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Del Monte Corporation - USA, Paul Derby Jr.

, Daniel Collins & Luis Hidalgo

Court of Appeals ,Malabon RTC Branch 74 Judge Bienvenido Reyes, Montebueno Marketing,
Inc., Liong Liong C. Sy and Sabrosa Foods, Inc.
GR No. 136154 ,February 7, 2001
Del Monte Corporation-USA appointed Montebueno Marketing, Inc. as the sole and
exclusive distributor of its Del Monte products in the Philippines for a period of five years,
renewable for two consecutive five year periods with the consent of the parties.
Said agreement provided for an arbitration clause, which states: This Agreement shall be
governed by the laws of the State of California and/or, if applicable, the United States of
America.All disputes arising out of or relating to this Agreement or the parties relationship,
including the termination thereof, shall be resolved by arbitration in the City of San Francisco,
State of California, under the Rules of the American Arbitration Association.The arbitration
panel shall consist of three members, one of whom shall be selected by 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 relevant experience in the industry .
The appointment of MMI as the sole and exclusive distributor of Del Monte products in
the Philippines was published in several newspapers in the country.Immediately after its
appointment, MMI appointed Sabrosa Foods, Inc. (SFI), with the approval of DMC-USA, as
MMIs marketing arm to concentrate on its marketing and selling function as well as to
manage its critical relationship with the trade.
MMI, SFI and MMIs Managing Director Liong Liong C. Sy filed a Complaint against
DMC-USA, Managing Director of Del Monte Corporations Export Sales Department Paul E.
Derby, Jr., Regional Director of Del Monte Corporations Export Sales Department Daniel
Collins, Head of Credit Services Department of Del Monte Corporation Luis Hidalgo and
Dewey Ltd. before Malabon RTC. MMI et al. predicated their complaint on the alleged
violations by Del Monte et al. of Articles 21, 22 and 23 of the Civil Code.
According to them, DMC-USA products continued to be brought into the country by
parallel importers despite the appointment of MMI as the sole and exclusive distributor of Del
Monte products thereby causing them great embarrassment and substantial damage.They
alleged that the products brought into the country by these importers were aged, damaged,
fake or counterfeit, so that in March 1995 they had to cause, after prior consultation with

Antonio Ongpin, Market Director for Special Markets of Del Monte Philippines, Inc., the
publication of a "warning to the trade" paid advertisement in leading newspapers. DMC-USA
and Paul E. Derby, Jr., apparently upset with the publication, instructed private respondent
MMI to stop coordinating with Antonio Ongpin and to communicate directly instead with DMCUSA through Paul E. Derby, Jr.
MMI et al. further averred that:DMC-USA et al. knowingly and surreptitiously continued
to deal with the former in bad faith by involving disinterested third parties and by proposing
solutions which were entirely out of their controlthey had exhausted all possible avenues for
an amicable resolution and settlement of their grievances as a result of the fraud, bad faith,
malice and wanton attitude of DMC-USA et al., they should be held responsible for all the
actual expenses incurred by MMI et al. in the delayed shipment of orders which resulted in
the extra handling thereof, the actual expenses and cost of money for the unused Letters of
Credit and the substantial opportunity losses due to created out-of-stock situations and
unauthorized shipments of Del Monte-USA products to the Philippine Duty Free Area and
Economic Zone the bad faith, fraudulent acts and willful negligence of DMC-USA et al.,
motivated by their determination to squeeze MMI et al. out of the outstanding and on-going
Distributorship Agreement in favor of another party, had placed Lily Sy on tenterhooks since
then the shrewd and subtle manner with which DMC-USA et al. concocted imaginary
violations by MMI of the Distributorship Agreement in order to justify the untimely termination
thereof was a subterfuge
DMC-USA et al. filed a Motion to Suspend Proceedings, invoking the arbitration clause.
The Regional Trial Court deferred consideration of DMC-USA et al.s Motion to Suspend
Proceedings as the grounds alleged therein did not constitute the suspension of the
proceedings considering that the action was for damages with prayer for the issuance of Writ
of Preliminary Attachment and not on the Distributorship Agreement DMC-USA et al. filed a
Motion for Reconsideration to which MMI et al. filed their comment/opposition.DMC-USA et
al. filed a reply. They later on filed a Motion to Admit Supplemental Pleading.Said motion was
As a result of the admission of the Supplemental Complaint, DMC-USA et al. filed on
22 July 1997 a Manifestation adopting their Motion to Suspend Proceedings and Motion for
Reconsideration. The Motion to Suspend Proceedings was denied by the trial court on the
ground that it will not serve the ends of justice and to allow said suspension will only delay the
determination of the issues, frustrate the quest of the parties for a judicious determination of

their respective claims, and/or deprive and delay their rights to seek redress.On appeal, the
CA affirmed the RTC decision.
ISSUE:WON the dispute between the parties warrants an order compelling them to submit to
There is no doubt that arbitration is valid and constitutional in our jurisdiction. Even
before the enactment of Republic Act 876, this Court has countenanced the settlement of
disputes through arbitration. Unless the agreement is such as absolutely to close the doors of
the courts against the parties, which agreement would be void, the courts will look with favor
upon such amicable arrangement and will only interfere with great reluctance to anticipate or
nullify the action of the arbitrator. Moreover, as RA 876 expressly authorizes arbitration of
domestic disputes, foreign arbitration as a system of settling commercial disputes was
likewise recognized when the Philippines adhered to the United Nations"Convention on the
Recognition and the Enforcement of Foreign Arbitral Awards of 1958"under the 10 May 1965
Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and allowing
enforcement of international arbitration agreements between parties of different nationalities
within a contracting state.
A careful examination of the instant case shows that the arbitration clause in the
Distributorship Agreement between DMC-USA and MMI is valid and the dispute between the
parties is arbitrable.However, this Court must deny the petition.The Agreement between
DMC-USA and MMI is a contract.The provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of that contract and is itself a contract.As a
rule, contracts are respected as the law between the contracting parties and produce effect as
between them, their assigns and heirs.Clearly, only parties to the Agreement,i.e., DMC-USA
and its Managing Director for Export Sales Paul E. Derby, Jr., and MMI and its Managing
Director LILY SY are bound by the Agreement and its arbitration clause as they are the only
signatories thereto.
Daniel Collins and Luis Hidalgo, and SFI, not parties to the Agreement and cannot
even be considered assigns or heirs of the parties, are not bound by the Agreement and the
arbitration clause therein.Consequently, referral to arbitration in the State of California
pursuant to the arbitration clause and the suspension of the proceedings in Civil Case No.

2637-MN pending the return of the arbitral award could be called for but only as to DMC-USA
and Paul E. Derby, Jr., and MMI and LILY SY, and not as to the other parties in this case, in
accordance with the recent case of Heirs of Augusto L. Salas, Jr. v. Laperal Realty
Corporation,which superseded that of Toyota Motor Philippines Corp. v. Court of Appeals.
In Toyota the Court ruled that the contention that the arbitration clause has become
dysfunctional because of the presence of third parties is untenable ratiocinating that contracts
are respected as the law between the contracting parties and that as such, the parties are
thereby expected to abide with good faith in their contractual commitments.
However, in Salas, Jr., only parties to the Agreement, their assigns or heirs have the
right to arbitrate or could be compelled to arbitrate.The Court went further by declaring that in
recognizing the right of the contracting parties to arbitrate or to compel arbitration, the splitting
of the proceedings to arbitration as to some of the parties on one hand and trial for the others
on the other hand,or the suspension of trial pending arbitration between some of the parties,
should not be allowed as it would, in effect, result in multiplicity of suits, duplicitous procedure
and unnecessary delay.The object of arbitration is to allow the expeditious determination of a
dispute. Clearly, the issue before us could not be speedily and efficiently resolved in its
entirety if we allow simultaneous arbitration proceedings and trial, or suspension of trial
pending arbitration.Accordingly, the interest of justice would only be served if the trial court
hears and adjudicates the case in a single and complete proceeding.

Philrock, Inc.
Construction Industry Arbitration Commission (CIAC) and Spouses Vicente and Nelia Cid
G.R. 132848-49, June 26, 2001
The spouses Vicente and Nelia Cid purchased ready mix concrete from Philrock Inc.
The concrete delivered turned out to be of substandard quality. As a result, the spouses
sustained damages when the structures they built using such ready mix concrete developed
cracks and honeycombs.
Initially, the spouses filed suit for damages against Philrock and seven of its officers
and engineers with the Regional Trial Court. The Regional Trial Court dismissed the case and
referred the case to the CIAC because the Cid spouses and Philrock Inc., had executed an
Agreement to Arbitrate with the CIAC.
At the CIAC, however, Philrock questioned the jurisdiction of CIAC over the 7 Philrock
officers and engineers arguing they were not signatories to the agreement to arbitrate. The
CIAC referred back the case to the RTC which, however, refused to reassume jurisdiction.
The spouses Cid opted to exclude the seven officers and engineers to pave the way for the
resumption of jurisdiction by the CIAC. The CIAC subsequently rendered judgment in favor of
the Spouses Cid directing the respondent Philrock to reimburse/refund the payments made
and awarded the Spouses Cid P50,000 as moral damages, P50,000 as nominal damages,
P50,000 as attorneys fees. Philrock elevated the CIAC decision to the Court of Appeals
contesting the jurisdiction of the CIAC and assailing the propriety of the monetary awards in
favor of the Spouses Cid. The Court of Appeals sustained the CIAC decision. Respondent
filed a petition for review with the Supreme Court.
ISSUE: WON the CIAC has primary jurisdiction over the case.
The Supreme Court ruled that Section 4 of Executive Order 1008 expressly vests in
the CIAC original and exclusive jurisdiction over disputes arising from or connected with
construction contracts entered into by parties that have agreed to submit their dispute to
voluntary arbitrary. It ruled that after submitting itself to arbitration proceedings and actively
participating therein, petitioner is estopped from assailing the jurisdiction of the CIAC.

The Supreme Court sustained the award of actual damages. However, since actual
damages were proven and the Cids were amply compensated, the Supreme Court withdrew
the award for nominal damages. It also sustained the award of attorneys fees even if the
spouses represented themselves before the CIAC because they purportedly incurred litigation
expenses in pursuing their action before the CIAC, the Court of Appeals and also at the
Supreme Court.

AGAN, JR.et al.,

G.R. Nos. 155001, 155547 & 155661, 05 May 2003
Petitioners and petitioners-in-intervention filed the instant petitions for prohibition under
Rule 65 of the Revised Rules of Court seeking to prohibit the Manila International Airport
Authority (MIAA) and the Department of Transportation and Communications (DOTC) and its
Secretary from implementing the following agreements executed by the Philippine
Government through the DOTC and the MIAA and the Philippine International Air Terminals
Co., Inc. (PIATCO):
(1) the Concession Agreement signed on July 12, 1997.
(2) the Amended and Restated Concession Agreement dated November 26, 1999.
(3) the First Supplement to the Amended and Restated Concession Agreement dated
August 27, 1999.
(4) the Second Supplement to the Amended and Restated Concession Agreement dated
September 4, 2000.
(5) the Third Supplement to the Amended and Restated Concession Agreement dated
June 22, 2001 (collectively, the PIATCO Contracts)
In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct
a comprehensive study of the Ninoy Aquino International Airport (NAIA) and determine
whether the present airport can cope with the traffic development up to the year 2010.The
study consisted of two parts:first, traffic forecasts, capacity of existing facilities, NAIA future
requirements, proposed master plans and development plans; and second, presentation of
the preliminary design of the passenger terminal building. The ADP submitted a Draft Final
Report to the DOTC in December 1989. Some time in 1993, six business leaders consisting of
John Gokongwei, Andrew Gotianun, Henry Sy, Sr., Lucio Tan, George Ty and Alfonso
Yuchengco met with then President Fidel V. Ramos to explore the possibility of investing in
the construction and operation of a new international airport terminal.To signify their
commitment to pursue the project, they formed the Asias Emerging Dragon Corp. (AEDC)
which was registered with the Securities and Exchange Commission (SEC) on September 15,

On October 5, 1994, AEDC submitted an unsolicited proposal to the Government through

the DOTC/MIAA for the development of NAIA International Passenger Terminal III (NAIA IPT
III) under a build-operate-and-transfer arrangement pursuant to RA 6957 as amended by RA
7718 (BOT Law).
On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the Pre
-qualification Bids and Awards Committee (PBAC) for the implementation of the NAIA IPT III
project. On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of
AEDC to the National Economic and Development Authority (NEDA). A revised proposal,
however, was forwarded by the DOTC to NEDA on December 13, 1995.On January 5, 1996,
the NEDA Investment Coordinating Council (NEDA ICC) Technical Board favorably endorsed
the project to the ICC Cabinet Committee which approved the same, subject to certain
conditions, on January 19, 1996.On February 13, 1996, the NEDA passed Board Resolution
No. 2 which approved the NAIA IPT III project. On June 7, 14, and 21, 1996, DOTC/MIAA
caused the publication in two daily newspapers of an invitation for competitive or comparative
proposals on AEDCs unsolicited proposal, in accordance with Sec. 4-A of RA 6957, as
amended.The alternative bidders were required to submit three (3) sealed envelopes on or
before 5:00 p.m. of September 20, 1996.The first envelope should contain the Prequalification
Documents, the second envelope the Technical Proposal, and the third envelope the
Financial Proposal of the proponent.

On June 20, 1996, PBAC Bulletin No. 1 was issued,

postponing the availment of the Bid Documents and the submission of the comparative bid
proposals. Interested firms were permitted to obtain the Request for Proposal Documents
beginning June 28, 1996, upon submission of a written application and payment of a nonrefundable fee of P50,000.00 (US$2,000).
The Bid Documents issued by the PBAC provided among others that the proponent must
have adequate capability to sustain the financing requirement for the detailed engineering,
design, construction, operation, and maintenance phases of the project.The proponent would
be evaluated based on its ability to provide a minimum amount of equity to the project, and its
capacity to secure external financing for the project. On July 23, 1996, the PBAC issued
PBAC Bulletin No. 2 inviting all bidders to a pre-bid conference on July 29, 1996. On August
16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid Documents.

On October 5, 1994, Asias Emerging Dragon Corp. (AEDC) submitted an unsolicited

proposal to the Government through the DOTC/MIAA for the development of NAIA
International Passenger Terminal III (NAIA IPT III) under a build-operate-and-transfer
arrangement pursuant to RA 6957 as amended by RA 7718 (BOT Law). Acting on the
proposal, the DOTC constituted the Pre-qualification Bids and Awards Committee (PBAC) for
the project and submitted with its endorsement the proposal to the National Economic
Development Authority (NEDA), which approved the project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily
newspapers of an invitation for competitive or comparative proposals on AEDCs unsolicited
proposal, inaccordance with Sec. 4-A of RA 6957, as amended.
On September 20, 1996, the consortium composed of Peoples Air Cargo and
Warehousing Co., Inc., Phil. Air and Grounds Services, Inc. and Security Bank Corp.
submitted their competitive proposal to the PBAC. On the following day, September 24, 1996,
the PBAC pre-qualified the Paircargo Consortium. Two days later, AEDC informed the PBAC
in writing of its reservations as regards the Paircargo Consortium, which includes, inter alia:
the lack of financial capability of PAIRCARGO and the prohibition imposed by RA 337, the
General Banking Act, on the amount that Security Bank could
legally invest in the project.
On October 16, 1996, the PBAC opened the envelope submitted by AEDC and the
Paircargo Consortium containing their respective financial proposals. Both proponents offered
to build the NAIA Passenger Terminal III for at least $350 million at no cost to the government.
In addition, AEDC offered to pay the government a total of P135 million as guaranteed
payment for 27 years while Paircargo Consortium offered to pay the government a total of
P17.75 billion for the same period. Thus, the PBAC formally informed AEDC that it had
accepted the price proposal submitted by the Paircargo Consortium, and gave AEDC 30
working days within which to match the said bid, otherwise, the project would be awarded to
Paircargo. As AEDC failed to match the proposal, then DOTC Secretary Lagdameo, issued a
notice to Paircargo Consortium regarding AEDCs failure to match the proposal.

On February 27, 1997, Paircargo Consortium incorporated into Philippine International

Airport Terminals Co., Inc. (PIATCO).AEDC subsequently protested the alleged undue
preference given to PIATCO and reiterated its objections as regards the pre-qualification of
PIATCO. AEDC then filed with the Regional Trial Court of Pasig a Petition for Declaration of
Nullity of the Proceedings, Mandamus and Injunction against the Secretary of the DOTC, the
Chairman of the PBAC, the voting members of the PBAC and Pantaleon D. Alvarez, in his
capacity as Chairman of the PBAC Technical Committee.
On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.On
July 12, 1997, the Government, through then DOTC Secretary Enrile, and PIATCO,through its
President, Henry T. Go, signed the Concession Agreement for the Build-Operate-and-Transfer
Arrangement of the Ninoy Aquino International Airport Passenger Terminal III. On November
26, 1998, the Government and PIATCO signed an Amended and Restated Concession
Agreement. Subsequently, the Government and PIATCO also signed three Supplements to
the ARCA. Hence, the petition.
ISSUE:WON the 1997 concession agreement is valid.
An essential element of a publicly bidded contract is that all bidders must be on equal
footing.Not simply in terms of application of the procedural rules and regulations imposed by
the relevant government agency, but more importantly, on the contract bidded upon. While a
winning bidder is not precluded from modifying or amending certain provisions of the contract
bidded upon, such changes must not constitute substantial or material amendments that
would alter the basic parameters of the contract and would constitute a denial to the other
bidders of the opportunity to bid on the same terms.
A close comparison of the draft Concession Agreement attached to the Bid Documents
and the 1997 Concession Agreement reveals that the documents differ in at least two material
respects: a.) Modification on the Public Utility Revenues and Non-Public Utility Revenues that
may be collected by PIATCO and b.) Assumption by the Government of the liabilities of
PIATCO in the event of the latters default thereof. The changes under the 1997 Concession
Agreement with respect to reduction in the types of fees that are subject to MIAA regulation
and the relaxation of such regulation with respect to other fees clearly gives PIATCO more
favorable terms than what was available to other bidders at the time the contract was bidded

out. Also, the assumption by the government of the liabilities of PIATCO in the event of latters
default grants PIATCO a financial advantage or benefit which was not previously made
available during the bidding process. The fact that substantial amendments were made on the
1997 Concession Agreement renders the same null and void for being contrary to public
policy. These amendments convert the 1997 Concession Agreement to an entirely different
agreement from the contract bidded out or the draft Concession Agreement.
The provisions of the 1997 Concession Agreement constitute a direct government
guarantee which is prohibited by law. The fact that the ARCA superseded the 1997
Concession Agreement did not cure this fatal defect. It is clear that the ARCA provides for a
direct guarantee by the government to pay PIATCOs loans not only to its Senior Lenders but
all other entities who provided PIATCO funds or services upon PIATCOs default in its loan
obligation with its Senior Lenders. The proscription against government guarantee in any form
is one of the policy considerations behind the BOT Law. To declare the PIATCO contracts
valid despite the clear statutory prohibition against a direct government guarantee would not
only make a mockery of what the BOT Law seeks to prevent -- which is to expose the
government to the risk of incurring a monetary obligation resulting from a contract of loan
between the project proponent and its lenders and to which the Government is not a party to
-- but would also render the BOT Law useless for what it seeks to achieve - to make use of
the resources of the private sector in the financing, operation and maintenance of
infrastructure and development projects which are necessary for national growth and
development but which the government, unfortunately, could ill-afford to
finance at this point in time.


G.R. No. 138094 May 29, 2003
On May 15, 1995, Marilou Gaunzon Apalisok, then Production Chief of Radio
Philippines Network (RPN) Station DYKC, received a Memorandum from Branches
Operations Manager Gilito Datoc asking her to submit a written explanation why no
disciplinary action should be taken against her for performance of acts hostile to RPN, and
arrogant, disrespectful and defiant behavior towards her superior Station Manager George
Suazo. Complying, petitioner submitted on May 16, 1995 her Answer to the memorandum. On
May 31, 1995, petitioner received another memorandum from the Administrative Manager of
RPN, informing her of the termination of her services effective the close of regular office hours
of June 15, 1995. By letter of June 5, 1995, petitioner informed RPN, by letter of June 5,
1995, of her decision to waive her right to resolve her case through the grievance machinery
of RPN as provided for in the Collective Bargaining Agreement (CBA) and to lodge her case
before the proper government forum. She thereafter filed a complaint against RPN DYKC and
Suazo for illegal dismissal before the National Labor Relations Commission, which referred
it to the National Conciliation and Mediation Board.
The petitioner and respondents agreed to submit for voluntary arbitration the issue of
whether petitioner's dismissal was valid and to abide by the decision of the voluntary
arbitrator. In her position paper submitted before the voluntary arbitrator, petitioner prayed
that her dismissal be declared invalid and that she be awarded separation pay, backwages
and other benefits granted to her by the Labor Code since reinstatement is no longer feasible
due to strained relations. She also prayed that she be awarded P2,000,000.00 for moral
damages and P500,000.00 for exemplary damages.Respondents on the other hand prayed
for the dismissal of the complaint, arguing that the voluntary arbitrator had no jurisdiction over
the case and, assuming that he had, the complaint is dismissible for

arbitrator had no

jurisdiction over the case and, assuming that he had, the complaint is dismissible for lack of
merit as petitioner was not illegally dismissedbitrator rendered an Award in favor of Apalisok.
Respondent's motion for reconsideration was denied by the arbitrator. Respondents appealed

to the CA, ruling in their(respondents) favor. It held that the voluntary arbitrator did not have
jurisdiction over petitioner's complaint and accordingly nullified and set aside.
ISSUE: Whether or not the Voluntary Arbitrator had jurisdiction over petitioner's complaint
Petitioner, citing Article 262 of the Labor Code of the Philippines, as amended which reads:
or panel of Voluntary Arbitrators, upon agreement of the parties, shall hear and decide all
other labor disputes including unfair labor practices and bargaining deadlocks.Her option not
to subject the dispute to the grievance machinery of RPN did not amount to her relinquishing
of her right to avail of voluntary arbitration as a mode of settling it for she and respondents in
fact agreed to have the dispute settled by a voluntary arbitrator when they freely executed the
above-said Submission Agreement. She thus concludes that the voluntary arbitrator has
jurisdiction over the controversy. Petitioner contends in any event that even assuming that the
voluntary arbitrator had no jurisdiction over the case, it would not be in keeping with settled
jurisprudence to allow a losing party to question the authority of the voluntary arbitrator after
it had freely submitted itself to its authority.
The above quoted Article 262 of the Labor Code provides that upon agreement of the
parties, the voluntary arbitrator can hear and decide all other labor disputes.Contrary to the
finding of the Court of Appeals, voluntary arbitration as a mode of settling the dispute was not
forced upon respondents. Both parties indeed agreed to submit the issue of validity of the
dismissal of petitioner to the jurisdiction of the voluntary arbitrator by the Submission
Agreement duly signed by their respective counsels.As the voluntary arbitrator had jurisdiction
over the parties' controversy. The Supreme Court set aside the the Court of Appeals Decision
REINSTATED the voluntary arbitration Award.

Spouses David and Coordinated Group, Inc.

Construction Industry Arbitration Commission and Spouses Quiambao
G.R. No. 159795, July 30, 2004
Coordinated Group, Inc. (CGI) is a corporation engaged in the construction business,
with petitioner-spouses Roberto and Evelyn David as its President and Treasurer,
Spouses Narciso and Aida Quiambao engaged the services of CGI to design and
construct a five-storey concrete office/residential building on their land in Tondo, Manila. The
Design/Build Contract of the parties provided that: (a) petitioner CGI shall prepare the working
drawings for the construction project; (b) respondents shall pay petitioner CGI the sum of
Seven Million Three Hundred Nine Thousand Eight Hundred Twenty-One and 51/100 Pesos
(P7,309,821.51) for the construction of the building, including the costs of labor, materials and
equipment, and Two Hundred Thousand Pesos (P200,000.00) for the cost of the design; and
(c) the construction of the building shall be completed within nine (9) months after securing
the building permit.
However, petitioners failed to follow the specifications and plans as previously agreed
upon. Respondents demanded the correction of the errors but petitioners failed to act on their
complaint. Consequently, respondents rescinded the contract on October 31, 1998, after
paying 74.84% of the cost of construction.
Respondents then engaged the services of another contractor, RRA and Associates, to
inspect the project and assess the actual accomplishment of petitioners in the construction of
the building. It was found that petitioners revised and deviated from the structural plan of the
building without notice to or approval by the respondents.
Respondents filed a case for breach of contract against petitioners before the Regional
Trial Court (RTC) of Manila. At the pre-trial conference, the parties agreed to submit the case
for arbitration to the Construction Industry Arbitration Commission (CIAC). Atty. Custodio O.
Parlade was appointed by the CIAC as sole arbitrator to resolve the dispute. With the

agreement of the parties, Atty. Parlade designated Engr. Loreto C. Aquino to assist him in
assessing the technical aspect of the case.
The RTC of Manila then dismissed the case and transmitted its records to the CIAC.
After conducting hearings and two (2) ocular inspections of the construction site, the arbitrator
rendered judgment against petitioners(Spouses David).Petitioners appealed to the Court of
Appeals which affirmed the arbitrators decision but deleted the award for lost rentals.
ISSUE:Whether or not CIAC has the jurisdiction over the case.
Executive Order No. 1008 entitled, Construction Industry Arbitration Law provided for
an arbitration mechanism for the speedy resolution of construction disputes other than by
court litigation. It recognized the role of the construction industry in the countrys economic
progress as it utilizes a large segment of the labor force and contributes substantially to the
gross national product of the country.Thus, E.O. No. 1008 vests on the Construction Industry
Arbitration Commission (CIAC) original and exclusive jurisdiction over disputes arising from or
connected with construction contracts entered into by parties who have agreed to submit their
case to voluntary arbitration. Section 19 of E.O. No. 1008 provides that its arbitral award shall
be appealable to the Supreme Court only on questions of law.


G.R. No. 146717. November 22, 2004
Transfield and Luzon Hydro Corp. (LHC) entered into a turn-key contract where
Transfield were to construct a hydro-electric plants in Benguet and Ilocos. The contract
provides for a period for which the project is to be completed and also allows for the extension
of the period provided that the extension is based on justifiable grounds such as fortuitous
event. In order to guarantee performance by Transfield, two stand-by letters of credit were
required to be opened. During the construction of the plant, Transfield requested for extension
of time citing fortuitous events brought about by typhoon Zeb, barricades and demonstration.
LHC did not give due course to the extension of the period prayed for but referred the matter
to arbitration committee. In the meanwhile, because of the delay in the construction of the
plant, LHC called on the stand-by letters of credit because of default. However, the demand
was objected by Transfield on the ground that there is still pending arbitration on their request
for extension of time. LHC invoked the independence principle.
On the other hand, Transfield claims fraud on the part of LHC on calling the stand-by
letters of credit. The trial court held for the LHC. Following the independence principle, even
granting that there is still issue to be resolved arising from the turn-key project. This issue is
not supposed to affect the obligation of the bank to pay the letter of credit in question. The
court stressed that a LC accommodation is intended to benefit not only the beneficiary therein
but the applicant thereon. Dissatisfied with the trial courts denial of its application for a writ of
preliminary injunction, petitioner elevated the case to the Court of Appeals with prayer for the
issuance of a temporary restraining order and writ of preliminary injunction. Petitioner
submitted to the appellate court that LHCs call on the Securities was premature considering
that the issue of its default had not yet been resolved with finality by the CIAC and/or the ICC.
It asserted that until the fact of delay could be established, LHC had no right to draw on the
Securities for liquidated damages.

ISSUE: Whether or not the drawing on the letters of credit during the pendency of the arbitral
proceeding is proper.
As a fundamental point, the pendency of arbitral proceedings does not foreclose resort
to the courts for provisional reliefs.The Rules of the ICC, which governs the parties arbitral
dispute, allows the application of a party to a judicial authority for interim or conservatory
measures.Likewise, Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Law)
recognizes the rights of any party to petition the court to take measures to safeguard and/or
conserve any matter which is the subject of the dispute in arbitration. In addition, R.A. 9285,
otherwise known as the Alternative Dispute Resolution Act of 2004, allows the filing of
provisional or interim measures with the regular courts whenever the arbitral tribunal has no
power to act or to act effectively.


PHILIPPINES MINING INC., G.R. No. 161957. February 28, 2005
Gonzales filed a complaint before the Panel of Arbitrators, Region II, Mines and
Geosciences Bureau, of the Department of Environment and Natural Resources (DENR)
against respondents Climax- Mining Ltd, Climax-Arimco and Australasian Philippines Mining
Inc, seeking the declaration of nullity or termination of the addendum contract and the other
contracts emanating from it on the grounds of fraud and oppression. The Panel dismissed the
complaint for lack of jurisdiction. However, the Panel, upon petitioner's motion for
reconsideration, ruled that it had jurisdiction over the dispute maintaining that it was a mining
dispute, since the subject complaint arose from a contract between the parties which involved
the exploration and exploitation of minerals over the disputed area. Respondents assailed the
order of the Panel of Arbitrators via a petition for before the CA. The CA granted the petition
and declared that the Panel of Arbitrators did not certiorari have jurisdiction over the
complaint, since its jurisdiction was limited to the resolution of mining disputes, such as those
which raised a question of fact or matter requiring the technical knowledge and experience of
mining authorities and not when the complaint alleged fraud and oppression which called for
the interpretation and application of laws. The CA further ruled that the petition should have
been settled through arbitration under R.A. No. 876 the Arbitration Law as provided under
the addendum contract.
ISSUE: Whether or not an agreement to arbitrate is a separate and distinct contract from the
main contract and whether POA has exclusive and original jurisdiction to hear and decide
mining disputes.
Panel of Arbitrators who, under R.A. No. 7942 of the Philippine Mining Act of 1995, has
exclusive and original jurisdiction to hear and decide mining disputes, such as mining areas,










claimholders/concessionaires, is bereft of jurisdiction over the complaint for declaration of

nullity of the addendum contract; thus, the Panels' jurisdiction is limited only to those mining

disputes which raised question of facts or matters requiring the technical knowledge and
experience of mining authorities.
An agreement to arbitrate is a separate and distinct contract from the main contract.
Further a submission to arbitration is a contract. A clause in a contract providing that all
matters in dispute between the parties shall be referred to arbitration is a contract. The
provision to submit to arbitration any dispute arising therefrom and the relationship of the
parties is a part of that contract and is itself a contract. The doctrine of separability, or
severability as other writers call it, enunciates that an arbitration agreement is independent of
the main contract. The arbitration agreement is to be treated as a separate agreement and
the arbitration agreement does not automatically terminate when the contract of which it is
part comes to an end.The separability of the arbitration agreement is especially significant to
the determination of whether the invalidity of the main contract also nullifies the arbitration
clause. Indeed, the doctrine denotes that the invalidity of the main contract, also referred to as
the "container" contract, does not affect the validity of the arbitration agreement. Irrespective
of the fact that the main contract is invalid, the arbitration clause/agreement still remains valid
and enforceable.


HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of Regional
G.R. No. 143581, January 7, 2008
PGSMC and KOGIES executed a Contract whereby KOGIES would set up an LPG
Cylinder Manufacturing Plant in Carmona, Cavite.

The contract was executed in the

Philippines. On April 7, 1997, the parties executed, in Korea, an Amendment for Contract No.
KLP-970301 dated March 5, 1997 amending the terms of payment. The contract and its
amendment stipulated that KOGIES will ship the machinery and facilities necessary for
manufacturing LPG cylinders for which PGSMC would pay USD 1,224,000. KOGIES would
install and initiate the operation of the plant for which PGSMC bound itself to pay USD
306,000 upon the plants production of the 11-kg. Later PGSMC entered into a Contract of
Lease with Worth Properties, Inc. (Worth) for use of Worths 5,079-square meter property with
a 4,032-square meter warehouse building to house the LPG manufacturing plant. after the
installation of the plant, the initial operation could not be conducted as PGSMC encountered
financial difficulties affecting the supply of materials, thus forcing the parties to agree that
KOGIES would be deemed to have completely complied with the terms and conditions of the
March 5, 1997 contract. PGSMC informed KOGIES that PGSMC was canceling their Contract
dated March 5, 1997 on the ground that KOGIES had altered the quantity and lowered the
quality of the machineries and equipment it delivered to PGSMC, and that PGSMC would
dismantle and transfer the machineries, equipment, and facilities installed in the Carmona
plant. KOGIES filed a Complaint for Specific Performance against PGSMC before the
Muntinlupa City Regional Trial Court (RTC).
On May 30, 2000, the CA rendered the assailed Decision affirming the RTC Orders
and dismissing the petition for certiorari filed by KOGIES. The CA found that the RTC did not
gravely abuse its discretion in issuing the assailed July 23, 1998 and September 21, 1998
Orders. Moreover, the CA reasoned that KOGIES contention that the total contract price for
USD 1,530,000 was for the whole plant and had not been fully paid was contrary to the
finding of the RTC that PGSMC fully paid the price of USD 1,224,000, which was for all the

machineries and equipment. According to the CA, this determination by the RTC was a
factual finding beyond the ambit of a petition for certiorari.
On the issue of the validity of the arbitration clause, the CA agreed with the lower court that
an arbitration clause which provided for a final determination of the legal rights of the parties
to the contract by arbitration was against public policy.
ISSUE: W/N the Arbitration clause is contrary to public policy.
The arbitration clause which stipulates that the arbitration must be done in Seoul,
Korea in accordance with the Commercial Arbitration Rules of the KCAB, and that the arbitral
award is final and binding, is not contrary to public policy. This Court has sanctioned the
validity of arbitration clauses in a catena of cases. In the 1957 case of Eastboard Navigation
Ltd. v. Juan Ysmael and Co., Inc., this Court had occasion to rule that an arbitration clause to
resolve differences and breaches of mutually agreed contractual terms is valid.


Corporation v. Court of Appeals, we held that in this jurisdiction, arbitration has been held
valid and constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876,
this Court has countenanced the settlement of disputes through arbitration. Republic Act No.
876 was adopted to supplement the New Civil Codes provisions on arbitration. And in LM
Power Engineering Corporation v. Capitol Industrial Construction Groups, Inc., we declared
Being an inexpensive, speedy and amicable method of settling disputes, arbitrationalong
with mediation, conciliation and negotiationis encouraged by the Supreme Court. Aside
from unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially
of the commercial kind. It is thus regarded as the wave of the future in international civil and
commercial disputes. Brushing aside a contractual agreement calling for arbitration between
the parties would be a step backward.


G.R. No. 169332, February 11, 2008
ABS-CBN Broadcasting Corporation (ABS-CBN) entered into a licensing agreement
with World Interactive Network Systems (WINS) to distribute and sublicense the distribution of
the television service known as "The Filipino Channel" (TFC) in Japan. ABS-CBN undertook
to transmit the TFC programming signals to WINS which the latter received through its
decoders and distributed to its subscribers. A dispute arose between the parties when ABSCBN accused WINS of inserting nine episodes of WINS WEEKLY into the TFC programming.
ABS-CBN claimed that these were "unauthorized insertions" constituting a material breach of
their agreement. WINS filed an arbitration suit pursuant to the arbitration clause of its
agreement with ABS-CBN. It contended that the airing of WINS WEEKLY was made with
petitioner's prior approval. It also alleged that petitioner only threatened to terminate their
agreement because it wanted to renegotiate the terms thereof to allow it to demand higher
fees. It also prayed for damages for petitioner's alleged grant of an exclusive distribution
license to another entity, NHK (Japan Broadcasting Corporation). The parties appointed
Professor Alfredo F. Tadiar to act as sole arbitrator. The arbitrator found in favor of World
Interactive Network Systems. ABS-CBN filed in the CA a petition for review under Rule 43 of
the Rules of Court or, in the alternative, a petition for certiorari under Rule 65 of the same
Rules, with application for temporary restraining order and writ of preliminary injunction.
WINS, on the other hand, filed a petition for confirmation of arbitral award before the RTC of
Quezon City.
The CA dismissed ABS-CBNs petition for lack of jurisdiction. It stated that as the terms
or reference (TOR) itself provided that the arbitrator's decision shall be final and unappealable
and that no motion for reconsideration shall be filed, then the petition for review must fail. It
ruled that it is the RTC which has jurisdiction over questions relating to arbitration. It held that
the only instance it can exercise jurisdiction over an arbitral award is an appeal from the trial
court's decision confirming, vacating or modifying the arbitral award. It further stated that a
petition for certiorari under Rule 65 of the Rules of Court is proper in arbitration cases only if
the courts refuse or neglect to inquire into the facts of an arbitrator's award.

ISSUE: Whether or not a party in a voluntary arbitration dispute may avail of, directly in the
CA, a petition for review under Rule 43 or a petition for certiorari under Rule 65 of the Rules
of Court, instead of filing a petition to vacate the award in the RTC when the grounds invoked
to overturn the arbitrators decision are other than those for a petition to vacate an arbitral
award enumerated under RA 876.
RULING: The assigned errors reveals that the real issues calling for the CA's resolution were
less the alleged grave abuse of discretion exercised by the arbitrator and more about the
arbitrators appreciation of the issues and evidence presented by the parties. Therefore, the
issues clearly fall under the classification of errors of fact and law questions which may be
passed upon by the CA via a petition for review under Rule 43. Petitioner cleverly crafted its
assignment of errors in such a way as to straddle both judicial remedies, that is, by alleging
serious errors of fact and law (in which case a petition for review under Rule 43 would be
proper) and grave abuse of discretion (because of which a petition for certiorari under Rule 65
would be permissible).
Section 24 of RA 876 clearly provides that the RTC must issue an order vacating an
arbitral award only "in any one of the . . . cases" enumerated therein. Under the legal maxim
in statutory construction expressio unius est exclusio alterius, the explicit mention of one thing
in a statute means the elimination of others not specifically mentioned. As RA 876 did not
expressly provide for errors of fact and/or law and grave abuse of discretion (proper grounds
for a petition for review under Rule 43 and a petition for certiorari under Rule 65, respectively)
as grounds for maintaining a petition to vacate an arbitral award in the RTC, it necessarily
follows that a party may not avail of the latter remedy on the grounds of errors of fact and/or
law or grave abuse of discretion to overturn an arbitral award.
Proper issues that may be raised in a petition for review under Rule 43 pertain to errors
of fact, law or mixed questions of fact and law. While a petition for certiorari under Rule 65
should only limit itself to errors of jurisdiction, that is, grave abuse of discretion amounting to a
lack or excess of jurisdiction. Moreover, it cannot be availed of where appeal is the proper
remedy or as a substitute for a lapsed appeal.
The remedy ABS-CBN Broadcasting Corporation availed of, entitled "alternative
petition for review under Rule 43 or petition for certiorari under Rule 65," was wrong. The
petition is DENIED.


G.R No. 179537, October 23, 2009
Philippine Economic Zone Authority and Edison Cogeneration Corporation entered into
a power supply and purchase agreement whereby the latter undertook to construct, operate
and maintain a power plant which would sell, supply and deliver electricity to the authority for
resale in the Bataan Economic Processing Zone.
In the course of discharging its obligation, Edison requested from the authority a tariff
increase with a mechanism for adjustment of the cost of fuel and lubricating oil. The authority
did not respond.Citing a tariff increase which the authority granted to the East Asia Utilities
Corporation (another electricity supplier in the Mactan Economic Zone), Edison claimed that
the authority had violated its obligation not to give preferential treatment to other power
After 90 days had elapsed, Edison terminated the agreement and demanded Php
708,691,543 as a termination fee. The authority disputed Edison's right to terminate the
agreement and refused to pay the termination fee, prompting Edison to request the authority
to submit the dispute to arbitration pursuant to the arbitration clause in the agreement.
The authority refused to submit to arbitration, and thus Edison filed a complaint against it in
court for specific performance. Edison alleged, among other things, that:under the arbitration
clause, the dispute should be resolved through arbitration before an arbitration committee, to
be composed of a representative from each party and a third member, who should be
mutually acceptable to the parties;it had requested the authority to submit the dispute to
arbitration, but the authority had refused and would not even nominate a representative for
the arbitration committee; andunder arbitration law, if either party fails or refuses to name its
arbitrator within 15 days of receipt of a request for arbitration, the court shall appoint the
The authority admitted the existence of the arbitration clause, but claimed that the
dispute was not arbitrable. It also claimed that the provision on the termination fee in the
agreement was invalid and unenforceable.

ISSUE: WON the dispute was arbitrable.

The court held that, despite the authority's claim regarding the validity of the provision on the
termination fee, it could render judgment on the pleadings because the authority did not deny
the existence of the arbitration clause.

Therefore, the court proceeded to appoint the

arbitrators and referred the dispute to the arbitration committee to resolve the issue.


G.R. No. 156660, August 24, 2009
The relationship between respondents and the individual sugar planters is governed
by milling contracts. Article VII of the milling contracts provides that 34% of the sugar and
molasses produced from milling the Planters sugarcane shall belong to the centrals
(respondents) as compensation, 65% thereof shall go to the Planter and the remaining 1%
shall go the association to which the Planter concerned belongs, as aid to the said
association. The 1% aid shall be used by the association for any purpose that it may deem fit
for its members, laborers and their dependents. If the Planter was not a member of any
association, then the said 1% shall revert to the centrals.

Petitioners claimed that

respondents violated the Milling Contract when they gave to independent planters who do not
belong to any association the 1% share, instead of reverting said share to the centrals.
Petitioners contended that respondents unduly accorded the independent Planters more
benefits and thus prayed that an order be issued directing the parties to commence with
arbitration in accordance with the terms of the milling contracts.

Petitioners, without

impleading any of their individual members, filed twin petitions with the RTC for Arbitration
under R.A. 87. Respondents filed a motion to dismiss on ground of lack of cause of action
because petitioners had no milling contract with respondents. RTC denying the motion to
dismiss, declaring the existence of a milling contract between the parties, and directing
respondents to nominate two arbitrators to the Board of Arbitrators
ISSUE: WON sugar planters associations are clothed with legal personality to file a suit
against, or demand arbitration from, respondents in their own name without impleading the
individual Planters.

Section 2 of R.A. No. 876 provides:
Sec. 2. Persons and matters subject to arbitration. Two or more persons or parties may
submit to the arbitration of one or more arbitrators any controversy existing between them at
the time of the submission and which may be the subject of an action, or the parties to any
contract may in such contract agree to settle by arbitration a controversy thereafter arising
between them. Such submission or contract shall be valid, enforceable and irrevocable, save
upon such grounds as exist at law for the revocation of any contract.
The first step toward the settlement of a difference by arbitration is the entry by the parties
into a valid agreement to arbitrate. An agreement to arbitrate is a contract the relation of the
parties is contractual- and the rights and liabilities of the parties are controlled by the law of
contracts. In an agreement for arbitration, the ordinary elements of a valid contract must
appear including an agreement to arbitrate some specific thing and an agreement to abide
by the award either in express language or by implication.
It was decreed in B.F. Corporation v. CA that an arbitration agreement must be written
and subscribed by the parties thereto. None of the petitioners were parties or signatories to
the milling contracts. This is fatal to their cause since they anchor their right to demand
arbitration upon the arbitration clause on the milling contracts.
There is no legal basis for petitioners purported right to demand arbitration when they
are not parties to the milling contracts, especially when the language of the arbitration clause
expressly grants the right to demand arbitration only to the parties of the contract.


G.R. No. 163582, August 9, 2010
Ray Burton Development Corporation and William Golangco Construction Corporation
(WGCC) entered into a Contract for the construction of the Elizabeth Place (Office/Residential
Condominium). WGCC filed a complaint with a request for arbitration with the Construction
Industry Arbitration Commission praying for the judgment of ordering RDC to pay WGCC the
amount of or for a total of Fifty Three Million Six Hundred Sixty-Seven Thousand Two
Hundred Nineteen and interest charges based on the prevailing bank rates on the foregoing
amount and until such time as the same shall be fully paid.
RBDC filed a Motion to Dismiss the complaint on the ground of lack of jurisdiction. It
contends that the CIAC acquires jurisdiction over disputes arising from or connected with
construction contracts only when the parties to the contract agree to submit the same to
voluntary arbitration. In the contract between RDC and WGCC, petitioner claimed that only
disputes by reason of differences in interpretation of the contract documents shall be deemed
subject to arbitration.
WGCC averred that the claims set forth in the complaint require contract interpretation
and are thus cognizable by the CIAC pursuant to the arbitration clause in the construction
contract between the parties. Moreover, even assuming that the claims do not involve
differing contract interpretation, they are still cognizable by the CIAC as the arbitration clause
mandates their direct filing therewith.
The CIAC rendered an Order in favor of WGCC. On appeal,the CA reversed the
decision of the CIAC, ruling that the CIAC had no jurisdiction over the subject matter of the
case because the parties agreed that only disputes regarding differences in interpretation of
the contract documents shall be submitted for arbitration, while the allegations in the
complaint make out a case for collection of sum of money. WGCC moved for reconsideration
of said ruling, but the same was denied.

ISSUE: WON CIAC has jurisdiction.

Yes. Clearly, the subject matter of petitioner's claims arose from differences in
interpretation of the contract, and under the terms thereof, such disputes are subject to
voluntary arbitration. Since, under Section 4 of Executive Order No. 1008 the CIAC shall have
original and exclusive jurisdiction over disputes arising from, or connected with, contracts
entered into by parties involved in construction in the Philippines and all that is needed for the
CIAC to acquire jurisdiction is for the parties to agree to submit the same to voluntary
arbitration, there can be no other conclusion but that the CIAC had jurisdiction over
petitioner's complaint. Furthermore,Section 1, Article III of the CIAC Rules of Procedure
Governing Construction Arbitration (CIAC Rules) further provide that [a]n arbitration clause in
a construction contract or a submission to arbitration of a construction dispute shall be
deemed an agreement to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution or arbitral body in such
contract or submission. Thus, even if there is no showing that petitioner previously brought
its claims before a Board of Arbitrators constituted under the terms of the contract, this
circumstance would not divest the CIAC of jurisdiction.
Under Section 1, Article III of the CIAC Rules, an arbitration clause in a construction
contract shall be deemed as an agreement to submit an existing or future controversy to
CIAC jurisdiction, notwithstanding the reference to a different arbitration institution or arbitral
body in such contract x x x. Elementary is the rule that when laws or rules are clear, it is
incumbent on the court to apply them. When the law (or rule) is unambiguous and
unequivocal, application, not interpretation thereof, is imperative.
The Petition is GRANTED. The Decision of the Court of Appeals, dated are REVERSED and
SET ASIDE. The Order of the Construction Industry Arbitration Commission is REINSTATED.


G.R. No. 175404, January 31, 2011
Cargill Philippines, Inc. and Regala Trading, Inc. entered into a contract and agreed
upon that San Fernando Regala Trading, Inc. would purchase from Cargill a Thailand origin
cane blackstrap molasses and the delivery was to be made in January or February however,
the delivery was moved to April or May and the payment would be by an Irrevocable Letter of
Credit Payable at Sight. Cargill failed to comply with the obligation and Regala Trading filed a
complaint with the RTC for the Rescission of the Contract with Damages against Cargill.
Cargill filed a Motion to Dismiss / Suspend Proceedings and refer controversy to Voluntary
Arbitration, it argued that the contract between the parties was never consummated because
Regala Trading did not return the proposed agreement bearing its written acceptance.
ISSUE: WON the validity and enforceability

of the contract containing the arbitration

agreement violate any provision of the Arbitration Law.

Applying the Gonzales ruling, an arbitration agreement which forms part of the main
contract shall not be regarded as invalid or non-existent just because the main contract is
invalid or did not come into existence, since the arbitration agreement shall be treated as a
separate agreement independent of the main contract. A contrary ruling would suggest that a
party's mere repudiation of the main contract is sufficient to avoid arbitration and that is
exactly the situation that the separability doctrine sought to avoid. Thus, we find that even the
party who has repudiated the main contract is not prevented from enforcing its arbitration
The separability of the arbitration agreement is especially significant to the
determination of whether the invalidity of the main contract also nullifies the arbitration clause.
Indeed, the doctrine denotes that the invalidity of the main contract, also referred to as the
"container" contract, does not affect the validity of the arbitration agreement. Irrespective of
the fact that the main contract is invalid, the arbitration clause/agreement still remains valid
and enforceable.

RCBC Capital Corporation

Banco de Oro Unibank Inc
GR 196171, December 10 2012
---------------------------------------------Banco de Oro Unibank Inc
Court of Appeals and RCBC
G.R No. 199238, December 10,2012
The respondent (BDO)refused to pay its share of the advance on arbitration costs, as
fixed by the International Chamber of Commerce (ICC) International Court of Arbitration. The
respondent claimed that the amount of the claim was substantially higher more than 40
times than the total amount of the counterclaims. The court instructed the arbitration tribunal
to suspend its work unless the parties paid the balance of the advance within 15 days. In view
of the respondent's ongoing refusal to pay its share, the claimant(RCBC) was compelled to
pay all advance costs and sought to declare the respondent in default, with no right to
participate in the proceedings.
In a letter to the parties, the chairman wrote that the tribunal had no power under ICC
rules to order the respondent to pay the advance costs sought by the ICC or to give the
claimant relief. It may have been possible for the claimant, in the course of the arbitral
hearing, to make submissions based on the failure of the respondent to pay its share. Relief,
if any, would need to be determined by the tribunal after hearing submissions from the
The majority of the tribunal rendered a first partial award, which reserved a resolution
on costs to a further or final award. In another letter, the claimant reiterated its plea that the
respondent be declared in default and the counterclaims deemed withdrawn. In response, the
chairman ruled that the tribunal had no jurisdiction to declare that the respondent had no right
to participate in the proceedings. Article 36(4) of the ICC rules applies only to counterclaims.
The tribunal interpreted the claimant's letter as an application to the tribunal for the issuance
of a partial award against the respondent in respect of its failure to pay. The claimant
confirmed the tribunal's interpretation.

In the ensuing hearing, the chairman advised the parties as follows:

"1. The Tribunal acknowledges the Respondent's response to the Claimant's application for a
Partial Award, based on the Respondent's failure to pay its share of the costs, as requested
by the ICC.
2. The Tribunal notes that neither party has referred to an article by Mat[t]hew Secomb on this
very subject which appears in the ICC Bulletin Vol. 14 No.1 (Spring 2003). To assist both
sides and to ensure that the Tribunal does not consider material on which the parties have not
been given an opportunity to address, I attach a copy of this article, which also contains
reference to other scholarly works on the subject.
3. The Tribunal will give each party seven days within which to submit further written
comments as a consequence of being alerted to the above authorities."
The parties submitted their comments with the claimant contending that based on
Secomb's article, whether the contractual or provisional measures approach was applied, the
tribunal was vested with jurisdiction and authority to render an award with respect to the
reimbursement of costs paid by the non-defaulting party.
The respondent, on the other hand, maintained that the claimant's application for
reimbursement of costs had no basis under the ICC rules. According to the respondent, the
matter of costs for arbitration is between the ICC and the parties, not the tribunal and the
parties. An arbitration tribunal can issue decisions only on those costs not fixed by the ICC.
The respondent also argued that a party's reimbursement for payments of the defaulting
party's share depends on the final arbitral award where the party liable for costs would be
determined. The tribunal then rendered a second partial award requiring the respondent to
pay the claimant the costs it advanced and to consider the respondent's counterclaim
Thereafter, the claimant filed a motion in court to confirm the second partial award, while the
respondent filed a motion to vacate the second partial award. The court confirmed the second
partial award and denied the respondent's motion to vacate the same.
Acting on a petition for certiorari, the Court of Appeals reversed the order of the lower court
and set aside the second partial award.

ISSUE: WON there is legal ground to vacate the Second Partial Award.

On petition for review, the Supreme Court upheld the Court of Appeals' ruling that in
treating the letter of the claimant as an application for a partial award and in furnishing the
parties with a copy of Secomb's article - which favoured the claimant by advancing its cause the chairman acted with partiality. The Supreme Court adopted the reasonable impression of
partiality standard and held that the act of furnishing the parties with Secomb's article,
considering the attendant circumstances, was indicative of partiality such that a reasonable
individual would have to conclude that it was favouring the claimant. Even before the
issuance of the second partial award for the reimbursement of the advance on costs paid by
the claimant, the chairman exhibited strong inclination to grant such relief, notwithstanding his
earlier categorical ruling that the tribunal had no power under ICC rules to order the
respondent to pay the advance on costs sought by the ICC or to give the claimant any relief
against respondent's refusal to pay. Secomb's article, "Awards and Orders Dealing with the
Advance on Costs in ICC Arbitration: Theoretical Questions and Practical Problems", states:
"As we can see, the Rules have certain mechanisms to deal with defaulting parties.
Occasionally, however, parties have sought to use other methods to tackle the problem of a
party refusing to pay its part of the advance on costs. These have included seeking an order
or award from the arbitral tribunal condemning the defaulting party to pay its share of the
advance on costs. Such applications are the subject of this article."
According to the Supreme Court, by furnishing both parties with a copy of the article
(although purportedly done to assist both parties), the chairman provided the claimant with
supporting legal arguments. This bolstered the impression that the chairman was predisposed to grant relief to the claimant. The court found the chairman's act clearly violated
Article 15 of the ICC rules and declared that "in all cases, the Arbitration Tribunal shall act
fairly and in partiality and ensure that each party has a reasonable opportunity to present its
case". Comment In furnishing both parties with a copy of an article, and in providing both
parties the opportunity to submit their comments, the chairman did not act with partiality nor
did he pre-judge the issue. It is quite common, even in litigation, for a judge to call the
attention of both parties to certain rules or decisions which the parties may have omitted in
argument, and to ask them to comment on their applicability or pertinence in the resolution of
an issue. Such action by itself does not amount to partiality or pre-judgment.
Indeed, the tribunal may have furnished the article in an effort to guide the parties, shorten
proceedings and conduct the arbitration in an expeditious manner. After the issuance of the

second partial award (but before the Supreme Court issued its resolution), the same tribunal
rendered a final award in favour of the claimant. After the court confirmed and ordered
enforcement of the final award, both the Court of Appeals and the Supreme Court refused to
stay or enjoin its enforcement.