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V.

International Commercial Arbitration On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully
funded but the payments were stopped for reasons previously made known to KOGIES.[7]
1. International Chamber of Commerce (ICC) Rules of Arbitration
2. United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract
December 15, 1976 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
Korea Technologies Co., Ltd. v. Lerma, G.R. No. 143581, January 7, 2008 plant. Five days later, PGSMC filed before the Office of the Public Prosecutor an Affidavit-
Complaint for Estafa docketed as I.S. No. 98-03813 against Mr. Dae Hyun Kang, President of
In our jurisdiction, the policy is to favor alternative methods of resolving disputes, particularly KOGIES.
in civil and commercial disputes. Arbitration along with mediation, conciliation, and
negotiation, being inexpensive, speedy and less hostile methods have long been favored by On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not
this Court.The petition before us puts at issue an arbitration clause in a contract mutually unilaterally rescind their contract nor dismantle and transfer the machineries and equipment
agreed upon by the parties stipulating that they would submit themselves to arbitration in a on mere imagined violations by KOGIES. It also insisted that their disputes should be settled
foreign country. Regrettably, instead of hastening the resolution of their dispute, the parties by arbitration as agreed upon in Article 15, the arbitration clause of their contract.
wittingly or unwittingly prolonged the controversy.
On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1,
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is 1998 letter threatening that the machineries, equipment, and facilities installed in the plant
engaged in the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder would be dismantled and transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted
manufacturing plants, while private respondent Pacific General Steel Manufacturing Corp. an Application for Arbitration before the Korean Commercial Arbitration Board (KCAB)
(PGSMC) is a domestic corporation. in Seoul, Korea pursuant to Art. 15 of the Contract as amended.

On March 5, 1997, PGSMC and KOGIES executed a Contract [1] whereby KOGIES On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as
would set up an LPG Cylinder Manufacturing Plant in Carmona, Cavite. The contract was Civil Case No. 98-117[8] against PGSMC before the Muntinlupa City Regional Trial Court
executed in the Philippines. On April 7, 1997, the parties executed, in Korea, an Amendment (RTC). The RTC granted a temporary restraining order (TRO) on July 4, 1998, which was
for Contract No. KLP-970301 dated March 5, 1997[2] amending the terms of payment. The subsequently extended until July 22, 1998. In its complaint, KOGIES alleged that PGSMC had
contract and its amendment stipulated that KOGIES will ship the machinery and facilities initially admitted that the checks that were stopped were not funded but later on claimed that
necessary for manufacturing LPG cylinders for which PGSMC would pay USD it stopped payment of the checks for the reason that their value was not received as the
1,224,000. KOGIES would install and initiate the operation of the plant for which PGSMC former allegedly breached their contract by altering the quantity and lowering the quality of
bound itself to pay USD 306,000 upon the plants production of the 11-kg. LPG cylinder the machinery and equipment installed in the plant and failed to make the plant operational
samples. Thus, the total contract price amounted to USD 1,530,000. although it earlier certified to the contrary as shown in a January 22, 1998
Certificate. Likewise, KOGIES averred that PGSMC violated Art. 15 of their Contract, as
On October 14, 1997, PGSMC entered into a Contract of Lease [3] with Worth amended, by unilaterally rescinding the contract without resorting to arbitration. KOGIES also
Properties, Inc. (Worth) for use of Worths 5,079-square meter property with a 4,032-square asked that PGSMC be restrained from dismantling and transferring the machinery and
meter warehouse building to house the LPG manufacturing plant. The monthly rental was PhP equipment installed in the plant which the latter threatened to do on July 4, 1998.
322,560 commencing on January 1, 1998 with a 10% annual increment clause. Subsequently,
the machineries, equipment, and facilities for the manufacture of LPG cylinders were shipped, On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not
delivered, and installed in the Carmona plant. PGSMC paid KOGIES USD 1,224,000. entitled to the TRO since Art. 15, the arbitration clause, was null and void for being against
public policy as it ousts the local courts of jurisdiction over the instant controversy.
However, gleaned from the Certificate[4] executed by the parties on January 22,
1998, after the installation of the plant, the initial operation could not be conducted as PGSMC On July 17, 1998, PGSMC filed its Answer with Compulsory
encountered financial difficulties affecting the supply of materials, thus forcing the parties to Counterclaim[9] asserting that it had the full right to dismantle and transfer the machineries
agree that KOGIES would be deemed to have completely complied with the terms and and equipment because it had paid for them in full as stipulated in the contract; that KOGIES
conditions of the March 5, 1997 contract. was not entitled to the PhP 9,000,000 covered by the checks for failing to completely install
and make the plant operational; and that KOGIES was liable for damages amounting to PhP
For the remaining balance of USD306,000 for the installation and initial operation 4,500,000 for altering the quantity and lowering the quality of the machineries and
of the plant, PGSMC issued two postdated checks: (1) BPI Check No. 0316412 dated January equipment. Moreover, PGSMC averred that it has already paid PhP 2,257,920 in rent (covering
30, 1998 for PhP 4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP January to July 1998) to Worth and it was not willing to further shoulder the cost of renting
4,500,000.[5] the premises of the plant considering that the LPG cylinder manufacturing plant never
became operational.
When KOGIES deposited the checks, these were dishonored for the
reason PAYMENT STOPPED. Thus, on May 8, 1998, KOGIES sent a demand letter [6] to PGSMC After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an
threatening criminal action for violation of Batas Pambansa Blg. 22 in case of nonpayment. On Order denying the application for a writ of preliminary injunction, reasoning that PGSMC had
the same date, the wife of PGSMCs President faxed a letter dated May 7, 1998 to KOGIES paid KOGIES USD 1,224,000, the value of the machineries and equipment as shown in the
President who was then staying at a Makati City hotel. She complained that not only did contract such that KOGIES no longer had proprietary rights over them. And finally, the RTC
KOGIES deliver a different brand of hydraulic press from that agreed upon but it had not held that Art. 15 of the Contract as amended was invalid as it tended to oust the trial court or
delivered several equipment parts already paid for. any other court jurisdiction over any dispute that may arise between the parties. KOGIES
prayer for an injunctive writ was denied.[10] The dispositive portion of the Order stated:
In the meantime, on October 19, 1998, the RTC denied KOGIES urgent motion for
reconsideration and directed the Branch Sheriff to proceed with the inspection of the
WHEREFORE, in view of the foregoing consideration, this Court believes machineries and equipment in the plant on October 28, 1998.[19]
and so holds that no cogent reason exists for this Court to grant the writ
of preliminary injunction to restrain and refrain defendant from Thereafter, KOGIES filed a Supplement to the Petition [20] in CA-G.R. SP No. 49249
dismantling the machineries and facilities at the lot and building of informing the CA about the October 19, 1998 RTC Order. It also reiterated its prayer for the
Worth Properties, Incorporated at Carmona, Cavite and transfer the issuance of the writs of prohibition, mandamus and preliminary injunction which was not
same to another site: and therefore denies plaintiffs application for a acted upon by the CA. KOGIES asserted that the Branch Sheriff did not have the technical
writ of preliminary injunction. expertise to ascertain whether or not the machineries and equipment conformed to the
specifications in the contract and were properly installed.

On November 11, 1998, the Branch Sheriff filed his Sheriffs Report [21] finding that
On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim. the enumerated machineries and equipment were not fully and properly installed.
[11]
KOGIES denied it had altered the quantity and lowered the quality of the machinery,
equipment, and facilities it delivered to the plant. It claimed that it had performed all the The Court of Appeals affirmed the trial court and declared
undertakings under the contract and had already produced certified samples of LPG the arbitration clause against public policy
cylinders. It averred that whatever was unfinished was PGSMCs fault since it failed to procure
raw materials due to lack of funds. KOGIES, relying on Chung Fu Industries (Phils.), Inc. v. Court
of Appeals,[12]insisted that the arbitration clause was without question valid. On May 30, 2000, the CA rendered the assailed Decision [22] affirming the RTC
Orders and dismissing the petition for certiorari filed by KOGIES. The CA found that the RTC
After KOGIES filed a Supplemental Memorandum with Motion to did not gravely abuse its discretion in issuing the assailed July 23, 1998 and September 21,
Dismiss[13] answering PGSMCs memorandum of July 22, 1998 and seeking dismissal of 1998 Orders. Moreover, the CA reasoned that KOGIES contention that the total contract price
PGSMCs counterclaims, KOGIES, on August 4, 1998, filed its Motion for Reconsideration [14] of for USD 1,530,000 was for the whole plant and had not been fully paid was contrary to the
the July 23, 1998 Order denying its application for an injunctive writ claiming that the finding of the RTC that PGSMC fully paid the price of USD 1,224,000, which was for all the
contract was not merely for machinery and facilities worth USD 1,224,000 but was for the sale machineries and equipment. According to the CA, this determination by the RTC was a factual
of an LPG manufacturing plant consisting of supply of all the machinery and facilities and finding beyond the ambit of a petition for certiorari.
transfer of technology for a total contract price of USD 1,530,000 such that the dismantling
and transfer of the machinery and facilities would result in the dismantling and transfer of the On the issue of the validity of the arbitration clause, the CA agreed with the lower
very plant itself to the great prejudice of KOGIES as the still unpaid owner/seller of the court that an arbitration clause which provided for a final determination of the legal rights of
plant. Moreover, KOGIES points out that the arbitration clause under Art. 15 of the Contract as the parties to the contract by arbitration was against public policy.
amended was a valid arbitration stipulation under Art. 2044 of the Civil Code and as held by
this Court in Chung Fu Industries (Phils.), Inc.[15] On the issue of nonpayment of docket fees and non-attachment of a certificate of
non-forum shopping by PGSMC, the CA held that the counterclaims of PGSMC were
In the meantime, PGSMC filed a Motion for Inspection of Things [16] to determine compulsory ones and payment of docket fees was not required since the Answer with
whether there was indeed alteration of the quantity and lowering of quality of the counterclaim was not an initiatory pleading. For the same reason, the CA said a certificate of
machineries and equipment, and whether these were properly installed. KOGIES opposed the non-forum shopping was also not required.
motion positing that the queries and issues raised in the motion for inspection fell under the
coverage of the arbitration clause in their contract. Furthermore, the CA held that the petition for certiorari had been filed prematurely
since KOGIES did not wait for the resolution of its urgent motion for reconsideration of the
On September 21, 1998, the trial court issued an Order (1) granting PGSMCs September 21, 1998 RTC Order which was the plain, speedy, and adequate remedy
motion for inspection; (2) denying KOGIES motion for reconsideration of the July 23, 1998 available.According to the CA, the RTC must be given the opportunity to correct any alleged
RTC Order; and (3) denying KOGIES motion to dismiss PGSMCs compulsory counterclaims as error it has committed, and that since the assailed orders were interlocutory, these cannot be
these counterclaims fell within the requisites of compulsory counterclaims. the subject of a petition for certiorari.

On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration [17] of the Hence, we have this Petition for Review on Certiorari under Rule 45.
September 21, 1998 RTC Order granting inspection of the plant and denying dismissal of
PGSMCs compulsory counterclaims. The Issues

Ten days after, on October 12, 1998, without waiting for the resolution of its Petitioner posits that the appellate court committed the following errors:
October 2, 1998 urgent motion for reconsideration, KOGIES filed before the Court of Appeals a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE
(CA) a petition for certiorari[18] docketed as CA-G.R. SP No. 49249, seeking annulment of the MACHINERY AND FACILITIES AS A QUESTION OF FACT BEYOND THE
July 23, 1998 and September 21, 1998 RTC Orders and praying for the issuance of writs of AMBIT OF A PETITION FOR CERTIORARI INTENDED ONLY FOR
prohibition, mandamus, and preliminary injunction to enjoin the RTC and PGSMC from CORRECTION OF ERRORS OF JURISDICTION OR GRAVE ABUSE OF
inspecting, dismantling, and transferring the machineries and equipment in the Carmona DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS OF JURISDICTION,
plant, and to direct the RTC to enforce the specific agreement on arbitration to resolve the AND CONCLUDING THAT THE TRIAL COURTS FINDING ON THE SAME
dispute. QUESTION WAS IMPROPERLY RAISED IN THE PETITION BELOW;
b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN quo did not commit reversible error in denying KOGIES motion to dismiss PGSMCs
ARTICLE 15 OF THE CONTRACT BETWEEN THE PARTIES FOR BEING compulsory counterclaims.
CONTRARY TO PUBLIC POLICY AND FOR OUSTING THE COURTS OF
JURISDICTION; Interlocutory orders proper subject of certiorari

c. DECREEING PRIVATE RESPONDENTS COUNTERCLAIMS TO Citing Gamboa v. Cruz,[25] the CA also pronounced that certiorari and Prohibition are
BE ALL COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES neither the remedies to question the propriety of an interlocutory order of the trial court.
AND CERTIFICATION OF NON-FORUM SHOPPING; [26]
The CA erred on its reliance on Gamboa. Gamboa involved the denial of a motion to acquit
in a criminal case which was not assailable in an action for certiorari since the denial of a
d. RULING THAT THE PETITION WAS FILED PREMATURELY motion to quash required the accused to plead and to continue with the trial, and whatever
WITHOUT WAITING FOR THE RESOLUTION OF THE MOTION FOR objections the accused had in his motion to quash can then be used as part of his defense and
RECONSIDERATION OF THE ORDER DATED SEPTEMBER 21, 1998 OR subsequently can be raised as errors on his appeal if the judgment of the trial court is adverse
WITHOUT GIVING THE TRIAL COURT AN OPPORTUNITY TO CORRECT to him. The general rule is that interlocutory orders cannot be challenged by an appeal.
ITSELF; [27]
Thus, in Yamaoka v. Pescarich Manufacturing Corporation, we held:

e. PROCLAIMING THE TWO ORDERS DATED JULY 23 The proper remedy in such cases is an ordinary appeal from
AND SEPTEMBER 21, 1998 NOT TO BE PROPER SUBJECTS OF an adverse judgment on the merits, incorporating in said appeal the
CERTIORARI AND PROHIBITION FOR BEING INTERLOCUTORY IN grounds for assailing the interlocutory orders. Allowing appeals from
NATURE; interlocutory orders would result in the sorry spectacle of a case being
subject of a counterproductive ping-pong to and from the appellate court
f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR as often as a trial court is perceived to have made an error in any of its
IN HE (SIC) PETITION AND, INSTEAD, DISMISSING THE SAME FOR interlocutory rulings. However, where the assailed interlocutory order
ALLEGEDLY WITHOUT MERIT.[23] was issued with grave abuse of discretion or patently erroneous and the
remedy of appeal would not afford adequate and expeditious relief, the
Court allows certiorari as a mode of redress.[28]
The Courts Ruling

The petition is partly meritorious. Also, appeals from interlocutory orders would open the floodgates to endless
occasions for dilatory motions. Thus, where the interlocutory order was issued without or in
Before we delve into the substantive issues, we shall first tackle the procedural excess of jurisdiction or with grave abuse of discretion, the remedy is certiorari. [29]
issues.
The alleged grave abuse of discretion of the respondent court equivalent to lack of
The rules on the payment of docket fees for counterclaims jurisdiction in the issuance of the two assailed orders coupled with the fact that there is no
and cross claims were amended effective August 16, 2004 plain, speedy, and adequate remedy in the ordinary course of law amply provides the basis for
allowing the resort to a petition for certiorari under Rule 65.
KOGIES strongly argues that when PGSMC filed the counterclaims, it should have
paid docket fees and filed a certificate of non-forum shopping, and that its failure to do so was Prematurity of the petition before the CA
a fatal defect.
Neither do we think that KOGIES was guilty of forum shopping in filing the petition
We disagree with KOGIES. for certiorari. Note that KOGIES motion for reconsideration of the July 23, 1998 RTC Order
which denied the issuance of the injunctive writ had already been denied. Thus, KOGIES only
As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its remedy was to assail the RTCs interlocutory order via a petition for certiorari under Rule 65.
Answer with Compulsory Counterclaim dated July 17, 1998 in accordance with Section 8 of
Rule 11, 1997 Revised Rules of Civil Procedure, the rule that was effective at the time the While the October 2, 1998 motion for reconsideration of KOGIES of the September
Answer with Counterclaim was filed. Sec. 8 on existing counterclaim or cross-claim states, A 21, 1998 RTC Order relating to the inspection of things, and the allowance of the compulsory
compulsory counterclaim or a cross-claim that a defending party has at the time he files his counterclaims has not yet been resolved, the circumstances in this case would allow an
answer shall be contained therein. exception to the rule that before certiorari may be availed of, the petitioner must have filed a
motion for reconsideration and said motion should have been first resolved by the court a
quo. The reason behind the rule is to enable the lower court, in the first instance, to pass upon
On July 17, 1998, at the time PGSMC filed its Answer incorporating its and correct its mistakes without the intervention of the higher court.[30]
counterclaims against KOGIES, it was not liable to pay filing fees for said counterclaims being
compulsory in nature. We stress, however, that effective August 16, 2004 under Sec. 7, Rule The September 21, 1998 RTC Order directing the branch sheriff to inspect the
141, as amended by A.M. No. 04-2-04-SC, docket fees are now required to be paid in plant, equipment, and facilities when he is not competent and knowledgeable on said matters
compulsory counterclaim or cross-claims. is evidently flawed and devoid of any legal support. Moreover, there is an urgent necessity to
resolve the issue on the dismantling of the facilities and any further delay would prejudice the
As to the failure to submit a certificate of forum shopping, PGSMCs Answer is not an interests of KOGIES. Indeed, there is real and imminent threat of irreparable destruction or
initiatory pleading which requires a certification against forum shopping under Sec. 5 [24] of substantial damage to KOGIES equipment and machineries. We find the resort to certiorari
Rule 7, 1997 Revised Rules of Civil Procedure. It is a responsive pleading, hence, the courts a
based on the gravely abusive orders of the trial court sans the ruling on the October 2, in LM Power Engineering Corporation v. Capitol Industrial Construction Groups, Inc., we
1998 motion for reconsideration to be proper. declared that:

The Core Issue: Article 15 of the Contract Being an inexpensive, speedy and amicable method of settling
disputes, arbitrationalong with mediation, conciliation and negotiationis
We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration encouraged by the Supreme Court. Aside from unclogging judicial
clause. It provides: dockets, arbitration also hastens the resolution of disputes, especially of
the commercial kind. It is thus regarded as the wave of the future in
Article 15. Arbitration.All disputes, controversies, or international civil and commercial disputes. Brushing aside a contractual
differences which may arise between the parties, out of or in relation to agreement calling for arbitration between the parties would be a step
or in connection with this Contract or for the breach thereof, shall finally backward.
be settled by arbitration in Seoul, Korea in accordance with the
Commercial Arbitration Rules of the Korean Commercial Arbitration Consistent with the above-mentioned policy of encouraging
Board. The award rendered by the arbitration(s) shall be final and alternative dispute resolution methods, courts should liberally construe
binding upon both parties concerned.(Emphasis supplied.) arbitration clauses. Provided such clause is susceptible of an
interpretation that covers the asserted dispute, an order to arbitrate
should be granted. Any doubt should be resolved in favor of arbitration.
Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is [40]

null and void.

Petitioner is correct. Having said that the instant arbitration clause is not against public policy, we come
to the question on what governs an arbitration clause specifying that in case of any dispute
Established in this jurisdiction is the rule that the law of the place where the arising from the contract, an arbitral panel will be constituted in a foreign country and the
contract is made governs. Lex loci contractus. The contract in this case was perfected here in arbitration rules of the foreign country would govern and its award shall be final and binding.
the Philippines. Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code
sanctions the validity of mutually agreed arbitral clause or the finality and binding effect of an RA 9285 incorporated the UNCITRAL Model law
arbitral award. Art. 2044 provides, Any stipulation that the arbitrators award or decision to which we are a signatory
shall be final, is valid, without prejudice to Articles 2038, 2039 and 2040. (Emphasis
supplied.)
For domestic arbitration proceedings, we have particular agencies to arbitrate
Arts. 2038,[31] 2039,[32] and 2040[33] abovecited refer to instances where a disputes arising from contractual relations. In case a foreign arbitral body is chosen by the
compromise or an arbitral award, as applied to Art. 2044 pursuant to Art. 2043, [34] may be parties, the arbitration rules of our domestic arbitration bodies would not be applied. As
voided, rescinded, or annulled, but these would not denigrate the finality of the arbitral signatory to the Arbitration Rules of the UNCITRAL Model Law on International Commercial
award. Arbitration[41] of the United Nations Commission on International Trade Law (UNCITRAL) in
the New York Convention on June 21, 1985, the Philippines committed itself to be bound by
The arbitration clause was mutually and voluntarily agreed upon by the parties. It the Model Law. We have even incorporated the Model Law in Republic Act No. (RA) 9285,
has not been shown to be contrary to any law, or against morals, good customs, public order, otherwise known as the Alternative Dispute Resolution Act of 2004 entitled An Act to
or public policy. There has been no showing that the parties have not dealt with each other on Institutionalize the Use of an Alternative Dispute Resolution System in the Philippines and to
equal footing. We find no reason why the arbitration clause should not be respected and Establish the Office for Alternative Dispute Resolution, and for Other Purposes, promulgated on
complied with by both parties. In Gonzales v. Climax Mining Ltd.,[35] we held that submission to April 2, 2004. Secs. 19 and 20 of Chapter 4 of the Model Law are the pertinent provisions:
arbitration is a contract and that a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a contract. [36] Again in Del Monte CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION
Corporation-USA v. Court of Appeals, we likewise ruled that [t]he provision to submit to
arbitration any dispute arising therefrom and the relationship of the parties is part of that SEC. 19. Adoption of the Model Law on International
contract and is itself a contract.[37] Commercial Arbitration.International commercial arbitration shall be
governed by the Model Law on International Commercial Arbitration
Arbitration clause not contrary to public policy (the Model Law) adopted by the United Nations Commission on
International Trade Law on June 21, 1985 (United Nations Document
The arbitration clause which stipulates that the arbitration must be done A/40/17) and recommended for enactment by the General Assembly in
in Seoul, Korea in accordance with the Commercial Arbitration Rules of the KCAB, and that the Resolution No. 40/72 approved on December 11, 1985, copy of which is
arbitral award is final and binding, is not contrary to public policy. This Court has sanctioned hereto attached as Appendix A.
the validity of arbitration clauses in a catena of cases. In the 1957 case of Eastboard
Navigation Ltd. v. Juan Ysmael and Co., Inc.,[38] this Court had occasion to rule that an SEC. 20. Interpretation of Model Law.In interpreting the Model
arbitration clause to resolve differences and breaches of mutually agreed contractual terms is Law, regard shall be had to its international origin and to the need for
valid. In BF Corporation v. Court of Appeals, we held that [i]n this jurisdiction, arbitration has uniformity in its interpretation and resort may be made to the travaux
been held valid and constitutional. Even before the approval on June 19, 1953 of Republic Act preparatories and the report of the Secretary General of the United
No. 876, this Court has countenanced the settlement of disputes through arbitration. Republic Nations Commission on International Trade Law dated March 25, 1985
Act No. 876 was adopted to supplement the New Civil Codes provisions on arbitration. [39] And
entitled, International Commercial Arbitration: Analytical Commentary
on Draft Trade identified by reference number A/CN. 9/264. SEC. 43. Recognition and Enforcement of Foreign Arbitral
Awards Not Covered by the New York Convention.The recognition and
enforcement of foreign arbitral awards not covered by the New York
Convention shall be done in accordance with procedural rules to be
While RA 9285 was passed only in 2004, it nonetheless applies in the instant case promulgated by the Supreme Court. The Court may, on grounds of
since it is a procedural law which has a retroactive effect. Likewise, KOGIES filed its comity and reciprocity, recognize and enforce a non-convention award as
application for arbitration before the KCAB on July 1, 1998 and it is still pending because no a convention award.
arbitral award has yet been rendered. Thus, RA 9285 is applicable to the instant case. Well-
settled is the rule that procedural laws are construed to be applicable to actions pending and SEC. 44. Foreign Arbitral Award Not Foreign Judgment.A foreign arbitral
undetermined at the time of their passage, and are deemed retroactive in that sense and to award when confirmed by a court of a foreign country, shall be
that extent. As a general rule, the retroactive application of procedural laws does not violate recognized and enforced as a foreign arbitral award and not as a
any personal rights because no vested right has yet attached nor arisen from them. [42] judgment of a foreign court.

Among the pertinent features of RA 9285 applying and incorporating the A foreign arbitral award, when confirmed by the Regional
UNCITRAL Model Law are the following: Trial Court, shall be enforced in the same manner as final and executory
decisions of courts of law of the Philippines
(1) The RTC must refer to arbitration in proper cases
xxxx
Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly
the subject of arbitration pursuant to an arbitration clause, and mandates the referral to SEC. 47. Venue and Jurisdiction.Proceedings for recognition
arbitration in such cases, thus: and enforcement of an arbitration agreement or for vacations, setting
aside, correction or modification of an arbitral award, and any
SEC. 24. Referral to Arbitration.A court before which an action application with a court for arbitration assistance and supervision shall
is brought in a matter which is the subject matter of an arbitration be deemed as special proceedings and shall be filed with the Regional
agreement shall, if at least one party so requests not later than the pre- Trial Court (i) where arbitration proceedings are conducted; (ii) where
trial conference, or upon the request of both parties thereafter, refer the the asset to be attached or levied upon, or the act to be enjoined is
parties to arbitration unless it finds that the arbitration agreement is located; (iii) where any of the parties to the dispute resides or has his
null and void, inoperative or incapable of being performed. place of business; or (iv) in the National Judicial Capital Region, at the
option of the applicant.

(2) Foreign arbitral awards must be confirmed by the RTC SEC. 48. Notice of Proceeding to Parties.In a special proceeding
for recognition and enforcement of an arbitral award, the Court shall
Foreign arbitral awards while mutually stipulated by the parties in the arbitration send notice to the parties at their address of record in the arbitration, or
clause to be final and binding are not immediately enforceable or cannot be implemented if any part cannot be served notice at such address, at such partys last
immediately. Sec. 35[43] of the UNCITRAL Model Law stipulates the requirement for the known address. The notice shall be sent al least fifteen (15) days before
arbitral award to be recognized by a competent court for enforcement, which court under Sec. the date set for the initial hearing of the application.
36 of the UNCITRAL Model Law may refuse recognition or enforcement on the grounds
provided for. RA 9285 incorporated these provisos to Secs. 42, 43, and 44 relative to Secs. 47
and 48, thus: It is now clear that foreign arbitral awards when confirmed by the RTC are deemed
not as a judgment of a foreign court but as a foreign arbitral award, and when confirmed, are
SEC. 42. Application of the New York Convention.The New York enforced as final and executory decisions of our courts of law.
Convention shall govern the recognition and enforcement of arbitral
awards covered by said Convention. Thus, it can be gleaned that the concept of a final and binding arbitral award is
similar to judgments or awards given by some of our quasi-judicial bodies, like the National
The recognition and enforcement of such arbitral awards shall Labor Relations Commission and Mines Adjudication Board, whose final judgments are
be filed with the Regional Trial Court in accordance with the rules of stipulated to be final and binding, but not immediately executory in the sense that they may
procedure to be promulgated by the Supreme Court. Said procedural still be judicially reviewed, upon the instance of any party.Therefore, the final foreign arbitral
rules shall provide that the party relying on the award or applying for its awards are similarly situated in that they need first to be confirmed by the RTC.
enforcement shall file with the court the original or authenticated copy
of the award and the arbitration agreement. If the award or agreement is (3) The RTC has jurisdiction to review foreign arbitral awards
not made in any of the official languages, the party shall supply a duly
certified translation thereof into any of such languages. Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with
specific authority and jurisdiction to set aside, reject, or vacate a foreign arbitral award on
The applicant shall establish that the country in which foreign grounds provided under Art. 34(2) of the UNCITRAL Model Law. Secs. 42 and 45 provide:
arbitration award was made in party to the New York Convention.

xxxx
SEC. 42. Application of the New York Convention.The New York Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an
Convention shall govern the recognition and enforcement of arbitral aggrieved party in cases where the RTC sets aside, rejects, vacates, modifies, or corrects an
awards covered by said Convention. arbitral award, thus:

The recognition and enforcement of such arbitral awards shall


be filed with the Regional Trial Court in accordance with the rules of SEC. 46. Appeal from Court Decision or Arbitral Awards.A
procedure to be promulgated by the Supreme Court. Said procedural decision of the Regional Trial Court confirming, vacating, setting aside,
rules shall provide that the party relying on the award or applying for its modifying or correcting an arbitral award may be appealed to the Court
enforcement shall file with the court the original or authenticated copy of Appeals in accordance with the rules and procedure to be
of the award and the arbitration agreement. If the award or agreement is promulgated by the Supreme Court.
not made in any of the official languages, the party shall supply a duly
certified translation thereof into any of such languages. The losing party who appeals from the judgment of the court
confirming an arbitral award shall be required by the appellate court to
The applicant shall establish that the country in which foreign post a counterbond executed in favor of the prevailing party equal to the
arbitration award was made is party to the New York Convention. amount of the award in accordance with the rules to be promulgated by
the Supreme Court.
If the application for rejection or suspension of enforcement
of an award has been made, the Regional Trial Court may, if it considers Thereafter, the CA decision may further be appealed or reviewed before this Court
it proper, vacate its decision and may also, on the application of the party through a petition for review under Rule 45 of the Rules of Court.
claiming recognition or enforcement of the award, order the party to PGSMC has remedies to protect its interests
provide appropriate security.
xxxx Thus, based on the foregoing features of RA 9285, PGSMC must submit to the
foreign arbitration as it bound itself through the subject contract. While it may have
SEC. 45. Rejection of a Foreign Arbitral Award.A party to a misgivings on the foreign arbitration done in Korea by the KCAB, it has available remedies
foreign arbitration proceeding may oppose an application for under RA 9285. Its interests are duly protected by the law which requires that the arbitral
recognition and enforcement of the arbitral award in accordance with award that may be rendered by KCAB must be confirmed here by the RTC before it can be
the procedures and rules to be promulgated by the Supreme Court only enforced.
on those grounds enumerated under Article V of the New York
Convention. Any other ground raised shall be disregarded by the With our disquisition above, petitioner is correct in its contention that an
Regional Trial Court. arbitration clause, stipulating that the arbitral award is final and binding, does not oust our
courts of jurisdiction as the international arbitral award, the award of which is not absolute
Thus, while the RTC does not have jurisdiction over disputes governed by and without exceptions, is still judicially reviewable under certain conditions provided for by
arbitration mutually agreed upon by the parties, still the foreign arbitral award is subject to the UNCITRAL Model Law on ICA as applied and incorporated in RA 9285.
judicial review by the RTC which can set aside, reject, or vacate it. In this sense, what this
Court held in Chung Fu Industries (Phils.), Inc. relied upon by KOGIES is applicable insofar as Finally, it must be noted that there is nothing in the subject Contract which
the foreign arbitral awards, while final and binding, do not oust courts of jurisdiction since provides that the parties may dispense with the arbitration clause.
these arbitral awards are not absolute and without exceptions as they are still judicially
reviewable. Chapter 7 of RA 9285 has made it clear that all arbitral awards, whether domestic Unilateral rescission improper and illegal
or foreign, are subject to judicial review on specific grounds provided for.
(4) Grounds for judicial review different in domestic and foreign arbitral awards Having ruled that the arbitration clause of the subject contract is valid and binding
on the parties, and not contrary to public policy; consequently, being bound to the contract of
The differences between a final arbitral award from an international or foreign arbitration, a party may not unilaterally rescind or terminate the contract for whatever cause
arbitral tribunal and an award given by a local arbitral tribunal are the specific grounds or without first resorting to arbitration.
conditions that vest jurisdiction over our courts to review the awards. What this Court held in University of the Philippines v. De Los Angeles [47] and
reiterated in succeeding cases,[48] that the act of treating a contract as rescinded on account of
For foreign or international arbitral awards which must first be confirmed by the infractions by the other contracting party is valid albeit provisional as it can be judicially
RTC, the grounds for setting aside, rejecting or vacating the award by the RTC are provided assailed, is not applicable to the instant case on account of a valid stipulation on
under Art. 34(2) of the UNCITRAL Model Law. arbitration. Where an arbitration clause in a contract is availing, neither of the parties can
unilaterally treat the contract as rescinded since whatever infractions or breaches by a party
For final domestic arbitral awards, which also need confirmation by the RTC or differences arising from the contract must be brought first and resolved by arbitration, and
pursuant to Sec. 23 of RA 876[44] and shall be recognized as final and executory decisions of not through an extrajudicial rescission or judicial action.
the RTC,[45] they may only be assailed before the RTC and vacated on the grounds provided
under Sec. 25 of RA 876.[46] The issues arising from the contract between PGSMC and KOGIES on whether the
equipment and machineries delivered and installed were properly installed and operational in
(5) RTC decision of assailed foreign arbitral award appealable the plant in Carmona, Cavite; the ownership of equipment and payment of the contract price;
and whether there was substantial compliance by KOGIES in the production of the samples,
given the alleged fact that PGSMC could not supply the raw materials required to produce the
sample LPG cylinders, are matters proper for arbitration. Indeed, we note that on July 1, 1998,
KOGIES instituted an Application for Arbitration before the KCAB in Seoul, Korea pursuant to (b) The following rules on interim or provisional relief shall
Art. 15 of the Contract as amended. Thus, it is incumbent upon PGSMC to abide by its be observed:
commitment to arbitrate.
Any party may request that provisional relief be granted
Corollarily, the trial court gravely abused its discretion in granting PGSMCs Motion against the adverse party.
for Inspection of Things on September 21, 1998, as the subject matter of the motion is under
the primary jurisdiction of the mutually agreed arbitral body, the KCAB in Korea. Such relief may be granted:
In addition, whatever findings and conclusions made by the RTC Branch Sheriff
from the inspection made on October 28, 1998, as ordered by the trial court on October 19, (i) to prevent irreparable loss or injury;
1998, is of no worth as said Sheriff is not technically competent to ascertain the actual status (ii) to provide security for the performance of any obligation;
of the equipment and machineries as installed in the plant. (iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or omission.
For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders
pertaining to the grant of the inspection of the equipment and machineries have to be recalled (c) The order granting provisional relief may be conditioned
and nullified. upon the provision of security or any act or omission specified in the
order.
Issue on ownership of plant proper for arbitration
(d) Interim or provisional relief is requested by written
Petitioner assails the CA ruling that the issue petitioner raised on whether the total contract application transmitted by reasonable means to the Court or arbitral
price of USD 1,530,000 was for the whole plant and its installation is beyond the ambit of a tribunal as the case may be and the party against whom the relief is
Petition for Certiorari. sought, describing in appropriate detail the precise relief, the party
against whom the relief is requested, the grounds for the relief, and the
Petitioners position is untenable. evidence supporting the request.

It is settled that questions of fact cannot be raised in an original action for certiorari. (e) The order shall be binding upon the parties.
[49]
Whether or not there was full payment for the machineries and equipment and installation
is indeed a factual issue prohibited by Rule 65. (f) Either party may apply with the Court for assistance in
implementing or enforcing an interim measure ordered by an arbitral
However, what appears to constitute a grave abuse of discretion is the order of the RTC in tribunal.
resolving the issue on the ownership of the plant when it is the arbitral body (KCAB) and not
the RTC which has jurisdiction and authority over the said issue. The RTCs determination of (g) A party who does not comply with the order shall be liable
such factual issue constitutes grave abuse of discretion and must be reversed and set aside. for all damages resulting from noncompliance, including all expenses,
and reasonable attorney's fees, paid in obtaining the orders judicial
RTC has interim jurisdiction to protect the rights of the parties enforcement. (Emphasis ours.)

Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving
the way for PGSMC to dismantle and transfer the equipment and machineries, we find it to be Art. 17(2) of the UNCITRAL Model Law on ICA defines an interim measure of
in order considering the factual milieu of the instant case. protection as:

Firstly, while the issue of the proper installation of the equipment and machineries Article 17. Power of arbitral tribunal to order interim measures
might well be under the primary jurisdiction of the arbitral body to decide, yet the RTC under
Sec. 28 of RA 9285 has jurisdiction to hear and grant interim measures to protect vested xxx xxx xxx
rights of the parties. Sec. 28 pertinently provides:
(2) An interim measure is any temporary measure, whether in the form
SEC. 28. Grant of interim Measure of Protection.(a) It is not of an award or in another form, by which, at any time prior to the
incompatible with an arbitration agreement for a party to request, issuance of the award by which the dispute is finally decided, the arbitral
before constitution of the tribunal, from a Court to grant such tribunal orders a party to:
measure. After constitution of the arbitral tribunal and during arbitral
proceedings, a request for an interim measure of protection, or (a) Maintain or restore the status quo pending determination of the
modification thereof, may be made with the arbitral or to the extent dispute;
that the arbitral tribunal has no power to act or is unable to act
effectivity, the request may be made with the Court. The arbitral (b) Take action that would prevent, or refrain from taking action that is
tribunal is deemed constituted when the sole arbitrator or the third likely to cause, current or imminent harm or prejudice to the arbitral
arbitrator, who has been nominated, has accepted the nomination and process itself;
written communication of said nomination and acceptance has been
received by the party making the request. (c) Provide a means of preserving assets out of which a subsequent
award may be satisfied; or
(d) Preserve evidence that may be relevant and material to the Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial
resolution of the dispute. amount based on the contract. Moreover, KOGIES is amply protected by the arbitral action it
has instituted before the KCAB, the award of which can be enforced in our jurisdiction through
the RTC. Besides, by our decision, PGSMC is compelled to submit to arbitration pursuant to
Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction the valid arbitration clause of its contract with KOGIES.
to issue interim measures:
PGSMC to preserve the subject equipment and machineries
Article 17 J. Court-ordered interim measures
Finally, while PGSMC may have been granted the right to dismantle and transfer the
A court shall have the same power of issuing an interim subject equipment and machineries, it does not have the right to convey or dispose of the
measure in relation to arbitration proceedings, irrespective of whether same considering the pending arbitral proceedings to settle the differences of the
their place is in the territory of this State, as it has in relation to parties. PGSMC therefore must preserve and maintain the subject equipment and machineries
proceedings in courts. The court shall exercise such power in accordance with the diligence of a good father of a family [51] until final resolution of the arbitral
with its own procedures in consideration of the specific features of proceedings and enforcement of the award, if any.
international arbitration.
WHEREFORE, this petition is PARTLY GRANTED, in that:

In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation, we (1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET
were explicit that even the pendency of an arbitral proceeding does not foreclose resort to the ASIDE;
courts for provisional reliefs. We explicated this way:
(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-
As a fundamental point, the pendency of arbitral proceedings does not 117 are REVERSED and SET ASIDE;
foreclose resort to the courts for provisional reliefs. The Rules of the ICC,
which governs the parties arbitral dispute, allows the application of a (3) The parties are hereby ORDERED to submit themselves to the arbitration of
party to a judicial authority for interim or conservatory their dispute and differences arising from the subject Contract before the KCAB; and
measures. Likewise, Section 14 of Republic Act (R.A.) No. 876 (The
Arbitration Law) recognizes the rights of any party to petition the court (4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and
to take measures to safeguard and/or conserve any matter which is the machineries, if it had not done so, and ORDERED to preserve and maintain them until the
subject of the dispute in arbitration. In addition, R.A. 9285, otherwise finality of whatever arbitral award is given in the arbitration proceedings.
known as the Alternative Dispute Resolution Act of 2004, allows the
filing of provisional or interim measures with the regular courts No pronouncement as to costs. SO ORDERED.
whenever the arbitral tribunal has no power to act or to act effectively.[50]
Korea Technologies Co. Ltd vs Lerma GR No. 143581 January 7, 2008
Facts: Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is
It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim engaged in the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder
measures of protection. manufacturing plants, while private respondent Pacific General Steel Manufacturing Corp.
(PGSMC) is a domestic corporation. On March 5, 1997, PGSMC and KOGIES executed a
Secondly, considering that the equipment and machineries are in the possession of Contract whereby KOGIES would set up an LPG Cylinder Manufacturing Plant in Carmona,
PGSMC, it has the right to protect and preserve the equipment and machineries in the best Cavite. The contract was executed in the Philippines. On April 7, 1997, the parties executed, in
way it can. Considering that the LPG plant was non-operational, PGSMC has the right to Korea, an Amendment for Contract No. KLP-970301 dated March 5, 1997 amending the terms
dismantle and transfer the equipment and machineries either for their protection and of payment. The contract and its amendment stipulated that KOGIES will ship the machinery
preservation or for the better way to make good use of them which is ineluctably within the and facilities necessary for manufacturing LPG cylinders for which PGSMC would pay USD
management discretion of PGSMC. 1,224,000. KOGIES would install and initiate the operation of the plant for which PGSMC
bound itself to pay USD 306,000 upon the plants production of the 11-kg. LPG cylinder
Thirdly, and of greater import is the reason that maintaining the equipment and samples. Thus, the total contract price amounted to USD 1,530,000. On October 14, 1997,
machineries in Worths property is not to the best interest of PGSMC due to the prohibitive PGSMC entered into a Contract of Lease with Worth Properties, Inc. (Worth) for use of Worths
rent while the LPG plant as set-up is not operational. PGSMC was losing PhP322,560 as 5,079-square meter property with a 4,032-square meter warehouse building to house the LPG
monthly rentals or PhP3.87M for 1998 alone without considering the 10% annual rent manufacturing plant. The monthly rental was PhP 322,560 commencing on January 1, 1998
increment in maintaining the plant. with a 10% annual increment clause. Subsequently, the machineries, equipment, and facilities
for the manufacture of LPG cylinders were shipped, delivered, and installed in the Carmona
Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating plant. PGSMC paid KOGIES USD 1,224,000. However, gleaned from the Certificate executed by
to the preservation or transfer of the equipment and machineries as an interim measure, yet the parties on January 22, 1998, after the installation of the plant, the initial operation could
on hindsight, the July 23, 1998 Order of the RTC allowing the transfer of the equipment and not be conducted as PGSMC encountered financial difficulties affecting the supply of
machineries given the non-recognition by the lower courts of the arbitral clause, has accorded materials, thus forcing the parties to agree that KOGIES would be deemed to have completely
an interim measure of protection to PGSMC which would otherwise been irreparably complied with the terms and conditions of the March 5, 1997 contract. For the remaining
damaged. balance of USD306,000 for the installation and initial operation of the plant, PGSMC issued
two postdated checks: (1) BPI Check No. 0316412 dated January 30, 1998 for PhP 4,500,000;
and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP 4,500,000. When KOGIES
deposited the checks, these were dishonored for the reason PAYMENT STOPPED. Thus, on preferential rate of US$1,860.00 per MT. Chan, on behalf of the corporations, assented and
May 8, 1998, KOGIES sent a demand letter to PGSMC threatening criminal action for violation affixed his signature on the conforme portion of the letter.11
of Batas Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of PGSMCs
President faxed a letter dated May 7, 1998 to KOGIES President who was then staying at a
On April 17, 2000, Ssangyong forwarded to MCC Pro Forma Invoice No. ST2-
Makati City hotel. She complained that not only did KOGIES deliver a different brand of
POSTSO40112 containing the terms and conditions of the transaction. MCC sent back by fax to
hydraulic press from that agreed upon but it had not delivered several equipment parts
Ssangyong the invoice bearing the conformity signature 13 of Chan. As stated in the pro
already paid for.
forma invoice, payment for the ordered steel products would be made through an irrevocable
letter of credit (L/C) at sight in favor of Ssangyong. 14 Following their usual practice, delivery of
Issue: Whether or not the arbitration clause in the contract of the parties should govern.
the goods was to be made after the L/C had been opened.
Held: Yes. Established in this jurisdiction is the rule that the law of the place where the
contract is made governs. Lex loci contractus. The contract in this case was perfected here in In the meantime, because of its confirmed transaction with MCC, Ssangyong placed the order
the Philippines. Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code with its steel manufacturer, Pohang Iron and Steel Corporation (POSCO), in South Korea 15 and
sanctions the validity of mutually agreed arbitral clause or the finality and binding effect of an paid the same in full.
arbitral award. Art. 2044 provides, Any stipulation that the arbitrators award or decision shall
be final, is valid, without prejudice to Articles 2038, 2039 and 2040.
Because MCC could open only a partial letter of credit, the order for 220MT of steel was split
The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not
into two,16 one for 110MT covered by Pro Forma Invoice No. ST2-POSTS0401-117 and
been shown to be contrary to any law, or against morals, good customs, public order, or public
another for 110MT covered by ST2-POSTS0401-2,18 both dated April 17, 2000.
policy. There has been no showing that the parties have not dealt with each other on equal
footing. We find no reason why the arbitration clause should not be respected and complied
with by both parties. In Gonzales v. Climax Mining Ltd., we held that submission to arbitration On June 20, 2000, Ssangyong, through its Manila Office, informed Sanyo Seiki and Chan, by
is a contract and that a clause in a contract providing that all matters in dispute between the way of a fax transmittal, that it was ready to ship 193.597MT of stainless steel from Korea to
parties shall be referred to arbitration is a contract. Again in Del Monte Corporation-USA v. the Philippines. It requested that the opening of the L/C be facilitated.19 Chan affixed his
Court of Appeals, we likewise ruled that [t]he provision to submit to arbitration any dispute signature on the fax transmittal and returned the same, by fax, to Ssangyong. 20
arising therefrom and the relationship of the parties is part of that contract and is itself a
contract.
Two days later, on June 22, 2000, Ssangyong Manila Office informed Sanyo Seiki, thru Chan,
Having said that the instant arbitration clause is not against public policy, we come to the
that it was able to secure a US$30/MT price adjustment on the contracted price of
question on what governs an arbitration clause specifying that in case of any dispute arising
US$1,860.00/MT for the 200MT stainless steel, and that the goods were to be shipped in
from the contract, an arbitral panel will be constituted in a foreign country and the arbitration
two tranches, the first 100MT on that day and the second 100MT not later than June 27, 2000.
rules of the foreign country would govern and its award shall be final and binding.
Ssangyong reiterated its request for the facilitation of the L/C's opening.21
Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to
judgments or awards given by some of our quasi-judicial bodies, like the National Labor
Relations Commission and Mines Adjudication Board, whose final judgments are stipulated to Ssangyong later, through its Manila Office, sent a letter, on June 26, 2000, to the Treasury
be final and binding, but not immediately executory in the sense that they may still be Group of Sanyo Seiki that it was looking forward to receiving the L/C details and a cable copy
judicially reviewed, upon the instance of any party. Therefore, the final foreign arbitral awards thereof that day.22 Ssangyong sent a separate letter of the same date to Sanyo Seiki requesting
are similarly situated in that they need first to be confirmed by the RTC. for the opening of the L/C covering payment of the first 100MT not later than June 28,
2000.23 Similar letters were transmitted by Ssangyong Manila Office on June 27, 2000.24 On
June 28, 2000, Ssangyong sent another facsimile letter to MCC stating that its principal in
MCC Industial Sales Corp. v. Ssangyong Corp., G.R. No. 170633, October 17, 2007 Korea was already in a difficult situation 25 because of the failure of Sanyo Seiki and MCC to
open the L/C's.

Before the Court is a petition for review on certiorari of the Decision1 of the Court of Appeals The following day, June 29, 2000, Ssangyong received, by fax, a letter signed by Chan,
in CA-G.R. CV No. 82983 and its Resolution2 denying the motion for reconsideration thereof. requesting an extension of time to open the L/C because MCC's credit line with the bank had
been fully availed of in connection with another transaction, and MCC was waiting for an
additional credit line.26 On the same date, Ssangyong replied, requesting that it be informed of
Petitioner MCC Industrial Sales (MCC), a domestic corporation with office at Binondo, Manila,
the date when the L/C would be opened, preferably at the earliest possible time, since its Steel
is engaged in the business of importing and wholesaling stainless steel products. 3 One of its
Team 2 in Korea was having problems and Ssangyong was incurring warehousing costs. 27 To
suppliers is the Ssangyong Corporation (Ssangyong),4 an international trading company5 with
maintain their good business relationship and to support MCC in its financial predicament,
head office in Seoul, South Korea and regional headquarters in Makati City, Philippines. 6 The
Ssangyong offered to negotiate with its steel manufacturer, POSCO, another US$20/MT
two corporations conducted business through telephone calls and facsimile or telecopy
discount on the price of the stainless steel ordered. This was intimated in Ssangyong's June
transmissions.7 Ssangyong would send the pro forma invoices containing the details of the
30, 2000 letter to MCC.28 On July 6, 2000, another follow-up letter29 for the opening of the L/C
steel product order to MCC; if the latter conforms thereto, its representative affixes his
was sent by Ssangyong to MCC.
signature on the faxed copy and sends it back to Ssangyong, again by fax. 8

However, despite Ssangyong's letters, MCC failed to open a letter of credit. 30 Consequently, on
On April 13, 2000, Ssangyong Manila Office sent, by fax, a letter9 addressed to Gregory Chan,
August 15, 2000, Ssangyong, through counsel, wrote Sanyo Seiki that if the L/C's were not
MCC Manager [also the President10 of Sanyo Seiki Stainless Steel Corporation], to confirm
opened, Ssangyong would be compelled to cancel the contract and hold MCC liable for
MCC's and Sanyo Seiki's order of 220 metric tons (MT) of hot rolled stainless steel under a
damages for breach thereof amounting to US$96,132.18, inclusive of warehouse expenses,
related interests and charges.31
Later, Pro Forma Invoice Nos. ST2-POSTS080-132 and ST2-POSTS080-233 dated August 16, WHEREFORE, premises considered, Judgment is hereby rendered ordering
2000 were issued by Ssangyong and sent via fax to MCC. The invoices slightly varied the terms defendants MCC Industrial Sales Corporation and Gregory Chan, to pay plaintiff,
of the earlier pro forma invoices (ST2-POSTSO401, ST2-POSTS0401-1 and ST2- jointly and severally the following:
POSTS0401-2), in that the quantity was now officially 100MT per invoice and the price was
reduced to US$1,700.00 per MT. As can be gleaned from the photocopies of the said August
1) Actual damages of US$93,493.87 representing the outstanding principal claim
16, 2000 invoices submitted to the court, they both bear the conformity signature of MCC
plus interest at the rate of 6% per annum from March 30, 2001.
Manager Chan.

2) Attorney's fees in the sum of P50,000.00 plus P2,000.00 per counsel's


On August 17, 2000, MCC finally opened an L/C with PCIBank for US$170,000.00 covering
appearance in court, the same being deemed just and equitable considering that by
payment for 100MT of stainless steel coil under Pro Forma Invoice No. ST2-POSTS080-
reason of defendants' breach of their obligation under the subject contract, plaintiff
2.34 The goods covered by the said invoice were then shipped to and received by MCC.35
was constrained to litigate to enforce its rights and recover for the damages it
sustained, and therefore had to engage the services of a lawyer.
MCC then faxed to Ssangyong a letter dated August 22, 2000 signed by Chan, requesting for a
price adjustment of the order stated in Pro Forma Invoice No. ST2-POSTS080-1, considering
3) Costs of suit.
that the prevailing price of steel at that time was US$1,500.00/MT, and that MCC lost a lot of
money due to a recent strike.36
No award of exemplary damages for lack of sufficient basis. SO ORDERED. 44
Ssangyong rejected the request, and, on August 23, 2000, sent a demand letter to Chan for
37

the opening of the second and last L/C of US$170,000.00 with a warning that, if the said L/C On April 22, 2004, MCC and Chan, through their counsel of record, Atty. Eladio B. Samson, filed
was not opened by MCC on August 26, 2000, Ssangyong would be constrained to cancel the their Notice of Appeal.45 On June 8, 2004, the law office of Castillo Zamora & Poblador entered
contract and hold MCC liable for US$64,066.99 (representing cost difference, warehousing its appearance as their collaborating counsel.
expenses, interests and charges as of August 15, 2000) and other damages for breach. Chan
failed to reply.
In their Appeal Brief filed on March 9, 2005,46 MCC and Chan raised before the CA the
following errors of the RTC:
Exasperated, Ssangyong through counsel wrote a letter to MCC, on September 11, 2000,
canceling the sales contract under ST2-POSTS0401-1 /ST2-POSTS0401-2, and demanding
I. THE HONORABLE COURT A QUO PLAINLY ERRED IN FINDING THAT
payment of US$97,317.37 representing losses, warehousing expenses, interests and charges. 38
APPELLANTS VIOLATED THEIR CONTRACT WITH APPELLEE

Ssangyong then filed, on November 16, 2001, a civil action for damages due to breach of
A. THE HONORABLE COURT A QUO PLAINLY ERRED IN FINDING THAT
contract against defendants MCC, Sanyo Seiki and Gregory Chan before the Regional Trial
APPELLANTS AGREED TO PURCHASE 200 METRIC TONS OF STEEL
Court of Makati City. In its complaint,39Ssangyong alleged that defendants breached their
PRODUCTS FROM APPELLEE, INSTEAD OF ONLY 100 METRIC TONS.
contract when they refused to open the L/C in the amount of US$170,000.00 for the
remaining 100MT of steel under Pro Forma Invoice Nos. ST2-POSTS0401-1 and ST2-
POSTS0401-2. 1. THE HONORABLE COURT A QUO PLAINLY ERRED IN
ADMITTING IN EVIDENCE THE PRO FORMA INVOICES WITH
REFERENCE NOS. ST2- POSTS0401-1 AND ST2-POSTS0401-2.
After Ssangyong rested its case, defendants filed a Demurrer to Evidence 40 alleging that
Ssangyong failed to present the original copies of the pro forma invoices on which the civil
action was based. In an Order dated April 24, 2003, the court denied the demurrer, ruling that II. THE HONORABLE COURT A QUO PLAINLY ERRED IN AWARDING ACTUAL
the documentary evidence presented had already been admitted in the December 16, 2002 DAMAGES TO APPELLEE.
Order41 and their admissibility finds support in Republic Act (R.A.) No. 8792, otherwise
known as the Electronic Commerce Act of 2000. Considering that both testimonial and
III. THE HONORABLE COURT A QUO PLAINLY ERRED IN AWARDING ATTORNEY'S
documentary evidence tended to substantiate the material allegations in the complaint,
FEES TO APPELLEE.
Ssangyong's evidence sufficed for purposes of a prima facie case.42

IV. THE HONORABLE COURT A QUO PLAINLY ERRED IN FINDING APPELLANT


After trial on the merits, the RTC rendered its Decision43 on March 24, 2004, in favor of
GREGORY CHAN JOINTLY AND SEVERALLY LIABLE WITH APPELLANT MCC. 47
Ssangyong. The trial court ruled that when plaintiff agreed to sell and defendants agreed to
buy the 220MT of steel products for the price of US$1,860 per MT, the contract was perfected.
The subject transaction was evidenced by Pro Forma Invoice Nos. ST2-POSTS0401-1 On August 31, 2005, the CA rendered its Decision48 affirming the ruling of the trial court, but
and ST2-POSTS0401-2, which were later amended only in terms of reduction of volume as absolving Chan of any liability. The appellate court ruled, among others, that Pro Forma
well as the price per MT, following Pro Forma Invoice Nos. ST2-POSTS080-1 and ST2- Invoice Nos. ST2-POSTS0401-1 and ST2-POSTS0401-2 (Exhibits "E", "E-1" and "F") were
POSTS080-2. The RTC, however, excluded Sanyo Seiki from liability for lack of competent admissible in evidence, although they were mere facsimile printouts of MCC's steel
evidence. The fallo of the decision reads: orders.49 The dispositive portion of the appellate court's decision reads:

WHEREFORE, premises considered, the Court holds:


(1) The award of actual damages, with interest, attorney's fees and costs ordered I Whether the CA decision dated 15 August 2005 is already final and executory;
by the lower court is hereby AFFIRMED.
II Whether the print-out and/or photocopies of facsimile transmissions are electronic
(2) Appellant Gregory Chan is hereby ABSOLVED from any liability. evidence and admissible as such;

SO ORDERED.50 III Whether there was a perfected contract of sale between MCC and Ssangyong, and, if in the
affirmative, whether MCC breached the said contract; and
A copy of the said Decision was received by MCC's and Chan's principal counsel, Atty. Eladio B.
Samson, on September 14, 2005.51 Their collaborating counsel, Castillo Zamora & IV Whether the award of actual damages and attorney's fees in favor of Ssangyong is proper
Poblador,52 likewise, received a copy of the CA decision on September 19, 2005. 53 and justified.

On October 4, 2005, Castillo Zamora & Poblador, on behalf of MCC, filed a motion for -I-
reconsideration of the said decision.54 Ssangyong opposed the motion contending that the
decision of the CA had become final and executory on account of the failure of MCC to file the
It cannot be gainsaid that in Albano v. Court of Appeals,58 we held that receipt of a copy of the
said motion within the reglementary period. The appellate court resolved, on November 22,
decision by one of several counsels on record is notice to all, and the period to appeal
2005, to deny the motion on its merits,55 without, however, ruling on the procedural issue
commences on such date even if the other counsel has not yet received a copy of the decision.
raised.
In this case, when Atty. Samson received a copy of the CA decision on September 14, 2005,
MCC had only fifteen (15) days within which to file a motion for reconsideration conformably
Aggrieved, MCC filed a petition for review on certiorari56 before this Court, imputing the with Section 1, Rule 52 of the Rules of Court, or to file a petition for review on certiorari in
following errors to the Court of Appeals: accordance with Section 2, Rule 45. The period should not be reckoned from September 29,
2005 (when Castillo Zamora & Poblador received their copy of the decision) because notice to
Atty. Samson is deemed notice to collaborating counsel.
THE COURT OF APPEALS DECIDED A LEGAL QUESTION NOT IN ACCORDANCE
WITH JURISPRUDENCE AND SANCTIONED A DEPARTURE FROM THE USUAL AND
ACCEPTED COURSE OF JUDICIAL PROCEEDINGS BY REVERSING THE COURT A We note, however, from the records of the CA, that it was Castillo Zamora & Poblador, not Atty.
QUO'S DISMISSAL OF THE COMPLAINT IN CIVIL CASE NO. 02-124 CONSIDERING Samson, which filed both MCC's and Chan's Brief and Reply Brief. Apparently, the
THAT: arrangement between the two counsels was for the collaborating, not the principal, counsel to
file the appeal brief and subsequent pleadings in the CA. This explains why it was Castillo
Zamora & Poblador which filed the motion for the reconsideration of the CA decision, and
I. THE COURT OF APPEALS ERRED IN SUSTAINING THE ADMISSIBILITY
they did so on October 5, 2005, well within the 15-day period from September 29, 2005, when
IN EVIDENCE OF THE PRO-FORMA INVOICES WITH REFERENCE NOS.
they received their copy of the CA decision. This could also be the reason why the CA did not
ST2-POSTSO401-1 AND ST2-POSTSO401-2, DESPITE THE FACT THAT
find it necessary to resolve the question of the timeliness of petitioner's motion for
THE SAME WERE MERE PHOTOCOPIES OF FACSIMILE PRINTOUTS.
reconsideration, even as the CA denied the same.

II. THE COURT OF APPEALS FAILED TO APPRECIATE THE OBVIOUS


Independent of this consideration though, this Court assiduously reviewed the records and
FACT THAT, EVEN ASSUMING PETITIONER BREACHED THE SUPPOSED
found that strong concerns of substantial justice warrant the relaxation of this rule.
CONTRACT, THE FACT IS THAT PETITIONER FAILED TO PROVE THAT IT
SUFFERED ANY DAMAGES AND THE AMOUNT THEREOF.
In Philippine Ports Authority v. Sargasso Construction and Development Corporation,59 we ruled
that:
III. THE AWARD OF ACTUAL DAMAGES IN THE AMOUNT OF
US$93,493.87 IS SIMPLY UNCONSCIONABLE AND SHOULD HAVE BEEN
AT LEAST REDUCED, IF NOT DELETED BY THE COURT OF APPEALS.57 In Orata v. Intermediate Appellate Court, we held that where strong considerations
of substantive justice are manifest in the petition, this Court may relax the strict
application of the rules of procedure in the exercise of its legal jurisdiction. In
In its Comment, Ssangyong sought the dismissal of the petition, raising the following
addition to the basic merits of the main case, such a petition usually embodies
arguments: that the CA decision dated 15 August 2005 is already final and executory, because
justifying circumstance which warrants our heeding to the petitioner's cry for
MCC's motion for reconsideration was filed beyond the reglementary period of 15 days from
justice in spite of the earlier negligence of counsel. As we held in Obut v. Court of
receipt of a copy thereof, and that, in any case, it was a pro forma motion; that MCC breached
Appeals:
the contract for the purchase of the steel products when it failed to open the required letter of
credit; that the printout copies and/or photocopies of facsimile or telecopy transmissions
were properly admitted by the trial court because they are considered original documents [W]e cannot look with favor on a course of action which would place the
under R.A. No. 8792; and that MCC is liable for actual damages and attorney's fees because of administration of justice in a straight jacket for then the result would be
its breach, thus, compelling Ssangyong to litigate. a poor kind of justice if there would be justice at all. Verily, judicial
orders, such as the one subject of this petition, are issued to be obeyed,
nonetheless a non-compliance is to be dealt with as the circumstances
The principal issues that this Court is called upon to resolve are the following:
attending the case may warrant. What should guide judicial action is the
principle that a party-litigant is to be given the fullest opportunity to
establish the merits of his complaint or defense rather than for him to transmissions are indeed within the coverage of R.A. No. 8792 before ruling on whether the
lose life, liberty, honor or property on technicalities. photocopies thereof are covered by the law. In any case, this Court has ample authority to go
beyond the pleadings when, in the interest of justice or for the promotion of public policy,
there is a need to make its own findings in order to support its conclusions.63
The rules of procedure are used only to secure and not override or frustrate justice.
A six-day delay in the perfection of the appeal, as in this case, does not warrant the
outright dismissal of the appeal. In Development Bank of the Philippines vs. Court of Petitioner contends that the photocopies of the pro forma invoices presented by respondent
Appeals, we gave due course to the petitioner's appeal despite the late filing of its Ssangyong to prove the perfection of their supposed contract of sale are inadmissible in
brief in the appellate court because such appeal involved public interest. We stated evidence and do not fall within the ambit of R.A. No. 8792, because the law merely admits as
in the said case that the Court may exempt a particular case from a strict the best evidence the original fax transmittal. On the other hand, respondent posits that, from
application of the rules of procedure where the appellant failed to perfect its appeal a reading of the law and the Rules on Electronic Evidence, the original facsimile transmittal of
within the reglementary period, resulting in the appellate court's failure to obtain the pro forma invoice is admissible in evidence since it is an electronic document and,
jurisdiction over the case. In Republic vs. Imperial, Jr., we also held that there is therefore, the best evidence under the law and the Rules. Respondent further claims that the
more leeway to exempt a case from the strictness of procedural rules when the photocopies of these fax transmittals (specifically ST2-POSTS0401-1 and ST2-POSTS0401-
appellate court has already obtained jurisdiction over the appealed case. We 2) are admissible under the Rules on Evidence because the respondent sufficiently explained
emphasize that: the non-production of the original fax transmittals.

[T]he rules of procedure are mere tools intended to facilitate the In resolving this issue, the appellate court ruled as follows:
attainment of justice, rather than frustrate it. A strict and rigid
application of the rules must always be eschewed when it would subvert
Admissibility of Pro Forma
the rule's primary objective of enhancing fair trials and expediting
Invoices; Breach of Contract
justice. Technicalities should never be used to defeat the substantive
by Appellants
rights of the other party. Every party-litigant must be afforded the
amplest opportunity for the proper and just determination of his cause,
free from the constraints of technicalities.60 Turning first to the appellants' argument against the admissibility of the Pro Forma
Invoices with Reference Nos. ST2-POSTS0401-1 and ST2-POSTS0401-2 (Exhibits
"E", "E-1" and "F", pp. 215-218, Records), appellants argue that the said documents
Moreover, it should be remembered that the Rules were promulgated to set guidelines in the
are inadmissible (sic) being violative of the best evidence rule.
orderly administration of justice, not to shackle the hand that dispenses it. Otherwise, the
courts would be consigned to being mere slaves to technical rules, deprived of their judicial
discretion. Technicalities must take a backseat to substantive rights. After all, it is circumspect The argument is untenable.
leniency in this respect that will give the parties the fullest opportunity to ventilate the merits
of their respective causes, rather than have them lose life, liberty, honor or property on sheer
The copies of the said pro-forma invoices submitted by the appellee are admissible
technicalities.61
in evidence, although they are mere electronic facsimile printouts of appellant's
orders. Such facsimile printouts are considered Electronic Documents under the
The other technical issue posed by respondent is the alleged pro forma nature of MCC's New Rules on Electronic Evidence, which came into effect on August 1, 2001. (Rule
motion for reconsideration, ostensibly because it merely restated the arguments previously 2, Section 1 [h], A.M. No. 01-7-01-SC).
raised and passed upon by the CA.
"(h) 'Electronic document' refers to information or the representation of
In this connection, suffice it to say that the mere restatement of arguments in a motion for information, data, figures, symbols or other modes of written expression,
reconsideration does not per se result in a pro forma motion. In Security Bank and Trust described or however represented, by which a right is established or an
Company, Inc. v. Cuenca,62 we held that a motion for reconsideration may not be obligation extinguished, or by which a fact may be proved and affirmed,
necessarily pro forma even if it reiterates the arguments earlier passed upon and rejected by which is received, recorded, transmitted, stored, processed, retrieved or
the appellate court. A movant may raise the same arguments precisely to convince the court produced electronically. It includes digitally signed documents and any
that its ruling was erroneous. Furthermore, the pro forma rule will not apply if the arguments printout or output, readable by sight or other means, which accurately
were not sufficiently passed upon and answered in the decision sought to be reconsidered. reflects the electronic data message or electronic document. For
purposes of these Rules, the term 'electronic document' may be used
interchangeably with 'electronic data message'.
- II -

An electronic document shall be regarded as the equivalent of an original document


The second issue poses a novel question that the Court welcomes. It provides the occasion for
under the Best Evidence Rule, as long as it is a printout or output readable by sight
this Court to pronounce a definitive interpretation of the equally innovative provisions of the
or other means, showing to reflect the data accurately. (Rule 4, Section 1, A.M. No.
Electronic Commerce Act of 2000 (R.A. No. 8792) vis--vis the Rules on Electronic Evidence.
01-7-01-SC)

Although the parties did not raise the question whether the original facsimile transmissions
The ruling of the Appellate Court is incorrect. R.A. No. 8792,64 otherwise known as the
are "electronic data messages" or "electronic documents" within the context of the Electronic
Electronic Commerce Act of 2000, considers an electronic data message or an electronic
Commerce Act (the petitioner merely assails as inadmissible evidence the photocopies of the
document as the functional equivalent of a written document for evidentiary purposes. 65 The
said facsimile transmissions), we deem it appropriate to determine first whether the said fax
Rules on Electronic Evidence66 regards an electronic document as admissible in evidence if it Law on Electronic Commerce adopted by the United Nations Commission on International
complies with the rules on admissibility prescribed by the Rules of Court and related laws, Trade Law (UNCITRAL),70 from which majority of the provisions of R.A. No. 8792 were
and is authenticated in the manner prescribed by the said Rules.67 An electronic document is taken.71 While Congress deleted this phrase in the Electronic Commerce Act of 2000, the
also the equivalent of an original document under the Best Evidence Rule, if it is a printout or drafters of the IRR reinstated it. The deletion by Congress of the said phrase is significant and
output readable by sight or other means, shown to reflect the data accurately. 68 pivotal, as discussed hereunder.

Thus, to be admissible in evidence as an electronic data message or to be considered as the The clause on the interchangeability of the terms "electronic data message" and "electronic
functional equivalent of an original document under the Best Evidence Rule, the writing must document" was the result of the Senate of the Philippines' adoption, in Senate Bill 1902, of the
foremost be an "electronic data message" or an "electronic document." phrase "electronic data message" and the House of Representative's employment, in House
Bill 9971, of the term "electronic document."72 In order to expedite the reconciliation of the
two versions, the technical working group of the Bicameral Conference Committee adopted
The Electronic Commerce Act of 2000 defines electronic data message and electronic
both terms and intended them to be the equivalent of each one. 73 Be that as it may, there is a
document as follows:
slight difference between the two terms. While "data message" has reference to information
electronically sent, stored or transmitted, it does not necessarily mean that it will give rise to a
Sec. 5. Definition of Terms. For the purposes of this Act, the following terms are right or extinguish an obligation,74 unlike an electronic document. Evident from the law,
defined, as follows: however, is the legislative intent to give the two terms the same construction.

xxx The Rules on Electronic Evidence promulgated by this Court defines the said terms in the
following manner:
c. "Electronic Data Message" refers to information generated, sent, received or
stored by electronic, optical or similar means. SECTION 1. Definition of Terms. For purposes of these Rules, the following terms
are defined, as follows: x x x x
xxx
(g) "Electronic data message" refers to information generated, sent, received or
stored by electronic, optical or similar means.
f. "Electronic Document" refers to information or the representation of information,
data, figures, symbols or other modes of written expression, described or however
represented, by which a right is established or an obligation extinguished, or by (h) "Electronic document" refers to information or the representation of
which a fact may be proved and affirmed, which is received, recorded, transmitted, information, data, figures, symbols or other modes of written expression, described
stored, processed, retrieved or produced electronically. or however represented, by which a right is established or an obligation
extinguished, or by which a fact may be proved and affirmed, which is received,
recorded, transmitted, stored, processed, retrieved or produced electronically. It
The Implementing Rules and Regulations (IRR) of R.A. No. 8792,69 which was signed on July
includes digitally signed documents and print-out or output, readable by sight or
13, 2000 by the then Secretaries of the Department of Trade and Industry, the Department of
other means, which accurately reflects the electronic data message or electronic
Budget and Management, and then Governor of the Bangko Sentral ng Pilipinas, defines the
document. For purposes of these Rules, the term "electronic document" may be used
terms as:
interchangeably with "electronic data message."

Sec. 6. Definition of Terms. For the purposes of this Act and these Rules, the
Given these definitions, we go back to the original question: Is an original printout of
following terms are defined, as follows: xxx
a facsimile transmission an electronic data message or electronic document?

(e) "Electronic Data Message" refers to information generated, sent, received or


The definitions under the Electronic Commerce Act of 2000, its IRR and the Rules on
stored by electronic, optical or similar means, but not limited to, electronic data
Electronic Evidence, at first glance, convey the impression that facsimile transmissions are
interchange (EDI), electronic mail, telegram, telex or telecopy. Throughout these
electronic data messages or electronic documents because they are sent by electronic means.
Rules, the term "electronic data message" shall be equivalent to and be used
The expanded definition of an "electronic data message" under the IRR, consistent with the
interchangeably with "electronic document." x x x x
UNCITRAL Model Law, further supports this theory considering that the enumeration "xxx [is]
not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy."
(h) "Electronic Document" refers to information or the representation of And to telecopy is to send a document from one place to another via a fax machine.75
information, data, figures, symbols or other modes of written expression, described
or however represented, by which a right is established or an obligation
As further guide for the Court in its task of statutory construction, Section 37 of the Electronic
extinguished, or by which a fact may be proved and affirmed, which is received,
Commerce Act of 2000 provides that
recorded, transmitted, stored, processed, retrieved or produced
electronically. Throughout these Rules, the term "electronic document" shall be
equivalent to and be used interchangeably with "electronic data message." Unless otherwise expressly provided for, the interpretation of this Act shall give due
regard to its international origin and the need to promote uniformity in its
application and the observance of good faith in international trade relations. The
The phrase "but not limited to, electronic data interchange (EDI), electronic mail, telegram,
telex or telecopy" in the IRR's definition of "electronic data message" is copied from the Model
generally accepted principles of international law and convention on electronic DATA and its definition. So, the amendment will read: "DATA" MEANS
commerce shall likewise be considered. REPRESENTATION, IN ANY FORM, OF INFORMATION OR CONCEPTS.

Obviously, the "international origin" mentioned in this section can only refer to the UNCITRAL The explanation is this: This definition of "data" or "data" as it is now fashionably
Model Law, and the UNCITRAL's definition of "data message": pronounced in America - - the definition of "data" ensures that our bill applies to
any form of information in an electronic record, whether these are figures, facts or
ideas.
"Data message" means information generated, sent, received or stored by
electronic, optical or similar means including, but not limited to, electronic data
interchange (EDI), electronic mail, telegram, telex or telecopy.76 So again, the proposed amendment is this: "DATA" MEANS REPRESENTATIONS, IN
ANY FORM, OF INFORMATION OR CONCEPTS.
is substantially the same as the IRR's characterization of an "electronic data message."
Senator Magsaysay. May I know how will this affect the definition of "Data Message"
which encompasses electronic records, electronic writings and electronic
However, Congress deleted the phrase, "but not limited to, electronic data interchange (EDI),
documents?
electronic mail, telegram, telex or telecopy," and replaced the term "data message" (as found in
the UNCITRAL Model Law ) with "electronic data message." This legislative divergence from
what is assumed as the term's "international origin" has bred uncertainty and now impels the Senator Santiago. These are completely congruent with each other. These are
Court to make an inquiry into the true intent of the framers of the law. Indeed, in the compatible. When we define "data," we are simply reinforcing the definition of
construction or interpretation of a legislative measure, the primary rule is to search for and what is a data message.
determine the intent and spirit of the law.77 A construction should be rejected that gives to the
language used in a statute a meaning that does not accomplish the purpose for which the
Senator Magsaysay. It is accepted, Mr. President.
statute was enacted, and that tends to defeat the ends which are sought to be attained by the
enactment.78
Senator Santiago. Thank you. The next term is "ELECTRONIC RECORD." The
proposed amendment is as follows:
Interestingly, when Senator Ramon B. Magsaysay, Jr., the principal author of Senate Bill 1902
(the predecessor of R.A. No. 8792), sponsored the bill on second reading, he proposed to
adopt the term "data message" as formulated and defined in the UNCITRAL Model "ELECTRONIC RECORD" MEANS DATA THAT IS RECORDED OR STORED ON ANY
Law.79 During the period of amendments, however, the term evolved into "electronic data MEDIUM IN OR BY A COMPUTER SYSTEM OR OTHER SIMILAR DEVICE, THAT CAN
message," and the phrase "but not limited to, electronic data interchange (EDI), electronic mail, BE READ OR PERCEIVED BY A PERSON OR A COMPUTER SYSTEM OR OTHER
telegram, telex or telecopy" in the UNCITRAL Model Law was deleted. Furthermore, the term SIMILAR DEVICE. IT INCLUDES A DISPLAY, PRINTOUT OR OTHER OUTPUT OF
"electronic data message," though maintaining its description under the UNCITRAL Model THAT DATA.
Law, except for the aforesaid deleted phrase, conveyed a different meaning, as revealed in the
following proceedings: x x x x
The explanation for this term and its definition is as follows: The term
"ELECTRONIC RECORD" fixes the scope of our bill. The record is the data. The
Senator Santiago. Yes, Mr. President. I will furnish a copy together with the record may be on any medium. It is electronic because it is recorded or stored in or
explanation of this proposed amendment. by a computer system or a similar device.

And then finally, before I leave the Floor, may I please be allowed to go back to The amendment is intended to apply, for example, to data on magnetic strips on
Section 5; the Definition of Terms. In light of the acceptance by the good Senator of cards or in Smart cards. As drafted, it would not apply to telexes or faxes, except
my proposed amendments, it will then become necessary to add certain terms in computer-generated faxes, unlike the United Nations model law on electronic
our list of terms to be defined. I would like to add a definition on what is "data," commerce. It would also not apply to regular digital telephone conversations since
what is "electronic record" and what is an "electronic record system." the information is not recorded. It would apply to voice mail since the information
has been recorded in or by a device similar to a computer. Likewise, video records are
not covered. Though when the video is transferred to a website, it would be covered
If the gentleman will give me permission, I will proceed with the proposed
because of the involvement of the computer. Music recorded by a computer system on
amendment on Definition of Terms, Section 5.
a compact disc would be covered.

Senator Magsaysay. Please go ahead, Senator Santiago.


In short, not all data recorded or stored in digital form is covered. A computer or a
similar device has to be involved in its creation or storage. The term "similar device"
Senator Santiago. We are in Part 1, short title on the Declaration of Policy, Section 5, does not extend to all devices that create or store data in digital form. Although
Definition of Terms. things that are not recorded or preserved by or in a computer system are omitted
from this bill, these may well be admissible under other rules of law. This provision
focuses on replacing the search for originality proving the reliability of systems
At the appropriate places in the listing of these terms that have to be defined since
instead of that of individual records and using standards to show systems reliability.
these are arranged alphabetically, Mr. President, I would like to insert the term
Paper records that are produced directly by a computer system such as printouts are computer system or similar device. The Act is intended to apply, for example, to
themselves electronic records being just the means of intelligible display of the data on magnetic strips on cards, or in smart cards. As drafted, it would not apply to
contents of the record. Photocopies of the printout would be paper record subject to telexes or faxes (except computer-generated faxes), unlike the United Nations Model
the usual rules about copies, but the original printout would be subject to the rules of Law on Electronic Commerce. It would also not apply to regular digital telephone
admissibility of this bill. conversations, since the information is not recorded. It would apply to voice mail,
since the information has been recorded in or by a device similar to a computer.
Likewise video records are not covered, though when the video is transferred to a
However, printouts that are used only as paper records and whose computer origin is
Web site it would be, because of the involvement of the computer. Music recorded
never again called on are treated as paper records. In that case, the reliability of the
by a computer system on a compact disk would be covered.
computer system that produces the record is irrelevant to its reliability.

In short, not all data recorded or stored in "digital" form is covered. A computer or
Senator Magsaysay. Mr. President, if my memory does not fail me, earlier, the lady
similar device has to be involved in its creation or storage. The term "similar
Senator accepted that we use the term "Data Message" rather than "ELECTRONIC
device" does not extend to all devices that create or store data in digital form.
RECORD" in being consistent with the UNCITRAL term of "Data Message." So with
Although things that are not recorded or preserved by or in a computer system are
the new amendment of defining "ELECTRONIC RECORD," will this affect her accepting
omitted from this Act, they may well be admissible under other rules of law. This
of the use of "Data Message" instead of "ELECTRONIC RECORD"?
Act focuses on replacing the search for originality, proving the reliability of systems
instead of that of individual records, and using standards to show systems
Senator Santiago. No, it will not. Thank you for reminding me. The term I would like reliability.
to insert is ELECTRONIC DATA MESSAGE in lieu of "ELECTRONIC RECORD."
Paper records that are produced directly by a computer system, such as printouts,
Senator Magsaysay. Then we are, in effect, amending the term of the definition of are themselves electronic records, being just the means of intelligible display of the
"Data Message" on page 2A, line 31, to which we have no objection. contents of the record. Photocopies of the printout would be paper records subject
to the usual rules about copies, but the "original" printout would be subject to the
rules of admissibility of this Act.
Senator Santiago. Thank you, Mr. President.

However, printouts that are used only as paper records, and whose computer origin
xxxx
is never again called on, are treated as paper records. See subsection 4(2). In this
case the reliability of the computer system that produced the record is relevant to
Senator Santiago. Mr. President, I have proposed all the amendments that I desire its reliability.81
to, including the amendment on the effect of error or change. I will provide the
language of the amendment together with the explanation supporting that
There is no question then that when Congress formulated the term "electronic data message,"
amendment to the distinguished sponsor and then he can feel free to take it up in
it intended the same meaning as the term "electronic record" in the Canada law. This
any session without any further intervention.
construction of the term "electronic data message," which excludes telexes or faxes, except
computer-generated faxes, is in harmony with the Electronic Commerce Law's focus on
Senator Magsaysay. Before we end, Mr. President, I understand from the proponent "paperless" communications and the "functional equivalent approach"82 that it espouses. In
of these amendments that these are based on the Canadian E-commerce Law of fact, the deliberations of the Legislature are replete with discussions on paperless and digital
1998. Is that not right? transactions.

Senator Santiago. That is correct.80 Facsimile transmissions are not, in this sense, "paperless," but verily are paper-based.

Thus, when the Senate consequently voted to adopt the term "electronic data message," it was A facsimile machine, which was first patented in 1843 by Alexander Bain, 83 is a device that can
consonant with the explanation of Senator Miriam Defensor-Santiago that it would not apply send or receive pictures and text over a telephone line. It works by digitizing an image
"to telexes or faxes, except computer-generated faxes, unlike the United Nations model law on dividing it into a grid of dots. Each dot is either on or off, depending on whether it is black or
electronic commerce." In explaining the term "electronic record" patterned after the E- white. Electronically, each dot is represented by a bit that has a value of either 0 (off) or 1
Commerce Law of Canada, Senator Defensor-Santiago had in mind the term "electronic data (on). In this way, the fax machine translates a picture into a series of zeros and ones (called a
message." This term then, while maintaining part of the UNCITRAL Model Law's terminology bit map) that can be transmitted like normal computer data. On the receiving side, a fax
of "data message," has assumed a different context, this time, consonant with the term machine reads the incoming data, translates the zeros and ones back into dots, and reprints
"electronic record" in the law of Canada. It accounts for the addition of the word "electronic" the picture.84 A fax machine is essentially an image scanner, a modem and a computer printer
and the deletion of the phrase "but not limited to, electronic data interchange (EDI), electronic combined into a highly specialized package. The scanner converts the content of a physical
mail, telegram, telex or telecopy." Noteworthy is that the Uniform Law Conference of Canada, document into a digital image, the modem sends the image data over a phone line, and the
explains the term "electronic record," as drafted in the Uniform Electronic Evidence Act, in a printer at the other end makes a duplicate of the original document. 85 Thus, in Garvida v.
manner strikingly similar to Sen. Santiago's explanation during the Senate deliberations: Sales, Jr.,86where we explained the unacceptability of filing pleadings through fax machines,
we ruled that:
"Electronic record" fixes the scope of the Act. The record is the data. The record
may be any medium. It is "electronic" because it is recorded or stored in or by a
A facsimile or fax transmission is a process involving the transmission and for transactions, it covers sale or purchase of goods and services; (2) for channel/network, it
reproduction of printed and graphic matter by scanning an original copy, one considers any computer-mediated network and NOT limited to Internet alone; (3) it excludes
elemental area at a time, and representing the shade or tone of each area by a transactions received/placed using fax, telephone or non-interactive mail; (4) it considers
specified amount of electric current. The current is transmitted as a signal over payments done online or offline; and (5) it considers delivery made online (like downloading
regular telephone lines or via microwave relay and is used by the receiver to of purchased books, music or software programs) or offline (deliveries of goods). 94
reproduce an image of the elemental area in the proper position and the correct
shade. The receiver is equipped with a stylus or other device that produces a
We, therefore, conclude that the terms "electronic data message" and "electronic document," as
printed record on paper referred to as a facsimile.
defined under the Electronic Commerce Act of 2000, do not include a facsimile transmission.
Accordingly, a facsimile transmission cannot be considered as electronic evidence. It is not
x x x A facsimile is not a genuine and authentic pleading. It is, at best, an exact copy the functional equivalent of an original under the Best Evidence Rule and is not admissible
preserving all the marks of an original. Without the original, there is no way of as electronic evidence.
determining on its face whether the facsimile pleading is genuine and authentic
and was originally signed by the party and his counsel. It may, in fact, be a sham
Since a facsimile transmission is not an "electronic data message" or an "electronic
pleading.87
document," and cannot be considered as electronic evidence by the Court, with greater reason
is a photocopy of such a fax transmission not electronic evidence. In the present case,
Accordingly, in an ordinary facsimile transmission, there exists an original paper- therefore, Pro Forma Invoice Nos. ST2-POSTS0401-1 and ST2-POSTS0401-2 (Exhibits "E"
based information or data that is scanned, sent through a phone line, and re-printed at the and "F"), which are mere photocopies of the original fax transmittals, are not electronic
receiving end. Be it noted that in enacting the Electronic Commerce Act of 2000, Congress evidence, contrary to the position of both the trial and the appellate courts.
intended virtual or paperless writings to be the functional equivalent and to have the
same legal function as paper-based documents.88 Further, in a virtual or paperless
- III -
environment, technically, there is no original copy to speak of, as all direct printouts of the
virtual reality are the same, in all respects, and are considered as originals. 89 Ineluctably, the
law's definition of "electronic data message," which, as aforesaid, is interchangeable with Nevertheless, despite the pro forma invoices not being electronic evidence, this Court finds
"electronic document," could not have included facsimile transmissions, which have an original that respondent has proven by preponderance of evidence the existence of a perfected
paper-based copy as sent and a paper-based facsimile copy as received. These two copies are contract of sale.
distinct from each other, and have different legal effects. While Congress anticipated future
developments in communications and computer technology 90 when it drafted the law, it
In an action for damages due to a breach of a contract, it is essential that the claimant proves
excluded the early forms of technology, like telegraph, telex and telecopy (except computer-
(1) the existence of a perfected contract, (2) the breach thereof by the other contracting party
generated faxes, which is a newer development as compared to the ordinary fax machine to
and (3) the damages which he/she sustained due to such breach. Actori incumbit onus
fax machine transmission), when it defined the term "electronic data message."
probandi. The burden of proof rests on the party who advances a proposition
affirmatively.95 In other words, a plaintiff in a civil action must establish his case by a
Clearly then, the IRR went beyond the parameters of the law when it adopted verbatim the preponderance of evidence, that is, evidence that has greater weight, or is more convincing
UNCITRAL Model Law's definition of "data message," without considering the intention of than that which is offered in opposition to it.96
Congress when the latter deleted the phrase "but not limited to, electronic data interchange
(EDI), electronic mail, telegram, telex or telecopy." The inclusion of this phrase in the IRR
In general, contracts are perfected by mere consent,97 which is manifested by the meeting of
offends a basic tenet in the exercise of the rule-making power of administrative agencies. After
the offer and the acceptance upon the thing and the cause which are to constitute the contract.
all, the power of administrative officials to promulgate rules in the implementation of a
The offer must be certain and the acceptance absolute.98 They are, moreover, obligatory in
statute is necessarily limited to what is found in the legislative enactment itself. The
whatever form they may have been entered into, provided all the essential requisites for their
implementing rules and regulations of a law cannot extend the law or expand its coverage, as
validity are present.99 Sale, being a consensual contract, follows the general rule that it is
the power to amend or repeal a statute is vested in the Legislature. 91 Thus, if a discrepancy
perfected at the moment there is a meeting of the minds upon the thing which is the object of
occurs between the basic law and an implementing rule or regulation, it is the former that
the contract and upon the price. From that moment, the parties may reciprocally demand
prevails, because the law cannot be broadened by a mere administrative issuancean
performance, subject to the provisions of the law governing the form of contracts. 100
administrative agency certainly cannot amend an act of Congress.92 Had the Legislature really
wanted ordinary fax transmissions to be covered by the mantle of the Electronic Commerce
Act of 2000, it could have easily lifted without a bit of tatter the entire wordings of the The essential elements of a contract of sale are (1) consent or meeting of the minds, that is, to
UNCITRAL Model Law. transfer ownership in exchange for the price, (2) object certain which is the subject matter of
the contract, and (3) cause of the obligation which is established.101
Incidentally, the National Statistical Coordination Board Task Force on the Measurement of E-
Commerce,93 on November 22, 2006, recommended a working definition of "electronic In this case, to establish the existence of a perfected contract of sale between the parties,
commerce," as "[a]ny commercial transaction conducted through electronic, optical and respondent Ssangyong formally offered in evidence the testimonies of its witnesses and the
similar medium, mode, instrumentality and technology. The transaction includes the sale or following exhibits:
purchase of goods and services, between individuals, households, businesses and
governments conducted over computer-mediated networks through the Internet, mobile
Significantly, among these documentary evidence presented by respondent, MCC, in its
phones, electronic data interchange (EDI) and other channels through open and closed
petition before this Court, assails the admissibility only of Pro Forma Invoice Nos. ST2-
networks." The Task Force's proposed definition is similar to the Organization of Economic
POSTS0401-1 and ST2-POSTS0401-2 (Exhibits "E" and "F"). After sifting through the
Cooperation and Development's (OECD's) broad definition as it covers transactions made over
records, the Court found that these invoices are mere photocopies of their original fax
any network, and, in addition, it adopted the following provisions of the OECD definition: (1)
transmittals. Ssangyong avers that these documents were prepared after MCC asked for the Defendants presented Letter of Credit (Exhibits "1", "1-A" to "1-R") referring to Pro
splitting of the original order into two, so that the latter can apply for an L/C with greater Forma Invoice for Contract No. ST2POSTS080-2, in the amount of US$170,000.00,
facility. It, however, failed to explain why the originals of these documents were not presented. and which bears the signature of Gregory Chan, General Manager of MCC. Plaintiff,
on the other hand, presented Pro Forma Invoice referring to Contract No. ST2-
POSTS080-1, in the amount of US$170,000.00, which likewise bears the signature
To determine whether these documents are admissible in evidence, we apply the ordinary
of Gregory Chan, MCC. Plaintiff accounted for the notation "1/2" on the right upper
Rules on Evidence, for as discussed above we cannot apply the Electronic Commerce Act of
portion of the Invoice, that is, that it was the first of two (2) pro forma invoices
2000 and the Rules on Electronic Evidence.
covering the subject contract between plaintiff and the defendants. Defendants, on
the other hand, failed to account for the notation "2/2" in its Pro Forma Invoice
Because these documents are mere photocopies, they are simply secondary evidence, (Exhibit "1-A"). Observably further, both Pro Forma Invoices bear the same date
admissible only upon compliance with Rule 130, Section 5, which states, "[w]hen the original and details, which logically mean that they both apply to one and the same
document has been lost or destroyed, or cannot be produced in court, the offeror, upon proof transaction.106
of its execution or existence and the cause of its unavailability without bad faith on his part,
may prove its contents by a copy, or by a recital of its contents in some authentic document, or
Indeed, why would petitioner open an L/C for the second half of the transaction if there was
by the testimony of witnesses in the order stated." Furthermore, the offeror of secondary
no first half to speak of?
evidence must prove the predicates thereof, namely: (a) the loss or destruction of the original
without bad faith on the part of the proponent/offeror which can be shown by circumstantial
evidence of routine practices of destruction of documents; (b) the proponent must prove by a The logical chain of events, as gleaned from the evidence of both parties, started with the
fair preponderance of evidence as to raise a reasonable inference of the loss or destruction of petitioner and the respondent agreeing on the sale and purchase of 220MT of stainless steel
the original copy; and (c) it must be shown that a diligent and bona fide but unsuccessful at US$1,860.00 per MT. This initial contract was perfected. Later, as petitioner asked for
search has been made for the document in the proper place or places. It has been held that several extensions to pay, adjustments in the delivery dates, and discounts in the price as
where the missing document is the foundation of the action, more strictness in proof is originally agreed, the parties slightly varied the terms of their contract, without necessarily
required than where the document is only collaterally involved.103 novating it, to the effect that the original order was reduced to 200MT, split into two
deliveries, and the price discounted to US$1,700 per MT. Petitioner, however, paid only half of
its obligation and failed to open an L/C for the other 100MT. Notably, the conduct of both
Given these norms, we find that respondent failed to prove the existence of the original fax
parties sufficiently established the existence of a contract of sale, even if the writings of the
transmissions of Exhibits E and F, and likewise did not sufficiently prove the loss or
parties, because of their contested admissibility, were not as explicit in establishing a
destruction of the originals. Thus, Exhibits E and F cannot be admitted in evidence and
contract.107 Appropriate conduct by the parties may be sufficient to establish an agreement,
accorded probative weight.
and while there may be instances where the exchange of correspondence does not disclose
the exact point at which the deal was closed, the actions of the parties may indicate that a
It is observed, however, that respondent Ssangyong did not rely merely on Exhibits E and F to binding obligation has been undertaken.108
prove the perfected contract. It also introduced in evidence a variety of other documents, as
enumerated above, together with the testimonies of its witnesses. Notable among them
With our finding that there is a valid contract, it is crystal-clear that when petitioner did not
are Pro Forma Invoice Nos. ST2-POSTS080-1 and ST2-POSTS080-2 which were issued by
open the L/C for the first half of the transaction (100MT), despite numerous demands from
Ssangyong and sent via fax to MCC. As already mentioned, these invoices slightly varied the
respondent Ssangyong, petitioner breached its contractual obligation. It is a well-entrenched
terms of the earlier invoices such that the quantity was now officially 100MT per invoice and
rule that the failure of a buyer to furnish an agreed letter of credit is a breach of the contract
the price reduced to US$1,700.00 per MT. The copies of the said August 16, 2000 invoices
between buyer and seller. Indeed, where the buyer fails to open a letter of credit as stipulated,
submitted to the court bear the conformity signature of MCC Manager Chan.
the seller or exporter is entitled to claim damages for such breach. Damages for failure to
open a commercial credit may, in appropriate cases, include the loss of profit which the seller
Pro Forma Invoice No. ST2-POSTS080-1 (Exhibit "X"), however, is a mere photocopy of its would reasonably have made had the transaction been carried out.109
original. But then again, petitioner MCC does not assail the admissibility of this document in
the instant petition. Verily, evidence not objected to is deemed admitted and may be validly
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considered by the court in arriving at its judgment. 104 Issues not raised on appeal are deemed
abandoned.
This Court, however, finds that the award of actual damages is not in accord with the evidence
on record. It is axiomatic that actual or compensatory damages cannot be presumed, but must
As to Pro Forma Invoice No. ST2-POSTS080-2 (Exhibits "1-A" and "2-C"), which was certified
be proven with a reasonable degree of certainty. 110 In Villafuerte v. Court of Appeals,111 we
by PCIBank as a true copy of its original,105 it was, in fact, petitioner MCC which introduced
explained that:
this document in evidence. Petitioner MCC paid for the order stated in this invoice. Its
admissibility, therefore, is not open to question.
Actual or compensatory damages are those awarded in order to compensate a
party for an injury or loss he suffered. They arise out of a sense of natural justice
These invoices (ST2-POSTS0401, ST2-POSTS080-1 and ST2-POSTS080-2), along with the
and are aimed at repairing the wrong done. Except as provided by law or by
other unchallenged documentary evidence of respondent Ssangyong, preponderate in favor of
stipulation, a party is entitled to an adequate compensation only for such pecuniary
the claim that a contract of sale was perfected by the parties.
loss as he has duly proven. It is hornbook doctrine that to be able to recover actual
damages, the claimant bears the onus of presenting before the court actual proof of
This Court also finds merit in the following observations of the trial court: the damages alleged to have been suffered, thus:
A party is entitled to an adequate compensation for such pecuniary loss WHEREFORE, PREMISES CONSIDERED, the appeal is PARTIALLY GRANTED. The Decision
actually suffered by him as he has duly proved. Such damages, to be of the Court of Appeals in CA-G.R. CV No. 82983 is MODIFIED in that the award of actual
recoverable, must not only be capable of proof, but must actually be damages is DELETED. However, petitioner is ORDERED to pay respondent NOMINAL
proved with a reasonable degree of certainty. We have emphasized that DAMAGES in the amount of P200,000.00, and the ATTORNEY'S FEES as awarded by the trial
these damages cannot be presumed and courts, in making an award court. SO ORDERED.
must point out specific facts which could afford a basis for measuring
whatever compensatory or actual damages are borne.112

In the instant case, the trial court awarded to respondent Ssangyong US$93,493.87 as actual
damages. On appeal, the same was affirmed by the appellate court. Noticeably, however, the
trial and the appellate courts, in making the said award, relied on the following documents
submitted in evidence by the respondent: (1) Exhibit "U," the Statement of Account dated MCC INDUSTRIAL SALES CORPORATION vs. SSANGYONG CORPORATION
March 30, 2001; (2) Exhibit "U-1," the details of the said Statement of Account); (3) Exhibit G.R. No. 170633; October 17, 2007
"V," the contract of the alleged resale of the goods to a Korean corporation; and (4) Exhibit "V-
1," the authentication of the resale contract from the Korean Embassy and certification from Facts: Petitioner is engaged in the business of importing and wholesaling stainless steel
the Philippine Consular Office. products. One of its suppliers is the responded, an international trading company with head
office in Seoul, South Korea and regional headquarters in Makati City, Philippines. The two
corporations conducted business through telephone calls and facsimile or telecopy
The statement of account and the details of the losses sustained by respondent due to the said
transmissions. Respondent would send the pro forma invoices containing the details of the
breach are, at best, self-serving. It was respondent Ssangyong itself which prepared the said
steel product order to petitioner; if the latter conforms thereto, its representative affixes his
documents. The items therein are not even substantiated by official receipts. In the absence of
signature on the faxed copy and sends it back to the respondent, again by fax.
corroborative evidence, the said statement of account is not sufficient basis to award actual
damages. The court cannot simply rely on speculation, conjecture or guesswork as to the fact
Respondent filed a civil action for damages due to breach of contract against petitioner before
and amount of damages, but must depend on competent proof that the claimant had suffered,
the Regional Trial Court of Makati City. In its complaint, respondent alleged that defendants
and on evidence of, the actual amount thereof.113
breached their contract when they refused to open the letter of credit in the amount of
US$170,000.00 for the remaining 100MT of steel under Pro Forma Invoice Nos. ST2-
Furthermore, the sales contract and its authentication certificates, Exhibits "V" and "V-1," POSTS0401-1 and ST2-POSTS0401-2.
allegedly evidencing the resale at a loss of the stainless steel subject of the parties' breached
contract, fail to convince this Court of the veracity of its contents. The steel items indicated in After respondent rested its case, petitioner filed a Demurrer to Evidence alleging that
the sales contract114 with a Korean corporation are different in all respects from the items respondent failed to present the original copies of the pro forma invoices on which the civil
ordered by petitioner MCC, even in size and quantity. We observed the following action was based. Petitioner contends that the photocopies of the pro forma invoices
discrepancies: presented by respondent Ssangyong to prove the perfection of their supposed contract of sale
are inadmissible in evidence and do not fall within the ambit of R.A. No. 8792, because the law
merely admits as the best evidence the original fax transmittal. On the other hand, respondent
From the foregoing, we find merit in the contention of MCC that Ssangyong did not adequately
posits that, from a reading of the law and the Rules on Electronic Evidence, the original
prove that the items resold at a loss were the same items ordered by the petitioner. Therefore,
facsimile transmittal of the pro forma invoice is admissible in evidence since it is an electronic
as the claim for actual damages was not proven, the Court cannot sanction the award.
document and, therefore, the best evidence under the law and the Rules. Respondent further
claims that the photocopies of these fax transmittals (specifically ST2-POSTS0401-1 and ST2-
Nonetheless, the Court finds that petitioner knowingly breached its contractual obligation and POSTS0401-2) are admissible under the Rules on Evidence because the respondent
obstinately refused to pay despite repeated demands from respondent. Petitioner even asked sufficiently explained the non-production of the original fax transmittals.
for several extensions of time for it to make good its obligation. But in spite of respondent's
continuous accommodation, petitioner completely reneged on its contractual duty. For such Issue: Whether the print-out and/or photocopies of facsimile transmissions are electronic
inattention and insensitivity, MCC must be held liable for nominal damages. "Nominal evidence and admissible as such?
damages are 'recoverable where a legal right is technically violated and must be vindicated
against an invasion that has produced no actual present loss of any kind or where there has Held: Electronic document shall be regarded as the equivalent of an original document under
been a breach of contract and no substantial injury or actual damages whatsoever have been the Best Evidence Rule, as long as it is a printout or output readable by sight or other means,
or can be shown.'"117 Accordingly, the Court awards nominal damages of P200,000.00 to showing to reflect the data accurately. Thus, to be admissible in evidence as an electronic data
respondent Ssangyong. message or to be considered as the functional equivalent of an original document under the
Best Evidence Rule, the writing must foremost be an electronic data message or an
electronic document.
As to the award of attorney's fees, it is well settled that no premium should be placed on the
right to litigate and not every winning party is entitled to an automatic grant of attorney's
The Implementing Rules and Regulations (IRR) of R.A. No. 8792 defines the Electronic Data
fees. The party must show that he falls under one of the instances enumerated in Article 2208
Message refers to information generated, sent, received or stored by electronic, optical or
of the Civil Code.118 In the instant case, however, the Court finds the award of attorney's fees
similar means, but not limited to, electronic data interchange (EDI), electronic mail, telegram,
proper, considering that petitioner MCC's unjustified refusal to pay has compelled respondent
telex or telecopy.
Ssangyong to litigate and to incur expenses to protect its rights.
The phrase but not limited to, electronic data interchange (EDI), electronic mail, telegram,
telex or telecopy in the IRRs definition of electronic data message is copied from the Model
Law on Electronic Commerce adopted by the United Nations Commission on International bereft of jurisdiction, reiterating its argument that the case involves a mining dispute that
Trade Law (UNCITRAL), from which majority of the provisions of R.A. No. 8792 were taken. properly falls within the ambit of the Panels authority. Gonzales adds that the Court failed to
While Congress deleted this phrase in the Electronic Commerce Act of 2000, the drafters of rule on other issues he raised relating to the sufficiency of his complaint before the DENR
the IRR reinstated it. The deletion by Congress of the said phrase is significant and pivotal. Panel of Arbitrators and the timeliness of its filing.

Moreover, when Congress formulated the term electronic data message, it intended the same Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for Partial
meaning as the term electronic record in the Canada law. This construction of the term Reconsideration and/or Clarification[3] seeking reconsideration of that part of the Decision
electronic data message, which excludes telexes or faxes, except computer-generated faxes, holding that the case should not be brought for arbitration under Republic Act (R.A.) No. 876,
is in harmony with the Electronic Commerce Laws focus on paperless communications and also known as the Arbitration Law. [4] Respondents, citing American jurisprudence [5] and the
the functional equivalent approach that it espouses. Facsimile transmissions are not, in this UNCITRAL Model Law,[6] argue that the arbitration clause in the Addendum Contract should
sense, paperless, but verily are paper-based. be treated as an agreement independent of the other terms of the contract, and that a claimed
rescission of the main contract does not avoid the duty to arbitrate. Respondents add that
[I]n an ordinary facsimile transmission, there exists an original paper-based information or Gonzaless argument relating to the alleged invalidity of the Addendum Contract still has to be
data that is scanned, sent through a phone line, and re-printed at the receiving end. [I]n a proven and adjudicated on in a proper proceeding; that is, an action separate from the motion
virtual or paperless environment, technically, there is no original copy to speak of, as all direct to compel arbitration. Pending judgment in such separate action, the Addendum Contract
printouts of the virtual reality are the same, in all respects, and are considered as originals. remains valid and binding and so does the arbitration clause therein. Respondents add that
Ineluctably, the laws definition of electronic data message, which, as aforesaid, is the holding in the Decision that the case should not be brought under the ambit of the
interchangeable with electronic document, could not have included facsimile transmissions, Arbitration Law appears to be premised on Gonzaless having impugn[ed] the existence or
which have an original paper-based copy as sent and a paper-based facsimile copy as validity of the addendum contract. If so, it supposedly conveys the idea that Gonzaless
received. These two copies are distinct from each other, and have different legal effects. While unilateral repudiation of the contract or mere allegation of its invalidity is all it takes to avoid
Congress anticipated future developments in communications and computer technology when arbitration. Hence, respondents submit that the courts holding that the case should not be
it drafted the law, it excluded the early forms of technology, like telegraph, telex and telecopy brought under the ambit of the Arbitration Law be understood or clarified as operative only
(except computer-generated faxes, which is a newer development as compared to the where the challenge to the arbitration agreement has been sustained by final judgment.
ordinary fax machine to fax machine transmission), when it defined the term electronic data
message. Both parties were required to file their respective comments to the other partys motion for
reconsideration/clarification.[7] Respondents filed their Comment on 17 August 2005,[8] while
[T]he terms electronic data message and electronic document, as defined under the Gonzales filed his only on 25 July 2006.[9]
Electronic Commerce Act of 2000, do not include a facsimile transmission. Accordingly, a
facsimile transmission cannot be considered as electronic evidence. It is not the functional On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May 2005, or while the
equivalent of an original under the Best Evidence Rule and is not admissible as electronic motions for reconsideration in G.R. No. 161957 [10] were pending, wherein Gonzales challenged
evidence. the orders of the Regional Trial Court (RTC) requiring him to proceed with the arbitration
proceedings as sought by Climax-Arimco Mining Corporation (Climax-Arimco).

On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were consolidated upon the
Department of Foreign Affairs v. BCA International Corp., G.R. No. 210858, June 29, recommendation of the Assistant Division Clerk of Court since the cases are rooted in the
2016 same Addendum Contract.

We first tackle the more recent case which is G.R. No. 167994. It stemmed from the petition to
compel arbitration filed by respondent Climax-Arimco before the RTC of Makati City on 31
March 2000 while the complaint for the nullification of the Addendum Contract was pending
before the DENR Panel of Arbitrators. On 23 March 2000, Climax-Arimco had sent Gonzales a
Demand for Arbitration pursuant to Clause 19.1 [11] of the Addendum Contract and also in
accordance with Sec. 5 of R.A. No. 876. The petition for arbitration was subsequently filed and
Climax-Arimco sought an order to compel the parties to arbitrate pursuant to the said
arbitration clause. The case, docketed as Civil Case No. 00-444, was initially raffled to Br. 132
of the RTC of Makati City, with Judge Herminio I. Benito as Presiding Judge. Respondent
Climax-Arimco filed on 5 April 2000 a motion to set the application to compel arbitration for
hearing.
Gonzales v. Climax Mining Ltd., G.R. No. 161957, 167994, January 22, 2007
On 14 April 2000, Gonzales filed a motion to dismiss which he however failed to set for
This is a consolidation of two petitions rooted in the same disputed Addendum Contract hearing. On 15 May 2000, he filed an Answer with Counterclaim, [12] questioning the validity of
entered into by the parties. In G.R. No. 161957, the Court in its Decision of 28 February the Addendum Contract containing the arbitration clause. Gonzales alleged that the
2005[1] denied the Rule 45 petition of petitioner Jorge Gonzales (Gonzales). It held that the Addendum Contract containing the arbitration clause is void in view of Climax-Arimcos acts of
DENR Panel of Arbitrators had no jurisdiction over the complaint for the annulment of the fraud, oppression and violation of the Constitution.Thus, the arbitration clause, Clause 19.1,
Addendum Contract on grounds of fraud and violation of the Constitution and that the action contained in the Addendum Contract is also null and void ab initio and legally inexistent.
should have been brought before the regular courts as it involved judicial issues. Both parties
filed separate motions for reconsideration. Gonzales avers in his Motion for On 18 May 2000, the RTC issued an order declaring Gonzaless motion to dismiss moot and
Reconsideration[2] that the Court erred in holding that the DENR Panel of Arbitrators was academic in view of the filing of his Answer with Counterclaim.[13]
On 31 May 2000, Gonzales asked the RTC to set the case for pre-trial. [14] This the RTC denied The court shall decide all motions, petitions or applications
on 16 June 2000, holding that the petition for arbitration is a special proceeding that is filed under the provisions of this Act, within ten (10) days after such
summary in nature.[15] However, on 7 July 2000, the RTC granted Gonzaless motion for motions, petitions, or applications have been heard by it.
reconsideration of the 16 June 2000 Order and set the case for pre-trial on 10 August 2000, it Gonzales also cites Sec. 24 of R.A. No. 9285 or the Alternative Dispute Resolution
being of the view that Gonzales had raised in his answer the issue of the making of the Act of 2004:
arbitration agreement.[16]
SEC. 24. Referral to Arbitration.A court before which an
Climax-Arimco then filed a motion to resolve its pending motion to compel arbitration. The action is brought in a matter which is the subject matter of an
RTC denied the same in its 24 July 2000 order. arbitration agreement shall, if at least one party so requests not later
than the pre-trial conference, or upon the request of both parties
On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio I. Benito for not thereafter, refer the parties to arbitration unless it finds that the
possessing the cold neutrality of an impartial judge. [17] On 5 August 2000, Judge Benito issued arbitration agreement is null and void, inoperative or incapable of
an Order granting the Motion to Inhibit and ordered the re-raffling of the petition for being performed.
arbitration.[18] The case was raffled to the sala of public respondent Judge Oscar B. Pimentel of According to Gonzales, the above-quoted provisions of law outline the procedure to be
Branch 148. followed in petitions to compel arbitration, which the RTC did not follow. Thus, referral of the
parties to arbitration by Judge Pimentel despite the timely and properly raised issue of nullity
On 23 August 2000, Climax-Arimco filed a motion for reconsideration of the 24 July of the Addendum Contract was misplaced and without legal basis. Both R.A. No. 876 and R.A.
2000 Order.[19] Climax-Arimco argued that R.A. No. 876 does not authorize a pre-trial or trial No. 9285 mandate that any issue as to the nullity, inoperativeness, or incapability of
for a motion to compel arbitration but directs the court to hear the motion summarily and performance of the arbitration clause/agreement raised by one of the parties to the alleged
resolve it within ten days from hearing. Judge Pimentel granted the motion and directed the arbitration agreement must be determined by the court prior to referring them to
parties to arbitration. On 13 February 2001, Judge Pimentel issued the first assailed order arbitration. They require that the trial court first determine or resolve the issue of nullity, and
requiring Gonzales to proceed with arbitration proceedings and appointing retired CA Justice there is no other venue for this determination other than a pre-trial and hearing on the issue
Jorge Coquia as sole arbitrator.[20] by the trial court which has jurisdiction over the case. Gonzales adds that the assailed 13
February 2001 Order also violated his right to procedural due process when the trial court
Gonzales moved for reconsideration on 20 March 2001 but this was denied in the Order erroneously ruled on the existence of the arbitration agreement despite the absence of a
dated 7 March 2005.[21] hearing for the presentation of evidence on the nullity of the Addendum Contract.

Gonzales thus filed the Rule 65 petition assailing the Orders dated 13 February Respondent Climax-Arimco, on the other hand, assails the mode of review availed of by
2001 and 7 March 2005 of Judge Pimentel. Gonzales contends that public respondent Judge Gonzales. Climax-Arimco cites Sec. 29 of R.A. No. 876:
Pimentel acted with grave abuse of discretion in immediately ordering the parties to proceed
with arbitration despite the proper, valid, and timely raised argument in his Answer with SEC. 29. Appeals.An appeal may be taken from an order made in a
Counterclaim that the Addendum Contract, containing the arbitration clause, is null and proceeding under this Act, or from a judgment entered upon an award
void. Gonzales has also sought a temporary restraining order to prevent the enforcement of through certiorari proceedings, but such appeals shall be limited to
the assailed orders directing the parties to arbitrate, and to direct Judge Pimentel to hold a questions of law. The proceedings upon such an appeal, including the
pre-trial conference and the necessary hearings on the determination of the nullity of the judgment thereon shall be governed by the Rules of Court in so far as
Addendum Contract. they are applicable.
Climax-Arimco mentions that the special civil action for certiorari employed by Gonzales is
In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876: available only where there is no appeal or any plain, speedy, and adequate remedy in the
ordinary course of law against the challenged orders or acts. Climax-Arimco then points out
SEC. 6. Hearing by court.A party aggrieved by the failure, that R.A. No. 876 provides for an appeal from such orders, which, under the Rules of Court,
neglect or refusal of another to perform under an agreement in writing must be filed within 15 days from notice of the final order or resolution appealed from or of
providing for arbitration may petition the court for an order directing the denial of the motion for reconsideration filed in due time. Gonzales has not denied that the
that such arbitration proceed in the manner provided for in such relevant 15-day period for an appeal had elapsed long before he filed this petition for
agreement. Five days notice in writing of the hearing of such certiorari. He cannot use the special civil action of certiorari as a remedy for a lost appeal.
application shall be served either personally or by registered mail
upon the party in default. The court shall hear the parties, and upon Climax-Arimco adds that an application to compel arbitration under Sec. 6 of R.A. No. 876
being satisfied that the making of the agreement or such failure to confers on the trial court only a limited and special jurisdiction, i.e., a jurisdiction solely to
comply therewith is not in issue, shall make an order directing the determine (a) whether or not the parties have a written contract to arbitrate, and (b) if the
parties to proceed to arbitration in accordance with the terms of the defendant has failed to comply with that contract. Respondent cites La Naval Drug
agreement. If the making of the agreement or default be in issue the Corporation v. Court of Appeals,[22] which holds that in a proceeding to compel arbitration, [t]he
court shall proceed to summarily hear such issue. If the finding be that arbitration law explicitly confines the courts authority only to pass upon the issue of whether
no agreement in writing providing for arbitration was made, or that there is or there is no agreement in writing providing for arbitration, and [i]n the affirmative,
there is no default in the proceeding thereunder, the proceeding shall the statute ordains that the court shall issue an order summarily directing the parties to
be dismissed. If the finding be that a written provision for arbitration proceed with the arbitration in accordance with the terms thereof. [23] Climax-Arimco argues
was made and there is a default in proceeding thereunder, an order that R.A. No. 876 gives no room for any other issue to be dealt with in such a proceeding, and
shall be made summarily directing the parties to proceed with the that the court presented with an application to compel arbitration may order arbitration or
arbitration in accordance with the terms thereof. dismiss the same, depending solely on its finding as to those two limited issues. If either of
these matters is disputed, the court is required to conduct a summary hearing on it. Gonzaless We address the Rule 65 petition in G.R. No. 167994 first from the remedial law
proposition contradicts both the trial courts limited jurisdiction and the summary nature of perspective. It deserves to be dismissed on procedural grounds, as it was filed in lieu of appeal
the proceeding itself. which is the prescribed remedy and at that far beyond the reglementary period. It is
elementary in remedial law that the use of an erroneous mode of appeal is cause for dismissal
Climax-Arimco further notes that Gonzaless attack on or repudiation of the Addendum of the petition for certiorari and it has been repeatedly stressed that a petition for certiorari is
Contract also is not a ground to deny effect to the arbitration clause in the Contract. The not a substitute for a lost appeal. As its nature, a petition for certiorari lies only where there is
arbitration agreement is separate and severable from the contract evidencing the parties no appeal, and no plain, speedy and adequate remedy in the ordinary course of law. [25] The
commercial or economic transaction, it stresses. Hence, the alleged defect or failure of the Arbitration Law specifically provides for an appeal by certiorari, i.e., a petition for review
main contract is not a ground to deny enforcement of the parties arbitration agreement. Even under certiorari under Rule 45 of the Rules of Court that raises pure questions of law. [26] There
the party who has repudiated the main contract is not prevented from enforcing its is no merit to Gonzaless argument that the use of the permissive term may in Sec. 29, R.A. No.
arbitration provision. R.A. No. 876 itself treats the arbitration clause or agreement as a 876 in the filing of appeals does not prohibit nor discount the filing of a petition for certiorari
contract separate from the commercial, economic or other transaction to be arbitrated.The under Rule 65.[27] Proper interpretation of the aforesaid provision of law shows that the term
statute, in particular paragraph 1 of Sec. 2 thereof, considers the arbitration stipulation an may refers only to the filing of an appeal, not to the mode of review to be employed. Indeed,
independent contract in its own right whose enforcement may be prevented only on grounds the use of may merely reiterates the principle that the right to appeal is not part of due
which legally make the arbitration agreement itself revocable, thus: process of law but is a mere statutory privilege to be exercised only in the manner and in
accordance with law.
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 Neither can BF Corporation v. Court of Appeals[28] cited by Gonzales support his
controversy existing, between them at the time of the submission and theory. Gonzales argues that said case recognized and allowed a petition for certiorari under
which may be the subject of an action, or the parties to any contract Rule 65 appealing the order of the Regional Trial Court disregarding the arbitration
may in such contract agree to settle by arbitration a controversy agreement as an acceptable remedy. [29] The BF Corporation case had its origins in a complaint
thereafter arising between them. Such submission or contract shall be for collection of sum of money filed by therein petitioner BF Corporation against Shangri-la
valid, enforceable and irrevocable, save upon such grounds as exist at Properties, Inc. (SPI). SPI moved to suspend the proceedings alleging that the construction
law for the revocation of any contract. x x x x agreement or the Articles of Agreement between the parties contained a clause requiring
prior resort to arbitration before judicial intervention. The trial court found that an
The grounds Gonzales invokes for the revocation of the Addendum Contractfraud and arbitration clause was incorporated in the Conditions of Contract appended to and deemed an
oppression in the execution thereofare also not grounds for the revocation of the arbitration integral part of the Articles of Agreement. Still, the trial court denied the motion to suspend
clause in the Contract, Climax-Arimco notes. Such grounds may only be raised by way of proceedings upon a finding that the Conditions of Contract were not duly executed and signed
defense in the arbitration itself and cannot be used to frustrate or delay the conduct of by the parties. The trial court also found that SPI had failed to file any written notice of
arbitration proceedings. Instead, these should be raised in a separate action for rescission, it demand for arbitration within the period specified in the arbitration clause. The trial court
continues. denied SPI's motion for reconsideration and ordered it to file its responsive pleading.Instead
of filing an answer, SPI filed a petition for certiorari under Rule 65, which the Court of
Climax-Arimco emphasizes that the summary proceeding to compel arbitration under Sec. 6 Appeals, favorably acted upon. In a petition for review before this Court, BF Corporation
of R.A. No. 876 should not be confused with the procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of alleged, among others, that the Court of Appeals should have dismissed the petition for
R.A. No. 876 refers to an application to compel arbitration where the courts authority is certiorari since the order of the trial court denying the motion to suspend proceedings is a
limited to resolving the issue of whether there is or there is no agreement in writing providing resolution of an incident on the merits and upon the continuation of the proceedings, the trial
for arbitration, while Sec. 24 of R.A. No. 9285 refers to an ordinary action which covers a court would eventually render a decision on the merits, which decision could then be elevated
matter that appears to be arbitrable or subject to arbitration under the arbitration to a higher court in an ordinary appeal.[30]
agreement. In the latter case, the statute is clear that the court, instead of trying the case, may,
on request of either or both parties, refer the parties to arbitration, unless it finds that the The Court did not uphold BF Corporations argument. The issue raised before the
arbitration agreement is null and void, inoperative or incapable of being Court was whether SPI had taken the proper mode of appeal before the Court of Appeals. The
performed. Arbitration may even be ordered in the same suit brought upon a matter covered question before the Court of Appeals was whether the trial court had prematurely assumed
by an arbitration agreement even without waiting for the outcome of the issue of the validity jurisdiction over the controversy. The question of jurisdiction in turn depended on the
of the arbitration agreement. Art. 8 of the UNCITRAL Model Law[24] states that where a court question of existence of the arbitration clause which is one of fact. While on its face the
before which an action is brought in a matter which is subject of an arbitration agreement question of existence of the arbitration clause is a question of fact that is not proper in a
refers the parties to arbitration, the arbitral proceedings may proceed even while the action is petition for certiorari, yet since the determination of the question obliged the Court of
pending. Appeals as it did to interpret the contract documents in accordance with R.A. No. 876 and
existing jurisprudence, the question is likewise a question of law which may be properly taken
Thus, the main issue raised in the Petition for Certiorari is whether it was proper for the RTC, cognizance of in a petition for certiorari under Rule 65, so the Court held. [31]
in the proceeding to compel arbitration under R.A. No. 876, to order the parties to arbitrate
even though the defendant therein has raised the twin issues of validity and nullity of the The situation in B.F. Corporation is not availing in the present petition. The
Addendum Contract and, consequently, of the arbitration clause therein as well. The disquisition in B.F. Corporation led to the conclusion that in order that the question of
resolution of both Climax-Arimcos Motion for Partial Reconsideration and/or Clarification in jurisdiction may be resolved, the appellate court had to deal first with a question of law which
G.R. No. 161957 and Gonzaless Petition for Certiorari in G.R. No. 167994 essentially turns on could be addressed in a certiorari proceeding. In the present case, Gonzaless petition raises a
whether the question of validity of the Addendum Contract bears upon the applicability or question of law, but not a question of jurisdiction. Judge Pimentel acted in accordance with the
enforceability of the arbitration clause contained therein. The two pending matters shall thus procedure prescribed in R.A. No. 876 when he ordered Gonzales to proceed with arbitration
be jointly resolved. and appointed a sole arbitrator after making the determination that there was indeed an
arbitration agreement. It has been held that as long as a court acts within its jurisdiction and
does not gravely abuse its discretion in the exercise thereof, any supposed error committed by such agreement.Five days notice in writing of the hearing of such
it will amount to nothing more than an error of judgment reviewable by a timely appeal and application shall be served either personally or by registered mail
not assailable by a special civil action of certiorari.[32] Even if we overlook the employment of upon the party in default. The court shall hear the parties, and upon
the wrong remedy in the broader interests of justice, the petition would nevertheless be being satisfied that the making of the agreement or such failure to
dismissed for failure of Gonzalez to show grave abuse of discretion. comply therewith is not in issue, shall make an order directing the
parties to proceed to arbitration in accordance with the terms of the
Arbitration, as an alternative mode of settling disputes, has long been recognized and agreement. If the making of the agreement or default be in issue the
accepted in our jurisdiction. The Civil Code is explicit on the matter.[33] R.A. No. 876 also court shall proceed to summarily hear such issue. If the finding be that
expressly authorizes arbitration of domestic disputes. Foreign arbitration, as a system of no agreement in writing providing for arbitration was made, or
settling commercial disputes of an international character, was likewise recognized when the that there is no default in the proceeding thereunder, the proceeding
Philippines adhered to the United Nations "Convention on the Recognition and the shall be dismissed. If the finding be that a written provision for
Enforcement of Foreign Arbitral Awards of 1958," under the 10 May 1965 Resolution No. 71 of arbitration was made and there is a default in proceeding thereunder,
the Philippine Senate, giving reciprocal recognition and allowing enforcement of international an order shall be made summarily directing the parties to proceed
arbitration agreements between parties of different nationalities within a contracting state. with the arbitration in accordance with the terms thereof.
[34]
The enactment of R.A. No. 9285 on 2 April 2004 further institutionalized the use of
alternative dispute resolution systems, including arbitration, in the settlement of disputes. The court shall decide all motions, petitions or applications
filed under the provisions of this Act, within ten days after such
Disputes do not go to arbitration unless and until the parties have agreed to abide by the motions, petitions, or applications have been heard by it. [Emphasis
arbitrators decision. Necessarily, a contract is required for arbitration to take place and to be added.]
binding. R.A. No. 876 recognizes the contractual nature of the arbitration agreement, thus:

SEC. 2. Persons and matters subject to arbitration.Two or more persons This special proceeding is the procedural mechanism for the enforcement of the contract to
or parties may submit to the arbitration of one or more arbitrators arbitrate. The jurisdiction of the courts in relation to Sec. 6 of R.A. No. 876 as well as the
any controversy existing, between them at the time of the nature of the proceedings therein was expounded upon in La Naval Drug Corporation v. Court
submission and which may be the subject of an action, or the parties to of Appeals.[39] There it was held that R.A. No. 876 explicitly confines the court's authority only
any contract may in such contract agree to settle by arbitration a to the determination of whether or not there is an agreement in writing providing for
controversy thereafter arising between them. Such submission or arbitration. In the affirmative, the statute ordains that the court shall issue an order
contract shall be valid, enforceable and irrevocable, save upon "summarily directing the parties to proceed with the arbitration in accordance with the terms
such grounds as exist at law for the revocation of any contract. thereof." If the court, upon the other hand, finds that no such agreement exists, "the
proceeding shall be dismissed."[40] The cited case also stressed that the proceedings are
Such submission or contract may include question arising out of summary in nature.[41] The same thrust was made in the earlier case of Mindanao Portland
valuations, appraisals or other controversies which may be collateral, Cement Corp. v. McDonough Construction Co. of Florida[42] which held, thus:
incidental, precedent or subsequent to any issue between the parties.

Since there obtains herein a written provision for


A controversy cannot be arbitrated where one of the parties to the arbitration as well as failure on respondent's part to comply therewith,
controversy is an infant, or a person judicially declared to be the court a quorightly ordered the parties to proceed to arbitration in
incompetent, unless the appropriate court having jurisdiction approve accordance with the terms of their agreement (Sec. 6, Republic Act
a petition for permission to submit such controversy to arbitration 876). Respondent's arguments touching upon the merits of the
made by the general guardian or guardian ad litem of the infant or of dispute are improperly raised herein. They should be addressed to the
the incompetent. [Emphasis added.] arbitrators. This proceeding is merely a summary remedy to enforce
the agreement to arbitrate. The duty of the court in this case is not to
resolve the merits of the parties' claims but only to determine if they
Thus, we held in Manila Electric Co. v. Pasay Transportation Co.[35] that a submission should proceed to arbitration or not. x x x x[43]
to arbitration is a contract. A clause in a contract providing that all matters in dispute between
the parties shall be referred to arbitration is a contract, [36] and in Del Monte Corporation-USA v.
Court of Appeals[37] that [t]he provision to submit to arbitration any dispute arising therefrom Implicit in the summary nature of the judicial proceedings is the separable or
and the relationship of the parties is part of that contract and is itself a contract. As a rule, independent character of the arbitration clause or agreement. This was highlighted in the
contracts are respected as the law between the contracting parties and produce effect as cases of Manila Electric Co. v. Pasay Trans. Co.[44] and Del Monte Corporation-USA v. Court of
between them, their assigns and heirs.[38] Appeals.[45]
The doctrine of separability, or severability as other writers call it, enunciates that
The special proceeding under Sec. 6 of R.A. No. 876 recognizes the contractual an arbitration agreement is independent of the main contract. The arbitration agreement is to
nature of arbitration clauses or agreements. It provides: be treated as a separate agreement and the arbitration agreement does not automatically
terminate when the contract of which it is part comes to an end. [46]
SEC. 6. Hearing by court.A party aggrieved by the failure, The separability of the arbitration agreement is especially significant to the
neglect or refusal of another to perform under an agreement in determination of whether the invalidity of the main contract also nullifies the arbitration
writing providing for arbitration may petition the court for an order clause. Indeed, the doctrine denotes that the invalidity of the main contract, also referred to as
directing that such arbitration proceed in the manner provided for in 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 the nullification of the main contract on the ground of fraud, as it had already been
valid and enforceable.[47] determined that the case should have been brought before the regular courts involving as it
did judicial issues.
The separability of the arbitration clause is confirmed in Art. 16(1) of the
UNCITRAL Model Law and Art. 21(2) of the UNCITRAL Arbitration Rules. [48] The Motion for Reconsideration of Gonzales in G.R. No. 161957 should also be
denied. In the motion, Gonzales raises the same question of jurisdiction, more particularly
The separability doctrine was dwelt upon at length in the U.S. case of Prima Paint that the complaint for nullification of the Addendum Contract pertained to the DENR Panel of
Corp. v. Flood & Conklin Manufacturing Co. [49] In that case, Prima Paint and Flood and Conklin Arbitrators, not the regular courts. He insists that the subject of his complaint is a mining
(F & C) entered into a consulting agreement whereby F & C undertook to act as consultant to dispute since it involves a dispute concerning rights to mining areas, the Financial and
Prima Paint for six years, sold to Prima Paint a list of its customers and promised not to sell Technical Assistance Agreement (FTAA) between the parties, and it also involves
paint to these customers during the same period.The consulting agreement contained an claimowners. He adds that the Court failed to rule on other issues he raised, such as whether
arbitration clause. Prima Paint did not make payments as provided in the consulting he had ceded his claims over the mineral deposits located within the Addendum Area of
agreement, contending that F & C had fraudulently misrepresented that it was solvent and Influence; whether the complaint filed before the DENR Panel of Arbitrators alleged ultimate
able for perform its contract when in fact it was not and had even intended to file for facts of fraud; and whether the action to declare the nullity of the Addendum Contract on the
bankruptcy after executing the consultancy agreement. Thus, F & C served Prima Paint with a ground of fraud has prescribed.
notice of intention to arbitrate. Prima Paint sued in court for rescission of the consulting These are the same issues that Gonzales raised in his Rule 45 petition in G.R. No.
agreement on the ground of fraudulent misrepresentation and asked for the issuance of an 161957 which were resolved against him in the Decision of 28 February 2005. Gonzales does
order enjoining F & C from proceeding with arbitration. F & C moved to stay the suit pending not raise any new argument that would sway the Court even a bit to alter its holding that the
arbitration. The trial court granted F & Cs motion, and the U.S. Supreme Court affirmed. complaint filed before the DENR Panel of Arbitrators involves judicial issues which should
properly be resolved by the regular courts. He alleged fraud or misrepresentation in the
The U.S. Supreme Court did not address Prima Paints argument that it had been execution of the Addendum Contract which is a ground for the annulment of a voidable
fraudulently induced by F & C to sign the consulting agreement and held that no court should contract. Clearly, such allegations entail legal questions which are within the jurisdiction of
address this argument. Relying on Sec. 4 of the Federal Arbitration Actwhich provides that if a the courts.
party [claims to be] aggrieved by the alleged failure x x x of another to arbitrate x x x, [t]he
court shall hear the parties, and upon being satisfied that the making of the agreement for The question of whether Gonzales had ceded his claims over the mineral deposits
arbitration or the failure to comply therewith is not in issue, the court shall make an order in the Addendum Area of Influence is a factual question which is not proper for determination
directing the parties to proceed to arbitration x x x. If the making of the arbitration agreement before this Court. At all events, moreover, the question is irrelevant to the issue of jurisdiction
or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed of the DENR Panel of Arbitrators. It should be pointed out that the DENR Panel of Arbitrators
summarily to the trial thereofthe U.S. High Court held that the court should not order the made a factual finding in its Order dated 18 October 2001, which it reiterated in its Order
parties to arbitrate if the making of the arbitration agreement is in issue. The parties should dated 25 June 2002, that Gonzales had, through the various agreements, assigned his interest
be ordered to arbitration if, and only if, they have contracted to submit to arbitration. Prima over the mineral claims all in favor of [Climax-Arimco] as well as that without the complainant
Paint was not entitled to trial on the question of whether an arbitration agreement was made [Gonzales] assigning his interest over the mineral claims in favor of [Climax-Arimco], there
because its allegations of fraudulent inducement were not directed to the arbitration clause would be no FTAA to speak of. [52] This finding was affirmed by the Court of Appeals in its
itself, but only to the consulting agreement which contained the arbitration agreement. Decision dated 30 July 2003 resolving the petition for certiorari filed by Climax-Arimco in
[50]
Prima Paint held that arbitration clauses are separable from the contracts in which they are regard to the 18 October 2001 Order of the DENR Panel.[53]
embedded, and that where no claim is made that fraud was directed to the arbitration clause The Court of Appeals likewise found that Gonzaless complaint alleged fraud but did
itself, a broad arbitration clause will be held to encompass arbitration of the claim that the not provide any particulars to substantiate it. The complaint repeatedly mentioned fraud,
contract itself was induced by fraud.[51] oppression, violation of the Constitution and similar conclusions but nowhere did it give any
ultimate facts or particulars relative to the allegations.[54]
There is reason, therefore, to rule against Gonzales when he alleges that Judge Sec. 5, Rule 8 of the Rules of Court specifically provides that in all averments of
Pimentel acted with grave abuse of discretion in ordering the parties to proceed with fraud, the circumstances constituting fraud must be stated with particularity. This is to enable
arbitration. Gonzaless argument that the Addendum Contract is null and void and, therefore the opposing party to controvert the particular facts allegedly constituting the same. Perusal
the arbitration clause therein is void as well, is not tenable. First, the proceeding in a petition of the complaint indeed shows that it failed to state with particularity the ultimate facts and
for arbitration under R.A. No. 876 is limited only to the resolution of the question of whether circumstances constituting the alleged fraud. It does not state what particulars about Climax-
the arbitration agreement exists. Second, the separability of the arbitration clause from the Arimcos financial or technical capability were misrepresented, or how the misrepresentation
Addendum Contract means that validity or invalidity of the Addendum Contract will not affect was done.Incorporated in the body of the complaint are verbatim reproductions of the
the enforceability of the agreement to arbitrate. Thus, Gonzaless petition for certiorari should contracts, correspondence and government issuances that reportedly explain the allegations
be dismissed. of fraud and misrepresentation, but these are, at best, evidentiary matters that should not be
included in the pleading.
This brings us back to G.R. No. 161957. The adjudication of the petition in G.R. No. As to the issue of prescription, Gonzaless claims of fraud and misrepresentation
167994 effectively modifies part of the Decision dated 28 February 2005 in G.R. No. attending the execution of the Addendum Contract are grounds for the annulment of a
161957. Hence, we now hold that the validity of the contract containing the agreement to voidable contract under the Civil Code.[55] Under Art. 1391 of the Code, an action for
submit to arbitration does not affect the applicability of the arbitration clause itself. A annulment shall be brought within four years, in the case of fraud, beginning from the time of
contrary ruling would suggest that a partys mere repudiation of the main contract is sufficient the discovery of the same. However, the time of the discovery of the alleged fraud is not clear
to avoid arbitration. That is exactly the situation that the separability doctrine, as well as from the allegations of Gonzaless complaint. That being the situation coupled with the fact
jurisprudence applying it, seeks to avoid. We add that when it was declared in G.R. No. 161957 that this Court is not a trier of facts, any ruling on the issue of prescription would be uncalled
that the case should not be brought for arbitration, it should be clarified that the case referred for or even unnecessary.
to is the case actually filed by Gonzales before the DENR Panel of Arbitrators, which was for
WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is DISMISSED. Such
dismissal effectively renders superfluous formal action on the Motion for Partial
Reconsideration and/or Clarification filed by Climax Mining Ltd., et al. in G.R. No. 161957.
On the other hand, TPI claims that it is LHC which is guilty of forum-shopping when it raised
The Motion for Reconsideration filed by Jorge Gonzales in G.R. No. 161957 is the issue of forum-shopping not only in this case, but also in Civil Case No. 04-332, and even
DENIED WITH FINALITY. SO ORDERED. asked for the dismissal of the other case based on this ground. Moreover, TPI argues that LHC
is relitigating in Civil Case No. 04-332 the very same causes of action in ICC Case No.
11264/TE/MW, and even manifesting therein that it will present evidence earlier presented
before the arbitral tribunal.[5]
Transfield Phils., Inc. v. Luzon Hydro Corp., G.R. No. 146717, May 19, 2006 Meanwhile, ANZ Bank and Security Bank moved to be excused from filing a
memorandum. They claim that with the finality of the Courts Decision dated 22 November
The adjudication of this case proved to be a two-stage process as its constituent parts involve 2004, any resolution by the Court on the issue of forum-shopping will not materially affect
two segregate but equally important issues. The first stage relating to the merits of the case, their role as the banking entities involved are concerned. [6] The Court granted their respective
specifically the question of the propriety of calling on the securities during the pendency of motions.
the arbitral proceedings, was resolved in favor of Luzon Hydro Corporation (LHC) with the
Courts Decision[1] of 22 November 2004. The second stage involving the issue of forum-
shopping on which the Court required the parties to submit their respective memoranda [2] is On 1 August 2005, TPI moved to set the case for oral argument, positing that the resolution of
disposed of in this Resolution. the Court on the issue of forum-shopping may have significant implications on the
interpretation of the Alternative Dispute Resolution Act of 2004, as well as the viability of
The disposal of the forum-shopping charge is crucial to the parties to this case on account of international commercial arbitration as an alternative mode of dispute resolution in the
its profound effect on the final outcome of the international arbitral proceedings which they country.[7] Said motion was opposed by LHC in its opposition filed on 2 September 2005, with
have chosen as their principal dispute resolution mechanism. [3] LHC arguing that the respective memoranda of the parties are sufficient for the Court to
resolve the issue of forum-shopping. [8] On 28 October 2005, TPI filed its Manifestation and
LHC claims that Transfield Philippines, Inc. (TPI) is guilty of forum-shopping when it filed the Reiterative Motion[9] to set the case for oral argument, where it manifested that the
following suits: International Chamber of Commerce (ICC) arbitral tribunal had issued its Final Award
ordering LHC to pay TPI US$24,533,730.00 (including the US$17,977,815.00 proceeds of the
1. Civil Case No. 04-332 filed on 19 March 2004, pending before two standby letters of credit). TPI also submitted a copy thereof with a Supplemental
the Regional Trial Court (RTC) of Makati, Branch 56 for confirmation, Petition[10] to the Regional Trial Court (RTC), seeking recognition and enforcement of the said
recognition and enforcement of the Third Partial Award in case 11264 award.[11]
TE/MW, ICC International Court of
Arbitration,entitled Transfield Philippines, Inc. v. Luzon Hydro The essence of forum-shopping is the filing of multiple suits involving the same parties for the
Corporation.[4] same cause of action, either simultaneously or successively, for the purpose of obtaining a
favorable judgment.[12] Forum-shopping has likewise been defined as the act of a party against
2. ICC Case No. 11264/TE/MW, Transfield Philippines, Inc. v. whom an adverse judgment has been rendered in one forum, seeking and possibly getting a
Luzon Hydro Corporation filed before the International Court of favorable opinion in another forum, other than by appeal or the special civil action of
Arbitration, International Chamber of Commerce (ICC) a request for certiorari, or the institution of two or more actions or proceedings grounded on the same
arbitration dated 3 November 2000 pursuant to the Turnkey Contract cause on the supposition that one or the other court would make a favorable disposition. [13]
between LHC and TPI;
Thus, for forum-shopping to exist, there must be (a) identity of parties, or at least such parties
3. G.R. No. 146717, Transfield Philippines, Inc. v. Luzon Hydro as represent the same interests in both actions; (b) identity of rights asserted and relief
Corporation, Australia and New Zealand Banking Group Limitedand prayed for, the relief being founded on the same facts; and (c) the identity of the two
Security Bank Corp. filed on 5 February 2001, which was an appeal by preceding particulars is such that any judgment rendered in the other action will, regardless
certiorari with prayer for TRO/preliminary prohibitory and mandatory of which party is successful, amount to res judicata in the action under consideration.[14]
injunction, of the Court of Appeals Decision dated 31 January 2001 in
CA-G.R. SP No. 61901. There is no identity of causes of action between and among the arbitration case, the instant
petition, and Civil Case No. 04-332.
a. CA-G.R. SP No. 61901 was a petition for review of the Decision The arbitration case, ICC Case No. 11264 TE/MW, is an arbitral proceeding
in Civil Case No. 00-1312, wherein TPI claimed that LHCs call commenced pursuant to the Turnkey Contract between TPI and LHC, to determine the
on the securities was premature considering that the issue of primary issue of whether the delays in the construction of the project were excused delays,
default has not yet been resolved with finality; the petition which would consequently render valid TPIs claims for extension of time to finish the
was however denied by the Court of Appeals; project. Together with the primary issue to be settled in the arbitration case is the equally
important question of monetary awards to the aggrieved party.
b. Civil Case No. 00-1312 was a complaint for injunction with
prayer for temporary restraining order and/or writ of On the other hand, Civil Case No. 00-1312, the precursor of the instant petition, was
preliminary injunction dated 5 November 2000, which sought filed to enjoin LHC from calling on the securities and respondent banks from transferring or
to restrain LHC from calling on the securities and respondent paying the securities in case LHC calls on them. However, in view of the fact that LHC collected
banks from transferring or paying of the securities; the the proceeds, TPI, in its appeal and petition for review asked that the same be returned and
complaint was denied by the RTC. placed in escrow pending the resolution of the disputes before the ICC arbitral tribunal. [15]
Question 31 Is TPI entitled to have returned to it any sum wrongfully
While the ICC case thus calls for a thorough review of the facts which led to the taken by LHC for liquidated damages?
delay in the construction of the project, as well as the attendant responsibilities of the parties Yes
therein, in contrast, the present petition puts in issue the propriety of drawing on the letters
of credit during the pendency of the arbitral case, and of course, absent a final determination Question 32 Is TPI entitled to any acceleration costs?
by the ICC Arbitral tribunal. Moreover, as pointed out by TPI, it did not pray for the return of TPI is entitled to the reasonable costs
the proceeds of the letters of credit. What it asked instead is that the said moneys be placed in TPI incurred after Typhoon Zeb as a
escrow until the final resolution of the arbitral case. Meanwhile, in Civil Case No. 04-332, TPI result of LHCs 5 February 1999 Notice to
no longer seeks the issuance of a provisional relief, but rather the issuance of a writ of Correct.[23]
execution to enforce the Third Partial Award.
According to LHC, the filing of the above case constitutes forum-shopping since it is
the same claim for the return of US$17.9 Million which TPI made before the ICC Arbitral
Neither is there an identity of parties between and among the three (3) cases. The Tribunal and before this Court. LHC adds that while Civil Case No. 04-332 is styled as an
ICC case only involves TPI and LHC logically since they are the parties to the Turnkey action for money, the Third Partial Award used as basis of the suit does not authorize TPI to
Contract. In comparison, the instant petition includes Security Bank and ANZ Bank, the banks seek a writ of execution for the sums drawn on the letters of credit. Said award does not even
sought to be enjoined from releasing the funds of the letters of credit. The Court agrees with contain an order for the payment of money, but instead has reserved the quantification of the
TPI that it would be ineffectual to ask the ICC to issue writs of preliminary injunction against amounts for a subsequent determination, LHC argues. In fact, even the Fifth Partial Award,
Security Bank and ANZ Bank since these banks are not parties to the arbitration case, and that [24]
dated 30 March 2005, does not contain such orders. LHC insists that the declarations or the
the ICC Arbitral tribunal would not even be able to compel LHC to obey any writ of partial awards issued by the ICC Arbitral Tribunal do not constitute orders for the payment of
preliminary injunction issued from its end. [16] Civil Case No. 04-322, on the other hand, money and are not intended to be enforceable as such, but merely constitute amounts which
logically involves TPI and LHC only, they being the parties to the arbitration agreement whose will be included in the Final Award and will be taken into account in determining the actual
partial award is sought to be enforced. amount payable to the prevailing party.[25]

As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to the R.A. No. 9825 provides that international commercial arbitrations shall be
courts for provisional reliefs. The Rules of the ICC, which governs the parties arbitral dispute, governed shall be governed by the Model Law on International Commercial Arbitration
allows the application of a party to a judicial authority for interim or conservatory measures. (Model Law) adopted by the United Nations Commission on International Trade Law
[17]
Likewise, Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Law) [18] recognizes the (UNCITRAL).[26] The UNCITRAL Model Law provides:
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 ARTICLE 35. Recognition and enforcement
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 (1) An arbitral award, irrespective of the country in which it was
or to act effectively.[19] made, shall be recognized as binding and, upon application in writing to
TPIs verified petition in Civil Case No. 04-332, filed on 19 March 2004, was captioned as one the competent court, shall be enforced subject to the provisions of this
For: Confirmation, Recognition and Enforcement of Foreign Arbitral Award in Case 11264 article and of article 36.
TE/MW, ICC International Court of Arbitration, Transfield Philippines, Inc. v. Luzon Hydro
Corporation (Place of arbitration: Singapore).[20] In the said petition, TPI prayed: (2) The party relying on an award or applying for its enforcement shall
supply the duly authenticated original award or a duly certified copy
thereof, and the original arbitration agreement referred to in article 7 or
1. That the THIRD PARTIAL AWARD dated February 18, 2004 in a duly certified copy thereof. If the award or agreement is not made in an
Case No. 11264/TE/MW made by the ICC International Court of official language of this State, the party shall supply a duly certified
Arbitration, the signed original copy of which is hereto attached as translation thereof into such language.
Annex H hereof, be confirmed, recognized and enforced in accordance
with law.
Moreover, the New York Convention,[27] to which the Philippines is a signatory,
2. That the corresponding writ of execution to enforce Question governs the recognition and enforcement of foreign arbitral awards. The applicability of the
31 of the said Third Partial Award, be issued, also in accordance with New York Convention in the Philippines was confirmed in Section 42 of R.A. 9285. Said law
law. also provides that the application for the recognition and enforcement of such awards shall be
filed with the proper RTC. While TPIs resort to the RTC for recognition and enforcement of the
3. That TPI be granted such other relief as may be deemed just Third Partial Award is sanctioned by both the New York Convention and R.A. 9285, its
and equitable, and allowed, in accordance with law.[21] application for enforcement, however, was premature, to say the least. True, the ICC Arbitral
Tribunal had indeed ruled that LHC wrongfully drew upon the securities, yet there is no order
The pertinent portion of the Third Partial Award[22] relied upon by TPI were the for the payment or return of the proceeds of the said securities. In fact, Paragraph 2142, which
answers to Questions 10 to 26, to wit: is the final paragraph of the Third Partial Award, reads:

2142. All other issues, including any issues as to quantum and


Question 30 Did TPI [LHC] wrongfully draw upon the security? costs, are reserved to a future award.[28]
Yes Meanwhile, the tribunal issued its Fifth Partial Award[29] on 30 March 2005. It
contains, among others, a declaration that while LHC wrongfully drew on the securities, the
drawing was made in good faith, under the mistaken assumption that the contractor, TPI, was WHEREFORE, the Court RESOLVES to DISMISS the charges of forum-shopping filed by both
in default. Thus, the tribunal ruled that while the amount drawn must be returned, TPI is not parties against each other.
entitled to any damages or interests due to LHCsdrawing on the securities.[30] In the Fifth
Partial Award, the tribunal ordered: No pronouncement as to costs.

6. Order SO ORDERED.

6.1 General Transfield Philippines vs Luzon Hydro Electric Corp. GR No 146717, Nov 22, 2004
MARCH 15, 2014 LEAVE A COMMENT
166. This Fifth Partial Award deals with many issues of The independent nature of the letter of credit may be: (a) independence in toto where the
quantum. However, it does not resolve them all. The credit is independent from the justification aspect and is a separate obligation from the
outstanding quantum issues will be determined in a underlying agreement like for instance a typical standby; or (b) independence may be only as
future award. It will contain a reconciliation of the amounts to the justification aspect like in a commercial letter of credit or repayment standby, which is
awarded to each party and a determination of the net amount identical with the same obligations under the underlying agreement. In both cases the
payable to Claimant or Respondent, as the case may be. payment may be enjoined if in the light of the purpose of the credit the payment of the credit
would constitute fraudulent abuse of the credit.
167. In view of this the Tribunal will make no orders for payment in this
Fifth Partial Award. The Tribunal will make a number of Facts: Transfield Philippines (Transfield) entered into a turn-key contract with Luzon Hydro
declarations concerning the quantum issues it has resolved in Corp. (LHC).Under the contract, Transfield were to construct a hydro-electric plants in
this Award together with the outstanding liability issues. The Benguet and Ilocos. Transfield was given the sole responsibility for the design, construction,
declarations do not constitute orders for the payment of commissioning, testing and completion of the Project. The contract provides for a period for
money and are not intended to be enforceable as which the project is to be completed and also allows for the extension of the period provided
such. They merely constitute amounts which will be that the extension is based on justifiable grounds such as fortuitous event. In order to
included in the Final Award and will be taken into account guarantee performance by Transfield, two stand-by letters of credit were required to be
in determining the actual amount payable.[31] (Emphasis opened. During the construction of the plant, Transfield requested for extension of time citing
Supplied.) typhoon and various disputes delaying the construction. LHC did not give due course to the
extension of the period prayed for but referred the matter to arbitration committee. Because
of the delay in the construction of the plant, LHC called on the stand-by letters of credit
Further, in the Declarations part of the award, the tribunal held: 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.
6.2 Declarations
Issue: Whether or not LHC can collect from the letters of credit despite the pending
168. The Tribunal makes the following declarations: arbitration case
xxx
Held: Transfields argument that any dispute must first be resolved by the parties, whether
3. LHC is liable to repay TPI the face value of the securities drawn down through negotiations or arbitration, before the beneficiary is entitled to call on the letter of
by it, namely, $17,977,815. It is not liable for any further damages credit in essence would convert the letter of credit into a mere guarantee.
claimed by TPI in respect of the drawdown of the securities.
x x x.[32] The independent nature of the letter of credit may be: (a) independence in toto where the
credit is independent from the justification aspect and is a separate obligation from the
Finally, on 9 August 2005, the ICC Arbitral tribunal issued its Final Award, in underlying agreement like for instance a typical standby; or (b) independence may be only as
essence awarding US$24,533,730.00, which included TPIs claim of U$17,977,815.00 for the to the justification aspect like in a commercial letter of credit or repayment standby, which is
return of the securities from LHC.[33] identical with the same obligations under the underlying agreement. In both cases the
payment may be enjoined if in the light of the purpose of the credit the payment of the credit
The fact that the ICC Arbitral tribunal included the proceeds of the securities shows would constitute fraudulent abuse of the credit.
that it intended to make a final determination/award as to the said issue only in the Final
Award and not in the previous partial awards. This supports LHCs position that when the Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in
Third Partial Award was released and Civil Case No. 04-332 was filed, TPI was not yet that the settlement of a dispute between the parties is not a pre-requisite for the release of
authorized to seek the issuance of a writ of execution since the quantification of the amounts funds under a letter of credit. In other words, the argument is incompatible with the very
due to TPI had not yet been settled by the ICC Arbitral tribunal. Notwithstanding the fact that nature of the letter of credit. If a letter of credit is drawable only after settlement of the
the amount of proceeds drawn on the securities was not disputed the application for the dispute on the contract entered into by the applicant and the beneficiary, there would be no
enforcement of the Third Partial Award was precipitately filed. To repeat, the declarations practical and beneficial use for letters of credit in commercial transactions.
made in the Third Partial Award do not constitute orders for the payment of money.
The engagement of the issuing bank is to pay the seller or beneficiary of the credit once the
Anent the claim of TPI that it was LHC which committed forum-shopping, suffice it to say that draft and the required documents are presented to it. The so-called independence principle
its bare allegations are not sufficient to sustain the charge. assures the seller or the beneficiary of prompt payment independent of any breach of the
main contract and precludes the issuing bank from determining whether the main contract is
actually accomplished or not. Under this principle, banks assume no liability or responsibility
for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, WHEREFORE, premises considered, the petition in G.R. No. 199238 is DENIED. The Resolution
or for the general and/or particular conditions stipulated in the documents or superimposed dated September 13, 2011 of the Court of Appeals in CA-G.R. SP No. 120888 is AFFIRMED.
thereon, nor do they assume any liability or responsibility for the description, quantity,
weight, quality, condition, packing, delivery, value or existence of the goods represented by
The petition in G.R. No. 196171 is DENIED. The Decision dated December 23, 2010 of the
any documents, or for the good faith or acts and/or omissions, solvency, performance or
Court of Appeals in CA-G.R. SP No. 113525 is hereby AFFIRMED.
standing of the consignor, the carriers, or the insurers of the goods, or any other person
whomsoever.
SO ORDERED.1

Both RCBC Capital and BDO filed motions for partial reconsideration of the above decision.
RCBC Capital Corp. v. Banco de Oro Unibank, Inc., G.R. No. 196171, 199238, December
10, 2012 Meanwhile, in G.R. No. 200213, RCBC Capital filed its Comment, to which a Reply was filed by
BDO. By Resolution dated July 22, 2013, both parties were directed to submit their respective
memoranda within 30 days from notice.
Before the Court are: (1) the Joint Motion and Manifestation dated October 1, 2013 filed in
G.R. Nos. 196171 & 199238 by RCBC Capital Corporation ("RCBC Capital"), BDO Unibank, Inc.
("BDO"), and George L. Go, in his personal capacity and as attorney-in-fact of the individual In their Joint Motion and Manifestation filed in G.R. Nos. 196171 & 199238, the parties submit
stockholders as listed in the Share Purchase Agreement dated May 27, 2000 and pray that
("Go/Shareholders"), thru their respective counsels; and (2) the Joint Motion and
Manifestation dated October 1, 2013 filed in G.R. No. 200213 by BDO and RCBC Capital thru
5. After negotiations, the Parties have mutually agreed that it is in their best
their respective counsel.
interest and general benefit to settle their differences with respect to their
respective causes of action, claims or counterclaims in the RCBC Capital Petition
All three petitions emanated from arbitration proceedings commenced by RCBC Capital and the BDO Petition, with a view to a renewal of their business relations.
pursuant to the arbitration clause under its Share Purchase Agreement (SPA) with EPCIB
involving the latters shares in Bankard, Inc. In the course of arbitration conducted by the
6. Thus, the parties have reached a complete, absolute and final settlement of their
Tribunal constituted and administered by the International Chamber of Commerce-
claims, demands, counterclaims and causes of action arising, directly or indirectly,
International Commercial Arbitration (ICC-ICA), EPCIB was merged with BDO which assumed
from the facts and circumstances giving rise to, surrounding or arising from both
all its liabilities and obligations.
Petitions, and have agreed to jointly terminate and dismiss the same in accordance
with their agreement.
G.R. No. 196171 is a petition for review under Rule 45 seeking to reverse the Court of Appeals
(CA) Decision dated December 23, 2010 in CA-G.R. SP No. 113525 which reversed and set
7. In view of the foregoing compromise between the Parties, BDO, RCBC Capital and
aside the June 24, 2009 Order of the Regional Trial Court (RTC) of Makati City, Branch 148 in
Go/Shareholders, with the assistance of their respective counsels, have decided to
SP Proc. Case No. M-6046. The RTC confirmed the Second Partial Award issued by the
jointly move for the termination and dismissal of the above-captioned cases with
Arbitration Tribunal ordering BDO to pay RCBC Capital proportionate share in the advance
prejudice.
costs and dismissing BDOs counterclaims.

PRAYER
G.R. No. 199238 is a petition for certiorari under Rule 65 assailing the September 13, 2011
Resolution in CA-G.R. SP No. 120888 which denied BDOs application for the issuance of a stay
order and/or temporary restraining order (TRO)/preliminary injunction against the RTC of WHEREFORE, RCBC CAPITAL CORPORATION, BDO UNIBANK, INC. and GEORGE L. GO, IN HIS
Makati City, Branch 148 in Sp. Proc. Case No. M-6046. Acting upon RCBC Capitals urgent PERSONAL CAPACITY AND AS ATTORNEY-IN-FACT OF THE INDIVIDUAL STOCKHOLDERS AS
motion, the RTC issued on August 22, 2011 a writ of execution for the implementation of the LISTED IN THE SHARE PURCHASE AGREEMENT DATED 27 MAY 2000 respectfully pray that
courts order confirming the Final Award rendered by the Arbitration Tribunal on June 16, this Honorable Court order the termination and dismissal of the above-captioned cases, with
2010. prejudice. RCBC Capital BDO and Go/Shareholders respectfully pray for such other relief as
may be deemed just or equitable under the premises. 2
On the other hand, G.R. No. 200213, filed on February 6, 2012, is a petition for review under
Rule 45 praying for the reversal of the CAs Decision dated February 24, 2011 and Resolution BDO and RCBC Capital likewise submit and pray in their Joint Motion and Manifestation in
dated January 13, 2012 in CA-G.R. SP No. 113402. The CA denied BDOs petition for certiorari G.R. No. 200213 that
and prohibition with application for issuance of a TRO and/or writ of preliminary injunction
against the RTC of Makati City, Branch 148 in Sp. Proc. Case No. M-6046. By Order dated June
3. After negotiations, the Parties have mutually agreed that it is in their best
24, 2009, the RTC denied BDOs motion for access of the computerized accounting system of interest and general benefit to settle their differences with respect to their
Bankard, Inc. after Chairman Richard Ian Barker had denied BDOs request that it be given respective causes of action, claims or counterclaims in the above-captioned case,
access to the said source of facts or data used in preparing the accounting summaries with a view to a renewal of their business relations.
submitted in evidence before the Arbitration Tribunal.

4. Thus, the Parties have reached a complete, absolute and final settlement of their
G.R. Nos. 196171 & 199238 were consolidated and a Decision was rendered by this Court on claims, demands, counterclaims and causes of action arising, directly or indirectly,
December 10, 2012, the dispositive portion of which states:
from the facts and circumstances giving rise to, surrounding or arising from the WHEREFORE, BDO UNIBANK, INC. and RCBC CAPITAL CORPORATION respectfully pray that
present Petition, and have agreed to jointly terminate and dismiss the present this Honorable Court order the termination and dismissal of the above-captioned case, with
Petition in accordance with their agreement. prejudice.

5. In view of the foregoing compromise between the Parties, BDO and RCBC Capital, BDO and RCBC Capital respectfully pray for such other relief as may be deemed just or
with the assistance of their respective counsels, have decided to jointly move for equitable under the premises.3
the termination and dismissal of the above-captioned case with prejudice.1wphi1
Under this Court s Resolution dated November 27, 2013, G.R. No. 200213 is ordered
PRAYER consolidated with G.R. Nos. 196171 199238.

IN VIEW OF THE FOREGOING and as prayed for, G.R. Nos. 196171, 199238 and 200213 are
hereby ordered DISMISSED with prejudice and are deemed CLOSED and TERMINATED.