ADR CASES LAST BATCH
FRUEHAUF ELECTRONICS PHILIPPINES
CORPORATION v. TECHNOLOGY ELECTRONICS ASSEMBLY AND
MANAGEMENT PACIFIC CORPORATION
In 1978, Fruehauf Electronics Philippines Corp. (Fruehauf) leased
several parcels of land in Pasig City to Signetics Filipinas Corporation
(Signetics) for a period of 25 years (until May 28, 2003). Signetics
constructed a semiconductor assembly factory on the land on its own
account.
In 1983, Signetics ceased its operations after the Board of Investments
(BOI) withdrew the investment incentives granted to electronic
industries based in Metro Manila.
In 1986, Team Holdings Limited (THL) bought Signetics. THL later
changed its name to Technology Electronics Assembly and
Management Pacific Corp. (TEAM).
In March 1987, Fruehauf filed an unlawful detainer case against TEAM.
In an effort to amicably settle the dispute, both parties executed a
Memorandum of Agreement (MOA) on June 9, 1988.3 Under the MOA,
TEAM undertook to pay Fruehauf 14.7 million pesos as unpaid rent (for
the period of December 1986 to June 1988).
They also entered a 15-year lease contract4 (expiring on June 9, 2003)
that was renewable for another 25 years upon mutual agreement. The
contract included an arbitration agreement:5
17. ARBITRATION
In the event of any dispute or disagreement between the parties hereto
involving the interpretation or implementation of any provision of this
Contract of Lease, the dispute or disagreement shall be referred to
arbitration by a three (3) member arbitration committee, one member
to be appointed by the LESSOR, another member to be appointed by the
LESSEE, and the third member to be appointed by these two members.
The arbitration shall be conducted in accordance with the Arbitration
Law (R.A. No. 876)
The contract also authorized TEAM to sublease the property. TEAM
subleased the property to Capitol Publishing House (Capitol) on
December 2, 1996 after notifying Fruehauf.
On May 2003, TEAM informed Fruehauf that it would not be renewing
the lease.6
On May 31, 2003, the sublease between TEAM and Capitol expired.
However, Capitol only vacated the premises on March 5, 2005. In the
meantime, the master lease between TEAM and Fruehauf expired on
June 9, 2003.
On March 9, 2004, Fruehauf instituted SP Proc. No. 11449 before the
Regional Trial Court (RTC) for "Submission of an Existing Controversy for
Arbitration."7 It alleged: (1) that when the lease expired, the property
suffered from damage that required extensive renovation; (2) that
when the lease expired, TEAM failed to turn over the premises and pay
rent; and (3) that TEAM did not restore the property to its original
condition as required in the contract. Accordingly, the parties are
obliged to submit the dispute to arbitration pursuant to the stipulation
in the lease contract.
The RTC granted the petition and directed the parties to comply with
the arbitration clause of the contract.8
Pursuant to the arbitration agreement, the dispute was referred to a
three-member arbitration tribunal. TEAM and Fruehauf appointed one
member each while the Chairman was appointed by the first two
members. The tribunal was formally constituted on September 27,
2004 with retired CA Justice Hector L. Hofilea, as chairman, retired CA
Justice Mariano M. Umali and Atty. Maria Clara B. Tankeh Asuncion as
members.9
ADR CASES LAST BATCH
The parties initially submitted the following issues to the tribunal for
resolution:10
1. Whether or not TEAM had complied with its obligation to
return the leased premises to Fruehauf after the expiration of
the lease on June 9, 2003.
1.1. What properties should be returned and in what
condition?
2. Is TEAM liable for payment of rentals after June 9, 2003?
2.1. If so, how much and for what period?
3. Is TEAM liable for payment of real estate taxes, insurance, and
other expenses on the leased premises after June 9, 2003?
4. Who is liable for payment of damages and how much?
5. Who is liable for payment of attorney's fees and how much?
Subsequently, the following issues were also submitted for resolution
after TEAM proposed11 their inclusion:
1. Who is liable for the expenses of arbitration, including
arbitration fees?
2. Whether or not TEAM has the obligation to return the
premises to Fruehauf as a "complete, rentable, and fully
facilitized electronic plant."
The Arbitral Award12
On December 3, 2008, the arbitral tribunal awarded Fruehauf: (1) 8.2
million pesos as (the balance of) unpaid rent from June 9, 2003 until
March 5, 2005; and (2) 46.8 million pesos as damages.13
The tribunal found that Fruehauf made several demands for the return
of the leased premises before and after the expiration of the lease14 and
that there was no express or implied renewal of the lease after June 9,
2003. It recognized that the sub-lessor, Capitol, remained in possession
of the lease. However, relying on the commentaries of Arturo Tolentino
on the subject, the tribunal held that it was not enough for lessor to
simply vacate the leased property; it is necessary that he place the thing
at the disposal of the lessor, so that the latter can receive it without any
obstacle.15
For failing to return the property to Fruehauf, TEAM remained liable
for the payment of rents. However, if it can prove that Fruehauf
received rentals from Capitol, TEAM can deduct these from its
liability.16Nevertheless, the award of rent and damages was without
prejudice to TEAM's right to seek redress from its sub-lessee, Capitol.17
With respect to the improvements on the land, the tribunal viewed the
situation from two perspectives:
First, while the Contract admitted that Fruehauf was only leasing the
land and not the buildings and improvements thereon, it nevertheless
obliged TEAM to deliver the buildings, installations and other
improvements existing at the inception of the lease upon its
expiration.18
The other view, is that the MOA and the Contract recognized that TEAM
owned the existing improvements on the property and considered
them as separate from the land for the initial 15-year term of the
lease.19 However, Fruehauf had a vested right to become the owner of
these improvements at the end of the 15-year term. Consequently, the
contract specifically obligated TEAM not to remove, transfer, destroy,
or in any way alienate or encumber these improvements without prior
written consent from Fruehauf.20
Either way, TEAM had the obligation to deliver the existing
improvements on the land upon the expiration of the lease. However,
there was no obligation under the lease to return the premises as a
"complete, rentable, and fully facilitized electronis plant."21 Thus, TEAM's
obligation was to vacate the leased property and deliver to Fruehauf
the buildings, improvements, and installations (including the
ADR CASES LAST BATCH
machineries and equipment existing thereon) in the same condition as
when the lease commenced, save for what had been lost or impaired by
the lapse of time, ordinary wear and tear, or any other inevitable
cause.22
The tribunal found TEAM negligent in the maintenance of the premises,
machineries, and equipment it was obliged to deliver to Fruehauf. 23 For
this failure to conduct the necessary repairs or to notify Fruehauf of
their necessity, the tribunal held TEAM accountable for damages
representing the value of the repairs necessary to restore the premises
to a condition "suitable for the use to which it has been devoted" less
their depreciation expense.24
On the other issues, the tribunal held that TEAM had no obligation to
pay real estate taxes, insurance, and other expenses on the leased
premises considering these obligations can only arise from a renewal of
the contract.25cralawred Further, the tribunal refused to award
attorney's fees, finding no evidence that either party acted in bad
faith.26 For the same reason, it held both parties equally liable for the
expenses of litigation, including the arbitrators' fees.27
TEAM moved for reconsideration28 which the tribunal denied.29 Thus,
TEAM petitioned the RTC to partially vacate or modify the arbitral
award.30 It argued that the tribunal failed to properly appreciate the
facts and the terms of the lease contract.
The RTC Ruling
On April 29, 2009, the RTC31 found insufficient legal grounds under
Sections 24 and 25 of the Arbitration Law to modify or vacate the
award.32 It denied the petition and CONFIRMED, the arbitral
award.33 TEAM filed a Notice of Appeal.
On July 3, 2009,34 the RTC refused to give due course to the Notice of
Appeal because according to Section 2935 of the Arbitration Law, an
ordinary appeal under Rule 41 is not the proper mode of appeal against
an order confirming an arbitral award.36
TEAM moved for reconsideration but the RTC denied the motion on
November 15, 2009.37 Thus, TEAM led a petition for certiorari38 before
the CA arguing that the RTC gravely abused its discretion in: (1)
denying due course to its notice of appeal; and (2) denying the motion
to partially vacate and/or modify the arbitral award.39
TEAM argued that an ordinary appeal under Rule 41 was the proper
remedy against the RTC's order confirming, modifying, correcting, or
vacating an arbitral award.40 It argued that Rule 42 was not available
because the order denying its motion to vacate was not rendered in the
exercise of the RTC's appellate jurisdiction. Further, Rule 43 only
applies to decisions of quasi-judicial bodies. Finally, an appeal under
Rule 45 to the Supreme Court would preclude it from raising questions
of fact or mixed questions of fact and law.41
TEAM maintained that it was appealing the RTC's order denying its
petition to partially vacate/modify the award, not the arbitral award
itself.42 Citing Rule 41, Section 13 of the Rules of Court, the RTC's
authority to dismiss the appeal is limited to instances when it was filed
out of time or when the appellant fails to pay the docket fees within the
reglementary period.43
TEAM further maintained that the RTC gravely abused its discretion by
confirming the Arbitral Tribunal's award when it evidently had legal
and factual errors, miscalculations, and ambiguities.44
The petition was docketed as CA-G.R. SP. No. 112384.
The CA decision45
The CA initially dismissed the petition.46 As the RTC did, it cited Section
29 of the Arbitration Law:
Section 29. Appeals. - An appeal may be taken from an order made in
a proceeding under this Act, or from a judgment entered upon an award
through certiorari proceedings, but such appeals shall be limited to
ADR CASES LAST BATCH
questions of law. The proceedings upon such appeal, including the
judgment thereon shall be governed by the Rules of Court in so far as
they are applicable.
It concluded that the appeal contemplated under the law is an appeal
by certiorari limited only to questions flaw.47
The CA continued that TEAM failed to substantiate its claim as to the
"evident miscalculation of figures." It further held that disagreement
with the arbitrators' factual determinations and legal conclusions does
not empower courts to amend or overrule arbitral judgments.48
However, the CA amended its decision on October 25, 2012 upon a
motion for reconsideration.49
The CA held that Section 29 of the Arbitration Law does not preclude
the aggrieved party from resorting to other judicial
remedies.50 Citing Asset Privatization Trust v. Court of Appeals,51 the CA
held that the aggrieved party may resort to a petition
for certiorari when the RTC to which the award was submitted for
confirmation has acted without jurisdiction, or with grave abuse of
discretion and there is no appeal, nor any plain, speedy remedy in the
course of law.52
The CA further held that the mere filing of a notice of appeal is
sufficient as the issues raised in the appeal were not purely questions of
law.53 It further cited Section 46 of the Alternative Dispute Resolution
(ADR) Law:54
SEC. 46. Appeal from Court Decisions on Arbitral Awards. - A
decision of the regional trial court confirming, vacating, setting aside,
modifying or correcting an arbitral award may be appealed to the Court
of Appeals in accordance with the rules of procedure to be promulgated
by the Supreme Court.
The losing party who appeals from the judgment of the court
confirming an arbitral award shall be required by the appellant court to
post counterbond executed in favor of the prevailing party equal to the
amount of the award in accordance with the rules to be promulgated by
the Supreme Court.55ChanRoblesVirtualawlibrary
However, the CA made no further reference to A.M. No. 07-11-08-SC,
the Special Rules of Court on Alternative Dispute Resolution (Special
ADR Rules) which govern the appeal procedure.
The CA further revisited the merits of the arbitral award and found
several errors in law and in fact. It held: (1) that TEAM was not obliged
to pay rent because it was Capitol, not TEAM, that remained in
possession of the property upon the expiration of the lease;56 and (2)
that Fruehauf was not entitled to compensation for the repairs on the
buildings because it did not become the owner of the building until
after the expiration of the lease.57
Also citing Tolentino, the CA opined: (1) that a statement by the lessee
that he has abandoned the premises should, as a general rule,
constitute sufficient compliance with his duty to return the leased
premises; and (2) that any new arrangement made by the lessor with
another person, such as the sub-lessor, operates as a resumption of his
possession.58
On the issue of damages, the CA held that TEAM can never be liable for
the damages for the repairs of the improvements on the premises
because they were owned by TEAM itself (through its predecessor,
Signetics) when the lease commenced.59
The CA REVERSED AND SET ASIDE the arbitral award
and DISMISSED the arbitral complaint for lack of merit.60
This CA action prompted Fruehauf to file the present petition for
review.
The Arguments
Fruehauf argues that courts do not have the power to substitute their
ADR CASES LAST BATCH

judgment for that of the arbitrators.61 It also insists that an ordinary to Insular Savings Bank and ABS-CBN Broadcasting Corporation v. World
appeal is not the proper remedy against an RTC's order confirming, Interactive Network Systems (WINS) Japan Co., Ltd.72
vacating, correcting or modifying an arbitral ward but a petition for
review on certiorari under Rule 45.62 The Issues

Furthermore, TEAM's petition before the CA went beyond the This case raises the following questions:
permissible scope of certiorari the existence of grave abuse of
discretion or errors jurisdiction - by including questions of fact and law 1. What are the remedies or the modes of appeal against an
that challenged the merits of the arbitral award.63 unfavorable arbitral award?

2. What are the available remedies from an RTC decision

However, Fruehauf inconsistently argues that the remedies against an
arbitral award are (1) a petition to vacate the award, (2) a petition for
review under Rule 43 raising questions of fact, of law, or mixed
questions of fact and law, or (3) a petition for certiorari under Rule 3.
65.64 Fruehauf cites an article from the Philippine Dispute Resolution
Center65 and Insular Savings Bank v. Far East Bank and Trust, Co.66
confirming, vacating, modifying, or correcting an arbitral
award?
Did the arbitral tribunal err in awarding Fruehauf damages for
the repairs of the building and rental fees from the expiration
of the lease?

TEAM counters that the CA correctly resolved the substantive issues of Our Ruling
the case and that the arbitral tribunal's errors were sufficient grounds
to vacate or modify the award.67 It insists that the RTC's
The petition is meritorious.
misappreciation of the facts from a patently erroneous award
warranted an appeal under Rule 41.68
Arbitration is an alternative mode of dispute resolution outside of the
regular court system. Although adversarial in character, arbitration is
TEAM reiterates that it "disagreed with the arbitral award mainly
technically not litigation. It is a voluntary process in which one or more
on questions of fact and not only on questions of law," specifically,
arbitrators - appointed according to the parties' agreement or
"on factual matters relating to specific provisions in the contract
according to the applicable rules of the Alternative Dispute Resolution
on ownership of structures and improvements thereon, and the
(ADR) Law - resolve a dispute by rendering an award.73 While
improper award of rentals and penalties."69 Even assuming that it
arbitration carries many advantages over court litigation, in many ways
availed of the wrong mode of appeal, TEAM posits that its appeal
these advantages also translate into its disadvantages.
should still have been given due course in the interest of substantial
justice.70
Resort to arbitration is voluntary. It requires consent from both
parties in the form of an arbitration clause that pre-existed the
TEAM assails the inconsistencies of Fruehauf's position as to the
dispute or a subsequent submission agreement. This written
available legal remedies against an arbitral award.71 However, it
arbitration agreement is an independent and legally enforceable
maintains that Section 29 of the Arbitration Law does not foreclose
contract that must be complied with in good faith. By entering into an
other legal remedies (aside from an appeal by certiorari) against the
arbitration agreement, the parties agree to submit their dispute to an
RTC's order confirming or vacating an arbitral award pursuant
ADR CASES LAST BATCH
arbitrator (or tribunal) of their own choosing and be bound by the
latter's resolution.
However, this contractual and consensual character means that the
parties cannot implead a third-party the proceedings even if the latter's
participation is necessary for a complete settlement of the dispute. The
tribunal does not have the power to compel a person to participate in
the arbitration proceedings without that person's consent. It also has
no authority to decide on issues that the parties did not submit (or
agree to submit) for its resolution.
As a purely private mode of dispute resolution, arbitration
proceedings, including the records, the evidence, and the arbitral
award, are confidential74 unlike court proceedings which are generally
public. This allows the parties to avoid negative publicity and protect
their privacy. Our law highly regards the confidentiality of arbitration
proceedings that it devised a judicial remedy to prevent or prohibit the
unauthorized disclosure of confidential information obtained
therefrom.75
The contractual nature of arbitral proceedings affords the parties
substantial autonomy over the proceedings. The parties are free to
agree on the procedure to be observed during the proceedings.76This
lends considerable flexibility to arbitration proceedings as compared to
court litigation governed by the Rules of Court.
The parties likewise appoint the arbitrators based on agreement.
There are no other legal requirements as to the competence or
technical qualifications of an arbitrator. Their only legal qualifications
are: (1) being of legal age; (2) full-enjoyment of their civil rights; and
(3) the ability to read and write.77 The parties can tailor-fit the
tribunal's composition to the nature of their dispute. Thus, a specialized
dispute can be resolved by experts on the subject.
However, because arbitrators do not necessarily have a background in
law, they cannot be expected to have the legal mastery of a magistrate.
There is a greater risk that an arbitrator might misapply the law or
misappreciate the facts en route to an erroneous decision.
This risk of error is compounded by the absence of an effective appeal
mechanism. The errors of an arbitral tribunal are not subject to
correction by the judiciary. As a private alternative to court
proceedings, arbitration is meant to be an end, not the beginning, of
litigation.78 Thus, the arbitral award is final and binding on the parties
by reason of their contract the arbitration agreement.79
An Arbitral Tribunal does not exercise quasi-judicial powers
Quasi-judicial or administrative adjudicatory power is the power: (1) to
hear and determine questions of fact to which legislative policy is to
apply, and (2) to decide in accordance with the standards laid down by
the law itself in enforcing and administering the same law.80 Quasi-
judicial power is only exercised by administrative agencies - legal
organs of the government.
Quasi-judicial bodies can only exercise such powers and jurisdiction as
are expressly or by necessary implication conferred upon them by their
enabling statutes.81 Like courts, a quasi-judicial body's jurisdiction over
a subject matter is conferred by law and exists independently from the
will of the parties. As government organs necessary for an effective
legal system, a quasi-judicial tribunal's legal existence. continues
beyond the resolution of a specific dispute. In other words, quasi-
judicial bodies are creatures of law.
As a contractual and consensual body, the arbitral tribunal does not
have any inherent powers over the parties. It has no power to issue
coercive writs or compulsory processes. Thus, there is a need to resort
to the regular courts for interim measures of protection82 and for the
recognition or enforcement of the arbitral award.83
The arbitral tribunal acquires jurisdiction over the parties and the
subject matter through stipulation. Upon the rendition of the final
award, the tribunal becomes functus officio and - save for a few
exceptions84 - ceases to have any further jurisdiction over the
ADR CASES LAST BATCH
dispute.85 The tribunal's powers (or in the case of ad hoc tribunals, their
very existence) stem from the obligatory force of the arbitration
agreement and its ancillary stipulations.86 Simply put, an arbitral
tribunal is a creature of contract.
Deconstructing the view that arbitral tribunals are quasi-judicial
agencies
We are aware of the contrary view expressed by the late Chief Justice
Renato Corona in ABS-CBN Broadcasting Corporation v. World
Interactive Network Systems (WINS) Japan Co., Ltd..87
The ABS-CBN Case opined that a voluntary arbitrator is a "quasi-
judicial instrumentality" of the government88 pursuant to Luzon
Development Bank v. Association of Luzon Development Bank
Employees,89Sevilla Trading Company v. Semana,90Manila Midtown Hotel
v. Borromeo,91 and Nippon Paint Employees Union-Olalia v. Court of
Appeals.92 Hence, voluntary arbitrators are included in the Rule 43
jurisdiction of the Court of Appeals:
SECTION 1. Scope. - This Rule shall apply to appeals from judgments or
final orders of the Court of Tax Appeals and from awards, judgments,
final orders or resolutions of or authorized by any quasi-judicial agency
in the exercise of its quasi-judicial functions. Among these agencies are
the Civil Service Commission, Central Board of Assessment Appeals,
Securities and Exchange Commission, Office of the President, Land
Registration Authority, Social Security Commission, Civil Aeronautics
Board, Bureau of Patents, Trademarks and Technology Transfer,
National Electrification Administration, Energy Regulatory Board,
National Telecommunications Commission, Department of Agrarian
Reform under Republic Act No. 6657, Government Service Insurance
System, Employees Compensation Commission, Agricultural Inventions
Board, Insurance Commission, Philippine Atomic Energy Commission,
Board of Investments, Construction Industry Arbitration Commission,
and voluntary arbitrators authorized by law.93 (emphasis supplied)
Citing Insular Savings Bank v. Far East Bank and Trust Co.,94 the ABS-
CBN Case pronounced that the losing party in an arbitration proceeding
may avail of three alternative remedies: (1) a petition to vacate the
arbitral award before the RTC; (2) a petition for review with the CA
under Rule 43 of the Rules of Court raising questions, of fact, of law, or
of both; and (3) a petition for certiorari under Rule 65 should the
arbitrator act beyond its jurisdiction or with grave abuse of
discretion.95
At first glance, the logic of this position appears to be sound. However, a
critical examination of the supporting authorities would show that the
conclusion is wrong.
First, the pronouncements mad in the ABS-CBN Case and in the Insular
Savings Bank Case (which served as the authority for the ABS-CBN
Case) were both obiter dicta.
In the ABS-CBN Case, we sustained the CA's dismissal of the petition
because it was filed as an "alternative petition for review under Rule 43
or petition for certiorari under Rule 65."96 We held that it was
an inappropriate mode of appeal because, a petition for review and a
petition for certiorari are mutually exclusive and not alternative or
successive.
In the Insular Savings Bank case, the lis mota of the case was the
RTC's jurisdiction over an appeal from an arbitral award. The parties to
the arbitration agreement agreed that the rules of the arbitration
provider97 - which stipulated that the RTC shall have jurisdiction to
review arbitral awards - will govern the proceedings.98 The Court
ultimately held that the RTC does not have jurisdiction to review the
merits of the award because legal jurisdiction is conferred by law, not
by mere agreement of the parties.
In both cases, the pronouncements as to the remedies against an
arbitral award were unnecessary for their resolution. Therefore, these
are obiter dicta - judicial comments made in passing which are not
essential to the resolution of the case and cannot therefore serve as
ADR CASES LAST BATCH
precedents.99
Second, even if we disregard the obiter dicta character of both
pronouncements, a more careful scrutiny deconstructs their legal
authority.
The ABS-CBN Case committed the classic fallacy of equivocation. It
equated the term "voluntary arbitrator" used in Rule 43, Section 1 and
in the cases of Luzon Development Bank v. Association ofLuzon
Development Bank Employees, Sevilla Trading Company v. Semana,
Manila Midtown Hotel v. Borromeo, and Nippon Paint Employees Union-
Olalia v. Court of Appeals with the term "arbitrator/arbitration
tribunal."
The first rule of legal construction, verba legis, requires that, wherever
possible, the words used in the Constitution or in the statute must be
given their ordinary meaning except where technical terms are
employed.100 Notably, all of the cases cited in the ABS-CBN
Case involved labor disputes.
The term "Voluntary Arbitrator" does not refer to an ordinary
"arbitrator" who voluntarily agreed to resolve a dispute. It is a technical
term with a specific definition under the Labor Code:
chanRoblesvirtualLawlibrary
Art. 212 Definitions. xxx
14. "Voluntary Arbitrator" means any person accredited by the Board
as such or any person named or designated in the Collective Bargaining
Agreement by the parties to act as their Voluntary Arbitrator, or one
chosen with or without the assistance of the National Conciliation and
Mediation Board, pursuant to a selection procedure agreed upon in the
Collective Bargaining Agreement, or any official that may be authorized
by the Secretary of Labor and Employment to act as Voluntary
Arbitrator upon the written request and agreement of the parties to a
labor dispute.101
Voluntary Arbitrators resolve labor disputes and grievances arising
from the interpretation of Collective Bargaining Agreements.102 These
disputes were specifically excluded from the coverage of both the
Arbitration Law103 and the ADR Law.104
Unlike purely commercial relationships, the relationship between
capital and labor are heavily impressed with public interest.105 Because
of this, Voluntary Arbitrators authorized to resolve labor disputes have
been clothed with quasi-judicial authority.
On the other hand, commercial relationships covered by our
commercial arbitration laws are purely private and contractual in
nature. Unlike labor relationships, they do not possess the same
compelling state interest that would justify state interference into the
autonomy of contracts. Hence, commercial arbitration is a purely
private system of adjudication facilitated by private citizens instead of
government instrumentalities wielding quasi-judicial powers.
Moreover, judicial or quasi-judicial jurisdiction cannot be conferred
upon a tribunal by the parties alone. The Labor Code itself confers
subject-matter jurisdiction to Voluntary Arbitrators.106
Notably, the other arbitration, body listed in Rule 43 the Construction
Industry Arbitration Commission (CIAC) - is also a government
agency107 attached to the Department of Trade and Industry.108 Its
jurisdiction is likewise conferred by statute.109 By contrast, the subject-
matter jurisdiction of commercial arbitrators is stipulated by the
parties.
These account for the legal differences between "ordinary" or
"commercial" arbitrators under the Arbitration Law and the ADR Law,
and "voluntary arbitrators" under the Labor Code. The two terms are
not synonymous with each other. Interchanging them with one another
results in the logical fallacy of equivocation - using the same word with
different meanings.
Further, Rule 43, Section 1 enumerates quasi-judicial tribunals whose
ADR CASES LAST BATCH
decisions are appealable to the CA instead of the RTC. But where
legislation provides for an appeal from decisions of
certain administrativebodies to the CA, it means that such bodies are co-
equal with the RTC in terms of rank and stature, logically placing them
beyond the control of the latter.110
However, arbitral tribunals and the RTC are not co-equal bodies
because the RTC is authorized to confirm or to vacate (but not reverse)
arbitral awards.111 If we were to deem arbitrators as included in the
scope of Rule 43, we would effectively place it on equal footing with the
RTC and remove arbitral awards from the scope of RTC review.
All things considered, there is no legal authority supporting the
position that commercial arbitrators are quasi-judicial bodies.
What are remedies from a final domestic arbitral award?
The right to an appeal is neither a natural right nor an indispensable
component of due process; it is a mere statutory privilege that cannot
be invoked in the absence of an enabling statute. Neither the
Arbitration Law nor the ADR Law allows a losing party to appeal from
the arbitral award. The statutory absence of an appeal mechanism
reflects the State's policy of upholding the autonomy of arbitration
proceedings and their corresponding arbitral awards.
This Court recognized this when we enacted the Special Rules of Court
on Alternative Dispute Resolutionin 2009:112
Rule 2.1. General policies. - It is the policy of the State to actively
promote the use of various modes of ADR and to respect party
autonomy or the freedom of the parties to make their own
arrangements in the resolution of disputes with the greatest
cooperation of and the least intervention from the courts. xxx
The Court shall exercise the power of judicial review as provided by
these Special ADR Rules. Courts shall intervene only in the cases
allowed by law or these Special ADR Rules.113
xxxx
Rule 19.7. No appeal or certiorari on the merits of an arbitral award. -
An agreement to refer a dispute to arbitration shall mean that the
arbitral award shall be final and binding. Consequently, a party to an
arbitration is precluded from filing an appeal or a petition for
certiorari questioning the merits of an arbitral
award.114(emphasis supplied)
More than a decade earlier in Asset Privatization Trust v. Court of
Appeals, we likewise defended the autonomy of arbitral awards
through our policy of non-intervention on their substantive merits:
As a rule, the award of an arbitrator cannot be set aside for mere errors
of judgment either as to the law or as to the facts. Courts are without
power to amend or overrule merely because of disagreement with
matters of law or facts determined by the arbitrators. They will not
review the findings of law and fact contained in an award, and will not
undertake to substitute their judgment for that of the arbitrators,
since any other rule would make an award the commencement, not the
end, of litigation. Errors of law and fact, or an erroneous decision of
matters submitted to the judgment of the arbitrators, are insufficient
to invalidate an award fairly and honestly made. Judicial review of
an arbitration is, thus, more limited than judicial review of a trial.115
Nonetheless, an arbitral award is not absolute. Rule 19.10 of the Special
ADR Rules - by referring to Section 24 of the Arbitration Law and
Article 34 of the 1985 United Nations Commission on International
Trade Law (UNCITRAL) Model Law - recognizes the very limited
exceptions to the autonomy of arbitral awards:
Rule 19.10. Rule on judicial review on arbitration in the
Philippines. - As a general rule, the court can only vacate or set aside
the decision of an arbitral tribunal upon a clear showing that the award
suffers from any of the infirmities or grounds for vacating an arbitral
award under Section 24 of Republic Act No. 876 or under Rule 34
ADR CASES LAST BATCH

of the Model Law in a domestic arbitration, or for setting aside an (d) the arbitrators exceeded their powers, or so imperfectly
award in an international arbitration under Article 34 of the Model executed them, that a mutual, final and definite award upon the
Law, or for such other grounds provided under these Special Rules. subject matter submitted to them was not made.117

If the Regional Trial Court is asked to set aside an arbitral award in a

domestic or international arbitration on any ground other than those
The award may also be vacated if an arbitrator who was disqualified to
provided in the Special ADR Rules, the court shall entertain such
act willfully refrained from disclosing his disqualification to the
ground for the setting aside or non-recognition of the arbitral
parties.118 Notably, none of these grounds pertain to the correctness of
award only if the same amounts to a violation of public policy.
the award but relate to the misconduct of arbitrators.
The court shall not set aside or vacate the award of the arbitral
The RTC may also set aside the arbitral award based on Article 34 of
tribunal merely on the ground that the arbitral tribunal
the UNCITRAL Model Law. These grounds are reproduced in Chapter 4
committed errors of fact, or of law, or of fact and law, as the court
of the Implementing Rules and Regulations (IRR) of the 2004 ADR Act
cannot substitute its judgment for that of the arbitral tribunal.116

The grounds for vacating a domestic arbitral award under Section 24 (i) the party making the application furnishes proof that:
of the Arbitration Law contemplate the following scenarios:

(a) when the award is procured by corruption, fraud, or other

undue means; or
(aa) a party to the arbitration agreement was under some
incapacity; or the said agreement is not valid under the
law to which the parties have subjected it or, failing any
indication thereon, under the law of the Philippines; or
(b) there was evident partiality or corruption in the arbitrators or
any of them; or

(bb) the party making the application was not given proper
notice of the appointment of an arbitrator or of the
(c) the arbitrators were guilty of misconduct that materially arbitral proceedings or was otherwise unable to present
prejudiced the rights of any party; or his case; or

(cc) the award deals with a dispute not contemplated by or

not falling within the terms of the submission to
ADR CASES LAST BATCH
arbitration, or contains decisions on matters beyond the
scope of the submission to arbitration, provided that, if
the decisions on matters submitted to arbitration can be
separated from those not so submitted, only the part of
the award which contains decisions on matters not
submitted to arbitration may be set aside; or
(dd) the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of
the parties, unless such agreement was in conflict with a
provision of ADR Act from which the parties cannot
derogate, or, failing such agreement, was not in
accordance with ADR Act; or
(ii) The Court finds that:
(aa) the subject-matter of the dispute is not capable of
settlement by arbitration under the law of the
Philippines; or
(bb) the award is in conflict with the public policy of the
Philippines.119
Chapter 4 of the IRR of the, ADR Act applies particularly to
International Commercial Arbitration. However, the abovementioned
grounds taken from the UNCITRAL. Model Law are specifically made
applicable to domestic arbitration by the Special ADR Rules.120
Notably, these grounds are not concerned with the correctness of the
award; they go into the validity of the arbitration agreement or the
regularity of the arbitration proceedings.
These grounds for vacating an arbitral award are exclusive. Under the
ADR Law, courts are obliged to disregard any other grounds invoked to
set aside an award:
SEC. 41. Vacation Award. - A party to a domestic arbitration may
question the arbitral award with the appropriate regional trial court in
accordance with the rules of procedure to be promulgated by the
Supreme Court only on those grounds enumerated in Section 25 of
Republic Act No. 876. Any other ground raised against a domestic
arbitral award shall be disregarded by the regional trial court. 121
Consequently, the winning party can generally expect the enforcement
of the award. This is a stricter rule that makes Article 2044122 of the
Civil Code regarding the finality of an arbitral award redundant.
As established earlier, an arbitral award is not appealable via Rule 43
because: (1) there is no statutory basis for an appeal from the final
award of arbitrators; (2) arbitrators are not quasi-judicial bodies; and
(3) the Special ADR Rules specifically prohibit the filing of an appeal to
question the merits of an arbitral award.
The Special ADR Rules allow the RTC to correct or modify an arbitral
award pursuant to Section 25 of the Arbitration Law. However, this
authority cannot be interpreted as jurisdiction to review the merits of
the award. The RTC can modify or correct the award only in the
following cases:
a. Where there was an evident miscalculation of figures or an
evident mistake in the description of any person, thing or
property referred to in the award;
ADR CASES LAST BATCH
b. Where the arbitrators have awarded upon a matter not
submitted to them, not affecting the merits of the decision
upon the matter submitted;
c. Where the arbitrators have omitted to resolve an issue
submitted to them for resolution; or
d. Where the award is imperfect in a matter of form not affecting
the merits of the controversy, and if it had been a
commissioner's report, the defect could have been amended or
disregarded by the Court.123
A losing party is likewiselrecluded from resorting to certiorari under
Rule 65 of the Rules of Court.124Certiorari is a prerogative writ designed
to correct errors of jurisdiction committed by a judicial or quasi-judicial
body.125 Because an arbitral tribunal is not a government
organ exercising judicial or quasi-judicial powers, it is removed from
the ambit of Rule 65.
Not even the Court's expanded certiorari jurisdiction under the
Constitution126 can justify judicial intrusion into the merits of arbitral
awards. While the Constitution expanded the scope
of certiorariproceedings, this power remains limited to a review of the
acts of "any branch or instrumentality of the Government." As a purely
private creature of contract, an arbitral tribunal remains outside the
scope of certiorari.
Lastly, the Special ADR Rules are a self-contained body of rules. The
parties cannot invoke remedies and other provisions from the Rules of
Court unless they were incorporated in the Special ADR Rules:
Rule 22.1. Applicability of Rules of Court. - The provisions of the Rules of
Court that are applicable to the proceedings enumerated in Rule 1.1 of
these Special ADR Rules have either been included and
incorporated in these Special ADR Rules or specifically referred to
herein.
In Connection with the above proceedings, the Rules of Evidence shall
be liberally construed to achieve the objectives of the Special ADR
Rules.127
Contrary to TEAM's position, the Special ADR Rules actually forecloses
against other remedies outside of itself. Thus, a losing party cannot
assail an arbitral award through, a petition for review under Rule 43 or
a petition for certiorari under Rule 65 because these remedies are not
specifically permitted in the Special ADR Rules.
In sum, the only remedy against a final domestic arbitral award is to file
petition to vacate or to modify/correct the award not later than thirty
(30) days from the receipt of the award.128 Unless a ground to vacate
has been established, the RTC must confirm the arbitral award as a
matter of course.
The remedies against an order confirming, vacating, correcting, or
modifying an arbitral award
Once the RTC orders the confirmation, vacation, or
correction/modification of a domestic arbitral award, the aggrieved
party may move for reconsideration within a non-extendible period of
fifteen (15) days from receipt of the order.129 The losing party may also
opt to appeal from the RTC's ruling instead.
Under the Arbitration Law, the mode of appeal was via petition for
review on certiorari:
Section 29. Appeals. - An appeal may be taken from an order made in a
proceeding under this Act, or from judgment entered upon an award
through certiorariproceedings, but such appeals shall be limited to
questions of law. The proceedings upon such appeal, including the
judgment thereon shall be governed by the Rules of Court in so far as
they are applicable.130
The Arbitration Law did not specify which Court had jurisdiction to
entertain the appeal but left the matter to be governed by the Rules of
Court. As the appeal was limited to questions of law and was described
as "certiorari proceedings," the mode of appeal can be interpreted as an
ADR CASES LAST BATCH
Appeal By Certiorari to this Court under Rule 45.
When the ADR Law was enacted in 2004, it specified that the appeal
shall be made to the CA in accordance with the rules of procedure to be
promulgated by this Court.131 The Special ADR Rules provided that the
mode of appeal from the RTC's order confirming, vacating, or
correcting/modifying a domestic arbitral award was through a petition
for review with the CA.132 However, the Special ADR Rules only took
effect on October 30, 2009.
In the present case, the RTC disallowed TEAM's notice of appeal from
the former's decision confirming the arbitral award on July 3, 2009.
TEAM moved for reconsideration which was likewise denied on
November 15, 2009. In the interim, the Special ADR Rules became
effective. Notably, the Special ADR Rules apply retroactively in light of
its procedural character.133 TEAM filed its petition for certiorari soon
after.
Nevertheless, whether we apply, Section 29 of the Arbitration Law,
Section 46 of the ADR Law, or Rule 19.12 of the Special ADR Rules,
there is no legal basis that an ordinary appeal (via notice of appeal) is
the correct remedy from an order confirming, vacating, or correcting an
arbitral award. Thus, there is no merit in the CA's ruling that the RTC
gravely abused its discretion when it refused to give due course to the
notice of appeal.
The correctness or incorrectness of the arbitral award
We have deliberately refrained from passing upon the merits of the
arbitral award - not because the award was erroneous but because it
would be improper. None of the grounds to vacate an arbitral award
are present in this case and as already established, the merits of the
award cannot be reviewed by the courts.
Our refusal to review the award is not a simple matter of putting
procedural technicalities over the substantive merits of a case; it goes
into the very legal substance of the issues. There is no law granting the
judiciary authority to review the merits of an arbitral award. If we were
to insist on reviewing the correctness of the award (or consent to the
CA's doing so), it would be tantamount to expanding our jurisdiction
without the benefit of legislation. This translates to judicial legislation -
a breach of the fundamental principle of separation of powers.
The CA reversed the arbitral award - an action that it has no power to
do - because it disagreed with the tribunal's factual findings and
application of the law. However, the alleged incorrectness of the award
is insufficient cause to vacate the award, given the State's policy of
upholding the autonomy of arbitral awards.
The CA passed upon questions such as: (1) whether or not TEAM
effectively returned the property upon the expiration of the lease; (2)
whether or not TEAM was liable to pay rentals after the expiration of
the lease; and (3) whether or not TEAM was liable to pay Fruehauf
damages corresponding to the cost of repairs. These were the same
questions that were specifically submitted to the arbitral tribunal for its
resolution.134
The CA disagreed with the tribunal's factual determinations and legal
interpretation of TEAM's obligations under the contract - particularly,
that TEAM's obligation to turn over the improvements on the land at
the end of the lease in the same condition as when the lease
commenced translated to an obligation to make ordinary repairs
necessary for its preservation.135
Assuming arguendo that the tribunal's interpretation of the contract
was incorrect, the errors would have been simple errors of law. It
was the tribunal - not the RTC or the CA - that had jurisdiction and
authority over the issue by virtue of the parties' submissions; the CA's
substitution of its own judgment for the arbitral award cannot be more
compelling than the overriding public policy to uphold the autonomy of
arbitral awards. Courts are precluded from disturbing an arbitral
tribunal's factual findings and interpretations of law.136 The CA's ruling
is an unjustified judicial intrusion in excess of its jurisdiction - a judicial
overreach.137
ADR CASES LAST BATCH
Upholding the CA's ruling would weaken our alternative dispute
resolution mechanisms by allowing the courts to "throw their weight
around" whenever they disagree with the results. It erodes the
obligatory force of arbitration agreements by allowing the losing
parties to "forum shop" for a more favorable ruling from the judiciary.
Whether or not the arbitral tribunal correctly passed upon the issues is
irrelevant. Regardless of the amount, of the sum involved in a case, a
simple error of law remains a simple error of law. Courts are precluded
from revising the award in a particular way, revisiting the tribunal's
findings of fact or conclusions of law, or otherwise encroaching upon
the independence of an arbitral tribunal.138 At the risk of redundancy,
we emphasize Rule 19.10 of the Special ADR Rules promulgated by this
Court en banc:
Rule 19.10. Rule on judicial review on arbitration in the Philippines. - As
a general rule, the court can only vacate or set aside the decision of
an arbitral tribunal upon a clear showing that the award suffers
from any of the infirmities or grounds for vacating an arbitral
award under Section 24 of Republic Act No. 876 or under Rule 34
of the Model Law in a domestic arbitration, or for setting aside an
award in an international arbitration under Article 34 of the Model
Law, or for such other grounds provided under these Special Rules.
If the Regional Trial Court is asked to set aside an arbitral award in a
domestic or international arbitration on any ground other than those
provided in the Special ADR Rules, the court shall entertain such
ground for the setting aside or non-recognition of the arbitral
award only if the same amounts to a violation of public policy.
The court shall not set aside or vacate the award of the arbitral
tribunal merely on the ground that the arbitral tribunal
committed errors of fact, or of law, or of fact and law, as the court
cannot substitute its judgment for that of the arbitral tribunal.
In other words, simple errors of fact, of law, or of fact and law
committed by the arbitral tribunal are not justiciable errors in this
jurisdiction.139
TEAM agreed to submit their disputes to an arbitral tribunal. It
understood all the risks - including the absence of an appeal
mechanism and found that its benefits (both legal and economic)
outweighed the disadvantages. Without a showing that any of the
grounds to vacate the award exists or that the same amounts to a
violation of an overriding public policy, the award is subject to
confirmation as a matter of course.140
WHEREFORE, we GRANT the petition. The CA's decision in CAG.R. SP.
No. 112384 is SET ASIDEand the RTC's order CONFIRMING the
arbitral award in SP. Proc. No. 11449 is REINSTATED. SO ORDERED
G.R. No. 210858
DEPARTMENT OF FOREIGN AFFAIRS vs. BCA INTERNATIONAL
CORPORATION
The Facts
In an Amended Build-Operate-Transfer Agreement dated 5 April 2002
(Agreement), petitioner Department of Foreign Affairs (DFA) awarded
the Machine Readable Passport and Visa Project (MRPN Project) to
respondent BCA International Corporation (BCA), a domestic
corporation. During the implementation of the MRPN Project, DFA
sought to terminate the Agreement. However, BCA opposed the
termination and filed a Request for Arbitration, according to the
provision in the Agreement:
ADR CASES LAST BATCH
Section 19.02. Failure to Settle Amicably - If the Dispute cannot be
settled amicably within ninety (90) days by mutual discussion as
contemplated under Section 19.01 herein, the Dispute shall be settled
with finality by an arbitrage tribunal operating under International
Law, hereinafter referred to as the "Tribunal", under the UNCITRAL
Arbitration Rules contained in Resolution 31/98 adopted by the
United Nations General Assembly on December 15, 1976, and
entitled "Arbitration Rules on the United Nations Commission on the
International Trade Law". The DFA and the BCA undertake to abide by
and implement the arbitration award. The place of arbitration shall be
Pasay City, Philippines, or such other place as may be mutually agreed
upon by both parties. The arbitration proceeding shall be conducted in
the English language.5 (Emphasis supplied)
On 29 June 2009, an ad hoc arbitral tribunal6 was constituted. In an
Order dated 15 April 2013,7 the arbitral tribunal approved BCA's
request to apply in court for the issuance of subpoena, subject to the
conditions that the application will not affect its proceedings and the
hearing set in October 2013 will proceed whether the witnesses attend
or not.
On 16 May 2013, BCA filed before the RTC a Petition for Assistance in
Taking Evidence8 pursuant to the Implementing Rules and Regulations
(IRR) of "The Alternative Dispute Resolution Act of 2004," or Republic
Act No. 9285 (RA 9285). In its petition, BCA sought the issuance of
subpoena ad testificandum and subpoena duces tecum to the following
witnesses and documents in their custody:9
On 1 July 2013, DFA filed its comment, alleging that the presentation of
the witnesses and documents was prohibited by law and protected by
the deliberative process privilege.
The RTC Ruling
In a Resolution dated 2 September 2013, the RTC ruled in favor of BCA
and held that the evidence sought to be produced was no longer
covered by the deliberative process privilege. According to the RTC, the
Court held in Chavez v. Public Estates Authority10 that acts, transactions
or decisions are privileged only before a definite proposition is reached
by the agency and since DFA already made a definite proposition and
entered into a contract, DFA's acts, transactions or decisions were no
longer privileged.11
The dispositive portion of the RTC Resolution reads:
WHEREFORE, the petition is granted. Let subpoena ad
testificandum [and subpoena] duces tecum be issued to the persons
listed in paragraph 11 of the Petition for them to appear and bring the
documents specified in paragraph 12 thereof, before the Ad Hoc
Tribunal for the hearings on October 14, 15, 16, 17, 2013 at 9:00 a.m.
and 2:00 p.m. at the Malcolm Hall, University of the Philippines,
Diliman, Quezon City.12
On 6 September 2013, the RTC issued the subpoena due es tecum and
subpoena ad testificandum. On 12 September 2013, DFA filed a motion
to quash the subpoena duces tecum and subpoena ad
testificandum, which BCA opposed.
In an Order dated 11 October 2013, the RTC denied the motion to
quash and held that the motion was actually a motion for
reconsideration, which is prohibited under Rule 9.9 of the Special Rules
of Court on Alternative Dispute Resolution (Special ADR Rules).
On 14, 16, and 17 October 2013, Undersecretary Franklin M. Ebdalin
(Usec. Ebdalin), Atty. Voltaire Mauricio (Atty. Mauricio), and Luisi to
Ucab (Mr. Ucab) testified before the arbitral tribunal pursuant to the
subpoena.
In an Order dated 8 January 2014, the RTC denied the motion for
reconsideration filed by DFA. The RTC ruled that the motion became
moot with the appearance of the witnesses during the arbitration
hearings. Hence, DFA filed this petition with an urgent prayer for the
issuance of a temporary restraining order and/or a writ of preliminary
injunction.
ADR CASES LAST BATCH
In a Resolution dated 2 April 2014, the Court issued a temporary
restraining order enjoining the arbitral tribunal from taking cognizance
of the testimonies of Usec. Ebdalin, Atty. Mauricio, and Mr. Ucab.
The Issues
DFA raises the following issues in this petition: (1) the 1976 UNCITRAL
Arbitration Rules and the Rules of Court apply to the present
arbitration proceedings, not RA 9285 and the Special ADR Rules; and
(2) the witnesses presented during the 14, 16, and 17 October 2013
hearings before the ad hoc arbitral tribunal are prohibited from
disclosing information on the basis of the deliberative process
privilege.
The Ruling of the Court
We partially grant the petition.
Arbitration is deemed a special proceeding13 and governed by the
special provisions of RA 9285, its IRR, and the Special ADR Rules. 14 RA
9285 is the general law applicable to all matters and controversies to
be resolved through alternative dispute resolution methods. 15 While
enacted only in 2004, we held that RA 9285 applies to pending
arbitration proceedings since it is a procedural law, which has
retroactive effect:
While RA 9285 was passed only in 2004, it nonetheless applies in
the instant case since it is a procedural law which has a retroactive
effect. Likewise, KOGIES filed its application for arbitration before the
KCAB on July 1, 1998 and it is still pending because no 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 undetermined at the time of their
passage, and are deemed retroactive in that sense and to that extent. As
a general rule, the retroactive application of procedural laws does
not violate any personal rights because no vested right has yet
attached nor arisen from them. 16 (Emphasis supplied)
The IRR of RA 9285 reiterate that RA 9285 is procedural in character
and applicable to all pending arbitration proceedings.17 Consistent with
Article 2046 of the Civil Code, 18 the Special ADR Rules were formulated
and were also applied to all pending arbitration proceedings covered
by RA 9285, provided no vested rights are impaired. 19Thus, contrary to
DFA's contention, RA 9285, its IRR, and the Special ADR Rules are
applicable to the present arbitration proceeding. The arbitration
between the DFA and BCA is still pending, since no arbitral award has
yet been rendered. Moreover, DFA did not allege any vested rights
impaired by the application of those procedural rules.
RA 9285, its IRR, and the Special ADR Rules provide that any party to
an arbitration, whether domestic or foreign, may request the court to
provide assistance in taking evidence such as the issuance of
subpoena ad testificandum and subpoena duces tecum.20 The Special
ADR Rules specifically provide that they shall apply to assistance in
taking evidence,21 and the RTC order granting assistance in taking
evidence shall be immediately executory and not subject to
reconsideration or appeal.22 An appeal with the Court of Appeals (CA) is
only possible where the RTC denied a petition for assistance in taking
evidence. 23 An appeal to the Supreme Court from the CA is allowed
only under any of the grounds specified in the Special ADR Rules.24 We
rule that the DFA failed to follow the procedure and the hierarchy of
courts provided in RA 9285, its IRR, and the Special ADR Rules, when
DFA directly appealed before this Court the RTC Resolution and Orders
granting assistance in taking evidence.
DFA contends that the RTC issued the subpoenas on the premise that
RA 9285 and the Special ADR Rules apply to this case. However, we find
that even without applying RA 9285 and the Special ADR Rules, the RTC
still has the authority to issue the subpoenas to assist the parties in
taking evidence.
The 1976 UNCITRAL Arbitration Rules, agreed upon by the parties to
govern them, state that the "arbitral tribunal shall apply the law
designated by the parties as applicable to the substance of the dispute.
Failing such designation by the parties, the arbitral tribunal shall apply
the law determined by the conflict of laws rules which it considers
applicable. "25 Established in this jurisdiction is the rule that the law of
ADR CASES LAST BATCH
the place where the contract is made governs, or lex loci
contractus.26 Since there is no law designated by the parties as
applicable and the Agreement was perfected in the Philippines, "The
Arbitration Law," or Republic Act No. 876 (RA 876), applies.
RA 876 empowered arbitrators to subpoena witnesses and documents
when the materiality of the testimony has been demonstrated to
them. 27 In Transfield Philippines, Inc. v. Luzon Hydro Corporation, 28 we
held that Section 14 of RA 876 recognizes the right 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.
Considering that this petition was not filed in accordance with RA 9285,
the Special ADR Rules and 1976 UNCITRAL Arbitration Rules, this
petition should normally be denied. However, we have held time and
again that the ends of justice are better served when cases are
determined on the merits after all parties are given full opportunity to
ventilate their causes and defenses rather than on technicality or some
procedural imperfections. 29More importantly, this case is one of first
impression involving the production of evidence in an arbitration case
where the deliberative process privilege is invoked.
Thus, DFA insists that we determine whether the evidence sought to be
subpoenaed is covered by the deliberative process
privilege.1wphi1 DFA contends that the RTC erred in holding that the
deliberative process privilege is no longer applicable in this case.
According to the RTC, based on Chavez v. Public Estates
Authority,30 "acts, transactions or decisions are privileged only before a
definite proposition is reached by the agency," and since, in this case,
DFA not only made "a definite proposition" but already entered into a
contract then the evidence sought to be produced is no longer
privileged.31
The right to information, however, does not extend to matters
recognized as privileged information under the separation of powers.
The right does not also apply to information on military and diplomatic
secrets, information affecting national security, and information on
investigations of crimes by law enforcement agencies before the
prosecution of the accused, which courts have long recognized as
confidential. The right may also be subject to other limitations that
Congress may impose by law.
There is no claim by PEA that the information demanded by petitioner
is privileged information rooted in the separation of powers. The
information does not cover Presidential conversations,
correspondences, or discussions during closed-door Cabinet meetings
which, like internal deliberations of the Supreme Court and other
collegiate courts, or executive sessions of either house of Congress, are
recognized as confidential. This kind of information cannot be pried
open by a co-equal branch of government. A frank exchange of
exploratory ideas and assessments, free from the glare of publicity
and pressure by interested parties, is essential to protect the
independence of decision-making of those tasked to exercise
Presidential, Legislative and Judicial power. This is not the situation
in the instant case.
We rule, therefore, that the constitutional right to information includes
official information on on-going negotiations before a final contract.
The information, however, must constitute definite propositions by the
government and should not cover recognized exceptions
like privileged information, military and diplomatic secrets and
similar matters affecting national security and public order. Congress
has also prescribed other limitations on the right to information in
several legislations. (Emphasis supplied)
Justice Abad discussed the rationale for the rule in his concurring
opinion to the Court Resolution in Arroyo v. De Lima (TRO on Watch
List Order case): the rules on confidentiality will enable the Members of
the Court to "freely discuss the issues without fear of criticism for
holding unpopular positions" or fear of humiliation for one's
comments. The privilege against disclosure of these kinds of
information/communication is known as deliberative process
privilege, involving as it does the deliberative process of reaching
a decision. "Written advice from a variety of individuals is an
important element of the government's decision-making process and
that the interchange of advice could be stifled if courts forced the
government to disclose those recommendations;" the privilege is
intended "to prevent the 'chilling' of deliberative communications."
ADR CASES LAST BATCH
The privilege is not exclusive to the Judiciary. We have in passing
recognized the claim of this privilege by the two other branches of
government in Chavez v. Public Estates Authority (speaking through J.
Carpio) when the Court declared that -
[t]he information x x x like internal deliberations of the Supreme Court
and other collegiate courts, or executive sessions of either house of
Congress, are recognized as confidential. This kind of information
cannot be pried open by a co-equal branch of government. A frank
exchange of exploratory ideas and assessments, free from the glare of
publicity and pressure by interested parties, is essential to protect the
independence of decision-making of those tasked to exercise
Presidential, Legislative and Judicial power. (Emphasis supplied)
The privileged character of the information does not end when an
agency has adopted a definite proposition or when a contract has been
perfected or consummated; otherwise, the purpose of the privilege will
be defeated.
Traditionally, U.S. courts have established two fundamental
requirements, both of which must be met, for the deliberative process
privilege to be invoked.43 First, the communication must
be predecisional, i.e., "antecedent to the adoption of an agency
policy." Second, the communication must be deliberative, i.e., "a direct
part of the deliberative process in that it makes recommendations or
expresses opinions on legal or policy matters." It must reflect the "give-
and-take of the consultative process."44 The Supreme Court of Colorado
also took into account other considerations:
Courts have also looked to other considerations in assessing whether
material is predecisional and deliberative. The function and
significance of the document in the agency's decision-making process
are relevant. Documents representing the ideas and theories that go
into the making of policy, which are privileged, should be distinguished
from "binding agency opinions and interpretations" that are "retained
and referred to as precedent" and constitute the policy itself.
Furthermore, courts examine the identity and decision-making
authority of the office or person issuing the material. A document from
a subordinate to a superior official is more likely to be predecisional,
"while a document moving in the opposite direction is more likely to
contain instructions to staff explaining the reasons for a decision
already made."
Finally, in addition to assessing whether the material is predecisional
and deliberative, and in order to determine if disclosure of the material
is likely to adversely affect the purposes of the privilege, courts inquire
whether "the document is so candid or personal in nature that public
disclosure is likely in the future to stifle honest and frank
communication within the agency." As a consequence, the deliberative
process privilege typically covers recommendations, advisory
opinions, draft documents, proposals, suggestions, and other
subjective documents that reflect the personal opinions of the
writer rather than the policy of the agency. 45
Thus, "[t]he deliberative process privilege exempts materials that are
'predecisional' and 'deliberative,' but requires disclosure of policy
statements and final opinions 'that have the force of law or explain
actions that an agency has already taken."46
The deliberative process privilege can also be invoked in arbitration
proceedings under RA 9285.
"Deliberative process privilege contains three policy bases: first, the
privilege protects candid discussions within an agency; second, it
prevents public confusion from premature disclosure of agency
opinions before the agency establishes final policy; and third, it protects
the integrity of an agency's decision; the public should not judge
officials based on information they considered prior to issuing their
final decisions."52 Stated differently, the privilege serves "to assure that
subordinates within an agency will feel free to provide the decision[-
]maker with their uninhibited opinions and recommendations without
fear of later being subject to public ridicule or criticism; to protect
against premature disclosure of proposed policies before they have
been finally formulated or adopted; and to protect against confusing
the issues and misleading the public by dissemination of documents
ADR CASES LAST BATCH
suggesting reasons and rationales for a course of action which were not
in fact the ultimate reasons for the agency's action."53
Under RA 9285,54 orders of an arbitral tribunal are appealable to the
courts. If an official is compelled to testify before an arbitral tribunal
and the order of an arbitral tribunal is appealed to the courts, such
official can be inhibited by fear of later being subject to public criticism,
preventing such official from making candid discussions within his or
her agency. The decision of the court is widely published, including
details involving the privileged information. This disclosure of
privileged information can inhibit a public official from expressing his
or her candid opinion. Future quality of deliberative process can be
impaired by undue exposure of the decision-making process to public
scrutiny after the court decision is made.
Accordingly, a proceeding in the arbitral tribunal does not prevent the
possibility of the purpose of the privilege being defeated, if it is not
allowed to be invoked. In the same manner, the disclosure of an
information covered by the deliberative process privilege to a court
arbitrator will defeat the policy bases and purpose of the privilege.
DFA did not waive the privilege in arbitration proceedings under the
Agreement. The Agreement does not provide for the waiver of the
deliberative process privilege by DFA. The Agreement only provides
that:
Section 20.02 None of the parties shall, at any time, before or after the
expiration or sooner termination of this Amended BOT
Agreement, without the consent of the other party, divulge or suffer
or permit its officers, employees, agents or contractors to divulge to any
person, other than any of its or their respective officers or employees
who require the same to enable them properly to carry out their
duties, any of the contents of this Amended BOT Agreement or any
information relating to the negotiations concerning the
operations, contracts, commercial or financial arrangements or
affair[s] of the other parties hereto. Documents marked
"CONFIDENTIAL" or the like, providing that such material shall be kept
confidential, and shall constitute prima facieevidence that such
information contained therein is subject to the terms of this provision.
Section 20.03 The restrictions imposed in Section 20.02 herein
shall not apply to the disclosure of any information:
xxxx
C. To a court arbitrator or administrative tribunal the course of
proceedings before it to which the disclosing party is party; x x
x55 (Emphasis supplied)
Section 20.02 of the Agreement merely allows, with the consent of the
other party, disclosure by a party to a court arbitrator or
administrative tribunal of the contents of the "Amended BOT
Agreement or any information relating to the
negotiations concerning the operations, contracts, commercial or
financial arrangements or affair[s]of the other parties hereto." There
is no express waiver of information forming part of DFA's predecisional
deliberative or decision-making process. Section 20.02 does not state
that a party to the arbitration is compelled to disclose to the tribunal
privileged information in such party's possession.
On the other hand, Section 20.03 merely allows a party, if it
chooses, without the consent of the other party, to disclose to the
tribunal privileged information in such disclosing party's
possession. In short, a party can disclose privileged information in
its possession, even without the consent of the other party, if the
disclosure is to a tribunal. However, a party cannot be compelled
by the other party to disclose privileged information to the
tribunal, where such privileged information is in its possession
and not in the possession of the party seeking the compulsory
disclosure.
Nothing in Section 20.03 mandates compulsory disclosure of privileged
information. Section 20.03 merely states that "the restrictions imposed
in Section 20.02," referring to the "consent of the other party," shall not
apply to a disclosure of privileged information by a party in possession
of a privileged information. This is completely different from
compelling a party to disclose privileged information in its possession
against its own will.
ADR CASES LAST BATCH
Rights cannot be waived if it is contrary to law, public order, public
policy, morals, or good customs, or prejudicial to a third person with a
right recognized by law. 56 There is a public policy involved in a claim
of deliberative process privilege - "the policy of open, frank discussion
between subordinate and chief concerning administrative
action."57Thus, the deliberative process privilege cannot be waived. As
we have held in Akbayan v. Aquino, 58 the deliberative process privilege
is closely related to the presidential communications privilege and
protects the public disclosure of information that can compromise the
quality of agency decisions:
Closely related to the "presidential communications" privilege is
the deliberative process privilegerecognized in the United States. As
discussed by the U.S. Supreme Court in NLRB v. Sears, Roebuck &
Co, deliberative process covers documents reflecting advisory opinions,
recommendations and deliberations comprising part of a process by
which governmental decisions and policies are formulated. Notably, the
privileged status of such documents rests, not on the need to protect
national security but, on the "obvious realization that officials will
not communicate candidly among themselves if each remark is a
potential item of discovery and front page news," the objective of
the privilege being to enhance the quality of agency decisions.
As a qualified privilege, the burden falls upon the government agency
asserting the deliberative process privilege to prove that the
information in question satisfies both requirements - predecisional and
deliberative. 59 "The agency bears the burden of establishing the
character of the decision, the deliberative process involved, and the
role played by the documents in the course of that process."60 It may be
overcome upon a showing that the discoverant's interests in disclosure
of the materials outweigh the government's interests in their
confidentiality.61 "The determination of need must be made flexibly on
a case-by-case, ad hoc basis," and the "factors relevant to this balancing
include: the relevance of the evidence, whether there is reason to
believe the documents may shed light on government misconduct,
whether the information sought is available from other sources and can
be obtained without compromising the government's deliberative
processes, and the importance of the material to the discoverant's
case."62
In the present case, considering that the RTC erred in applying our
ruling in Chavez v. Public Estates Authority,63and both BCA's and DFA's
assertions of subpoena of evidence and the deliberative process
privilege are broad and lack specificity, we will not be able to
determine whether the evidence sought to be produced is covered by
the deliberative process privilege. The parties are directed to specify
their claims before the RTC and, thereafter, the RTC shall determine
which evidence is covered by the deliberative process privilege, if there
is any, based on the standards provided in this Decision. It is necessary
to consider the circumstances surrounding the demand for the
evidence to determine whether or not its production is injurious to the
consultative functions of government that the privilege of non-
disclosure protects.
WHEREFORE, we resolve to PARTIALLY GRANT the petition
and REMAND this case to the Regional Trial Court of Makati City,
Branch 146, to determine whether the documents and records sought
to be subpoenaed are protected by the deliberative process privilege as
explained in this Decision. The Resolution dated 2 April 2014 issuing a
Temporary Restraining Order is superseded by this Decision. SO
ORDERED.
TUNA PROCESSING INC. VS PHILIPPINE KINGFORD, INC.
May a foreign corporation not licensed to do business in the
Philippines, but which collects royalties from entities in the Philippines,
sue here to enforce a foreign arbitral award?
FACTS: Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine
Letters Patent, and an Indonesian Patent, entered into a Memorandum
of Agreement (MOA) with five Philippine tuna processors including
Respondent Philippine Kingford, Inc. (KINGFORD). The MOA provides
for the enforcing of the abovementioned patents, granting licenses
under the same, and collecting royalties, and for the establishment of
herein Petitioner Tuna Processors, Inc. (TPI).
ADR CASES LAST BATCH
Due to a series of events not mentioned in the Petition, the tuna
processors, including Respondent KINGFORD, withdrew from
Petitioner TPI and correspondingly reneged on their obligations.
Petitioner TPI submitted the dispute for arbitration before the
International Centre for Dispute Resolution in the State of California,
United States and won the case against Respondent KINGFORD.
To enforce the award, Petitioner TPI filed a Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award before the RTC
of Makati City. Respondent KINGFORD filed a Motion to Dismiss, which
the RTC denied for lack of merit. Respondent KINGFORD then sought
for the inhibition of the RTC judge, Judge Alameda, and moved for the
reconsideration of the order denying the Motion. Judge Alameda
inhibited himself notwithstanding [t]he unfounded allegations and
unsubstantiated assertions in the motion. Judge Ruiz, to which the
case was re-raffled, in turn, granted Respondent KINGFORDSs Motion
for Reconsideration and dismissed the Petition on the ground that
Petitioner TPI lacked legal capacity to sue in the Philippines. Petitioner
TPI is a corporation established in the State of California and not
licensed to do business in the Philippines. Hence, the present Petition
for Review on Certiorari under Rule 45.
ISSUE: Whether or not a foreign corporation not licensed to do
business in the Philippines, but which collects royalties from entities in
the Philippines, sue here to enforce a foreign arbitral award?
ARGUMENT: Petitioner TPI contends that it is entitled to seek for the
recognition and enforcement of the subject foreign arbitral award in
accordance with RA No. 9285 (Alternative Dispute Resolution Act of
2004), the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards drafted during the United Nations Conference on
International Commercial Arbitration in 1958 (New York Convention),
and the UNCITRAL Model Law on International Commercial Arbitration
(Model Law), as none of these specifically requires that the party
seeking for the enforcement should have legal capacity to sue.
RULING: YES. Petitioner TPI, although not licensed to do business in
the Philippines, may seek recognition and enforcement of the foreign
arbitral award in accordance with the provisions of the Alternative
Dispute Resolution Act of 2004. A foreign corporations capacity to sue
in the Philippines is not material insofar as the recognition and
enforcement of a foreign arbitral award is concerned.
The Resolution of the RTC is REVERSED and SET ASIDE.
RATIO DECIDENDI: Sec. 45 of the Alternative Dispute Resolution Act of
2004 provides that the opposing party in an application for recognition
and enforcement of the arbitral award may raise only those grounds
that were enumerated under Article V of the New York Convention, to
wit:
Article V
1. Recognition and enforcement of the award may be refused, at the
request of the party against whom it is invoked, only if that party
furnishes to the competent authority where the recognition and
enforcement is sought, proof that:
a. The parties to the agreement referred to in Article II were,
under the law applicable to them, under some incapacity, or the
said agreement is not valid under the law to which the parties
have subjected it or, failing any indication thereon, under the law
of the country where the award was made;
b. The party against whom the award is invoked was not given
proper notice of the appointment of the arbitrator or of the
arbitration proceedings or was otherwise unable to present his
case;
c. The award deals with a difference not contemplated by or not
falling within the terms of the submission to arbitration, or it
contains decisions on matters beyond the scope of the
submission to arbitration, provided that, if the decisions on
ADR CASES LAST BATCH
matters submitted to arbitration can be separated from those not
so submitted, that part of the award which contains decisions on
matters submitted to arbitration may be recognized and
enforced;
d. The composition of the arbitral authority or the arbitral
procedure was not in accordance with the agreement of the
parties, or, failing such agreement, was not in accordance with
the law of the country where the arbitration took place; or
e. The award has not yet become binding on the parties, or has
been set aside or suspended by a competent authority of the
country in which, or under the law of which, that award was
made.
2. Recognition and enforcement of an arbitral award may also be
refused if the competent authority in the country where recognition
and enforcement is sought finds that:
a. The subject matter of the difference is not capable of
settlement by arbitration under the law of that country; or
b. The recognition or enforcement of the award would be
contrary to the public policy of that country.
Not one of the abovementioned exclusive grounds touched on the
capacity to sue of the party seeking the recognition and enforcement of
the award.
Pertinent provisions of the Special Rules of Court on Alternative
Dispute Resolution, which was promulgated by the Supreme Court,
likewise support this position.
Rule 13.1 of the Special Rules provides that [a]ny party to a foreign
arbitration may petition the court to recognize and enforce a foreign
arbitral award. The contents of such petition are enumerated in Rule
13.5. Capacity to sue is not included. Oppositely, in the rule on local
arbitral awards or arbitrations in instances where the place of
arbitration is in the Philippines, it is specifically required that a
petition to determine any question concerning the existence, validity
and enforceability of such arbitration agreement available to the
parties before the commencement of arbitration and/or a petition for
judicial relief from the ruling of the arbitral tribunal on a preliminary
question upholding or declining its jurisdiction after arbitration has
already commenced should state [t]he facts showing that the persons
named as petitioner or respondent have legal capacity to sue or be
sued.
Indeed, it is in the best interest of justice that in the enforcement of a
foreign arbitral award, the Court deny availment
by the losing party of the rule that bars foreign corporations not
licensed to do business in the Philippines from maintaining a suit in
Philippine courts. When a party enters
into a contract containing a foreign arbitration clause and, as in this
case, in fact submits itself to arbitration, it becomes bound by the
contract, by the arbitration and by the result of arbitration, conceding
thereby the capacity of the other party to enter into the contract,
participate in the arbitration and cause the implementation of the
result. Although not on all fours with the instant case, also worthy to
consider is the wisdom of then Associate Justice Flerida Ruth P. Romero
in her Dissenting Opinion in Asset Privatization Trust v. Court of
Appeals [1998], to wit:
xxx Arbitration, as an alternative mode of settlement, is gaining
adherents in legal and judicial circles here and abroad. If its tested
mechanism can simply be ignored by an aggrieved party, one who, it
must be stressed, voluntarily and actively participated in the
arbitration proceedings from the very beginning, it will destroy the
very essence of mutuality inherent in consensual contracts.
Clearly, on the matter of capacity to sue, a foreign arbitral award should
be respected not because it is favored over domestic laws and
ADR CASES LAST BATCH
procedures, but because Republic Act No. 9285 has certainly erased any
conflict of law question.
Finally, even assuming, only for the sake of argument, that the
RTC correctly observed that the Model Law, not the New York
Convention, governs the subject arbitral award, Petitioner TPI may still
seek recognition and enforcement of the award in Philippine court,
since the Model Law prescribes substantially identical exclusive
grounds for refusing recognition or enforcement.
RCBC Capital Corp. v. Banco de Oro Unibank, Inc., G.R. No. 196171,
199238, December 10, 2012
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
stockholders as listed in the Share Purchase Agreement dated May 27,
2000 ("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 their respective counsel.
All three petitions emanated from arbitration proceedings commenced
by RCBC Capital 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 Tribunal
constituted and administered by the International Chamber of
Commerce-International Commercial Arbitration (ICC-ICA), EPCIB was
merged with BDO which assumed all its liabilities and obligations.
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 aside the June 24, 2009
Order of the Regional Trial Court (RTC) of Makati City, Branch 148 in SP
Proc. Case No. M-6046. The RTC confirmed the Second Partial Award
issued by the Arbitration Tribunal ordering BDO to pay RCBC Capital
proportionate share in the advance costs and dismissing BDOs
counterclaims.
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
Makati City, Branch 148 in Sp. Proc. Case No. M-6046. Acting upon
RCBC Capitals urgent motion, the RTC issued on August 22, 2011 a writ
of execution for the implementation of the courts order confirming the
Final Award rendered by the Arbitration Tribunal on June 16, 2010.
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 dated January 13,
2012 in CA-G.R. SP No. 113402. The CA denied BDOs petition for
certiorari 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 24, 2009,
the RTC denied BDOs motion for access of the computerized
accounting system of Bankard, Inc. after Chairman Richard Ian Barker
had denied BDOs request that it be given access to the said source of
facts or data used in preparing the accounting summaries submitted in
evidence before the Arbitration Tribunal.
G.R. Nos. 196171 & 199238 were consolidated and a Decision was
rendered by this Court on December 10, 2012, the dispositive portion
of which states:
WHEREFORE, premises considered, the petition in G.R. No. 199238 is
DENIED. The Resolution dated September 13, 2011 of the Court of
Appeals in CA-G.R. SP No. 120888 is AFFIRMED.
The petition in G.R. No. 196171 is DENIED. The Decision dated
December 23, 2010 of the Court of Appeals in CA-G.R. SP No. 113525 is
hereby AFFIRMED.
SO ORDERED.1
Both RCBC Capital and BDO filed motions for partial reconsideration of
the above decision.
ADR CASES LAST BATCH
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.
In their Joint Motion and Manifestation filed in G.R. Nos. 196171 &
199238, the parties submit and pray that
5. After negotiations, the Parties have mutually agreed that it is
in their best interest and general benefit to settle their
differences with respect to their respective causes of action,
claims or counterclaims in the RCBC Capital Petition and the
BDO Petition, with a view to a renewal of their business
relations.
6. Thus, the parties have reached a complete, absolute and final
settlement of their claims, demands, counterclaims and causes
of action arising, directly or indirectly, from the facts and
circumstances giving rise to, surrounding or arising from both
Petitions, and have agreed to jointly terminate and dismiss the
same in accordance with their agreement.
7. In view of the foregoing compromise between the Parties,
BDO, RCBC Capital and Go/Shareholders, with the assistance of
their respective counsels, have decided to jointly move for the
termination and dismissal of the above-captioned cases with
prejudice.
PRAYER
WHEREFORE, RCBC CAPITAL CORPORATION, BDO UNIBANK, INC. and
GEORGE L. GO, IN HIS PERSONAL CAPACITY AND AS ATTORNEY-IN-
FACT OF THE INDIVIDUAL STOCKHOLDERS AS LISTED IN THE SHARE
PURCHASE AGREEMENT DATED 27 MAY 2000 respectfully pray that
this Honorable Court order the termination and dismissal of the above-
captioned cases, with prejudice. RCBC Capital BDO and
Go/Shareholders respectfully pray for such other relief as may be
deemed just or equitable under the premises.2
BDO and RCBC Capital likewise submit and pray in their Joint Motion
and Manifestation in G.R. No. 200213 that
3. After negotiations, the Parties have mutually agreed that it is
in their best interest and general benefit to settle their
differences with respect to their respective causes of action,
claims or counterclaims in the above-captioned case, with a
view to a renewal of their business relations.
4. Thus, the Parties have reached a complete, absolute and final
settlement of their claims, demands, counterclaims and causes
of action arising, directly or indirectly, from the facts and
circumstances giving rise to, surrounding or arising from the
present Petition, and have agreed to jointly terminate and
dismiss the present Petition in accordance with their
agreement.
5. In view of the foregoing compromise between the Parties,
BDO and RCBC Capital, with the assistance of their respective
counsels, have decided to jointly move for the termination and
dismissal of the above-captioned case with prejudice.1wphi1
PRAYER
WHEREFORE, BDO UNIBANK, INC. and RCBC CAPITAL CORPORATION
respectfully pray that this Honorable Court order the termination and
dismissal of the above-captioned case, with prejudice.
BDO and RCBC Capital respectfully pray for such other relief as may be
deemed just or equitable under the premises.3
Under this Court s Resolution dated November 27, 2013, G.R. No.
200213 is ordered 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. SO ORDERED.
ADR CASES LAST BATCH
G.R. No. 204689 January 21, 2015
STRONGHOLD INSURANCE COMPANY vs. SPS RUNE & LEA STROEM
For resolution is a Petition for Review1 under Rule 45 of the Rules of
Court assailing the Decision2 dated November 20, 2012 of the Court of
Appeals in CA-G.R. CV No. 96017. The Court of Appeals ;iffirmed the
Decision3 of the Regional Trial Court of Makati, Branch 133 in Civil Case
No. 02-1108 for collection of a sum of money.
This case involves the proper invocation of the Construction Industry
Arbitration Committee's (CIAC) jurisdiction through an arbitration
clause in a construction contract. The main issue here is whether the
dispute liability of a surety under a performance bond is
connected to a construction contract and, therefore, falls under the
exclusive jurisdiction of the CIAC.
Spouses Rune and Lea Stroem (Spouses Stroem) entered into an
Owners-Contractor Agreement4 with Asis-Leif & Company, Inc. (Asis-
Leif) for the construction of a two-storey house on the lot owned by
Spouses Stroem. The lot was located at Lot 4A, Block 24, Don Celso
Tuason Street, Valley Golf Subdivision, Barangay Mayamot, Antipolo,
Rizal.5
On November 15, 1999, pursuant to the agreement, Asis-Leif secured
Performance Bond No. LP/G(13)83056 in the amount of P4,500,000.00
from Stronghold Insurance Company, Inc. (Stronghold).6 Stronghold
and Asis-Leif, through Ms. Ma. Cynthia Asis-Leif, bound themselves
jointly and severally to pay the Spouses Stroem the agreed amount in
the event that the construction project is not completed.7
Asis-Leif failed to finish the projecton time despite repeated demands
of the Spouses Stroem.8
Spouses Stroem subsequently rescinded the agreement.9 They then
hired an independent appraiser to evaluate the progress of the
construction project.10
Appraiser Asian Appraisal Company, Inc.s evaluation resulted in the
following percentage of completion: 47.53% of the residential building,
65.62% of the garage, and 13.32% of the swimming pool, fence, gate,
and land development.11
On April 5, 2001, Stronghold sent a letter to Asis-Leif requesting that
the company settle its obligations withthe Spouses Stroem. No
response was received from Asis-Leif.12
On September 12, 2002, the Spouses Stroem filed a Complaint (with
Prayer for Preliminary Attachment)13 for breach of contract and for
sum of money with a claim for damages against Asis-Leif, Ms. Cynthia
Asis-Leif, and Stronghold.14 Only Stronghold was served summons. Ms.
Cynthia Asis-Leif allegedly absconded and moved out of the country.15
On July 13, 2010, the Regional Trial Court rendered a judgment in favor
of the Spouses Stroem. The trial court ordered Stronghold to pay the
Spouses Stroem P4,500,000.00 with 6% legal interest from the time of
first demand.16The dispositive portion of the trial court Decision reads:
WHEREFORE, finding plaintiffs cause of action to be sufficiently
established being supported by evidence on records, judgement is
hereby rendered in favor of the plaintiff spouses Rune and Lea Stroem
and against the defendant Stronghold Insurance Company Incorporated
ordering the latter topay the plaintiff the sums of:
1) Php4,500,000.00 with six (6%) percent legal interest from
the time of first demand and interest due shall earn legal
interest from the time of judicial demand until fully paid.
2) Php35,000.00 by way of attorneys fees and other litigation
expenses.
Defendant is further ordered topay the costs of this suit.
ADR CASES LAST BATCH
SO ORDERED.17
Both Stronghold and the Spouses Stroem appealed to the Court of
Appeals.18
The Court of Appeals affirmed with modification the trial courts
Decision. It increased the amount of attorneys fees to P50,000.00.19
The dispositive portion of the Court of Appeals Decision reads:
WHEREFORE,the appeal of Stronghold Company, Inc[.] is DISMISSED,
while the appeal of spouses Rune and Lea Stroem is PARTLY GRANTED.
The November 27, 2009 Decision of the Regional Trial Court of Makati
City is AFFIRMED with MODIFICATION that the award of attorneys
fees is increased to P50,000.00 SO ORDERED.20
On March 20, 2013, this court required the Spouses Stroem to submit
their Comment on the Petition.21 We noted the Spouses Stroems
Comment on July 31, 2013.22 We also required Stronghold to file its
Reply to the Comment,23which was noted on December 9, 2013.24
Stronghold argues that the trial court did not acquire jurisdiction over
the case and, therefore, the Court of Appeals committed reversible
error when it upheld the Decision of the Regional Trial Court.25 The
lower courts should have dismissed the case in viewof the arbitration
clause in the agreement and considering that "[Republic Act No. 876]
explicitly confines the courts authority only to pass upon the issue of
whether there is [an] agreement . . . providing for arbitration. In the
affirmative, the statute ordains that the court shall issue an order
summarily directing the parties to proceed with the arbitration in
accordance with the terms thereof."26 Moreover, "the stipulations in
said Agreement are part and parcel of the conditions in the bond. Were
it not for such stipulations in said agreement, [Stronghold] would not
have agreed to issue a bond in favor of the Spouses Stroem. The parties
tothe bond are ALB/Ms. Asis-[L]eif, Spouses Stroem and [Stronghold]
suchthat ALB/Ms. Asis-[L]eif never ceased to be a party to the surety
agreement."27
In any case, Strongholds liability under the performance bond is
limited only to additional costs for the completion of the project.28 In
addition, the Court of Appeals erred inholding that Stronghold changed
its theory with regard to the notice requirement29 and in modifying the
trial courts award of attorneys fees.30
On the other hand, the Spouses Stroem argue that Stronghold
committed forum shopping warranting dismissal of the
case.31 According to the Spouses Stroem, Stronghold deliberately
committed forum shopping when it filed the present petition despite
the pendency of the Spouses Stroems Motion for Partial
Reconsideration of the Court of Appeals Decision dated November 20,
2012.32
More importantly, the Owners-Contractor Agreement is "separate and
distinct from the Bond. The parties to the Agreement are ALB/Ms. Asis-
Leif and Spouses Stroem, while the parties to the Bond are Spouses
Stroem and Stronghold. The considerations for the two contracts are
likewise distinct. Thus, the arbitration clause in the Agreement is
binding only on the parties thereto, specifically ALB/Ms. Asis-Leif and
Spouses Stroem[.]"33
Contrary to Strongholds argument, Spouses Stroem argues that
stronghold is liable for the full amountof the performance bond. The
terms of the bond clearly show that Stronghold is liable as
surety.34 Verily, notice to Stronghold is not required for its liability to
attach.35
The issues for consideration are:
(1) Whether the dispute involves a construction contract;
(2) Whether the CIAC has exclusive jurisdiction over the
controversy between the parties;
(3) Whether the Regional Trial Court should have dismissed
the petition outright as required by law and jurisprudence and
referred the matter to the CIAC; and
ADR CASES LAST BATCH
(4) Whether petitioner Stronghold Insurance Company, Inc. is
liable under Performance Bond No. LP/G(13)83056.
(a) Whether petitioner Stronghold Insurance Company, Inc. is
only liable as to the extent of any additional cost for the
completion of the project due toany increase in prices for labor
and materials.
(b) Whether the case involves ordinary suretyship or
corporate suretyship.
After considering the parties arguments and the records of this case,
this court resolves to deny the Petition.
On forum-shopping
Respondents argue that petitioner committed forum shopping; hence,
the case should have been dismissed outright.
Records show that petitioner received a copy of the Decision of the
Court of Appeals on December 5, 2012.36Petitioner did not file a Motion
for Reconsideration of the assailed Decision. It filed before this court a
Motion for Extension of Time To File Petition for Review requesting an
additional period of 30 days from December 20, 2012 or until January
19, 2013 to file the Petition.37
Respondents filed their Motion for Partial Reconsideration of the Court
of Appeals Decision on December 11, 2012.38 They sought the
modification of the Decision as to the amounts of moral damages,
exemplary damages, attorneys fees, and costs of the suit.39
Respondents alleged in their Comment that as early as January 9, 2013,
petitioner received a copy of the Court of Appeals Resolution requiring
Comment on the Motion for Partial Reconsideration.40 Still, petitioner
did not disclose in its Verification and Certification Against Forum
Shopping the pendency of respondents Motion for Partial
Reconsideration.41
For its part, petitioner claims that it did not commit forum shopping. It
fully disclosed in its Petition that what it sought to be reviewed was the
Decision dated November 20, 2012 of the Court of Appeals. "Petitioner
merely exercised its available remedy with respect to the Decision of
the Court of Appeals by filing [the] Petition."42 What the rules mandate
to be stated in the Certification Against Forum Shopping is the status of
"any other action." This other action involves the same issues and
parties but is an entirely different case.
Indeed, petitioner is guilty of forum shopping.
There is forum shopping when:
as a result of an adverse opinion in one forum, a party seeks a favorable
opinion (other than by appeal or certiorari) in another. The principle
applies not only with respect to suits filed in the courts but also in
connection with litigations commenced in the courts while an
administrative proceeding is pending[.]43 (Citation omitted)
This court has enumerated the elements of forum-shopping: "(a)
identity of parties, or at least such parties as represent the same
interests in both actions; (b) identity of rights asserted and reliefs
prayed for, the reliefs being founded on the same facts; and (c) the
identity with respect to the two preceding particulars in the two cases
issuch that any judgment rendered in the pending cases, regardless of
which party is successful, amount to res judicatain the other
case."44 Rule 42, Section 245 in relation to Rule 45, Section 4 of the Rules
of Court mandates petitioner to submit a Certification Against Forum
Shopping and promptly inform this court about the pendency of any
similar action or proceeding before other courts or tribunals. The rules
purpose is to deter the unethical practice of pursuing simultaneous
remedies in different forums, which "wreaks havoc upon orderly
judicial procedure."46 Failure to comply with the rule is a sufficient
ground for the dismissal of the petition.47
Records show that petitioners duly authorized officer certified the
following on January 21, 2013: 4. I further certify that: (a) I have not
commenced any other action or proceeding involving the same issues
ADR CASES LAST BATCH
in the Supreme Court, Court of Appeals, or any other tribunal or agency;
(b) to the best of my knowledge, no such action or proceeding is
pending in the Supreme Court, the Court of Appeals or different
Divisions thereof, or any tribunal or agency; (c) if I should thereafter
learn that a similar action or proceeding has been filed or is pending
before the Supreme Court, the Court of Appeals, or different Divisions
thereof, or any other tribunal or agency, I undertake to promptly
inform the aforesaid courts and such tribunal or agency of the fact
within five (5) days therefrom.48
Petitioner failed to carry out its duty of promptly informing this court
of any pending action or proceeding before this court,the Court of
Appeals, or any other tribunal or agency. This court cannot
countenance petitioners disregard of the rules.
This court has held before that:
[u]ltimately, what is truly important to consider in determining
whether forum-shopping exists or not is the vexation caused the courts
and parties-litigant by a party who asks different courts and/or
administrative agencies to rule on the same or related causes and/or to
grant the same or substantially the same reliefs, in the process creating
the possibility of conflicting decisions being rendered by the different
fora upon the same issue.49 (Emphasis supplied)
On this basis, this case should be dismissed.
On arbitration and the CIACs jurisdiction
Petitioner changed the theory of its case since its participation in the
trial court proceedings. It raised the issue of lack of jurisdiction in view
of an arbitration agreement for the first time. Generally, parties may
not raise issues for the first time on appeal.50 Such practice is violative
of the rules and due process and is frowned upon by the courts.
However, it is also well-settled that jurisdiction can never be waived or
acquired by estoppel.51 Jurisdiction is conferred by the Constitution or
by law.52 "Lack of jurisdiction of the court over an action or the subject
matter of an action cannot be cured by the silence, by acquiescence, or
even by express consent of the parties."53
Section 4 of Executive Order No. 100854 is clear in defining the
exclusive jurisdiction of the CIAC:
SECTION 4. Jurisdiction The CIAC shall have original and exclusive
jurisdiction over disputes arising from, or connected with, contracts
entered into by parties involved in construction in the Philippines,
whether the dispute arises before or after the completion of the
contract, or after the abandonment or breach thereof. These disputes
may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to
voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation
of specifications for materials and workmanship; violation of the terms
of agreement; interpretation and/or application of contractual timeand
delays; maintenance and defects; payment, default of employer or
contractor and changes in contract cost.
Excluded from the coverage of thislaw are disputes arising from
employer-employee relationships which shall continue to be covered
by the Labor Code of the Philippines. (Emphasis supplied)
Similarly, Section 35 of RepublicAct No. 9285 or the Alternative Dispute
Resolution Act of 2004 states:
SEC. 35. Coverage of the Law. - Construction disputes which fall within
the original and exclusive jurisdiction of the Construction Industry
Arbitration Commission (the "Commission") shall include those
between or among parties to, or who are otherwise bound by, an
arbitration agreement, directly or by reference whether such parties
are project owner, contractor, subcontractor, quantity surveyor,
bondsman or issuer of an insurance policy in a construction project.
ADR CASES LAST BATCH
The Commission shall continue to exercise original and exclusive
jurisdiction over construction disputes although the arbitration is
"commercial" pursuant to Section 21 of this Act. (Emphasis supplied)
In Heunghwa Industry Co., Ltd., v. DJ Builders Corporation,55 this court
held that "there are two acts which may vest the CIAC with jurisdiction
over a construction dispute. One is the presence of an arbitration clause
in a construction contract, and the other is the agreement by the parties
to submit the dispute to the CIAC."56
This court has ruled that when a dispute arises from a construction
contract, the CIAC has exclusive and original
jurisdiction.57 Construction has been defined as referring to "all on-site
works on buildings or altering structures, from land clearance through
completion including excavation, erection and assembly and
installation of components and equipment."58
In this case, there is no dispute asto whether the Owners-Contractor
Agreement between Asis-Leif and respondents is a construction
contract. Petitioner and respondents recognize that CIAC has
jurisdiction over disputes arising from the agreement.
What is at issue in this case is the parties agreement, or lack thereof, to
submit the case to arbitration. Respondents argue that petitioner is not
a party to the arbitration agreement. Petitioner did not consent to
arbitration. It is only respondent and Asis-Leif thatmay invoke the
arbitration clause in the contract.
This court has previously held that a performance bond, which is meant
"to guarantee the supply of labor,materials, tools, equipment, and
necessary supervision to complete the project[,]"59 is significantly and
substantially connected to the construction contract and, therefore,
falls under the jurisdiction of the CIAC.60
At first look, the Owners-Contractor Agreement and the performance
bond reference each other; the performance bond was issued pursuant
to the construction agreement.
A performance bond is a kind of suretyship agreement. A suretyship
agreement is an agreement "whereby a party, called the surety,
guarantees the performance by another party, called the principal or
obligor, of an obligation or undertaking in favor of another party, called
the obligee."71 In the same vein, a performance bond is "designed to
afford the project owner security that the . . . contractor, will faithfully
comply with the requirements of the contract . . . and make good [on
the] damages sustained by the project owner in case of the contractors
failure to so perform."72
It is settled that the suretys solidary obligation for the performance of
the principal debtors obligation is indirect and merely
secondary.73 Nevertheless, the suretys liability tothe "creditor or
promisee of the principal is said to be direct, primary and absolute; in
other words, he is directly and equally bound with the principal."74
Verily, "[i]n enforcing a surety contract, the complementary contracts-
construed-together doctrine finds application. According to this
principle, an accessory contract must beread in its entirety and
together with the principal agreement."75 Article 1374 of the Civil Code
provides:
ART. 1374. The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result
from all of them taken jointly.
Applying the "complementary-contracts-construed-together" doctrine,
this court in Prudential held that the surety willingly acceded to the
terms of the construction contract despite the silence of the
performance bond as to arbitration:
In the case at bar, the performance bond was silent with regard to
arbitration. On the other hand, the construction contract was clear as to
arbitration in the event of disputes. Applying the said doctrine, we rule
that the silence of the accessory contract in this case could only be
construed as acquiescence to the main contract. The construction
contract breathes life into the performance bond. We are not ready to
assume that the performance bond contains reservations with regard
ADR CASES LAST BATCH
to some of the terms and conditions in the construction contract where
in fact it is silent. On the other hand, it is more reasonable to assume
that the party who issued the performance bond carefully and
meticulously studied the construction contract that it guaranteed, and if
it had reservations, it would have and should have mentioned them in
the surety contract.76
This court, however, cannot apply the ruling in Prudential to the
present case. Several factors militate against petitioners claim.
The contractual stipulations in this case and in Prudential are different.
The relevant provisions of the Owners-Contractor Agreement in this
case state:
ARTICLE 5. THE CONTRACT DOCUMENTS
The following documents prepared by the CONTRACTOR shall
constitute an integral part of this contract as fully as if hereto attached
or herein stated, except asotherwise modified by mutual agreement of
parties, and attached to this agreement.
Attachment 5.1 Working Drawings
Attachment 5.2 Outline Specifications
Attachment 5.3 Bill of Quantities
Attachment 5.4 CONTRACTOR Business License . . . .
ARTICLE 7. PERFORMANCE (SURETY) BOND
7.1 Within 30 days of the signing of this agreement,
CONTRACTOR shall provide to OWNERS a performance bond,
issued by a duly licensed authority acceptable to the OWNERS,
and equal to the amount of PHP 4,500,000.00 (Four Million and
Five Hundred Thousand Philippine Pesos),with the OWNERS
as beneficiary.
7.2 The performance bond will guarantee the satisfactory and
faithful performance by the CONTRACTOR of all provisions
stated within this contract.
ARTICLE 8. ARBITRATION
8.1 Any dispute between the parties hereto which cannot be amicably
settled shall be finally settled by arbitration in accordance with the
provision of Republic Act 876, of The Philippines, as amended by the
Executive Order 1008 dated February 4, 1985.77 (Emphasis in the
original)
In contrast, the provisions of the construction contract in Prudential
provide:
Article 1
CONTRACT DOCUMENTS
1.1 The following shall form part of this Contractand together with this
Contract, are known as the "Contract Documents":
a. Bid Proposal
....
d. Notice to proceed
....
j. Appendices A & B (respectively, Surety Bond for Performance
and, Supply of Materials by the Developer)78(Emphasis
supplied)
This court in Prudential held that the construction contract expressly
incorporated the performance bond into the contract.79 In the present
case, Article 7 of the Owners-Contractor Agreement merely stated that
a performance bond shall be issued in favor of respondents, in which
case petitioner and Asis-Leif Builders and/or Ms. Ma. Cynthia Asis-Leif
shall pay P4,500,000.00 in the event that Asis-Leif fails to perform its
duty under the Owners-Contractor Agreement.80 Consequently, the
performance bond merely referenced the contract entered into by
respondents and Asis-Leif, which pertained to Asis-Leifs duty
toconstruct a two-storey residence building with attic, pool, and
landscaping over respondents property.81
ADR CASES LAST BATCH
To be clear, it is in the Owners-Contractor Agreement that the
arbitration clause is found.1wphi1 The construction agreement was
signed only by respondents and the contractor, Asis-Leif, as
represented by Ms. Ma. Cynthia Asis-Leif. It is basic that "[c]ontracts
take effect only between the parties, their assigns and heirs[.]" 82 Not
being a party to the construction agreement, petitioner cannot invoke
the arbitration clause. Petitioner, thus, cannot invoke the jurisdiction of
the CIAC.
Moreover, petitioners invocation of the arbitration clause defeats the
purpose of arbitration in relation to the construction business. The
state has continuously encouraged the use of dispute resolution
mechanisms to promote party autonomy.83 In LICOMCEN, Incorporated
v. Foundation Specialists, Inc.,84 this court upheld the CIAC's
jurisdiction in line with the state's policy to promote arbitration:
The CIAC was created through Executive Order No. 1008 (E. 0. 1008), in
recognition of the need to establish an arbitral machinery that would
expeditiously settle construction industry disputes. The prompt
resolution of problems arising from or connected with the construction
industry was considered of necessary and vital for the fulfillment of
national development goals, as the construction industry provides
employment to a large segment of the national labor force and is a
leading contributor to the gross national product.85 (Citation omitted)
However, where a surety in a. construction contract actively
participates in a collection suit, it is estopped from raising jurisdiction
later. Assuming that petitioner is privy to the construction agreement,
we cannot allow petitioner to invoke arbitration at this late stage of the
proceedings since to do so would go against the law's goal of prompt
resolution of cases in the construction industry.
WHEREFORE, the petition is DENIED. The case is DISMISSED.
Petitioner's counsel is STERNLY WARNED that a repetition or similar
violation of the rule on Certification Against Forum Shopping will be
dealt with more severely. SO ORDERED.
G.R. No. 198075 September 4, 2013
KOPPEL, INC.vs. MAKATI ROTARY CLUB FOUNDATION, INC.
Fedders Koppel, Incorporated (FKI), a manufacturer of air-conditioning
products, was the registered owner of a parcel of land located at Km.
16, South Superhighway, Paraaque City (subject land).3 Within the
subject land are buildings and other improvements dedicated to the
business of FKI.4
In 1975, FKI5 bequeathed the subject land (exclusive of the
improvements thereon) in favor of herein respondent Makati Rotary
Club Foundation, Incorporated by way of a conditional donation.6 The
respondent accepted the donation with all of its conditions.7 On 26
May1975, FKI and the respondent executed a Deed of
Donation8evidencing their consensus.
The Lease and the Amended Deed of Donation
One of the conditions of the donation required the respondent to lease
the subject land back to FKI under terms specified in their Deed of
Donation.9 With the respondents acceptance of the donation, a lease
agreement between FKI and the respondent was, therefore, effectively
incorporated in the Deed of Donation.
Pertinent terms of such lease agreement, as provided in the Deed of
Donation , were as follows:
1. The period of the lease is for twenty-five (25) years,10 or
until the 25th of May 2000;
2. The amount of rent to be paid by FKI for the first twenty-five
(25) years is P40,126.00 per annum .11
The Deed of Donation also stipulated that the lease over the subject
property is renewable for another period of twenty-five (25) years "
upon mutual agreement" of FKI and the respondent.12 In which case,
the amount of rent shall be determined in accordance with item 2(g) of
the Deed of Donation, viz:
ADR CASES LAST BATCH
g. The rental for the second 25 years shall be the subject of mutual
agreement and in case of disagreement the matter shall be referred to a
Board of three Arbitrators appointed and with powers in accordance
with the Arbitration Law of the Philippines, Republic Act 878, whose
function shall be to decide the current fair market value of the land
excluding the improvements, provided, that, any increase in the fair
market value of the land shall not exceed twenty five percent (25%) of
the original value of the land donated as stated in paragraph 2(c) of this
Deed. The rental for the second 25 years shall not exceed three percent
(3%) of the fair market value of the land excluding the improvements
as determined by the Board of Arbitrators.13
In October 1976, FKI and the respondent executed an Amended Deed of
Donation14 that reiterated the provisions of the Deed of Donation ,
including those relating to the lease of the subject land.
Verily, by virtue of the lease agreement contained in the Deed of
Donation and Amended Deed of Donation , FKI was able to continue in
its possession and use of the subject land.
2000 Lease Contract
Two (2) days before the lease incorporated in the Deed of Donation and
Amended Deed of Donation was set to expire, or on 23 May 2000, FKI
and respondent executed another contract of lease ( 2000 Lease
Contract )15covering the subject land. In this 2000 Lease Contract, FKI
and respondent agreed on a new five-year lease to take effect on the
26th of May 2000, with annual rents ranging from P4,000,000 for the
first year up to P4,900,000 for the fifth year.16 The 2000 Lease Contract
also contained an arbitration clause enforceable in the event the parties
come to disagreement about the" interpretation, application and
execution" of the lease, viz :
19. Governing Law The provisions of this 2000 Lease Contract shall
be governed, interpreted and construed in all aspects in accordance
with the laws of the Republic of the Philippines.
Any disagreement as to the interpretation, application or execution of
this 2000 Lease Contract shall be submitted to a board of three (3)
arbitrators constituted in accordance with the arbitration law of the
Philippines. The decision of the majority of the arbitrators shall be
binding upon FKI and respondent.17
2005 Lease Contract
After the 2000 Lease Contract expired, FKI and respondent agreed to
renew their lease for another five (5) years. This new lease (2005 Lease
Contract )18 required FKI to pay a fixed annual rent of P4,200,000.19 In
addition to paying the fixed rent, however, the 2005 Lease Contract
also obligated FKI to make a yearly " donation " of money to the
respondent.20 Such donations ranged from P3,000,000 for the first year
up to P3,900,000for the fifth year.21Notably, the 2005 Lease Contract
contained an arbitration clause similar to that in the 2000 Lease
Contract, to wit:
19. Governing Law The provisions of this 2005 Lease Contract shall
be governed, interpreted and construed in all aspects in accordance
with the laws of the Republic of the Philippines.
Any disagreement as to the interpretation, application or execution of
this 2005 Lease Contract shall be submitted to a board of three (3)
arbitrators constituted in accordance with the arbitration law of the
Philippines. The decision of the majority of the arbitrators shall be
binding upon FKI and respondent.22 (Emphasis supplied)
The Assignment and Petitioners Refusal to Pay
From 2005 to 2008, FKI faithfully paid the rentals and " donations "due
it per the 2005 Lease Contract.23 But in June of 2008, FKI sold all its
rights and properties relative to its business in favor of herein
petitioner Koppel, Incorporated.24 On 29 August 2008, FKI and
petitioner executed an Assignment and Assumption of Lease and
Donation25 wherein FKI, with the conformity of the respondent,
formally assigned all of its interests and obligations under the Amended
Deed of Donation and the 2005 Lease Contract in favor of petitioner.
ADR CASES LAST BATCH
The following year, petitioner discontinued the payment of the rent and
" donation " under the 2005 Lease Contract.
Petitioners refusal to pay such rent and "donation " emanated from its
belief that the rental stipulations of the 2005 Lease Contract, and even
of the 2000 Lease Contract, cannot be given effect because they violated
one of the" material conditions " of the donation of the subject land, as
stated in the Deed of Donation and Amended Deed of Donation.26
According to petitioner, the Deed of Donation and Amended Deed of
Donation actually established not only one but two (2) lease
agreements between FKI and respondent, i.e. , one lease for the first
twenty-five (25)years or from 1975 to 2000, and another lease for the
next twenty-five (25)years thereafter or from 2000 to 2025. 27 Both
leases are material conditions of the donation of the subject land.
Petitioner points out that while a definite amount of rent for the second
twenty-five (25) year lease was not fixed in the Deed of Donation and
Amended Deed of Donation , both deeds nevertheless prescribed rules
and limitations by which the same may be determined. Such rules and
limitations ought to be observed in any succeeding lease agreements
between petitioner and respondent for they are, in themselves,
material conditions of the donation of the subject land.28
In this connection, petitioner cites item 2(g) of the Deed of Donation
and Amended Deed of Donation that supposedly limits the amount of
rent for the lease over the second twenty-five (25) years to only " three
percent (3%) of the fair market value of the subject land excluding the
improvements.29
For petitioner then, the rental stipulations of both the 2000 Lease
Contract and 2005 Lease Contract cannot be enforced as they are
clearly, in view of their exorbitant exactions, in violation of the
aforementioned threshold in item 2(g) of the Deed of Donation and
Amended Deed of Donation . Consequently, petitioner insists that the
amount of rent it has to pay thereon is and must still be governed by
the limitations prescribed in the Deed of Donation and Amended Deed
of Donation.30
The Demand Letters
On 1 June 2009, respondent sent a letter (First Demand Letter)31 to
petitioner notifying the latter of its default " per Section 12 of the 2005
Lease Contract " and demanding for the settlement of the rent and "
donation " due for the year 2009. Respondent, in the same letter,
further intimated of canceling the 2005 Lease Contract should
petitioner fail to settle the said obligations.32 Petitioner received the
First Demand Letter on2 June 2009.33
On 22 September 2009, petitioner sent a reply34 to respondent
expressing its disagreement over the rental stipulations of the 2005
Lease Contract calling them " severely disproportionate,"
"unconscionable" and "in clear violation to the nominal rentals
mandated by the Amended Deed of Donation." In lieu of the amount
demanded by the respondent, which purportedly totaled
to P8,394,000.00, exclusive of interests, petitioner offered to pay
only P80,502.79,35 in accordance with the rental provisions of the Deed
of Donation and Amended Deed of Donation.36Respondent refused this
offer.37
On 25 September 2009, respondent sent another letter (Second
Demand Letter)38 to petitioner, reiterating its demand for the payment
of the obligations already due under the 2005 Lease Contract. The
Second Demand Letter also contained a demand for petitioner to "
immediately vacate the leased premises " should it fail to pay such
obligations within seven (7) days from its receipt of the letter.39 The
respondent warned of taking " legal steps " in the event that petitioner
failed to comply with any of the said demands.40 Petitioner received the
Second Demand Letter on 26September 2009.41
Petitioner refused to comply with the demands of the respondent.
Instead, on 30 September 2009, petitioner filed with the Regional Trial
Court (RTC) of Paraaque City a complaint42 for the rescission or
cancellation of the Deed of Donation and Amended Deed of Donation
against the respondent. This case is currently pending before Branch
257 of the RTC, docketed as Civil Case No. CV 09-0346.
ADR CASES LAST BATCH
The Ejectment Suit
On 5 October 2009, respondent filed an unlawful detainer
case43 against the petitioner before the Metropolitan Trial Court
(MeTC) of Paraaque City. The ejectment case was raffled to Branch 77
and was docketed as Civil Case No. 2009-307.
On 4 November 2009, petitioner filed an Answer with Compulsory
Counterclaim.44 In it, petitioner reiterated its objection over the rental
stipulations of the 2005 Lease Contract for being violative of the
material conditions of the Deed of Donation and Amended Deed of
Donation.45 In addition to the foregoing, however, petitioner also
interposed the following defenses:
1. The MeTC was not able to validly acquire jurisdiction over
the instant unlawful detainer case in view of the insufficiency
of respondents demand.46 The First Demand Letter did not
contain an actual demand to vacate the premises and,
therefore, the refusal to comply there with does not give rise to
an action for unlawful detainer.47
2. Assuming that the MeTC was able to acquire jurisdiction, it
may not exercise the same until the disagreement between the
parties is first referred to arbitration pursuant to the
arbitration clause of the 2005 Lease Contract.48
3. Assuming further that the MeTC has jurisdiction that it can
exercise, ejectment still would not lie as the 2005 Lease
Contract is void abinitio.49 The stipulation in the 2005 Lease
Contract requiring petitioner to give yearly " donations " to
respondent is a simulation, for they are, in fact, parts of the
rent. 50 Such grants were only denominated as " donations " in
the contract so that the respondentanon-stock and non-
profit corporationcould evade payment of the taxes
otherwise due thereon.51
In due course, petitioner and respondent both submitted their position
papers, together with their other documentary evidence. 52 Remarkably,
however, respondent failed to submit the Second Demand Letter as
part of its documentary evidence.
Rulings of the MeTC, RTC and Court of Appeals
On 27 April 2010, the MeTC rendered judgment53 in favor of the
petitioner. While the MeTC refused to dismiss the action on the ground
that the dispute is subject to arbitration, it nonetheless sided with the
petitioner with respect to the issues regarding the insufficiency of the
respondents demand and the nullity of the 2005 Lease Contract.54 The
MeTC thus disposed:
WHEREFORE, judgment is hereby rendered dismissing the case x x x,
without pronouncement as to costs.
SO ORDERED.55
The respondent appealed to the Regional Trial Court (RTC). This appeal
was assigned to Branch 274 of the RTC of Paraaque City and was
docketed as Civil Case No. 10-0255.
On 29 October 2010, the RTC reversed56 the MeTC and ordered the
eviction of the petitioner from the subject land:
WHEREFORE, all the foregoing duly considered, the appealed Decision
of the Metropolitan Trial Court, Branch 77, Paraaque City, is hereby
reversed, judgment is thus rendered in favor of the plaintiff-appellant
and against the defendant-appellee, and ordering the latter
(1) to vacate the lease[d] premises made subject of the case
and to restore the possession thereof to the plaintiff-appellant;
(2) to pay to the plaintiff-appellant the amount of Nine Million
Three Hundred Sixty Two Thousand Four Hundred Thirty Six
Pesos (P9,362,436.00), penalties and net of 5% withholding
tax, for the lease period from May 25, 2009 to May 25, 2010
and such monthly rental as will accrue during the pendency of
this case;
ADR CASES LAST BATCH
(3) to pay attorneys fees in the sum of P100,000.00 plus
appearance fee of P3,000.00;
(4) and costs of suit.
As to the existing improvements belonging to the defendant-appellee,
as these were built in good faith, the provisions of Art. 1678of the Civil
Code shall apply.
SO ORDERED.57
The ruling of the RTC is premised on the following ratiocinations:
1. The respondent had adequately complied with the
requirement of demand as a jurisdictional precursor to an
unlawful detainer action.58 The First Demand Letter, in
substance, contains a demand for petitioner to vacate when it
mentioned that it was a notice " per Section12 of the 2005
Lease Contract."59 Moreover, the issue of sufficiency of the
respondents demand ought to have been laid to rest by the
Second Demand Letter which, though not submitted in
evidence, was nonetheless admitted by petitioner as containing
a" demand to eject " in its Answer with Compulsory
Counterclaim.60
2. The petitioner cannot validly invoke the arbitration clause of
the 2005 Lease Contract while, at the same time, impugn such
contracts validity.61 Even assuming that it can, petitioner still
did not file a formal application before the MeTC so as to
render such arbitration clause operational.62 At any rate, the
MeTC would not be precluded from exercising its jurisdiction
over an action for unlawful detainer, over which, it has
exclusive original jurisdiction.63
3. The 2005 Lease Contract must be sustained as a valid
contract since petitioner was not able to adduce any evidence
to support its allegation that the same is void.64 There was, in
this case, no evidence that respondent is guilty of any tax
evasion.65
Aggrieved, the petitioner appealed to the Court of Appeals.
On 19 August 2011, the Court of Appeals affirmed66 the decision of the
RTC:
WHEREFORE , the petition is DENIED . The assailed Decision of the
Regional Trial Court of Paraaque City, Branch 274, in Civil Case No.
10-0255 is AFFIRMED.
xxxx
SO ORDERED.67
Hence, this appeal.
On 5 September 2011, this Court granted petitioners prayer for the
issuance of a Temporary Restraining Order68staying the immediate
implementation of the decisions adverse to it.
OUR RULING
Independently of the merits of the case, the MeTC, RTC and Court of
Appeals all erred in overlooking the significance of the arbitration
clause incorporated in the 2005 Lease Contract . As the Court sees it,
that is a fatal mistake.
For this reason, We grant the petition.
Present Dispute is Arbitrable Under the
Arbitration Clause of the 2005 Lease
Agreement Contract
Going back to the records of this case, it is discernable that the dispute
between the petitioner and respondent emanates from the rental
ADR CASES LAST BATCH
stipulations of the 2005 Lease Contract. The respondent insists upon
the enforce ability and validity of such stipulations, whereas, petitioner,
in substance, repudiates them. It is from petitioners apparent breach of
the 2005 Lease Contract that respondent filed the instant unlawful
detainer action.
One cannot escape the conclusion that, under the foregoing premises,
the dispute between the petitioner and respondent arose from the
application or execution of the 2005 Lease Contract . Undoubtedly, such
kinds of dispute are covered by the arbitration clause of the 2005 Lease
Contract to wit:
19. Governing Law The provisions of this 2005 Lease Contract shall
be governed, interpreted and construed in all aspects in accordance
with the laws of the Republic of the Philippines.
Any disagreement as to the interpretation, application or execution of
this 2005 Lease Contract shall be submitted to a board of three (3)
arbitrators constituted in accordance with the arbitration law of the
Philippines. The decision of the majority of the arbitrators shall be
binding upon FKI and respondent.69 (Emphasis supplied)
The arbitration clause of the 2005 Lease Contract stipulates that "any
disagreement" as to the " interpretation, application or execution " of
the 2005 Lease Contract ought to be submitted to arbitration.70 To the
mind of this Court, such stipulation is clear and is comprehensive
enough so as to include virtually any kind of conflict or dispute that
may arise from the 2005 Lease Contract including the one that
presently besets petitioner and respondent.
The application of the arbitration clause of the 2005 Lease Contract in
this case carries with it certain legal effects. However, before discussing
what these legal effects are, We shall first deal with the challenges
posed against the application of such arbitration clause.
Challenges Against the Application of the
Arbitration Clause of the 2005 Lease
Contract
Curiously, despite the lucidity of the arbitration clause of the 2005
Lease Contract, the petitioner, as well as the MeTC, RTC and the Court
of Appeals, vouched for the non-application of the same in the instant
case. A plethora of arguments was hurled in favor of bypassing
arbitration. We now address them.
At different points in the proceedings of this case, the following
arguments were offered against the application of the arbitration
clause of the 2005 Lease Contract:
1. The disagreement between the petitioner and respondent is
non-arbitrable as it will inevitably touch upon the issue of the
validity of the 2005 Lease Contract.71 It was submitted that one
of the reasons offered by the petitioner in justifying its failure
to pay under the 2005 Lease Contract was the nullity of such
contract for being contrary to law and public policy.72 The
Supreme Court, in Gonzales v. Climax Mining, Ltd.,73 held that "
the validity of contract cannot be subject of arbitration
proceedings " as such questions are " legal in nature and
require the application and interpretation of laws and
jurisprudence which is necessarily a judicial function ." 74
2. The petitioner cannot validly invoke the arbitration clause of
the 2005 Lease Contract while, at the same time, impugn such
contracts validity.75
3. Even assuming that it can invoke the arbitration clause
whilst denying the validity of the 2005 Lease Contract ,
petitioner still did not file a formal application before the MeTC
so as to render such arbitration clause operational.76 Section
24 of Republic Act No. 9285 requires the party seeking
arbitration to first file a " request " or an application therefor
with the court not later than the preliminary conference.77
4. Petitioner and respondent already underwent Judicial
Dispute Resolution (JDR) proceedings before the RTC.78 Hence,
a further referral of the dispute to arbitration would only be
circuitous.79 Moreover, an ejectment case, in view of its
ADR CASES LAST BATCH
summary nature, already fulfills the prime purpose of
arbitration, i.e. , to provide parties in conflict with an expedient
method for the resolution of their dispute.80 Arbitration then
would no longer be necessary in this case.81
None of the arguments have any merit.
First. As highlighted in the previous discussion, the disagreement
between the petitioner and respondent falls within the all-
encompassing terms of the arbitration clause of the 2005 Lease
Contract. While it may be conceded that in the arbitration of such
disagreement, the validity of the 2005 Lease Contract, or at least, of
such contracts rental stipulations would have to be determined, the
same would not render such disagreement non-arbitrable. The
quotation from Gonzales that was used to justify the contrary position
was taken out of context. A rereading of Gonzales would fix its
relevance to this case.
In Gonzales, a complaint for arbitration was filed before the Panel of
Arbitrators of the Mines and Geosciences Bureau (PA-MGB) seeking the
nullification of a Financial Technical Assistance Agreement and other
mining related agreements entered into by private parties.82
Grounds invoked for the nullification of such agreements include fraud
and unconstitutionality.83 The pivotal issue that confronted the Court
then was whether the PA-MGB has jurisdiction over that particular
arbitration complaint. Stated otherwise, the question was whether the
complaint for arbitration raises arbitrable issues that the PA-MGB can
take cognizance of.
Gonzales decided the issue in the negative. In holding that the PA-MGB
was devoid of any jurisdiction to take cognizance of the complaint for
arbitration, this Court pointed out to the provisions of R.A. No. 7942, or
the Mining Act of 1995, which granted the PA-MGB with exclusive
original jurisdiction only over mining disputes, i.e., disputes involving "
rights to mining areas," "mineral agreements or permits," and " surface
owners, occupants, claim holders or concessionaires" requiring the
technical knowledge and experience of mining authorities in order to
be resolved.84 Accordingly, since the complaint for arbitration in
Gonzales did not raise mining disputes as contemplated under R.A. No.
7942 but only issues relating to the validity of certain mining related
agreements, this Court held that such complaint could not be arbitrated
before the PA-MGB.85 It is in this context that we made the
pronouncement now in discussion:
Arbitration before the Panel of Arbitrators is proper only when there is
a disagreement between the parties as to some provisions of the
contract between them, which needs the interpretation and the
application of that particular knowledge and expertise possessed by
members of that Panel. It is not proper when one of the parties
repudiates the existence or validity of such contract or agreement on
the ground of fraud or oppression as in this case. The validity of the
contract cannot be subject of arbitration proceedings. Allegations of
fraud and duress in the execution of a contract are matters within the
jurisdiction of the ordinary courts of law. These questions are legal in
nature and require the application and interpretation of laws and
jurisprudence which is necessarily a judicial function.86
The Court in Gonzales did not simply base its rejection of the complaint
for arbitration on the ground that the issue raised therein, i.e. , the
validity of contracts, is per se non-arbitrable. The real consideration
behind the ruling was the limitation that was placed by R.A. No. 7942
upon the jurisdiction of the PA-MGB as an arbitral body . Gonzales
rejected the complaint for arbitration because the issue raised therein
is not a mining dispute per R.A. No. 7942 and it is for this reason, and
only for this reason, that such issue is rendered non-arbitrable before
the PA-MGB. As stated beforehand, R.A. No. 7942 clearly limited the
jurisdiction of the PA-MGB only to mining disputes.87
Much more instructive for our purposes, on the other hand, is the
recent case of Cargill Philippines, Inc. v. San Fernando Regal Trading,
Inc.88 In Cargill , this Court answered the question of whether issues
involving the rescission of a contract are arbitrable. The respondent in
Cargill argued against arbitrability, also citing therein Gonzales . After
dissecting Gonzales , this Court ruled in favor of arbitrability.89 Thus,
We held:
ADR CASES LAST BATCH
Respondent contends that assuming that the existence of the contract
and the arbitration clause is conceded, the CA's decision declining
referral of the parties' dispute to arbitration is still correct. It claims
that its complaint in the RTC presents the issue of whether under the
facts alleged, it is entitled to rescind the contract with damages; and
that issue constitutes a judicial question or one that requires the
exercise of judicial function and cannot be the subject of an arbitration
proceeding. Respondent cites our ruling in Gonzales, wherein we held
that a panel of arbitrator is bereft of jurisdiction over the complaint for
declaration of nullity/or termination of the subject contracts on the
grounds of fraud and oppression attendant to the execution of the
addendum contract and the other contracts emanating from it, and that
the complaint should have been filed with the regular courts as it
involved issues which are judicial in nature.
Such argument is misplaced and respondent cannot rely on the
Gonzales case to support its argument.90
Second. Petitioner may still invoke the arbitration clause of the 2005
Lease Contract notwithstanding the fact that it assails the validity of
such contract. This is due to the doctrine of separability.91
Under the doctrine of separability, an arbitration agreement is
considered as independent of the main contract.92Being a separate
contract in itself, the arbitration agreement may thus be invoked
regardless of the possible nullity or invalidity of the main contract.93
Once again instructive is Cargill, wherein this Court held that, as a
further consequence of the doctrine of separability, even the very party
who repudiates the main contract may invoke its arbitration clause.94
Third . The operation of the arbitration clause in this case is not at all
defeated by the failure of the petitioner to file a formal "request" or
application therefor with the MeTC. We find that the filing of a
"request" pursuant to Section 24 of R.A. No. 9285 is not the sole means
by which an arbitration clause may be validly invoked in a pending suit.
Section 24 of R.A. No. 9285 reads:
SEC. 24. Referral to Arbitration . - A court before which an action is
brought in a matter which is the subject matter of an arbitration
agreement shall, if at least one party so requests not later that the pre-
trial conference, or upon the request of both parties thereafter, refer
the parties to arbitration unless it finds that the arbitration agreement
is null and void, inoperative or incapable of being performed.
The " request " referred to in the above provision is, in turn,
implemented by Rules 4.1 to 4.3 of A.M. No. 07-11-08-SC or the Special
Rules of Court on Alternative Dispute Resolution (Special ADR Rules):
RULE 4: REFERRAL TO ADR
Rule 4.1. Who makes the request. - A party to a pending action filed in
violation of the arbitration agreement, whether contained in an
arbitration clause or in a submission agreement, may request the court
to refer the parties to arbitration in accordance with such agreement.
Rule 4.2. When to make request. - (A) Where the arbitration agreement
exists before the action is filed . - The request for referral shall be made
not later than the pre-trial conference. After the pre-trial conference,
the court will only act upon the request for referral if it is made with
the agreement of all parties to the case.
(B) Submission agreement . - If there is no existing arbitration
agreement at the time the case is filed but the parties subsequently
enter into an arbitration agreement, they may request the court to refer
their dispute to arbitration at any time during the proceedings.
Rule 4.3. Contents of request. - The request for referral shall be in the
form of a motion, which shall state that the dispute is covered by an
arbitration agreement.
A part from other submissions, the movant shall attach to his motion an
authentic copy of the arbitration agreement.
The request shall contain a notice of hearing addressed to all parties
specifying the date and time when it would be heard. The party making
ADR CASES LAST BATCH
the request shall serve it upon the respondent to give him the
opportunity to file a comment or opposition as provided in the
immediately succeeding Rule before the hearing.
Attention must be paid, however, to the salient wordings of Rule 4.1.It
reads: "a party to a pending action filed in violation of the arbitration
agreement x x x may request the court to refer the parties to arbitration
in accordance with such agreement."
In using the word " may " to qualify the act of filing a " request " under
Section 24 of R.A. No. 9285, the Special ADR Rules clearly did not intend
to limit the invocation of an arbitration agreement in a pending suit
solely via such "request." After all, non-compliance with an arbitration
agreement is a valid defense to any offending suit and, as such, may
even be raised in an answer as provided in our ordinary rules of
procedure.95
In this case, it is conceded that petitioner was not able to file a separate
" request " of arbitration before the MeTC. However, it is equally
conceded that the petitioner, as early as in its Answer with
Counterclaim ,had already apprised the MeTC of the existence of the
arbitration clause in the 2005 Lease Contract96 and, more significantly,
of its desire to have the same enforced in this case.97 This act of
petitioner is enough valid invocation of his right to arbitrate. Fourth .
The fact that the petitioner and respondent already under went
through JDR proceedings before the RTC, will not make the subsequent
conduct of arbitration between the parties unnecessary or circuitous.
The JDR system is substantially different from arbitration proceedings.
The JDR framework is based on the processes of mediation, conciliation
or early neutral evaluation which entails the submission of a dispute
before a " JDR judge " who shall merely " facilitate settlement " between
the parties in conflict or make a " non-binding evaluation or assessment
of the chances of each partys case."98 Thus in JDR, the JDR judge lacks
the authority to render a resolution of the dispute that is binding upon
the parties in conflict. In arbitration, on the other hand, the dispute is
submitted to an arbitrator/s a neutral third person or a group of
thereof who shall have the authority to render a resolution binding
upon the parties.99
Clearly, the mere submission of a dispute to JDR proceedings would not
necessarily render the subsequent conduct of arbitration a mere
surplusage. The failure of the parties in conflict to reach an amicable
settlement before the JDR may, in fact, be supplemented by their resort
to arbitration where a binding resolution to the dispute could finally be
achieved. This situation precisely finds application to the case at bench.
Neither would the summary nature of ejectment cases be a valid reason
to disregard the enforcement of the arbitration clause of the 2005
Lease Contract . Notwithstanding the summary nature of ejectment
cases, arbitration still remains relevant as it aims not only to afford the
parties an expeditious method of resolving their dispute.
A pivotal feature of arbitration as an alternative mode of dispute
resolution is that it is, first and foremost, a product of party autonomy
or the freedom of the parties to " make their own arrangements to
resolve their own disputes."100Arbitration agreements manifest not
only the desire of the parties in conflict for an expeditious resolution of
their dispute. They also represent, if not more so, the parties mutual
aspiration to achieve such resolution outside of judicial auspices, in a
more informal and less antagonistic environment under the terms of
their choosing. Needless to state, this critical feature can never be
satisfied in an ejectment case no matter how summary it may be.
Having hurdled all the challenges against the application of the
arbitration clause of the 2005 Lease Agreement in this case, We shall
now proceed with the discussion of its legal effects.
Legal Effect of the Application of the
Arbitration Clause
Since there really are no legal impediments to the application of the
arbitration clause of the 2005 Contract of Lease in this case, We find
that the instant unlawful detainer action was instituted in violation of
such clause. The Law, therefore, should have governed the fate of the
parties and this suit:
ADR CASES LAST BATCH
R.A. No. 876 Section 7. Stay of civil action. - If any suit or proceeding be
brought upon an issue arising out of an agreement providing for the
arbitration thereof, the court in which such suit or proceeding is
pending, upon being satisfied that the issue involved in such suit or
proceeding is referable to arbitration, shall stay the action or
proceeding until an arbitration has been had in accordance with the
terms of the agreement: Provided, That the applicant for the stay is not
in default in proceeding with such arbitration.[Emphasis supplied]
R.A. No. 9285
Section 24. Referral to Arbitration. - A court before which an action is
brought in a matter which is the subject matter of an arbitration
agreement shall, if at least one party so requests not later that the pre-
trial conference, or upon the request of both parties thereafter, refer
the parties to arbitration unless it finds that the arbitration agreement
is null and void, in operative or incapable of being performed.
[Emphasis supplied]
It is clear that under the law, the instant unlawful detainer action
should have been stayed;101 the petitioner and the respondent should
have been referred to arbitration pursuant to the arbitration clause of
the 2005 Lease Contract . The MeTC, however, did not do so in violation
of the lawwhich violation was, in turn, affirmed by the RTC and Court
of Appeals on appeal.
The violation by the MeTC of the clear directives under R.A. Nos.876
and 9285 renders invalid all proceedings it undertook in the ejectment
case after the filing by petitioner of its Answer with Counterclaim the
point when the petitioner and the respondent should have been
referred to arbitration. This case must, therefore, be remanded to the
MeTC and be suspended at said point. Inevitably, the decisions of the
MeTC, RTC and the Court of Appeals must all be vacated and set aside.
The petitioner and the respondent must then be referred to arbitration
pursuant to the arbitration clause of the 2005 Lease Contract.
This Court is not unaware of the apparent harshness of the Decision
that it is about to make. Nonetheless, this Court must make the same if
only to stress the point that, in our jurisdiction, bona fide arbitration
agreements are recognized as valid;102 and that laws,103 rules and
regulations104 do exist protecting and ensuring their enforcement as a
matter of state policy. Gone should be the days when courts treat
otherwise valid arbitration agreements with disdain and hostility, if not
outright " jealousy,"105 and then get away with it. Courts should instead
learn to treat alternative means of dispute resolution as effective
partners in the administration of justice and, in the case of arbitration
agreements, to afford them judicial restraint.106 Today, this Court only
performs its part in upholding a once disregarded state policy.
Civil Case No. CV 09-0346
This Court notes that, on 30 September 2009, petitioner filed with the
RTC of Paraaque City, a complaint107 for the rescission or cancellation
of the Deed of Donation and Amended Deed of Donation against the
respondent. The case is currently pending before Branch 257 of the
RTC, docketed as Civil Case No. CV 09-0346.
This Court recognizes the great possibility that issues raised in Civil
Case No. CV 09-0346 may involve matters that are rightfully arbitrable
per the arbitration clause of the 2005 Lease Contract. However, since
the records of Civil Case No. CV 09-0346 are not before this Court, We
can never know with true certainty and only speculate. In this light, let
a copy of this Decision be also served to Branch 257of the RTC of
Paraaque for its consideration and, possible, application to Civil Case
No. CV 09-0346.
WHEREFORE, premises considered, the petition is hereby GRANTED .
Accordingly, We hereby render a Decision:
1. SETTING ASIDE all the proceedings undertaken by the
Metropolitan Trial Court, Branch 77, of Paraaque City in
relation to Civil Case No. 2009-307 after the filing by petitioner
of its Answer with Counterclaim ;
ADR CASES LAST BATCH
2. REMANDING the instant case to the MeTC, SUSPENDED at
the point after the filing by petitioner of its Answer with
Counterclaim;
3. SETTING ASIDE the following:
a. Decision dated 19 August 2011 of the Court of
Appeals in C.A.-G.R. SP No. 116865,
b. Decision dated 29 October 2010 of the Regional
Trial Court, Branch 274, of Paraaque City in Civil Case
No. 10-0255,
c. Decision dated 27 April 2010 of the Metropolitan
Trial Court, Branch 77, of Paraaque City in Civil Case
No. 2009-307; and
4. REFERRING the petitioner and the respondent to arbitration
pursuant to the arbitration clause of the 2005 Lease Contract,
repeatedly included in the 2000 Lease Contract and in the
1976 Amended Deed of Donation.
Let a copy of this Decision be served to Branch 257 of the RTC of
Paraaque for its consideration and, possible, application to Civil Case
No. CV 09-0346. No costs. SO ORDERED.
G.R. No. 212081 February 23, 2015
DENR vs. UNITED PLANNERS CONSULTANTS , INC. (UPCI)
On July 26, 1993, petitioner, through the Land Management Bureau
(LMB), entered into an Agreement for Consultancy
Services3 (Consultancy Agreement) with respondent United Planners
Consultants, Inc. (respondent) in connection with the LMB' s Land
Resource Management Master Plan Project (LRMMP).4 Under the
Consultancy Agreement, petitioner committed to pay a total contract
price of P4,337,141.00, based on a predetermined percentage
corresponding to the particular stage of work accomplished.5
In December 1994, respondent completed the work required, which
petitioner formally accepted on December 27, 1994.6 However,
petitioner was able to pay only 47% of the total contract price in the
amount of P2,038,456.30.7
On October 25, 1994, the Commission on Audit (COA) released the
Technical Services Office Report8 (TSO) finding the contract price of the
Agreement to be 84.14% excessive.9 This notwithstanding, petitioner,
in a letter dated December 10, 1998, acknowledged its liability to
respondent in the amount of P2,239,479.60 and assured payment at the
soonest possible time.10
For failure to pay its obligation under the Consultancy Agreement
despite repeated demands, respondent instituted a Complaint11 against
petitioner before the Regional Trial Court of Quezon City, Branch 222
(RTC), docketed as Case No. Q-07-60321.12
Upon motion of respondent, the case was subsequently referred to
arbitration pursuant to the arbitration clause of the Consultancy
Agreement,13 which petitioner did not oppose.14 As a result, Atty.
Alfredo F. Tadiar, Architect Armando N. Alli, and Construction Industry
Arbitration Commission (CIAC) Accredited Arbitrator Engr. Ricardo B.
San Juan were appointed as members of the Arbitral Tribunal. The
court-referred arbitration was then docketed as Arbitration Case No. A-
001.15
During the preliminary conference, the parties agreed to adopt the
CIAC Revised Rules Governing Construction Arbitration16 (CIAC Rules)
to govern the arbitration proceedings.17 They further agreed to submit
their respective draft decisions in lieu of memoranda of arguments on
or before April 21, 2010, among others.18
On the due date for submission of the draft decisions, however, only
respondent complied with the given deadline,19while petitioner moved
for the deferment of the deadline which it followed with another
motion for extension of time, asking that it be given until May 11, 2010
to submit its draft decision.20
ADR CASES LAST BATCH
In an Order21 dated April 30, 2010, the Arbitral Tribunal denied
petitioners motions and deemed its non-submission as a waiver, but
declared that it would still consider petitioners draft decision if
submitted before May 7, 2010, or the expected date of the final awards
promulgation.22 Petitioner filed its draft decision23 only on May 7, 2010.
The Arbitral Tribunal rendered its Award24 dated May 7, 2010 (Arbitral
Award) in favor of respondent, directing petitioner to pay the latter the
amount of (a) P2,285,089.89 representing the unpaid progress billings,
with interest at the rate of 12% per annum from the date of finality of
the Arbitral Award upon confirmation by the RTC until fully paid;
(b) P2,033,034.59 as accrued interest thereon; (c) P500,000.00 as
exemplary damages; and (d) P150,000.00 as attorneys fees.25 It also
ordered petitioner to reimburse respondent its proportionate share in
the arbitration costs as agreed upon in the amount of P182,119.44.26
Unconvinced, petitioner filed a motion for reconsideration,27 which the
Arbitral Tribunal merely noted without any action, claiming that it had
already lost jurisdiction over the case after it had submitted to the RTC
its Report together with a copy of the Arbitral Award.28
Consequently, petitioner filed before the RTC a Motion for
Reconsideration29 dated May 19, 2010 (May 19, 2010 Motion for
Reconsideration)and a Manifestation and Motion30 dated June 1, 2010
(June 1, 2010 Manifestation and Motion), asserting that it was denied
the opportunity to be heard when the Arbitral Tribunal failed to
consider its draft decision and merely noted its motion for
reconsideration.31 It also denied receiving a copy of the Arbitral Award
by either electronic or registered mail.32 For its part, respondent filed
an opposition thereto and moved for the confirmation33 of the Arbitral
Award in accordance with the Special Rules of Court on Alternative
Dispute Resolution (Special ADR Rules).34
In an Order35 dated March 30, 2011, the RTC merely noted petitioners
aforesaid motions, finding that copies of the Arbitral Award appear to
have been sent to the parties by the Arbitral Tribunal, including the
OSG, contrary to petitioners claim. Onthe other hand, the RTC
confirmed the Arbitral Award pursuant to Rule 11.2 (A)36 of the Special
ADR Rules and ordered petitioner to pay respondent the costs of
confirming the award, as prayed for, in the total amount of P50,000.00.
From this order, petitioner did not file a motion for reconsideration.
Thus, on June 15, 2011, respondent moved for the issuance of a writ of
execution, to which no comment/opposition was filed by petitioner
despite the RTCs directive therefor. In an Order37 dated September 12,
2011, the RTC granted respondents motion.38
Petitioner moved to quash39 the writ of execution, positing that
respondent was not entitled to its monetary claims. It also claimed that
the issuance of said writ was premature since the RTC should have first
resolved its May 19, 2010 Motion for Reconsideration and June 1, 2010
Manifestation and Motion, and not merely noted them, thereby
violating its right to due process.40
The RTC Ruling
In an Order41 dated July 9, 2012, the RTC denied petitioners motion to
quash.
It found no merit in petitioners contention that it was denied due
process, ruling that its May 19, 2010 Motion for Reconsideration was a
prohibited pleading under Section 17.2,42 Rule 17 of the CIAC Rules. It
explained that the available remedy to assail an arbitral award was to
file a motion for correction of final award pursuant to Section 17.143 of
the CIAC Rules, and not a motion for reconsideration of the said award
itself.44 On the other hand, the RTC found petitioners June 1, 2010
Manifestation and Motion seeking the resolution of its May 19, 2010
Motion for Reconsideration to be defective for petitioners failure to
observe the three day notice rule.45 Having then failed to avail of the
remedies attendant to an order of confirmation, the Arbitral Award had
become final and executory.46
On July 12, 2012, petitioner received the RTCs Order dated July 9, 2012
denying its motion to quash.47
Dissatisfied, it filed on September 10, 2012a petition for
certiorari48 before the CA, docketed as CA-G.R. SP No. 126458, averring
ADR CASES LAST BATCH
in the main that the RTC acted with grave abuse of discretion in
confirming and ordering the execution of the Arbitral Award.
The CA Ruling
In a Decision49 dated March 26, 2014, the CA dismissed the certiorari
petition on two (2) grounds, namely: (a) the petition essentially
assailed the merits of the Arbitral Award which is prohibited under
Rule 19.750 of the Special ADR Rules;51 and (b) the petition was filed out
of time, having been filed way beyond 15 days from notice of the RTCs
July 9, 2012 Order, in violation of Rule 19.2852 in relation to Rule
19.853 of said Rules which provide that a special civil action for
certiorari must be filed before the CA within 15 days from notice of the
judgment, order, or resolution sought to be annulled or set aside (or
until July 27, 2012). Aggrieved, petitioner filed the instant petition.
The Issue Before the Court
The core issue for the Courts resolution is whether or not the CA erred
in applying the provisions of the Special ADR Rules, resulting in the
dismissal of petitioners special civil action for certiorari.
The Courts Ruling
The petition lacks merit.
I. Republic Act No. (RA) 9285,54 otherwise known as the Alternative
Dispute Resolution Act of 2004," institutionalized the use of an
Alternative Dispute Resolution System (ADR System)55 in the
Philippines. The Act, however, was without prejudice to the adoption
by the Supreme Court of any ADR system as a means of achieving
speedy and efficient means of resolving cases pending before all courts
in the Philippines.56
Accordingly, A.M. No. 07-11-08-SC was created setting forth the Special
Rules of Court on Alternative Dispute Resolution (referred herein as
Special ADR Rules) that shall govern the procedure to be followed by
the courts whenever judicial intervention is sought in ADR proceedings
in the specific cases where it is allowed.57
Rule 1.1 of the Special ADR Rules lists down the instances when the
said rules shall apply, namely: "(a) Relief on the issue of Existence,
Validity, or Enforceability of the Arbitration Agreement; (b) Referral to
Alternative Dispute Resolution ("ADR"); (c) Interim Measures of
Protection; (d) Appointment of Arbitrator; (e) Challenge to
Appointment of Arbitrator; (f) Termination of Mandate of Arbitrator;
(g) Assistance in Taking Evidence; (h) Confirmation, Correction or
Vacation of Award in Domestic Arbitration; (i) Recognition and
Enforcement or Setting Aside of an Award in International Commercial
Arbitration; (j) Recognition and Enforcement of a Foreign Arbitral
Award; (k) Confidentiality/Protective Orders; and (l) Deposit and
Enforcement of Mediated Settlement Agreements."58
Notably, the Special ADR Rules do not automatically govern the
arbitration proceedings itself. A pivotal feature of arbitration as an
alternative mode of dispute resolution is that it is a product of party
autonomy or the freedom of the parties to make their own
arrangements to resolve their own disputes.59 Thus, Rule 2.3 of the
Special ADR Rules explicitly provides that "parties are free to agree on
the procedure to be followed in the conduct of arbitral proceedings.
Failing such agreement, the arbitral tribunal may conduct arbitration in
the manner it considers appropriate."60
In the case at bar, the Consultancy Agreement contained an arbitration
clause.61 Hence, respondent, after it filed its complaint, moved for its
referral to arbitration62 which was not objected to by petitioner.63 By
its referral to arbitration, the case fell within the coverage of the Special
ADR Rules. However, with respect to the arbitration proceedings itself,
the parties had agreed to adopt the CIAC Rules before the Arbitral
Tribunal in accordance with Rule 2.3 of the Special ADR Rules.
On May 7, 2010, the Arbitral Tribunal rendered the Arbitral Award in
favor of respondent. Under Section 17.2, Rule 17 of the CIAC Rules, no
motion for reconsideration or new trial may be sought, but any of the
parties may file a motion for correction64 of the final award, which shall
interrupt the running of the period for appeal,65 based on any of the
ADR CASES LAST BATCH
following grounds, to wit: a. an evident miscalculation of figures, a
typographical or arithmetical error;
b. an evident mistake in the description of any party, person,
date, amount, thing or property referred to in the award;
c. where the arbitrators have awarded upon a matter not
submitted to them, not affecting the merits of the decision
upon the matter submitted;
d. where the arbitrators have failed or omitted to resolve
certain issue/s formulated by the parties in the Terms of
Reference (TOR) and submitted to them for resolution, and
e. where the award is imperfect in a matter of form not
affecting the merits of the controversy.
The motion shall be acted upon by the Arbitral Tribunal or the
surviving/remaining members.66
Moreover, the parties may appeal the final award to the CA through a
petition for review under Rule43 of the Rules of Court.67
Records do not show that any of the foregoing remedies were availed of
by petitioner. Instead, it filed the May 19, 2010 Motion for
Reconsideration of the Arbitral Award, which was a prohibited
pleading under the Section 17.2,68Rule 17 of the CIAC Rules, thus
rendering the same final and executory.
Accordingly, the case was remanded to the RTC for confirmation
proceedings pursuant to Rule 11 of the Special ADR Rules which
requires confirmation by the court of the final arbitral award. This is
consistent with Section 40, Chapter 7 (A) of RA 9285 which similarly
requires a judicial confirmation of a domestic award to make the same
enforceable:
SEC. 40. Confirmation of Award. The confirmation of a domestic
arbitral award shall be governed by Section 2369of R.A. 876.70
A domestic arbitral award when confirmed shall be enforced in the
same manner as final and executory decisions of the regional trial
court.
The confirmation of a domestic award shall be made by the regional
trial court in accordance with the Rules of Procedure to be promulgated
by the Supreme Court.
A CIAC arbitral award need not be confirmed by the regional trial court
to be executory as provided under E.O. No. 1008. (Emphases supplied)
During the confirmation proceedings, petitioners did not oppose the
RTCs confirmation by filing a petition to vacate the Arbitral Award
under Rule 11.2 (D)71 of the Special ADR Rules. Neither did it seek
reconsideration of the confirmation order in accordance with Rule 19.1
(h) thereof. Instead, petitioner filed only on September 10, 2012 a
special civil action for certiorari before the CA questioning the
propriety of (a) the RTC Order dated September 12, 2011 granting
respondents motion for issuance of a writ of execution, and (b) Order
dated July 9,2012 denying its motion to quash. Under Rule 19.26 of the
Special ADR Rules, "[w]hen the Regional Trial Court, in making a ruling
under the Special ADR Rules, has acted without or in excess of its
jurisdiction, or with grave abuse of discretion amounting to lack or
excess of jurisdiction, and there is no appeal or any plain, speedy, and
adequate remedy in the ordinary course of law, a party may file a
special civil action for certiorari to annul or set aside a ruling of the
Regional Trial Court." Thus, for failing to avail of the foregoing
remedies before resorting to certiorari, the CA correctly dismissed its
petition.
II.
Note that the special civil action for certiorari described in Rule 19.26
above may be filed to annul or set aside the following orders of the
Regional Trial Court.
a. Holding that the arbitration agreement is in existent, invalid
or unenforceable;
ADR CASES LAST BATCH
b. Reversing the arbitral tribunals preliminary determination
upholding its jurisdiction;
c. Denying the request to refer the dispute to arbitration;
d. Granting or refusing an interim relief;
e. Denying a petition for the appointment of an arbitrator;
f. Confirming, vacating or correcting a domestic arbitral award;
g. Suspending the proceedings to set aside an international
commercial arbitral award and referring the case back to the
arbitral tribunal;
h. Allowing a party to enforce an international commercial
arbitral award pending appeal;
i. Adjourning or deferring a ruling on whether to set aside,
recognize and or enforce an international commercial arbitral
award;
j. Allowing a party to enforce a foreign arbitral award pending
appeal; and
k. Denying a petition for assistance in taking evidence.
(Emphasis supplied)
Further, Rule 19.772 of the Special ADR Rules precludes a party to an
arbitration from filing a petition for certiorari questioning the merits of
an arbitral award.
If so falling under the above-stated enumeration, Rule 19.28 of the
Special ADR Rules provide that said certiorari petition should be filed
"with the [CA] within fifteen (15) days from notice of the judgment,
order or resolution sought to be annulled or set aside. No extension of
time to file the petition shall be allowed."
In this case, petitioner asserts that its petition is not covered by the
Special ADR Rules (particularly, Rule 19.28 on the 15-day reglementary
period to file a petition for certiorari) but by Rule 65 of the Rules of
Court (particularly, Section 4 thereof on the 60-day reglementary
period to file a petition for certiorari), which it claimed to have
suppletory application in arbitration proceedings since the Special ADR
Rules do not explicitly provide for a procedure on execution. The
position is untenable.
Execution is fittingly called the fruit and end of suit and the life of the
law. A judgment, if left unexecuted, would be nothing but an empty
victory for the prevailing party.73
While it appears that the Special ADR Rules remain silent on the
procedure for the execution of a confirmed arbitral award, it is the
Courts considered view that the Rules procedural mechanisms cover
not only aspects of confirmation but necessarily extend to a confirmed
awards execution in light of the doctrine of necessary implication
which states that every statutory grant of power, right or privilege is
deemed to include all incidental power, right or privilege. In Atienza v.
Villarosa,74 the doctrine was explained, thus:
No statute can be enacted that can provide all the details involved in its
application.1wphi1 There is always an omission that may not meet a
particular situation. What is thought, at the time of enactment, to be an
all embracing legislation may be inadequate to provide for the
unfolding of events of the future. So-called gaps in the law develop as
the law is enforced. One of the rules of statutory construction used to
fill in the gap is the doctrine of necessary implication. The doctrine
states that what is implied in a statute is as much a part thereof as that
which is expressed. Every statute is understood, by implication, to
contain all such provisions as may be necessary to effectuate its object
and purpose, or to make effective rights, powers, privileges or
jurisdiction which it grants, including all such collateral and subsidiary
consequences as may be fairly and logically inferred from its terms. Ex
necessitate legis. And every statutory grant of power, right or privilege
is deemed to include all incidental power, right or privilege. This is so
because the greater includes the lesser, expressed in the maxim, in eo
plus sit, simper inest et minus.75
ADR CASES LAST BATCH
As the Court sees it, execution is but a necessary incident to the Courts
confirmation of an arbitral award. To construe it otherwise would
result in an absurd situation whereby the confirming court previously
applying the Special ADR Rules in its confirmation of the arbitral award
would later shift to the regular Rules of Procedure come execution.
Irrefragably, a courts power to confirm a judgment award under the
Special ADR Rules should be deemed to include the power to order its
execution for such is but a collateral and subsidiary consequence that
may be fairly and logically inferred from the statutory grant to regional
trial courts of the power to confirm domestic arbitral awards.
All the more is such interpretation warranted under the principle of
ratio legis est anima which provides that a statute must be read
according to its spirit or intent,76 for what is within the spirit is within
the statute although it is not within its letter, and that which is within
the letter but not within the spirit is not within the
statute.77 Accordingly, since the Special ADR Rules are intended to
achieve speedy and efficient resolution of disputes and curb a litigious
culture,78every interpretation thereof should be made consistent with
these objectives.
Thus, with these principles in mind, the Court so concludes that the
Special ADR Rules, as far as practicable, should be made to apply not
only to the proceedings on confirmation but also to the confirmed
awards execution.
Further, let it be clarified that contrary to petitioners stance resort
to the Rules of Court even in a suppletory capacity is not allowed. Rule
22.1 of the Special ADR Rules explicitly provides that "[t]he provisions
of the Rules of Court that are applicable to the proceedings enumerated
in Rule 1.1 of these Special ADR Rules have either been included and
incorporated in these Special ADR Rules or specifically referred to
herein."79 Besides, Rule 1.13 thereof provides that "[i]n situations
where no specific rule is provided under the Special ADR Rules, the
court shall resolve such matter summarily and be guided by the spirit
and intent of the Special ADR Rules and the ADR Laws."
As above-mentioned, the petition for certiorari permitted under the
Special ADR Rules must be filed within a period of fifteen (15) days
from notice of the judgment, order or resolution sought to be annulled
or set aside.80 Hence, since petitioners filing of its certiorari petition in
CA-G.R. SP No. 126458 was made nearly two months after its receipt of
the RTCs Order dated July 9, 2012,or on September 10, 2012,81 said
petition was clearly dismissible.82
III. Discounting the above-discussed procedural considerations, the
Court still finds that the certiorari petition had no merit.
Indeed, petitioner cannot be said to have been denied due process as
the records undeniably show that it was accorded ample opportunity to
ventilate its position. There was clearly nothing out of line when the
Arbitral Tribunal denied petitioners motions for extension to file its
submissions having failed to show a valid reason to justify the same or
in rendering the Arbitral Award sans petitioners draft decision which
was filed only on the day of the scheduled promulgation of final award
on May 7, 2010.83 The touchstone of due process is basically the
opportunity to be heard. Having been given such opportunity,
petitioner should only blame itself for its own procedural blunder.
On this score, the petition for certiorari in CA-G.R. SP No. 126458 was
likewise properly dismissed.
IV. Nevertheless, while the Court sanctions the dismissal by the CA of
the petition for certiorari due to procedural infirmities, there is a need
to explicate the matter of execution of the confirmed Arbitral Award
against the petitioner, a government agency, in the light of Presidential
Decree No. (PD) 144584 otherwise known as the "Government Auditing
Code of the Philippines." Section 26 of PD 1445 expressly provides that
execution of money judgment against the Government or any of its
subdivisions, agencies and instrumentalities is within the primary
jurisdiction of the COA, to wit:
SEC. 26. General jurisdiction. The authority and powers of the
Commission shall extend to and comprehend all matters relating to
auditing procedures, systems and controls, the keeping of the general
accounts of the Government, the preservation of vouchers pertaining
thereto for a period of ten years, the examination and inspection of the
ADR CASES LAST BATCH
books, records, and papers relating to those accounts; and the audit and
settlement of the accounts of all persons respecting funds or property
received or held by them in an accountable capacity, as well as the
examination, audit, and settlement of all debts and claims of any sort
due from or owing to the Government or any of its subdivisions,
agencies and instrumentalities. The said jurisdiction extends to all
government-owned or controlled corporations, including their
subsidiaries, and other self-governing boards, commissions, or agencies
of the Government, and as herein prescribed, including non-
governmental entities subsidized by the government, those funded by
donation through the government, those required to pay levies or
government share, and those for which the government has put up a
counterpart fund or those partly funded by the government.
From the foregoing, the settlement of respondents money claim is still
subject to the primary jurisdiction of the COA despite finality of the
confirmed arbitral award by the RTC pursuant to the Special ADR
Rules.85 Hence, the respondent has to first seek the approval of the COA
of their monetary claim. This appears to have been complied with by
the latter when it filed a "Petition for Enforcement and Payment of
Final and Executory Arbitral Award"86before the COA. Accordingly, it is
now the COA which has the authority to rule on this latter petition.
WHEREFORE, the petition is DENIED. The Decision dated March 26,
2014 of the Court of Appeals in CA-G.R. SP No. 126458 which dismissed
the petition for certiorari filed by petitioner the Department of
Environment and Natural Resources is hereby AFFIRMED. SO
ORDERED.
G.R. No. 220546, December 07, 2016
LUZON IRON DEVELOPMENT GROUP CORPORATION AND
CONSOLIDATED IRON SANDS, LTD. v. BRIDESTONE MINING AND
DEVELOPMENT CORPORATION AND ANACONDA MINING AND
DEVELOPMENT CORPORATION
On October 25, 2012, respondents Bridestone Mining and Development
Corporation (Bridestone) and Anaconda Mining and Development
Corporation (Anaconda) filed separate complaints before the RTC for
rescission of contract and damages against petitioners Luzon Iron
Development Group Corporation (Luzon Iron) and Consolidated Iron
Sands, Ltd. (Consolidated Iron), docketed as Civil Case No. 12-1053 and
Civil Case No. 12-1054, respectively. Both complaints sought the
rescission of the Tenement Partnership and Acquisition Agreement
(TPAA)4 entered into by Luzon Iron and Consolidated Iron, on one
hand, and Bridestone and Anaconda, on the other, for the assignment of
the Exploration Permit Application of the former in favor of the latter.
The complaints also sought the return of the Exploration Permits to
Bridestone and Anaconda.5
Thereafter, Luzon Iron and Consolidated Iron filed their Special
Appearance with Motion to Dismiss6separately against Bridestone's
complaint and Anaconda's complaint. Both motions to dismiss
presented similar grounds for dismissal. They contended that the RTC
could not acquire jurisdiction over Consolidated Iron because it was a
foreign corporation that had never transacted business in the
Philippines. Likewise, they argued that the RTC had no jurisdiction over
the subject matter because of an arbitration clause in the TPAA.
On December 19, 2012, the RTC ordered the consolidation of the two
cases.7 Subsequently, Luzon Iron and Consolidated Iron filed their
Special Appearance and Supplement to Motions to Dismiss,8 dated
January 31, 2013, seeking the dismissal of the consolidated cases. The
petitioners alleged that Bridestone and Anaconda were guilty of forum
shopping because they filed similar complaints before the Department
of Environment and Natural Resources (DENR), Mines and Geosciences
Bureau, Regional Panel of Arbitrators against Luzon Iron.
The RTC Orders
In its March 18, 2013 Order, the RTC denied the motions to dismiss, as
well as the supplemental motion to dismiss, finding that Consolidated
Iron was doing business in the Philippines, with Luzon Iron as its
resident agent. The RTC ruled that it had jurisdiction over the subject
matter because under clause 14.8 of the TPAA, the parties could go
directly to courts when a direct and/or blatant violation of the
provisions of the TPAA had been committed. The RTC also opined that
the complaint filed before the DENR did not constitute forum shopping
ADR CASES LAST BATCH
because there was neither identity of parties nor identity of reliefs
sought.
Luzon Iron and Consolidated Iron moved for reconsideration, but the
RTC denied their motion in its September 18, 2013 Order.
Undaunted, they filed their petition for review with prayer for the
issuance of a writ of preliminary injunction and/or TRO before the CA.
The CA Ruling
In its September 8, 2015 Decision, the CA affirmed the March 18, 2013
and September 18, 2013 RTC Orders in denying the motions to dismiss
and the supplemental motions to dismiss. It agreed that the court
acquired jurisdiction over the person of Consolidated Iron because the
summons may be validly served through its agent Luzon Iron,
considering that the latter was merely the business conduit of the
former. The CA also sustained the jurisdiction of the RTC over the
subject matter opining that the arbitration clause in the TPAA provided
for an exception where parties could directly go to court.
Further, the CA also disregarded the averment of forum shopping,
explaining that in the complaint before the RTC, both Consolidated Iron
and Luzon Iron were impleaded but in the complaint before the DENR
only the latter was impleaded. It stated that there was no identity of
relief and no identity of cause of action.
Hence, this appeal raising the following:
ISSUES
I. WHETHER THE COURT OF APPEALS ERRED IN RULING THAT THE
TRIAL COURT ACQUIRED JURISDICTION OVER THE PERSON OF
CONSOLIDATED IRON;
II. WHETHER THE COURT OF APPEALS ERRED IN RULING THAT
THE TRIAL COURT HAS JURISDICTION OVER THE SUBJECT
MATTER OF THE CONSOLIDATED CASES; AND
III. WHETHER THE COURT OF APPEALS ERRED IN RULING THAT
BRIDESTONE/ANACONDA WERE NOT GUILTY OF FORUM
SHOPPING.9
Petitioners Luzon Iron and Consolidated Iron insist that the RTC has no
jurisdiction over the latter because it is a foreign corporation which is
neither doing business nor has transacted business in the Philippines.
They argue that there could be no means by which the trial court could
acquire jurisdiction over the person of Consolidated Iron under any
mode of service of summons. The petitioners claim that the service of
summons to Consolidated Iron was defective because the mere fact that
Luzon Iron was a wholly-owned subsidiary of Consolidated Iron did not
establish that Luzon Iron was the agent of Consolidated Iron. They
emphasize that Consolidated Iron and Luzon Iron are two distinct and
separate entities.
The petitioners further assert that the trial court had no jurisdiction
over the consolidated cases because of the arbitration clause set forth
in the TPAA. They reiterate that Luzon Iron and Consolidated Iron were
guilty of forum shopping because their DENR complaint contained
similar causes of action and reliefs sought. They stress that the very evil
sought to be prevented by the prohibition on forum shopping had
occurred when the DENR and the RTC issued conflicting orders in
dismissing or upholding the complaints filed before them.
Position of Respondents
In their Comment/Opposition,10 dated January 7, 2016, respondents
Bridestone and Anaconda countered that the RTC validly acquired
jurisdiction over the person of Consolidated Iron. They posited that
Consolidated Iron was doing business in the Philippines as Luzon Iron
was merely its conduit. Thus, they insisted that summons could be
served to Luzon Iron as Consolidated Iron's agent. Likewise, they
denied that they were guilty of forum shopping as the issues and the
reliefs prayed for in the complaints before the RTC and the DENR
differed.
ADR CASES LAST BATCH
Further, the respondents asserted that the trial court had jurisdiction
over the complaints because the TPAA itself allowed a direct resort
before the courts in exceptional circumstances. They cited paragraph
14.8 thereof as basis explaining that when a direct and/or blatant
violation of the TPAA had been committed, a party could go directly to
the courts. They faulted the petitioners in not moving for the referral of
the case for arbitration instead of merely filing a motion to dismiss.
They added that actions that are subject to arbitration agreement were
merely suspended, and not dismissed.
Reply of Petitioners
In their Reply,11 dated April 29, 2016, the petitioners stated that
Consolidated Iron was not necessarily doing business in the Philippines
by merely establishing a wholly-owned subsidiary in the form of Luzon
Iron. Also, they asserted that Consolidated Iron had not been validly
served the summons because Luzon Iron is neither its resident agent
nor its representative in the Philippines. The petitioners explained that
Luzon Iron, as a wholly-owned subsidiary, had a separate and distinct
personality from Consolidated Iron.
The petitioners explained that Paragraph 14.8 of the TPAA should not
be construed as an authority to directly resort to court action in case of
a direct and/or blatant violation of the TPAA because such
interpretation would render the arbitration clause nugatory. They
contended that, even for the sake of argument, the judicial action under
the said provisions was limited to issues or matters which were
inexistent in the present case. They added that a party was not required
to file a formal request for arbitration before an arbitration clause
became operational. Lastly, they insisted that the respondents were
guilty of forum shopping in simultaneously filing complaints before the
trial court and the DENR.
The Court's Ruling
The petition is impressed with merit.
Filing of complaints
before the RTC and the
DENR is forum shopping
Forum shopping is committed when multiple suits involving the same
parties and the same causes of action are filed, either simultaneously or
successively, for the purpose of obtaining a favorable judgment through
means other than appeal or certiorari.12 The prohibition on forum
shopping seeks to prevent the possibility that conflicting decisions will
be rendered by two tribunals.13
In Spouses Arevalo v. Planters Development Bank,14 the Court elaborated
that forum shopping vexed the court and warranted the dismissal of the
complaints. Thus:
Forum shopping is the act of litigants who repetitively avail themselves
of multiple judicial remedies in different fora, simultaneously or
successively, all substantially founded on the same transactions and the
same essential facts and circumstances; and raising substantially
similar issues either pending in or already resolved adversely by some
other court; or for the purpose of increasing their chances of obtaining
a favorable decision, if not in one court, then in another. The rationale
against forum-shopping is that a party should not be allowed to
pursue simultaneous remedies in two different courts, for to do so
would constitute abuse of court processes which tends to degrade
the administration of justice, wreaks havoc upon orderly judicial
procedure, and adds to the congestion of the heavily burdened
dockets of the courts.
xxxx
What is essential in determining the existence of forum-shopping
is the vexation caused the courts and litigants by a party who asks
different courts and/or administrative agencies to rule on similar
or related causes and/or grant the same or substantially similar
reliefs, in the process creating the possibility of conflicting
decisions being rendered upon the same issues.
ADR CASES LAST BATCH
xxxx
We emphasize that the grave evil sought to be avoided by the rule
against forum-shopping is the rendition by two competent tribunals of
two separate and contradictory decisions. To avoid any confusion,
this Court adheres strictly to the rules against forum shopping,
and any violation of these rules results in the dismissal of a
case. The acts committed and described herein can possibly constitute
direct contempt.15[Emphases supplied]
There is forum shopping when the following elements are present: (a)
identity of parties, or at least such parties representing the same
interests in both actions; (b) identity of rights asserted and reliefs
prayed for, the relief being founded on the same facts; and (c) the
identity of the two preceding particulars, such that any judgment
rendered in the other action will, regardless of which party is
successful, amounts to res judicata in the action under
consideration.16 All the above-stated elements are present in the case at
bench.
First, there is identity of parties. In both the complaints before the RTC
and the DENR, Luzon Iron was impleaded as defendant while
Consolidated Iron was only impleaded in the complaint before the RTC.
Even if Consolidated Iron was not impleaded in the DENR complaint,
the element still exists. The requirement is only substantial, and not
absolute, identity of parties; and there is substantial identity of parties
when there is community of interest between a party in the first case
and a party in the second case, even if the latter was not impleaded in
the other case.17 Consolidated Iron and Luzon Iron had a common
interest under the TPAA as the latter was a wholly-owned subsidiary of
the former.
Second, there is identity of causes of action. A reading of the complaints
filed before the RTC and the DENR reveals that they had almost
identical causes of action and they prayed for similar reliefs as they
ultimately sought the return of their respective Exploration Permit on
the ground of the alleged violations of the TPAA committed by the
petitioners.18 In Yap v. Chua,19 the Court ruled that identity of causes of
action did not mean absolute identity.
Hornbook is the rule that identity of causes of action does not mean
absolute identity; otherwise, a party could easily escape the operation
of res judicata by changing the form of the action or the relief
sought. The test to determine whether the causes of action are
identical is to ascertain whether the same evidence will sustain
both actions, or whether there is an identity in the facts essential
to the maintenance of the two actions. If the same facts or evidence
would sustain both, the two actions are considered the same, and a
judgment in the first case is a bar to the subsequent action. Hence,
a party cannot, by varying the form of action or adopting a different
method of presenting his case, escape the operation of the principle
that one and the same cause of action shall not be twice litigated
between the same parties or their privies. xxx20
In the case at bench, both complaints filed before
different fora involved similar facts and issues, the resolution of which
depends on analogous evidence. Thus, the filing of two separate
complaints by the petitioners with the RTC and the DENR clearly
constitutes forum shopping.
It is worth noting that the very evil which the prohibition against forum
shopping sought to prevent had happenedthe RTC and the DENR had
rendered conflicting decisions. The trial court ruled that it had
jurisdiction notwithstanding the arbitration clause in the TPAA. On the
other hand, the DENR found that it was devoid of jurisdiction because
the matter was subject to arbitration.
Summons were not
validly served
Section 12 of Rule 14 of the Revised Rules of Court provides that
"[w]hen the defendant is a foreign private juridical entity which
has transacted business in the Philippines, service may be made on
its resident agent designated in accordance with law for that purpose,
or, if there be no such agent, on the government official designated by
law to that effect, or on any of its officers or agents within the
Philippines."
ADR CASES LAST BATCH
The Rule on Summons, as it now reads, thus, makes the question
whether Consolidated Iron was "doing business in the Philippines"
irrelevant as Section 12, Rule 14 of the Rules of Court was broad
enough to cover corporations which have "transacted business in the
Philippines."
In fact, under the present legal milieu, the rules on service of summons
on foreign private juridical entities had been expanded as it recognizes
additional modes by which summons may be served. A.M No. 11-3-6-
SC21 thus provides:
Section 12. Rule 14 of the Rules of Court is hereby amended to read as
follows:
"SEC. 12. Service upon foreign private juridical entity. When the
defendant is a foreign private juridical entity which has transacted
business in the Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or, if there be no
such agent, on the government official designated by law to that effect,
or on any of its officers or agents within the Philippines.
If the foreign private juridical entity is not registered in the Philippines
or has no resident agent, service may, with leave of court, be effected
out of the Philippines through any of the following means:
a) By personal service coursed through the appropriate court in the
foreign country with the assistance of the Department of Foreign
Affairs;
b) By publication once in a newspaper of general circulation in the
country where the defendant may be found and by serving a copy of the
summons and the court order by registered mail at the last known
address of the defendant;
c) By facsimile or any recognized electronic means that could generate
proof of service; or
d) By such other means as the court may in its discretion direct."
The petitioners are mistaken in arguing that it cannot be served
summons because under Section 15, Rule 14 of the Rules of Court,
extrajudicial service of summons may be resorted to only when the
action is in rem or quasi in rem and not when the action is in personam.
The premise of the petitioners is erroneous as the rule on
extraterritorial service of summons provided in Section 15, Rule 14 of
the Rules of Court is a specific provision dealing precisely with the
service of summons on a defendant which does not reside and is not
found in the Philippines. On the other hand, Section 12, Rule 14 thereof,
specifically applies to a defendant foreign private juridical entity which
had transacted business in the Philippines. Both rules may provide for
similar modes of service of summons, nevertheless, they should only be
applied in particular cases, with one applicable to defendants which do
not reside and are not found in the Philippines and the other to foreign
private juridical entities which had transacted business in the
Philippines.
In the case at bench, it is crystal clear that Consolidated Iron transacted
business in the Philippines as it was a signatory in the TPAA that was
executed in Makati. Hence, as the respondents argued, it may be served
with the summons in accordance with the modes provided under
Section 12, Rule 14 of the Rules of Court.
In Atiko Trans, Inc. v. Prudential Guarantee and Assurance, Inc.,23 the
Court elucidated on the means by which summons could be served on a
foreign juridical entity, to wit:
On this score, we find for the petitioners. Before it was amended by
A.M. No. 11-3-6-SC, Section 12 of Rule 14 of the Rules of Court reads:
SEC. 12. Service upon foreign private juridical entity. When the
defendant is a foreign private juridical entity which has transacted
business in the Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or, if there be no
such agent, on the government official designated by law to that effect,
or on any of its officers or agents within the Philippines.
ADR CASES LAST BATCH
Elucidating on the above provision of the Rules of Court, this Court
declared in Pioneer International, Ltd. v. Guadiz, Jr. that when the
defendant is a foreign juridical entity, service of summons maybe made
upon:
1. Its resident agent designated in accordance with
law for that purpose;chanrobleslaw
2. The government official designated by law to receive
summons if the corporation does not have a resident
agent; or,
3. Any of the corporation's officers or agents within
the Philippines.24
The Court, however, finds that Consolidated Iron was not properly
served with summons through any of the permissible modes under the
Rules of Court. Indeed, Consolidated Iron was served with summons
through Luzon Iron. Such service of summons, however, was defective.
It is undisputed that Luzon Iron was never registered before the
Securities and Exchange Commission (SEC) as Consolidated Iron's
resident agent. Thus, the service of summons to Consolidated Iron
through Luzon Iron cannot be deemed a service to a resident
agent25cralawred under the first mode of service.
Likewise, the respondents err in insisting that Luzon Iron could be
served summons as an agent of Consolidated Iron, it being a wholly-
owned subsidiary of the latter. The allegations in the complaint must
clearly show a connection between the principal foreign corporation
and its alleged agent corporation with respect to the transaction in
question as a general allegation of agency will not suffice.26 In other
words, the allegations of the complaint taken as whole should be able to
convey that the subsidiary is but a business conduit of the principal or
that by reason of fraud, their separate and distinct personality should
be disregarded.27 A wholly-owned subsidiary is a distinct and separate
entity from its mother corporation and the fact that the latter exercises
control over the former does not justify disregarding their separate
personality. It is true that under the TPAA, Consolidated Iron wielded
great control over the actions of Luzon Iron under the said agreement.
This, nonetheless, does not warrant the conclusion that Luzon Iron was
a mere conduit of Consolidated Iron.
In the case at bench, the complaint merely contained a general
statement that Luzon Iron was the resident agent of Consolidated Iron,
and that it was a wholly-owned subsidiary of the latter. There was no
allegation showing that Luzon Iron was merely a business conduit of
Consolidated Iron, or that the latter exercised control over the former
to the extent that their separate and distinct personalities should be set
aside. Thus, Luzon Iron cannot be deemed as an agent of Consolidated
Iron in connection with the third mode of service of summons.
To reiterate, the Court did not acquire jurisdiction over Consolidated
Iron because the service of summons, coursed through Luzon Iron, was
defective. Luzon Iron was neither the resident agent nor the conduit or
agent of Consolidated Iron.
On the abovementioned procedural issues alone, the dismissal of the
complaints before the RTC was warranted. Even granting that the
complaints were not procedurally defective, there still existed enough
reason for the trial court to refrain from proceeding with the case.
Controversy must be
referred for arbitration
The petitioners insisted that the RTC had no jurisdiction over the
subject matter because under Paragraph 15.1 of the TPAA, any dispute
out of or in connection with the TPAA must be resolved by arbitration.
The said provision provides:
If, for any reasonable reason, the Parties cannot resolve a material fact,
material event or any dispute arising out of or in connection with this
TPAA, including any question regarding its existence, validity or
termination, within 90 days from its notice, shall be referred to and
finally resolved by arbitration in Singapore in accordance with the
Arbitration Rules of the Singapore International Arbitration Centre
ADR CASES LAST BATCH
("SIAC Rules") for the time being in force, which rules are deemed to be
incorporated by reference in this clause 15.1.30
The RTC, as the CA agreed, countered that Paragraph 14.8 of the TPAA
allowed the parties to directly resort to courts in case of a direct and/or
blatant violation of the provisions of the TPAA. Paragraph 14.8 stated:
Each Party agrees not to commence or procure the commencement of
any challenge or claim, action, judicial or legislative enquiry, review or
other investigation into the sufficiency, validity, legality or
constitutionality of (i) the assignments of the Exploration Permit
Applications(s) (sic) to LIDGC, (ii) any other assignments contemplated
by this TPAA, and/or (iii) or (sic) any agreement to which the
Exploration Permit Application(s) may be converted, unless a direct
and/or blatant violation of the provisions of the TPAA has been
committed.31
In Bases Conversion Development Authority v. DMCI Project Developers,
Inc.,32 the Court emphasized that the State favored arbitration, to wit:
The state adopts a policy in favor of arbitration. Republic Act No.
9285 expresses this policy:
SEC. 2. Declaration of Policy. It is hereby declared the policy of the
State to actively promote party autonomy in the resolution of disputes
or the freedom of the parties to make their own arrangements to
resolve their disputes. Towards this end, the State shall encourage
and actively promote the use of Alternative Dispute Resolution
(ADR) as an important means to achieve speedy and impartial
justice and declog court dockets. As such, the State shall provide
means for the use of ADR as an efficient tool and an alternative
procedure for the resolution of appropriate cases. Likewise, the
State shall enlist active private sector participation in the settlement of
disputes through ADR. This Act shall be without prejudice to the
adoption by the Supreme Court of any ADR system, such as mediation,
conciliation, arbitration, or any combination thereof as a means of
achieving speedy and efficient means of resolving cases pending before
all courts in the Philippines which shall be governed by such rules as
the Supreme Court may approve from time to time.
Our policy in favor of party autonomy in resolving disputes has
been reflected in our laws as early as 1949 when our Civil Code
was approved. Republic Act No. 876 later explicitly recognized the
validity and enforceability of parties' decision to submit disputes and
related issues to arbitration.
Arbitration agreements are liberally construed in favor of
proceeding to arbitration. We adopt the interpretation that would
render effective an arbitration clause if the terms of the
agreement allow for such interpretation.33
Thus, consistent with the state policy of favoring arbitration, the
present TPAA must be construed in such a manner that would give life
to the arbitration clause rather than defeat it, if such interpretation is
permissible. With this in mind, the Court views the interpretation
forwarded by the petitioners as more in line with the state policy
favoring arbitration.
Paragraphs 14.8 and 15.1 of the TPAA should be harmonized in such a
way that the arbitration clause is given life, especially since such
construction is possible in the case at bench. A synchronized reading of
the abovementioned TPAA provisions will show that a claim or action
raising the sufficiency, validity, legality or constitutionality of: (a) the
assignments of the EP to Luzon Iron; (b) any other assignments
contemplated by the TPAA; or (c) any agreement to which the EPs may
be converted, may be instituted only when there is a direct and/or
blatant violation of the TPAA. In turn, the said action or claim is
commenced by proceeding with arbitration, as espoused in the TPAA.
The Court disagrees with the respondents that Paragraph 14.8 of the
TPAA should be construed as an exception to the arbitration clause
where direct court action may be resorted to in case of direct and/or
blatant violation of the TPAA occurs. If such interpretation is to be
espoused, the arbitration clause would be rendered inutile as
ADR CASES LAST BATCH
practically all matters may be directly brought before the courts. Such
construction is anathema to the policy favoring arbitration.
A closer perusal of the TPAA will also reveal that paragraph 14 and all
its sub-paragraphs are general provisions, whereas paragraphs 15 and
all its sub-clauses specifically refer to arbitration. When general and
specific provisions are inconsistent, the specific provision shall be
paramount and govern the general provision.34
The petitioners' failure to refer the case for arbitration, however, does
not render the arbitration clause in the TPAA inoperative. In Koppel,
Inc. v. Makati Rotary Club Foundation, Inc. (Koppel),35 the Court
explained that an arbitration clause becomes operative,
notwithstanding the lack of a formal request, when a party has
appraised the trial court of the existence of an arbitration clause, viz:
xxx The operation of the arbitration clause in this case is not at all
defeated by the failure of the petitioner to file a formal "request"
or application therefor with the MeTC. We find that the filing of
a "request" pursuant to Section 24 of R.A. No. 9285 is not the sole
means by which an arbitration clause may be validly invoked in a
pending suit.
Section 24 of R.A. No. 9285 reads:
SEC. 24. Referral to Arbitration. A court before which an action is
brought in a matter which is the subject matter of an arbitration
agreement shall, if at least one party so requests not later that the pre-
trial conference, or upon the request of both parties thereafter, refer
the parties to arbitration unless it finds that the arbitration agreement
is null and void, inoperative or incapable of being performed.
The "request" referred to in the above provision is, in turn,
implemented by Rules 4.1 to 4.3 of A.M. No. 07-11-08-SC or the Special
Rules of Court on Alternative Dispute Resolution (Special ADR Rules):
RULE 4: REFERRAL TO ADR
Rule 4.1. Who makes the request. A party to a pending action filed in
violation of the arbitration agreement, whether contained in an
arbitration clause or in a submission agreement, may request the court
to refer the parties to arbitration in accordance with such agreement.
xxxx
Attention must be paid, however, to the salient wordings of Rule 4.1. It
reads: "[a] party to a pending action filed in violation of the arbitration
agreement xxx may request the court to refer the parties to arbitration in
accordance with such agreement."
In using the word "may" to qualify the act of filing a "request"
under Section 24 of R.A. No. 9285, the Special ADR Rules clearly
did not intend to limit the invocation of an arbitration agreement
in a pending suit solely via such "request." After all, non-compliance
with an arbitration agreement is a valid defense to any offending suit
and, as such, may even be raised in an answer as provided in our
ordinary rules of procedure.
In this case, it is conceded that petitioner was not able to file a separate
"request" of arbitration before the MeTC. However, it is equally
conceded that the petitioner, as early as in its Answer with
Counterclaim, had already apprised the MeTC of the existence of
the arbitration clause in the 2005 Lease Contract and, more
significantly, of its desire to have the same enforced in this case. This
act of petitioner is enough valid invocation of his right to arbitrate.
xxx36 [Emphases supplied; italics in the original]
It is undisputed that the petitioners Luzon Iron and Consolidated Iron
never made any formal request for arbitration. As expounded in Koppel,
however, a formal request is not the sole means of invoking an
arbitration clause in a pending suit. Similar to the said case, the
petitioners here made the RTC aware of the existence of the arbitration
clause in the TPAA as they repeatedly raised this as an issue in all their
motions to dismiss. As such, it was enough to activate the arbitration
clause and, thus, should have alerted the RTC in proceeding with the
case.
ADR CASES LAST BATCH
Moreover, judicial restraint should be exercised pursuant to the
competence-competence principle embodied in Rule 2.4 of the Special
Rules of Court on Alternative Dispute Resolution.37 The said provision
reads:
RULE 2.4. Policy Implementing Competence-Competence Principle.
The arbitral tribunal shall be accorded the first opportunity or
competence to rule on the issue of whether or not it has the
competence or jurisdiction to decide a dispute submitted to it for
decision, including any objection with respect to the existence or
validity of the arbitration agreement. When a court is asked to rule
upon issue/s affecting the competence or jurisdiction of an
arbitral tribunal in a dispute brought before it, either before or
after the arbitral tribunal is constituted, the court must exercise
judicial restraint and defer to the competence or jurisdiction of
the arbitral tribunal by allowing the arbitral tribunal the first
opportunity to rule upon such issues.
Where the court is asked to make a determination of whether the
arbitration agreement is null and void, inoperative or incapable of
being performed, under this policy of judicial restraint, the court must
make no more than a prima facie determination of that issue.
Unless the court, pursuant to such prima facie determination, concludes
that the arbitration agreement is null and void, inoperative or incapable
of being performed, the court must suspend the action before it and
refer the parties to arbitration pursuant to the arbitration agreement.
[Emphasis supplied]
Generally, the action of the court is stayed if the matter raised before it
is subject to arbitration.38 In the case at bench, however, the complaints
filed before the RTC should have been dismissed considering that the
petitioners were able to establish the ground for their dismissal, that is,
violating the prohibition on forum shopping. The parties, nevertheless,
are directed to initiate arbitration proceedings as provided under
Paragraph 15.1 of the TPAA.
WHEREFORE, the petition is GRANTED. The September 8, 2015
Decision of the Court of Appeals in CA-G.R. SP No. 133296, affirming the
March 18, 2013 and September 18, 2013 Orders of the Regional Trial
Court, Branch 59, Makati City, is hereby SET ASIDE. The complaints in
Civil Case Nos. 12-1053 and 12-1054 are DISMISSED. The parties,
however, are ORDERED to commence arbitration proceedings
pursuant to Paragraph 15.1 of the Tenement Partnership and
Acquisition Agreement. SO ORDERED.
G.R. No. 216600
FEDERAL EXPRESS CORPORATION and RHICKE S. JENNINGS vs.
AIRFREIGHT 2100, INC. and ALBERTO D. LINA
FedEx is a foreign corporation doing business in the Philippines
primarily engaged in international air carriage, logistics and freight
forwarding, while Jennings serves as its Managing Director for the
Philippines and Indonesia. Respondent Airfreight 2100 (Air21) is a
domestic corporation likewise involved in the freight forwarding
business, while Alberto Lina (Lina) is the Chairman of its Board of
Directors.
The Antecedents
FedEx, having lost its International Freight Forwarder's (IFF) license to
engage in international freight forwarding in the Philippines, executed
various Global Service Program (GSP) contracts with Air2l, an
independent contractor, to primarily undertake its delivery and pick-up
services within the country.4
Under the GSP arrangement, the packages sent by FedEx customers
from abroad would be picked up at a Philippine airport and delivered
by Air21 to its respective consignees. Conversely, packages from
Philippine clients would be delivered by Air21 to the airport and
turned over to FedEx for shipment to consignees abroad. As stipulated
in the GSP contracts, Air21 guaranteed that all shipments would be
cleared through customs in accordance with Philippine law. In the
implementation of these contracts, however, several issues relating to
ADR CASES LAST BATCH
money remittance, value-added taxes, dynamic fuel charge, trucking
costs, interests, and penalties ensued between the parties.
On May 11, 2011, in an effort to settle their commercial dispute, FedEx
and Air21 agreed to submit themselves to arbitration before the
Philippine Dispute Resolution Center (PDRC). Thus, on June 24, 2011,
FedEx filed its Notice of Arbitration. On October 3, 2011, the Arbitral
Tribunal was constituted.
As part of the arbitration proceedings, Jennings, John Lumley
Holmes (Holmes), the Managing Director of SPAC Legal of FedEx; and
David John Ross (Ross), Senior Vice President of Operations, Middle
East, India and Africa, executed their respective statements 5 as
witnesses for FedEx. Ross and Holmes deposed that Federal Express
Pacific, Inc., a subsidiary of FedEx, used to have an IFF license to engage
in the business of freight forwarding in the Philippines. This license,
however, was suspended pending a case in court filed by Merit
International, Inc. (Merit) and Ace Logistics, Inc. (Ace), both freight
forwarding companies, which questioned the issuance of the IFF to
FedEx. Absent the said license, FedEx executed the GSP contracts with
Air21 to be able to conduct its business in the Philippines. Ross and
Holmes, in their individual statements, averred that Merit and Ace were
either owned or controlled by Air21 employees or persons connected
with the Lina Group of Companies, which included Air21.
Jennings, in his cross-examination, was identified as the source of the
information that Merit and Ace were Air21's proxies and was asked if
he had any written proof of such proxy relationship.6 He answered in
the negative. In his re-direct examination, he was made to expound on
the supposed proxy relationship between Merit, Ace and Air21.7He
responded that Merit and Ace were just very small companies with
meager resources, yet they were able to finance and file a case to
oppose the grant of IFF license to FedEx. Jennings also disclosed that
one of the directors of Ace was a friend of Lina and that Loma Orbe, the
President of Merit, was the former "boss" of Lito Alvarez, who was also
associated with Air21.
Feeling aggrieved by those statements, Lina for himself and on behalf of
Air21, filed a complaint for grave slander against Jennings before the
Office of the City Prosecutor in Taguig City.8 Lina claimed that the
defamatory imputation of Jennings that Merit and Ace were Air21 's
proxies brought dishonor, discredit and contempt to his name and that
of Air21. Lina quoted certain portions of the written statements of
Holmes and Ross and the Transcript of Stenographic Notes (TSN) of the
April 25, 2013 arbitration hearing reflecting Jennings' testimony to
support his complaint.
Consequently, FedEx and Jennings (petitioners) filed their Petition for
Issuance of a Confidentiality/Protective Order with Application for
Temporary Order of Protection and/or Preliminary Injunction before
the RTC alleging that all information and documents obtained in, or
related to, the arbitration proceedings were confidential.9 FedEx
asserted that the testimony of Jennings, a witness in the arbitration
proceedings, should not be divulged and used to bolster the complaint-
affidavit for grave slander as this was inadmissible in evidence.
On January 16, 2014, the RTC granted petitioners' application for the
Temporary Order of Protection.
Meanwhile, on February 3, 2014, the arbitral tribunal rendered an
award in favor of FedEx.
Subsequently, in the assailed Order, dated May 7, 2014, the RTC denied
FedEx's petition for lack of merit, stating that the statements and
arbitration documents were not confidential information. It went on to
state that "[t]he statement and 'Arbitration Documents' which
purportedly consists the crime of Grave Slander under Articles 353 and
358 of the Revised Penal Code are not in any way related to the subject
under Arbitration." The RTC further wrote that "a crime cannot be
protected by the confidentiality rules under ADR. The said rules should
not be used as a shield in the commission of any crime." Thus, it
disposed:
WHEREFORE, in view of the foregoing, the Petition for Issuance of a
Confidentiality/Protective Order is hereby DENIED for lack of merit.
The case is hereby DISMISSED. SO ORDERED.10
ADR CASES LAST BATCH
Dissatisfied, petitioners challenged the RTC order before the CA via a
petition for review.
On January 20, 2015, the CA denied the petition. In its assailed decision,
the CA explained that the declarations by Jennings were not
confidential as they were not at all related to the subject of mediation
as the arbitration proceedings revolved around the parties' claims for
sum of money.11 Thus, the CA ruled that "statements made without any
bearing on the subject proceedings are not confidential in nature." It
must be emphasized that other declarations given therein, if relative to
the subject of mediation or arbitration, are certainly confidential." 12
Hence, this present petition before the Court.
GROUNDS IN SUPPORT OF THE PETITION
A. THE COURT OF APPEALS FAILED TO APPLY, OR OTHERWISE
MISAPPLIED, SECTIONS 3(H) AND 23 OF THE ADR ACT.
B. THE COURT OF APPEALS FAILED TO APPLY RULE 10.5 OF THE
SPECIAL ADR RULES.
C. THE TEST APPLIED BY THE COURT OF APPEALS FOR
DETERMINING CONFIDENTIALITY OF INFORMATION IS NOT
SANCTIONED BY AND IS INCONSISTENT WITH THE ADR ACT AND
THE SPECIAL ADR RULES.
D. THE ASSAILED DECISION RESULTS TO SUBSTANTIAL PREJUDICE
TO PETITIONERS.
E. THE ASSAILED DECISION DEFEATS PUBLIC POLICY ON
CONFIDENTIALITY OF THE RECORDS OF AND COMMUNICATIONS
MADE IN THE COURSE OF ARBITRATION.13
FedEx argues that the Jennings' statements were part of the (a) records
and evidence of Arbitration (Section 23); (b) witness statements made
therein (Section 3[h][3]); and (c) communication made in a dispute
resolution proceedings (Section 3 [h][l]).14 They, thus, averred that
Jennings' oral statements made during the April 25, 2013 arbitration
hearing and the TSN of the hearings, conducted on April 22 and 25,
2013, form part of the records of arbitration and must, therefore, be
considered confidential information.
For said reason, petitioners assert that Rule 10.5 of the Special
Alternative Dispute Resolution (ADR) Rules, allowing for the issuance of
a confidentiality/protective order, was completely disregarded by the
CA when it denied the petition filed by FedEx as a result of Lina
divulging what were supposed to be confidential information from ADR
proceedings.
Petitioners also claim that in ruling that Jennings' statements were not
confidential information, by applying the test of relevance that
"statements made without any bearing on the subject proceedings are
not confidential in nature," the CA used a "test" that had no basis in law
and whose application in its petition amounted to judicial legislation.15
Respondent Air21 and Lina (respondents), in their
Comment,16 essentially countered that:
While the Alternative Dispute Resolution Act of 2004 (the "ADR Law")
confers communications made during arbitration the privilege against
disclosure, otherwise known as the confidentiality principle, to assist
the parties in having a speedy, efficient and impartial resolution of their
disputes, said privilege cannot be invoked to shield any party from
criminal responsibility. The privilege is not absolute. The ADR Law does
not exist in a vacuum without regard to other existing jurisprudence
and laws, particularly the Revised Penal Code. Otherwise, we will
permit a dangerous situation where arbitration proceedings will be
used by an unscrupulous disputant as a venue for the commission of
crime, which cannot be punished by the simple invocation of the
privilege. Such an absurd interpretation of our laws cannot be deemed
to be the underlying will of our Congress in framing and enacting our
law on arbitration. To be sure, a crime cannot be protected or
extinguished through a bare invocation of the confidentiality rule.17
The Court's Ruling
ADR CASES LAST BATCH
The crucial issue in this case is whether the testimony of Jennings given
during the arbitration proceedings falls within the ambit of confidential
information and, therefore, covered by the mantle of a
confidentiality/protection order.
The Court finds the petition meritorious.
Section 3(h) of Republic Act (R.A.) No. 9285 or the Alternative Dispute
Resolution of 2004 (ADR Act) defines confidential information as
follows:
"Confidential information" means any information, relative to the
subject of mediation or arbitration, expressly intended by the source
not to be disclosed, or obtained under circumstances that would create
a reasonable expectation on behalf of the source that the information
shall not be disclosed. It shall include (1) communication, oral or
written, made in a dispute resolution proceedings, including any
memoranda, notes or work product of the neutral party or non-party
participant, as defined in this Act; (2) an oral or written statement
made or which occurs during mediation or for purposes of considering,
conducting, participating, initiating, continuing of reconvening
mediation or retaining a mediator; and (3) pleadings, motions
manifestations, witness statements, reports filed or submitted in an
arbitration or for expert evaluation. [Emphases Supplied]
The said list is not exclusive and may include other information as long
as they satisfy the requirements of express confidentiality or implied
confidentiality.18
Plainly, Rule 10.1 of A.M. No. 07-11-08-SC or the Special Rules of Court
on Alternative Dispute Resolution (Special ADR Rules) allows "[a] party,
counsel or witness who disclosed or who was compelled to disclose
information relative to the subject of ADR under circumstances that
would create a reasonable expectation, on behalf of the source, that the
information shall be kept confidential xxx the right to prevent such
information from being further disclosed without the express written
consent of the source or the party who made the disclosure." Thus, the
rules on confidentiality and protective orders apply when:
1. An ADR proceeding is pending;
2. A party, counsel or witness disclosed information or was otherwise
compelled to disclose information;
3. The disclosure was made under circumstances that would create a
reasonable expectation, on behalf of the source, that the information
shall be kept confidential;
4. The source of the information or the party who made the disclosure
has the right to prevent such information from being disclosed;
5. The source of the information or the party who made the disclosure
has not given his express consent to any disclosure; and
6. The applicant would be materially prejudiced by an unauthorized
disclosure of the information obtained, or to be obtained, during the
ADR proceeding.
Gauged by the said parameters, the written statements of witnesses
Ross, Holmes and Jennings, as well as the latter's oral testimony in the
April 25, 2013 arbitration hearing, both fall under Section 3 (h) [1] and
[3] of the ADR Act which states that "communication, oral or written,
made in a dispute resolution proceedings, including any memoranda,
notes or work product of the neutral party or non-party participant, as
defined in this Act; and (3) pleadings, motions, manifestations, witness
statements, reports filed or submitted in an arbitration or for expert
valuation," constitutes confidential information.
Notably, both the parties and the Arbitral Tribunal had agreed to the
Terms of Reference (TOR) that "the arbitration proceedings should be
kept strictly confidential as provided in Section 23 of the ADR Act and
Article 25-A19 of the PDRCI Arbitration Rules (Arbitration Rules) and
that they should all be bound by such confidentiality requirements."
The provisions of the ADR Act and the Arbitration Rules repeatedly
employ the word "shall" which, in statutory construction, is one of
mandatory character in common parlance and in ordinary
ADR CASES LAST BATCH
signification.20 Thus, the general rule is that information disclosed by a
party or witness in an ADR proceeding is considered privileged and
confidential.
In evaluating the merits of the petition, Rule 10.8 of the Special ADR
Rules mandates that courts should be guided by the principle that
confidential information shall not be subject to discovery and shall be
inadmissible in any adversarial proceeding, to wit:
Rule 10.8. Court action. - If the court finds the petition or motion
meritorious, it shall issue an order enjoining a person or persons from
divulging confidential information.
In resolving the petition or motion, the courts shall be guided by the
following principles applicable to all ADR proceedings: Confidential
information shall not be subject to discovery and shall be inadmissible
in any adversarial proceeding, whether judicial or quasi judicial.
However, evidence or information that is otherwise admissible or
subject to discovery does not become inadmissible or protected from
discovery solely by reason of its use therein.
Article 5.42 of the Implementing Rules and Regulations (JRR)21 of the
ADR Act likewise echoes that arbitration proceedings, records,
evidence and the arbitral award and other confidential information are
privileged and confidential and shall not be published except [i] with
the consent of the parties; or [ii] for the limited purpose of disclosing to
the court relevant documents where resort to the court is allowed.
Given that the witness statements of Ross, Holmes and Jennings, and
the latter's arbitration testimony, fall within the ambit of confidential
information, they must, as a general rule, remain confidential. Although
there is no unbridled shroud of confidentiality on information obtained
or disclosed in an arbitration proceeding, the presence of the above
criteria must be apparent; otherwise, the general rule should be
applied. Here in this case, only a perceived imputation of a wrongdoing
was alleged by the respondents.
In denying the said application for confidentiality/protection order, the
RTC and the CA did not consider the declarations contained in the said
witness statements and arbitration testimony to be related to the
subject of arbitration and, accordingly, ruled that they could not be
covered by a confidentiality order.
The Court does not agree. Suffice it to say that the phrase "relative to
the subject of mediation or arbitration" need not be strictly confined to
the discussion of the core issues in the arbitral dispute. By definition,
"relative" simply means "connected to," which means that parties in
arbitration proceedings are encouraged to discuss openly their
grievances and explore the circumstances which might have any
connection in identifying the source of the conflict in the hope of
finding a better alternative to resolve the parties' dispute. An ADR
proceeding is aimed at resolving the parties' conflict without court
intervention. It was not designed to be strictly technical or legally
confined at all times. By mutual agreement or consent of the parties to a
controversy or dispute, they acquiesce to submit their differences to
arbitrators for an informal hearing and extra-judicial determination
and resolution. Usually, an ADR hearing is held in private and the
decision of the persons selected to comprise the tribunal will take the
place of a court judgment. This avoids the formalities, delays and
expenses of an ordinary litigation. Arbitration, as envisioned by the
ADR Act, must be taken in this perspective.
Verily, it is imperative that legislative intent or spirit be the controlling
factor, the leading star and guiding light in the application and
interpretation of a statute.22 If a statute needs construction, the
influence most dominant in that process is the intent or spirit of the
act.23 A thing which is within the intent of the lawmaker is as much
within the statute as if within the letter; and a thing which is within the
letter of the statute is not within the statute unless within the intent of
the lawmakers.24 In other words, a statute must be read according to its
spirit or intent and legislative intent is part and parcel of the statute. It
is the controlling factor in interpreting a statute. Any interpretation
that contradicts the legislative intent is unacceptable.
In the case at bench, the supposed questionable statements surfaced
when FedEx's suspended IFF license was discussed during the
arbitration hearing. In fact, when Jennings was asked by Arbitrator
Panga to expound on how the opposition of Ace and Merit could be
ADR CASES LAST BATCH
related to the ongoing arbitration, Jennings replied that, to his mind, it
was indicative of the leverage that Air21 had over FedEx as it was able
to withhold large sums of money and siphon their joint plans from
being properly established. Whether the information disclosed in the
arbitration proceeding would be given weight by the tribunal in the
resolution of their dispute is a separate matter. Likewise, the relevance
or materiality of the said statements should be best left to the
arbitrators' sound appreciation and judgment. Even granting that the
weight of the said statements was not fundamental to the issues in the
arbitration process, nevertheless, they were still connected to, and
propounded by, a witness who relied upon the confidentiality of the
proceedings and expect that his responses be reflected.
Arbitration, being an ADR proceeding, was primarily designed to be a
prompt, economical and amicable forum for the resolution of
disputes.1wphi1 It guarantees confidentiality in its processes to
encourage parties to ventilate their claims or disputes in a less formal,
but spontaneous manner. It should be emphasized that the law favors
settlement of controversies out of court. Thus, a person who
participates in an arbitration proceeding is entitled to speak his or her
piece without fear of being prejudiced should the process become
unsuccessful. Hence, any communication made towards that end should
be regarded as confidential and privileged.
To restate, the confidential nature of the arbitration proceeding is well-
entrenched in Section 23 of the ADR Act:
SEC. 23. Confidentiality of Arbitration Proceedings. - The arbitration
proceedings, including the records, evidence and the arbitral award,
shall be considered confidential and shall not be published except (1)
with the consent of the parties, or (2) for the limited purpose of
disclosing to the court of relevant documents in cases where resort to
the court is allowed herein. Provided, however, that the court in which
the action or the appeal is pending may issue a protective order to
prevent or prohibit disclosure of documents or information containing
secret processes, developments, research and other information where
it is shown that the applicant shall be materially prejudiced by an
authorized disclosure thereof.
If Lina had legal grounds to suspect that Jennings committed
slanderous remarks even before the arbitration proceeding
commenced, then he must present evidence independent and apart
from some quoted portions of the arbitration documents.
It must be stressed that the very soul of an arbitration proceeding
would be rendered useless if it would be simply used as an avenue for
evidence gathering or an entrapment mechanism to lure the other
unsuspecting party into conveying information that could be
potentially used against him in another forum or in court.
Ultimately, the RTC and the CA failed to consider the fact that an
arbitration proceeding is essentially a unique proceeding that is non-
litigious in character where the parties are bound by a different set of
rules as clearly encapsulated under the Special ADR Rules. Inevitably,
when Lina cited portions of the said arbitration documents, he violated
their covenant in the TOR to resolve their dispute through the
arbitration process and to honor the confidentiality of the said
proceeding. To disregard this commitment would impair the very
essence of the ADR proceeding. By itself, this would have served as a
valid justification for the grant of the confidentiality/protection order
in favor of FedEx and Jennings.
Thus, the claimed slanderous statements by Jennings during the
arbitration hearing are deemed confidential information and the veil of
confidentiality over them must remain.
WHEREFORE, the petition is GRANTED. The January 20, 2015 Decision
of the Court of Appeals (CA), in CA-G.R. SP No. 135835, is REVERSED
and SET ASIDE. The Petition for the Issuance of a
Confidentiality/Protective Order filed by Federal Express Corporation
and Rhicke S. Jennings is hereby GRANTED. SO ORDERED.
G.R. No. 160071, June 06, 2016
ANDREW D. FYFE, RICHARD T. NUTTALL, AND RICHARD J. WALD
v. PHILIPPINE AIRLINES, INC.
ADR CASES LAST BATCH
In 1998, the respondent underwent rehabilitation proceedings in the
Securities and Exchange Commission (SEC),3 which issued an order
dated July 1, 1998 decreeing, among others, the suspension of all claims
for payment against the respondent.4 To convince its creditors to
approve the rehabilitation plan, the respondent decided to hire
technical advisers with recognized experience in the airline industry.
This led the respondent through its then Director Luis Juan K. Virata to
consult with people in the industry, and in due course came to meet
Peter W. Foster, formerly of Cathay Pacific Airlines.5 Foster, along with
Michael R. Scantlebury, negotiated with the respondent on the details
of a proposed technical services agreement.6 Foster and Scantlebury
subsequently organized Regent Star Services Ltd. (Regent Star) under
the laws of the British Virgin Islands.7 On January 4, 1999, the
respondent and Regent Star entered into a Technical Services
Agreement (TSA) for the delivery of technical and advisory or
management services to the respondent,8 effective for five years, or
from January 4, 1999 until December 31, 2003.9 On the same date, the
respondent, pursuant to Clause 6 of the TSA,10 submitted a Side Letter,"
the relevant portions of which stated:
For and in consideration of the services to be faithfully performed by
Regent Star in accordance with the terms and conditions of the
Agreement, the Company agrees to pay Regent Star as follows:
chanRoblesvirtualLawlibrary
1.1 Upon execution of the Agreement, Four Million Seven Hundred
Thousand US Dollars (US$4,700,000.00), representing advisory fees for
two (2) years from the date of signature of the Agreement, with an
additional amount of not exceeding One Million Three Hundred
Thousand US Dollars (US$1,300,000.00) being due and demandable
upon Regent Star's notice to the Company of its engagement of an
individual to assume the position of CCA under the Agreement;
xxxx
In addition to the foregoing, the Company agrees as follows:
xxxx
In the event of a full or partial termination of the Agreement for
whatever reason by either the Company or a Senior Technical
Adviser/Regent Star prior to the end of the term of the Agreement, the
following penalties are payable by the terminating party:
A. During the first 2 years
1. Senior Company Adviser (CCA) - US$800,000.00
2. Senior Commercial Adviser (SCA) - 800,000.00
3. Senior Financial Adviser (FSA) - 700,000.00
4. Senior Ground Services and Training Adviser 500,000.00
(SAG) -
5. Senior Engineering and Maintenance Adviser 500,000.00
(SAM) -
xxxx
For the avoidance of doubt, it is understood and agreed that in the
event that the terminating party is an individual Senior Technical
Adviser the liability to pay such Termination Amount to the Company
shall rest with that individual party, not with RSS. Similarly, if the
terminating party is the Company, the liability to the aggrieved party
shall be the individual Senior Technical Adviser, not to RSS.12
Regent Star, through Foster, conformed to the terms stated in the Side
Letter.13 The SEC approved the TSA on January 19, 1999.14
In addition to Foster and Scantlebury, Regent Star engaged the
petitioners in respective capacities, specifically: Andrew D. Fyfe as
Senior Ground Services and Training Adviser; Richard J. Wald as Senior
Maintenance and Engineering Adviser; and Richard T. Nuttall as Senior
Commercial Adviser. The petitioners commenced to render their
services to the respondent, immediately after the TSA was executed.15
On July 26, 1999, the respondent dispatched a notice to Regent Star
terminating the TSA on the ground of lack of confidence effective July
ADR CASES LAST BATCH
31, 1999.16 In its notice, the respondent demanded the offsetting of the
penalties due to the petitioners with the two-year advance advisory
fees it had paid to Regent Star, thus:
The side letter stipulates that "[i]n the event of a full or partial
termination of the Agreement for whatever reason by either the
Company or a Senior Technical Adviser/Regent Star prior to the end of
the term of the Agreement, the following penalties are payable by the
terminating party:"
During the first 2 years:
Senior Company Adviser - US$800,000.00
Senior Commercial Adviser - 800,000.00
Senior Financial Adviser - 700,000.00
Senior Ground Services and Training Adviser - 500.000.00
Senior Engineering and Maintenance Adviser - 500,000.00
TOTAL US$3,300,000.00
There is, therefore, due to RSS from PAL the amount of
US$3,300,000.00 by way of stipulated penalties.
However, RSS has been paid by PAL advance "advisory fee for two (2)
years from date of signature of the Agreement" the amount of
US$5,700,000. Since RSS has rendered advisory services from 4 January
to 31 July 1999, or a period of seven months, it is entitled to retain only
the advisory fees for seven months. This is computed as follows:
US$5,700.000 - US$237,500/month x7 = US$1,662,500
24 months
The remaining balance of the advance advisory fee, which corresponds
to the unserved period of 17 months, or US$4,037,500, should be
refunded by RSS to PAL.
Off-setting the amount of US$3,300,000 due from PAL to RSS against
the amount of US$4,037,500 due from RSS to PAL, there remains a net
balance of US$737,500 due and payable to PAL. Please settle this
amount at your early convenience, but not later than August 15,
1999.17ChanRoblesVirtualawlibrary
On June 8, 1999, the petitioners, along with Scantlebury and Wald,
wrote to the respondent, through its President and Chief Operating
Officer, Avelino Zapanta, to seek clarification on the status of the TSA in
view of the appointment of Foster, Scantleburry and Nuttall as
members of the Permanent Rehabilitation Receiver (PRR) for the
respondent.18 A month later, Regent Star sent to the respondent
another letter expressing disappointment over the respondent's
ignoring the previous letter, and denying the respondent's claim for
refund and set-off. Regent Star then proposed therein that the issue be
submitted to arbitration in accordance with Clause 1419 of the TSA.20
Thereafter, the petitioners initiated arbitration proceedings in the
Philippine Dispute Resolution Center, Inc. (PDRCI) pursuant to the TSA.
Ruling of the PDRCI
After due proceedings, the PDRCI rendered its decision ordering the
respondent to pay termination penalties,21viz.:
On issue No. 1 we rule that the Complainants are entitled to their claim
for termination penalties.
When the PAL, terminated the Technical Services Agreement on July 26,
1999 which also resulted in the termination of the services of the
senior technical advisers including those of the Complainants it
admitted that the termination penalties in the amount of
US$3,300,000.00 as provided in the Letter dated January 4, 1999 are
payable to the Senior Technical Advisers by PAL. Xxx. PAL's admission
of its liability to pay the termination penalties to the complainants was
made also in its Answer. PAIAs counsel even stipulated during the
hearing that the airline company admits that it is liable to pay
ADR CASES LAST BATCH
Complainants the termination penalties.xxx.
However, PAL argued that although it is liable to pay termination
penalties the Complainants are not entitled to their respective claims
because considering that PAL had paid RSS advance "advisory fees for
two (2) years" in the total amount of US$5,700,000.00 and RSS had
rendered advisory services for only seven (7) months from January 4,
1999 to July 31, 1999 that would entitle RSS to an (sic) advisory fees of
only US$1,662,500.00 and therefore the unserved period of 17 months
equivalent to US$4,037,500.00 should be refunded. And setting off the
termination penalties of US$3,300,000.00 due RSS from PAL against the
amount of US$4,037,500.00 still due PAL from RSS there would remain
a net balance of US$737,500.00 still due PAL from RSS and/or the
Senior Technical Advisers which the latter should pay pro-rata as
follows: Peter W. Forster, the sum of US$178,475.00; Richard T. Nuttall,
the sum of US$178,475.00; Michael R. Scantlebury; the sum of
US$156,350.00, Andrew D. Fyfe, the sum of US$111,362.50; and
Richard J. Wald the sum of US$111,362.50. RSS is a special company
which the Senior Technical Advisers had utilized for the specific
purpose of providing PAL with technical advisory services they as a
group had contracted under the Agreement. Hence when PAL signed
the Agreement with RSS, it was for all intents and purposes an
Agreement signed individually with the Senior Technical Advisers
including the Complainants. The RSS and the five (5) Senior Technical
Advisers should be treated as one and the same,
The Arbitration Tribunals is not convinced.
xxxx
PAL cannot refuse to pay Complainants their termination penalties by
setting off against the unserved period of seventeen (17) months of
their advance advisory fees as the Agreement and the Side Letter
clearly do not allow refund. This Arbitration Tribunal cannot read into
the contract, which is the law between the parties, what the contract
docs not provide or what the parties did not intend. It is basic in
contract interpretation that contracts that are not ambiguous are to be
interpreted according to their literal meaning and should not be
interpreted beyond their obvious intendment. x x x. The penalties
work as security for the Complainants against the uncertainties of their
work at PAL whose closure was a stark reality they were facing. (TSN
Hearing on April 27, 2000, pp. 48-49) This would not result in unjust
enrichment for the Complainants because the termination of the
services was initiated by PAL itself without cause. In feet, PAL admitted
that at the time their services were terminated the Complainants were
performing well in their respective assigned works,22 x x x.
PAL also presented hypothetical situations and certain computations
that it claims would result to an "injustice" to PAL which would then
"lose a very substantial amount of money" if the claimed refund is not
allowed. PAL had chosen to prc-terminate the services of the
complainants and must therefore pay the termination penalties
provided in the Side Letter. If it finds itself losing "substantial" sums of
money because of its contractual commitments, there is nothing this
Arbitration Tribunal can do to remedy the situation. Jurisprudence
teaches us that neither the law nor the courts will extricate a party
from an unwise or undesirable contract that he or she entered into with
all the required formalities and with full awareness of its consequences.
(Opulencia vs. Cowl of Appeals, 293 SCRA 385 (1998)23
Decision of the RTC
Dissatisfied with the outcome, the respondent filed its Application to
Vacate Arbitral Award in the Regional Trial Court, in Makati City (RTC),
docketed as SP Proc. M-5147 and assigned to Branch 57,24arguing that
the arbitration decision should be vacated in view of the July 1, 1998
order of the SEC placing the respondent under a state of suspension of
payment pursuant to Section 6(c) of Presidential Decree No. 902-A, as
amended by P.D. No. 1799.25cralawred
The petitioners countered with their Motion to Dismiss,26 citing the
following grounds, namely: (a) lack of jurisdiction over the persons of
the petitioners due to the improper service of summons; (b) the
application did not state a cause of action; and (c) the application was
an improper remedy because the respondent should have filed an
appeal in the CA pursuant to Rule 43 of the Rules of Court.27cralawred
ADR CASES LAST BATCH

On March 7, 2001, the RTC granted the respondent's Application to
Vacate Arbitral Award,28 disposing:
WHEREFORE, the subject arbitral award dated September 29, 2000 is
hereby vacated and set aside, without prejudice to the complainants'
filing with the SEC rehabilitation receiver of PAL their subject claim for
appropriate adjudication. The panel of arbitrators composed of lawyers
Beda Fajardo, Arturo de Castro and Bienvenido Magnaye is hereby
ordered discharged on the ground of manifest partiality.
No pronouncement as to cost and attorney's fees. SO
ORDERED.29ChanRoblesVirtualawlibrary
The rationale for the suspension is to enable the rehabilitation receiver
to exercise his powers without any judicial or extra-judicial
interference that might unduly hinder the rescue of the distressed
corporation, x x x. PD No. 902-A does not provide for the duration of the
suspension; therefore, it is deemed to be effective during the entire
period that the corporate debtor is under SEC receivership.
There is no dispute that PAL is under receivership (Exhibits "1" and
"2"). In its Order dated 1 July 1998, the SEC declared that "all claims for
payment against PAL are deemed suspended."' This Order effectively
deprived all other tribunals of jurisdiction to hear and decide all actions
for claims against PAL for the duration of the receivership.

xxxx
Anent jurisdiction over the persons of the petitioners, the RTC opined:
Unless and until the SEC lifts the Order dated 1 July 1998, the Panel of
On the objection that the Court has not acquired jurisdiction over the
Arbitrators cannot take cognizance of complainant' claims against PAL
person of the complainants because summonses were not issued and
without violating the exclusive jurisdiction of the SEC. The law has
served on them, the Court rules that complainants have voluntarily
granted SEC the exclusive jurisdiction to pursue the rehabilitation of a
submitted themselves to the jurisdiction of the Court by praying the
private corporation through the appointment of a rehabilitation
Court to grant them affirmative relief, i.e., that the Court confirm and
receiver (Sec 6 (d), PD No. 902-A, as amended by PD 1799). "exclusive
declare final and executory the subject arbitral award. Moreover, under
jurisdiction precludes the idea of co-existence and refers to jurisdiction
Sections 22 and 26 of the Arbitration Law (R.A. 876), an application or
possessed to the exclusion of others, x x x. Thus, "(I)nstead of vexing
petition to vacate arbitral award is deemed a motion and service of
the courts with suits against the distressed firm, they are directed to
such motion on the adverse party or his counsel is enough to confer
file their claims with the receiver who is the duly appointed officer of
jurisdiction upon the Court over the adverse party.
the SEC.
It is not disputed that complainants were duly served by personal
x x x.31ChanRoblesVirtualawlibrary
delivery with copies of the application to vacate. In feet, they have
appeared through counsel and have filed pleadings. In line with this
ruling, the objection that the application to vacate does not state a After their motion for reconsideration32 was denied,33 the petitioners
cause of action against complainants must necessarily fall inasmuch as appealed to the CA by notice of appeal.
this present case is a special proceeding (Sec. 22, Arbitration Law), and
Section 3(a), Rule 1 of the 1997 Rules of Civil Procedure is inapplicable Resolution of the CA
here.30
The respondent moved to dismiss the appeal,34 arguing against the
propriety of the petitioners' remedy, and positing that Section 29 of the
On whether or not the application to vacate was an appropriate remedy
Arbitration Law limited appeals from an order issued in a proceeding
under Sections 24 and 26 of the Arbitration Law, and whether or not
under the Arbitration Law to a review on certiorari upon questions of
the July 1, 1998 order of the SEC deprived the Panel of Arbitrators of
law.35
the authority to hear the petitioners' claim, the RTC held:
ADR CASES LAST BATCH
On May 30, 2003, the CA promulgated the now assailed resolution
granting the respondent's Motion to Dismiss Appeal.36 It declared that
the appropriate remedy against the order of the RTC vacating the
award was a petition for review on certiorari under Rule 45, viz.:
The term "certiorari" in the aforequoted provision refers to an ordinary
appeal under Rule 45, not the special action of certiorari under Rule 65.
As Section 29 proclaims, it is an "appeal." This being the case, the
proper forum for this action is, under the old and the new rules of
procedure, the Supreme Court. Thus, Section 2(c) of Rule 41 of the
1997 Rules of Civil Procedure states that,
"In all cases where only questions of law are raised or involved, the
appeal shall be to the Supreme Court by petition for review on certiorari
in accordance with Rule 45. "
Furthermore, Section 29 limits the appeal to "questions of law,"
another indication that it is referring to an appeal by certiorari under
Rule 45 which, indeed, is the customary manner of reviewing such
issues.
Based on the foregoing, it is clear that complainants-in-
arbitration/appellants filed the wrong action with the wrong forum.
WHEREFORE, premises considered, the Motion to Dismiss Appeal
(Without Prejudice to the Filing of Appellee's Brief) is GRANTED and the
instant appeal is hereby ordered DISMISSED.
SO ORDERED.37ChanRoblesVirtualawlibrary
The petitioners moved for reconsideration,38 but the CA denied their
motion.39
Hence, this appeal by the petitioners.
Issues The petitioners anchor this appeal on the following grounds,
namely:
I. SECTION 29 OF THE ARBITRATION LAW, WHICH LIMITS THE
MODE OF APPEAL FROM THE ORDER OF A REGIONAL TRIAL COURT
IN A PROCEEDING MADE UNDER THE ARBITRATION LAW TO A
PETITION FOR REVIEW ON CERTIORARI UNDER RULE 45 OF THE
RULES, IS UNCONSTITUTIONAL FOR UNDULY EXPANDING THE
JURISDICTION OF THIS HONORABLE COURT WITHOUT THIS
HONORABLE COURT'S CONCURRENCE;
II. THE COURT OF APPEALS HAD JURISDICTION OVER THE CA
APPEAL BECAUSE:
A. THIS HONORABLE COURT HAS PREVIOUSLY UPHELD
THE EXERCISE BY THE COURT OF APPEALS OF JURISDICTION OVER
AN APPEAL INVOLVING QUESTIONS OF FACT OR OF MIXED
QUESTIONS OF FACT AND LAW FROM A REGIONAL TRIAL COURT'S
ORDER VACATING AN ARBITRAL AWARD
B. WHERE, AS IN THIS CASE, TFIE ISSUES ON APPEAL
CONCERNED THE ABSENCE OF EVIDENCE AND LACK OF LEGAL BASIS
TO SUPPORT THE REGIONAL TRIAL COURT'S ORDER VACATING THE
ARBITRAL AWARD, GRAVE MISCHIEF WOULD RESULT IF THE
REGIONAL TRIAL COURT'S BASELESS FINDINGS OF FACT OR MIXED
FINDINGS OF FACT ARE PLACED BEYOND APPELLATE REVIEW; AND
C. THE COURT OF APPEALS' DISMISSAL OF THE CA
APPEAL V/OULD IN EFFECT RESULT IN THE AFFIRMATION OF THE
REGIONAL TRIAL COURT'S EXERCISE OF JURISDICTION, OVER
PERSONS UPON WHOM IT FAILED TO VALIDLY ACQUIRE SUCH
JURISDICTION AND OF APPELLATE JURISDICTION OVER THE PDRCI
ARBITRAL AWARD EVEN IF SUCH APPELLATE POWER IS
EXCLUSIVELY LODGED WITH THE COURT OF APPEALS UNDER RULE
43 OF THE RULES
III. INSTEAD OF DISMISSING THE CA APPEAL OUTRIGHT, THE COURT
OF APPEALS SHOULD HAVE SHORTENED THE PROCEEDINGS AND
EXPEDITED JUSTICE BY EXERCISING ORIGINAL JURISDICTION OVER
THE APPLICATION TO VACATE PURSUANT TO RULE 43 OF THE
RULES, ESPECIALLY CONSIDERING THAT THE PARTIES HAD IN FACT
ALREADY FILED THEIR RESPECTIVE BRIEFS AND THE COMPLETE
RECORDS OF BOTH THE RTC APPLICATION TO VACATE AND THE
PDRCI ARBITRATION WERE ALREADY IN ITS POSSESSION; AND
ADR CASES LAST BATCH
IV. IN THE EVENT THAT AN APPEAL FROM AN ORDER VACATING AN
ARBITRAL AWARD MAY BE MADE ONLY
IN CERTIORARI PROCEEDINGS AND ONLY TO THE SUPREME COURT,
THE COURT OF APPEALS SHOULD NOT HAVE DISMISSED THE CA
APPEAL, BUT IN THE HIGHER INTEREST OF JUSTICE, SHOULD HAVE
INSTEAD ENDORSED THE SAME TO THIS HONORABLE COURT, AS
WAS DONE IN SANTIAGO V. GONZALES.40
The petitioners contend that an appeal from the order arising from
arbitration proceedings cannot be by petition for review
on certiorari under Rule 45 of the Rules of Court because the appeal
inevitably involves mixed questions of law and fact; that their appeal in
the CA involved factual issues in view of the RTC's finding that the
panel of arbitrators had been guilty of evident partiality even without
having required the respondent to submit independent proof thereon;
that the appropriate remedy was either a petition for certiorari under
Rule 65 of the Rules of Court, or an ordinary appeal under Rule 41 of the
Rules of Court, conformably with the rulings in Asset Privatization Trust
v. Court of Appeals41 and Adamson v. Court of Appeals,42 respectively;
and that the CA erroneously upheld the RTC's denial of their Motion To
Dismiss Appeal on the basis of their counsel's voluntary appearance to
seek affirmative relief because under Section 20, Rule 14 of the Rules of
Court their objection to the personal jurisdiction of the court was not a
voluntary appearance even if coupled with other grounds for a motion
to dismiss.
In riposte, the respondent avers that the petition for review
on certiorari should be denied due course because of the defective
verification/certification signed by the petitioners' counsel; and that
the special powers of attorney (SPAs) executed by the petitioners in
favor of their counsel did not sufficiently vest the latter with the
authority to execute the verification/certification in their behalf.
On the merits, the respondent maintains that: (a) the
term certiorari used in Section 29 of the Arbitration Law refers to a
petition for review under Rule 45 of the Rules of Court; (b) the
constitutional challenge against Section 29 of the Arbitration Law was
belatedly made; (c) the petitioners' claim of lack of jurisdiction on the
part of the RTC should fail because an application to vacate an arbitral
award under Sections 22 and 26 of the Arbitration Law is only required
to be in the form of a motion; and (d) the complete record of the
arbitration proceedings submitted to the RTC sufficiently proved the
manifest partiality and grave abuse of discretion on the part of the
panel of arbitrators.
To be resolved are: (a) whether or not the petition for review should be
dismissed for containing a defective verification/certification; and (b)
whether or not the CA erred in dismissing the appeal of the petitioners
for being an inappropriate remedy.
Ruling of the Court
We deny the petition for review on certiorari.
I
There was sufficient compliance with the rule on
verification and certification against forum shopping
The respondent insists that the verification/certification attached to
the petition was defective because it was executed by the petitioners'
counsel whose authority under the SPAs was only to execute the
certification of non-forum shopping; and that the signing by the counsel
of the certification could not also be allowed because the Rules of
Court and the pertinent circulars and rulings of the Court require that
the petitioners must themselves execute the same.
The insistence of the respondent is unwarranted. The SPAs individually
signed by the petitioners vested in their counsel the authority, among
others, "to do and perform on my behalf any act and deed relating to the
case, which it could legally do and perform, including any appeals or
further legal proceedings." The authority was sufficiently broad to
expressly and specially authorize their counsel, Atty. Ida Maureen V.
Chao-Kho, to sign the verification/certification on their behalf.
The purpose of the verification is to ensure that the allegations
contained in the verified pleading are true and correct, an d are not the
product of the imagination or a matter of speculation; and that the
pleading is filed in good faith.43 This purpose was met by the
ADR CASES LAST BATCH

verification/certification made by Atty. Chao-Kho in behalf of the II

petitioners, which pertinently stated that: Appealing the RTC order
vacating an arbitral award
2. Petitioners caused the preparation of the foregoing Petition for
Review on Certiorari, and have read and understood all the allegations The petitioners contend that the CA gravely erred in dismissing their
contained therein. Further, said allegations are true and correct based appeal for being an inappropriate remedy, and in holding that a
on their own knowledge and authentic records in their and the Finn's petition for review on certiorari under Rule 45 was the sole remedy
possession.44 under Section 29 of the Arbitration Law. They argue that the decision of
the RTC involving arbitration could be assailed either by petition
for certiorari under Rule 65, as held in Asset Privatization Trust, or by
The tenor of the verification/certification indicated that the petitioners,
an ordinary appeal under Rule 41, as opined in Adamson.
not Atty. Chao-Kho, were certifying that the allegations were true and
correct based on their knowledge and authentic records. At any rate, a
The petitioners are mistaken.
finding that the verification was defective would not render the petition
for review invalid. It is settled that the verification was merely a formal
Firstly, the assailed resolution of the CA did not expressly declare that
requirement whose defect did not ne gate the validity or efficacy of the
the petition for review on certiorari under Rule 45 was the sole remedy
verified pleading, or affect the jurisdiction of the court.45
from the RTC's order vacating the arbitral award. The CA rather
emphasized that the petitioners should have filed the petition for
We also uphold the efficacy of the certification on non-forum shopping
review on certiorari under Rule 45 considering that Section 29 of the
executed by Atty. Chao-Kho on the basis of the authorization bestowed
Arbitration Law has limited the ground of review to "questions of law."
under the SPAs by the petitioners. The lawyer of the party, in order to
Accordingly, the CA correctly dismissed the appeal of the petitioners
validly execute the certification, must be "specifically authorized" by
because pursuant to Section 2,49 Rule 41 of the Rules of Court an appeal
the client for that purpose.46 With the petitioners being non-residents
of questions of law arising in the courts in the first instance is by
of the Philippines, the sworn certification on non-forum shopping by
petition for review on certiorari under Rule 45.
Atty. Chao-Kho sufficiently complied with the objective of ensuring that
no similar action had been brought by them or the respondent against
It is noted, however, that since the promulgation of the assailed
each other, to wit:
decision by the CA on May 30, 2003, the law on the matter underwent
changes. On February 4, 2004. Republic Act No. 9285 (Alternative
5. Significantly, Petitioners are foreign residents who reside and are
Dispute Resolution Act of 2004) was passed by Congress, and was
presently abroad. Further, the Firm is Petitioners' sole legal counsel in
approved by the President on April 2, 2004. Pursuant to Republic Act
the Philippines, and hence, is in a position to know that Petitioners
No. 9285, the Court promulgated on September 1, 2009 in A.M. No. 07-
have no other cases before any court o[r] tribunal in the Philippines;47
11-08-SC the Special Rules of Court on Alternative Dispute Resolution,
which are now the present rules of procedure governing arbitration.
In this regard, we ought not to exact a literal compliance with Section 4, Among others, the Special Rules of Court on Alternative Dispute
Rule 45, in relation to Section 2, Rule 42 of the Rules of Court, that only Resolution requires an appeal by petition for review to the CA of the
the party himself should execute the certification. After all, we have not final order of the RTC confirming, vacating, correcting or modifying a
been shown by the respondent any intention on the part of the domestic arbitral award, to wit:
petitioners and their counsel to circumvent the requirement for the
verification and certification on non-forum shopping.48
ADR CASES LAST BATCH
Rule 19.12 Appeal to the Court of Appeals. - An appeal to the Court of
Appeals through a petition for review under this Special Rule shall only
be allowed from the following orders of the Regional Trial Court:
Granting or denying an interim measure of protection;
Denying a petition for appointment of an arbitrator;
Denying a petition for assistance in taking evidence;
Enjoining or refusing to enjoin a person from divulging
confidential information;
Confirming, vacating or correcting/modifying a domestic
arbitral award;
Setting aside an international commercial arbitration award;
Dismissing the petition to set aside an international
commercial arbitration award even if the court does not decide
to recognize or enforce such award;
Recognizing and/or enforcing an international commercial
arbitration award;
Dismissing a petition to enforce an international commercial
arbitration award;
Recognizing and/or enforcing a foreign arbitral award;
Refusing recognition and/or enforcement of a foreign arbitral
award;
Granting or dismissing a petition to enforce a deposited
mediated settlement agreement; and
Reversing the ruling of the arbitral tribunal upholding its
jurisdiction.
Although the Special Rules of Court on Alternative Dispute
Resolution provides that the appropriate remedy from an order of the
RTC vacating a domestic arbitral award is an appeal by petition for
review in the CA, not an ordinary appeal under Rule 41 of the Rules of
Court, the Court cannot set aside and reverse the assailed decision on
that basis because the decision was in full accord with the law or rule in
force at the time of its promulgation.
The ruling in Asset Privatization Trust v. Court of Appeals50 cannot be
the governing rule with respect to the order of the RTC vacating an
arbitral award. Asset Privatization Trust justified the resort to the
petition for certiorari under Rule 65 only upon finding that the RTC had
acted without jurisdiction or with grave abuse of discretion in
confirming the arbitral award. Nonetheless, it is worth reminding that
the petition for certiorari cannot be a substitute for a lost appeal.51
Also, the petitioners have erroneously assumed that the appeal filed by
the aggrieved party in Adamson v. Court of Appeals52 was an ordinary
one. Adamson concerned the correctness of the ruling of the CA in
reversing the decision of the trial court, not the propriety of the remedy
availed of by the aggrieved party. Nor did Adamson expressly declare
that an ordinary appeal could be availed of to assail the RTC's ruling
involving arbitration. As such, the petitioners' reliance on Adamson to
buttress their resort to the erroneous remedy was misplaced.
We remind that the petitioners cannot insist on their chosen remedy
despite its not being sanctioned by the Arbitration Law. Appeal as a
remedy is not a matter of right, but a mere statutory privilege to be
exercised only in the manner and strictly in accordance with the
provisions of the law.53
III
Panel of Arbitrators had no jurisdiction
to hear and decide the petitioners' claim
The petitioners' appeal is dismissible also because the arbitration panel
had no jurisdiction to hear their claim. The RTC correctly opined that
the SEC's suspension order effective July 1, 1998 deprived the
arbitration panel of the jurisdiction to hear any claims against the
respondent. The Court has clarified inCastillo v. Uniwide Warehouse
Club, Inc.54 why the claim for payment brought against a distressed
corporation like the respondent should not prosper following the
issuance of the suspension order by the SEC, regardless of when the
action was filed, to wit:
Jurisprudence is settled that the suspension of proceedings referred to
in the law uniformly applies to all actions for claims filed against a
corporation, partnership or association under management or
receivership, without distinction, except only those expenses incurred
in the ordinary course of business. In the oft-cited case of Rubberworld
(Phils.) Inc. v. NLRC, the Court noted that aside from the given
ADR CASES LAST BATCH
exception, the law is clear and makes no distinction as to the claims
that are suspended once a management committee is created or a
rehabilitation receiver is appointed. Since the law makes no distinction
or exemptions, neither should this Court. Ubi lex non dislinguit nee nos
distinguere debemos. Philippine Airlines, Inc. v. Zamora declares that
the automatic suspension of an action for claims against a corporation
under a rehabilitation receiver or management committee embraces all
phases of the suit, that is, the entire proceedings of an action or suit and
not just the payment of claims.
The reason behind the imperative nature of a suspension or stay
order in relation to the creditors claims cannot be downplayed, for
indeed the indiscriminate suspension of actions for claims intends
to expedite the rehabilitation of the distressed corporation by
enabling the management committee or the rehabilitation
receiver to effectively exercise its/his powers free from any
judicial or extrajudicial interference that might unduly hinder or
prevent the rescue of the debtor company. To allow such other
actions to continue would only add to the burden of the
management committee or rehabilitation receiver, whose time,
effort and resources would be wasted in defending claims against
the corporation, instead of being directed toward its restructuring
and rehabilitation.
At this juncture, it must be conceded that the date when the claim
arose, or when the action was filed, has no bearing at all in
deciding whether the given action or claim is covered by the stay
or suspension order. What matters is that as long as the
corporation is under a management committee or a rehabilitation
receiver, all actions for claims against it, whether for money or
otherwise, must yield to the greater imperative of corporate
revival, excepting only, as already mentioned, claims for payment
of obligations incurred by the corporation in the ordinary course
of business.55 (Bold emphasis supplied)
IV
The requirement of due process was observed
The petitioners' challenge against the jurisdiction of the RTC on the
ground of the absence of the service of the summons on them also fails.
Under Section 2256 of the Arbitration Law, arbitration is deemed a
special proceeding, by virtue of which any application should be made
in the manner provided for the making and hearing of motions, except
as otherwise expressly provided in the Arbitration Law.
The RTC observed that the respondent's Application to Vacate Arbitral
Award was duly served personally on the petitioners, who then
appeared by counsel and filed pleadings. The petitioners countered
with their Motion to Dismiss vis-a-vis the respondent's application,
specifying therein the various grounds earlier mentioned, including the
lack of jurisdiction over their persons due to the improper service of
summons. Under the circumstances, the requirement of notice was fully
complied with, for Section 2657of the Arbitration Law required the
application to be served upon the adverse party or his counsel within
30 days after the award was filed or delivered "as prescribed by law for
the service upon an attorney in an action."
V
Issue of the constitutionality of the
Arbitration Law is devoid of merit
The constitutionality of Section 29 of the Arbitration Law is being
challenged on the basis that Congress has thereby increased the
appellate jurisdiction of the Supreme Court without its advice and
concurrence, as required by Section 30, Article VI of the 1987
Constitution, to wit:
Section 30. No law shall be passed increasing the appellate jurisdiction
of the Supreme Court as provided in this Constitution without its advice
and concurrence.
The challenge is unworthy of consideration. Based on the tenor and text
of Section 30, Article VI of the 1987 Constitution, the prohibition
against increasing the appellate jurisdiction of the Supreme Court
without its advice and concurrence applies prospectively, not
retrospectively. Considering that the Arbitration Law had been
approved on June 19, 1953, and took effect under its terms on
ADR CASES LAST BATCH

December 19, 1953, while the Constitution was ratified only on

February 2, 1987, Section 29 of the Arbitration Law could not be
declared unconstitutional.chanrobleslaw

WHEREFORE, the Court DENIES the petition for review on certiorari

for lack of merit; AFFIRMS the resolution promulgated on May 30,
2003 by the Court of Appeals in CA-G.R. CV No. 71224; and ORDERS the
petitioners to pay the costs of suit. SO ORDERED.