediated-settlements enforced? (e) The protections of this Act shall continue to apply even of a
By depositing in court (RA 9285, Sec. 17) mediator is found to have failed to act impartially.

(f) a mediator may not be called to testify to provide information


Court-Annexed Mediation v. Court-Ordered gathered in mediation. A mediator who is wrongfully subpoenaed
Mediation shall be reimbursed the full cost of his attorney's fees and related
"Court-Annexed Mediation" means any mediation expenses.
process conducted under the auspices of the court,
after such court has acquired jurisdiction of the Sec. 10 – Waiver of Confidentiality
dispute (RA 9285, Sec. 3 (l))
Note: governed by SC issuances A privilege arising from the confidentiality of information may be
waived in a record, or orally during a proceeding by the mediator
and the mediation parties.
Court-Referred Mediation" means mediation
ordered by a court to be conducted in accordance A privilege arising from the confidentiality of information may
with the Agreement of the Parties when as action is likewise be waived by a nonparty participant if the information is
prematurely commenced in violation of such provided by such nonparty participant.
agreement (RA 9285, Sec. 3 (m))
A person who discloses confidential information shall be
precluded from asserting the privilege under Section 9 of this
Notes: Chapter to bar disclosure of the rest of the information
- ground for stay of civil action necessary to a complete understanding of the previously
- related to Art. 1159 CC disclosed information. If a person suffers loss or damages in a
judicial proceeding against the person who made the disclosure.
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A person who discloses or makes a representation about a


mediation is preclude from asserting the privilege under Section Sec. 12 – Prohibited Mediator Reports
9, to the extent that the communication prejudices another A mediator may not make a report, assessment, evaluation,
person in the proceeding and it is necessary for the person recommendation, finding, or other communication regarding a
prejudiced to respond to the representation of disclosure. mediation to a court or agency or other authority that make a
ruling on a dispute that is the subject of a mediation, except:
Sec. 11 – Exceptions to Privilege {RPTCPM}
(a) Where the mediation occurred or has terminated, or where a
(a) There is no privilege against disclosure under Section 9 if settlement was reached.
mediation communication is:
(b) As permitted to be disclosed under Section 13 of this
(1) in an agreement evidenced by a record authenticated by all Chapter.
parties to the agreement;
RULE 10: CONFIDENTIALITY/PROTECTIVE ORDERS
(2) available to the public or that is made during a session of a
mediation which is open, or is required by law to be open, to the
public; Rule 10.1. Who may request confidentiality. — A party, counsel
or witness who disclosed or who was compelled to disclose
(3) a threat or statement of a plan to inflict bodily injury or information relative to the subject of ADR under circumstances
commit a crime of violence; that would create a reasonable expectation, on behalf of the
source, that the information shall be kept confidential has the right
to prevent such information from being further disclosed without
(4) internationally used to plan a crime, attempt to commit, or
the express written consent of the source or the party who
commit a crime, or conceal an ongoing crime or criminal activity;
made the disclosure.

(5) sought or offered to prove or disprove abuse, neglect, Rule 10.2. When request made.—A party may request a
abandonment, or exploitation in a proceeding in which a protective order at anytime there is a need to enforce the
public agency is protecting the interest of an individual protected confidentiality of the information obtained, or to be obtained, in
by law; but this exception does not apply where a child protection ADR proceedings.
matter is referred to mediation by a court or a public agency
participates in the child protection mediation; Rule 10.3. Venue. — A petition for a protective order may be
filed with the Regional Trial Court where that order would be
(6) sought or offered to prove or disprove a claim or complaint implemented.
of professional misconduct or malpractice filed against
mediator in a proceeding; or If there is a pending court proceeding in which the information
obtained in an ADR proceeding is required to be divulged or is
being divulged, the party seeking to enforce the confidentiality of
(7) sought or offered to prove or disprove a claim of complaint
the information may file a motion with the court where the
of professional misconduct of malpractice filed against a
proceedings are pending to enjoin the confidential information
party, nonparty participant, or representative of a party based
from being divulged or to suppress confidential information.
on conduct occurring during a mediation.
Rule 10.4. Grounds. — A protective order may be granted only if
(b) There is no privilege under Section 9 if a court or it is shown that the applicant would be materially prejudiced by
administrative agency, finds, after a hearing in camera, that the an unauthorized disclosure of the information obtained, or to be
party seeking discovery of the proponent of the evidence has obtained, during an ADR proceeding.
shown that the evidence is not otherwise available, that there is
a need for the evidence that substantially outweighs the Rule 10.5. Contents of the motion or petition. — The petition or
interest in protecting confidentiality, and the mediation motion must state the following:
communication is sought or offered in:
a. That the information sought to be protected was obtained, or
(1) a court proceeding involving a crime or felony; or would be obtained, during an ADR proceeding;
b. The applicant would be materially prejudiced by the
(2) a proceeding to prove a claim or defense that under the law is disclosure of that information;
sufficient to reform or avoid a liability on a contract arising out of c. The person or persons who are being asked to divulge the
the mediation. confidential information participated in an ADR proceedings; and
d. The time, date and place when the ADR proceedings took
(c) A mediator may not be compelled to provide evidence of a place.
mediation communication or testify in such proceeding.
Apart from the other submissions, the movant must set the motion
for hearing and contain a notice of hearing in accordance with
(d) If a mediation communication is not privileged under an
Rule 15 of the Rules of Court.
exception in subsection (a) or (b), only the portion of the
communication necessary for the application of the exception for
Rule 10.6. Notice. — Notice of a request for a protective order
nondisclosure may be admitted. The admission of particular
made through a motion shall be made to the opposing parties in
evidence for the limited purpose of an exception does not
accordance with Rule 15 of the Rules of Court.
render that evidence, or any other mediation communication,
admissible for any other purpose.
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Rule 10.7. Comment/Opposition. — The comment/opposition ARBITRATION


must be filed within fifteen (15) days from service of the petition.
The opposition or comment may be accompanied by written proof
that (a) the information is not confidential, (b) the information What is ADR?
was not obtained during an ADR proceeding, (c) there was a "Alternative Dispute Resolution System" means any
waiver of confidentiality, or (d) the petitioner/movant is precluded process or procedure used to resolve a dispute or
from asserting confidentiality. controversy, other than by adjudication of a
Rule 10.8. Court action. — If the court finds the petition or motion presiding judge of a court or an officer of a
meritorious, it shall issue an order enjoining a person or persons government agency, as defined in this Act, in which
from divulging confidential information. a neutral third party participates to assist in the
resolution of issues, which includes arbitration,
In resolving the petition or motion, the courts shall be guided by
the following principles applicable to all ADR proceedings: mediation, conciliation, early neutral evaluation,
Confidential information shall not be subject to discovery mini-trial, or any combination thereof (Sec. 3a, RA
and shall be inadmissible in any adversarial proceeding, 9285)
whether judicial or quasi judicial. However, evidence or
information that is otherwise admissible or subject to
discovery does not become inadmissible or protected from What is Arbitration?
discovery solely by reason of its use therein. "Arbitration" means a voluntary dispute resolution
process in which one or more arbitrators, appointed
For mediation proceedings, the court shall be further guided by in accordance with the agreement of the parties, or
the following principles:
rules promulgated pursuant to this Act, resolve a
dispute by rendering an award (Sec. 3d, RA 9285)
a. Information obtained through mediation shall be privileged
and confidential.
b. A party, a mediator, or a nonparty participant may refuse What distinguishes Arbitration from other forms
to disclose and may prevent any other person from disclosing a of ADR?
mediation communication.
“Final, binding and enforceable” through the
c. In such an adversarial proceeding, the following persons
involved or previously involved in a mediation may not be following procedures:
compelled to disclose confidential information obtained during the 1) Confirmation of award
mediation: (1) the parties to the dispute; (2) the mediator or 2) “Judgment” is capable of enforcement
mediators; (3) the counsel for the parties: (4) the nonparty
participants; (5) any persons hired or engaged in connection
with the mediation as secretary, stenographer; clerk or
assistant; and (6) any other person who obtains or possesses
confidential information by reason of his/ her profession. PROCESS OF ARBITRATION
d. The protection of the ADR Laws shall continue to apply even
if a mediator is found to have failed to act impartially.
e. A mediator may not be called to testify to provide Arbitration agreement
information gathered in mediation. A mediator who is |
wrongfully subpoenaed shall be reimbursed the full cost of his
Dispute
attorney fees and related expenses.
|
Rule 10.9. Relief against court action. — The order enjoining a Selection of arbitrators
person or persons from divulging confidential information shall be |
immediately executory and may not be enjoined while the Conduct of arbitration proceedings
order is being questioned with the appellate courts.
|
If the court declines to enjoin a person or persons from divulging Arbitral Award
confidential information, the petitioner may file a motion for |
reconsideration or appeal. Confirmation &/or Enforcement
Rule 10.10. Consequence of disobedience. — Any person who
disobeys the order of the court to cease from divulging
confidential information shall be imposed the proper sanction by FIRST PART: ARBITRATION AGREEMENT
the court.
Arbitration Agreement v. Submission Agreement

No Class - June 25, 2010 Arbitration Agreement Submission Agreement


Before occurence of Agreement to submit
Class Notes - July 2, 2010 dispute dispute to arbitration; no
previous arbitration
clause
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A party may invoke this May be entered into at


at any time before pre- any time, even after pre-
trial, after which, both trial Class Notes - July 16, 2010
parties must invoke it

Petition for Enforcement of Arbitration THIRD PART:


Agreement (See end) COMMENCEMENT OF ARBITRATION &
CONSTITUTION OF ARBITRAL TRIBUNAL

Notice Requirements How do you commence arbitration?


1) Adhoc – by a demand to arbitrate
Depends on whether or not the petition / motion filed 2) Institutional - very similar to a demand to arbitrate,
is covered by Summary Procedure. addressed to the institution; called a Request for
Arbitration or Notice of Arbitration
Covered by Summary Procedure:
What is the significance of filing a Request for
1) Judicial Relief Involving the Issue of Existence, Arbitration or Notice of Arbitration?
Validity or Enforceability of the Arbitration Whether conventional litigation or ADR, the filing of
Agreement; the initiatory complaint / request for arbitration is
2) Referral to ADR; significant in the area of interim measures of
3) Interim Measures of Protection; protection. It could be obtained from:
4) Appointment of Arbitrator;
5) Challenge to Appointment of Arbitrator; General Rule: the arbitral tribunal
6) Termination of Mandate of Arbitrator; Except: the court, in the following instances:
7) Assistance in Taking Evidence; 1) Before commencement of arbitration
8) Confidentiality/Protective Orders; and 2) After arbitration is commenced, but before the
9) Deposit and Enforcement of Mediated constitution of the arbitral tribunal;
Settlement Agreements. 3) After the constitution of the arbitral and at any
time during arbitral proceedings but, at this
Not Covered by Summary Procedure: stage, only to the extent that the arbitral tribunal
has no power to act or is unable to act
1) Confirmation, Correction or Vacation of Award in effectively.
Domestic Arbitration
2) Recognition and Enforcement or Setting Aside RA 876, Sec. 14 xxx “The arbitrator or arbitrators shall have the
of an Award in International Commercial power at any time, before rendering the award, without prejudice
Arbitration to 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
3) Recognition and Enforcement of a Foreign dispute in arbitration.”
Arbitral Award
RA 9285, Sec. 28 – Grant of Interim Measure of Protection
Notes: (a) It is not incompatible with an arbitration agreement for a party
*Petition to correct / vacate does not touch upon the to request, before constitution of the tribunal, from a Court an
merits of the award. interim measure of protection and for the Court to grant such
measure. After constitution of the arbitral tribunal and during
*Petition to vacate (domestic) – depends on grounds arbitral proceedings, a request for an interim measure of
to vacate protection or modification thereof, may be made with the arbitral
*Petition to set aside (international) – See tribunal or to the extent that the arbitral tribunal has no power to
UNCITRAL A.34 & 36 act or is unable to act effectively, the request may be made with
the Court. The arbitral tribunal is deemed constituted when the
sole arbitrator or the third arbitrator who has been nominated, has
accepted the nomination and written communication of said
Pop Quiz - July 9, 2010 nomination and acceptance has been received by the party
making request.

Petition to Enforce Arbitation Agreement using the (b) The following rules on interim or provisional relief shall be
case of Mindanao Portland Cement Corporation v. observed:
McDonough Construction Co. of Florida, 90 SCRA
808 (1967) (1) Any party may request that provision relief be granted against
the adverse party:
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the goods forming the subject-matter in dispute, such as ordering


(2) Such relief may be granted: their deposit with a third person or the sale of perishable goods.

(i) to prevent irreparable loss or injury: 2. Such interim measures may be established in the form of an
interim award. The arbitral tribunal shall be entitled to require
security for the costs of such measures.
(ii) to provide security for the performance of any obligation;

3. A request for interim measures addressed by any party to a


(iii) to produce or preserve any evidence; or
judicial authority shall not be deemed incompatible with the
agreement to arbitrate, or as a waiver of that agreement.
(iv) to compel any other appropriate act or omission.
ICC Rules, Article 23, Conservatory and Interim Measures
(3) The order granting provisional relief may be conditioned upon 1. Unless the parties have otherwise agreed, as soon as the file
the provision of security or any act or omission specified in the has been transmitted to it, the Arbitral Tribunal may, at the
order. request of a party, order any interim or conservatory measure it
deems appropriate. The Arbitral Tribunal may make the granting
(4) Interim or provisional relief is requested by written application of any such measure subject to appropriate security being
transmitted by reasonable means to the Court or arbitral tribunal furnished by the requesting party. Any such measure shall take
as the case may be and the party against whom the relief is the form of an order, giving reasons, or of an Award, as the
sought, describing in appropriate detail the precise relief, the party Arbitral Tribunal considers appropriate.
against whom the relief is requested, the grounds for the relief, 2. Before the file is transmitted to the Arbitral Tribunal, and in
and evidence supporting the request. appropriate circumstances even thereafter, the parties may apply
to any competent judicial authority for interim or conservatory
(5) The order shall be binding upon the parties. measures. The application of a party to a judicial authority for
such measures or for the implementation of any such measures
ordered by an Arbitral Tribunal shall not be deemed to be an
(6) Either party may apply with the Court for assistance in
infringement or a waiver of the arbitration agreement and shall not
Implementing or enforcing an interim measure ordered by an
affect the relevant powers reserved to the Arbitral Tribunal. Any
arbitral tribunal.
such application and any measures taken by the judicial authority
must be notified without delay to the Secretariat. The Secretariat
(7) A party who does not comply with the order shall be liable for shall inform the Arbitral Tribunal thereof.
all damages resulting from noncompliance, including all
expenses, and reasonable attorney's fees, paid in obtaining the
order's judicial enforcement.
Upon receipt:
RA 9285, Sec. 29 – Further Authority for Arbitrator to Grant
1) WON a dispute is arbitable – the first thing that an
Interim Measure of Protection institution should determine
Unless otherwise agreed by the parties, the arbitral tribunal may, 2) Assess an non-refundable fee of $2500.
at the request of a party, order any party to take such interim 3) Inform the prospective respondent that a Request
measures of protection as the arbitral tribunal may consider for Arbitration was received
necessary in respect of the subject matter of the dispute following
the rules in Section 28, paragraph 2. Such interim measures may 4) Prospective respondent answers
include but shall not be limited to preliminary injuction directed 5) Assess the fees
against a party, appointment of receivers or detention,
preservation, inspection of property that is the subject of the Period for rendering an Award:
dispute in arbitration. Either party may apply with the Court for
assistance in implementing or enforcing an interim measures 1) Stipulation
ordered by an arbitral tribunal. 2) To be determined by the arbitral tribunal during
the preliminary conference
Uncitral Model Law, Article 17 - [Power of arbitral tribunal to
order interim measures] Less than 60 days – Summary (ADR Rules)
Unless otherwise agreed by the parties, the arbitral tribunal may, 15 days from service to file Comment/Opposition
at the request of a party, order any party to take such interim
measure of protection as the arbitral tribunal may consider 1 hearing day, only for the purpose of clarifications
necessary in respect of the subject-matter of the dispute. The Resolution 30 days from the time the petition is
arbitral tribunal may require any party to provide appropriate submitted for resolution
security in connection with such measure.
10 days - ADR Law
Uncitral Arbitration Rules, Interim measures of protection,
Article 26
Four courses of action by the Court
1. At the request of either party, the arbitral tribunal may take any Determine existence of AA
interim measures it deems necessary in respect of the subject- If no, dismiss (1)
matter of the dispute, including measures for the conservation of If yes, determine if there was default or not in the
compliance with the Arbitration Agreement (2)
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If there is no default, (dismiss) 4) Ask to Vacate / Modify Award


If there was default, Court to 5) Ask to Enforce the Award

Challenge of arbitrator What is the consequence of breach of


If a party renews his challenge in Court – arbitration confidentiality?
proceedings are suspended Claim for damages.
But under Special ADR Rules – proceed
Where do you file the action for damanges
International Bar Association (IBA) Rules of arising from breach of confidentiality?
Evidence RTC, not arbitral tribunal. Because the jurisdiction of
Green List – list of factors that may or may not be the arbitral tribunal over issues is defined by the
disclosed but will not affect the fitness of arbitration agreement. Issue of breach of
Red List – list of prohibited factors confidentiality is usually involved in other causes of
actions or pending actions. e.g. transactions with 3rd
Long Quiz - July 23, 2010 persons.

Coverage: Class notes from start to latest. Note:


Breach of confidentiality covers mere disclosure of
fact of pendency of arbitration proceedings.
Class Notes – July 30, 2010 COMPETENCE-COMPETENCE PRINCIPLE

What is the “Competence-Competence


FOURTH PART: Principle”?
CONDUCT OF ARBITRATION PROCEEDINGS Power of arbitral tribunal to initially rule on the
question of its jurisdiction over a dispute including
any objections with respect to the existence or
CONFIDENTIALITY validity of the arbitration agreement or any condition
precedent to the filing of a request of arbitration.
Why is there no publication of awards of arbitral
tribunals? Restatement of the Rule:
Because of the principle of confidentiality of Before the arbitral tribunal is constituted, the regular
arbitration proceedings (Sec. 23, RA 9285). courts have jurisdiction to determine the issue of
competence of a tribunal. The moment the arbitral
Sec. 23 – Confidentiality in Arbitration tribunal is constituted, the arbitral tribunal has
Proceedings jurisdiction.
The arbitration proceedings, including the records,
evidence and the arbitral award, shall be considered There arises a policy of judicial restraint, such that
confidential and shall not be published except (1) the finding of the court on the jurisdiction of the
with the consent of the parties, or (2) for the limited arbitral tribunal is at best prima facie.
purpose of disclosing to the court of relevant
documents in cases where resort to the court is Note:
allowed herein. Provided, however, that the court in There is a before AT, after AT’s finding, and after-
which the action or the appeal is pending may issue after.
a protective order to prevent or prohibit disclosure of
documents or information containing secret Does the “prima facie finding” of the court mean
processes, developments, research and other that the arbitral tribunal can still be formed?
information where it is shown that the applicant shall Yes. If the court finds that the arbitration agreement
be materially prejudiced by an authorized disclosure is null and void, inoperative or incapable of being
thereof. performed, a party may nevertheless commence
arbitration and constitute the arbitral tribunal.
Exception to confidentiality:
1) Application for Interim Measure of Protection So where does “prima facie finding” of the court
2) Appoint Arbitrator come in? How is it prima facie?
3) Challenge Arbitrator This means that the same issue may be passed
upon by the arbitral tribunal, which has the effect of
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superseding the previous of the court. (This is the Would Rule 4.7 result in multiplicity of suits?
“AFTER” ruling.) Yes. But this does not prevent arbitration from being
commenced.
What about the “after-after” ruling?
The same issue may be passed upon in an action to
vacate or set aside the arbitral award (Rule 3.11) In Cases for next meeting (August 6, 2010):
this case, it is no longer a prima facie determination 1) Vega v. San Carlos Milling Co. Ltd, 51 Phil 908
of such issue or issues, but shall be a FULL (1924) – no digest
REVIEW of such issue or issues with due regard, 2) California & Hawaiian Sugar Co. v. Pioneer
however, to the standard of review for arbitral Insurance & Surety Corp. 346 SCRA 214 (2000)
awards.
3) Associated Bank v. CA, 233 SCRA 137 (1994)
But how may arbitration commence if it the court 4) Bloomfield Academy v. CA, 237 SCRA 43
has made a prima facie finding that ithe (1994)
arbitration agreement is found null and void, 5) Mindanao Portland Cement Corporation v.
inoperative or incapable of being performed? McDonough Construction Co. of Florida, 90
Will the other party who got the favorable ruling SCRA 808 (1967)
of the court participate / cooperate? 6) Gonzales v. Climax Mining Ltd., 512 SCRA 148
Get an appointment of arbitrator - sole arbitrator, ad- (2007)
hoc, institutional. 7) Oil & Natural Gas Commission v. CA, 293 SCRA
26 (1998)
Illustration: 8) Magellan Capital Mgt. Corp. v. Zosa, 355 SCRA
It’s possible for A to get a ruling from the court that 157 (2001)
the arbitration agreement is null and void, and B may 9) BF Corporation v. CA, 288 SCRA 267 (1998)
commence arbitration in an institution in another 10) Korea Technologies Co. Ltd. v. Lerma, 542
country. B now asked to appoint arbitrator for A SCRA 1 (2008)
contesting the arbitration agreement.
11) Luzon Development Bank v. Luzon
Development Bank Employees, 249 SCRA 162
What is the remedy of A?
(1995) – In re: multiplicity
a) Get an injunction from RTC Philippines. Next step
is contempt. (Although the exercise of a legal right is
not contemptuous) There may also be problem in
getting injunction. Plus there’s a provision in Special Class Notes - August 6, 2010
ADR Rules prohibiting injunction against arbitration.
Finally, A can later on file a petition to set aside the Is there a counterpart of the principle of
award. confidentiality in Sec. 23 RA 9285 in RA 876?
b) Challenge jurisdiction of arbitral tribunal Sec. 14? (UNANSWERED)
constituted by institution in foreign country.
What is the Judicial Relief After Commencement
UNCITRAL: of Arbitration (Rule 3, Special ADR Rules)?
1) Petition to Set Aside A party may ask that the ruling of the arbitral tribunal
2) Petition to Refuse Recognition on a preliminary question upholding or declining its
jurisdiction be declared null and void, inexistent or
What is the Principle of Separability? unenforceable. This is premised on the fact that the
Arbitration clause is treated as an agreement jurisdiction of the arbitral tribunal is defined by the
independent of the other terms of the contract of arbitration agreement. The determination of the court
which it forms part. A decision that the contract is is no longer a prima facie finding.
null and void shall not entail ipso jure the invalidity of
the arbitration clause. (Uncitral Model Law, Sec. But would that not violate the Competence-
16(1); Special ADR Rules 2.2) Competence Principle?
The determination of the court after the
What is the effect of multiple actions and commencement of arbitration proceedings
parties?
Rule 4.7. Illustration
August 6 – Commencement of Arbitration
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the reciprocal covnenant in Sec. 7 of the Mill’s


Scenario A: covenant.4
On May 6, the determination of the court is merely It is an admitted fact that the differences which later
prima facie and the parties may still commence arose between the parties, and which are the subject
arbitration. of the present litigation have not been submitted to
arbitration provided for in the above quoted
Scenario B: clauses.
On November 6, the determination of the court is no Plaintiff filed an action for the recovery of 32,959
longer prima facie. What would be the remedy of the kilos of centrifugal sugar, or its value, P6,252, plus
claimant? the payment of P500 damages and the costs.
The lower court decided in favor of the plaintiff.
Not final – may still be reviewed by MR, appeal, Issue:
certiorari. WON the lower court erred in having held itself with
jurisdiction to take cognizance of and render
Rule 3.19 judgment in the cause
1) MR - yes Held: NO.
2) Certiorari – yes Ratio:
a) Affirming AT’s jurisdiction – not subject to 1) The defendant is right in contending that clause
certiorari 23 of the Mill's covenant and clause 14 of the
b) AT has no jurisdiction – certiorari available Planter's Covenant on arbitration are valid, but
they are not for that reason a bar to judicial
Note: How many days? action, in view of the way they are expressed:
3) Appeal – yes daw "An agreement to submit to arbitration, not
consummated by an award, is no bar to a suit at
Vega v. San Carlos Milling Co. Ltd, 51 Phil 908 law or in equity concerning the subject matter
(1924) submitted. And the rule applies both in respect of
Petitioners: Teodoro Vega agreements to submit existing differences and
Respondent: San Carlos Milling Co., Ltd. agreements to submit differences which may
arise in the future." (5 C. J., 42.)
Facts: And in view of the terms in which the said covenants
on arbitration are expressed, it cannot be held that in
Defendant-appellant contends that Sec. 23 of the agreeing on this point, the parties proposed to
Mill’s covenant and Sec. 14 of the Planter’s establish the arbitration as a condition precedent to
covenant, as such stipulations on arbitration are judicial action, because these clauses quoted do not
valid, and constitute a condition precedent, to create such a condition either expressly or by
which the plaintiff should have resorted before necessary inference.
applying to the courts, as he prematurely did.3 "Submission as Condition Precedent to Suit. —
This, more so, if these two provisions are read with Clauses in insurance and other contracts providing
for arbitration in case of disagreement are very
dissimilar, and the question whether submission to
3
arbitration is a condition precedent to a suit upon the
Said STIPULATIONS TO ARBITRATE are as follows: contract depends upon the language employed in
"23 (Mill’s covenant). That it (the Mill—Party of the first part)
will submit any and all differences that may arise between the each particular stipulation. Where by the same
Mill and the Planters to the decision of arbitrators, two of agreement which creates the liability, the
whom shall be chosen by the Mill and two by the Planters, who in ascertainment of certain facts by arbitrators is
case of inability to agree shall select a fifth arbitrator, and to expressly made a condition precedent to a right
respect and abide by the decision of said arbitrators, or any
three of them, as the case may be." of action thereon, suit cannot be brought until
"14 (Planter’s covenant). That they (the Planters—Parties of the award is made. But the courts generally will
the second part) will submit any and all differences that may
arise between the parties of the first part and the parties of the
4
second part to the decision of arbitrators, two of whom shall be Said RECIPROCAL COVENANT No. 7, reads:
chosen by the said parties of the first part and two by the said "7. Subject to the provisions as to arbitration,
party of the second part, who in case of inability to agree, shall hereinbefore appearing, it is mutually agreed that the courts of
select a fifth arbitrator, and will respect and abide by the the City of Iloilo shall have jurisdiction of any and all judicial
decision of said arbitrators, or any three of them, as the case proceedings that may arise out of the contractual relations herein
may be." between the party of the first and the parties of the second part."
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 16
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not construe an arbitration clause as ousting relation with its corollary, that the letter written by the
them of their jurisdiction unless such manager of the defendant's mill on March 18, 1916,
construction is inevitable, and consequently does not estop the defendant from demanding
when the arbitration clause is not made a compensation for the future use of the cars.
2) The parties having formally agreed to submit their
condition precedent by express words or differences to arbitrators, while recognizing the
necessary implication, it will be construed as jurisdiction of the courts, arbitration has been made a
merely collateral to the liability clause, and so no condition precedent to litigation, and should be held
bar to an action in the courts without an award." valid and enforceable.
(2 R. C. L., 362, 363.)
2) Neither does the reciprocal covenant No. 7 of a) In the Philippines fortunately, the attitude of the
the Mill’s covenant expressly or impliedly courts toward arbitration agreements is
establish the arbitration as a condition slowly crystallizing into definite and workable
precedent. form. The doctrine announced in Wahl and Wahl
The expression "subject to the provisions as to vs. Donaldsono. ([1903], 2 Phil., 301), was that a
clause in a contract providing that all matters in
arbitration, hereinbefore appearing" does not declare dispute shall be referred to arbitrators and to
such to be a condition precedent. This phrase does them alone, is contrary to public policy and
not read "subject to the arbitration," but "subject cannot oust the courts of jurisdiction. But the rule
to the provisions as to arbitration hereinbefore now is that unless the agreement is such as
appearing." And, which are these "provisions as to absolutely to close the doors of the courts
arbitration hereinbefore appearing?" Undoubtedly against the parties, which agreement would be
clauses 23 and 14 quoted above, which do not void, the courts will look with favor upon such
make arbitration a condition precedent. amicable arrangements and will only with
Disposition. Affirmed. great reluctance interfere to anticipate or
nullify the action of the arbitrator.
Separate Opinions
b) The new point of the judiciary in the progressive
jurisdiction of Pennsylvania, in England, and
under the Civil Law, is also worthy of our serious
AVANCEÑA, J., concurring:
consideration.
1) Inasmuch as clause 23 of the Mill's Covenants, and i) It is the rule in Pennsylvania that when the
persons making an executory contract stipulate in
clause 14 of the Planter's Covenants provide that it that all disputes and differences between them,
the parties should respect and abide by the present or prospective, in reference to such
decision of the arbitrators, they bar judicial contract or any sum payable under it, shall be
intervention and consequently are null and void in submitted to the arbitrament of a named individual,
accordance with the ruling of this court in the case of or specifically designated persons, they are
Wahl and Wahl vs. Donaldson, Sims & Co. (2 Phil., effectually bound irrevocably by that
301). stipulation, and precluded from seeking
redress elsewhere until the arbiter or arbiters
agreed upon have rendered an award or
2) Clause 7 of the Mutual Covenants, naming the Court otherwise been discharged.
of First Instance of Iloilo as the one with jurisdiction to ii) In England, the view seems now to prevail that a
try such cases as might arise from the parties' contractual stipulation for a general arbitration,
contractual relations, by the very fact that it was made constitutes a condition precedent to the
subject to the arbitration clauses previously institution of judicial proceedings for the
mentioned, does not render such arbitration enforcement of the contract.
merely a condition precedent to judicial action, iii) Finally, it is within our knowledge that the Spanish
nor does it change its scope, as clearly indicated by civil law wisely contains elaborate provisions
its wording and the intention of the parties. Said looking to the amicable adjustment of
clause 7 was doubtless added in case it became controversies out of court. Litigation by means
of friendly adjusters was formerly well known. The
necessary to resort to the courts for the purpose
procedure in this kind of litigation was minutely
of compelling the parties to accept the arbitrators' outlined in the Ley de Enjuiciamiento Civil. Two
decision in accordance with the contract, and not in articles of the Civil Code, namely, articles 1820
order to submit anew to the courts what had and 1821, were given up to the subject of
already been decided by the arbitrators, whose arbitration, and expressly confirmed this method of
decision the contracting parties had bound settling differences.
themselves to abide by and respect. c) It was plainly the solemn purpose of the
parties to settle their controversies amicably
MALCOLM, J., dissenting: if possible before resorting to the courts.
1) Defendant is not bound to furnish cars free of charge They provided for themselves by mutual
for use on the plaintiff's portable railway tracks, in consent a method which was speedier and
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 17
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less expensive for all concerned and less Is an arbitration agreement a condition
likely to breed that ill-feeling which is often precedent to the filing of an action in court?
the consequence of hotly contested litigation.
All this was done by the Planters on the one hand Rule 16.1 (j) of the Rules of Court – MTD on the
and by the Milling Company on the other, to the
end that justice might guide them and possible
ground of failure to comply with a condition
differences be quickly adjusted. precedent
d) It is clear, by paragraph 7 of the Mutual
Covenants, that these parties did not intend Is this an absolute rule?
that the decision of the arbitrators should No. It can be waived.
prevent resort to the courts, for they
expressly agreed to carry litigation between R.A. 9285, Sec. 24. Referral to Arbitration. - A court before
them to the courts of Iloilo. Acting under legal which an action is brought in a matter which is the subject matter
rules, even in their most restrictive form, disputes of an arbitration agreement shall, if at least one party so requests
arising out of the contract, were to be referred to not later that the pre-trial conference, or upon the request of
both parties thereafter, refer the parties to arbitration unless it
arbitration so that the damages sustained by a
finds that the arbitration agreement is null and void, inoperative or
breach of the contract, could be ascertained by incapable of being performed.
specified arbitrators before any right of action
arose; but the matters in dispute were not to be
Sec. 7 – Stay of civil action
referred to arbitrators and to them alone, to the
Relate to Referral to ADR (Special Rules)
utter exclusion of the courts. It is exactly correct
Depends on the request of a party, because party may decide not
to state that the clauses of the Covenants to undergo ADR
hereinbefore quoted, were meant as a condition
- Related to Section 24 of RA 9285
precedent to litigation, which accordingly should
be given effect.
If any suit or proceeding be brought upon an issue arising out of
an agreement providing for the arbitration thereof, the court in
STUDY NOTES which such suit or proceeding is pending, upon being satisfied
that the issue involved in such suit or proceeding is referable to
Rule 2.2. Policy on arbitration.— (A) Where the parties have arbitration, shall stay the action or proceeding until an arbitration
agreed to submit their dispute to arbitration, courts shall refer has been had in accordance with the terms of the agreement:
the parties to arbitration pursuant to Republic Act No. 9285 Provided, That the applicant, for the stay is not in default in
bearing in mind that such arbitration agreement is the law proceeding with such arbitration.
between the parties and that they are expected to abide by it in
good faith. Further, the courts shall not refuse to refer parties Rule 4.2. When to make request. — (A) Where the arbitration
to arbitration for reasons including, but not limited to, the agreement exists before the action is filed. — The request for
following: referral shall be made not later than the pre-trial conference.
a. The referral tends to oust a court of its jurisdiction After the pre-trial conference, the courthuj will only act upon the
d. The arbitration proceeding has not commenced request for referral if it is made with the agreement of all parties to
the case.

Conclusion: An arbitration clause is NOT a


condition precedent such that it is a ground for
CLASS NOTES
dismissal, because it is an alternative mode of
1) Court was already talking about arbitration
dispute resolution. Hence, a party goes to court
agreement, etc. as early as 1924.
not to pass upon the merits or to have resolve it
2) Malcolm dissent:
resolved, but for other reasons, such as to have the
arbitration agreement enforced, modified, set aside,
3 jurisdictions:
etc. It is a ground to STAY civil action (Sec. 7, RA
*Pensylvannia – irrevocably bound by stipulation,
876; Sec. 24, RA 9285), not to dismiss it.
precluded from seeking redress to the courts; but
makes a distinction between (a) did not name
Malcolm: Condition precedent if it is more of a fact-
arbitrator; (b)
finding task.
*England – even a general reference to arbitration is
a condition precedent (liberal)
*Spain (Ley de Enjuiciamiento Civil) – detailed
amicable settlement + arbitration
- Respect solemn purpose of the parties
- Not null and void for absolutely ousts the courts of
jurisdiction.
Class Notes - August 13, 2010
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 18
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any privity contract. It accrues simply upon


Can you be bound by an arbitration clause by payment.
subrogation? Citing Pan Malayan Insurance Corporation v. CA,
See California & Hawaiian Sugar Co. v. Pioneer the CA ruled that the right of respondent insurance
Insurance & Surety Corp (2000) company as subrogee was not based on the
charter party or any other contract; rather, it
accrued upon the payment of the insurance claim
California & Hawaiian Sugar Co. v. Pioneer by private respondent to the insured consignee.
Insurance & Surety Corp., 346 SCRA 214 (2000) Issue: WON the arbitration clause was binding upon
Petitioners: California Hawaiian Sugar Company, Pioneer
Pacific Gulf Marine Inc and CF Sharp and Co Held: YES
Respondent: Pioneer Insurance and Surety Ratio: The CA erred when it held that the arbitration
Corporation clause was not binding on Pioneer.
There was nothing in Pan Malayan, however, that
Facts: prohibited the applicability of the arbitration
On November 27, 1990, the vessel MV “SUGAR clause to the subrogee. That case merely
ISLANDER” arrived at the port of Manila carrying a discussed, inter alia, the accrual of the right of
cargo of soybean meal in bulk consigned to several subrogation and the legal basis therefor. This
consignees, one of which was the Metro Manila issue is completely different from that of the
Feed Millers Association. Discharging of cargo consequences of such subrogation; that is, the
from vessel to barges commenced. From the rights that the insurer acquires from the insured
barges, the cargo was allegedly offloaded, upon payment of the indemnity.
rebagged and reloaded on consignee’s delivery (Pan Malayan: The right of subrogation is not
trucks. dependent upon, nor does it grow out of, any privity
Respondent, however, claims that when the cargo of contract or upon written assignment of claim. It
was weighed on a licensed truck scale a shortage accrues simply upon payment of the insurance claim
of 255.051 metric tons valued at P1,621,171.16 was by the insurer.)
discovered. The shipment was insured with As to the preliminary hearing: True, Section 6, Rule
Pioneer against all risk in the amount of 16 specifically provides that a preliminary hearing on
P19,976,404.00. the affirmative defenses may be allowed only when
Due to the alleged refusal of petitioners to settle no motion to dismiss has been filed. Section 6,
their respective liabilities, respondent, as insurer, however, must be viewed in the light of Section 3
paid the consignee Metro Manila Feed Miller’s which requires courts to resolve a motion to dismiss
Association. and prohibits them from deferring its resolution on
Pioneer filed a complaint for damages against the ground of indubitability. Section 6 disallows a
petitioners. Petitioners filed a Motion to Dismiss preliminary hearing of affirmative defenses once a
the complaint on the ground that respondent’s claim motion to dismiss has been filed because such
is premature, the same being arbitrable. defense should have already been resolved. In the
The RTC ordered to defer the hearing of the MTD present case, however, the trial court did not
and directed petitioners to file their Answer. categorically resolve petitioners’ Motion to Dismiss,
Petitioners filed their answer with counterclaim and but merely deferred resolution thereof.
crossclaim alleging that Pioneer did not comply
with the arbitration clause. STUDY NOTES
Rule 2.2. Policy on arbitration.— (A) Where the parties have
Petitioners filed a Motion to Defer Pre-Trial and agreed to submit their dispute to arbitration, courts shall refer the
Motion to Set for Preliminary Hearing the parties to arbitration pursuant to Republic Act No. 9285 bearing in
Affirmative Defense of Lack of Cause of Action mind that such arbitration agreement is the law between the
for Failure to comply with Arbitration Clause, parties and that they are expected to abide by it in good faith.
Further, the courts shall not refuse to refer parties to arbitration
respectively. for reasons including, but not limited to, the following:
The RTC denied. c. The referral would result in multiplicity of suits;
The CA affirmed. It ruled that petitioner cannot set
the case for preliminary hearing as an MTD was Rule 4.7. Multiple actions and parties. — The court shall not
filed. Also, the arbitration clause in the charter party decline to refer some or all of the parties to arbitration for any of
did not bind Pioneer. The right of Pioneer to file a the following reasons:
complaint against petitioners is not dependent a. Not all of the disputes subject of the civil action may be
referred to arbitration;
upon the charter party, nor does it grow out of
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 19
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b. Not all of the parties to the civil action are bound by the insured against the wrongdoer or the person who has violated the
arbitration agreement and referral to arbitration would result in contract. If the amount paid by the insurance company does not
multiplicity of suits; fully cover the injury or loss, the aggrieved party shall be entitled
c. The issues raised in the civil action could be speedily and to recover the deficiency from the person causing the loss or
efficiently resolved in its entirety by the court rather than in injury.
arbitration;
d. Referral to arbitration does not appear to be the most prudent Can a party be bound by the Arbitration Clause
action; or
by statutory provision?
e. The stay of the action would prejudice the rights of the
parties to the civil action who are not bound by the Xam: Analogous to “heirs” in the sense that the
arbitration agreement. subrogee acquires the transmissible rights of the
The court may, however, issue an order directing the inclusion original party. (UNANSWERED).
in arbitration of those parties who are not bound by the
arbitration agreement but who agree to such inclusion
provided those originally bound by it do not object to their
See however, Bloomfield Academy – Sec. 10 on
inclusion. Consultation of RA 6728, also commonly known as
"An Act Providing Government Assistance to
CLASS NOTES Students and Teachers in Private Education, And
Appropriating Funds Therefor"
Can you be bound by an arbitration clause in
subrogation? Xam: See also, Associated Bank case – Sec. 3
No express ruling in California & Hawaiian Sugar (Agreement to the PCHC Rules) in relation to Sec.
Co. v. Pioneer Insurance & Surety Corp (2000), 36 on Arbitration.
citing Pan Malayan, saying that a subrogee is
bound. There’s only the accrual of the right of
subgrogation and the legal basis therefor. Bloomfield Academy v. CA, 237 SCRA 43 (1994)

Was there consent on the part of the insurance Petitioners: Bloomfield Academy and Rodolfo
company? Lagera
Yes, on the basis of the principle of subrogation and Respondents: CA, Bloomfield Academy Parents
its effects. Advisory Association Inc, et al

Will Article 1311 of the Civil Code apply here? Facts:

Art. 1311. Contracts take effect only between the parties, their The petition originated in a complaint for injunction
assigns and heirs, except in case where the rights and obligations filed on April 6, 1990 by private respondent, the
arising from the contract are not transmissible by their nature, or
by stipulation or by provision of law. The heir is not liable beyond
association of parents and guardians of students
the value of the property he received from the decedent. enrolled in petitioner. One of the defendants in the
case is petitioner which is a non-stock, non-profit
If a contract should contain some stipulation in favor of a third educational institution. What is being disputed
person, he may demand its fulfillment provided he communicated before the court is the increase in tuition fee. The
his acceptance to the obligor before its revocation. A mere petitioners contend that the increase is essential due
incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a to the increase of the minimum wage under RA
favor upon a third person. 6727.

Can “Assignment” in A1311 be equated with Private respondents alleged that the 21.22%
Subrogation? increase was made without prior consultation
No. The right of subrogation is not dependent upon, with the parents required by law and that, in any
nor does it grow out of, any privity of contract or case, the approved increase was exorbitant (at
upon written assignment of claim. It accrues simply 21.22%).
upon payment of the insurance claim by the insurer.
(Pan Malayan) They sent a letter to the DECS Secretary
complaining that the tuition fee increase was
c.f. without valid basis already, after both parties
Art. 2207. If the plaintiff's property has been insured, and he has agreed on 50% of the increase which was
received indemnity from the insurance company for the injury or implemented and paid by the students during the
loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 20
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school year with the clear understanding that the Sec. 10. Consultation. — In any proposed
other 50% is waived by the defendant. increase in the rate of tuition fee, there shall be
appropriate consultations conducted by the school
Petitioners, on their part, contended that the parties administration with the duly organized parents and
did, in fact, hold consultations at which the wage teachers associations and faculty associations with
increase for teachers mandated by RA6727 and the respect to secondary schools, and with students
resulting increase in tuition fees allowed by RA 6728 governments or councils, alumni and faculty
were discussed at length. associations with respect to colleges. For this
purpose, audited financial statements shall be made
The DECS however affirmed the tuition fee available to authorized representatives of these
increase. sectors. Every effort shall be exerted to reconcile
possible differences. In case of disagreement,
The court issued an order enjoining petitioners the alumni association of the school or any other
and Secretary Cariño and/or their agents, impartial body of their choosing shall act as
representatives or persons acting in their behalf arbitrator.
from implementing the increase in tuition fees, and xxx xxx xxx
not withholding their release of the report cards Sec. 14. Program Administration/Rules and
and/or other papers necessary for the students Regulations. — The State Assistance Council shall
desiring to transfer to other schools until further be responsible for policy guidance and direction,
orders from the court. The application for injunction monitoring and evaluation of new and existing
was set for hearing on April 19, 1990 at 2:00 p.m. programs, and the promulgation of rules and
Answer to the complaint was filed by petitioners on regulations, while the Department of Education,
April 19, 1990. On the same date, the court Culture and Sports shall be responsible for the
conducted the first hearing on the application for day to day administration and program
a writ of preliminary injunction which hearing was implementation. Likewise, it may engage the
followed by settings on April 25, 26 and 27, 1990. services and support of any qualified government or
The court thereafter issued an order granting the private entity for its implementation.
writ of preliminary injunction. The judicial action initiated by private
On certiorai, the CA affirmed and ruled that the respondent before the court appears to us to be
grant or denial of an injunction rests upon the sound an inappropriate recourse. It remains undisputed
discretion of the court. that the DECS Secretary has, in fact, taken
cognizance of the case for the tuition fee increase
Issue: WON the court erred in granting the and has accordingly acted thereon. We can only
injunction assume that in so doing the DECS Secretary has
duly passed upon the relevant legal and factual
Held: issues dealing on the propriety of the matter. In the
decision process, the DECS Secretary has verily
Ratio: The pertinent provisions RA 6728, also acted in a quasi-judicial capacity.
commonly known as "An Act Providing Government The remedy from that decision is an appeal.
Assistance to Students and Teachers in Private Conformably with BP 129, the exclusive appellate
Education, And Appropriating Funds Therefor," jurisdiction to question that administrative action lies
provide: with the CA, not with the court a quo. If we were to
Sec. 9. Further Assistance To Students in Private consider, upon the other hand, the case for
Colleges and Universities. — . . . . injunction filed with the court a quo to be a ordinary
(b) For students enrolled in schools charging above action solely against herein petitioner (with DECS
one thousand five hundred pesos (P1,500.00) per being then deemed to be merely a nominal party), it
year in tuition and other fees during the school year would have meant the court's taking cognizance
1988-1989 or such amount in subsequent years as over the case in disregard of the doctrine of
may be determined from time to time by the State primary jurisdiction.
Assistance Council, no assistance for tuition fees Neither can we treat the case as a special civil
shall be granted by the Government: Provided, action for certiorari or prohibition as the
however, That the schools concerned may raise complaint filed by private respondent with the court
their tuition fees subject to Section 10 hereof. a quo, contains no allegation of lack, or grave abuse
xxx xxx xxx in the exercise, of jurisdiction on the part of DECS
nor has there been any finding made to that effect
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 21
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by either the court a quo or the appellate court that


could warrant the extraordinary remedy. A special Sec. 7 – Stay of civil action
civil action, either for certiorari or prohibition, can be Relate to Referral to ADR (Special Rules)
grounded only on either lack of jurisdiction or grave Depends on the request of a party, because party
abuse of discretion. may decide not to undergo ADR
In passing, we also observe that the parties have - Related to Section 24 of RA 9285
both remained silent on the provisions of
Republic Act No. 6728 to the effect that in case If any suit or proceeding be brought upon an issue
of disagreement on tuition fee increases (in this arising out of an agreement providing for the
instance by herein private parties), the issue arbitration thereof, the court in which such suit or
should be resolved through arbitration. Although proceeding is pending, upon being satisfied that the
the matter has not been raised by the parties, it is an issue involved in such suit or proceeding is referable
aspect, nevertheless, in our view, that could have to arbitration, shall stay the action or proceeding until
well been explored by them instead of an arbitration has been had in accordance with the
immediately invoking, such as they apparently terms of the agreement: Provided, That the
did, the administrative and judicial relief to applicant, for the stay is not in default in proceeding
resolve the controversy. with such arbitration.
All told, we hold that the court a quo has been bereft
of jurisdiction in taking cognizance of private Rule 4.2. When to make request. — (A) Where the
respondent's complaint. We see no real justification, arbitration agreement exists before the action is
on the basis of the factual and case settings here filed. — The request for referral shall be made not
obtaining, to permit a deviation from the long later than the pre-trial conference. After the pre-
standing rule that the issue of jurisdiction may be trial conference, the courthuj will only act upon the
raised at any time even on appeal. request for referral if it is made with the agreement
of all parties to the case.

CLASS NOTES
Take Note of the SC Ruling:
Take Note of Sec. 10: Although the matter has not been raised by the
“In case of disagreement, the alumni association of parties, it is an aspect, nevertheless, in our view,
the school or any other impartial body of their that could have well been explored by them
choosing shall act as arbitrator” instead of immediately invoking, such as they
apparently did, the administrative and judicial
Is Sec. 10 an effective arbitration clause? Is the relief to resolve the controversy.
designation of the alumni association in Sec. 10 Remedies available:
an appointment of arbitrator? Statutory 1) Move to dismiss
arbitration clause? 2) Ground to stay
A republic act meddled with the legal relationship.
Can the Court proceed to decide the case on the
Sir, too broad, too vague. Consent is absent. merits in the interest of justice?

If yes, party may move to stay civil action. No, This proceeding [Petition for Enforcement of
If not, there’s no arbitrable dispute and there’s no Agreement to Arbitrate] is merely a summary
basis to stay civil action. remedy to enforce the agreement to arbitrate. The
duty of the court in this case is not to resolve the
Take Note of the the ff. provisions: merits of the parties' claims but only to determine if
R.A. 9285, Sec. 24. Referral to Arbitration. - A they should proceed to arbitration or not. (Mindanao
court before which an action is brought in a matter Portland Cement Corporation v. McDonough
which is the subject matter of an arbitration Construction Co. of Florida, 90 SCRA 808 (1967)).
agreement shall, if at least one party so requests not
later that the pre-trial conference, or upon the
request of both parties thereafter, refer the parties to
arbitration unless it finds that the arbitration Mindanao Portland Cement Corporation v.
agreement is null and void, inoperative or incapable McDonough Construction Co. of Florida, 90
of being performed. SCRA 808 (1967)
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 22
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contract.5 It averred inter alia that deletions and


Petitioner – appellee: Mindanao Portland Cement additions to the plans and specifications were
Corporation agreed upon during the progress of the construction;
Respondent – appellant: McDonough Construction that disagreement arose between them as to the
cost of the additional or extra work done, and
Facts: respondent's deviation from some agreed
Petitioner and respondent McDonough executed a specifications; that petitioner claims having overpaid
contract for the construction by the respondent respondent by P33,810.81; that petitioner further
for the petitioner of a dry portland, cement plant at claims to have suffered damages due to
Iligan City. In a separate contract, Turnbull, Inc. — respondent's delay in finishing the project; that
the "engineer"— was engaged to design and respondent, on the other hand, still claims an
manage the construction of the plant, supervise the unpaid balance of about P403,700; that these
construction, schedule deliveries and the matters fall under the general arbitration clause
construction work as well as check and certify ill of their contract; and that respondent has failed to
contractors' progress and fiscal requests for proceed to arbitration despite several requests
payment. therefor.

Alterations in the plans and specifications were The court ruled that the matter should be submitted
subsequently made during the progress of the to arbitration.
construction. Due to this and to other causes
deemed sufficient by Turnbull, Inc., extensions of Issue: WON the dispute should be submitted to
time for the termination of the project, initially arbitration
agreed to be finished on December 17, 1961, were
granted. Respondent, contends that:
1) There is no showing of disagreement; and
Respondent finally completed the project on 2) If there is, the same falls under the exception,
October 22, 1962. Differences later arose. to be resolved by the engineer.
Petitioner claimed from respondent damages in the Held:
amount of more than P2,000,000 allegedly Ratio:
occasioned by the delay in the project's completion.
1) As to the first point, the fact of disagreement
Respondent in turn asked for more than P450,000 has been determined by the court below
from petitioner for alleged losses due to cost of upon the stipulation of facts and
extra work and overhead as of April 1962. documentary evidence submitted. In this
appeal involving pure questions of law, the
A conference was held between petitioner and above finding should not be disturbed.
Turnbull, Inc., on one hand, and respondent on the Furthermore, the existence of disagreement is
other, to settle the differences, but no satisfactory plainly shown in the record. Respondent
results were reached. admits the existence of petitioner's claim but
denies its merit. It likewise admits that petitioner
Petitioner sent respondent written invitations to has refused to pay its claim for the unpaid
arbitrate, invoking a provision in their contract balance of the price of the contract. Paragraph
regarding arbitration of disputes. Instead of
answering said invitations, respondent, with 5
The provision of the contract on "Arbitration of
Turnbull's approval, submitted to petitioner for Disagreements" (par. 39) says:
payment its final statement of work accomplished, 39. In the event of disagreement between the Owner and the
asking for P403,700 as unpaid balance of the Contractor in respect of the rights or obligations of either of the
consideration of the contract. parties hereunder except the interpretation of the plans and
specifications and questions concerning the sufficiency of
materials, the time, sequence and method of performing the
Petitioner filed the present action in the CFI of work, which questions are to be finally determined by the
Manila to compel respondent to arbitrate with it Engineer, they shall submit the matter to arbitration, the
concerning alleged disputes arising from their Owner choosing one arbitrator, the Contractor one, and the two
so chosen shall select a third. The decision of such arbitrators or
a majority of them shall be made in writing to both parties and
when so made shall be binding upon the parties thereto.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 23
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86 of the stipulation of facts shows the dispute is not as to the quality of the materials or of
dispute of the parties regarding their mutual the kind of work done.
claims and that said dispute remained
unsettled. "Time" and "Sequence of Work" are covered by
pars. 9 to 17 of the General Conditions under the
2) Regarding the second point, the parties agreed heading "SCHEDULING." Neither would the
by way of exception that disagreements with disputes fall under these exceptions. Turnbull, Inc.'s
respect to the following matters shall be finally power here is to schedule the deliveries and
resolved by the engineer, instead of being construction work and expedite the same so that the
submitted to arbitration: (1) The interpretation project can be finished on time. It is also authorized,
of plans and specifications; (2) sufficiency of under par. 15, to determine whether any eventuality
materials; and (3) the time, sequence and is sufficient enough to warrant in extension of time
method of performing the work. and if so, to determine the period of such extension.
The delay envisioned here is one that occurs during
The disputes involved here, on the other hand, are the progress of the work which disturbs the pre-
on (1) the proper computation of the total scheduling plan, thus necessitating an extension of
contract price, including the cost of additional or the over-all deadline precisely to prevent respondent
extra work; and (2) the liability for alleged delay in from going beyond the same. Turnbull, Inc.'s
completing the project and for alleged losses due to function goes no further than to calculate and fix the
change in the plans and specifications. period of extension. But the delay petitioner alleged
is different; it is delay beyond the last date of
a) Now from the contract itself We can extension fixed by Turnbull, Inc. Clearly, the
determine the scope of the exceptions question of liability therefor, is not embraced in the
aforementioned. exception.

Thus, pars. 19 to 22 of its General Conditions deal To none of the exceptions then do the
with the subject "Interpretation of Plans and disagreements in question belong, the rule of
Specifications". And thereunder, the engineer is arbitration therefore applies. The parties in fact
empowered to correct all discrepancies, errors or also stipulated in their contract, under "EXTRA
omissions in the plans and specifications; to explain WORK", that the cost of extra work to be paid shall
all doubts that may arise thereon; and to furnish be subject to negotiations. This negates the
further plans and specifications as may be required. proposition that Turnbull, Inc.'s cost estimates
No mention is made therein as to the cost of the appearing in Addenda 2, 3 and 7 are final and
project; this matter is covered by the engineering conclusive.
contract, under which Turnbull, Inc.'s function is
limited to making estimates of costs only. b) The reason, moreover, for the exceptions
— interpretation of plans and specifications;
"Sufficiency of materials" and "method of sufficiency of materials; sequence, time and
performing the work" — under the second and method of performing the work — is the
third exceptions above-mentioned — are treated in need to decide these matters
pars. 2 to 6 of the General Conditions under the immediately, since the progress of the
heading "QUALITY OF WORKS AND MATERIALS". work would await their determination.
Turnbull, Inc., is therein empowered to determine The same is not true as to matters relating
the land fitness of the several kinds of work and to the liability for delay in the project's
materials furnished and to reject or condemn many completion; these are questions that the
of them which, in its opinions, does not fully conform engineer does not have to resolve before
to the terms of the contract. In the present case, the the project can go on. Consequently, We
view that it is not included in the exceptions,
6 as indeed the related provisions of their
8. That on or about May 29, 1962, a conference was held
between petitioner and Turnbill, Inc., on the one hand, and agreement indicate.
respondent, on the other, to settle their differences involving the
claim for damages of petitioner in the amount of more than Since there obtains herein a written provision for
P2,000,000, occasioned by the delay in the completion of the arbitration as well as failure on respondent's part to
project, and the claim of respondent for losses due to the cost of
extra plant and overhead in the amount of more than P450,000, comply therewith, the court a quo rightly ordered the
— as of April, 1962, but no satisfactory results were reached parties to proceed to arbitration in accordance with
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 24
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the terms of their agreement (Sec. 6, Republic Act Problem is that McDonough started to argue the
876). Respondent's arguments touching upon case on its merits.
the merits of the dispute are improperly raised
herein. They should be addressed to the arbitrators. Court: It’s wrong.
This proceeding is merely a summary remedy to
enforce the agreement to arbitrate. The duty of What is the duty of the Court when confronted
the court in this case is not to resolve the merits with the issue of the arbitrability of the dispute?
of the parties' claims but only to determine if (Most common mistake of courts)
they should proceed to arbitration or not. And The duty of the court in this case is not to resolve the
although it has been ruled that a frivolous or patently merits of the parties' claims but only to determine if
baseless claim should not be ordered to arbitration, they should proceed to arbitration or not
it is also recognized that the mere fact that a
defense exists against a claim does not make it
frivolous or baseless. Associated Bank v. CA, 233 SCRA 137 (1994)

STUDY NOTES: Petitioner: Associated Bank


Respondents: CA,Visitacion Flores, Asuncion Flores
Rule 2.2. Policy on arbitration.— (A) Where the parties have PCIB, Far East Bank, Security Bank and Citytrust
agreed to submit their dispute to arbitration, courts shall refer the
parties to arbitration pursuant to Republic Act No. 9285 bearing in Bank
mind that such arbitration agreement is the law between the
parties and that they are expected to abide by it in good faith. Facts:
Further, the courts shall not refuse to refer parties to arbitration for
reasons including, but not limited to, the following:
In a complaint for Violation of the NIL and
b. The court is in a better position to resolve the dispute subject
Damages, Visitacion and Asuncion Flores seek the
of arbitration; recovery of the amount of P900,913.60 which
petitioner charged against their current account
by virtue of the 16 checks drawn by them despite
CLASS NOTES: the apparent alterations therein with respect to the
name of the payee, that is, the name Filipinas Shell
was erased and substituted with Ever Trading and
DBL Trading by their supervisor Jeremias Cabrera,
What is a “pathological arbitration clause”? without their knowledge and consent.

An arbitration clause that’s vague or unclear, such Petitioner claimed that the subject checks appeared
that instead of facilitating the arbitration of the case, to have been regularly issued and free from any
it delays it. irregularity which would excite or arouse any
suspicion or warrant their dishonor when the same
were negotiated and honored by it.

Petitioner filed a TPC against PCIB, Far East Bank


Mindanao Portland case contains a pathological
and City Trust for reimbursement, contribution,
arbtiration clause, thus: Some are referrable to
indemnity for being the collecting banks of the
arbitration, others are referrable to the engineer.
subject checks and by virtue of their bank guarantee
for all checks sent for clearing to the Philippine
Note:
Clearing House Corporation (PCHC), as provided for
Respondent McDonough contended in the case that:
in Section 17, (PCHC), as provided for in Section 17,
1) There is no showing of disagreement (merely PCHC Clearing House Rules and Regulations.
a problem in computation); and
2) If there is, the same falls under the exception, Citytrust and PCIB claimed that the checks were
to be resolved by the engineer. complete and regular on their face. A Motion To
Dismiss was filed by Security Bank on the
Whereas Petition Mindanao Portland insisted that grounds that petitioner failed to resort to
there was a dispute and that it is referrable to arbitration as provided for in Section 36 of the
arbitration.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 25
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Clearing House Rules and Regulations of the those claims which should first be submitted for
Philippine Clearing House Corporation. resolution by the PCHC’s Arbitration Committee,
petitioner, having voluntarily bound itself to abide by
Petitioner maintains that this Court has such rules and regulations, is estopped from
jurisdiction over the suit as the provisions of the seeking relief from the RTC on the coattails of a
Clearing House Rules and Regulations are private claim and in the guise of a third party
applicable only if the suit or action is between complaint without first having obtained a decision
participating member banks, whereas the adverse to its claim from the said body. It cannot
Floreses are private persons and the third-party bypass the arbitration process on the basis of its
complaint between participating member banks averment that its third party complaint is inextricably
is only a consequence of the original action linked to the original complaint in the RTC.
initiated by the plaintiffs.
Pursuant to PCHC’s function involving the clearing
The trial court dismissed the TPC for lack of of checks and other clearing items, the PCHC has
jurisdiction citing Section 36 of the Clearing adopted rules and regulations designed to
House Rules and Regulations of the PCHC provide member banks with a procedure
providing for settlement of disputes and whereby disputes involving the clearance of
controversies involving any check or item checks and other negotiable instruments
cleared through the body with the PCHC. It ruled undergo a process of arbitration prior to
— citing the Arbitration Rules of Procedure — that submission to the courts below. This procedure
the decision or award of the PCHC through its (1) ensures a uniformity of rulings relating to
arbitration committee/arbitrator is appealable only factual disputes involving checks and other
on questions of law to any of the Regional Trial negotiable instruments (2) provides a mechanism
Courts in the National Capital Region where the for settling minor disputes among participating
head office of any of the parties is located. The CA and member banks which would otherwise go
affirmed directly to the trial courts.

Issue: WON the case should be dismissed for While the PCHC Rules and Regulations allow
failure to arbitrate appeal to the Regional Trial Courts only on
questions of law, this does not preclude our
Held: Yes lower courts from dealing with questions of fact
already decided by the PCHC arbitration when
Ratio: The Clearing House Rules and Regulations warranted and appropriate.
on Arbitration of the Philippine Clearing House
Corporation are clearly applicable to petitioner In Banco de Oro Savings and Mortgage Banks vs.
and private respondents. Petitioner’s third party Equitable Banking Corporation this Court had the
complaint in the trial court was one for occasion to rule on the validity of these rules as
reimbursement, contribution and indemnity well as the jurisdiction of the PCHC as a forum for
against PCIB, FarEast, Security Bank, and CityTrust, resolving disputes and controversies involving
in connection with petitioner’s having honored checks and other clearing items when it held that
sixteen checks which said banks supposedly "the participation of two banks. . . in the Clearing
endorsed to the former for collection in 1989. Operations of the PCHC (was) a manifestation of its
submission to its jurisdiction."
Under the rules and regulations of the PCHC, the
mere act of participation of the parties
concerned in its operations in effect amounts to
a manifestation of agreement by the parties to
abide by its rules and regulations. As a
consequence of such participation, a party cannot
invoke the jurisdiction of the courts over
disputes and controversies which fall under the
PCHC Rules and Regulations without first going
through the arbitration processes laid out by the
body. Since claims relating to the regularity of
checks cleared by banking institutions are among
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 26
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Under the PCHC Rules and Regulations,7 not jurisdiction misses the fundamental point about such
only do the parties manifest by mere pleading. A third party complaint is a mere
participation their consent to these rules, but procedural device which under the Rules of
such participation is deemed (their) written and Court is allowed only with the court’s
subscribed consent to the binding effect of permission. It is an action "actually independent
arbitration agreements under the PCHC rules. of, separate and distinct from the plaintiffs’
Moreover, a participant subject to the Clearing complaint" (s)uch that, were it not for the Rules of
House Rules and Regulations of the PCHC may go Court, it would be necessary to file the action
on appeal to any of the Regional Trial Courts in the separately from the original complaint by the
National Capital Region where the head office of any defendant against the third party.
of the parties is located only after a decision or
award has been rendered by the arbitration STUDY NOTES
committee or arbitrator on questions of law.
Rule 2.2. Policy on arbitration.— (A) Where the parties have
Clearly therefore, petitioner, by its voluntary agreed to submit their dispute to arbitration, courts shall refer the
parties to arbitration pursuant to Republic Act No. 9285 bearing in
participation and its consent to the arbitration mind that such arbitration agreement is the law between the
rules cannot go directly to the RTC when it finds parties and that they are expected to abide by it in good faith.
it convenient to do so. The jurisdiction of the Further, the courts shall not refuse to refer parties to arbitration for
PCHC under the rules and regulations is clear, reasons including, but not limited to, the following:
undeniable and is particularly applicable to all the f. One or more of the issues are legal and one or more of
the arbitrators are not lawyers;
parties in the third party complaint under their
obligation to first seek redress of their disputes and
CLASS NOTES:
grievances with the PCHC before going to the trial
court.
Xam: See also, Associated Bank case – Sec. 3
(Agreement to the PCHC Rules) in relation to Sec.
Finally, the contention that the third party complaint
36 on Arbitration.
should not have been dismissed for being a
necessary and inseparable offshoot of the main case
Participation in the PCHC clearing process is
over which the court a quo had already exercised
equivalent to a WRITTEN and SUBSCRIBED
7
The applicable PCHC provisions on the question of jurisdiction consent to be bound by the PCHC Rules and
provide: Regulations, including the provision on arbitration.
1) Sec. 3 — AGREEMENT TO THESE RULES
It is the general agreement and understanding, that any
participant in the PCHC MICR clearing operations, by the mere
act of participation, thereby manifests its agreement to these Luzon Development Bank v. Luzon Development
Rules and Regulations, and its subsequent amendments. Bank Employees, 249 SCRA 162 (1995) – In re:
2) Sec. 36 — ARBITRATION multiplicity
a) 36.1 Any dispute or controversy between two or
more clearing participants involving any check/item
Petitioner: Luzon Development Bank
cleared thru PCHC shall be submitted to the
Arbitration Committee, upon written complaint of any Respondent: Association of Luzon Development
involved participant by filing the same with the PCHC Bank Employees and Atty. Ester Garcia
serving the same upon the other party or parties, who
shall within fifteen (15) days after receipt thereof, file
Facts: The following issue arose between petitioner
with the Arbitration Committee its written answer to
such written complaint and also within the same period and respondent: Whether or not the company has
serve the same upon the complaining participant. This violated the CBA provision and the MOA dated April
period of fifteen (15) days may be extended by the 1994, on promotion. The parties agreed on the
Committee not more than once for another period of
submission of their respective Position Papers on
fifteen (15) days, but upon agreement in writing of the
complaining party, said extension may be for such December 1-15, 1994. Atty. Ester S. Garcia
period as the latter may agree to. (Voluntary Arbitrator) received ALDBE's Position
b) Section 36.6 is even more emphatic: Paper on January 18, 1995. LDB failed to submit its
36.6 The fact that a bank participates in the clearing
Position Paper despite a letter from the Voluntary
operations of PCHC shall be deemed its written and
subscribed consent to the binding effect of this Arbitrator reminding them to do so. The Voluntary
arbitration agreement as if it had done so in Arbitrator rendered a decision finding that the Bank
accordance with Section 4 of the Republic Act No. 876 has not adhered to the CBA provision nor the MOA
otherwise known as the Arbitration Law.
on promotion.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 27
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Hence, this petition for certiorari and prohibition arbitrators over (1) the interpretation or
seeking to set aside the decision of the Voluntary implementation of the CBA and (2) the interpretation
Arbitrator and to prohibit her from enforcing the or enforcement of company personnel policies.
same. Article 262 authorizes them, but only upon
agreement of the parties, to exercise jurisdiction
Issue: WON direct resort to the SC is warranted over other labor disputes.

Held: No On the other hand, a labor arbiter under Article 217


LC has jurisdiction over the following enumerated
Ratio: In labor law context, arbitration is the cases: (1) Unfair labor practice cases; (2)
reference of a labor dispute to an impartial third Termination disputes; (3) If accompanied with a
person for determination on the basis of evidence claim for reinstatement, those cases that workers
and arguments presented by such parties who have may file involving wages, rates of pay, hours of work
bound themselves to accept the decision of the and other terms and conditions of employment; (4)
arbitrator as final and binding. Claims for actual, moral, exemplary and other forms
of damages arising from the employer-employee
Arbitration may be classified, on the basis of the relations; (5) Cases arising from any violation of
obligation on which it is based, as either compulsory Article 264 of this Code, including questions
or voluntary. Compulsory arbitration is a system involving the legality of strikes and lockouts; (6)
whereby the parties to a dispute are compelled by Except claims for Employees Compensation, Social
the government to forego their right to strike and are Security, Medicare and maternity benefits, all other
compelled to accept the resolution of their dispute claims, arising from employer-employee relations,
through arbitration by a third party. The essence of including those of persons in domestic or household
arbitration remains since a resolution of a dispute is service, involving an amount exceeding P5,000.00
arrived at by resort to a disinterested third party regardless of whether accompanied with a claim for
whose decision is final and binding on the parties, reinstatement.
but in compulsory arbitration, such a third party is
normally appointed by the government. Under It will thus be noted that the jurisdiction conferred by
voluntary arbitration referral of a dispute by the law on a voluntary arbitrator or a panel of such
parties is made, pursuant to a voluntary arbitration arbitrators is quite limited compared to the original
clause in their collective agreement, to an impartial jurisdiction of the labor arbiter and the appellate
third person for a final and binding resolution. jurisdiction of the NLRC for that matter. The state of
Ideally, arbitration awards are supposed to be our present law relating to voluntary arbitration
complied with by both parties without delay, such provides that "(t)he award or decision of the
that once an award has been rendered by an Voluntary Arbitrator . . . shall be final and executory
arbitrator, nothing is left to be done by both parties after ten (10) calendar days from receipt of the copy
but to comply with the same. After all, they are of the award or decision by the parties," 5 while the
presumed to have freely chosen arbitration as the "(d)ecision, awards, or orders of the Labor Arbiter
mode of settlement for that particular dispute. are final and executory unless appealed to the
Pursuant thereto, they have chosen a mutually Commission by any or both parties within ten (10)
acceptable arbitrator who shall hear and decide their calendar days from receipt of such decisions,
case. Above all, they have mutually agreed to de awards, or orders." Hence, while there is an express
bound by said arbitrator's decision. mode of appeal from the decision of a labor arbiter,
RA 6715 is silent with respect to an appeal from the
In the Philippine context, the parties to a CBA are decision of a voluntary arbitrator.
required to include therein provisions for a
machinery for the resolution of grievances arising Yet, past practice shows that a decision or award of
from the interpretation or implementation of the CBA a voluntary arbitrator is, more often than not,
or company personnel policies. For this purpose, elevated to the SC itself on a petition for certiorari,
parties to a CBA shall name and designate therein a in effect equating the voluntary arbitrator with the
voluntary arbitrator or a panel of arbitrators, or NLRC or the CA. In the view of the Court, this is
include a procedure for their selection, preferably illogical and imposes an unnecessary burden upon
from those accredited by the NCMB. Article 261 LC it.
accordingly provides for exclusive original
jurisdiction of such voluntary arbitrator or panel of
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 28
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In Volkschel Labor Union, et al. v. NLRC, et al., 8 on delegated to him under the provisions in the Labor
the settled premise that the judgments of courts and Code and he falls, therefore, within the
awards of quasi-judicial agencies must become final contemplation of the term "instrumentality" in Sec. 9
at some definite time, this Court ruled that the of B.P. 129. The fact that his functions and powers
awards of voluntary arbitrators determine the rights are provided for in the Labor Code does not place
of parties; hence, their decisions have the same him within the exceptions to said Sec. 9 since he is a
legal effect as judgments of a court quasi-judicial instrumentality as contemplated
therein. It will be noted that, although the Employees
Section 9 of B.P. Blg. 129, as amended by Republic Compensation Commission is also provided for in
Act No. 7902, provides that the CA shall exercise: the Labor Code, Circular No. 1-91, which is the
(B) Exclusive appellate jurisdiction over all final forerunner of the present Revised Administrative
judgments, decisions, resolutions, orders or awards Circular No. 1-95, laid down the procedure for the
of Regional Trial Courts and quasi-judicial agencies, appealability of its decisions to the CA under the
instrumentalities, boards or commissions, including foregoing rationalization, and this was later adopted
the Securities and Exchange Commission, the by Republic Act No. 7902 in amending Sec. 9 of B.P.
Employees Compensation Commission and the Civil 129.
Service Commission, except those falling within the
appellate jurisdiction of the Supreme Court in A fortiori, the decision or award of the voluntary
accordance with the Constitution, the Labor Code of arbitrator or panel of arbitrators should likewise be
the Philippines under Presidential Decree No. 442, appealable to the CA, in line with the procedure
as amended, the provisions of this Act, and of outlined in Revised Administrative Circular No. 1-95,
subparagraph (1) of the third paragraph and just like those of the quasi-judicial agencies, boards
subparagraph (4) of the fourth paragraph of Section and commissions enumerated therein.
17 of the Judiciary Act of 1948.
This would be in furtherance of, and consistent with,
Assuming that the voluntary arbitrator or the panel of the original purpose of Circular No. 1-91 to provide a
voluntary arbitrators may not strictly be considered uniform procedure for the appellate review of
as a quasi-judicial agency, board or commission, still adjudications of all quasi-judicial entities not
both he and the panel are comprehended within the expressly excepted from the coverage of Sec. 9 of
concept of a "quasi-judicial instrumentality." It may B.P. 129 by either the Constitution or another
even be stated that it was to meet the very situation statute. Nor will it run counter to the legislative
presented by the quasi-judicial functions of the intendment that decisions of the NLRC be
voluntary arbitrators here, as well as the subsequent reviewable directly by the Supreme Court since,
arbitrator/arbitral tribunal operating under the CIAC, precisely, the cases within the adjudicative
that the broader term "instrumentalities" was competence of the voluntary arbitrator are excluded
purposely included in the provision. from the jurisdiction of the NLRC or the labor arbiter.

An "instrumentality" is anything used as a means or In the same vein, it is worth mentioning that under
agency. Thus, the terms governmental "agency" or Section 22 of RA 876, also known as the Arbitration
"instrumentality" are synonymous in the sense that Law, arbitration is deemed a special proceeding of
either of them is a means by which a government which the court specified in the contract or
acts, or by which a certain government act or submission, or if none be specified, the RTC for the
function is performed. The word "instrumentality," province or city in which one of the parties resides or
with respect to a state, contemplates an authority to is doing business, or in which the arbitration is held,
which the state delegates governmental power for shall have jurisdiction. A party to the controversy
the performance of a state function. An individual may, at any time within one (1) month after an award
person, like an administrator or executor, is a judicial is made, apply to the court having jurisdiction for an
instrumentality in the settling of an estate, in the order confirming the award and the court must
same manner that a sub-agent appointed by a grant such order unless the award is vacated,
bankruptcy court is an instrumentality of the court, modified or corrected.
and a trustee in bankruptcy of a defunct corporation
is an instrumentality of the state. In effect, this equates the award or decision of the
voluntary arbitrator with that of the regional trial
The voluntary arbitrator no less performs a state court. Consequently, in a petition for certiorari from
function pursuant to a governmental power that award or decision, the CA must be deemed to
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 29
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have concurrent jurisdiction with the Supreme Court.


As a matter of policy, this Court shall henceforth Is it “any other misbehavior"?
remand to the CA petitions of this nature for proper
disposition. Not a ground for appeal.

1) The arbitral tribunal is defective.


CLASS NOTES:

If an arbitrator and an RTC judge are of the same 2) Ground for termination of mandate.
level, how come a party can ask an RTC judge to
vacate an award made by an arbitrator?
Rule 8.1. Who may request termination and on what grounds.—
The explanation is found in assigned cases and in Any of the parties to an arbitration may request for the termination
of the mandate of an arbitrator where an arbitrator becomes de
the Special ADR Rules. jure or de facto unable to perform his function or for other reasons
fails to act without undue delay and that arbitrator, upon request
Is it because the RTC does not rule on the merits but of any party, fails or refuses to withdraw from his office.
on the validity of the arbitration proceedings?
Is it because the equality presupposes the In termination of mandate, a substitute is appointed
competence of the arbitral tribunal? according to the manner in which the arbitrator
Is it because the equality extends to the award not replaced was appointed.
the body or tribunal?
Xam: Upon the rendition of the award, the Notes:
jurisdiction of the arbitral tribunal over the dispute - Cannot ask for a commitment not to get an
ends. There is no jurisdiction over its enforcement. injunction in the Philippines. Jurisdiction over the
issue is defined by the arbitration clause. (Mindanao
What the RTC is doing is enforcing the award, not Portland)
exercising its power of review.
3) Sec. 14 – All arbitrators should be present in all
Yet the law cannot simply grant the right to the hearings.
courts to simply enforce the award without 4) In commercial arbitration – ground for setting
summarily looking into the extrinsic validity of the aside (if arbitration not conducted according to
award. the agreement of the parties).

Cases for next meeting (August 6, 2010): “Bundle of documents” – starting point in
12) Toyota Motor Phils. Corp. V. CA, 216 SCRA 336 preliminary conference, to enable the parties to
13) Heirs of Agusto L. Salas, Jr. v. Laperal Realty know what the evidence at issue. Also include
Corp., 302 SCRA 620 witness statement (judicial affidavit).
14) Del Monte Corp. USA v. CA, 351 SCRA 373
No formal offer.
15) Homebankers Savings and Trust Co. v. CA, 318
SCRA 558
Gonzales v. Climax Mining Ltd., 512 SCRA 148
(2007)
Class Notes - August 20, 2010
Petitioners: Pedro Gonzales – alleges nullity
What is the legal significance if one of the and Panel of Arbitrators
arbitrators has been absent for an unreasonable Respondents: Climax Mining Ltd, Climax Arimco
length of time? Mining Corp and Australasian Philippines Mining –
wants to arbitrate
Leeway not to confirm the award
Facts:
Not a ground for vacation.

Is it a ground for vacation for evident partiality? No,


it’s not evident.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 30
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This is a consolidation of two petitions rooted in the Climax-Arimco then filed a motion to resolve its
same disputed Addendum Contract entered into by pending motion to compel arbitration. The RTC
the parties. denied the same. RTC required Gonzales to
proceed with arbitration proceedings and
The first case arose from COMPLAINT FOR THE appointing retired CA Justice Jorge Coquia as sole
ANNULMENT OF THE ADDENDUM CONTRACT arbitrator.
on grounds of fraud and violation of the Constitution
filed by Gonzales before the DENR Panel of Climax-Arimco mentions that the special civil action
Arbitrators. The SC held that the DENR Panel of for certiorari employed by Gonzales is available only
Arbitrators had no jurisdiction over the complaint where there is no appeal or any plain, speedy, and
and that the action should have been brought adequate remedy in the ordinary course of law
before the regular courts as it involved judicial against the challenged orders or acts. Climax-
issues. Arimco then points out that R.A. No. 876 provides
for an appeal from such orders. Climax-Arimco
adds that an application to compel arbitration under
Gonzales avers in his MR that the Court erred in Sec. 6 of R.A. No. 876 confers on the trial court
holding that the DENR Panel of Arbitrators was only a limited and special jurisdiction, i.e., a
bereft of jurisdiction, reiterating its argument that the jurisdiction solely to determine (a) whether or
case involves a mining dispute that properly falls not the parties have a written contract to
within the ambit of the Panel’s authority. arbitrate, and (b) if the defendant has failed to
comply with that contract. Climax-Arimco further
Respondents filed their Partial MR seeking notes that Gonzales’s attack on or repudiation of the
reconsideration of that part of the Decision holding Addendum Contract also is not a ground to deny
that the case should not be brought for effect to the arbitration clause in the Contract. The
arbitration under RA. 876. Respondents argue that arbitration agreement is separate and severable
the arbitration clause in the Addendum Contract from the contract evidencing the parties’
should be treated as an agreement independent commercial or economic transaction, it stresses.
of the other terms of the contract, and that a Climax-Arimco emphasizes that the summary
claimed rescission of the main contract does not proceeding to compel arbitration under Sec. 6 of
avoid the duty to arbitrate. R.A. No. 876 should not be confused with the
procedure in Sec. 24 of R.A. No. 9285.
The second case, on the other hand, stemmed from
the PETITION TO COMPEL ARBITRATION filed by Sec. 6 of R.A. No. 876 refers to an application to
respondent before the RTC of Makati City while the compel arbitration where the court’s authority is
complaint for the nullification of the Addendum limited to resolving the issue of whether there is or
Contract was pending before the DENR Panel of there is no agreement in writing providing for
Arbitrators. arbitration.

Climax-Arimco had sent Gonzales a Demand for Sec. 24 of R.A. No. 9285 refers to an ordinary action
Arbitration pursuant to Clause 19.1 of the which covers a matter that appears to be
Addendum Contract and also in accordance with arbitrable or subject to arbitration under the
Sec. 5 of R.A. No. 876. The petition for arbitration arbitration agreement.
was subsequently filed and Climax-Arimco sought
an order to compel the parties to arbitrate pursuant Issue: WON it is proper for the RTC to order the
to the said arbitration clause. parties to arbitrate even though the defendant has
raised the twin issues of the validity and nullity
Gonzales filed an Answer with Counterclaim of the Addendum Contract
questioning the validity of the Addendum
Contract containing the arbitration clause. He Held: YES
alleged that the contract is void in view of Climax-
Arimco’s acts of fraud, oppression and violation 1) PETITION TO COMPEL ARBITRATION - SC
of the Constitution. Thus, the arbitration clause, ruled against Gonzales when he alleges that
Clause 19.1, contained in the Addendum Contract is Judge Pimentel acted with grave abuse of
also null and void ab initio and legally inexistent. discretion in ordering the parties to proceed with
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 31
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arbitration. Gonzales’s argument that the dispute arising therefrom and the relationship of
Addendum Contract is null and void and, the parties is part of that contract and is itself a
therefore the arbitration clause therein is void as contract. As a rule, contracts are respected as the
well, is not tenable. law between the contracting parties and produce
effect as between them, their assigns and heirs."
a) First, the proceeding in a petition for
arbitration under R.A. No. 876 is limited SPECIAL PROCEEDING
only to the resolution of the question of The special proceeding under Sec. 6 of R.A. No.
whether the arbitration agreement exists. 876 recognizes the contractual nature of
arbitration clauses or agreements.
b) Second, the separability of the arbitration
clause from the Addendum Contract JURISDICTION & COURT ACTION
means that validity or invalidity of the The jurisdiction of the courts in relation to Sec. 6
Addendum Contract will not affect the of R.A. No. 876 as well as the nature of the
enforceability of the agreement to proceedings therein was expounded upon in La
arbitrate. Thus, Gonzales’s petition for Naval Drug Corporation v. CA. There it was held that
certiorari should be dismissed. R.A. No. 876 explicitly confines the court's
authority only to the determination of whether or
REMEDIAL LAW not there is an agreement in writing providing for
We address the Rule 65 petition in Petition to arbitration. In the affirmative, the statute ordains
Compel Arbitration first from the remedial law that the court shall issue an order "summarily
perspective. It deserves to be dismissed on directing the parties to proceed with the
procedural grounds, as it was filed in lieu of arbitration in accordance with the terms thereof."
appeal which is the prescribed remedy and at that If the court, upon the other hand, finds that no such
far beyond the reglementary period. There is no agreement exists, "the proceeding shall be
merit to Gonzales’s argument that the use of the dismissed." The cited case also stressed that the
permissive term "may" in Sec. 29, R.A. No. 876 in proceedings are summary in nature.
the filing of appeals does not prohibit nor discount
the filing of a petition for certiorari under Rule 65. SEPARABILITY
Proper interpretation of the aforesaid provision Implicit in the summary nature of the judicial
of law shows that the term "may" refers only to proceedings is the separable or independent
the filing of an appeal, not to the mode of review character of the arbitration clause or agreement.
to be employed. This was highlighted in the cases of Manila Electric
Co. v. Pasay Trans. Co. and Del Monte Corporation-
USA v. CA: The doctrine of separability, or
CONSENSUAL NATURE severability as other writers call it, enunciates
Arbitration, as an alternative mode of settling that an arbitration agreement is independent of
disputes, has long been recognized and the main contract. The arbitration agreement is to
accepted in our jurisdiction. Disputes do not go to be treated as a separate agreement and the
arbitration unless and until the parties have agreed arbitration agreement does not automatically
to abide by the arbitrator’s decision. Necessarily, a terminate when the contract of which it is part
contract is required for arbitration to take place comes to an end.
and to be binding. R.A. No. 876 recognizes the
contractual nature of the arbitration agreement
(Section 2). The separability of the arbitration agreement is
especially significant to the determination of
CONTRACTUAL NATURE whether the invalidity of the main contract also
Thus, we held in Manila Electric Co. v. Pasay nullifies the arbitration clause. Indeed, the
Transportation Co. that a submission to arbitration doctrine denotes that the invalidity of the main
is a contract. A clause in a contract providing contract, also referred to as the "container" contract,
that all matters in dispute between the parties does not affect the validity of the arbitration
shall be referred to arbitration is a contract. In agreement. Irrespective of the fact that the main
Del Monte Corporation-USA v. CA we held that that contract is invalid, the arbitration clause/agreement
"the provision to submit to arbitration any still remains valid and enforceable.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 32
Salma F. Angkaya | AY 2010-2011, 1st semester
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The separability of the arbitration clause is confirmed upon such issues.


in Art. 16(1) of the UNCITRAL Model Law and Art.
Where the court is asked to make a determination of whether the
21(2) of the UNCITRAL Arbitration Rules. arbitration agreement is null and void, inoperative or incapable of
being performed, under this policy of judicial restraint, the court
2) ANNULMENT OF ADDENDUM CONTRACT: must make no more than a prima facie determination of that
issue.
The adjudication of the petition arising from the
Petition to Compel Arbitration effectively Unless the court, pursuant to such prima facie determination,
modifies part of the Decision arising from the concludes that the arbitration agreement is null and void,
Annulment case. Hence, we now hold that the inoperative or incapable of being performed, the court must
suspend the action before it and refer the parties to arbitration
validity of the contract containing the pursuant to the arbitration agreement.
agreement to submit to arbitration does not
affect the applicability of the arbitration
clause itself. We add that when it was declared Rule 2.2. Policy on arbitration.— (A) Where the parties have
in the first case that the case should not be agreed to submit their dispute to arbitration, courts shall refer the
brought for arbitration, it should be clarified that parties to arbitration pursuant to Republic Act No. 9285 bearing in
the case referred to is the case actually filed mind that such arbitration agreement is the law between the
parties and that they are expected to abide by it in good faith.
by Gonzales before the DENR Panel of Further, the courts shall not refuse to refer parties to arbitration for
Arbitrators, which was for the nullification of the reasons including, but not limited to, the following:
main contract on the ground of fraud, as it had
already been determined that the case b. The court is in a better position to resolve the dispute subject
should have been brought before the regular of arbitration
courts involving as it did judicial issues. f. One or more of the issues are legal and one or more of the
arbitrators are not lawyers
The MR of Gonzales in the first case should also be
(B) Where court intervention is allowed under ADR Laws or the
denied. These are the same issues that Gonzales Special ADR Rules, courts shall not refuse to grant relief, as
raised in his Rule 45 petition in the first case which provided herein, for any of the following reasons:
were already resolved against him. The question of
whether Gonzales had ceded his claims over the a. Prior to the constitution of the arbitral tribunal, the court finds
mineral deposits in the Addendum Area of Influence that the principal action is the subject of an arbitration agreement;
is a factual question which is not proper for or
b. The principal action is already pending before an arbitral
determination before this Court. The CA likewise tribunal.
found that Gonzales’s complaint alleged fraud but
did not provide any particulars to substantiate it. As The Special ADR Rules recognize the principle of separability
to the issue of prescription, Gonzales’s claims of of the arbitration clause, which means that said clause shall be
fraud and misrepresentation attending the execution treated as an agreement independent of the other terms of the
contract of which it forms part. A decision that the contract is null
of the Addendum Contract are grounds for the and void shall not entail ipso jure the invalidity of the arbitration
annulment of a voidable contract under the Civil clause.
Code. 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 CLASS NOTES:
discovery of the same. However, the time of the 1) Take note of the facts of the case – illustrates
discovery of the alleged fraud is not clear from realities in arbitration.
the allegations of Gonzales’s complaint. 2) Special proceeding of arbitration in the case
(read original) – citing Sec. 6, thus NO pre-trial
STUDY NOTES:

Rule 2.4. Policy implementing competence-competence principle.


— The arbitral tribunal shall be accorded the first opportunity or
Oil & Natural Gas Commission v. CA, 293 SCRA
competence to rule on the issue of whether or not it has the 26 (1998)
competence or jurisdiction to decide a dispute submitted to it for
decision, including any objection with respect to the existence or Petitioner: Oil and Natural Gas Commission - India
validity of the arbitration agreement. When a court is asked to rule
upon issue/s affecting the competence or jurisdiction of an arbitral Respondents: CA and Pacific Cement Company Inc
tribunal in a dispute brought before it, either before or after the - Phils
arbitral tribunal is constituted, the court must exercise judicial
restraint and defer to the competence or jurisdiction of the arbitral Facts:
tribunal by allowing the arbitral tribunal the first opportunity to rule
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 33
Salma F. Angkaya | AY 2010-2011, 1st semester
Special thanks to Krizelle Poblacion for her great digests!

The parties entered into a contract where private required filing fees, the private respondent sent
respondent undertook to supply the petitioner the following communication addressed to the
4300 metric tons of oil well cement. In Civil judge of Dehra Dun inquiring as to the amount
consideration, petitioner bound itself to pay the of filing fees. The foreign court refused to admit
amount of $477,300. The oil well cement was loaded private respondent’s objections for non failure of
on board the ship MV Surutana Nava at Surigao. filing fees and ruled in favor of petitioner.
However, due to a dispute between the shipowner
and the private respondent, the cargo was held Petitioner filed a complaint with the RTC of
up in Bangkok. Notwithstanding the fact that the Surigao City for the enforcement of the
private respondent had already received payment judgment.
and despite several demands made by the
petitioner, the private respondent failed to deliver Private respondent moved to dismiss the complaint
the oil well cement. on the following grounds: (1) plaintiffs lack of legal
capacity to sue; (2) lack of cause of action; and
Negotiations ensued and they agreed that private (3) plaintiffs claim or demand has been waived,
respondent will replace the oil well cement with abandoned, or otherwise extinguished.
Class G cement cost free. However, said cement
did not conform to the parties specifications. The The RTC dismissed the complaint for lack of a
petitioner informed private respondent that it was valid cause of action. It found the referral of the
referring its claim to an arbitrator pursuant to dispute between the parties to the arbitrator
Clause 16 of their contract8. under Clause 16 of their contract erroneous.
According to the contract, all questions, disputes
The chosen arbitrator, Shri N.N. Malhotra, resolved and differences, arising under out of or in
the dispute in petitioner's favor. Petitioner filed connection with this supply order, shall be
before the Court of Civil Judge in Dehra Dun, India subject to the EXCLUSIVE JURISDICTION OF THE
for the execution of the award. Subsequently, the COURT, within the local limits of whose
said court directed the private respondent to pay jurisdiction and the place from which this supply
the filing fees in order that the latter's objections order is situated." The RTC characterized the
could be given consideration. Instead of paying the erroneous submission of the dispute to the arbitrator
as a "mistake of law or fact amounting to want of
8
Except where otherwise provided in the supply jurisdiction". The CA affirmed.
order/contract all questions and disputes, relating to the
meaning of the specification designs, drawings and Issue: WON the arbitrator had jurisdiction over the
instructions herein before mentioned and as to quality of
workmanship of the items ordered or as to any other
dispute between the parties
question, claim, right or thing whatsoever, in any way arising
out of or relating to the supply order/contract (NO COMMA!!!) Held: NO
design, drawing, specification, instruction or these conditions or
otherwise concerning the materials or the execution or
failure to execute the same during stipulated/extended period Ratio: The dispute between the parties had its
or after the completion/abandonment thereof shall be referred origin in the non-delivery of the 4,300 metric tons of
to the sole arbitration of the persons appointed by Member of the oil well cement to the petitioner.
Commission at the time of dispute. It will be no objection to any
such appointment that the arbitrator so appointed is a
Commission employer (sic) that he had to deal with the matter to First of all, the petitioner has misquoted the said
which the supply or contract relates and that in the course of his phrase, shrewdly inserting a comma between the
duties as Commission's employee he had expressed views on all words "supply order/contract" and "design" where
or any of the matter in dispute or difference.
none actually exists.
The arbitrator to whom the matter is originally referred being
transferred or vacating his office or being unable to act for any
reason the Member of the Commission shall appoint another The petitioner also insists that the non-delivery of the
person to act as arbitrator in accordance with the terms of the cargo is not only covered by the foregoing phrase
contract/supply order. Such person shall be entitled to proceed
with reference from the stage at which it was left by his
but also by the phrase, ". . . or otherwise concerning
predecessor. Subject as aforesaid the provisions of the Arbitration the materials or the execution or failure to execute
Act, 1940, or any Statutory modification or re-enactment there of the same during the stipulated/extended period or
and the rules made there under and for the time being in force after completion/abandonment thereof . . .".
shall apply to the arbitration proceedings under this clause.
The arbitrator may with the consent of parties enlarge the time,
from time to time, to make and publish the award.
The venue for arbitration shall be at Dehra dun.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 34
Salma F. Angkaya | AY 2010-2011, 1st semester
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According to the maxim noscitur a sociis, where a upon by a person possessed with the required
particular word or phrase is ambiguous in itself skill and expertise which may be otherwise
or is equally susceptible of various meanings, its absent in the regular courts.
correct construction may be made clear and
specific by considering the company of the This Court agrees with the appellate court in its
words in which it is found or with which it is ruling that the non-delivery of the oil well cement is a
associated, or stated differently, its obscurity or matter properly cognizable by the regular courts
doubt may be reviewed by reference to associated as stipulated by the parties in Clause 15.
words.
The provisions of a contract should not be read
A close examination of Clause 16 reveals that it in isolation from the rest of the instrument but,
covers three matters which may be submitted to on the contrary, interpreted in the light of the
arbitration namely, other related provisions. The whole and every
part of a contract must be considered in fixing
(1) all questions and disputes, relating to the the meaning of any of its harmonious whole.
meaning of the specification designs, drawings
and instructions herein before mentioned and as The petitioner's interpretation that Clause 16 is of
to quality of workmanship of the items ordered; such latitude as to contemplate even the non-
or delivery of the oil well cement would in effect render
Clause 15 a mere superfluity. A perusal of Clause 16
(2) any other question, claim, right or thing shows that the parties did not intend arbitration
whatsoever, in any way arising out of or relating to be the sole means of settling disputes.
to the supply order/contract design, drawing,
specification, instruction or these conditions; or The petitioner then asseverates that granting, for the
sake of argument, that the non-delivery of the oil well
(3) otherwise concerning the materials or the cement is not a proper subject for arbitration, the
execution or failure to execute the same during failure of the replacement cement to conform to the
stipulated/extended period or after the specifications of the contract is a matter clearly
completion/abandonment thereof. falling within the ambit of Clause 16. In this
contention, we find merit. When the 4,300 metric
The first and second categories unmistakably refer tons of oil well cement were not delivered to the
to questions and disputes relating to the design, petitioner, an agreement was forged between the
drawing, instructions, specifications or quality of latter and the private respondent that Class "G"
the materials of the supply/order contract. cement would be delivered to the petitioner as
replacement. Upon inspection, however, the
In accordance with the doctrine of noscitur a sociis, replacement cement was rejected as it did not
this reference to the supply order/contract must conform to the specifications of the contract. Only
be construed in the light of the preceding words with after this latter circumstance was the matter brought
which it is associated, meaning to say, as being before the arbitrator. Undoubtedly, what was
limited only to the design, drawing, instructions, referred to arbitration was no longer the mere non-
specifications or quality of the materials of the delivery of the cargo at the first instance but
supply order/contract. also the failure of the replacement cargo to
conform to the specifications of the contract, a
The non-delivery of the oil well cement is matter clearly within the coverage of Clause 16.
definitely not in the nature of a dispute arising
from the failure to execute the supply order/contract What inspires credulity is not that the replacement
design, drawing, instructions, specifications or was done in the spirit of liberality but that it was
quality of the materials. undertaken precisely because of the private
respondent's recognition of its duty to do so under
That Clause 16 should pertain only to matters the supply order/contract, Clause 16 of which
involving the technical aspects of the contract is remains in force and effect until the full execution
but a logical inference considering that the thereof.
underlying purpose of a referral to arbitration is
for such technical matters to be deliberated Issue: WON the judgment of the foreign court is
enforceable in the Philippines
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 35
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Held: Yes paying the legal fees. We cannot subscribe to the


private respondent's claim that the foreign court
Ratio: As specified in the order of the Civil Judge violated its right to due process when it failed to
of Dehra Dun, "Award Paper No. 3/B-1 shall be a reply to its queries nor when the latter rejected
part of the decree". This is a categorical declaration its objections for a clearly meritorious ground.
that the foreign court adopted the findings of facts
and law of the arbitrator as contained in the latter's STUDY NOTES:
Award Paper. Award Paper No. 3/B-1, contains an
exhaustive discussion of the respective claims and Rule 2.2. Policy on arbitration.— (A) Where the parties have
defenses of the parties, and the arbitrator's agreed to submit their dispute to arbitration, courts shall refer the
parties to arbitration pursuant to Republic Act No. 9285 bearing in
evaluation of the same. Inasmuch as the foregoing is mind that such arbitration agreement is the law between the
deemed to have been incorporated into the foreign parties and that they are expected to abide by it in good faith.
court's judgment the appellate court was in error Further, the courts shall not refuse to refer parties to arbitration for
when it described the latter to be a "simplistic reasons including, but not limited to, the following:
decision containing literally, only the dispositive b. The court is in a better position to resolve the dispute subject
of arbitration;
portion". e. The place of arbitration is in a foreign country

The constitutional mandate that no decision shall be


Class Notes:
rendered by any court without expressing therein
dearly and distinctly the facts and the law on which it
1) International Arbitration
is based does not preclude the validity of
2) Assessment of the Arbitration Clause
"memorandum decisions" which adopt by reference
a) Valid
the findings of fact and conclusions of law contained
b) Void
in the decisions of inferior tribunals.
3) Issues
a) Contract of Adhesion
Hence, even in this jurisdiction, incorporation by b) Consensuality – whether or not this was met
reference is allowed if only to avoid the c) Article 2045 – giving one party more power
cumbersome reproduction of the decision of the in the appointment of the arbitrator
lower courts, or portions thereof, in the decision
of the higher court. This is particularly true when
the decision sought to be incorporated is a lengthy What if the place of international arbitration were the
and thorough discussion of the facts and Philippines?
conclusions arrived at, as in this case, where Award
Paper No. 3/B-1 consists of eighteen (18) single What if the place of international arbitration were
spaced pages. still India, but the applicable law is Philippine
law, how do you enforce the award (India: apply
Furthermore, the recognition to be accorded a civil court)?
foreign judgment is not necessarily affected by the Party: File a petition for recognition and enforcement
fact that the procedure in the courts of the country in under
which such judgment was rendered differs from that Judge: Would you enforce the award?
of the courts of the country in which the judgment is
relied on. This Court has held that matters of Can Philippines refuse on the ground of public
remedy and procedure are governed by the lex policy?
fori or the internal law of the forum.

In the instant case, the private respondent does not How do you assail an award?
deny the fact that it was notified by the foreign court Domestic – grounds for vacate
to file its objections to the petition, and subsequently, International Award – grounds for setting aside
to pay legal fees in order for its objections to be
given consideration. Instead of paying the legal fees, When is it proper to set aside, when is it proper
however, the private respondent sent a to refuse recognition?
communication to the foreign court inquiring about Possible finals question.
the correct amount of fees to be paid. On the pretext
that it was yet awaiting the foreign court's reply, Sec. 42. Application of the New York Convention
almost a year passed without the private respondent
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 36
Salma F. Angkaya | AY 2010-2011, 1st semester
Special thanks to Krizelle Poblacion for her great digests!

The New York Convention shall govern the recognition and b) if so agreed by the parties, a party, with notice to the other
enforcement of arbitral awards covered by the said Convention. party, may request the arbitral tribunal to give an interpretation of
a specific point or part of the award.
The recognition and enforcement of such arbitral awards shall be If the arbitral tribunal considers the request to be justified, it shall
filled with regional trial court in accordance with the rules of make the correction or give the interpretation within thirty days of
procedure to be promulgated by the Supreme Court. Said receipt of the request. The interpretation shall form part of the
procedural rules shall provide that the party relying on the award award.
or applying for its enforcement shall file with the court the original 2) The arbitral tribunal may correct any error of the type referred
or authenticated copy of the award and the arbitration agreement. to in paragraph 1)a) of this article on its own initiative within thirty
If the award or agreement is not made in any of the official days of the date of the award.
languages, the party shall supply a duly certified translation 3) Unless otherwise agreed by the parties a party with notice to
thereof into any of such languages. the other party, may request, within thirty days of receipt of the
award, the arbitral tribunal to make an additional award as to
The applicant shall establish that the country in which foreign claims presented in the arbitral proceedings but omitted from the
arbitration award was made is a party to the New York award. If the arbitral tribunal considers the request to be justified,
Convention. it shall make the additional award within sixty days.
4) The arbitral tribunal may extend, if necessary, the period of
If the application for rejection or suspension of enforcement of an time within which it shall make a correction, interpretation or an
award has been made, the regional trial court may, if it considers additional award under paragraph (1) or (3) of this article.
it proper, vacate its decision and may also, on the application of 5) The provisions of article 31 shall apply to a correction or
the party claiming recognition or enforcement of the award, order interpretation of the award or to an additional award.
the party to provide appropriate security.
Sec. 45. Rejection of a Foreign Arbitral Award. - A party to a
Sec. 43. Recognition and Enforcement of Foreign Arbitral foreign arbitration proceeding may oppose an application for
Awards Not Covered by the New York Convention. - The recognition and enforcement of the arbitral award in accordance
recognition and enforcement of foreign arbitral awards not with the procedural rules to be promulgated by the Supreme
covered by the New York Convention shall be done in accordance Court only on those grounds enumerated under Article V of the
with procedural rules to be promulgated by the Supreme Court. New York Convention. Any other ground raised shall be
The Court may, grounds of comity and reciprocity, recognize and disregarded by the regional trial court.
enforce a nonconvention award as a convention award.
Article 36 - [Grounds for refusing recognition or
Sec. 44. Foreign Arbitral Award Not Foreign Judgment. - A enforcement]
foreign arbitral award when confirmed by a court of a foreign 1) Recognition or enforcement of an arbitral award, irrespective of
country, shall be recognized and enforced as a foreign arbitral the country in which it was made, may be refused only:
award and not a judgment of a foreign court. a) at the request of the party against whom it is invoked, if that
party furnishes to the competent court where recognition or
A foreign arbitral award, when confirmed by the regional trial enforcement is sought proof that:
court, shall be enforced as a foreign arbitral award and not as a i) a party to the arbitration agreement referred to in article 7 was
judgment of a foreign court. under some incapacity; or the said agreement is not valid under
the law to which the parties have subjected it or, failing any
A foreign arbitral award, when confirmed by the regional trial indication thereon, under the law of the country where the award
court, shall be enforced in the same manner as final and was made; or
executory decisions of courts of law of the Philippines. ii) the party against whom the award is invoked was not given
proper notice of the appointment of an arbitrator or of the arbitral
proceedings or was otherwise unable to present his case; or
Article 35 - [Recognition and enforcement]
iii) the award deals with a dispute not contemplated by or not
1) An arbitral award, irrespective of the country in which it was
falling within the terms of the submission to arbitration, or it
made, shall be recognised as binding and, upon application in
contains decisions on matters beyond the scope of the
writing to the competent court, shall be enforced subject to the
submission to arbitration, provided that, if the decisions on
provisions of this article and of article 36.
matters submitted to arbitration can be separated from those not
2) The party relying on an award or applying for its enforcement so submitted, that part of the award which contains decisions on
shall supply the duly authenticated original award or a duly matters submitted to arbitration may be recognised and enforced;
certified copy thereof, and the original arbitration agreement or
referred to in article 7 or a duly certified copy thereof. If the award
iv) the composition of the arbitral tribunal or the arbitral procedure
or agreement is not made in an official language of this State, the
was not in accordance with the agreement of the parties or, failing
party shall supply a duly certified translation thereof into such
such agreement, was not in accordance with the law of the
language.
country where the arbitration took place; or
v) the award has not yet become binding on the parties or has
Article 33 - [Correction and interpretation of award; been set aside or suspended by a court of the country in which, or
additional award] under the law of which, that award was made; or
1) Within thirty days of receipt of the award, unless another period b) if the court finds that:
of time has been agreed upon by the parties:
i) the subject-matter of the dispute is not capable of settlement by
a) a party, with notice to the other party, may request the arbitral arbitration under the law of this State; or
tribunal to correct in the award any errors in computation, any
ii) the recognition or enforcement of the award would be contrary
clerical or typographical errors or any errors of similar nature;
to the public policy of this State.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 37
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2) If an application for setting aside or suspension of an award a. The party making the application to refuse recognition and
has been made to a court referred to in paragraph (1)(a)(v) of this enforcement of the award furnishes proof that:
article, the court where recognition or enforcement is sought may,
if it considers it proper, adjourn its decision and may also, on the
(i). A party to the arbitration agreement was under some
application of the party claiming recognition or enforcement of the
incapacity; or the said agreement is not valid under the law to
award, order the other party to provide appropriate security.
which the parties have subjected it or, failing any indication
thereof, under the law of the country where the award was made;
Article 34 - [Application for setting side as exclusive or
recourse against arbitral award]
1) Recourse to a court against an arbitral award may be made (ii). The party making the application was not given proper
only by an application for setting aside in accordance with notice of the appointment of an arbitrator or of the arbitral
paragraphs (2) and (3) of this article. proceedings or was otherwise unable to present his case; or
2) An arbitral award may be set aside by the court specified in
article 6 only if: (iii). The award deals with a dispute not contemplated by or not
a) the party making the application furnishes proof that: falling within the terms of the submission to arbitration, or contains
decisions on matters beyond the scope of the submission to
i) a party to the arbitration agreement referred to in article 7 was
arbitration; provided that, if the decisions on matters submitted to
under some incapacity; or the said agreement is not valid under
arbitration can be separated from those not so submitted, only
the law to which the parties have subjected it or, failing any
that part of the award which contains decisions on matters not
indication thereon, under the law of this State; or
submitted to arbitration may be set aside; or
ii) the party making the application was not given proper notice of
the appointment of an arbitrator or of the arbitral proceedings or (iv). The composition of the arbitral tribunal or the arbitral
was otherwise unable to present his case; or procedure was not in accordance with the agreement of the
iii) the award deals with a dispute not contemplated by or not parties or, failing such agreement, was not in accordance with the
falling within the terms of the submission to arbitration, or contains law of the country where arbitration took place; or
decisions on matters beyond the scope of the submission to
arbitration, provided that, if the decisions on matters submitted to (v). The award has not yet become binding on the parties or has
arbitration can be separated from those not so submitted, only been set aside or suspended by a court of the country in which
that part of the award which contains decisions on matters not that award was made; or
submitted to arbitration may be set aside; or
iv) the composition of the arbitral tribunal or the arbitral procedure b. The court finds that:
was not in accordance with the agreement of the parties, unless
such agreement was in conflict with a provision of this Law from
which the parties cannot derogate, or, failing such agreement, (i). The subject-matter of the dispute is not capable of
was not in accordance with this Law; or settlement or resolution by arbitration under Philippine law; or
(ii). The recognition or enforcement of the award would be
b) the court finds that:
contrary to public policy.
i) the subject-matter of the dispute is not capable of settlement by
arbitration under the law of this State; or,
The court shall disregard any ground for opposing the recognition
ii) the award is in conflict with the public policy of this State.
and enforcement of a foreign arbitral award other than those
3) An application for setting aside may not be made after three enumerated above.
months have elapsed from the date on which the party making
that application had received the award or, if a request had been
made under article 33, from the date on which that request had
been disposed of by the arbitral tribunal. Rule 12.4. Grounds to set aside or resist enforcement. — The
4) The court, when asked to set aside an award, may where court may set aside or refuse the enforcement of the arbitral
appropriate and so requested by a party, suspend the setting award only if:
aside proceedings for a period of time determined by it in order to
give the arbitral tribunal an opportunity to resume the arbitral a. The party making the application furnishes proof that:
proceedings or to take such other action as in the arbitral
tribunal's opinion will eliminate the grounds for setting aside. (i). A party to the arbitration agreement was under some
incapacity, or the said agreement is not valid under the law to
Rule 13.4. Governing law and grounds to refuse recognition and which the parties have subjected it or, failing any indication
enforcement. — The recognition and enforcement of a foreign thereof, under Philippine law; or
arbitral award shall be governed by the 1958 New York
Convention on the Recognition and Enforcement of Foreign (ii). The party making the application to set aside or resist
Arbitral Awards (the “New York Convention”) and this Rule. The enforcement was not given proper notice of the appointment of an
court may, upon grounds of comity and reciprocity, recognize and arbitrator or of the arbitral proceedings or was otherwise unable to
enforce a foreign arbitral award made in a country that is not a present his case; or
signatory to the New York Convention as if it were a Convention
Award. (iii). The award deals with a dispute not contemplated by or not
falling within the terms of the submission to arbitration, or contains
A Philippine court shall not set aside a foreign arbitral award but decisions on matters beyond the scope of the submission to
may refuse it recognition and enforcement on any or all of the arbitration; provided that, if the decisions on matters submitted to
following grounds: arbitration can be separated from those not so submitted, only
that part of the award which contains decisions on matters not
submitted to arbitration may be set aside or only that part of the
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 38
Salma F. Angkaya | AY 2010-2011, 1st semester
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award which contains decisions on matters submitted to by MCHC's board of directors and of the non-
arbitration may be enforced; or competition clause of the Employment Agreement.
(iv). The composition of the arbitral tribunal or the arbitral
Nevertheless, Zosa was elected to a new position
procedure was not in accordance with the agreement of the as MCHC's Vice-Chairman/Chairman for New
parties, unless such agreement was in conflict with a provision of Ventures Development.
Philippine law from which the parties cannot derogate, or, failing Zosa communicated his resignation from the
such agreement, was not in accordance with Philippine law;
position of Vice-Chairman under paragraph 7 of the
b. The court finds that:
Employment Agreement on the ground that said
position had less responsibility and scope than
(i). The subject-matter of the dispute is not capable of President and CEO. He demanded that he be given
settlement by arbitration under the law of the Philippines; or termination benefits. MCHC did not accept the
(ii). The recognition or enforcement of the award would be
contrary to public policy.
resignation but instead informed him that the
Employment Agreement is being terminated on
In deciding the petition, the Court shall disregard any other acountr of breach thereof.
ground to set aside or enforce the arbitral award other than those Zosa invoked the Arbitration Clause of the
enumerated above. Employment Agreement9. He designated his brother,
The petition to set-aside or a pleading resisting the enforcement
Atty. Francis Zosa as his representative in the
of an arbitral award on the ground that a party was a minor or an arbitration panel. MCHC designated Atty. Inigo S.
incompetent shall be filed only on behalf of the minor or Fojas and MCMC nominated Atty. Enrique I.
incompetent and shall allege that (a) the other party to arbitration Quiason as their representatives l. However, instead
had knowingly entered into a submission or agreement with such
minor or incompetent, or (b) the submission to arbitration was
of submitting the dispute to arbitration, Zosa filed an
made by a guardian or guardian ad litem who was not authorized action for damages against petitioners before the
to do so by a competent court. RTC of Cebu to enforce his benefits under the
Employment Agreement.

Petitioners filed an MTD. The RTC denied the MTD


Magellan Capital Mgt. Corp. v. Zosa, 355 SCRA on the ground that (1) the validity and legality of
157 (2001) the arbitration provision can only be determined
after trial on the merits; and (2) the amount of
Petitioners: Magellan Capital Management damages claimed, which is over P100,000.00, falls
Corporation and Magellan Capital Holdings within the jurisdiction of the RTC. The RTC issued
Corporation a pre-trial order designating only one issue: WON
Respondents: Rolando Zosa and Hon. Jose the Arbitration Clause was void. Petitioners filed a
Soberano Jr Motion Ad Cautelam for the clarification of the
pretrial order, as well as another on the validity of
Facts: the clause. The RTC denied.
Under a management agreement, Magellan Capital
Holdings Corporation [MCHC] appointed Magellan Petitioners filed a petition for certiorari and
Capital Management Corporation [MCMC] as prohibition before the CA. The CA gave due course
manager for the operation of its business and
9
affairs. MCMC, and M. Zosa entered into an "23. Arbitration. In the event that any dispute, controversy or
"Employment Agreement" designating Zosa as claim arises out of or under any provisions of this Agreement,
President and CEO of MCHC. Under the then the parties hereto agree to submit such dispute, controversy
or claim to arbitration as set forth in this Section and the
"Employment Agreement", the term of Zosa's determination to be made in such arbitration shall be final and
employment shall be co-terminous with the binding. Arbitration shall be effected by a panel of three
management agreement, unless sooner terminated arbitrators. The Manager, Employee and Corporation shall
pursuant to the provisions of the Employment designate one (1) arbitrator who shall, in turn, nominate and elect
who among them shall be the chairman of the committee. Any
Agreement. The grounds for termination of such arbitration, including the rendering of an arbitration award,
employment are also provided in the Employment shall take place in Metro Manila. The arbitrators shall interpret this
Agreement. Agreement in accordance with the substantive laws of the
Republic of the Philippines. The arbitrators shall have no power to
add to, subtract from or otherwise modify the terms of Agreement
The majority of MCHC's Board of Directors decided or to grant injunctive relief of any nature. Any judgment upon the
not to re-elect Zosa as President and CEO of award of the arbitrators may be entered in any court having
MCHC on account of loss of trust and confidence jurisdiction thereof, with costs of the arbitration to be borne
arising from alleged violation of the resolution issued equally by the parties, except that each party shall pay the fees
and expenses of its own counsel in the arbitration."
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 39
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to the petition. Petitioners filed a motions for partial "From the memoranda of both sides, the Court is of
reconsideration of the CA decision praying (1) for the the view that the defendants [petitioner] MCMC and
dismissal of the case in the trial court, on the ground MCHC represent the same interest. There is no
of lack of jurisdiction, and (2) that the parties be quarrel that both defendants are entirely two
directed to submit their dispute to arbitration in different corporations with personalities distinct and
accordance with the Employment Agreement dated separate from each other and that a corporation has
March 1994. The CA denied the motion for partial a personality distinct and separate from those
reconsideration for lack of merit. persons composing the corporation as well as from
that of any other legal entity to which it may be
The RTC later declared the arbitration clause as related.
partially void and of no effect insofar as it concerns
the composition of the panel of arbitrators. "But as the defendants [herein petitioner] represent
the same interest, it could never be expected, in the
Issue: WON the SEC has jurisdiction over the case arbitration proceedings, that they would not protect
and preserve their own interest, much less, would
Held: No both or either favor the interest of the plaintiff. The
arbitration law, as all other laws, is intended for the
Ratio: The controversy does not in anyway involve good and welfare of everybody. In fact, what is being
the election/appointment of officers of petitioner challenged by the plaintiff herein is not the law itself
MCHC, as claimed by petitioners in their assignment but the provision of the Employment Agreement
of errors. Zosa's amended complaint focuses heavily based on the said law, which is the arbitration clause
on the illegality of the Employment Agreement's but only as regards the composition of the panel of
"Arbitration Clause" initially invoked by him in arbitrators.
seeking his termination benefits under Section 8 of
the employment contract. And under RA 876, it is "From the arbitration clause, it appears that the two
the regional trial court which exercises jurisdiction (2) defendants [petitioners] (MCMC and MCHC)
over questions relating to arbitration. have one (1) arbitrator each to compose the panel of
"The determination and validity of the agreement is three (3) arbitrators. As the defendant MCMC is the
not a matter intrinsically connected with the Manager of defendant MCHC, its decision or vote in
regulation and internal affairs of corporations; it is the arbitration proceeding would naturally and
rather an ordinary case to be decided in accordance certainly be in favor of its employer and the
with the general laws, and do not require any defendant MCHC would have to protect and
particular expertise or training to interpret and preserve its own interest; hence, the two (2) votes of
apply.” both defendants (MCMC and MCHC) would certainly
Furthermore, the decision of the CA affirming the be against the lone arbitrator for the plaintiff [herein
trial court's assumption of jurisdiction over the case defendant]. Hence, apparently, plaintiff [defendant]
has become the "law of the case" which now binds would never get or receive justice and fairness in the
the petitioners. The "law of the case" doctrine has arbitration proceedings from the panel of arbitrators
been defined as "a term applied to an established as provided in the aforequoted arbitration clause. In
rule that when an appellate court passes on a fairness and justice to the plaintiff [defendant], the
question and remands the cause to the lower court two defendants (MCMC and MCHC) [herein
for further proceedings, the question there settled petitioners] which represent the same interest should
becomes the law of the case upon subsequent be considered as one and should be entitled to only
appeal." one arbitrator to represent them in the arbitration
proceedings. Accordingly, the arbitration clause,
Issue: WON the composition of arbitrators is valid insofar as the composition of the panel of arbitrators
is concerned should be declared void and of no
Held: effect, because the law says, "Any clause giving one
of the parties power to choose more arbitrators than
Ratio: The Court finds the trial court's observations the other is void and of no effect" (Article 2045, Civil
on why the composition of the panel of arbitrators Code).
should be voided, incisively correct so as to merit "The dispute or controversy between the defendants
our approval. Thus, (MCMC and MCHC) [herein petitioners] and the
plaintiff [herein defendant] should be settled in the
arbitration proceeding in accordance with the
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 40
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Employment Agreement, but under the panel of 3) No default in invoking the provisions of the
three (3) arbitrators, one (1) arbitrator to represent arbitration clause – “within a reasonable time
the plaintiff, one (1) arbitrator to represent both after the dispute has arisen and attempts to
defendants (MCMC and MCHC) [herein petitioners] settle amicably have failed.”
and the third arbitrator to be chosen by the plaintiff
[defendant Zosa] and defendants
[petitioners]. BF Corporation v. CA, 288 SCRA 267 (1998)

In this connection, petitioners' attempt to put


respondent in estoppel in assailing the arbitration
clause must be struck down. For one, this issue of BF Corp vs CA
estoppel, as likewise noted by the CA, found its way Date: March 27, 1998
for the first time only on appeal. Well-settled is the Petitioner: BF Corporation
rule that issues not raised below cannot be resolved Respondents: CA, Shangri-la Properties Inc, Rufo
on review in higher courts. Secondly, employment Colayco, Alfredo Ramos, Maximo Licauco, et al
agreements such as the one at bar are usually
contracts of adhesion. Any ambiguity in its
provisions is generally resolved against the party Facts:
who drafted the document. Thus, in the relatively Petitioner and respondent Shangri-la Properties, Inc.
recent case of Phil. Federation of Credit entered into an agreement whereby the latter
Cooperatives, Inc. (PFCCI) and Fr. Benedicto engaged the former to construct the main structure
Jayoma vs. NLRC and Victoria Abril, we had the of the "EDSA Plaza Project," a shopping mall
occasion to stress that "where a contract of complex in Mandaluyong. Petitioner incurred delay
employment, being a contract of adhesion, is in the construction work that SPI considered as
ambiguous, any ambiguity therein should be "serious and substantial." On the other hand,
construed strictly against the party who prepared it." according to petitioner, the construction works
And, finally, Zosa never submitted himself to "progressed in faithful compliance with the First
arbitration proceedings (as there was none yet) Agreement until a fire broke out damaging Phase I"
before bewailing the composition of the panel of of the Project. Hence, SPI proposed the re-
arbitrators. He in fact, lost no time in assailing the negotiation of the agreement between them.
"arbitration clause" upon realizing the inequities that Petitioner and SPI entered into a written agreement
may mar the arbitration proceedings if the existing denominated as "Agreement for the Execution of
line-up of arbitrators remained unchecked. Builder's Work for the EDSA Plaza Project." Said
Arbitration proceedings are designed to level the agreement would cover the construction work on
playing field among the parties in pursuit of a said project as of May 1, 1991 until its eventual
mutually acceptable solution to their conflicting completion. According to SPI, petitioner "failed to
claims. Any arrangement or scheme that would give complete the construction works and abandoned the
undue advantage to a party in the negotiating table project." This resulted in disagreements between the
is anathema to the very purpose of arbitration and parties as regards their respective liabilities under
should, therefore, be resisted. the contract.
BF Corporation v. CA, 288 SCRA 267 (1998) Petitioner filed with the RTC of Pasig a complaint for
Parties executed an “Agreement for the Execution of collection of the balance due under the construction
Builder’s Work for the EDSA Plaza Project” agreement. SPI and its co-defendants filed a motion
BF filed Complaint for collection to suspend proceedings instead of filing an answer.
SPI filed MTS The motion was anchored on defendants' allegation
TC denied – too late that the formal trade contract for the construction of
CA annulled TC order the project provided for a clause requiring prior
1) Certiorari proper – QoL (jurisdiction); QoF resort to arbitration before judicial intervention could
(existence or arbitration clause) – CA annulled be invoked in any dispute arising from the contract.
RTC order saying that invoking the arbitration Petitioner opposed said motion claiming that there
clause was too late was no formal contract between the parties although
2) Arbitration clause exists, even if the parties did they entered into an agreement defining their rights
not sign the Conditions of Contract, since they and obligations in undertaking the project.
signed the Articles of Agreement
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 41
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Thereafter, upon a finding that an arbitration clause exists an Arbitration Clause which, admittedly, is a
indeed exists, the lower court denied the motion to question of fact.
suspend proceedings as the Conditions of Contract
was not duly executed or signed by the parties, and Moreover, where a rigid application of the rule that
the failure of the defendants to submit any signed certiorari cannot be a substitute for appeal will result
copy of the said document,. in a manifest failure or miscarriage of justice, the
provisions of the Rules of Court which are technical
The lower court then ruled that, assuming that the rules may be relaxed. As we shall show hereunder,
arbitration clause was valid and binding, still, it was had the CA dismissed the petition for certiorari, the
"too late in the day for defendants to invoke issue of whether or not an arbitration clause exists in
arbitration. Considering the fact that under the the contract would not have been resolved in
supposed Arbitration Clause invoked by defendants, accordance with evidence extant in the record of the
it is required that "Notice of the demand for case. Consequently, this would have resulted in a
arbitration of a dispute shall be filed in writing with judicial rejection of a contractual provision agreed by
the other party . . . . in no case . . . . later than the the parties to the contract.
time of final payment . . . "which apparently, had
elapsed because defendants have failed to file any In the same vein, this Court holds that the question
written notice of any demand for arbitration during of the existence of the arbitration clause in the
the said long period of one year and eight months. contract between petitioner and private respondents
The CA annulled the orders of the RTC. is a legal issue that must be determined in this
petition for review on certiorari.
Issue: WON a petition for certiorari is proper
Issue: WON an arbitration clause exists
Held: Yes
Held:
Ratio: The rule that the special civil action of
certiorari may not be invoked as a substitute for the Ratio: Petitioner denies the existence of the
remedy of appeal. The Court has likewise ruled that arbitration clause primarily on the ground that the
"certiorari will not be issued to cure errors in representatives of the contracting corporations did
proceedings or correct erroneous conclusions of law not sign the "Conditions of Contract" that contained
or fact. As long as a court acts within its jurisdiction, the said clause. Its other contentions, specifically
any alleged errors committed in the exercise of its that insinuating fraud as regards the alleged
jurisdiction will amount to nothing more than errors insertion of the arbitration clause, are questions of
of judgment which are reviewable by timely appeal fact that should have been threshed out below.
and not by a special civil action of certiorari."
Court may as well proceed to determine whether
The question of jurisdiction, which is a question of the arbitration clause does exist in the parties'
law depends on the determination of the existence of contract. Republic Act No. 876 provides for the
the arbitration clause, which is a question of fact. In formal requisites of an arbitration. The formal
the instant case, the lower court found that there requirements of an agreement to arbitrate are
exists an arbitration clause. However, it ruled that in therefore the following: (a) it must be in writing and
contemplation of law, said arbitration clause does (b) it must be subscribed by the parties or their
not exist. It is that mode of appeal taken by private representatives. There is no denying that the parties
respondents before the CA that is being questioned entered into a written contract that was submitted in
by the petitioners before this Court. But at the heart evidence before the lower court. To "subscribe"
of said issue is the question of whether there exists means to write underneath, as one's name; to sign
an Arbitration Clause because if an Arbitration at the end of a document. That word may
Clause does not exist, then private respondents took sometimes be construed to mean to give consent to
the wrong mode of appeal before the CA. or to attest.

For this Court to be able to resolve the question of The Court finds that, upon a scrutiny of the records
whether private respondents took the proper mode of this case, these requisites were complied with in
of appeal, which, incidentally, is a question of law, the contract in question. The Articles of Agreement,
then it has to answer the core issue of whether there which incorporates all the other contracts and
agreements between the parties, was signed by
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 42
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representatives of both parties and duly notarized. paid its liabilities tinder the contract in accordance
The failure of the private respondent's representative with its terms. However, misunderstandings
to initial the "Conditions of Contract" would therefor appeared to have cropped up between the parties
not affect compliance with the formal requirements ostensibly brought about by either delay in the
for arbitration agreements because that particular completion of the construction work or by force
portion of the covenants between the parties was majeure or the fire that partially gutted the project.
included by reference in the Articles of Agreement. The almost two-year delay in paying its liabilities
may not therefore be wholly ascribed to private
Petitioner's contention that there was no arbitration respondent SPI.
clause because the contract incorporating said
provision is part of a "hodge-podge" document, is Besides, SPI's initiative in calling for a conference
therefore untenable. A contract need not be between the parties was a step towards the agreed
contained in a single writing. It may be collected resort to arbitration. However, petitioner posthaste
from several different writings which do not conflict filed the complaint before the lower court. Thus,
with each other and which, when connected, show while SPI's request for arbitration might appear an
the parties, subject matter, terms and consideration, afterthought as it was made after it had filed the
as in contracts entered into by correspondence. 13 A motion to suspend proceedings, it was because
contract may be encompassed in several petitioner acted hastily in order to resolve the
instruments even though every instrument is not controversy through the courts.
signed by the parties, since it is sufficient if the
unsigned instruments are clearly identified or The arbitration clause provides for a "reasonable
referred to and made part of the signed instrument time" within which the parties may avail of the relief
or instruments. Similarly, a written agreement of under that clause. "Reasonableness" is a relative
which there are two copies, one signed by each of term and the question of whether the time within
the parties, is binding on both to the same extent as which an act has to be done is reasonable depends
though there had been only one copy of the on attendant circumstances. This Court finds that
agreement and both had signed it. under the circumstances obtaining in this case, a
one-month period from the time the parties held a
The flaw in petitioner's contentions therefore lies in conference on July 12, 1993 until private respondent
its having segmented the various components of the SPI notified petitioner that it was invoking the
whole contract between the parties into several arbitration clause, is a reasonable time. Indeed,
parts. This notwithstanding, petitioner ironically petitioner may not be faulted for resorting to the
admits the execution of the Articles of Agreement. court to claim what was due it under the contract.
Notably, too, the lower court found that the said However, we find its denial of the existence of the
Articles of Agreement "also provides that the arbitration clause as an attempt to cover up its
'Contract Documents' therein listed 'shall be deemed misstep in hurriedly filing the complaint before the
an integral part of this Agreement,' and one of the lower court.
said documents is the 'Conditions of Contract' which
contains the Arbitration Clause.'" It is this Articles of In this connection, it bears stressing that the lower
Agreement that was duly signed by Rufo B. Colayco, court has not lost its jurisdiction over the case.
president of private respondent SPI, and Bayani F. Section 7 of RA 876 provides that proceedings
Fernando, president of petitioner corporation. The therein have only been stayed. After the special
same agreement was duly subscribed before notary proceeding of arbitration has been pursued and
public Nilberto R. Briones. In other words, the completed, then the lower court may confirm the
subscription of the principal agreement effectively award made by the arbitrator.
covered the other documents incorporated by
reference therein. It should be noted that in this jurisdiction, arbitration
has been held valid and constitutional. Even before
This Court likewise does not find that the CA erred in
ruling that private respondents were not in default in
invoking the provisions of the arbitration clause
which states that "(t)he demand for arbitration shall
be made within a reasonable time after the dispute
has arisen and attempts to settle amicably had
failed." Under the factual milieu, SPI should have Class Notes:
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 43
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4) Appointment of Arbitrator;
5) Challenge to Appointment of Arbitrator;
Arbitration clause in a Container Clause – merely 6) Termination of Mandate of Arbitrator;
initialed by one party. Held: Valid. The main 7) Assistance in Taking Evidence;
agreement, the articles of agreement, was signed by 8) Confidentiality/Protective Orders; and
the CEO. 9) Deposit and Enforcement of Mediated
Settlement Agreements.
It did not contain arb clause.
Not Covered by Summary Procedure:
What it included are references to ____, “conditions
of contract.” 1) Confirmation, Correction or Vacation of Award in
Domestic Arbitration
What did Shangrila file in the RTC after DS filed 2) Recognition and Enforcement or Setting Aside
the action for specific performance? of an Award in International Commercial
Motion to Suspend, based on RA 876, Sec.7 (Stay Arbitration
of civil action); RA 9285, Sec. 24, not later than pre- 3) Recognition and Enforcement of a Foreign
trial. Arbitral Award

What if this place was an international arbitration If the arbitration clause is found void, how will
and the place of arbitration is the Philippines? the parties resolve their dispute? Can one party
Would you have arrived at the same answer? go right away to the court? Is it not an issue that
must be threshed out before the arbitral
Article 8 - [Arbitration agreement and substantive claim tribunal? What about the competence-
before court] competence principle?
1) A court before which an action is brought in a matter which is
the subject of an arbitration agreement shall, if a party so
requests not later than when submitting his first statement on the
See Gonzales and Magellan case
substance of the dispute, refer the parties to arbitration unless it See 3.12, 2.2
finds that the agreement is null and void, inoperative or incapable
of being performed. Note:
2) Where an action referred to in paragraph (1) of this article has Separability clause protects the arbitration clause,
been brought, arbitral proceedings may nevertheless be
commenced or continued, and an award may be made, while the
not the container contract. (Carla)
issue is pending before the court. Before commencement – go to court, prim facie
finding
After commencement – go to court, questioning the
ruling of the arbitral tribunal’s ruling on its jurisdiction
Next 5 meetings Go to court
CIAC If court has declared that arbitration clause is void,
UNCINTRAL / ICC
NY Convention Sir, it’s clear if sabay, but what if the court has
Slideshow ALREADY declared the arbitration clause as
void.
Sir: Consider Article 5 of the Civil Code.
Class Notes – August 27, 2010 If it’s void, can it give rise to a right?

Recap: Which proceedings are summary and If it’s void due to lack of due process – VOID.
which are not?
Purpose granting the court the power to declare it
Covered by Summary Procedure: void
Whether arbitration commencement has started or
1) Judicial Relief Involving the Issue of Existence, not
Validity or Enforceability of the Arbitration Purpose of RA 9285 – whether luto or not
Agreement; Whether you will allow to proceed first and let us see
2) Referral to ADR; the result
3) Interim Measures of Protection;
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 44
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Note: You cannot assail the arbitral award as to the award must be vacated, in the same manner, an
merits. award must be vacated if it was made in manifest
disregard of the law. (Asset Privatization Trust vs
Rule 19.7. No appeal or certiorari on the merits of CA)
an arbitral award. — An agreement to refer a dispute
to arbitration shall mean that the arbitral award shall
be final and binding. Consequently, a party to an Korea Technologies Co. Ltd. v. Lerma, 542 SCRA
arbitration is precluded from filing an appeal or a 1 (2008)
petition for certiorari questioning the merits of
an arbitral award. Petitioner: Korea Technologies Co Ltd
Respondents: Hon. Alberto Lerma and Pacific
See case APT v. CA – General Steel Manufacturing Corporation
As a rule, the award of an arbitrator cannot be set Facts:
aside for mere errors of judgment either as to the
law or as to the facts. Courts are without power Petitioner Korea is a Korean corporation which is
to amend or overrule merely because of engaged in the supply and installation of LPG
disagreement with matters of law or facts Cylinder manufacturing plants, while private
determined by the arbitrators. They will not respondent is a domestic corporation. The parties
review the findings of law and fact contained in executed a contract in the Philippines whereby
an award, and will not undertake to substitute KOGIES would set up an LPG Cylinder
their judgment for that of the arbitrators, since Manufacturing Plant in Carmona, Cavite. The parties
any other rule would make an award the executed in Korea an Amendment of the Contract
commencement, not the end, of litigation. Errors regarding the terms of payment.
of law and fact, or an erroneous decision of matters
submitted to the judgment of the arbitrators, are However, gleaned from the Certificate executed by
insufficient to invalidate an award fairly and honestly the parties after the installation of the plant, the initial
made. Judicial review of an arbitration is thus, more operation could not be conducted as PGSMC
limited than judicial review of a trial. (Asset encountered financial difficulties affecting the
Privatization Trust vs CA) supply of materials, thus forcing the parties to
agree that KOGIES would be deemed to have
If you do not want judicial review (cite the completely complied with the terms and
abovementioned ratio); if you want judicial conditions of the contract. For the remaining
review, cite the following) balance of USD306,000 for the installation and initial
operation of the plant, PGSMC issued two
Nonetheless, the arbitrators' award is not absolute postdated checks.
and without exceptions. The arbitrators cannot
resolve issues beyond the scope of the submission When KOGIES deposited the checks, they were
agreement. The parties to such an agreement are dishonored. KOGIES sent a demand letter to
bound by the arbitrators' award only to the extent PGSMC threatening to file a case for BP22. The
and in the manner prescribed by the contract and wife of PGSMC’s President faxed a letter to
only if the award is rendered in conformity thereto. KOGIES’ President complaining that KOGIES
Thus, Sections 24 and 25 of the Arbitration Law delivered a different brand of hydraulic press and
provide grounds for vacating, rescinding or did not deliver several equipment parts.
modifying an arbitration award. Where the conditions
described in Articles 2038, 2039, and 1040 of CC
PGSMC informed KOGIES that it will be cancelling
applicable to compromises and arbitration are
their contract on grounds of alteration in the
attendant, the arbitration award may also be
quantity and lowered quality of the machineries.
annulled.
PGSMC filed an Affidavit-Complaint for Estafa
against the President of Kogies. KOGIES informed
It should be stressed that while a court is precluded
PGSMC that the latter could not unilaterally
from overturning an award for errors in the
rescind the contract. It also insisted that the
determination of factual issues, nevertheless, if an
disputes should be settled by arbitration pursuant to
examination of the record reveals no support
the contract. KOGIES instituted an Application for
whatever for the arbitrators determinations, their
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 45
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Arbitration before the Korean Commercial Held: Yes


Arbitration Board pursuant to Art 15 of the
Contract. Ratio: Established in this jurisdiction is the rule that
the law of the place where the contract is made
KOGIES also filed a complaint for specific governs. Lex loci contractus. The contract in this
performance before the Muntinlupa RTC. KOGIES case was perfected here in the Philippines.
averred that PGSMC violated Art. 15 10of their Therefore, our laws ought to govern. Nonetheless,
Contract by unilaterally rescinding the contract Art. 2044 CC sanctions the validity of mutually
without resorting to arbitration. agreed arbitral clause or the finality and binding
effect of an arbitral award. Art. 2044 provides, “Any
PGSMC filed an opposition to the TRO arguing that stipulation that the arbitrators’ award or decision
KOGIES was not entitled to the TRO since Art. 15, shall be final, is valid, without prejudice to Articles
the arbitration clause, was null and void for being 2038, 2039 and 2040.” Arts. 2038, 2039, and 2040
against public policy as it ousts the local courts refer to instances where a compromise or an
of jurisdiction over the instant controversy. The arbitral award, as applied to Art. 2044 pursuant
RTC issued an Order denying the application for a to Art. 2043, may be voided, rescinded, or
writ of preliminary injunction, reasoning that PGSMC annulled, but these would not denigrate the
had paid KOGIES USD 1,224,000, the value of the finality of the arbitral award.
machineries and equipment as shown in the contract
such that KOGIES no longer had proprietary rights The arbitration clause was mutually and
over them. And finally, the RTC held that Art. 15 of voluntarily agreed upon by the parties. It has not
the Contract as amended was invalid as it tended to been shown to be contrary to any law, or against
oust the trial court or any other court jurisdiction over morals, good customs, public order, or public policy.
any dispute that may arise between the parties. There has been no showing that the parties have not
Later, the trial court issued an Order (1) granting dealt with each other on equal footing. We find no
PGSMC’s motion for inspection; (2) denying reason why the arbitration clause should not be
KOGIES’ MR of the July 23, 1998 RTC Order; and respected and complied with by both parties.
(3) denying KOGIES’ motion to dismiss PGSMC’s
compulsory counterclaims as these counterclaims Arbitration clause not contrary to public policy
fell within the requisites of compulsory
counterclaims. The arbitration clause which stipulates that the
arbitration must be done in Seoul, Korea in
KOGIES filed a petition for certiorari before the CA accordance with the Commercial Arbitration Rules of
praying that PGSMC be enjoined from dismantling the KCAB, and that the arbitral award is final and
the machineries and that the RTC enforce the binding, is not contrary to public policy. This Court
specific agreement on arbitration to resolve the has sanctioned the validity of arbitration clauses in a
dispute. catena of cases.

The CA affirmed the RTC Orders and dismissed the Consistent with the policy of encouraging alternative
petition. On the issue of the validity of the arbitration dispute resolution methods, courts should liberally
clause, the CA agreed with the lower court that an construe arbitration clauses. Provided such clause is
arbitration clause which provided for a final susceptible of an interpretation that covers the
determination of the legal rights of the parties to the asserted dispute, an order to arbitrate should be
contract by arbitration was against public policy. granted. Any doubt should be resolved in favor of
arbitration.
Issue: WON the arbitration clause is valid
Having said that the instant arbitration clause is not
against public policy, we come to the question on
10
Article 15. Arbitration.—All disputes, controversies, or
what governs an arbitration clause specifying that in
differences which may arise between the parties, out of or in case of any dispute arising from the contract, an
relation to or in connection with this Contract or for the breach arbitral panel will be constituted in a foreign country
thereof, shall finally be settled by arbitration in Seoul, Korea in and the arbitration rules of the foreign country would
accordance with the Commercial Arbitration Rules of the Korean govern and its award shall be final and binding.
Commercial Arbitration Board. The award rendered by the
arbitration(s) shall be final and binding upon both parties
concerned. (Emphasis supplied.)
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 46
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RA 9285 incorporated the UNCITRAL Model law binding arbitral award is similar to judgments or
to which we are a signatory awards given by some of our quasi-judicial bodies,
like the NLRC and Mines Adjudication Board, whose
In case a foreign arbitral body is chosen by the final judgments are stipulated to be final and binding,
parties, the arbitration rules of our domestic but not immediately executory in the sense that they
arbitration bodies would not be applied. As may still be judicially reviewed, upon the instance of
signatory to the Arbitration Rules of the UNCITRAL any party. Therefore, the final foreign arbitral
Model Law on International Commercial Arbitration awards are similarly situated in that they need first to
of the UNCITRAL, the Philippines committed itself to be confirmed by the RTC.
be bound by the Model Law. We have even
incorporated the Model Law in RA 9285. (3) The RTC has jurisdiction to review foreign
arbitral awards. Sec. 42 in relation to Sec. 45 of RA
While RA 9285 was passed only in 2004, it 9285 designated and vested the RTC with specific
nonetheless applies in the instant case since it is a authority and jurisdiction to set aside, reject, or
procedural law which has a retroactive effect. vacate a foreign arbitral award on grounds provided
Likewise, KOGIES filed its application for arbitration under Art. 34(2) of the UNCITRAL Model Law.
before the KCAB on July 1, 1998 and it is still
pending because no arbitral award has yet been Thus, while the RTC does not have jurisdiction over
rendered. Thus, RA 9285 is applicable to the instant disputes governed by arbitration mutually agreed
case. Well-settled is the rule that procedural laws upon by the parties, still the foreign arbitral award is
are construed to be applicable to actions pending subject to judicial review by the RTC which can set
and undetermined at the time of their passage, and aside, reject, or vacate it. In this sense, what this
are deemed retroactive in that sense and to that Court held in Chung Fu Industries relied upon by
extent. As a general rule, the retroactive application KOGIES is applicable insofar as the foreign arbitral
of procedural laws does not violate any personal awards, while final and binding, do not oust courts of
rights because no vested right has yet attached nor jurisdiction since these arbitral awards are not
arisen from them. Among the pertinent features of absolute and without exceptions as they are still
RA 9285 applying and incorporating the UNCITRAL judicially reviewable. Chapter 7 of RA 9285 has
Model Law are the following: made it clear that all arbitral awards, whether
domestic or foreign, are subject to judicial review on
(1) The RTC must refer to arbitration in proper specific grounds provided for.
cases. Under Sec. 24, the RTC does not have
jurisdiction over disputes that are properly the (4) Grounds for judicial review different in
subject of arbitration pursuant to an arbitration domestic and foreign arbitral awards. The
clause, and mandates the referral to arbitration. differences between a final arbitral award from an
international or foreign arbitral tribunal and an award
(2) Foreign arbitral awards must be confirmed by given by a local arbitral tribunal are the specific
the RTC. Foreign arbitral awards while mutually grounds or conditions that vest jurisdiction over our
stipulated by the parties in the arbitration clause to courts to review the awards. For foreign or
be final and binding are not immediately enforceable international arbitral awards which must first be
or cannot be implemented immediately. Sec. 35 of confirmed by the RTC, the grounds for setting aside,
the UNCITRAL Model Law stipulates the rejecting or vacating the award by the RTC are
requirement for the arbitral award to be recognized provided under Art. 34(2) of the UNCITRAL Model
by a competent court for enforcement, which court Law. For final domestic arbitral awards, which also
under Sec. 36 of the UNCITRAL Model Law may need confirmation by the RTC pursuant to Sec. 23 of
refuse recognition or enforcement on the grounds RA 876 and shall be recognized as final and
provided for. RA 9285 incorporated these provisos executory decisions of the RTC, they may only be
to Secs. 42, 43, and 44 relative to Secs. 47 and 48. assailed before the RTC and vacated on the
grounds provided under Sec. 25 of RA 876.
It is now clear that foreign arbitral awards when
confirmed by the RTC are deemed not as a (5) RTC decision of assailed foreign arbitral
judgment of a foreign court but as a foreign arbitral award appealable. Sec. 46 of RA 9285 provides for
award, and when confirmed, are enforced as final an appeal before the CA as the remedy of an
and executory decisions of our courts of law. Thus, it aggrieved party in cases where the RTC sets aside,
can be gleaned that the concept of a final and rejects, vacates, modifies, or corrects an arbitral
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 47
Salma F. Angkaya | AY 2010-2011, 1st semester
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award. The losing party who appeals from the The issues arising from the contract between
judgment of the court confirming an arbitral award PGSMC and KOGIES on whether the equipment
shall be required by the appellate court to post a and machineries delivered and installed were
counterbond executed in favor of the prevailing party properly installed and operational in the plant in
equal to the amount of the award in accordance with Carmona, Cavite; the ownership of equipment and
the rules to be promulgated by the Supreme Court. payment of the contract price; and whether there
Thereafter, the CA decision may further be appealed was substantial compliance by KOGIES in the
or reviewed before this Court through a petition for production of the samples, given the alleged fact that
review under Rule 45 of the Rules of Court. PGSMC could not supply the raw materials required
to produce the sample LPG cylinders, are matters
PGSMC has remedies to protect its interests proper for arbitration. Indeed, we note that on July
1, 1998, KOGIES instituted an Application for
Thus, based on the foregoing features of RA 9285, Arbitration before the KCAB in Seoul, Korea
PGSMC must submit to the foreign arbitration as it pursuant to Art. 15 of the Contract as amended.
bound itself through the subject contract. While it Thus, it is incumbent upon PGSMC to abide by its
may have misgivings on the foreign arbitration done commitment to arbitrate.
in Korea by the KCAB, it has available remedies
under RA 9285. Its interests are duly protected by Issue: WON the issue on ownership of plant is
the law which requires that the arbitral award that proper for arbitration
may be rendered by KCAB must be confirmed here
by the RTC before it can be enforced. Held: Yes

Petitioner is correct in its contention that an Ratio: It is settled that questions of fact cannot be
arbitration clause, stipulating that the arbitral award raised in an original action for certiorari. Whether or
is final and binding, does not oust our courts of not there was full payment for the machineries and
jurisdiction as the international arbitral award, the equipment and installation is indeed a factual issue
award of which is not absolute and without prohibited by Rule 65. However, what appears to
exceptions, is still judicially reviewable under certain constitute a grave abuse of discretion is the order of
conditions provided for by the UNCITRAL Model the RTC in resolving the issue on the ownership of
Law on ICA as applied and incorporated in RA 9285. the plant when it is the arbitral body (KCAB) and not
the RTC which has jurisdiction and authority over the
Finally, it must be noted that there is nothing in the said issue. The RTC’s determination of such factual
subject Contract which provides that the parties may issue constitutes grave abuse of discretion and must
dispense with the arbitration clause. be reversed and set aside.

Issue: WON the unilateral rescission is proper Issue: What are the interim measures which the
RTC can issue
Held: No
Ratio: Firstly, while the issue of the proper
Ratio: What this Court held in UP v. De Los installation of the equipment and machineries might
Angeles and reiterated in succeeding cases, that well be under the primary jurisdiction of the arbitral
the act of treating a contract as rescinded on body to decide, yet the RTC under Sec. 28 of RA
account of infractions by the other contracting party 9285 has jurisdiction to hear and grant interim
is valid albeit provisional as it can be judicially measures to protect vested rights of the parties.
assailed, is not applicable to the instant case on
account of a valid stipulation on arbitration. Where Art. 17(2) of the UNCITRAL Model Law on ICA
an arbitration clause in a contract is availing, defines an “interim measure” of protection as:(2) An
neither of the parties can unilaterally treat the interim measure is any temporary measure,
contract as rescinded since whatever infractions whether in the form of an award or in another form,
or breaches by a party or differences arising by which, at any time prior to the issuance of the
from the contract must be brought first and award by which the dispute is finally decided, the
resolved by arbitration, and not through an arbitral tribunal orders a party to: (a) Maintain or
extrajudicial rescission or judicial action. restore the status quo pending determination of the
dispute;
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 48
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(b) Take action that would prevent, or refrain from Fourthly, and corollarily, while the KCAB can rule on
taking action that is likely to cause, current or motions or petitions relating to the preservation or
imminent harm or prejudice to the arbitral process transfer of the equipment and machineries as an
itself; interim measure, yet on hindsight, the July 23, 1998
Order of the RTC allowing the transfer of the
(c) Provide a means of preserving assets out of equipment and machineries given the non-
which a subsequent award may be satisfied; or recognition by the lower courts of the arbitral clause,
has accorded an interim measure of protection to
(d) Preserve evidence that may be relevant and PGSMC which would otherwise been irreparably
material to the resolution of the dispute. damaged.

Art. 17 J of UNCITRAL Model Law on ICA also Fifth, KOGIES is not unjustly prejudiced as it has
grants courts power and jurisdiction to issue interim already been paid a substantial amount based on
measures. In the recent 2006 case of Transfield the contract. Moreover, KOGIES is amply protected
Philippines, Inc. v. Luzon Hydro Corporation, we by the arbitral action it has instituted before the
were explicit that even “the pendency of an arbitral KCAB, the award of which can be enforced in our
proceeding does not foreclose resort to the courts jurisdiction through the RTC. Besides, by our
for provisional reliefs.” We explicated this way: decision, PGSMC is compelled to submit to
arbitration pursuant to the valid arbitration clause of
As a fundamental point, the pendency of arbitral its contract with KOGIES.
proceedings does not foreclose resort to the courts
for provisional reliefs. The Rules of the ICC, which PGSMC to preserve the subject equipment and
governs the parties’ arbitral dispute, allows the machineries
application of a party to a judicial authority for interim
or conservatory measures. Likewise, Section 14 of Finally, while PGSMC may have been granted the
RA 876 recognizes the rights of any party to petition right to dismantle and transfer the subject equipment
the court to take measures to safeguard and/or and machineries, it does not have the right to convey
conserve any matter which is the subject of the or dispose of the same considering the pending
dispute in arbitration. In addition, R.A. 9285 allows arbitral proceedings to settle the differences of the
the filing of provisional or interim measures with the parties. PGSMC therefore must preserve and
regular courts whenever the arbitral tribunal has no maintain the subject equipment and machineries
power to act or to act effectively. It is thus beyond with the diligence of a good father of a family until
cavil that the RTC has authority and jurisdiction to final resolution of the arbitral proceedings and
grant interim measures of protection. enforcement of the award, if any.

Secondly, considering that the equipment and CLASS NOTES:


machineries are in the possession of PGSMC, it has Arbitration is valid pursuant to Article 2044 of the
the right to protect and preserve the equipment and Civil Code. Concept of a final and binding award
machineries in the best way it can. Considering that similar to final judgments by a QJA.
the LPG plant was non-operational, PGSMC has the
right to dismantle and transfer the equipment and Art. 2044. Any stipulation that the arbitrators' award or decision
machineries either for their protection and shall be final, is valid, without prejudice to Articles 2038, 2039,
and 2040.
preservation or for the better way to make good use
of them which is ineluctably within the management Art. 2038. A compromise in which there is mistake, fraud,
discretion of PGSMC. violence, intimidation, undue influence, or falsity of documents, is
subject to the provisions of Article 1330 of this Code.
Thirdly, and of greater import is the reason that
maintaining the equipment and machineries in However, one of parties cannot set up a mistake of fact as against
the other if the latter, by virtue of the compromise, has withdrawn
Worth’s property is not to the best interest of from a litigation already commenced. (1817a)
PGSMC due to the prohibitive rent while the LPG
plant as set-up is not operational. PGSMC was Art. 2039. When the parties compromise generally on all
losing PhP322,560 as monthly rentals or PhP3.87M differences which they might have with each other, the discovery
for 1998 alone without considering the 10% annual of documents referring to one or more but not to all of the
rent increment in maintaining the plant. questions settled shall not itself be a cause for annulment or
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 49
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rescission of the compromise, unless said documents have been amended, revised or revoked an interim measure of protection
concealed by one of the parties. previously issued by the court to the extent that it is inconsistent
with the subsequent interim measure of protection issued by the
But the compromise may be annulled or rescinded if it refers only arbitral tribunal.
to one thing to which one of the parties has no right, as shown by
the newly-discovered documents. (n) Rule 5.14. Conflict or inconsistency between interim measure of
protection issued by the court and by the arbitral tribunal. — Any
question involving a conflict or inconsistency between an interim
Art. 2040. If after a litigation has been decided by a final measure of protection issued by the court and by the arbitral
judgment, a compromise should be agreed upon, either or both tribunal shall be immediately referred by the court to the arbitral
parties being unaware of the existence of the final judgment, the tribunal which shall have the authority to decide such question.
compromise may be rescinded.

So how can you enforce such interim award?


Voidable:
Note Rule 5.16 – assistance in the enforcement of
Fraud
interim award. Invoke 5.13 and 5.14. What if he
Violence
denies again?
Mistake
Undue Influence
Rule 19.1. Motion for reconsideration, when allowed. — A party
Intimidation may ask the Regional Trial to reconsider its ruling on the
following:
Was there a new doctrine laid down in the Korea d. Granting or denying a party an interim measure of protection
case? Is there anything that modified, qualified
what is otherwise a settled doctrine in civil law? Rule 19.12. Appeal to the Court of Appeals.—An appeal to the
Court of Appeals through a petition for review under this Special
Rule shall only be allowed from the following final orders of the
Unilateral rescission / resolution doctrine in UP v. De Regional Trial Court:
Los Angeles, thus, under 1191 – one party may a. Granting or denying an interim measure of protection;
rescind if other party is unable to comply with his
obligation (Unilateral rescission) – but this is Rule 19.26. Certiorari to the Court of Appeals. — When the
provisional, other party may challenge the validity in Regional Trial Court, in making a ruling under the Special ADR
Rules, has acted without or in excess of its jurisdiction, or with
court. grave abuse of discretion amounting to lack or excess of
This case, however, was not applied to Korea on jurisdiction, and there is no appeal or any plain, speedy, and
account of a valid stipulation on arbitration. adequate remedy in the ordinary course of law, a party may file a
special civil action for certiorari to annul or set aside a ruling of the
Regional Trial Court.
Sir: It would seem that if you agree to arbitrate, then A special civil action for certiorari may be filed against the
your hands will become tied. following orders of the court.
d. Granting or refusing an interim relief;
Note the denial of preliminary injunction by RTC
Muntinlupa – Court said it’s proper because the
arbitral tribunal was not yet constituted. Toyota Motor Phils. Corp. V. CA, 216 SCRA 336
(1992)
Assuming that the Korean Company proceeded
to commence the arbitration in Korea, can he ask
Petitioner: Toyota Motors Philippines Corporation
for the same preliminary injunction from the
Respondents: CA, Hon. Fernando Gorospe and Sun
arbitral tribunal in Korea? Can it issue an interim
Valley Manufacturing and Development Corp
award opposite from the RTC of Muntinlupa?
Facts:
Theoretically, yes. Basis? Rule 5.13
Both Toyota and Sun Valley are the registered
Practically speaking, how will Korea enforce it (not to
owners of two adjoining parcels of land formerly
dismantle and remove)?
owned by Delta Motors Corp (DMC) situated in La
Rule 5.13. Modification, amendment, revision or revocation of
Huerta, Parañaque, Metro Manila which they
court’s previously issued interim measure of protection. — Any purchased from the APT.
court order granting or denying interim measure/s of protection is Part of the duly parcelled Delta I property
issued without prejudice to subsequent grant, modification, was sold to Toyota through public bidding for the
amendment, revision or revocation by the arbitral tribunal as may
be warranted.
amount of P95,385,000. After its purchase, Toyota
constructed a concrete hollow block (CHB) perimeter
An interim measure of protection issued by the arbitral tribunal fence around its alleged property. Another part of the
shall, upon its issuance be deemed to have ipso jure modified, parcelled Delta I was purchased by Sun Valley from
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 50
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APT for the bid price of P124,349,767. Relying upon It would appear that Toyota was correct in
the title description of its property and the surveys it impleading Sun Valley as party defendant. However,
had commissioned, Sun Valley claimed that Toyota's these principles are not applicable under the
perimeter fence overlaps Sun Valley's property. particular circumstances of this case. Under the
Toyota filed a case against APT and Sun facts of the present case, Toyota's action for
Valley before the Makati RTC for the reformation reformation is dismissible as against Sun Valley.
of the Deed of Sale executed between Toyota Attention must first be brought to the fact
and APT. Sun Valley filed an MTD, on the ground that the contract of sale executed between APT
that the Toyota complaint failed to state a cause and Toyota provides an arbitration clause.11
of action against it (1) since it was not a party to The contention that the arbitration clause
the contract, and (2) the complaint was in effect has become disfunctional because of the
a collateral attack on its title. presence of third parties is untenable. Contracts
Judge Tensuan denied the MTD eventually are respected as the law between the contracting
and granted Toyota’s application for injunction and parties. As such, the parties are thereby
granted a writ of preliminary injunction enjoining expected to abide with good faith in their
Sun Valley from proceeding with the destruction and contractual commitments. Toyota is therefore
removal of Toyota's walls and directed Sun Valley to bound to respect the provisions of the contract it
restore the premises to the status quo ante. The CA entered into with APT.
affirmed ruling that misjoinder of parties is not a Having been apprised of the presence of the
ground for the dismissal of the case. arbitration clause in the motion to dismiss filed by
Sun Valley, on the other hand, filed a case APT, Judge Tensuan should have at least
for recovery of possession of the disputed 723 suspended the proceedings and directed the
square meters boundary with the Makati RTC. parties to settle their dispute by arbitration.
Toyota filed an MTD on the ground that the RTC has Judge Tensuan should have not taken cognizance of
no jurisdiction over the case since the complaint was the case.
a simple ejectment case cognizable by the MTC. But the more apparent reason which
Sun Valley later sought to amend the complaint, warrants the dismissal of the action as against Sun
which was granted by Judge Gorospe. Toyota went Valley is the fact that the complaint for reformation
to the CA on certiorari questioning the admission of amounts to a collateral attack on Sun Valley's title. It
the amended complaint. is disputed that Sun Valley has a Torrens title
The CA denied due course to the Toyota registered in its name by virtue of its purchase of the
petition on the finding that the amendment of Sun land from APT. Well-settled is the rule that a
Valley's complaint was a valid one as Sun Valley's certificate of title can not be altered, modified, or
action was not for unlawful detainer but an accion cancelled except in a direct proceeding in
publiciana. Furthermore, the supplemental petitions accordance with law.
filed by Toyota assailing the prohibitory and Assuming that Toyota is afforded the relief
mandatory injunctive writ were not ruled upon as prayed for in the Tensuan court, the latter can not
they were expunged from the records because of validly order the contested portion to be taken out
Toyota's failure to attach a motion to admit these
supplemental petitions.
11
5. In case of disagreement or conflict arising out of this
Issue: Contract, the parties hereby undertake to submit the matter for
determination by a committee of experts, acting as arbitrators, the
Who as between Judge Tensuan or Judge Gorospe composition of which shall be as follows:
has jurisdiction over the dispute a) One member to be appointed by the VENDOR;
b) One member to be appointed by the VENDEE;
Ratio: c) One member, who shall be a lawyer, to be appointed by both of
the aforesaid parties;
The members of the Arbitration Committee shall be appointed not
Toyota filed an action for reformation on September later than three (3) working days from receipt of a written notice
11, 1991, before Judge Tensuan alleging that the from either or both parties. The Arbitration Committee shall
true intentions of the parties were not expressed in convene not later than three (3) weeks after all its members have
been appointed and proceed with the arbitration of the dispute
the instrument. The instrument sought to be within three (3) calendar months counted therefrom. By written
reformed is the deed of sale executed by APT in mutual agreement by the parties hereto, such time limit for the
favor of Toyota. Sun Valley was impleaded in order arbitration may be extended for another calendar month. The
to obtain complete relief since it was the owner of decision of the Arbitration Committee by majority vote of at least
two (2) members shall be final and binding upon both the
the adjacent lot. VENDOR and the VENDEE;
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 51
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from the Sun Valley's TCT and award it in favor of action for the purpose. To authorize a temporary
Toyota. injunction, the complainant must make out at least a
An action for reformation is in personam, not prima facie showing of a right to the final relief.
in rem even when real estate is involved. It is merely Preliminary injunction will not issue to protect a right
an equitable relief granted to the parties where not in esse.
through mistake or fraud, the instrument failed to Two requisites are necessary if a preliminary
express the real agreement or intention of the injunction is to issue, namely, the existence of the
parties. While it is a recognized remedy afforded by right to be protected, and the facts against which the
courts of equity it may not be applied if it is contrary injunction is to be directed, are violative of said right.
to well-settled principles or rules. It is a long standing In particular, for a writ of preliminary injunction to
principle that equity follows the law. It is applied in issue, the existence of the right and the violation
the abscence of and never against statutory law. must appear in the allegations of the complaint and
Courts are bound by rules of law and have no an injunction is proper also when the plaintiff
arbitrary discretion to disregard them. Courts of appears to be entitled to the relief demanded in his
equity must proceed with utmost caution especially complaint. Furthermore, the complaint for injunctive
when rights of third parties may intervene. Thus in relief must be construed strictly against the pleader.
the instant case, vis-a-vis well-settled principles or In the instant case the existence of a "clear
rules in land registration, the equitable relief of positive right" especially calling for judicial protection
reformation may not come into play in order to has been shown by Sun Valley.
transfer or appropriate a piece of land that one Toyota's claim over the disputed property is
claims to own but which is titled in the name of a anchored on the fact of its purchase of the property
third party. from APT, that from the circumstances of the
On the other hand, Sun Valley filed an purchase and the intention of the parties, the
action for reconveyance against Toyota to recover property including the disputed area was sold to it.
possession of the strip of land encroached upon and Sun Valley, on the other hand has TCT No. 49019 of
occupied by the latter. What Sun Valley seeks in its the Registry of Deeds of Parañaque embracing the
complaint is the recovery of possession de jure and aforesaid property in its name, having been validly
not merely possession de facto. Toyota moved to acquired also from APT by virtue of a Deed of Sale
dismiss on the assumption that the complaint was executed in its favor on December 5, 1990.
one for unlawful detainer cognizable by the MTC. There are other circumstances in the case
We do not find any reversible error in the which militate against Toyota's claim for legal
decision of the CA where it upheld Judge Gorospe's possession over the disputed area. The fact that
order denying Toyota's motion to dismiss. An Toyota has filed a suit for reformation seeking the
amendment to a complaint before a responsive inclusion of the 723 square meters strip of land is
pleading is filed, is a matter of right. Whether or not sufficient to deduce that it is not entitled to take over
the complaint was amended, Sun Valley's complaint the piece of property it now attempts to appropriate
was one for accion publiciana cognizable by the for itself. As early as September, 1988 prior to the
RTC. Its right over the land is premised on the construction of the perimeter fence, Toyota was
certificate of title registered in its name after it had already aware of the discrepancies in the property's
purchased said land from APT. As the registered description in the title and the actual survey.
owner it had the right of possession of said land Despite such notification, Toyota continued
illegally occupied by another to build the perimeter fence. It is highly doubtful
With the finding that Toyota's action for whether Toyota may be considered a builder in good
reformation is dismissable as it is in effect a faith to be entitled to protection under Article 448 of
collateral attack on Sun Valley's title, Sun Valley's the Civil Code.
action for recovery of possession filed before Judge The records also reveal that Toyota's own surveyor,
Gorospe now stands to be the proper forum where the Certeza Surveying & Acrophoto Systems, Inc.
the following dispute may be tried or heard. confirmed in its reports dated April 1 and April 5,
1991 that Toyota's perimeter fence overlaps the
Issue: Who as between the parties has the rightful boundaries of Sun Valley's lot.
possession of the land Even communication exchanges between
and among APT, Toyota & Sun Valley show that the
Ratio: In actions involving realty, preliminary parties are certainly aware that the ownership of the
injunction will lie only after the plaintiff has fully disputed property more properly pertains to Sun
established his title or right thereto by a proper Valley. Moreover, Sun Valley puts forth evidence
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that Toyota has altered the boundaries of its own construction services on his land. Salas, Jr.
property by moving the monuments erected thereon executed an SPA in favor of Laperal Realty to
by APT's surveyor Geo-Resources and Consultancy, exercise general control, supervision and
Inc. when Lot 2 was initially surveyed in August management of the sale of his land, for cash or on
1988. installment basis.
There is therefore sufficient and convincing Later, Salas, Jr. left his home in the morning
proof that Sun Valley has a clear legal right to for a business trip to Nueva Ecija. He never
possession in its favor to warrant the issuance of a returned. Teresita Diaz Salas filed with the Makati
writ of preliminary/mandatory injunction. Sun Valley's RTC a verified petition for the declaration of
TCT gives it that right to possession. On the other presumptive death of her husband, Salas, Jr., who
hand, Toyota has not established its right over the had then been missing for more than seven (7)
said property except for the assertion that there was years. The petition was granted.
a mistake in an instrument which purportedly should Meantime, Laperal Realty subdivided the
have included the questioned strip of land. land of Salas, Jr. and sold subdivided portions
As between the two (2) parties, Sun Valley has a thereof to the other respondents.
better right. Under the circumstances, therefore, and Petitioners as heirs of Salas, Jr. filed in the
considering that the clear legal right of Toyota to RTC of Lipa City a Complaint for declaration of
possession of the disputed area has not been nullity of sale, reconveyance, cancellation of
established sufficient to grant the prayed for relief, a contract, accounting and damages against
writ of preliminary mandatory injunction may be respondents. Laperal filed an MTD on the ground
issued pendente lite. that petitioners failed to submit their grievance to
arbitration as required under Article VI of the
Agreement12. The RTC dismissed the complaint for
CLASS NOTES: non-compliance with the foregoing arbitration clause.

What was the effect of a 3rd Party on the Issue: WON the dismissal of the case was proper
arbitration clause?
The contention that the arbitration clause has Held: No
become disfunctional because of the presence of
third parties is untenable. Contracts are respected Ratio: In a catena of cases inspired by Justice
as the law between the contracting parties. As such, Malcolm's provocative dissent in Vega v. San Carlos
the parties are thereby expected to abide with good Milling Co., this Court has recognized arbitration
faith in their contractual commitments. Toyota is agreements as valid, binding, enforceable and not
therefore bound to respect the provisions of the contrary to public policy so much so that when there
contract it entered into with APT. obtains a written provision for arbitration which is not
complied with, the trial court should suspend the
Sir: In other words, the presence of a 3rd Party (Sun proceedings and order the parties to proceed to
Valley) does not render the arbitration clause arbitration in accordance with the terms of their
dysfunctional. agreement. Arbitration is the "wave of the future" in
dispute resolution. To brush aside a contractual
agreement calling for arbitration in case of
Heirs of Agusto L. Salas, Jr. v. Laperal Realty disagreement between parties would be a step
Corp., 302 SCRA 620 (1999) backward.
A submission to arbitration is a contract. As
such, the Agreement, containing the stipulation on
Petitioners: Heirs of Augusto Salas, et al arbitration, binds the parties thereto, as well as their
Respondents: Laperal Realty Corporation, Rockway assigns and heirs. But only they. Petitioners, as
Real Estate Corporation et al heirs of Salas, Jr., and Laperal Realty are certainly

Facts: 12
Art. VI. ARBITRATION.
Salas, Jr. was the registered owner of a vast tract of All cases of dispute between CONTRACTOR and OWNER'S
land in Lipa City. He entered into an Owner- representative shall be referred to the committee represented by:
a. One representative of the OWNER;
Contractor Agreement with Laperal Realty b. One representative of the CONTRACTOR;
Corporation to render and provide complete c. One representative acceptable to both OWNER and
CONTRACTOR.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 53
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Special thanks to Krizelle Poblacion for her great digests!

bound by the Agreement. If Laperal had assigned its adjudicates petitioners' rights as against theirs in a
rights under the Agreement to a third party, making single and complete proceeding.
the former, the assignor, and the latter, the
assignee, such assignee would also be bound by the
arbitration provision since assignment involves such Del Monte Corp. USA v. CA, 351 SCRA 373 (2001)
transfer of rights as to vest in the assignee the
power to enforce them to the same extent as the Petitioners: Del Monte-USA, Paul Derby Jr, Daniel
assignor could have enforced them against the Collins and Luis Hidalgo
debtor 18 or in this case, against the heirs of the Respondents: CA, Judge Bienvenido Reyes,
original party to the Agreement. However, Rockway Montebueno Marketing Inc, Liong Liong C. Sy and
Real Estate Corporation, South Ridge Village, Inc., Sabrosa Foods
Maharami Development Corporation, spouses
Abrajano, spouses Lava, Oscar Dacillo, Eduardo Facts: In a Distributorship Agreement, petitioner
Vacuna, Florante de la Cruz and Jesus Vicente appointed Montebueno Marketing, Inc. (MMI) as the
Capellan are not assignees of the rights of Laperal sole and exclusive distributor of its Del Monte
under the Agreement to develop Salas, Jr.'s land products in the Philippines for a period of 5 years,
and sell the same. They are, rather, buyers of the renewable for 2 consecutive 5 year periods with the
land that Laperal Realty was given the authority to consent of the parties. The agreement provided for
develop and sell under the Agreement. As such, an arbitration clause13.
they are not "assigns" contemplated in Art. 1311 CC The appointment of MMI was published in
which provides that "contracts take effect only several newspapers in the country. MMI appointed
between the parties, their assigns and heirs". Sabrosa Foods, Inc. (SFI), with the approval of
Petitioners claim that they suffered lesion of petitioner, as MMI's marketing arm to concentrate on
more than one-fourth (1/4) of the value of Salas, Jr.'s its marketing and selling function as well as to
land when Laperal Realty subdivided it and sold manage its critical relationship with the trade.
portions thereof to respondent lot buyers. Thus, they MMI, SFI and MMI's Managing Director
instituted action against both Laperal Realty and Liong Liong C. Sy filed a Complaint against
respondent lot buyers for rescission of the sale petitioners before the RTC of Malabon for violations
transactions and reconveyance to them of the of Arts. 20, 21 and 23 CC. DMC-USA products
subdivided lots. They argue that rescission, being continued to be brought into the country by
their cause of action, falls under the exception parallel importers despite the appointment of MMI
clause in Sec. 2 of RA 876 which provides that "such as the sole and exclusive distributor of Del Monte
submission [to] or contract [of arbitration] shall be products thereby causing them great
valid, enforceable and irrevocable, save upon such embarrassment and substantial damage. They
grounds as exist at law for the revocation of any alleged that the products brought into the country by
contract". these importers were aged, damaged, fake or
The petitioners' contention is without merit. counterfeit, so that they had to cause the
For while rescission, as a general rule, is an publication of a "warning to the trade" paid
arbitrable issue, 20 they impleaded in the suit for advertisement in leading newspapers. Private
rescission the respondent lot buyers who are neither respondents averred that petitioners knowingly and
parties to the Agreement nor the latter's assigns or surreptitiously continued to deal with the former in
heirs. Consequently, the right to arbitrate as bad faith by involving disinterested third parties and
provided in Article VI of the Agreement was never by proposing solutions which were entirely out of
vested in respondent lot buyers. their control. Private respondents claimed that they
Laperal Realty, as a contracting party to the
Agreement, has the right to compel petitioners to
first arbitrate before seeking judicial relief. However, 13
12. GOVERNING LAW AND ARBITRATION This Agreement
to split the proceedings into arbitration for Laperal shall be governed by the laws of the State of California and/or, if
Realty and trial for the respondent lot buyers, or to applicable, the United States of America. All disputes arising out
hold trial in abeyance pending arbitration between of or relating to this Agreement or the parties' relationship,
including the termination thereof, shall be resolved by arbitration
petitioners and Laperal Realty, would in effect result in the City of San Francisco, State of California, under the Rules
in multiplicity of suits, duplicitous procedure and of the American Arbitration Association. The arbitration panel
unnecessary delay. On the other hand, it would be in shall consist of three members, one of whom shall be selected by
the interest of justice if the trial court hears the DMC-USA, one of whom shall be selected by MMI, and third of
whom shall be selected by the other two members and shall have
complaint against all herein respondents and relevant experience in the industry x x x x
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 54
Salma F. Angkaya | AY 2010-2011, 1st semester
Special thanks to Krizelle Poblacion for her great digests!

had exhausted all possible avenues for an amicable so and private respondents failed to answer the
resolution and settlement of their grievances. demand, petitioners could have filed with the trial
Petitioners filed a Motion to Suspend court their demand for arbitration that would warrant
Proceedings invoking the arbitration clause in a determination by the judge whether to refer the
their Agreement with private respondents. The trial case to arbitration. Accordingly, private respondents
court deferred consideration of the motion as the assert that arbitration is out of the question.
grounds alleged therein did not constitute the Private respondents further contend that the
suspension of the proceedings considering that the arbitration clause centers more on venue rather
action was for damages with prayer for the issuance than on arbitration.
of Writ of Preliminary Attachment and not on the There is no doubt that arbitration is valid
Distributorship Agreement. and constitutional in our jurisdiction. Even before
Later, the Motion to Suspend Proceedings the enactment of RA 876, this Court has
was denied by the trial court on the ground that countenanced the settlement of disputes through
it "will not serve the ends of justice and to allow arbitration. Unless the agreement is such as
said suspension will only delay the absolutely to close the doors of the courts against
determination of the issues, frustrate the quest the parties, which agreement would be void, the
of the parties for a judicious determination of courts will look with favor upon such amicable
their respective claims, and/or deprive and delay arrangement and will only interfere with great
their rights to seek redress." The CA affirmed and reluctance to anticipate or nullify the action of the
ruled that the alleged damaging acts recited in the arbitrator. Moreover, as RA 876 expressly authorizes
Complaint, constituting petitioners' causes of action, arbitration of domestic disputes, foreign arbitration
required the interpretation of Art. 21 CC and that in as a system of settling commercial disputes was
determining whether petitioners had violated it likewise recognized when the Philippines adhered to
"would require a full blown trial" making arbitration the United Nations "Convention on the Recognition
"out of the question." and the Enforcement of Foreign Arbitral Awards of
1958" under the 10 May 1965 Resolution No. 71 of
Issue: WON the dispute warrants an order the Senate, giving reciprocal recognition and
compelling them to submit to arbitration. allowing enforcement of international arbitration
agreements between parties of different nationalities
Held: within a contracting state.
A careful examination of the instant case
Ratio: Petitioners contend that the subject matter of shows that the arbitration clause in the
private respondents' causes of action arises out of or Distributorship Agreement between petitioner DMC-
relates to the Agreement between petitioners and USA and private respondent MMI is valid and the
private respondents. Thus, considering that the dispute between the parties is arbitrable.
arbitration clause of the Agreement provides that all However, this Court must deny the petition.
disputes arising out of or relating to the Agreement The Agreement between petitioner DMC-
or the parties' relationship, including the termination USA and private respondent MMI is a contract. The
thereof, shall be resolved by arbitration, they insist provision to submit to arbitration any dispute arising
on the suspension of the proceedings in Civil Case therefrom and the relationship of the parties is part
No. 2637-MN as mandated by Sec. 7 of RA 876. of that contract and is itself a contract. As a rule,
Private respondents claim, on the other contracts are respected as the law between the
hand, that their causes of action are rooted in Arts. contracting parties and produce effect as
20, 21 and 23 of the CC the determination of which between them, their assigns and heirs. Clearly,
demands a full blown trial, as correctly held by the only parties to the Agreement, i.e., petitioners
CA. Moreover, they claim that the issues before the DMC-USA and its Managing Director for Export
trial court were not joined so that the Honorable Sales Paul E. Derby, Jr., and private respondents
Judge was not given the opportunity to satisfy MMI and its Managing Director LILY SY are
himself that the issue involved in the case was bound by the Agreement and its arbitration
referable to arbitration. They submit that, clause as they are the only signatories thereto.
apparently, petitioners filed a motion to suspend Petitioners Daniel Collins and Luis Hidalgo, and
proceedings instead of sending a written demand to private respondent SFI, not parties to the
private respondents to arbitrate because petitioners Agreement and cannot even be considered
were not sure whether the case could be a subject of assigns or heirs of the parties, are not bound by
arbitration. They maintain that had petitioners done the Agreement and the arbitration clause therein.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 55
Salma F. Angkaya | AY 2010-2011, 1st semester
Special thanks to Krizelle Poblacion for her great digests!

Consequently, referral to arbitration in the State of commenced by or against multiple parties, one or more of whom
California pursuant to the arbitration clause and the are parties who are bound by the arbitration agreement although
the civil action may continue as to those who are not bound by
suspension of the proceedings in Civil Case No. such arbitration agreement.
2637-MN pending the return of the arbitral award
could be called for but only as to petitioners DMC- Rule 2.2. Policy on arbitration.— (A) Where the parties have
USA and Paul E. Derby, Jr., and private respondents agreed to submit their dispute to arbitration, courts shall refer the
MMI and LILY SY, and not as to the other parties in parties to arbitration pursuant to Republic Act No. 9285 bearing in
mind that such arbitration agreement is the law between the
this case. This is consistent with the recent case of parties and that they are expected to abide by it in good faith.
Heirs of Augusto L. Salas, Jr. v. Laperal Realty Further, the courts shall not refuse to refer parties to arbitration
Corporation, which superseded that of Toyota Motor for reasons including, but not limited to, the following:
Philippines Corp. v. Court of Appeals. c. The referral would result in multiplicity of suits;
In Toyota, the Court ruled that "[t]he
contention that the arbitration clause has Rule 4.7. Multiple actions and parties. — The court shall not
decline to refer some or all of the parties to arbitration for any of
become dysfunctional because of the presence the following reasons:
of third parties is untenable" ratiocinating that a. Not all of the disputes subject of the civil action may be
"[c]ontracts are respected as the law between referred to arbitration;
the contracting parties" and that "[a]s such, the b. Not all of the parties to the civil action are bound by the
parties are thereby expected to abide with good arbitration agreement and referral to arbitration would result in
faith in their contractual commitments." multiplicity of suits;
c. The issues raised in the civil action could be speedily and
However, in Salas, Jr., only parties to the efficiently resolved in its entirety by the court rather than in
Agreement, their assigns or heirs have the right arbitration;
to arbitrate or could be compelled to arbitrate. d. Referral to arbitration does not appear to be the most prudent
The Court went further by declaring that in action; or
recognizing the right of the contracting parties to e. The stay of the action would prejudice the rights of the
arbitrate or to compel arbitration, the splitting of the parties to the civil action who are not bound by the
arbitration agreement.
proceedings to arbitration as to some of the
parties on one hand and trial for the others on the The court may, however, issue an order directing the inclusion
other hand, or the suspension of trial pending in arbitration of those parties who are not bound by the
arbitration between some of the parties, should arbitration agreement but who agree to such inclusion
not be allowed as it would, in effect, result in provided those originally bound by it do not object to their
inclusion.
multiplicity of suits, duplicitous procedure and
unnecessary delay.
The object of arbitration is to allow the
Sir:
expeditious determination of a dispute. Clearly,
Problem with this decision is that it will kill arbitration.
the issue before us could not be speedily and
A party may simply implead other parties and claim
efficiently resolved in its entirety if we allow
that they are not parties to the arbitration clause.
simultaneous arbitration proceedings and trial, or
suspension of trial pending arbitration. Accordingly,
READ UNITRAL ARBITRATION RULES and ICC
the interest of justice would only be served if the trial
ARBITRATION RULES
court hears and adjudicates the case in a single and
complete proceeding.

CLASS NOTES:

Court found that the arbitration clause is valid and


that the dispute is arbitrable, but nevertheless did
not order the arbitration.

Do you agree with this decision?


NO.

RA 9285, Sec. 25 – Interpretation of the Act


In interpreting the Act, the court shall have due regard to the
policy of the law in favor of arbitration. Where action is
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 56
Salma F. Angkaya | AY 2010-2011, 1st semester
Special thanks to Krizelle Poblacion for her great digests!

impleaded. And the court ruled that the court


Class Notes – September 3, 2010 c/o Adrian proceeding should continue. A party may simply put
arbitration into naught by impleading certain parties.
What is the Rule on Multiple Parties?
Del Monte case : (MMC --- my cause of action is
Binding between the parties, assigns and heirs TORT (20-21 NCC) -- sir wanted to address this.
(1311, Civil Code).
What if a party files a motion to suspend
Can the court motu proprio separate the parties? proceedings on the ground that there is an
existing Arbitration Agreement?
What is the impact of presence of third parties?
The court should grant a motion to suspend
Rule 4.7. Multiple actions and parties. — The court shall not proceedings and order the parties to proceed to
decline to refer some or all of the parties to arbitration for any of arbitration.
the following reasons:
a. Not all of the disputes subject of the civil action may be 9285 Sec. 25. Interpretation of the Act. - In interpreting the Act,
referred to arbitration; the court shall have due regard to the policy of the law in favor of
b. Not all of the parties to the civil action are bound by the arbitration. Where action is commenced by or against multiple
arbitration agreement and referral to arbitration would result in parties, one or more of whom are parties who are bound by
multiplicity of suits; the arbitration agreement although, the civil action may
c. The issues raised in the civil action could be speedily and continue as to those who are not bound by such arbitration
efficiently resolved in its entirety by the court rather than in agreement.
arbitration;
d. Referral to arbitration does not appear to be the most prudent (-ME- the jurisdiction of the court is determined by
action; or
the allegations in the pleadings True - MMC)
e. The stay of the action would prejudice the rights of the
parties to the civil action who are not bound by the
arbitration agreement. Still : MMC --- my cause of action is TORT (20-
21 NCC) -- sir wanted to address this. -- AUTEA -
The court may, however, issue an order directing the inclusion This is a spurious argument. Article 21, says any
in arbitration of those parties who are not bound by the damage. Why is there damage? "Although I am the
arbitration agreement but who agree to such inclusion
provided those originally bound by it do not object to their Exclusive Distributor, Del monte allowed the entry of
inclusion. subpar products." It is the distributorship agreement
that caused damage.

How did the court rule on the issue in the case of (ANECDOTE: the first two students who recited
Toyota? "AGREED" on the Del Monte Ruling. Sir was
The presence of third parties does not render the surprised.)
Arbitration Clause dysfunctional.
DANGEROUS IMPLICATION OF DELMONTE -
What about in Salas? Are the facts the same? again, is the vulnerability of the Arbitration Clause to
a party defeating it by impleading other parties. This
is what gave rise to SECTION 25 of RA 9285.
Are the vendees bound by the Arbitration clause
contained in the contract between Laperal Realty ---- WHAT IS THE PRESENT STATE OF THE
and Salas, JR? RULE WITH RESPECT TO THE PRESENC OF
PARTIES?
SALAS NO : because the vendees are not
"assignees." (UNDER 1311 OF THE CIVIL CODE) See RULE 2.2. Special ADR Rules

The buyers are not bound, although they are


successors-in-interest, they are not assigns. ? ADR RULE - Rule 4.5. Court action. — After
ME : is a subrogee under through an insurance hearing, the court shall stay the action and,
contract an assign? (see california case, considering the statement of policy embodied in
Rule 2.4, above, refer the parties to arbitration if it
What is the effect of the Del Monte Ruling? finds prima facie, based on the pleadings and
Individuals who are NOT real parties in interest were supporting documents submitted by the parties, that
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 57
Salma F. Angkaya | AY 2010-2011, 1st semester
Special thanks to Krizelle Poblacion for her great digests!

there is an arbitration agreement and that the XXX


subject-matter of the dispute is capable of settlement A controversy cannot be arbitrated where one of the parties to the
or resolution by arbitration in accordance with controversy is an infant, or a person judicially declared to be
incompetent, unless the appropriate court having jurisdiction
Section 6 of the ADR Act. Otherwise, the court shall approve a petition for permission to submit such controversy to
continue with the judicial proceedings. arbitration made by the general guardian or guardian ad litem of
the infant or of the incompetent.
What is the impact of KOREA regarding
reciprocal obligations under 1191 (CIVIL CODE)? Under the present state of the law, are there
if there is a delay on the part of one of the parties, other grounds?
the other party may rescind the contract.
Can the court reverse the dispositive portion of the
Is this in act of judicial legislation? Arbitral Award? NO - court cannot substitute.

ASSAILING AN ARBITRAL AWARD APT v. CA

What are the grounds for assailing a DOMESTIC "As a rule, the award of an arbitrator cannot be set
ARBITRATION AWARD? aside for mere errors of judgment either as to the
law or as to the facts. Courts are without power to
See RA 876 - amend or overrule merely because of disagreement
with matters of law or facts determined by the
Sec. 24. Grounds for vacating award. In any one of the following arbitrators. They will not review the findings of law
cases, the court must make an order vacating the award upon the
and fact contained in an award, and will not
petition of any party to the controversy when such party proves
affirmatively that in the arbitration proceedings; undertake to substitute their judgment for that of the
arbitrators, since any other rule would make an
(a) The award was procured by corruption, fraud, or other undue award the commencement, not the end, of litigation.
means; or Errors of law and fact, or an erroneous decision of
(b) That there was evident partiality or corruption in the arbitrators matters submitted to the judgment of the arbitrators,
or any of them; or
are insufficient to invalidate an award fairly and
(c) That the arbitrators were guilty of misconduct in refusing to
postpone the hearing upon sufficient cause shown, or in refusing
honestly made. Judicial review of an arbitration is,
to hear evidence pertinent and material to the controversy; that thus, more limited than judicial review of a trial."
one or more of the arbitrators was disqualified to act as such
under section nine hereof, and willfully refrained from disclosing How did they come to arbitration?
such disqualifications or of any other misbehavior by which the
rights of any party have been materially prejudiced; or
How did it become a Rule 65 case?
(d) That the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final and definite award upon the THERE was an ORDER confirming. Petition under
subject matter submitted to them was not made. rule 65 Was availed of.

Is this an exclusive listing? NO, see 11.4 of Is this valid?


Special ADR rules
See Section 29. CF: ruling in APT vs CA:
The award may also be vacated on any or all of the following
grounds: Section 29 of Republic Act No. 876, provides that: . . . An appeal
a. The arbitration agreement did not exist, or is invalid for any may be taken from an order made in a proceeding under this Act,
ground for the revocation of a contract or is otherwise or from a judgment entered upon an award through certiorari
unenforceable; or proceedings, but such appeals shall be limited to questions of
b. A party to arbitration is a minor or a person judicially declared law. . . ..
to be incompetent. The provision, however, does not preclude a party aggrieved by
the arbitral award from resorting to the extraordinary remedy of
certiorari under Rule 65 where, as in this case, the RTC to which
Are these additions? the award was submitted for confirmation has acted without
No, see section of RA 876: jurisdiction or with grave abuse of discretion and there is no
appeal, nor any plain, speedy remedy in the course of law. In the
Sec. 2. Persons and matters subject to arbitration. XXX Such instant case, the respondent court erred in dismissing the special
submission or contract shall be valid, enforceable and irrevocable, civil action for certiorari, it being clear from the pleadings and the
save upon such grounds as exist at law for the revocation of any evidence that the trial court lacked jurisdiction and/or committed
contract. grave abuse of discretion in taking cognizance of private
respondents' motion to confirm the arbitral award and, worse, in
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 58
Salma F. Angkaya | AY 2010-2011, 1st semester
Special thanks to Krizelle Poblacion for her great digests!

confirming said award which is grossly and patently not in accord What are you trying to say? --
with the arbitration agreement, as will be hereinafter
demonstrated.
ADAMSON, CHUNGFU, NATIONAL STEEL --
Rule 19.7. No appeal or certiorari on the merits of an arbitral
award. — An agreement to refer a dispute to arbitration shall
HOME BANKER'S ASSOCIATION.
mean that the arbitral award shall be final and binding.
Consequently, a party to an arbitration is precluded from filing an
appeal or a petition for certiorari questioning the merits of an
arbitral award.
No Class – September 10, 2010

Rule 19.26. -- Certiorari to the Court of Appeals. — When the


Regional Trial Court, in making a ruling under the Special ADR
Rules, has acted without or in excess of its jurisdiction, or
with grave abuse of discretion amounting to lack or excess
of jurisdiction, and there is no appeal or any plain, speedy, and
adequate remedy in the ordinary course of law, a party may file a Class Notes – September 17, 2010
special civil action for certiorari to annul or set aside a ruling of
the Regional Trial Court.

A special civil action for certiorari may be filed against the Petition v. Motion to Vacate
following orders of the court. Petition – filed in a court which has no jurisidiction
XXX over the dispute; original; after dismissal (see APT)
Motion – filed in a court which has jurisdiction over
f. Confirming, vacating or correcting a domestic arbitral
award; the dispute; continuation of proceedings; e.g.
g. Suspending the proceedings to set aside an international proceeding in the court was suspended / referred to
commercial arbitral award and referring the case back to the arbitration
arbitral tribunal;
h. Allowing a party to enforce an international commercial
arbitral award pending appeal;
Is a Motion or Petition to Vacate governed by
i. Adjourning or deferring a ruling on whether to set aside,
recognize and or enforce an international commercial arbitral summary procedure?
award; No. See 1.3.
j. Allowing a party to enforce a foreign arbitral award pending
appeal; and Rule 1.3. Summary proceedings in certain cases.—The
k. Denying a petition for assistance in taking evidence. proceedings in the following instances are summary in nature and
shall be governed by this provision:
Note : "...and there is no appeal…") SEE: 19.12 --
a. Judicial Relief Involving the Issue of Existence, Validity or
Enforceability of the Arbitration Agreement;
Appeal to the Court of Appeals.—An appeal to the Court of b. Referral to ADR;
Appeals through a petition for review under this Special Rule shall c. Interim Measures of Protection;
only be allowed from the following final orders of the Regional d. Appointment of Arbitrator;
Trial Court: e. Challenge to Appointment of Arbitrator;
f. Termination of Mandate of Arbitrator;
XXXConfirming, vacating or correcting a domestic arbitral g. Assistance in Taking Evidence;
award; h. Confidentiality/Protective Orders; and
i. Deposit and Enforcement of Mediated Settlement
Agreements.
Kung ako yung kalaban and the other party files a
certiorari, but there is an appeal.
Must it be verified? Can it be verified by the
-- lawyer?
Yes. See 1.4. It can be verified by a lawyer. See
So how do we use 19.26? 1.11(f).

Rule 1.4. Verification and submissions. —Any pleading, motion,


-- ME : LUZON DEVELOPMENT BANK prescribes opposition, comment, defense or claim filed under the Special
the mode --FINAL - and not subject to review. 00 ADR Rules by the proper party shall be supported by verified
APPEAL -- statements that the affiant has read the same and that the factual
allegations therein are true and correct of his own personal
knowledge or based on authentic records and shall contain as
What is the object of an appeal - annexes the supporting documents.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 59
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"Appointing Authority" as used in the Model Law shall mean the


The annexes to the pleading, motion, opposition, comment, person or institution named in the arbitration agreement as the
defense or claim filed by the proper party may include a legal appointing authority; or the regular arbitration arbitration institution
brief, duly verified by the lawyer submitting it, stating the pertinent under whose rules the arbitration is agreed to be conducted.
facts, the applicable law and jurisprudence to justify the necessity Where the parties have agreed to submit their dispute to
for the court to rule upon the issue raised. institutional arbitration rules, and unless they have agreed to a
different procedure, they shall be deemed to have agreed to
procedure under such arbitration rules for the selection and
appointment of arbitrators. In ad hoc arbitration, the default
f. “Verification” shall mean a certification under oath by a party appointment of an arbitrator shall be made by the National
or a person who has authority to act for a party that he has read President of the Integrated Bar of the Philippines (IBP) or his duly
the pleading/motion, and that he certifies to the truth of the facts authorized representative.
stated therein on the basis of his own personal knowledge or
authentic documents in his possession. When made by a lawyer,
verification shall mean a statement under oath by a lawyer signing RA 9285, Sec. 27 – What Functions May be Performed by
a pleading/motion for delivery to the Court or to the parties that he Appointing Authority
personally prepared the pleading/motion, that there is sufficient The functions referred to in Articles 11(3), 11(4), 13(3) and 14(1)
factual basis for the statements of fact stated therein, that there is of the Model Law shall be performed by the Appointing Authority,
sufficient basis in the facts and the law to support the prayer for unless the latter shall fail or refuse to act within thirty (30) days
relief therein, and that the pleading/motion is filed in good faith from receipt of the request in which case the applicant may renew
and is not interposed for delay. the application with the Court.

Is there an Appointing Authority in adhoc RA 876, Sec. 8 – Appointment of arbitrators


arbitration?
If, in the contract for arbitration or in the submission described in
Yes. 6.1 (c). section two, provision is made for a method of naming or
appointing an arbitrator or arbitrators, such method shall be
Rule 6.1. When the court may act as Appointing Authority. — The followed; but if no method be provided therein the Court of First
court shall act as Appointing Authority only in the following Instance shall designate an arbitrator or arbitrators.
instances:
The Court of First Instance shall appoint an arbitrator or
a. Where any of the parties in an institutional arbitration failed or arbitrators, as the case may be, in the following instances:
refused to appoint an arbitrator or when the parties have failed to
reach an agreement on the sole arbitrator (in an arbitration before (a) If the parties to the contract or submission are unable to
a sole arbitrator) or when the two designated arbitrators have agree upon a single arbitrator; or
failed to reach an agreement on the third or presiding arbitrator (in
an arbitration before a panel of three arbitrators), and the
(b) If an arbitrator appointed by the parties is unwilling or unable
institution under whose rules arbitration is to be conducted fails or
to serve, and his successor has not been appointed in the manner
is unable to perform its duty as appointing authority within a
in which he was appointed; or
reasonable time from receipt of the request for appointment;

b. In all instances where arbitration is ad hoc and the parties (c) If either party to the contract fails or refuses to name his
failed to provide a method for appointing or replacing an arbitrator within fifteen days after receipt of the demand for
arbitrator, or substitute arbitrator, or the method agreed upon is arbitration; or
ineffective, and the National President of the Integrated Bar of the
Philippines (IBP) or his duly authorized representative fails or (d) If the arbitrators appointed by each party to the contract, or
refuses to act within such period as may be allowed under the appointed by one party to the contract and by the proper Court,
pertinent rules of the IBP or within such period as may be agreed shall fail to agree upon or to select the third arbitrator.
upon by the parties, or in the absence thereof, within thirty (30)
days from receipt of such request for appointment; (e) The court shall, in its discretion appoint one or three
arbitrators, according to the importance of the controversy
c. Where the parties agreed that their dispute shall be resolved involved in any of the preceding cases in which the agreement is
by three arbitrators but no method of appointing those arbitrators silent as to the number of arbitrators.
has been agreed upon, each party shall appoint one arbitrator
and the two arbitrators thus appointed shall appoint a third
arbitrator. If a party fails to appoint his arbitrator within thirty (30) (f) Arbitrators appointed under this section shall either accept or
days of receipt of a request to do so from the other party, or if the decline their appointments within seven days of the receipt of their
two arbitrators fail to agree on the third arbitrator within a appointments. In case of declination or the failure of an arbitrator
reasonable time from their appointment, the appointment shall be or arbitrators to duly accept their appointments the parties or the
made by the Appointing Authority. If the latter fails or refuses to court, as the case may be, shall proceed to appoint a substitute or
act or appoint an arbitrator within a reasonable time from receipt substitutes for the arbitrator or arbitrators who decline or failed to
of the request to do so, any party or the appointed arbitrator/s accept his or their appointments.
may request the court to appoint an arbitrator or the third
arbitrator as the case may be. Problem:
Claimant appoints an arbitrator. Respondent refuses
RA 9285, Sec. 26 – Meaning of “Appointing Authority” to name his arbitrator. Claimant asks IBP to appoint
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 60
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in behalf of Respondent, which IBP did. Can against whom the relief is requested, the grounds for the relief,
Respondent ask for an injunction enjoining the and evidence supporting the request.
commencement of the injunction on the ground that
(5) The order shall be binding upon the parties.
it did not appoint an arbitrator? Can a court enjoin
arbitration proceedings?
(6) Either party may apply with the Court for assistance in
Implementing or enforcing an interim measure ordered by an
Rule 3.18. Court action. — (B) No injunction of arbitration arbitral tribunal.
proceedings. — The court shall not enjoin the arbitration
proceedings during the pendency of the petition.
(7) A party who does not comply with the order shall be liable for
all damages resulting from noncompliance, including all
What is the “petition” contemplated in Rule expenses, and reasonable attorney's fees, paid in obtaining the
3.18? order's judicial enforcement.
Petition concerning the existence, validity or
enforceability of the arbitration agreement. This Xam: No. Prohibition not injunction.
concerns the jurisdiction of the arbitral tribunal.

Rule 5.6. Type of interim measure of protection that a court may


grant.—The following, among others, are the interim measures of Chung Fu Industries vs CA (1992)
protection that a court may grant:

a. Preliminary injunction directed against a party to arbitration; Petitioner: Chung Fu Industries, et al


Respondents: CA, Hon. Francisco Velez and
RA 9285, Sec. 28 – Grant of Interim Measure of Protection Roblecor Philippines Inc
(a) It is not incompatible with an arbitration agreement for a party
to request, before constitution of the tribunal, from a Court an Ponente: Romero
interim measure of protection and for the Court to grant such
measure. After constitution of the arbitral tribunal and during
Facts: Petitioner Chung Fu Industries and Roblecor
arbitral proceedings, a request for an interim measure of
protection or modification thereof, may be made with the arbitral Philippines, Inc. forged a construction agreement
tribunal or to the extent that the arbitral tribunal has no power to whereby respondent committed to construct and
act or is unable to act effectively, the request may be made with finish on December 31, 1989, petitioner 's
the Court. The arbitral tribunal is deemed constituted when the
industrial/factory complex in Cavite for P42,000,000.
sole arbitrator or the third arbitrator who has been nominated, has
accepted the nomination and written communication of said In the event of disputes arising from the performance
nomination and acceptance has been received by the party of subject contract, it was stipulated therein that the
making request. issue(s) shall be submitted for resolution before a
single arbitrator chosen by both parties. Apart from
(b) The following rules on interim or provisional relief shall be the construction agreement, Chung Fu and Roblecor
observed:
entered into two (2) other ancillary contracts, for the
(1) Any party may request that provision relief be granted against
construction of a dormitory and support facilities and
the adverse party: for the installation of electrical, water and hydrant
systems at the plant site.
(2) Such relief may be granted: However, Roblecor failed to complete the
work despite the extension of time allowed it by
(i) to prevent irreparable loss or injury: Chung Fu. Subsequently, the latter had to take over
the construction. Claiming an unsatisfied account of
(ii) to provide security for the performance of any obligation; P10,500,000.00 and unpaid progress billings of
P2,370,179.23, Roblecor filed a petition for
(iii) to produce or preserve any evidence; or
Compulsory Arbitration with prayer for TRO before
the RTC, pursuant to the arbitration clause in the
(iv) to compel any other appropriate act or omission.
construction agreement. Chung Fu moved to dismiss
(3) The order granting provisional relief may be conditioned upon the petition and further prayed for the quashing of
the provision of security or any act or omission specified in the the restraining order.
order. Subsequent negotiations between the
parties eventually led to the formulation of an
(4) Interim or provisional relief is requested by written application arbitration agreement. The RTC approved the
transmitted by reasonable means to the Court or arbitral tribunal
as the case may be and the party against whom the relief is
agreement. Engr. Willardo Asuncion was appointed
sought, describing in appropriate detail the precise relief, the party as the sole arbitrator.
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Arbitrator Asuncion ordered petitioners to CIAC was created by EO 1008, enacted on February
immediately pay respondent P16,108,801.00. He 4, 1985.
declared the award as final and unappealable, In practice nowadays, absent an agreement
pursuant to the Arbitration Agreement precluding of the parties to resolve their disputes via a particular
judicial review of the award. mode, it is the regular courts that remain the fora to
Roblecor moved for the confirmation of said resolve such matters. However, the parties may opt
award. On the other hand, Chung Fu moved to for recourse to third parties, exercising their basic
remand the case for further hearing and asked for a freedom to "establish such stipulation, clauses,
reconsideration of the judgment award claiming that terms and conditions as they may deem convenient,
Arbitrator Asuncion committed twelve (12) instances provided they are not contrary to law, morals, good
of grave error by disregarding the provisions of the customs, public order or public policy." In such a
parties' contract. The lower court denied petitioner’s case, resort to the arbitration process may be
motion to remand and granted Roblecor’s Motion for spelled out by them in a contract in anticipation of
Confirmation of Award. The CA affirmed. disputes that may arise between them. Or this may
be stipulated in a submission agreement when they
Issue: WON the arbitration award is beyond the are actually confronted by a dispute. Whatever be
ambit of the court's power of judicial review. the case, such recourse to an extrajudicial means of
settlement is not intended to completely deprive the
Held: No courts of jurisdiction.
But certainly, the stipulation to refer all future
Ratio: Sparse though the law and jurisprudence may disputes to an arbitrator or to submit an ongoing
be on the subject of arbitration in the Philippines, it dispute to one is valid. Being part of a contract
was nonetheless recognized in the Spanish Civil between the parties, it is binding and enforceable in
Code; specifically, the provisions on compromises court in case one of them neglects, fails or refuses to
made applicable to arbitrations under Articles 1820 arbitrate. Going a step further, in the event that they
and 1821. Although said provisions were repealed declare their intention to refer their differences to
by implication with the repeal of the Spanish Law of arbitration first before taking court action, this
Civil Procedure, these and additional ones were constitutes a condition precedent, such that where a
reinstated in the present Civil Code. suit has been instituted prematurely, the court shall
Arbitration found a fertile field in the suspend the same and the parties shall be directed
resolution of labor-management disputes in the forthwith to proceed to arbitration. A court action
Philippines. Although early on, CA 103 (1936) may likewise be proven where the arbitrator has not
provided for compulsory arbitration as the state been selected by the parties.
policy to be administered by the CIR, in time such a Under present law, may the parties who
modality gave way to voluntary arbitration. The agree to submit their disputes to arbitration further
Industrial Peace Act which was passed in 1953 as provide that the arbitrators' award shall be final,
RA875, favored the policy of free collective unappealable and executory?
bargaining and resort to grievance procedure, in Article 2044 of the Civil Code recognizes the
particular, as the preferred mode of settling disputes validity of such stipulation, thus: Any stipulation that
in industry. It was accepted and enunciated more the arbitrators' award or decision shall be final is
explicitly in the Labor Code, which was passed on valid, without prejudice to Articles 2038, 2039 and
November 1, 1974 as PD 442, with the 2040.
amendments later introduced by RA6715 (1989). Similarly, the Construction Industry
That there was a growing need for a law Arbitration Law provides that the arbitral award "shall
regulating arbitration in general was acknowledged be final and inappealable except on questions of law
when RA876 (1953), otherwise known as the which shall be appealable to the Supreme Court."
Arbitration Law, was passed. "Said Act was Under the original Labor Code, voluntary
obviously adopted to supplement — not to supplant arbitration awards or decisions were final,
— the New Civil Code on arbitration. It expressly unappealable and executory. "However, voluntary
declares that "the provisions of chapters one and arbitration awards or decisions on money claims,
two, Title XIV, Book IV of the Civil Code shall remain involving an amount exceeding P100,000 or 40% of
in force." the paid-up capital of the respondent employer,
In recognition of the pressing need for an whichever is lower, maybe appealed to the NLRC on
arbitral machinery for the early and expeditious any of the following grounds: (a) abuse of discretion;
settlement of disputes in the construction industry, a and (b) gross incompetence." It is to be noted that
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the appeal in the instances cited were to be made to the proper remedy is certiorari under Rule 65 of the
the NLRC and not to the courts. Revised Rules of Court. It is to be borne in mind,
With the subsequent deletion of the however, that this action will lie only where a grave
provision from the LC, the voluntary arbitrator is now abuse of discretion or an act without or in excess of
mandated to render an award or decision within 20 jurisdiction on the part of the voluntary arbitrator is
calendar days from the date of submission of the clearly shown. For "the writ of certiorari is an extra-
dispute and such decision shall be final and ordinary remedy and that certiorari jurisdiction is not
executory after 10 calendar days from receipt of the to be equated with appellate jurisdiction. In a special
copy of the award or decision by the parties. civil action of certiorari, the Court will not engage in a
Where the parties agree that the decision of review of the facts found nor even of the law as
the arbitrator shall be final and unappealable as in interpreted or applied by the arbitrator unless the
the instant case, the pivotal inquiry is whether supposed errors of fact or of law are so patent and
subject arbitration award is indeed beyond the ambit gross and prejudicial as to amount to a grave abuse
of the court's power of judicial review. We rule in the of discretion or an exces de pouvoir on the part of
negative. It is stated explicitly under Art. 2044 CC the arbitrator."
that the finality of the arbitrators' award is not Even decisions of administrative agencies
absolute and without exceptions. Where the which are declared "final" by law are not exempt
conditions described in Articles 203814, 2039 and from judicial review when so warranted. It should be
2040 applicable to both compromises and stressed, too, that voluntary arbitrators, by the
arbitrations are obtaining, the arbitrators' award may nature of their functions, act in a quasi-judicial
be annulled or rescinded. 19 Additionally, under capacity. It stands to reason, therefore, that their
Sections 24 and 25 of the Arbitration Law, there are decisions should not be beyond the scope of the
grounds for vacating, modifying or rescinding an power of judicial review of this Court.
arbitrator's award. Thus, if and when the factual After closely studying the list of errors, as
circumstances referred to in the above-cited well as petitioners' discussion of the same in their
provisions are present, judicial review of the award is Motion to Remand Case For Further Hearing and
properly warranted. Reconsideration and Opposition to Motion for
What if courts refuse or neglect to inquire Confirmation of Award, we find that petitioners have
into the factual milieu of an arbitrator's award to amply made out a case where the voluntary
determine whether it is in accordance with law or arbitrator failed to apply the terms and provisions of
within the scope of his authority? How may the the Construction Agreement which forms part of the
power of judicial review be invoked? This is where law applicable as between the parties, thus
14
committing a grave abuse of discretion.
Art. 2038. A compromise in which there is mistake, fraud, Furthermore, in granting unjustified extra
violence, intimidation, undue influence, or falsity of
documents, is subject to the provisions of Article 1330 of this compensation to respondent for several items, he
Code. exceeded his powers — all of which would have
constituted ground for vacating the award under
However, one of parties cannot set up a mistake of fact as against Section 24 (d) of the Arbitration Law.
the other if the latter, by virtue of the compromise, has withdrawn
from a litigation already commenced. (1817a) But the respondent trial court's refusal to
look into the merits of the case, despite prima facie
Art. 2039. When the parties compromise generally on all showing of the existence of grounds warranting
differences which they might have with each other, the discovery judicial review, effectively deprived petitioners of
of documents referring to one or more but not to all of the
questions settled shall not itself be a cause for annulment or their opportunity to prove or substantiate their
rescission of the compromise, unless said documents have allegations. In so doing, the trial court itself
been concealed by one of the parties. committed grave abuse of discretion. Likewise, the
appellate court, in not giving due course to the
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 petition, committed grave abuse of discretion.
shown by the newly-discovered documents. (n) Respondent courts should not shirk from exercising
their power to review, where under the applicable
Art. 2040. If after a litigation has been decided by a final laws and jurisprudence, such power may be
judgment, a compromise should be agreed upon, either or both
parties being unaware of the existence of the final judgment, rightfully exercised; more so where the objections
the compromise may be rescinded. raised against an arbitration award may properly
constitute grounds for annulling, vacating or
Ignorance of a judgment which may be revoked or set aside modifying said award under the laws on arbitration.
is not a valid ground for attacking a compromise.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 63
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the arbitrators' award, he could not find fault with


Adamson vs CA (1994) their impartiality and integrity. Evidently, the
Petitioners: Dr. Lucas Adamson and Adamson nullification of the award rendered at the case at bar
Management Corporation was made not on the basis of any of the grounds
Respondents: CA and Apac Holding Limited provided by law."
Assailing the above conclusion, petitioners
Facts: Adamson Management Corporation and argue that ". . . evident partiality is a state of mind
Lucas Adamson on the one hand, and APAC that need not be proved by direct evidence but may
Holdings Limited on the other, entered into a be inferred from the circumstances of the case. It is
contract whereby the former sold 99.97% of related to intention which is a mental process, an
outstanding common shares of stocks of Adamson internal state of mind that must be judged by the
and Adamson, Inc. to the latter for P24,384,600 plus person's conduct and acts which are the best index
the Net Asset Value of Adamson and Adamson, Inc. of his intention." They pointed out that from the
as of June 19, 1990. But the parties failed to agree following circumstances may be inferred the
on a reasonable Net Asset Value. This prompted arbitrators' evident partiality:
them to submit the case for arbitration in accordance 1. the material difference between the results of the
with RA 876. arbitrators' computation of the NAV and that of
The Arbitration Committee rendered a petitioners;
decision finding the Net Asset Value of the Company 2. the alleged piecemeal interpretation by the
to be P167,118. The Arbitration Committee arbitrators of the Agreement which went beyond the
disregarded petitioners' argument. According to the clear provisions of the contract and negated the
Committee, however, the amount of P5,146,000 obvious intention of the parties;
which was claimed as initial NAV by petitioners, was 3. reliance by the arbitrators on the financial
merely an estimate of the Company's NAV as of statements and reports submitted by SGV which,
February 28, 1990 which was still subject to financial according to petitioners, acted solely for the interests
developments until June 19, 1990, the cut-off date. of private respondents; and
Aside from deciding the amount of NAV, the 4. the finding of the trial court that "the arbitration
Committee also held that any ambiguity in the committee has advanced no valid justification to
contract should not necessarily be interpreted warrant a departure from the well-settled rule in
against private respondents because the parties had contract interpretation that if the terms of the
stipulated that the draft of the agreement was contract are clear and leave no doubt upon the
submitted to petitioners for approval and that the intention of the contracting parties the literal
latter even proposed changes which were eventually meaning of its interpretation shall control."
incorporated in the final form of the Agreement. We find no reason to depart from the Court
APAC Holdings Ltd. filed a petition for of Appeal's conclusion.
confirmation of the arbitration award before the Petitioners herein failed to prove their
Makati RTC. Petitioners opposed the petition and allegation of partiality on the part of the arbitrators.
prayed for the nullification, modification and/or Proofs other than mere inferences are needed to
correction of the same, alleging that the arbitrators establish evident partiality. That they were
committed evident partiality and grave abuse of disadvantaged by the decision of the Arbitration
discretion. The RTC vacated the arbitration award. Committee does not prove evident partiality.
The CA reversed. Too much reliance has been accorded by
petitioners on the decision of the trial court.
Issue: WON the CA erred in affirming the However, we find that the same is but an adaptation
arbitration award of the arguments of petitioners to defeat the petition
for confirmation of the arbitral award in the trial court
Held: No by private respondent. The trial court itself stated as
follows: To allay any fear of petitioner that its reply
Ratio: The CA, in reversing the trial court's and opposition, dated 11 June 1991, has not been
decision held that the nullification of the decision of taken into account in resolving this case, it will be
the Arbitration Committee was not based on the well to state that the court has carefully read the
grounds provided by the Arbitration Law and that same and, what is more, it has also read
". . . petitioners herein have failed to substantiate respondents' comment, dated 19 June 1991,
with any evidence their claim of partiality. wherein they made convincing arguments which are
Significantly, even as respondent judge ruled against
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likewise adopted and incorporated herein by the ambiguity of the contract because as its drafter,
reference. private respondent was well aware of the
The justifications advanced by the trial court implications of the Agreement. We note herein that
for vacating the arbitration award are the following: during the arbitration proceedings, the parties
(a) ". . . that the arbitration committee had advanced agreed that the contract as prepared by private
no valid justification to warrant a departure from the respondent, was submitted to petitioners for
well-settled rule in contract interpretation that if the approval. Petitioners, therefore, are presumed to
terms of the contract are clear and leave no doubt have studied the provisions of the Agreement and
upon the intention of the contracting parties the agreed to its import when they approved and signed
literal meaning of its interpretation shall control; (b) the same. When it was submitted to arbitration to
that the final NAV of P47,121,468.00 as computed settle the issue regarding the computation of the
by herein petitioners was well within APAC's normal NAV, petitioners agreed to be bound by the
investment level which was at least US$1 million and judgment of the arbitration committee, except in
to say that the NAV was merely P167,118.00 would cases where the grounds for vacating the award
negate Clause 6 of the Agreement which provided existed. Petitioners cannot now refuse to perform its
that the purchaser would deposit in escrow obligation after realizing that it had erred in its
P5,146,000.00 to be held for two (2) years and to be understanding of the Agreement.
used to satisfy any actual or contingent liability of the Petitioners also assailed the arbitrator's
vendor under the Agreement; (c) that the provision reliance upon the financial statements submitted by
for an escrow account negated any idea of the NAV SGV as they allegedly served the interests of private
being less than P5,146,000.00; and (d) that herein respondents and did not reflect the true intention of
private respondent, being the drafter of the the parties. We agree with the observation made by
Agreement could not avoid performance of its the arbitrators that SGV, being a reputable firm, it
obligations by raising ambiguity of the contract, or its should be presumed to have prepared the
failure to express the intention of the parties, or the statements in accordance with sound accounting
difficulty of performing the same. principles. Petitioners have presented no proof to
It is clear therefore, that the award was establish that SGV's computation was erroneous
vacated not because of evident partiality of the and biased.
arbitrators but because the latter interpreted the Petitioners likewise pointed out that the
contract in a way which was not favorable to herein computation of the arbitrators leads to the absurd
petitioners and because it considered that herein result of petitioners incurring great expense just to
private respondents, by submitting the controversy sell its properties. In arguing that the NAV could not
to arbitration, was seeking to renege on its be less than P5,146,000, petitioners quote Clause
obligations under the contract. (B) of the Agreement as follows:
That the award was unfavorable to CLAUSE 3(B)
petitioners herein did not prove evident partiality. The consideration for the purchase of the Sale
That the arbitrators resorted to contract Shares by the Purchaser shall be equivalent to the
interpretation neither constituted a ground for Net Asset Value of the Company, . . . which the
vacating the award because under the parties HAVE FIXED at P5,146,000.00 prior to
circumstances, the same was necessary to settle the Adjustments . . .
controversy between the parties regarding the However, such quotation is incomplete and,
amount of the NAV. The SC finds that the therefore, misleading. The full text of the above
interpretation made by the arbitrators did not create provision as quoted by the arbitration committee
a new contract, as alleged by herein petitioners but reads as follows:
was a faithful application of the provisions of the (B) The consideration for the purchase of the Sale
Agreement. Neither was the award arbitrary for it Shares by the purchaser shall be equivalent to the
was based on the statements prepared by the SGV Net Asset Value of the Company, without the
which was chosen by both parties to be the Property, which the parties have fixed at P5,146,000
"auditors." prior to Adjustments plus P24,384,600. The
The trial court held that private respondent consideration for the sale of the Sale Shares by the
could not shirk from performing its obligations on Vendor, is the acquisition of the property by the
account of the difficulty of complying with the terms Vendor, through Aloha, from the Company at
of the contract. It said further that the contract may historical cost plus all Taxes due on said transfer of
be harsh but private respondent could not excuse Property, and the release of all collaterals of the
itself from performing its obligations on account of Vendor securing the RSBS Credit Facility. However,
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in the implementation of this Agreement, the parties It is stated expressly under Art. 2044 of the
shall designate the amounts specified in Clause 5 as Civil Code that the finality of the arbitrators' award is
the purchaser prices in the pro-forma deeds of sale not absolute and without exceptions. Where the
and other documents required to effect the transfers conditions described in Articles 2038, 2039 and
contemplated in this Agreement. 2040 applicable to both compromises and
Thus, petitioner cannot claim that the arbitrations are obtaining, the arbitrators' award may
consideration for private respondent's acquisition of be annulled or rescinded. Additionally, under
the outstanding common shares of stock was Sections 24 and 25 of the Arbitration Law, there are
grossly inadequate. If the NAV as computed was grounds for vacating, modifying or rescinding an
small, the result was not due to error in the arbitrators' award. Thus, if and when the factual
computations made by the arbitrators but due to the circumstances referred to in the above-cited
extent of the liabilities being borne by petitioners. provisions are present, judicial review of the award is
During the arbitration proceedings, the committee properly warranted.
found that petitioner has been suffering losses since Clearly, though recourse to the courts may
1983, a fact which was not denied by petitioner. We be availed of by parties aggrieved by decisions or
cannot sustain the argument of petitioners that the awards rendered by arbitrator/s, the extent of such is
amount of P5,146,000.00 was an initial NAV as of neither absolute nor all encompassing. . . .
February 28, 1990 to which should still be added the It is clear then that the Court of Appeals reversed the
value of tangible assets (excluding the land) and of trial court not because the latter reviewed the
intangible assets. If indeed the P5,146,000.00 was arbitration award involved herein, but because the
the initial NAV as of February 28, 1990, then as of respondent appellate court found that the trial court
said date, the total assets and liabilities of the had no legal basis for vacating the award.
company have already been set off against each
other. NET ASSET VALUE is arrived at only after
deducting TOTAL LIABILITIES from TOTAL CLASS NOTES:
ASSETS. "TOTAL ASSETS" includes those that are
tangible and intangible. If the amount of the tangible How do you assess the Chung Fu Rule in light of
and intangible assets would still be added to the the new Special ADR Rules?
"initial NAV," this would constitute double counting.
Unless the company acquired new assets from In Chung Fu, the SC said that TC should have
February 28, 1990 up to June 19, 1990, no value looked into the merits of the case, after a prima facie
corresponding to tangible and intangible assets may showing of the existence of grounds warranting
be added to the NAV. judicial review.
We also note that the computation by
petitioners of the NAV did not reflect the liabilities of If a court, after vacating an award, reverse the
the company. The term "net asset value" indicates award?
the amount of assets exceeding the liabilities as No. See 19.7
differentiated from total assets which include the
liabilities. If petitioners were not satisfied, they could RA 9285, Sec. 41. Vacation Award
have presented their own financial statements to A party to a domestic arbitration may question the arbitral award
rebut SGV's report but this, they did not do. with the appropriate regional trial court in accordance with the
rules of procedure [19.7] to be promulgated by the Supreme Court
Lastly, in assailing the decision of the Court only on those grounds enumerated in Section 2515 of Republic Act
of Appeals, petitioners would have this Court believe No. 876. Any other ground raised against a domestic arbitral
that the respondent court held that the decision of award shall be disregarded by the regional trial court.
the arbitrators was not subject to review by the
courts. This was not the position taken by the RA 876, Sec. 24. Grounds for vacating award {P-A-G-E}
respondent court. In any one of the following cases, the court must make an order
vacating the award upon the petition of any party to the
The Court of Appeals, in its decision stated, controversy when such party proves affirmatively that in the
thus: arbitration proceedings;
It is settled that arbitration awards are subject to
judicial review. In the recent case of Chung Fu (a) The award was procured by corruption, fraud, or other undue
Industries (Philippines), Inc., et. al. v. Court of means; or
Appeals, Hon Francisco X. Velez, et. al., G. R. No. (b) That there was evident partiality or corruption in the
arbitrators or any of them; or
96283, February 25, 1992, the Supreme Court
categorically ruled that: 15
Should be Section 25 of RA 876.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 66
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(c) That the arbitrators were guilty of misconduct in refusing to


postpone the hearing upon sufficient cause shown, or in refusing
to hear evidence pertinent and material to the controversy; that
one or more of the arbitrators was disqualified to act as such National Steel Corporation vs RTC of Lanao
under section nine hereof, and willfully refrained from disclosing Date: March 11, 1999
such disqualifications or of any other misbehavior by which the Petitioner: National Steel Corporation
rights of any party have been materially prejudiced; or
Respondents: RTC of Lanao del Norte and E.
(d) That the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final and definite award upon the Willkom Enterprises Inc
subject matter submitted to them was not made.
Ponente: Purisima
Where an award is vacated, the court, in its discretion, may direct
a new hearing either before the same arbitrators or before a new Facts: Edward Willkom Enterprises Inc. together
arbitrator or arbitrators to be chosen in the manner provided in the
submission or contract for the selection of the original arbitrator or with Ramiro Construction and National Steel
arbitrators, and any provision limiting the time in which the Corporation executed a contract whereby the former
arbitrators may make a decision shall be deemed applicable to jointly undertook the Contract for Site Development
the new arbitration and to commence from the date of the court's for the latter's Integrated Iron and Steel Mills
order.
Complex to be established at Iligan City.
Where the court vacates an award, costs, not exceeding fifty
Sometime in 1983, the services of Ramiro
pesos and disbursements may be awarded to the prevailing party Construction was terminated and EWEI took over
and the payment thereof may be enforced in like manner as the Ramiro's contractual obligation. Due to this,
payment of costs upon the motion in an action. extensions of time for the termination of the project,
initially agreed to be finished on July 17, 1983, were
Rule 19.7. No appeal or certiorari on the merits of an arbitral
award. — An agreement to refer a dispute to arbitration shall
granted by NSC. Differences later arose, EWEI filed
mean that the arbitral award shall be final and binding. a civil casebefore the RTC of Lanao del Norte,
Consequently, a party to an arbitration is precluded from filing an Branch 06 praying for the payments of
appeal or a petition for certiorari questioning the merits of an P458,381.001 with interest from the time of delay;
arbitral award.
the price adjustment as provided by PD 1594; and
exemplary damages in the amount of P50,000.00
What is the option of the court after vacating the and attorney's fees.
award? The court upon joint motion of both parties
had issued an order dismissing the complaint and
Rule 11.9. Court action. — Unless a ground to vacate an arbitral counterclaim . . . in view of the desire of both parties
award under Rule 11.5 above is fully established, the court shall
confirm the award. to implement Sec. 19 of the contract, providing for a
resolution of any conflict by arbitration. After series
An arbitral award shall enjoy the presumption that it was made of hearings, the Arbitrators rendered the decision
and released in due course of arbitration and is subject to which is the subject matter of these present causes
confirmation by the court
of action, both initiated separately by the herein
In resolving the petition or petition in opposition thereto in contending parties, substantial portion of which
accordance with these Special ADR Rules, the court shall either directs NSC to pay EWEI. The RTC affirmed.
confirm or vacate the arbitral award. The court shall not disturb
the arbitral tribunal’s determination of facts and/or interpretation of
law. Issue: WON the court acted with grave abuse of
discretion in not vacating the arbitrator's award.
In a petition to vacate an award or in petition to vacate an award Held:
in opposition to a petition to confirm the award, the petitioner may Ratio: A stipulation to refer all future disputes or to
simultaneously apply with the Court to refer the case back to the
same arbitral tribunal for the purpose of making a new or revised submit an ongoing dispute to an arbitrator is valid.
award or to direct a new hearing, or in the appropriate case, order RA 876, otherwise known as the Arbitration Law,
the new hearing before a new arbitral tribunal, the members of was enacted by Congress since there was a growing
which shall be chosen in the manner provided in the arbitration need for a law regulating arbitration in general.
agreement or submission, or the law. In the latter case, any
provision limiting the time in which the arbitral tribunal may make he parties in the present case, upon entering
a decision shall be deemed applicable to the new arbitral tribunal. into a Contract for Site Development, mutually
agreed that any dispute arising from the said
In referring the case back to the arbitral tribunal or to a new contract shall be submitted for arbitration. Explicit is
arbitral tribunal pursuant to Rule 24 of Republic Act No. 876,
the court may not direct it to revise its award in a particular Paragraph 19 of subject contract. Thereunder, if a
way, or to revise its findings of fact or conclusions of law or dispute should arise from the contract, the
otherwise encroach upon the independence of an arbitral Arbitration Board shall assume jurisdiction and
tribunal in the making of a final award.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 67
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conduct hearings. After the Board comes up with a Indeed, the allegation of evident partiality is
decision, the parties may immediately implement the not well-taken because the petitioner failed to
same by treating it as an amicable settlement. substantiate the same.
However, if one of the parties refuses to comply or is Anent the issue of mistaken appreciation of
dissatisfied with the decision, he may file a Petition facts and law of the case, the petitioner theorizes
to Vacate the Arbitrator's decision before the trial that the awards made by the Board were
court. On the other hand, the winning party may ask unsubstantiated and the same were a plain
the trial court's confirmation to have such decision misapplication of the law and even contrary to
enforced. jurisprudence. To have a clearer understanding of
It should be stressed that voluntary the petition, this Court will try to discuss individually
arbitrators, by the nature of their functions, act in a the awards made by the Board, and determine if
quasi-judicial capacity. As a rule, findings of facts by there was grave abuse of discretion on the part of
quasi-judicial bodies, which have acquired expertise the trial court when it adopted such awards in toto.
because their jurisdiction is confined to specific I. P458,381.00 representing EWEI's last billing
matters, are accorded not only respect but even No. 16 with interest thereon at the rate of 1-1/4%
finality if they are supported by substantial evidence, per month from January 1, 1985 to actual date of
even if not overwhelming or preponderant. As the payment;
petitioner has availed of Rule 65, the Court will not Petitioner seeks to bar payment of the said
review the facts found nor even of the law as amount to EWEI. Since the latter failed to complete
interpreted or applied by the arbitrator unless the the works as agreed upon, NSC had the right to
supposed errors of facts or of law are so patent and withhold such amount. The same will be used to
gross and prejudicial as to amount to a grave abuse cover the cost differential paid to another contractor
of discretion or an excess de pouvoir on the part of who finished the work allegedly left uncompleted by
the arbitrators. EWEI. Said work cost NSC P1,225,000, and should
Thus, in a Petition to Vacate Arbitrator's be made chargeable to EWEI's receivables on Final
Decision before the trial court, regularity in the Billing No. 16 issued to NSC.
performance of official functions is presumed and The query here therefore is whether there
the complaining party has the burden of proving the was failure on the part of EWEI to complete the work
existence of any of the grounds for vacating the agreed upon. This will determine whether Final
award, as provided for by Sections 24 of the Billing No. 16 can be made chargeable to the cost
Arbitration Law. differential paid by NSC to another contractor.
The grounds relied upon by the petitioner After a series of hearings, the Board of
were the following (a) That there was evident Arbitrators concluded that the work was completed
partiality in the assailed decision of the Arbitrators in by EWEI. As correctly stated To authenticate the
favor of the respondent; and (b) That there was extent of unfinished work, quantity, unit cost
mistaken appreciation of the facts and application of differential and amount, NSC was required to submit
the law by the Arbitrators. These were the very same copies of payment vouchers and/or job awards
grounds alleged by NSC before the trial court in their extended to the other contractor engaged to
Petition to Vacate the Arbitration Award and which complete the works. The best efforts by NSC despite
petitioner is reiterating in this petition under scrutiny. the multiplicity of accounting/auditing/engineering
Petitioner's allegation that there was evident records required in a corporate complex failed to
partiality is untenable. It is anemic of evidentiary produce documentary proofs from their Iligan or
support. In the case of Adamson vs. Court of Makati office despite repeated requests. NSC failed
Appeals, 232 SCRA 602, in upholding the decision to substantiate such allusion of completion by
of the Board of Arbitrators, this Court ruled that the another contractor three unfinished items of works,
fact that a party was disadvantaged by the decision actual quantities accomplished and unit cost
of the Arbitration. Committee does not prove evident differential paid chargeable against EWEI.
partiality. Proofs other than mere inference are To affirm the work items, quantity, unit cost
needed to establish evident partiality. Here, differential and amount of unfinished work left behind
petitioner merely averred evident partiality without by EWEI, NSC in serving notice of contract
any proof to back it up. Petitioner was never termination to EWEI should have instead specifically
deprived of the right to present evidence nor was cited these obligations in detail for EWEI to
there any showing that the Board showed signs of perform/comply within 30 days, such failure to
any bias in favor of EWEI. perform/comply should have constituted as an event
in default that would have justified termination of
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 68
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contract of NSC with EWEI. If at all, this unfinished the contract, which is the law between them
work may be additional/extra work awarded in 1984 provided it is not contrary to law, morals, good
to another contractor at prices higher than the unit customs, public order, or public policy. (Article 1306,
price tendered by EWEI in 1982 and/or the New Civil Code). It cannot be inferred therefrom,
discrepancy between actual quantities of work however, that the parties are prohibited from
accomplished per plans versus estimated quantities imposing future increases or price escalation. It is a
of work covered by separate contract as expansion cardinal rule in the interpretation of contracts that "if
of the original project. the terms of a contract are clear and leave no doubt
Furthermore, under the contract sued upon, upon the intention of the contracting parties, the
it is clear that should the Owner feel that the work literal meaning of its stipulations shall control. 11
agreed upon was not completed by the contractor, it But price escalation is expressly allowed
is incumbent upon the OWNER to send to under Presidential Decree 1594, which law allows
CONTRACTOR a letter within seven (7) days after price escalation in all contracts involving government
completion of the inspection to specify the objections projects including contracts entered into by
thereto. 9 NSC failed to comply with such government entities and instrumentalities and
requirement, and therefore it would be unfair to Government Owned or Controlled Corporations
refuse payment to EWEI, considering that the latter (GOCCs). It is a basic rule in contracts that law is
had faithfully submitted Final Billing No. 16 believing deemed written into the contract between the
that its work had been completed because NSC did parties. And when there is no prohibitory clause on
not call its attention to any objectionable aspect of price escalation, the Court will allow payment
their project. therefor. Thus, petitioner cannot rely on the case of
But, what cannot be upheld is the Board's Llama Development Corporation vs. Court of
imposition of a 1-1/4% interest per month from Appeals and National Steel Corporation, GR 88093,
January 1, 1985 to actual date of payment. There is Resolution, Third Division, 20 Sept 1989. It is not
nothing in the said contract to justify or authorize applicable here since in that case, the contract
such an award. The trial court should have therefore explicitly provided that the contract price stipulated
disregarded the same and instead, applied the legal was fixed, inclusive of all costs and not subject to
rate of 6% per annum, from Jan. 1, 1985 until this escalation. This, in effect, waived the provisions of
decision becomes final and executory. This is so PD 1594. The case under scrutiny is different as the
because the legal rate of interest on monetary disputed contract does not contain a similar
obligations not arising from loans or forebearance of provision.
credits or goods is 6% 10 per annum in the absence In a vain attempt to evade said law's
of any stipulation to the contrary. application, they would like the Court to believe that
(II) Price escalation with the interest rate of 1- it is an acquired asset corporation and not a
1/4% per month from 1 January 1985 to actual government owned or controlled corporation so that
date of payment. they are not within the coverage of PD 1594.
Petitioner contends that EWEI is not entitled Whether NSC is an asset-acquired corporation or a
to price escalation absent any stipulation to that government owned or controlled corporation is of no
effect in the contract under which, the contract price moment. It is not determinative of the pivot of
is fixed, citing Paragraph 2 thereof, which stipulates: inquiry. It bears emphasizing that during the
2. CONTRACT PRICE — applicable unit prices hearings conducted by the Board of Arbitrators,
above fixed are based on the assumption that the there was presented documentary evidence to show
disposal areas for cleared, grubbed materials, that NSC, despite its being allegedly an asset
debris, excess filling materials and other matters that acquired corporation, allowed price escalation to
are to be disposed of or are within the boundary another contractor, Geo Transport and Construction,
limits of the site, as designated in Annex A hereof. In Inc. (GTCI). As said in the decision of a Board of
the event that disposal areas fixed and designated in Arbitrators:
Annex A are diverted and transferred to such other On the other hand, there was documentary
areas as would be outside the limits of the site as evidence presented that NSC granted Geo
would require additional costs to the contractor, then Transport and Construction, Inc. (GTCI), the other
Owner shall be liable for such additional hauling favored contractor working side by side with EWEI
costs of P1.45/km/m3." on the site development project during the same
The phrase "prices above fixed" means that period the GTCE was granted upon request and
the contract price of the work shall be that agreed paid by NSC an actual sum of P6.9 million as price
upon by the parties at the time of the execution of adjustment compensation even without the benefit of
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 69
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escalation provision in the contract but allowed in CLASS NOTES:


accordance with PD NO. 1594 enforceable among National Steel Corporation is problematic. Supreme
government controlled or owned corporation. The Court is wrong in substituting its own judgment.
statement is embodied in an affidavit (Exhibit "111-
h") submitted by affiant Jose M. Mesina, Asst. to the
President and Legal Counsel of GTCI, submitted to Next Friday:
the Arbitrators upon solicitation of EWEI, copy to
NSC, on 3 October 1991. NSC did not assail the 1) CIAC
affidavit upon receipt of such document as evidence
EO 1008 series of 1985, as amended
until the hearing of 19 December 1991 when the
affidavit was branded by NSC counsel as incorrect China Chiang Jiang Energy Corp (Phils) v. Rosal
and hearsay. Within 7 days reglamentary period Infrastructure Builders, G.R. 125706, 30 September
after receipt of affidavit in 3 October 1991, the NSC 1996
had the recourse to contest the affidavit even
preferably charge the affiant for slander if NSC could 2) Appeals
disprove the statements as untrue. Study ADR Rules very intensively. They
If Petitioner seeks to refute such evidence, it substantially modified the appellate process.
should have done so before the Board of Arbitrators, Take note of the wording of the Special ADR Rules –
during the hearings. To raise the issue now is futile. “enjoining” or “refusing to enjoining”
However, the same line of reasoning with Section 1, Rule 43, Rules of Court – gives the
respect to the first award should be used in impression that you can appeal from an arbitral
disregarding the interest rate of 1-1/4%. The legal award
rate of 6% per annum should be similarly applied to Whereas Special ADR Rules – review of the trial
the price escalation to be computed from Jan. 1, court’s action
1985 until this decision becomes final and executory.
(III) The award of P50,000 as exemplary damages
and P350,000 as attorney's fees; Hi Precision Steel 228 SCRA 397
The exemplary damages and attorneys fees ABS CBN v. World 544 SCRA 308
awarded by the Board of Arbitrators should be
deleted in light of the circumstances surrounding the 3) Rule A
case.
The requirements for an award of exemplary
damages, are: (1) they may be imposed by way of
example in addition to compensatory damages, and Class Notes – September 24, 2010
only after the claimants right to them has been
established; (2) that they cannot be recovered as a *Where the law extends to you a remedy of
matter of right, their determination depending upon appeal, but the ICC Rules of Arbitration prohibits
the amount of compensatory damages that may be you from taking an appeal (28.6), is there still a
awarded to the claimant; (3) the act must be remedy for appeal or not?
accompanied by bad faith or done in a wanton,
fraudulent, oppressive or malevolent manner. It’s waived! Article 1159 of the Civil Code!
EWEI cannot claim that NSC acted in bad
faith or in a wanton manner when it refused payment Under the Special ADR Rules, can one appeal
of the Final Billing No. 16. The belief that the work from an arbitral award?
was never completed by EWEI and that it (NSC) had
the right to make it chargeable to the cost differential See ABSCBN.
paid by the latter to another contractor was neither
wanton nor done in evident bad faith. The payment
of legal rate of interest will suffice to compensate
ABS CBN vs WINS
EWEI of whatever prejudice it suffered by reason of
the delay caused by NSC. As regards the award of Date: February 11, 2008
attorney's fees, award for attorney's fees without Petitioner: ABS CBN Corporation
justification is a "conclusion without a premise, its Respondents: World Interactive Network Systems
basis being improperly left to ……………. Japan Co, Ltd
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 70
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Facts: ABS-CBN Broadcasting Corporation entered of jurisdiction. It stated that as the TOR itself
into a licensing agreement with World Interactive provided that the arbitrator's decision shall be final
Network Systems Japan Co., Ltd., a foreign and unappealable and that no MR shall be filed, then
corporation licensed under the laws of Japan. Under the petition for review must fail. It ruled that it is the
the agreement, respondent was granted the RTC which has jurisdiction over questions relating to
exclusive license to distribute and sublicense the arbitration. It held that the only instance it can
distribution of TFC in Japan. A dispute arose exercise jurisdiction over an arbitral award is an
between the parties when petitioner accused appeal from the trial court's decision confirming,
respondent of inserting nine episodes of WINS vacating or modifying the arbitral award.
WEEKLY, a weekly 35-minute community news
program for Filipinos in Japan, into the TFC Issue: WON an aggrieved party in a voluntary
programming from March to May 2002. Petitioner arbitration dispute may avail of a Rule 43 or Rule 65
claimed that these were “unauthorized insertions” instead of a petition to vacate the award in the RTC
constituting a material breach of their agreement.
Consequently, petitioner notified respondent of its
intention to terminate the agreement effective June Held:
10, 2002.
Ratio: RA 876 itself mandates that it is the RTC,
Respondent filed an arbitration suit pursuant to which has jurisdiction over questions relating to
the arbitration clause of its agreement with arbitration such as a petition to vacate an arbitral
petitioner. It contended that the airing of WINS award. The law itself clearly provides that the RTC
WEEKLY was made with petitioner's prior approval. must issue an order vacating an arbitral award only
It also alleged that petitioner only threatened to “in any one of the . . . cases” enumerated therein.
terminate their agreement because it wanted to Under the legal maxim in statutory construction
renegotiate the terms thereof to allow it to demand expressio unius est exclusio alterius, the explicit
higher fees. Respondent also prayed for damages. mention of one thing in a statute means the
elimination of others not specifically mentioned. As
The parties appointed Prof Tadiar to act as sole RA 876 did not expressly provide for errors of fact
arbitrator. The arbitrator found in favor of and/or law and grave abuse of discretion (proper
respondent. He held that petitioner gave its approval grounds for a petition for review under Rule 43 and a
to respondent for the airing of WINS WEEKLY as petition for certiorari under Rule 65, respectively) as
shown by a series of written exchanges between the grounds for maintaining a petition to vacate an
parties. He also ruled that, had there really been a arbitral award in the RTC, it necessarily follows that
material breach of the agreement, petitioner should a party may not avail of the latter remedy on the
have terminated the same instead of sending a mere grounds of errors of fact and/or law or grave abuse
notice to terminate said agreement. of discretion to overturn an arbitral award.

Petitioner filed in the CA a petition for review In cases not falling under any of the grounds
under Rule 43 or, in the alternative, a petition for to vacate an award, the Court has already made
certiorari under Rule 65, with application for TRO several pronouncements that a petition for review
and writ of preliminary injunction. Respondent, on under Rule 43 or a petition for certiorari under Rule
the other hand, filed a petition for confirmation of 65 may be availed of in the CA. Which one would
arbitral award before RTC of QC. depend on the grounds relied upon by petitioner.

Petitioner filed a supplemental petition in the CA


seeking to enjoin the RTC of QC from further In Luzon Development Bank v. Association
proceeding with the hearing of respondent's petition of Luzon Development Bank Employees, the Court
for confirmation of arbitral award. After the petition held that a voluntary arbitrator is properly classified
was admitted by the appellate court, the RTC of QC as a “quasi-judicial instrumentality” and is, thus,
issued an order holding in abeyance any further within the ambit of Section 9 (3) of the Judiciary
action on respondent's petition as the assailed Reorganization Act, as amended. As such,
decision of the arbitrator had already become the decisions handed down by voluntary arbitrators fall
subject of an appeal in the CA. Respondent filed a within the exclusive appellate jurisdiction of the CA.
MR but no resolution has been issued by the lower This decision was taken into consideration in
court to date. The CA dismissed the petition for lack approving Section 1 of Rule 43 of the Rules of Court.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 71
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This rule was cited in Sevilla Trading The remedy petitioner availed of, entitled alternative
Company v. Semana, Manila Midtown Hotel v. petition for review under Rule 43 or petition for
Borromeo, and Nippon Paint Employees Union- certiorari under Rule 65, was wrong.
Olalia v. Court of Appeals. These cases held that the
proper remedy from the adverse decision of a Time and again, we have ruled that the
voluntary arbitrator, if errors of fact and/or law are remedies of appeal and certiorari are mutually
raised, is a petition for review under Rule 43 of the exclusive and not alternative or successive. Proper
Rules of Court. Thus, petitioner's contention that it issues that may be raised in a petition for review
may avail of a petition for review under Rule 43 under Rule 43 pertain to errors of fact, law or mixed
under the circumstances of this case is correct. questions of fact and law. While a petition for
certiorari under Rule 65 should only limit itself to
As to petitioner's arguments that a petition errors of jurisdiction, that is, grave abuse of
for certiorari under Rule 65 may also be resorted to, discretion amounting to a lack or excess of
we hold the same to be in accordance with the jurisdiction. Moreover, it cannot be availed of where
Constitution and jurisprudence. It is well within the appeal is the proper remedy or as a substitute for a
power and jurisdiction of the Court to inquire whether lapsed appeal.
any instrumentality of the Government, such as a
voluntary arbitrator, has gravely abused its discretion A careful reading of the assigned errors
in the exercise of its functions and prerogatives. Any reveals that the real issues calling for the CA's
agreement stipulating that “the decision of the resolution were less the alleged grave abuse of
arbitrator shall be final and unappealable” and “that discretion exercised by the arbitrator and more about
no further judicial recourse if either party disagrees the arbitrator’s appreciation of the issues and
with the whole or any part of the arbitrator's award evidence presented by the parties. Therefore, the
may be availed of” cannot be held to preclude in issues clearly fall under the classification of errors of
proper cases the power of judicial review which is fact and law” questions which may be passed upon
inherent in courts. We will not hesitate to review a by the CA via a petition for review under Rule 43.
voluntary arbitrator's award where there is a showing Petitioner cleverly crafted its assignment of errors in
of grave abuse of authority or discretion and such is such a way as to straddle both judicial remedies,
properly raised in a petition for certiorari and there is that is, by alleging serious errors of fact and law (in
no appeal, nor any plain, speedy remedy in the which case a petition for review under Rule 43 would
course of law. be proper) and grave abuse of discretion (because
of which a petition for certiorari under Rule 65 would
Significantly, Insular Savings Bank v. be permissible).
FEBTC definitively outlined several judicial remedies
an aggrieved party to an arbitral award may It must be emphasized that every lawyer
undertake: should be familiar with the distinctions between the
two remedies for it is not the duty of the courts to
(1) a petition in the proper RTC to issue an order to determine under which rule the petition should fall.
vacate the award on the grounds provided for in Petitioner's ploy was fatal to its cause. An appeal
Section 24 of RA 876; taken either to this Court or the CA by the wrong or
inappropriate mode shall be dismissed. Thus, the
(2) a petition for review in the CA under Rule 43 of alternative petition filed in the CA, being an
the Rules of Court on questions of fact, of law, or inappropriate mode of appeal, should have been
mixed questions of fact and law; and dismissed outright by the CA.

(3) a petition for certiorari under Rule 65 of the Rules


of Court should the arbitrator have acted without
or in excess of his jurisdiction or with grave Hi Precision Steel vs Lim Kim Steel
abuse of discretion amounting to lack or excess Date: December 13, 1993
of jurisdiction. Petitioner: Hi Precision Steel Center Inc
Respondents: Lim Kim Steel Builders and CIAC
Nevertheless, although petitioner’s position
on the judicial remedies available to it was correct, Facts: Petitioner entered into a contract with private
we sustain the dismissal of its petition by the CA. respondent under which the latter as Contractor was
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 72
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to complete a P21 M construction project owned by Arbitral Tribunal committed grave abuse of discretion
the former within a period of 153 days, i.e. from 8 when it allowed certain claims by Steel Builders and
May 1990 to 8 October 1990. The project completion offset them against claims of Hi-Precision.
date was first moved to 4 November 1990. On that
date, however, only 75.8674% of the project was Issue: WON the CIAC should be impleaded
actually completed. Petitioner attributed this non-
completion to Steel Builders which allegedly had Held: No
frequently incurred delays during the original
contract period and the extension period. Steel Ratio: We note that the Arbitral Tribunal has not
Builders insisted that the delays in the project were been impleaded as a respondent in the Petition at
either excusable or due to Hi-Precision's own fault bar. The CIAC has indeed been impleaded;
and issuance of change orders. The project was however, the Arbitral Award was not rendered by the
taken over on 7 November 1990, and eventually CIAC, but rather by the Arbitral Tribunal. Moreover,
completed on February 1991, by Hi-Precision. under Section 20 of EO 1008, it is the Arbitral
Tribunal, or the single Arbitrator, with the
Steel Builders filed a "Request for concurrence of the CIAC, which issues the writ of
Adjudication" with CIAC. In its Complaint filed with execution requiring any sheriff or other proper officer
the CIAC, Steel Builders sought payment of its to execute the award. The Arbitral Tribunal which
unpaid progress buildings, alleged unearned profits rendered the Award sought to be reviewed and set
and other receivables. Hi-Precision, upon the other aside, should be impleaded even though the
hand, in its Answer and Amended Answer, claimed defense of its Award would presumably have to be
actual and liquidated damages, reimbursement of carried by the prevailing party.
alleged additional costs it had incurred in order to
complete the project and attorney's fees. Petitioner Hi-Precision apparently seeks
review of both under Rule 45 and Rule 65 of the
The CIAC formed an Arbitral Tribunal with Rules of Court. We do not find it necessary to rule
three (3) members. After the arbitration proceeding, which of the two: a petition for review under Rule 45
the Arbitral Tribunal rendered a unanimous ordering or a petition for certiorari under Rule 65 — is
petitioner to pay the Contractor the amount of necessary under Executive Order No. 1008, as
P6,400,717.83 and all other claims of the parties amended; this issue was, in any case, not squarely
against each other are deemed compensated and raised by either party and has not been properly and
offset. Upon MR, the Arbitral Tribunal issued an adequately litigated.
Order which reduced the net amount due to
contractor Steel Builders to P6,115,285.83. In its Issue: WON petitioner is entitled to relief
Award, the Arbitral Tribunal stated that it was guided
by Articles 1169, 1192 and 2215 CC. With such Held: No
guidance, the arbitrators concluded that (a) both
parties were at fault, though the Tribunal could not Ratio: Hi-Precision may be seen to be making two
point out which of the parties was the first infractor; (2) basic arguments:
and (b) the breaches by one party affected the
discharge of the reciprocal obligations of the other (a) Petitioner asks this Court to correct legal errors
party. With mutual fault as a principal premise, the committed by the Arbitral Tribunal, which at the
Arbitral Tribunal denied (a) petitioner's claims for the same time constitute grave abuse of discretion
additional costs allegedly incurred to complete the amounting to lack of jurisdiction on the part of the
project; and (b) private respondent's claim for profit it Arbitral Tribunal; and
had failed to earn because of petitioner's take over
of the project. (b) Should the supposed errors petitioner asks us to
correct be characterized as errors of fact, such
Petitioner now asks this Court to set aside factual errors should nonetheless be reviewed
the Award, contending basically that it was Steel because there was "grave abuse of discretion" in the
Builders who had defaulted on its contractual misapprehension of facts on the part of the Arbitral
undertakings and so could not be the injured party Tribunal.
and should not be allowed to recover any losses it
may have incurred in the project. Petitioner insists it
is still entitled to damages, and claims that the
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 73
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EO 1008, as amended, provides, in its presented and argued before the Arbitral Tribunal,
Section 19, as follows: Sec. 19. Finality of Awards. save only where a very clear showing is made that,
— The arbitral award shall be binding upon the in reaching its factual conclusions, the Arbitral
parties. It shall be final and inappealable except on Tribunal committed an error so egregious and
questions of law which shall be appealable to the hurtful to one party as to constitute a grave abuse
Supreme Court. of discretion resulting in lack or loss of jurisdiction.
Prototypical examples would be factual conclusions
Section 19 makes it crystal clear that of the Tribunal which resulted in deprivation of one
questions of fact cannot be raised in proceedings or the other party of a fair opportunity to present its
before the Supreme Court — which is not a trier of position before the Arbitral Tribunal, and an award
facts — in respect of an arbitral award rendered obtained through fraud or the corruption of
under the aegis of the CIAC. Consideration of the arbitrators. Any other, more relaxed, rule would
animating purpose of voluntary arbitration in general, result in setting at naught the basic objective of a
and arbitration under the aegis of the CIAC in voluntary arbitration and would reduce arbitration to
particular, requires us to apply rigorously the above a largely inutile institution.
principle embodied in Section 19 that the Arbitral
Tribunal's findings of fact shall be final and Examination of the Petition at bar reveals
inappealable. that it is essentially an attempt to re-assert and re-
litigate before this Court the detailed or itemized
Voluntary arbitration involves the reference factual claims made before the Arbitral Tribunal
of a dispute to an impartial body, the members of under a general averment that the Arbitral Tribunal
which are chosen by the parties themselves, which had "misapprehended the facts" submitted to it. In
parties freely consent in advance to abide by the the present Petition, too, Hi-Precision claims that the
arbitral award issued after proceedings where both Arbitral Tribunal had committed grave abuse of
parties had the opportunity to be heard. The basic discretion amounting to lack of jurisdiction in
objective is to provide a speedy and inexpensive reaching its factual and legal conclusions.
method of settling disputes by allowing the parties to
avoid the formalities, delay, expense and The first "legal issue" submitted by the
aggravation which commonly accompany ordinary Petition is the claimed misapplication by the Arbitral
litigation, especially litigation which goes through the Tribunal of the first and second paragraphs of Article
entire hierarchy of courts. EO1008 created an 1911 CC. Hi-Precision contends energetically that it
arbitration facility to which the construction industry is the injured party and that Steel Builders was the
in the Philippines can have recourse. The EO was obligor who did not comply with what was incumbent
enacted to encourage the early and expeditious upon it, such that Steel Builders was the party in
settlement of disputes in the construction industry, a default and the entity guilty of negligence and delay.
public policy the implementation of which is As the injured party, Hi-Precision maintains that it
necessary and important for the realization of may choose between the fulfillment or rescission of
national development goals. the obligation in accordance with Article 1191, and is
entitled to damages in either case. Thus, Hi-
Aware of the objective of voluntary Precision continues, when the contractor Steel
arbitration in the labor field, in the construction Builders defaulted on the 153rd day of the original
industry, and in any other area for that matter, the contract period, Hi-Precision opted for specific
Court will not assist one or the other or even both performance and gave Steel Builders a 30-day
parties in any effort to subvert or defeat that extension period with which to complete the project.
objective for their private purposes. The Court will
not review the factual findings of an arbitral tribunal What petitioner Hi-Precision, in its above
upon the artful allegation that such body had argument, disregards is that the determination of
"misapprehended the facts" and will not pass upon whether Hi-Precision or Steel Builders was the
issues which are, at bottom, issues of fact, no matter "injured party" is not to be resolved by an application
how cleverly disguised they might be as "legal of Article 1191. That determination is eminently a
questions." The parties here had recourse to question of fact, for it requires ascertainment and
arbitration and chose the arbitrators themselves; identification of which the two (2) contending parties
they must have had confidence in such arbitrators. had first failed to comply with what is incumbent
The Court will not, therefore, permit the parties to upon it. In other words, the supposed misapplication
relitigate before it the issues of facts previously of Article 1191, while ostensibly a "legal issue," is
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 74
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Special thanks to Krizelle Poblacion for her great digests!

ultimately a question of fact, i.e., the determination of Tribunal did not uphold the "law between the
the existence or non-existence of a fact or set of parties," but instead substituted the same with "its
facts in respect of which Article 1191 may be [own] absurd inference and 'opinion' on mud." Here
properly applied. Thus, to ask this Court to correct a again, petitioner is merely disguising a factual
claimed misapplication or non-application of Article question as a "legal issue," since petitioner is in
1191 is to compel this Court to determine which of reality asking this Court to review the physical
the two (2) contending parties was the "injured party" operations relating, e.g., to site preparation carried
or the "first infractor." As noted earlier, the Arbitral out by the contractor Steel Builders and to determine
Tribunal after the prolonged arbitration proceeding, whether such operations were in accordance with
was unable to make that factual determination and the Technical Specifications of the project. The
instead concluded that both parties had committed Arbitral Tribunal resolved Hi-Precision's claim by
breaches of their respective obligations. We will not finding that Steel Builders had complied substantially
review, and much less reverse, that basic factual with the Technical Specifications. This Court will not
finding of the Arbitral Tribunal. pretend that it has the technical and engineering
capability to review the resolution of that factual
A second "legal issue" sought to be raised issue by the Arbitral Tribunal.
by petitioner Hi-Precision relates to the supposed
failure of the Arbitral Tribunal to apply the doctrines Finally, the Petition asks this Court to
of estoppel and waiver as against Steel Builders. "review serious errors in the findings of fact of the
The Arbitral Tribunal, after declaring that the parties [Arbitral Tribunal]." In this section of its Petition, Hi-
were mutually at fault, proceeded to enumerate the Precision asks us to examine each item of its own
faults of each of the parties. One of the faults claims which the Arbitral Tribunal had rejected in its
attributed to petitioner Hi-Precision is that it had Award, and each claim of the contractor Steel
failed to give the contractor Steel Builders the Builders which the Tribunal had granted. In respect
required 15-day notice for termination of the of each item of the owner's claims and each item of
contract. This was clearly a finding of fact on the part the contractor's claims, Hi-Precision sets out its
of the Tribunal, supported by the circumstance that arguments, to all appearances the same arguments
per the record, petitioner had offered no proof that it it had raised before the Tribunal. As summarized in
had complied with such 15-day notice required the Arbitral Award, Contractor's Claims were as
under Article 28.01 of the General Conditions of follows:
Contract forming part of the Contract Documents.
Petitioner Hi-Precision's argument is that a written We consider that in asking this Court to go
Agreement dated 16 November 1990 with Steel over each individual claim submitted by it and each
Builders concerning the take over of the project by individual countering claim submitted by Steel
Hi-Precision, constituted waiver on the part of the Builders to the Arbitral Tribunal, petitioner Hi-
latter of its right to a 15-day notice of contract Precision is asking this Court to pass upon claims
termination. Whether or not that Agreement dated 16 which are either clearly and directly factual in nature
November 1990 (a document not submitted to this or require previous determination of factual issues.
Court) is properly characterized as constituting This upon the one hand. Upon the other hand, the
waiver on the part of Steel Builders, may be Court considers that petitioner Hi-Precision has
conceded to be prima facie a question of law; but, if failed to show any serious errors of law amounting to
it is, and assuming arguendo that the Arbitral grave abuse of discretion resulting in lack of
Tribunal had erred in resolving it, that error clearly jurisdiction on the part of the Arbitral Tribunal, in
did not constitute a grave abuse of discretion either the methods employed or the results reached
resulting in lack or loss of jurisdiction on the part of by the Arbitral Tribunal, in disposing of the detailed
the Tribunal. claims of the respective parties.

A third "legal issue" posed by Hi-Precision CHINA CHIANG


relates to the supposed failure on the part of the
Arbitral Tribunal "to uphold the supremacy of 'the law
Was there an arbitration clause in China
between the parties' and enforce it against private
respondent [Steel Builders]." The "law between that Chiang?
parties" here involved is the "Technical
Specifications" forming part of the Contract CIAC jurisdiction vs. ICC jurisdiction?
Documents. Hi-Precision asserts that the Arbitral Sir doesn’t know exactly what the answer is.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 75
Salma F. Angkaya | AY 2010-2011, 1st semester
Special thanks to Krizelle Poblacion for her great digests!

How is the UNCITRAL different from ICC


Rules?
Uncitral – no petition for review; adhoc; but
there’s nothing to prevent party to adopt
institutional; final and binding (32.2)
ICC – with petition for review; insituttional; final
and binding (28.6), but ICC is more strongly
worded.
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 76
Salma F. Angkaya | AY 2010-2011, 1st semester
Special thanks to Krizelle Poblacion for her great digests!

REPUBLIC OF THE PHILIPPINES


REGIONAL TRIAL COURT
NATIONAL CAPITAL JUDICIAL REGION
QUEZON CITY, BRANCH _____

MANUFACTURING CORPORATION
Petitioner,
Sp .Proc. No. _____________
- versus - For: Enforcement of Arbitration
Agreement
SUPPLIER CORPORATION
Respondents.
x----------------------------------------------x

PETITION FOR ENFORCEMENT


OF ABITRATION AGREEMENT

Petitioner MANUFACTURING CORPORATION, by counsel, respectfully states that:

I. PARTIES

1. Petitioner MANUFACTURING CORPORATION is a domestic corporation with business address at 123 High Rise, Gil
Puyat Street, Makati City, where it may be served with pleadings, motions and other processes.

2. Respondent SUPPLIER CORPORATION is a domestic corporation with business address at 456 Low Rise, Makati
Avenue, Makati City, where it may be served with pleadings, motions and other processes.

II. FACTS

3. On November 20, 2010, P & R entered into a contract for the construction of a building.

4. Contained in the construction contract (Attached as Annex “A”) is an arbitration clause in the following tenor:

“32. ARBITRATION

32.1 If at any time a dispute or claim arises out of or in connection with the Agreement the parties shall endeavor to settle
such amicably, failing which it shall be referred to arbitration by a single arbitrator in London, such arbitrator to be appointed by
agreement between the Lines within 14 days after service by one Line upon the other of a notice specifying the nature of the
dispute or claim and requiring reference of such dispute or claim to arbitration pursuant to this Article.”

5. On February 20, 2010, a dispute arose regarding the construction contract.

6. P sent R a Demand for Arbitration (Attached Annex “B”) but R failed to respond within fifteen (15) days after receipt
thereof.

7. On May 15, 2010, P filed with the Clerk of the Court of the RTC, a copy of the demand for arbitration under the xxx

PRAYER

WHEREFORE, in view of the foregoing, petitioner respectfully prays that this Honorable Court issue an order directing that the
arbitration agreement be enforced in the manner provided for in the arbitration of clause of the container contract.

Petitioner also prays for such other reliefs as may be deemed just or equitable under the premises.

Respectfully submitted.

Quezon City; 29 July 2010.

ATTY. ANNA MARIE F. ROXAS


IBP Lifetime Member No. 12345; Pasig City
PTR No. 67890; 08/01/10; Pasig City
SC Roll No. 55555
Law 160A – Alternative Dispute Resolution (Prof. A. Autea) 77
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MCLE No. III – 22222

VERIFICATION16
AND CERTIFICATION OF NON-FORUM SHOPPING

I, JUAN DE LA CRUZ, of legal age, single, Filipino, with residence and postal address at 31 Lacson St., Quezon City, after being
duly sworn on oath in accordance with law, hereby voluntarily depose and say:

1. That I am the Petitioner in the above-entitled case;

2. That I have caused the preparation of the foregoing Petition;

3. That I have read the contents thereof and the same are true and correct to the best of my knowledge and based on authentic
records in my possession;

4. That I certify to the authenticity of the documents attached to the Petition;

5. That I hereby certify that I have not commenced any action or proceeding involving the same issues in the Supreme Court, the
Court of Appeals, or any tribunal or agency;

6. That if I should hereafter learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the
Court of Appeals, or any tribunal or agency, I undertake to immediately report the same within five (5) days therefrom to the court or agency
wherein the original pleading and sworn certification contemplated in Administrative Circular No. 04-94 of the Supreme Court has been filed.

JUAN DE LA CRUZ
Affiant

- JURAT -

- SECRETARY’S CERTIFICATE -

ATTESTED:

xxxxxx
President
PLUS: Jurat

- EXPLANATION -

- REQUEST FOR AND NOTICE OF HEARING -

Copy Furnished:

xxxxx

16
When made by a lawyer, verification shall mean a statement under oath by a lawyer signing a pleading/motion for delivery to the Court or to
the parties that he personally prepared the pleading/motion, that there is sufficient factual basis for the statements of fact stated therein, that
there is sufficient basis in the facts and the law to support the prayer for relief therein, and that the pleading/motion is filed in good faith and is
not interposed for delay.