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KCAB and that the arbitral award is final and binding,

HON. ALBERTO A. LERMA, in his capacity as Presiding is not contrary to public policy. This Court has
Judge of Branch 256 of Regional Trial Court of Muntinlupa sanctioned the validity of arbitration clauses in a
City, and PACIFIC GENERAL STEEL MANUFACTURING catena of cases. In the 1957 case of Eastboard
CORPORATION Navigation Ltd. v. Juan Ysmael and Co., Inc.,iii this
Court had occasion to rule that an arbitration clause to
FACTS: PGSMC and KOGIES executed a Contract resolve differences and breaches of mutually agreed
whereby KOGIES would set up an LPG Cylinder contractual terms is valid. In BF Corporation v. Court of
Manufacturing Plant in Carmona, Cavite. The contract Appeals, we held that ―[i]n this jurisdiction,
was executed in the Philippines. On April 7, 1997, the arbitration has been held valid and constitutional.
parties executed, in Korea, an Amendment for Contract Even before the approval on June 19, 1953 of
No. KLP-970301 dated March 5, 1997 amending the terms Republic Act No. 876, this Court has countenanced
of payment. The contract and its amendment stipulated the settlement of disputes through arbitration.
that KOGIES will ship the machinery and facilities Republic Act No. 876 was adopted to
necessary for manufacturing LPG cylinders for which supplement the New Civil Code’s provisions on
PGSMC would pay USD 1,224,000. KOGIES would install arbitration. And in LM Power Engineering
and initiate the operation of the plant for which Corporation v. Capitol Industrial Construction Groups,
PGSMC bound itself to pay USD 306,000 upon the Inc., we declared that:
plant’s production of the 11-kg. Later PGSMC
entered into a Contract of Lease with Worth Being an inexpensive, speedy and amicable
Properties, Inc. (Worth) for use of Worth’s method of settling disputes, arbitration––along
5,079-square meter property with a 4,032-square meter with mediation, conciliation and negotiation––
warehouse building to house the LPG manufacturing is encouraged by the Supreme Court. Aside
plant. after the installation of the plant, the initial from unclogging judicial dockets, arbitration
operation could not be conducted as PGSMC also hastens the resolution of disputes,
encountered financial difficulties affecting the supply of especially of the commercial kind. It is
materials, thus forcing the parties to agree that KOGIES thus regarded as the ―wave of the
would be deemed to have completely complied with future in international civil and commercial
the terms and conditions of the March 5, 1997 contract. disputes. Brushing aside a contractual
PGSMC informed KOGIES that PGSMC was canceling agreement calling for arbitration between the
their Contract dated March 5, 1997 on the ground that parties would be a step backward.
KOGIES had altered the quantity and lowered the
quality of the machineries and equipment it delivered to
PGSMC, and that PGSMC would dismantle and transfer
the machineries, equipment, and facilities installed in the
Carmona plant. KOGIES filed a Complaint for Specific
Performance against PGSMC before the Muntinlupa City
Regional Trial Court (RTC).

On May 30, 2000, the CA rendered the assailed

Decision affirming the RTC Orders and dismissing the
petition for certiorari filed by KOGIES. The CA found
that the RTC did not gravely abuse its discretion in
issuing the assailed July 23, 1998 and September 21,
1998 Orders. Moreover, the CA reasoned that
KOGIES’ contention that the total contract price for
USD 1,530,000 was for the whole plant and had not been
fully paid was contrary to the finding of the RTC that
PGSMC fully paid the price of USD 1,224,000, which was
for all the machineries and equipment. According to
the CA, this determination by the RTC was a factual
finding beyond the ambit of a petition for certiorari.

On the issue of the validity of the arbitration clause, the

CA agreed with the lower court that an arbitration
clause which provided for a final determination of the
legal rights of the parties to the contract by arbitration
was against public policy.

ISSUE: W/N the Arbitration clause is contrary to public


RULING: The arbitration clause which stipulates that

the arbitration must be done in Seoul, Korea in
accordance with the Commercial Arbitration Rules of the