KOREA TECHNOLOGIES CO., (KOGIES) LTD V. HON. ALBERTO A.

LERMA & PACIFIC

GENERAL STEEL MANUFACTURING CORPORATION (PGSMC)
7 January 2008

Facts:
 Petitioner KOGIES is a Korean corporation engaged in the supply and installation of LPG
Cylinder manufacturing plants while respondent PGSMC is a domestic corp.
 KOGIES and PGSMC entered into a contract in the PH whereby KOGIES would set up a
manufacturing plant in Cavite. Thereafter, the parties executed an amendment to the
contract as to the terms of payment, this time in Korea.
 Due to financial difficulties encountered by PGSMC, the parties agreed that KOGIES was
deemed to have completely complied with the terms and conditions of the contract.
 PGSMC issued two post-dated checks for the balance of the installation and initial
operation of the plant. The checks were dishonored.
 According to the wife of PGSMC’s President, PGSMC stopped payment because KOGIES
had lowered the quality of machineries it delivered to PGSMC and that PGSMC would
dismantle the facilities in their plant in Cavite.
 PGSMC then filed a complaint for estafa against KOGIES’ president.
 KOGIES argues that PGSM cannot unilaterally rescind their contract and that any dispute
should be settled by arbitration as agreed upon in their contract.
 KOGIES then instituted an application for arbitration before the Korean Commercial
Arbitration Board (KCAB) in Seoul. KOGIES likewise filed a complaint for Specific
Performance against PGSMC with the RTC, which granted a TRO.
 PGSMC claims that the arbitration clause is void for being contrary to public policy since
it ousts PH courts of jurisdiction.
 RTC held in favor of PGSMC found the arbitration clause invalid. CA affirmed the RTC
and declared the arbitration clause contrary to public policy.

WON the arbitration clause is valid – Yes, it is.

 It is established in this jurisdiction that the law of the place where the contract is made
governs (lex loci contractus). Contract was executed in the PH. So apply PH law. Art.
2044 of the Civil Code sanctions the validity of mutually agreed arbitral clause or the
finality and binding effect of an arbitral award.

What rules / laws govern the arbitration clause?

 As signatory to the Arbitration Rules of the United Nations Commission on International

Trade Law (UNCITRAL) Model Law on International Commercial Arbitration of the
UNCITRAL in the New York Convention on 21 June 1985, the PH committed itself to be
bound by the Model Law. The PH has incorporated the Model Law in Alternative Dispute
Resolution Act of 2004.

WON ADR Act can be applied retroactively – Yes, it can. ADR Act of 2004 is a
procedural law, which has retroactive effect.
Features of the ADR Act in case there is an arbitration clause:

 Under Sec 24 of the ADR Act, the RTC does not have jurisdiction over disputes that are
properly the subject of arbitration pursuant to an arbitration clause, and mandates the
referral to arbitration in such cases.
 Even if foreign arbitral awards are mutually stipulated by the parties in the arbitration
clause to be final and binding, under the Model Law, the same are not immediately
enforceable. They must still be confirmed by the RTC. RTC may set aside, reject or
vacate it (Note that the grounds for judicial review differ in domestic and foreign arbitral
awards. If foreign, apply Model Law. If domestic, apply RA 876)
 Foreign arbitral awards when confirmed by the RTC are deemed not as a judgment of a
foreign court but as a foreign arbitral award, and when confirmed, are enforced as final
and executory decisions of our courts of law. The concept of a final and binding arbitral
award is similar to judgments or awards given by some quasi-judicial bodies, like the
National Labor Relations Commission and the Mines Adjudication Board.
 RTC decision may be appealed to the CA, under Sec 46 of the ADR Act. Then CA to SC
via Rule 45.

WON PGSMC can unilaterally rescind the contract – No, it cannot.

 Where an arbitration clause in a contract is availing, neither of the parties can

unilaterally treat the contract as rescinded in case of breach since whatever infractions
or breaches by a party or differences arising from the contract must be brought first and
resolved by arbitration, and not through an extrajudicial rescission or judicial action. But
the pendency of an arbitral proceeding does not foreclose resort to the courts for
provisional relief. The RTC has authority and jurisdiction to grant interim measures of
protection.