Republic of the Philippines

Congress of the Philippines

Metro Manila

Twelfth Congress
Third Regular Session

Begun and held in Metro Manila, on Monday, the twenty-eight day of July, two thousand three.

Republic Act No. 9285 April 2, 2004

AN ACT TO INSTITUTIONALIZE THE USE OF AN ALTERNATIVE DISPUTE RESOLUTION

SYSTEM IN THE PHILIPPINES AND TO ESTABLISH THE OFFICE FOR ALTERNATIVE DISPUTE
RESOLUTION, AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress

assembled:

CHAPTER 1 - GENERAL PROVISIONS

SECTION 1. Title. - This act shall be known as the "Alternative Dispute Resolution Act of 2004."

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 party 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.

SEC. 3. Definition of Terms. - For purposes of this Act, the term:

(a) "Alternative Dispute Resolution System" means any process or procedure used to
resolve a dispute or controversy, other than by adjudication of a presiding judge of a court or
an officer of a government agency, as defined in this Act, in which a neutral third party
participates to assist in the resolution of issues, which includes arbitration, mediation,
conciliation, early neutral evaluation, mini-trial, or any combination thereof;

(b) "ADR Provider" means institutions or persons accredited as mediator, conciliator,

arbitrator, neutral evaluator, or any person exercising similar functions in any Alternative
Dispute Resolution system. This is without prejudice to the rights of the parties to choose
nonaccredited individuals to act as mediator, conciliator, arbitrator, or neutral evaluator of
their dispute.

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Whenever reffered to in this Act, the term "ADR practitioners" shall refer to individuals acting
as mediator, conciliator, arbitrator or neutral evaluator;

(c) "Authenticate" means to sign, execute or adopt a symbol, or encrypt a record in whole or
in part, intended to identity the authenticating party and to adopt, accept or establish the
authenticity of a record or term;

(d) "Arbitration" means a voluntary dispute resolution process in which one or more
arbitrators, appointed in accordance with the agreement of the parties, or rules promulgated
pursuant to this Act, resolve a dispute by rendering an award;

(e) "Arbitrator" means the person appointed to render an award, alone or with others, in a
dispute that is the subject of an arbitration agreement;

(f) "Award" means any partial or final decision by an arbitrator in resolving the issue in a
controversy;

(g) "Commercial Arbitration" An arbitration is "commercial if it covers matter arising from all
relationships of a commercial nature, whether contractual or not;

(h) "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;

(i) "Convention Award" means a foreign arbitral award made in a Convention State;

(j) "Convention State" means a State that is a member of the New York Convention;

(k) "Court" as referred to in Article 6 of the Model Law shall mean a Regional Trial Court;

(l) "Court-Annexed Mediation" means any mediation process conducted under the auspices
of the court, after such court has acquired jurisdiction of the dispute;

(m) "Court-Referred Mediation" means mediation ordered by a court to be conducted in

accordance with the Agreement of the Parties when as action is prematurely commenced in
violation of such agreement;

(n) "Early Neutral Evaluation" means an ADR process wherein parties and their lawyers are
brought together early in a pre-trial phase to present summaries of their cases and receive a
nonbinding assessment by an experienced, neutral person, with expertise in the subject in
the substance of the dispute;

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(o) "Government Agency" means any government entity, office or officer, other than a court,
that is vested by law with quasi-judicial power to resolve or adjudicate dispute involving the
government, its agencies and instrumentalities, or private persons;

(p) "International Party" shall mean an entity whose place of business is outside the
Philippines. It shall not include a domestic subsidiary of such international party or a
coventurer in a joint venture with a party which has its place of business in the Philippines.

The term foreigner arbitrator shall mean a person who is not a national of the Philippines.

(q) "Mediation" means a voluntary process in which a mediator, selected by the disputing
parties, facilitates communication and negotiation, and assist the parties in reaching a
voluntary agreement regarding a dispute.

(r) "Mediator" means a person who conducts mediation;

(s) "Mediation Party" means a person who participates in a mediation and whose consent is
necessary to resolve the dispute;

(t) "Mediation-Arbitration" or Med-Arb is a step dispute resolution process involving both

mediation and arbitration;

(u) "Mini-Trial" means a structured dispute resolution method in which the merits of a case
are argued before a panel comprising senior decision makers with or without the presence of
a neutral third person after which the parties seek a negotiated settlement;

(v) "Model Law" means the Model Law on International Commercial Arbitration adopted by
the United Nations Commission on International Trade Law on 21 June 1985;

(w) "New York Convention" means the United Nations Convention on the Recognition and
Enforcement of Foreign Arbitral Awards approved in 1958 and ratified by the Philippine
Senate under Senate Resolution No. 71;

(x) "Non-Convention Award" means a foreign arbitral award made in a State which is not a
Convention State;

(y) "Non-Convention State" means a State that is not a member of the New York Convention.

(z) "Non-Party Participant" means a person, other than a party or mediator, who participates
in a mediation proceeding as a witness, resource person or expert;

(aa) "Proceeding" means a judicial, administrative, or other adjudicative process, including

related pre-hearing motions, conferences and discovery;

(bb) "Record" means an information written on a tangible medium or stored in an electronic

or other similar medium, retrievable form; and

(cc) "Roster" means a list of persons qualified to provide ADR services as neutrals or to
serve as arbitrators.

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SEC. 4. Electronic Signatures in Global and E-Commerce Act. - The provisions of the Electronic
Signatures in Global and E-Commerce Act, and its implementing Rules and Regulations shall apply
to proceeding contemplated in this Act.

SEC. 5. Liability of ADR Provider and Practitioner. - The ADR providers and practitioners shall
have the same civil liability for the Acts done in the performance of then duties as that of public
officers as provided in Section 38 (1), Chapter 9, Book of the Administrative Code of 1987. ( A
public officer shall not be civilly liable for acts done in the
performance of his official duties, unless there is a clear showing of
bad faith, malice or gross negligence. ch)

SEC. 6. Exception to the Application of this Act. - The provisions of this Act shall not apply to
resolution or settlement of the following: (a) labor disputes covered by Presidential Decree No. 442,
otherwise known as the Labor Code of the Philippines, as amended and its Implementing Rules and
Regulations; (b) the civil status of persons; (c) the validity of a marriage; (d) any ground for legal
separation; (e) the jurisdiction of courts; (f) future legitime; (g) criminal liability; and (h) those which
by law cannot be compromised.

CHAPTER 2 - MEDIATION

SEC. 7. Scope. - The provisions of this Chapter shall cover voluntary mediation, whether ad hoc or
institutional, other than court-annexed. The term "mediation' shall include conciliation.

SEC. 8. Application and Interpretation. - In applying construing the provisions of this Chapter,
consideration must be given to the need to promote candor or parties and mediators through
confidentiality of the mediation process, the policy of fostering prompt, economical, and amicable
resolution of disputes in accordance with the principles of integrity of determination by the parties,
and the policy that the decision-making authority in the mediation process rests with the parties.

SEC. 9. Confidentiality of Information. - Information obtained through mediation proceedings shall

be subject to the following principles and guidelines:

(a) Information obtained through mediation shall be privileged and confidential.

(b) A party, a mediator, or a nonparty participant may refuse to disclose and may prevent any
other person from disclosing a mediation communication.

(c) Confidential Information shall not be subject to discovery and shall be inadmissible if 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 in a mediation.

(d) In such an adversarial proceeding, the following persons involved or previously involved
in a mediation may not be compelled to disclose confidential information obtained
during mediation: (1) the parties to the dispute; (2) the mediator or mediators; (3) the
counsel for the parties; (4) the nonparty participants; (5) any persons hired or engaged in
connection with the mediation as secretary, stenographer, clerk or assistant; and (6) any
other person who obtains or possesses confidential information by reason of his/her
profession.

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 (e) The protections of this Act shall continue to apply even of a mediator is found to have
failed to act impartially.

(f) a mediator may not be called to testify to provide information gathered in mediation. A
mediator who is wrongfully subpoenaed shall be reimbursed the full cost of his attorney's
fees and related expenses.

SEC. 10. Waiver of Confidentiality. - A privilege arising from the confidentiality of information may
be waived in a record, or orally during a proceeding by the mediator and the mediation parties.

A privilege arising from the confidentiality of information may likewise be waived by a nonparty
participant if the information is provided by such nonparty participant.

A person who discloses confidential information shall be precluded from asserting the privilege under
Section 9 of this Chapter to bar disclosure of the rest of the information necessary to a complete
understanding of the previously disclosed information. If a person suffers loss or damages in a
judicial proceeding against the person who made the disclosure.

A person who discloses or makes a representation about a mediation is preclude from asserting the
privilege under Section 9, to the extent that the communication prejudices another person in the
proceeding and it is necessary for the person prejudiced to respond to the representation of
disclosure.

SEC. 11. Exceptions to Privilege. -

(a) There is no privilege against disclosure under Section 9 if mediation communication is:

(1) in an agreement evidenced by a record authenticated by all parties to the

agreement;

(2) available to the public or that is made during a session of a mediation which is
open, or is required by law to be open, to the public;

(3) a threat or statement of a plan to inflict bodily injury or commit a crime of violence;

(4) internationally used to plan a crime, attempt to commit, or commit a crime, or

conceal an ongoing crime or criminal activity;

(5) sought or offered to prove or disprove abuse, neglect, abandonment, or

exploitation in a proceeding in which a public agency is protecting the interest of an
individual protected by law; but this exception does not apply where a child protection
matter is referred to mediation by a court or a public agency participates in the child
protection mediation;

(6) sought or offered to prove or disprove a claim or complaint of professional

misconduct or malpractice filed against mediator in a proceeding; or

(7) sought or offered to prove or disprove a claim of complaint of professional

misconduct of malpractice filed against a party, nonparty participant, or
representative of a party based on conduct occurring during a mediation.

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 (b) There is no privilege under Section 9 if a court or administrative agency, finds, after a
hearing in camera, that the party seeking discovery of the proponent of the evidence
has shown that the evidence is not otherwise available, that there is a need for the
evidence that substantially outweighs the interest in protecting confidentiality, and the
mediation communication is sought or offered in:

(1) a court proceeding involving a crime or felony; or

(2) a proceeding to prove a claim or defense that under the law is sufficient to reform
or avoid a liability on a contract arising out of the mediation.

(c) A mediator may not be compelled to provide evidence of a mediation communication or

testify in such proceeding.

(d) If a mediation communication is not privileged under an exception in subsection (a) or (b),
only the portion of the communication necessary for the application of the exception for
nondisclosure may be admitted. The admission of particular evidence for the limited purpose
of an exception does not render that evidence, or any other mediation communication,
admissible for any other purpose.

SEC. 12. Prohibited Mediator Reports. - A mediator may not make a report, assessment,
evaluation, recommendation, finding, or other communication regarding a mediation to a court or
agency or other authority that make a ruling on a dispute that is the subject of a mediation, except:

(a) Where the mediation occurred or has terminated, or where a settlement was reached.

(b) As permitted to be disclosed under Section 13 of this Chapter.

SEC. 13. Mediator's Disclosure and Conflict of Interest. - The mediation shall be guided by the
following operative principles:

(a) Before accepting a mediation, an individual who is requested to serve as a mediator

shall:

(1) make an inquiry that is reasonable under the circumstances to determinate

whether there are any known facts that a reasonable individual would consider likely
to affect the impartiality of the mediator, including a financial or personal interest in
the outcome of the mediation and any existing or past relationship with a party or
foreseeable participant in the mediation; and

(2) disclosure to the mediation parties any such fact known or learned as soon as is
practical before accepting a mediation.

(b) If a mediation learns any fact described in paragraph (a) (1) of this section after accepting
a mediation, the mediator shall disclose it as soon as practicable.

At the request of a mediation party, an individual who is requested to serve as mediator shall
disclose his/her qualifications to mediate a dispute.

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This Act does not require that a mediator shall have special qualifications by background or
profession unless the special qualifications of a mediator are required in the mediation agreement or
by the mediation parties.

SEC. 14. Participation in Mediation. - Except as otherwise provided in this Act, a party may
designate a lawyer or any other person to provide assistance in the mediation. A lawyer of this right
shall be made in writing by the party waiving it. A waiver of participation or legal representation may
be rescinded at any time.

SEC. 15. Place of Mediation. - The parties are free to agree on the place of mediation. Failing such
agreement, the place of mediation shall be any place convenient and appropriate to all parties.

SEC. 16. Effect of Agreement to Submit Dispute to Mediation Under Institutional Rules. - An
agreement to submit a dispute to mediation by any institution shall include an agreement to be
bound by the internal mediation and administrative policies of such institution. Further, an agreement
to submit a dispute to mediation under international mediation rule shall be deemed to include an
agreement to have such rules govern the mediation of the dispute and for the mediator, the parties,
their respective counsel, and nonparty participants to abide by such rules.

In case of conflict between the institutional mediation rules and the provisions of this Act, the latter
shall prevail.

SEC. 17. Enforcement of Mediated Settlement Agreement. - The mediation shall be guided by
the following operative principles:

(a) A settlement agreement following successful mediation shall be prepared by the parties
with the assistance of their respective counsel, if any, and by the mediator.

The parties and their respective counsels shall endeavor to make the terms and condition
thereof complete and make adequate provisions for the contingency of breach to avoid
conflicting interpretations of the agreement.

(b) The parties and their respective counsels, if any, shall sign the settlement agreement.
The mediator shall certify that he/she explained the contents of the settlement agreement to
the parties in a language known to them.

(c) If the parties so desire, they may deposit such settlement agreement with the appropriate
Clerk of a Regional Trial Court of the place where one of the parties resides. Where there is
a need to enforce the settlement agreement, a petition may be filed by any of the parties with
the same court, in which case, the court shall proceed summarily to hear the petition, in
accordance with such rules of procedure as may be promulgated by the Supreme Court.

(d) The parties may agree in the settlement agreement that the mediator shall become a sole
arbitrator for the dispute and shall treat the settlement agreement as an arbitral award which
shall be subject to enforcement under Republic Act No. 876, otherwise known as the
Arbitration Law, notwithstanding the provisions of Executive Order No. 1008 for mediated
dispute outside of the CIAC. ( it can be treated as arbitration proceedings according to the
agreement of the parties )

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 CHAPTER 3 - OTHER ADR FORMS

SEC. 18. Referral of Dispute to other ADR Forms. - The parties may agree to refer one or
more or all issues arising in a dispute or during its pendency to other forms of ADR such as
but not limited to (a) the evaluation of a third person or (b) a mini-trial, (c) mediation-
arbitration, or a combination thereof. (Mediation-Arbitration" or Med-Arb is a step dispute
resolution process involving both mediation and arbitration; "Mini-Trial" means a structured
dispute resolution method in which the merits of a case are argued before a panel
comprising senior decision makers with or without the presence of a neutral third person
after which the parties seek a negotiated settlement;)

For purposes of this Act, the use of other ADR forms shall be governed by Chapter 2 of this Act
except where it is combined with arbitration in which case it shall likewise be governed by Chapter 5
of this Act.

CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION

SEC. 19. Adoption of the Model Law on International Commercial Arbitration. - International
commercial arbitration shall be governed by the Model Law on International Commercial Arbitration
(the "Model Law") adopted by the United Nations Commission on International Trade Law on June
21, 1985 (United Nations Document A/40/17) and recommended approved on December 11, 1985,
copy of which is hereto attached as Appendix "A".

SEC. 20. Interpretation of Model Law. - In interpreting the Model Law, regard shall be had to its
international origin and to the need for uniformity in its interpretation and resort may be made to
the travaux preparatories and the report of the Secretary General of the United Nations Commission
on International Trade Law dated March 25, 1985 entitled, "International Commercial Arbitration:
Analytical Commentary on Draft Trade identified by reference number A/CN. 9/264."

SEC. 21. Commercial Arbitration. - An arbitration is "commercial" if it covers matters arising from
all relationships of a commercial nature, whether contractual or not. Relationships of a transactions:
any trade transaction for the supply or exchange of goods or services; distribution agreements;
construction of works; commercial representation or agency; factoring; leasing, consulting;
engineering; licensing; investment; financing; banking; insurance; joint venture and other forms of
industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road.

SEC. 22. Legal Representation in International Arbitration. - In international arbitration

conducted in the Philippines, a party may be presented by any person of his choice. Provided, that
such representative, unless admitted to the practice of law in the Philippines, ( REQ) shall not be
authorized to appear as counsel in any Philippine court, or any other quasi-judicial body whether or
not such appearance is in relation to the arbitration in which he appears.

SEC. 23. Confidential 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.

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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.

SEC. 25. Interpretation of the Act. - In interpreting the Act, the court shall have due regard to the
policy of the law in favor of arbitration. Where action is commenced by or against multiple parties,
one or more of whom are parties who are bound by the arbitration agreement although the civil
action may continue as to those who are not bound by such arbitration agreement.

SEC. 26. Meaning of "Appointing Authority.". - "Appointing Authority" as used in the Model Law
shall mean the person or institution named in the arbitration agreement as the appointing authority;
or the regular arbitration arbitration institution under whose rules the arbitration is agreed to be
conducted. Where the parties have agreed to submit their dispute to institutional arbitration rules,
and unless they have agreed to a different procedure, they shall be deemed to have agreed to
procedure under such arbitration rules for the selection and appointment of arbitrators. In ad hoc
arbitration, the default appointment of an arbitrator shall be made by the National President of the
Integrated Bar of the Philippines (IBP) or his duly authorized representative.

SEC. 27. What Functions May be Performed by Appointing Authority. - The functions referred to
in Articles 11(3), 11(4), 13(3) and 14(1) of the Model Law shall be performed by the Appointing
Authority, unless the latter shall fail or refuse to act within thirty (30) days from receipt of the request
in which case the applicant may renew the application with the Court.

SEC. 28. Grant of Interim Measure of Protection. -

(a) It is not incompatible with an arbitration agreement for a party to request, before
constitution of the tribunal, from a Court an interim measure of protection and for the Court to
grant such measure. After constitution of the arbitral tribunal and during arbitral proceedings,
a request for an interim measure of protection or modification thereof, may be made with the
arbitral tribunal or to the extent that the arbitral tribunal has no power to act or is unable to
act effectively, the request may be made with the Court. The arbitral tribunal is deemed
constituted when the sole arbitrator or the third arbitrator who has been nominated, has
accepted the nomination and written communication of said nomination and acceptance has
been received by the party making request.

(b) The following rules on interim or provisional relief shall be observed:

(1) Any party may request that provision relief be granted against the adverse party:

(2) Such relief may be granted:

(i) to prevent irreparable loss or injury:

(ii) to provide security for the performance of any obligation;

(iii) to produce or preserve any evidence; or

(iv) to compel any other appropriate act or omission.

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 (3) The order granting provisional relief may be conditioned upon the provision of
security or any act or omission specified in the order.

(4) Interim or provisional relief is requested by written application transmitted by

reasonable means to the Court or arbitral tribunal as the case may be and the party
against whom the relief is sought, describing in appropriate detail the precise relief,
the party against whom the relief is requested, the grounds for the relief, and
evidence supporting the request.

(5) The order shall be binding upon the parties.

(6) Either party may apply with the Court for assistance in Implementing or enforcing
an interim measure ordered by an arbitral tribunal.

(7) A party who does not comply with the order shall be liable for all damages
resulting from noncompliance, including all expenses, and reasonable attorney's
fees, paid in obtaining the order's judicial enforcement.

SEC. 29. Further Authority for Arbitrator to Grant Interim Measure of Protection. - Unless
otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order any party to
take such interim measures of protection as the arbitral tribunal may consider necessary in respect
of the subject matter of the dispute following the rules in Section 28, paragraph 2. Such interim
measures may include but shall not be limited to preliminary injuction directed against a party,
appointment of receivers or detention, preservation, inspection of property that is the subject of the
dispute in arbitration. (PAP) Either party may apply with the Court for assistance in implementing or
enforcing an interim measures ordered by an arbitral tribunal.

SEC. 30. Place of Arbitration. - The parties are free to agree on the place of arbitration. Failing
such agreement, (G) the place of arbitration shall be in Metro Manila, unless the arbitral tribunal,
having regard to the circumstances of the case, including the convenience of the parties shall decide
on a different place of arbitration.

The arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers
appropriate for consultation among its members, for hearing witnesses, experts, or the parties, or for
inspection of goods, other property or documents.

SEC. 31. Language of the Arbitration. - The parties are free to agree on the language or
languages to be used in the arbitral proceedings. Failing such agreement, the language to be used
shall be English in international arbitration, and English or Filipino for domestic arbitration, unless the
arbitral tribunal shall determine a different or another language or languages to be used in the
proceedings. This agreement or determination, unless otherwise specified therein, shall apply to any
written statement by a party, any hearing and any award, decision or other communication by the
arbitral tribunal.

The arbitral tribunal may order that any documentary evidence shall be accompanied by a
translation into the language or languages agreed upon by the parties or determined in accordance
with paragraph 1 of this section.

CHAPTER 5 - DOMESTIC ARBITRATION

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SEC. 32. Law Governing Domestic Arbitration. - Domestic arbitration shall continue to be
governed by Republic Act No. 876, otherwise known as "The Arbitration Law" as amended by this
Chapter. The term "domestic arbitration" as used herein shall mean an arbitration that is not
international as defined in Article (3) of the Model Law.

SEC. 33. Applicability to Domestic Arbitration. - Article 8, 10, 11, 12, 13, 14, 18 and 19 and 29 to
32 of the Model Law and Section 22 to 31 of the preceding Chapter 4 shall apply to domestic
arbitration.

CHAPTER 6 - ARBITRATION OF CONSTRUCTION DISPUTES

SEC. 34. Arbitration of Construction Disputes: Governing Law. - The arbitration of construction
disputes shall be governed by Executive Order No. 1008, otherwise known as the Constitution
Industry Arbitration Law.

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.

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.

( IN CONSTRUCTION ARB DISPUTES ) SEC. 36. Authority to Act as Mediator or Arbitrator. -

By written agreement of the parties to a dispute, an arbitrator may act as mediator and a mediator
may act as arbitrator. The parties may also agree in writing that, following a successful mediation,
the mediator shall issue the settlement agreement in the form of an arbitral award.

SEC. 37. Appointment of Foreign Arbitrator. - The Construction Industry Arbitration Commission
(CIAC) shall promulgate rules to allow for the appointment of a foreign arbitrator or coarbitrator or
chairman of a tribunal a person who has not been previously accredited by CIAC: Provided, That:

(a) the dispute is a construction dispute in which one party is an international party

(b) the person to be appointed agreed to abide by the arbitration rules and policies of CIAC;

(c) he/she is either coarbitrator upon the nomination of the international party; or he/she is
the common choice of the two CIAC-accredited arbitrators first appointed one of whom was
nominated by the international party; and

(d) the foreign arbitrator shall be of different nationality from the international party.

SEC. 38. Applicability to Construction Arbitration. - The provisions of Sections 17 (d) of Chapter
2, and Section 28 and 29 of this Act shall apply to arbitration of construction disputes covered by this
Chapter.

SEC. 39. Court to Dismiss Case Involving a Construction Dispute. - A regional trial court which a
construction dispute is filed shall, upon becoming aware, not later than the pretrial conference, that
the parties had entered into an arbitration to be conducted by the CIAC, (EE) unless both parties,

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assisted by their respective counsel, shall submit to the regional trial court a written agreement
exclusive for the Court, rather than the CIAC, to resolve the dispute.

CHAPTER 7 - JUDICIAL REVIEW OF ARBITRAL AWARDS

A. DOMESTIC AWARDS

SEC. 40. Confirmation of Award. - The confirmation of a domestic arbitral award shall be governed
by Section 23 of R.A. 876.

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.

( NOTE NO NEED FOR CONFIRMATION – IN CONSTRUCTION DISPUTES UNDER

JURISDICTION OF CIAC )

A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided
under E.O. No. 1008.

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.
( ????)

B. FOREIGN ARBITRAL AWARDS

SEC. 42. Application of the New York Convention. - The New York Convention shall govern the
recognition and enforcement of arbitral awards covered by the said Convention.

The recognition and enforcement of such arbitral awards shall be filled with regional trial court in
accordance with the rules of procedure to be promulgated by the Supreme Court. Said procedural
rules shall provide that the party relying on the award or applying for its enforcement shall file with
the court the original or authenticated copy of the award and the arbitration agreement. If the award
or agreement is not made in any of the official languages, the party shall supply a duly certified
translation thereof into any of such languages.

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The applicant shall establish that the country in which foreign arbitration award was made is a party
to the New York Convention.

If the application for rejection or suspension of enforcement of an award has been made, the
regional trial court may, if it considers it proper, vacate its decision and may also, on the application
of the party claiming recognition or enforcement of the award, order the party to provide appropriate
security.

SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered by the New
York Convention. - The recognition and enforcement of foreign arbitral awards not covered by the
New York Convention shall be done in accordance with procedural rules to be promulgated by the
Supreme Court. The Court may, grounds of comity and reciprocity, recognize and enforce a
nonconvention award as a convention award.

SEC. 44. Foreign Arbitral Award Not Foreign Judgment. - A foreign arbitral award when
confirmed by a court of a foreign country, shall be recognized and enforced as a foreign arbitral
award and not a judgment of a foreign court.

A foreign arbitral award, when confirmed by the regional trial court, shall be enforced as a foreign
arbitral award and not as a judgment of a foreign court.

A foreign arbitral award, when confirmed by the regional trial court, shall be enforced in the same
manner as final and executory decisions of courts of law of the Philippines.

( search !!!) SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration
proceeding may oppose an application for recognition and enforcement of the arbitral award in
accordance with the procedural rules to be promulgated by the Supreme Court only on those
grounds enumerated under Article V of the New York Convention. Any other ground raised shall be
disregarded by the regional trial court.

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
required by the appealant 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.

SEC. 47. Venue and Jurisdiction. - Proceedings for recognition and enforcement of an arbitration
agreement or for vacation, setting aside, correction or modification of an arbitral award, and any
application with a court for arbitration assistance and supervision shall be deemed as special
proceedings and shall be filled with the regional trial court (i) where arbitration proceedings are
conducted; (ii) where the asset to be attached or levied upon, or the act to be enjoined is located; (iii)
where any of the parties to the dispute resides or has his place of business; or (iv) in the National
Judicial Capital Region, at the option of the applicant.

SEC. 48. Notice of Proceeding to Parties. - In a special proceeding for recognition and
enforcement of an arbitral award, the Court shall send notice to the parties at their address of record
in the arbitration, or if any party cannot be served notice at such address, at such party's last known

13
address. The notice shall be sent at least fifteen (15) days before the date set for the initial hearing
of the application.

CHAPTER 8 - MISCELLANEOUS PROVISIONS

SEC. 49. Office for Alternative Dispute Resolution. - There is hereby established the Office for
Alternative Dispute Resolution as an attached agency to the Department of Justice (DOJ) which
shall have a Secretariat to be headed by an executive director. The executive director shall be
appointed by the President of the Philippines.

The objective of the office are:

(a) to promote, develop and expand the use of ADR in the private and public sectors; and

To assist the government to monitor, study and evaluate the use by the public and the private sector
of ADR, and recommend to Congress needful statutory changes to develop. Strengthen and improve
ADR practices in accordance with world standards.

SEC. 50. Powers and Functions of the Office for Alternative Dispute Resolution. - The Office
for Alternative Dispute Resolution shall have the following powers and functions:

(a) To formulate standards for the training of the ADR practitioners and service providers;

(b) To certify that such ADR practitioners and ADR service providers have undergone the
professional training provided by the office;

(c) To coordinate the development, implementation, monitoring, and evaluation of

government ADR programs;

(d) To charge fees for their services; and

(e) To perform such acts as may be necessary to carry into effect the provisions of this Act.

SEC. 51. Appropriations. - The amount necessary to carry out the provisions of this Act shall be
included in the General Appropriations Act of the year following its enactment into law and thereafter.

SEC. 52. Implementing Rules and Regulations (IRR). - Within one (1) month after the approval of
this Act, the secretary of justice shall convene a committee that shall formulate the appropriate rules
and regulations necessary for the implementation of this Act. The committee, composed of
representatives from:

(a) the Department of Justice;

(b) the Department of Trade and Industry;

(c) the Department of the Interior and Local Government;

(d) the president of the Integrated Bar of the Philippines;

(e) A representative from the arbitration profession; and

14
 (f) A representative from the mediation profession; and

(g) A representative from the ADR organizations

shall within three (3) months after convening, submit the IRR to the Joint Congressional Oversight
Committee for review and approval. The Oversight Committee shall be composed of the chairman of
the Senate Committee on Justice and Human Rights, chairman of the House Committee on Justice,
and one (1) member each from the majority and minority of both Houses.

The Joint Oversight Committee shall become functus officio upon approval of the IRR.

SEC. 53. Applicability of the Katarungan Pambarangay. - This Act shall not be interpreted to
repeal, amend or modify the jurisdiction of the Katarungan Pambarangay under Republic Act No.
7160, otherwise known as the Local Government Code of 1991.

SEC. 54. Repealing Clause. - All laws, decrees, executive orders, rules and regulations which are
inconsistent with the provisions of this Act are hereby repealed, amended or modified accordingly.

SEC. 55. Separability Clause. - If for any reason or reasons, any portion or provision of this Act
shall be held unconstitutional or invalid, all other parts or provisions not affected shall thereby
continue to remain in full force and effect.

SEC. 56. Effectivity. - This act shall take effect fifteen days (15) after its publication in at least two
(2) national newspapers of general circulation.

15
Revisiting Republic Act 9285: Salient Features of International Commercial Arbitration and
Challenges

Section 2 of the Republic Act 9285 declares as follows:

It is hereby declared [that] the policy of the State [is] to actively promote party autonomy in the
resolution of disputes or the freedom of the party to make their own arrangements to resolve
their disputes. To 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 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.”[1]

The Republic Act No. 9285, otherwise known as the Alternative Dispute Resolution Act of 2004
(ADR Law), may be considered a major breakthrough in the Philippine court system, benefitting
not only Filipinos in and out of the country, but also aliens who desire to achieve justice in the
domestic courts.

The ADR Law responds to numerous calls to address the perennial issues bombarding the
Philippine court system, such as the clogging of court dockets, expensive litigation fees, slow-
paced judicial proceedings and the rigid and adversarial system of courts.

Court dockets are seriously congested due to indiscriminate filing of cases and delayed case
resolutions because of inefficiency, incompetence, sloth or laziness, corruption or conflict of
interests of court officials.[2]

According to Eduardo Ceniza (2005), a simple collection case may take as much as two years
before it is decided by the trial court and another one or two years before it is finally decided on
appeal. The more complex commercial cases can remain in litigation for up to five or more
years. The availability of appeals, frivolous or otherwise, at different levels of the court
hierarchy also contributes to undue delay in the disposition of cases. As a consequence to slow-

16
paced resolution of these cases, the litigation cost in terms of legal fees and other expenses
become disproportionately high.[3]

Thus, in the Philippines, according to Ceniza, it is not unusual for judges to handle more than
500 cases. And this number will continuously escalate unless measures are adopted that
dispose of cases through a systematic and sustained judicial reform program.

Moreover, the ADR Law addresses the indispensable effects of globalization on commercial
transactions, such as the expansion of international trade and foreign investment,[4] which
require domestic laws to adopt alternative means of dispute resolution applicable and friendly
to commerce.

With globalization and technological advancements, there is an unceasing growth of

international commercial transactions, which as a consequence, leads to the increase in the
number of commercial disputes arising from such transactions. It must be recognized that
parties involved in these transactions have varied nationalities and their business offices are
located in different countries. Moreover, the transactions among these parties occur across
borders.

Given these, when disputes arise, parties tend to choose the forum that best satisfies their
interests and desires. Thus, there arises a need for measures that would regulate these
transactions and which are equally satisfying to the parties. The ADR Law addresses this need in
the Philippines.

Thus, in the words of Leslie Chew (2006), the law “seeks to revamp and to introduce into the
Philippines for the first time, specific laws which would cover the law relating to alternative
dispute resolution including international commercial arbitration.”[5]

However, this law had been long overdue. In 1953, the Philippine Congress enacted Republic Act
No. 876, otherwise known as the Arbitration Law, which made arbitration as an inexpensive,
speedy and amicable method of settling disputes and as a means of avoiding litigation. Then the
Philippines became a signatory to the United Nations Convention on the Recognition and the
Enforcement of Foreign Arbitral Awards of 1958 or the New York Convention on June 10, 1958
and the said Convention was ratified nine years after. It was only 50 years after the passage of
the Arbitration Law that Republic Act 9285 was enacted,[6] reinforcing not only the provisions
of the Arbitration Law, but also the country’s adherence to the New York Convention. The
Alternative Dispute Resolution Act of 2004 was the consolidated version of Senate Bill No. 2671
and House Bill No. 5654, and was signed by President Gloria Macapagal-Arroyo on April 2, 2004.
[7]

Though the Alternative Dispute Resolution Act of 2004 pertains to a number of processes or
procedures used to resolve a dispute or controversy, other than by adjudication of a presiding
judge of a court or an officer of a government agency, namely arbitration, mediation,
conciliation, early neutral evaluation, mini-trial, or any combination thereof, this paper will

17
focus only on the salient features of the law pertaining to international commercial arbitration,
recent trends and challenges.

R.A. 9285 AND THE MODEL LAW: CONVERGENCE?

The UNCITRAL Model Law on International Commercial Arbitration (“The Model Law”) was
adopted by the United Nations Commission on International Trade Law (UNCITRAL) on June 21,
1985. The Model Law constitutes a sound basis for the desired harmonization and improvement
of the national laws. It covers all stages of the arbitral process from the arbitration agreement to
the recognition and enforcement of the arbitral awards and reflects a worldwide consensus on
the principles and important issues of international arbitration practice. Since its adoption by
UNCITRAL, the Model Law has come to represent the accepted international legislative standard
for a modern arbitration law and a significant number of jurisdictions have enacted arbitration
legislation based on the Model Law.[8]

The Model Law attempts to address the considerable disparities and inadequacies of national
laws of arbitration. It sets a standard for those countries which are still about to legislate their
own arbitration laws. They are encouraged to make few or slight changes as much as possible
when incorporating the Model Law into their legal systems. And for those with established
arbitration laws, the Model Law serves as guide as they amend their laws to conform to the
provisions of the Model Law. Given these, foreign parties become more confident in engaging in
international commercial transactions, knowing that there is an international effort to adopt the
Model Law in the national laws of these countries.

In the Philippines, the Republic Act 9285 incorporated the UNCITRAL Model Law, as evidenced
by Sections 19 and 20 of Chapter 4 of the latter law.

“CHAPTER 4: INTERNATIONAL COMMERCIAL ARBITRATION

SEC. 19. Adoption of the Model Law on International Commercial Arbitration. – International
commercial arbitration shall be governed by the Model Law on International Commercial
Arbitration (the “Model Law”) adopted by the United Nations Commission on International
Trade Law on June 21, 1985 (United Nations Document A/40/17) and recommended for
enactment by the General Assembly in Resolution No. 40/72 approved on December 11, 1985,
copy of which is hereto attached as Appendix “A”.

SEC. 20. Interpretation of Model Law. – In interpreting the Model Law, regard shall be had to its
international origin and to the need for uniformity in its interpretation and resort may be made
to the travaux preparatories and the report of the Secretary General of the United Nations
Commission on International Trade Law dated March 25, 1985 entitled, “International
Commercial Arbitration: Analytical Commentary on Draft Trade identified by reference number
A/CN. 9/264.”[9]

18
Indeed, the adoption of the Model Law as the law on international commercial arbitration has
opened the doors for the Philippines to be to be a seat for international commercial arbitration.
Thus, it can now be said that the Philippines has become an arbitration-friendly country.

As Eduardo Ceniza (2005) claims, the international commercial arbitration cannot avoid the
incidence and influence of national law. For one thing, arbitration cannot take place totally
without reference to its venue and, necessarily, the national law of the venue. The lex arbitri will
certainly have an influence, if not a direct bearing, upon the procedural and other
administrative aspects of the arbitration. For another thing, arbitrators do not have power over
individuals or institutions who do not submit themselves to the jurisdiction of the arbitral
tribunal. Thus, to bind third parties, for instance, to interim measures of protection, resort to
the national court for assistance becomes unavoidable. Therefore, while international
commercial arbitration may operate quite independently of national law, the national law of the
place of arbitration will always be somewhere in the background. Indeed, national law provides
the contextual framework in which all international commercial arbitration take place.[10]

Based on the above, since the ADR Law finds its roots in the Model Law, then the convergence
between the two is indeed well-pronounced.

SALIENT FEATURES AND CHALLENGES

Arbitration, as the law defines, is the voluntary dispute resolution process in which one or more
arbitrators, appointed in accordance with the agreement of the parties, or rules promulgated
pursuant to this Act, resolve a dispute by rendering an award.[11] In arbitration, parties have
freedom to choose the arbitrators who will compose the tribunal, and the procedures and the
substantive law that would govern the proceedings.

On the other hand, commercial arbitration becomes such “if it covers matters arising from all
relationships of a commercial nature, whether contractual or not.”[12] These relationships are
enumerated by the law under the same provision.

In discussing the salient features of the law pertaining to international commercial arbitration,
attention must be had on the Chapter 4 of the ADR Law.

A. Interpretation of the Act

The law provides that in interpreting R.A. No. 9285, the courts are directed to give due regard to
the policy of favoring arbitration. “Where action is commenced by or against multiple parties,
one or more of whom are parties to an arbitration agreement, the court shall refer to
arbitration those parties who are bound by the arbitration agreement although the civil action
may continue as to those who are not bound by such arbitration agreement.”[13]

The provision provides what the court should do when confronted with an action involving
parties to an arbitration agreement. As the law prescribes, arbitration should be favored. Thus,

19
cases involving parties bound by the arbitration agreement should be referred to arbitration
proceedings. Arbitration agreements cannot be defeated by impleading or joining either as
plaintiff or defendant a person who was not a party to the arbitration agreement.

Chew (2006) declared that “couple this provision with the Declaration of Policy (favoring ADR) in
Section 2 of the Act, the intent of the legislators to favor arbitration including international
commercial arbitration is not in doubt. The edict requiring the court to have “due regard” to
the state policy is admirable and in this writer’s view timely. Even in jurisdictions where
arbitration law may be said to have developed to a mature state, judges frequently need to be
reminded of the place for arbitration within the State’s legal system. In a state like the
Philippines where it is perhaps not unfair to say that the practice of international commercial
arbitration is still nascent, it is useful to remind the courts as to the role and position of
arbitration (italicized supplanted).”[14]

B. Legal Representation in International Arbitration

Section 22 provides that “in international arbitration conducted in the Philippines, a party may
be presented by any person of his choice. Provided, that such representative, unless admitted to
the practice of law in the Philippines, shall not be authorized to appear as counsel in any
Philippine court, or any other quasi-judicial body whether or not such appearance is in relation
to the arbitration in which he appears.”[15]

Consistent with the Philippines’ intention to be an international commercial arbitration center,

this provision allows foreign lawyers, though not admitted to practice law in the territory of the
seat of the arbitration, to represent a party before the international arbitral tribunal. Such
foreign lawyers fall within the scope of “any person” and any interpretation to the contrary
would defeat the spirit of the law.

Chew (2006) made an interesting point about this provision:

“It has been noted above that this provision is commendable. This, perhaps, requires some
clarification. It is sometimes thought by States that any national law which permits lawyers who
are not called to practice in the local territory would tantamount to a surrender of sovereignty
and perhaps more aptly tantamount to opening the flood-gates to foreign lawyers to the
detriment of the local bar. It is submitted that that is a fallacy. Firstly, by enacting a provision like
Section 22 of the Republic Act, the Philippines does not in any way surrender control of the
practice of law. The permission given to foreign lawyers to ‘practice’ by appearing before
international commercial arbitration is limited by its definition. Secondly, by permitting foreign
counsel representation, the Philippines immediately reassures foreign parties, more to the
point, foreign investors that they will, in international commercial arbitration conducted in the
Philippines, have access to counsel of their choice even if such counsel are foreign lawyers. This
is an important matter for foreigners who are engaged in a dispute in a foreign territory. Finally,
foreign counsel appearing in the Philippines will invariably require assistance of local counsel. It
is not to be forgotten that in every arbitration, the lex arbitri as opposed to the substantive law

20
of the transaction, which parties are disputing over, will be the national law. In this case the law
of the Philippines. No foreign counsel would be foolhardy enough to purport to act on
Philippine law and would therefore rely on local counsel. This, it is submitted, creates a
welcome ‘spin-off’ for the local bar who will have a new dimension to their practice in the
Philippines, that of participating in international commercial arbitration.”

To summarize the above-quoted, allowing foreign lawyers to represent a party before an

international arbitral tribunal does not tantamount to a surrender of sovereignty and in fact
would be more beneficial not only to the image of the Philippines as an international
commercial arbitration center, but also to the local bar as it exposed them to a new dimension
of practice of law.

C. Confidentiality of Proceedings

Section 23 of the ADR Law expressly declares arbitration proceedings, including the records,
evidence, and arbitral award, to be 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.[16]

Absent in the Republic Act No. 876 or Philippine Arbitration Law, this provision is highly
welcomed by businessmen who want to settle their commercial disputes unnoticed by the
general public and to safeguard their trade secrets and strategies.

At the same time, the provision sets out the grounds in which the courts “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.”

D. Referral to Arbitration

The ADR Law provides that “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.”[17]

As Chew observed, the language of Section 24 is based on Article 8(1) of the Model law. Since
the language used here follows Article 8(1), the intention behind the section must be to provide
mandatory stay in circumstances which fall within the ambit of Section. This is evident from the
use of the use of the phrase “A court…shall…refer the parties to arbitration unless…”

It must also be noted that under the above-quoted provision, referral is dependent on the
requests. The latter can only be done in two ways: first, request made by at least on party not
late than the pre-trial conference, and second, request made both parties after the pre-trial

21
conference. Now, absent these requests, the court cannot refer the parties to arbitration except
upon the court’s finding that the arbitration agreement is null and void, inoperative or incapable
of being performed.

E. Appointing Authority

The ADR Law defines “appointing authority” as used in the Model Law, which refers to “the
person or institution named in the arbitration agreement as the appointing authority; or the
regular arbitration arbitration institution under whose rules the arbitration is agreed to be
conducted. Where the parties have agreed to submit their dispute to institutional arbitration
rules, and unless they have agreed to a different procedure, they shall be deemed to have
agreed to procedure under such arbitration rules for the selection and appointment of
arbitrators. In ad hoc arbitration, the default appointment of an arbitrator shall be made by the
National President of the Integrated Bar of the Philippines (IBP) or his duly authorized
representative.”

There is nothing controversial in this provision except that the National President of the IBP or
his duly authorized representative, as appointing authority, must be wary about exercising such
authority. It must be exercised with wisdom and under the principles of independence,
impartiality or neutrality, and transparency. It must be recognized the human decision-making is
highly prone to prejudice and the appointing authority must ensure that the arbitration practice
in the Philippines is ran by competent and credible arbitrators.

Thus, for Chew, “it is therefore necessary for the Philippines to monitor international
perceptions towards its designation of the President of the local bar as the appointing authority.
Certainly one of the criticisms would be that it gives rise to perception that local arbitrators or
practitioners have the advantage when it comes to the appointment of arbitrators by default. It
is not suggested that the mere designation of the President of the local bar gives rise to any real
concern of a preference for locals but perception is all important in international or
transboundary disputes. For these reasons, many centers which tout themselves as being
international designate independent parties (independent in the sense that there is no
perceived link to the local bar or other local establishment) as the appointing authority.”[18]

F. Place and Venue of Arbitration

Section 30 of the ADR Law provides that “the parties are free to agree on the place of
arbitration. Failing such agreement, the place of arbitration shall be in Metro Manila, unless the
arbitral tribunal, having regard to the circumstances of the case, including the convenience of
the parties shall decide on a different place of arbitration.”[19]

It is widely recognized that in international commercial arbitration, parties may agree to

conduct the arbitration proceedings in a place that guarantees impartiality or neutrality.
However, when parties fail to agree, resort is had to the tribunal having regard to circumstances
of the case and convenience of the parties. In addition, the law also provides that absent any

22
agreement between the parties and any decision of the tribunal as the venue, the place or
venue of arbitration shall be in Metro Manila.

Leslie Chew (2006) asserted that the express fixation of the place of arbitration in Metro Manila
in case there is absence of parties agreeing or the arbitral tribunal appointing the place of
arbitration “may have been necessitated by the vastness and ‘sprawling’ nature of the islands
that make up the Philippines. In line with party autonomy, the provision does not however
affect the parties’ ability to agree to meet anywhere however far-flung in the archipelago or
elsewhere outside the Philippines. To that extent, the provision is curious.”[20]

G. Interim and Provisional Measures of Protection

The ADR Law expanded the powers of the arbitrators and defined clearly the role of courts, as
well as the arbitral tribunal, in the issuance and enforcement of interim/conservatory measures.

Courts are permitted, as a rule, to grant interim and provisional reliefs during the pendency of
arbitral proceedings. It is also recognized that arbitral tribunals are authorized authority to
grant interim measures such as preliminary injunction, appointment of receivers, detention,
preservation and inspection of property, among others. Even granting that both the courts and
the arbitral tribunal are given the same power, parties cannot avail of these simultaneously.
Court has only authority to grant interim measures “to the extent that the arbitral tribunal has
no power to act or is unable to act effectively.” The law does not provide for concurrent power
of the courts and the arbitral tribunal to grant interim measure of protection.[21] The court
must exercise this power sparingly, giving way or precedence to the exercise thereof by the
arbitral tribunal .

The ADR Act provides in Section 28, paragraph (a) that: “It is not incompatible with an
arbitration agreement for a party, before constitution of the arbitral tribunal, to request from a
Court an interim measure of protection and for the Court to grant such measure. After
constitution of the arbitral tribunal and during arbitral proceedings, a request for an interim
measure of protection, or modification thereof, may be made with the arbitral tribunal or to the
extent that the arbitral tribunal has no power to act or is unable to act effectively, the request
may be made with the Court.”

Section 29 appear to extend and widen the scope of powers found in Section 28 although it is
more a case of an elaboration of the powers set out in Section 28. Section 29 specifically refers
to the granting of preliminary injunctions but includes also the power to appoint a receiver,
powers of detention and preservation and inspection of property, which is the subject matter of
the arbitration. Helpfully, Section 29 makes clear that a party may seek the court’s assistance in
enforcing the interim orders of an arbitral tribunal.[22]

However, as also pointed out by Leslie Chew, though the law is clear that resort may be had to
the courts for “assistance” in implementing or enforcing an interim measure granted by the
arbitral tribunal, the law is silent whether orders and directions of an arbitral tribunal may be

23
enforced in the same manner as any order or direction of a court. This matter, which is still
awaiting for judicial interpretation by the Supreme Court, should have been spelled out clearly
in the law.

H. Confirmation of Domestic Arbitral Award

The ADR Law expressly provides that the Philippine Arbitration Law shall continuously govern
domestic arbitration. It must be noted that a domestic arbitral award is not self-executory. To
convert a domestic arbitral award into an enforceable judgment, the winning party has to file
with the courts a petition for confirmation of the arbitral award within thirty (30) days from
receipt of the arbitral award. The court should, as a matter of course, grant the petition, unless
there are grounds to vacate the award.

The Philippine Arbitration Law likewise provides that domestic arbitral awards may be vacated
only on a few limited grounds. And the ADR Law expressly declares that any ground other than
the grounds specified under the law for vacating a domestic arbitral award “shall be
disregarded.[23]”

These provisions reinforce the validity and legal existence of the the Philippine Arbitration Law,
as the law applicable to domestic arbitration.

I. Recognition and Enforcement of Foreign Arbitral Award

Perhaps, what makes arbitration is so attractive and is considered the best alternative in the
international setting is the provision on recognition and enforcement of foreign arbitral award.

Section 42 of the ADR Law provides that the New York Convention shall govern the recognition
and enforcement of arbitral awards covered by the said Convention. In addition, it provides that
the recognition and enforcement of such arbitral awards shall be filed with regional trial court in
accordance with the rules of procedure to be promulgated by the Supreme Court. Moreover,
the applicant is required to establish that the country in which foreign arbitration award was
made is a party to the New York Convention.[24]

Under this provision, arbitral awards in International Commercial Arbitration are readily
enforced pursuant to the New York Convention of 1958 unlike in other foreign judgments.
Participant countries to the Convention are obliged to enforce arbitral awards as if they were
made domestically, subject to limited grounds on which enforcement may be refused. These
grounds are those enumerated under Article V of the New York Convention. These grounds
must be borne in mind by judges in order to avoid unlimited interference by the courts, thereby
fulfilling its pronouncement that arbitration is encouraged in this jurisdiction.

Attention must also be given to Section 43, which actually deals with the recognition and
enforcement of non-New York convention awards. Unlike Section 42, this section gives
consideration and attends to the recognition of non-New York Convention awards, which must

24
be in accordance with the procedural rules to be promulgated by the Supreme Court. However,
the provision refers to international comity and reciprocity as grounds for the recognition of
such awards.

Another provision worth discussing is Section 44, which distinguishes a foreign arbitral award
from a foreign judgment. It is widely known that foreign judgments are generally not
enforceable in other jurisdictions except in cases of reciprocity and comity. On the other hand,
arbitral awards are more readily enforceable. The law provides that a party applying for the
enforcement of the arbitral award only needs to file with the Regional Trial Court the original or
duly authenticated copy of the award and the arbitration agreement. The law also provides that
“a foreign arbitral award, when confirmed by the RTC, shall be enforced in the same manner as
final and executory decisions of courts of law of the Philippines.[25]

Indeed, this provision highlights the rationale why arbitration is considered the preferred
alternative in the international setting.

CONCLUSION

The enactment of the Alternative Dispute Resolution Act of 2004 (Republic Act No. 9285),
adopting the provisions of the Model Law, has paved the way to make Philippines one of the
international commercial arbitration in Asia. The law was indeed adopted not only to address
the perennial problems besetting the Philippines courts system like the clogged court dockets,
slow-paced litigation process, and costly litigation, but also to adjudicate international disputes
arising from the increasing number of international commercial transactions. More importantly,
the law was adopted to pave the way for transacting parties to make their own arrangements in
settling their disputes without seeking the intervention of the courts.

Indeed, the ADR Law has made promises and being a relatively new law, with its Implementing
Rules and Regulation promulgated in the late 2000s, there is more to expect in its
implementation by competent and credible arbitrators and arbitration institutions and in the
interpretation of its provisions by the Supreme Court. Indeed, its implementation is still in its
initial stage.

There is a need to introduce arbitration to the general public as an alternative method of

dispute resolution. Millions of Filipinos may, until now, have little awareness of arbitration as an
alternative method of dispute resolution. And that is the reason why every time they engage in
a dispute, it is almost automatic to them to file a case in court. Thus, efforts must be made to
make it well-known and widely-practiced.

To encourage foreign parties to resort to arbitration in the Philippines, the courts must provide
minimal “assistance” to the arbitration proceedings. Unbridled intervention of the courts in
arbitration proceedings will consequently prevent parties from resorting to arbitration and
preclude foreign parties from choosing the Philippines as venue for arbitration.

25
Finally, as an international commercial arbitration center, Philippines has long way to go. Efforts
must be exerted by the government to improve the image of the Philippines and to promote it
as the seat of international commercial arbitration in Asia. The government must show that
Philippines is highly conducive to international commercial arbitration by showing to them that
Philippines highly values transparency, neutrality and impartiality, and independence of
judgment, and that only competent, conscientious and credible arbitrators are appointed to
handle arbitration proceedings.

Singapore and Hongkong may be ahead for now, but once the ADR centers in the Philippines
have been fully equipped, who knows Philippines might be the premiere center for international
commercial arbitration not only in Asia but also of the world?

26
CASES:

DOCTRINE – Applicability of the UNCITRAL Model Law in the Philippines, “As signatory to the
Arbitration Rules of the UNCITRAL Model Law on International Commercial Arbitration[1][41] of
the United Nations Commission on International Trade Law (UNCITRAL) in the New York
Convention on June 21, 1985, the Philippines committed itself to be bound by the Model Law.”
The UNCITRAL Model Law is incorporated in RA 9285, hence, “arbitration clause not contrary to
public policy.” The pertinent features of RA 9285 incorporating the UNCITRAL Model Law:
1. The RTC must refer to arbitration in proper cases;
2. Foreign arbitral awards must be confirmed by the RTC in accordance with the rules of
procedure to be promulgated by the Supreme Court;
3. The RTC has jurisdiction to review foreign arbitral awards on provided specific grounds;
4. Grounds for judicial review different in domestic and foreign arbitral awards, grounds for
foreign arbitral awards are provided under Art. 34 (2) of the UNCITRAL Model Law while
domestic arbitral awards are provided under Sec. 25 of RA 876; and
5. RTC decision of assailed foreign arbitral award appealable to the Court of Appeals which
may further be reviewed by the Supreme Court under Rule 45.

KOREA TECHNOLOGIES vs. LERMA

FACTS:
Korea Technologies Co., Ltd. [Korea Tech], a Korean corporation, entered into a contract
with Pacific General Steel Manufacturing Corporation [Pacific General], a domestic corporation,
whereby Korea Tech undertook to ship and install in Pacific General’s site in Carmona, Cavite the
machinery and facilities necessary for manufacturing LPG cylinders, and to initially operate the
plant after it is installed. The plant, after completion of installation, could not be operated by
Pacific General due to its financial difficulties affecting the supply of materials. The last
payments made by Pacific General to Korea Tech consisted of postdated checks which were
dishonored upon presentment. According to Pacific General, it stopped payment because Korea
Tech had delivered a hydraulic press which was different in kind and of lower quality than that
agreed upon. Korea Tech also failed to deliver equipment parts already paid for by it. It
threatened to cancel the contract with Korea Tech and dismantle the Carmona plant. Korea
Tech initiated arbitration before the Korea Commercial Arbitration Board [KCAB] in Seoul, Korea
and, at the same time, commenced a civil action before the Regional Trial Court [the “trial
court”] where it prayed that Pacific General be restrained from dismantling the plant and
equipment. Pacific General opposed the application and argued that the arbitration clause was

27
null and void, being contrary to public policy as it ousts the local court of jurisdiction. It also
alleged that Korea Tech was not entitled to the payment of the amount covered by the two
checks, and that Korea Tech was liable for damages.

The trial court denied the application for preliminary injunction and declared the arbitration
agreement null and void. Korea Tech moved to dismiss the counterclaims for damages.

Meanwhile, Pacific General filed a motion “for inspection of things” to determine whether there
was indeed alteration of the quantity and lowering of quality of the machineries and equipment
and whether these were properly installed. Korea Tech opposed the motion arguing that these
issues were proper for determination in the arbitration proceeding.

The court denied the motion to dismiss and granted the motion for inspection of things. The
court also directed the Branch Sheriff to proceed with the inspection of the machineries and
equipment in the plant. The Branch Sheriff later reported his finding that the enumerated
machineries and equipment were not fully and properly installed.

Korea Tech filed a petition for certiorari before the Court of Appeals [CA]. The court dismissed
the petition and held that an arbitration clause which provided for a final determination of the
legal rights of the parties to the contract by arbitration was against public policy.
10. ISSUE:
11. Whether or not the arbitration clause stated in Article 15 of the contract is to be
deemed null and void
12. HELD/Ratio:
13. The arbitration clause is valid. It has not been shown to be contrary to any law, or
against morals, good customs, public order or public policy. The arbitration clause stipulates
that the arbitration must be done in Seoul, Korea in accordance with the Commercial
Arbitration Rules of the KCAB, and that the award is final and binding. This is not contrary to
public policy. The court finds no reason why the arbitration clause should not be respected and
complied with by both parties.”

14. This ruling, the Court said, is consonant with the declared policy in Section 2 of the ADR
Act that “the State (shall) actively promote party autonomy in the resolution of disputes or the
freedom of the parties to make their own arrangements to resolve their disputes.” Citing
Section 24 of the ADR Act, the Court said the trial court does not have jurisdiction over disputes
that are properly the subject of arbitration pursuant to an arbitration clause. In the earlier case
of BF Corporation v. Court of Appeals and Shangri-la Properties, Inc., where the trial court
refused to refer the parties to arbitration notwithstanding the existence of an arbitration
agreement between them, the Supreme Court said the trial court had prematurely exercised its
jurisdiction over the case.

15. The Court further emphasized that a submission to arbitration is a contract. As a rule,
contracts are respected as the law between the contracting parties and produce effect between

28
them, their assigns and heirs. Courts should liberally review arbitration clauses. Any doubt
should be resolved in favor of arbitration.

With regard the Termination of contract with arbitration clause, A party may not unilaterally
rescind or terminate the contract (that contains an arbitration clause) for whatever cause
without first resorting to arbitration. The rule allowing extrajudicial rescission of a contract in
case of breachdoes not apply when the contract contains a valid arbitration clause as the issues
arising from such alleged breaches of the contract by a party must be brought first and resolved
by arbitration. Thus, the issues arising from the contract between Korea Tech and Pacific
General on whether the equipment and machineries delivered and installed were properly
installed and operational in Carmona and other issues related thereto are proper for arbitration.
Pacific General’s counterclaim for damages Where the issue of validity of the arbitration clause
or of its proper scope is submitted to a trial court in a petition to compel arbitration, the
Arbitration Law confines the court’s authority to pass upon issue such in a summary proceeding.
The trial court must refrain from taking up the claim of the contending parties for damages
which may be ventilated in a separate proceeding at the appropriate time and venue.

The Enforcement of award in a domestic or international arbitration manifests that an arbitral

award in a domestic or international arbitration is subject to enforcement by a court upon
application of the prevailing party for the confirmation or recognition and enforcement of an
award. Under Section 42 of the ADR Act, “The recognition and enforcement of such (foreign)
arbitral awards shall be filed with the Regional Trial Court in accordance with the rules of
procedure to be promulgated by the Supreme Court.” An arbitral award is immediately
executory upon the lapse of the period provided by law. For an award rendered in domestic or
non-international arbitration, unless a petition to vacate the award is filed within thirty (30)
days from the date of serve upon the latter, the award is subject to confirmation by the court.
For an award rendered in a domestic, international arbitration, the period for filing an
application to set it aside is not later than three (3) months from the date the applicant received
the award, otherwise the court shall recognize and enforce it.

There is obviously confusion between or among the following:

(a) The 1958 New York Convention;

(b) The UNCITRAL Model Law on International Commercial Arbitration; and

(c) The UNCITRAL Arbitration Rules.

( 2nd digest )

KOREA TECHNOLOGIES vs. LERMA

FACTS

29
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in the supply
and installation of Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants, while private
respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic corporation.
On March 5, 1997, PGSMC and KOGIES executed a contract in the Philippines whereby KOGIES would set
up an LPG Cylinder Manufacturing Plant in Carmona, Cavite. On April 7, 1997, in Korea, the parties
executed Contract No. KLP-970301 dated March 5, 1997 amending the terms of payment. On October
14, 1997, PGSMC entered into a Contract of Lease with Worth Properties, Inc. (Worth) for use of Worth’s
5,079-square meter property with a 4,032-square meter warehouse building to house the LPG
manufacturing plant.

On January 22, 1998, it was shown in the Certificate that, after the installation of the plant, the initial
operation could not be conducted as PGSMC encountered financial difficulties affecting the supply of
materials, thus forcing the parties to agree that KOGIES would be deemed to have completely complied
with the terms and conditions of the March 5, 1997 contract.

For the remaining balance of USD306,000 for the installation and initial operation of the plant, PGSMC
issued two post dated checks. When KOGIES deposited the checks, these were dishonored for the
reason "PAYMENT STOPPED." Thus, on May 8, 1998, KOGIES sent a demand letter to PGSMC threatening
criminal action for violation of Batas Pambansa Blg. 22 in case of non payment. On the same date, the
wife of PGSMC’s President faxed a letter dated May 7, 1998 to KOGIES’ President who was then staying
at a Makati City hotel. She complained that not only did KOGIES deliver a different brand of hydraulic
press from that agreed upon but it had not delivered several equipment parts already paid for.

On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully funded but the
payments were stopped for reasons previously made known to KOGIES.

On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract dated March 5,
1997 on the ground that KOGIES had altered the quantity and lowered the quality of the machineries
and equipment it delivered to PGSMC, and that PGSMC would dismantle and transfer the machineries,
equipment, and facilities installed in the Carmona plant. Five days later, PGSMC filed before the Office of
the Public Prosecutor an Affidavit-Complaint for Estafa docketed as I.S. No. 98-03813 against Mr. Dae
Hyun Kang, President of KOGIES.

On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not unilaterally rescind
their contract nor dismantle and transfer the machineries and equipment on mere imagined violations
by KOGIES. It also insisted that their disputes should be settled by arbitration as agreed upon in Article
15, the arbitration clause of their contract.

On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1, 1998 letter
threatening that the machineries, equipment, and facilities installed in the plant would be dismantled
and transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted an Application for Arbitration
before the Korean Commercial Arbitration Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the
Contract as amended.

On July 3, 1998, KOGIES filed a Complaint for Specific Performance, against PGSMC before the
Muntinlupa City Regional Trial Court (RTC). The RTC granted a temporary restraining order. In its
complaint, KOGIES alleged that PGSMC had initially admitted that the checks that were stopped were not
funded but later on claimed that it stopped payment of the checks for the reason that "their value was
not received" as the former allegedly breached their contract by "altering the quantity and lowering the

30
quality of the machinery and equipment" installed in the plant and failed to make the plant operational
although it earlier certified to the contrary as shown in a January 22, 1998 Certificate. Likewise, KOGIES
averred that PGSMC violated Art. 15 of their Contract, as amended, by unilaterally rescinding the
contract without resorting to arbitration. KOGIES also asked that PGSMC be restrained from dismantling
and transferring the machinery and equipment installed in the plant which the latter threatened to do
on July 4, 1998.

On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled to the TRO
since Art. 15, the arbitration clause, was null and void for being against public policy as it ousts the local
courts of jurisdiction over the instant controversy.

On July 23, 1998, the RTC issued an Order denying the application for a writ of preliminary injunction,
reasoning that PGSMC had paid KOGIES USD 1,224,000, the value of the machineries and equipment as
shown in the contract such that KOGIES no longer had proprietary rights over them. And finally, the RTC
held that Art. 15 of the Contract as amended was invalid as it tended to oust the trial court or any other
court jurisdiction over any dispute that may arise between the parties. KOGIES’ prayer for an injunctive
writ was denied.

PGSMC filed a Motion for Inspection of Things to determine whether there was indeed alteration of the
quantity and lowering of quality of the machineries and equipment, and whether these were properly
installed. KOGIES opposed the motion positing that the queries and issues raised in the motion for
inspection fell under the coverage of the arbitration clause in their contract. KOGIES asserted that the
Branch Sheriff did not have the technical expertise to ascertain whether or not the machineries and
equipment conformed to the specifications in the contract and were properly installed. The trial court
granted the motion. On November 11, 1998, the Branch Sheriff filed his Sheriff’s Report finding that the
enumerated machineries and equipment were not fully and properly installed.

Court of Appeals affirmed the trial court and declared the arbitration clause against public policy.

ISSUE
W/N the arbitration clause is against public policy – NO.

RULING
Established in this jurisdiction is the rule that the law of the place where the contract is made
governs. Lex loci contractus. The contract in this case was perfected here in the Philippines. Therefore,
our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code sanctions the validity of mutually
agreed arbitral clause or the finality and binding effect of an arbitral award. Art. 2044 provides, " Any
stipulation that the arbitrators’ award or decision shall be final, is valid, without prejudice to Articles
2038, 2039 and 2040." (Emphasis supplied.)

Arbitration clause not contrary to public policy: The arbitration clause which stipulates that the
arbitration must be done in Seoul, Korea in accordance with the Commercial Arbitration Rules of the
KCAB, and that the arbitral award is final and binding, is not contrary to public policy.

Having said that the instant arbitration clause is not against public policy, we come to the question on
what governs an arbitration clause specifying that in case of any dispute arising from the contract, an
arbitral panel will be constituted in a foreign country and the arbitration rules of the foreign country
would govern and its award shall be final and binding.

31
RA 9285 incorporated the UNCITRAL Model law to which we are a signatory: For domestic arbitration
proceedings, we have particular agencies to arbitrate disputes arising from contractual relations. In case
a foreign arbitral body is chosen by the parties, the arbitration rules of our domestic arbitration bodies
would not be applied. As signatory to the Arbitration Rules of the UNCITRAL Model Law on International
Commercial Arbitration of the United Nations Commission on International Trade Law (UNCITRAL) in the
New York Convention on June 21, 1985, the Philippines committed itself to be bound by the Model Law.
We have even incorporated the Model Law in Republic Act No. (RA) 9285, otherwise known as the
Alternative Dispute Resolution Act of 2004 entitled An Act to Institutionalize the Use of an Alternative
Dispute Resolution System in the Philippines and to Establish the Office for Alternative Dispute
Resolution, and for Other Purposes, promulgated on April 2, 2004. And 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.

Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model Law are the
following:
(1) The RTC must refer to arbitration in proper cases
(2) Foreign arbitral awards must be confirmed by the RTC
(3) The RTC has jurisdiction to review foreign arbitral awards
(4) Grounds for judicial review different in domestic and foreign arbitral awards
(5) RTC decision of assailed foreign arbitral award appealable

PGSMC has remedies to protect its interests: Thus, based on the foregoing features of RA 9285, PGSMC
must submit to the foreign arbitration as it bound itself through the subject contract. While it may have
misgivings on the foreign arbitration done in Korea by the KCAB, it has available remedies under RA
9285. Its interests are duly protected by the law which requires that the arbitral award that may be
rendered by KCAB must be confirmed here by the RTC before it can be enforced.
With our disquisition above, petitioner is correct in its contention that an arbitration clause, stipulating
that the arbitral award is final and binding, does not oust our courts of jurisdiction as the international
arbitral award, the award of which is not absolute and without exceptions, is still judicially reviewable
under certain conditions provided for by the UNCITRAL Model Law on ICA as applied and incorporated in
RA 9285.

Finally, it must be noted that there is nothing in the subject Contract which provides that the parties may
dispense with the arbitration clause.

Unilateral rescission improper and illegal: Having ruled that the arbitration clause of the subject
contract is valid and binding on the parties, and not contrary to public policy; consequently, being bound
to the contract of arbitration, a party may not unilaterally rescind or terminate the contract for whatever
cause without first resorting to arbitration.

In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the inspection made
on October 28, 1998, as ordered by the trial court on October 19, 1998, is of no worth as said Sheriff is
not technically competent to ascertain the actual status of the equipment and machineries as installed in
the plant.

RTC has interim jurisdiction to protect the rights of the parties: While the issue of the proper
installation of the equipment and machineries might well be under the primary jurisdiction of the
arbitral body to decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction to hear and grant interim
measures to protect vested rights of the parties

32
While the KCAB can rule on motions or petitions relating to the preservation or transfer of the
equipment and machineries as an interim measure, yet on hindsight, the July 23, 1998 Order of the RTC
allowing the transfer of the equipment and machineries given the non-recognition by the lower courts of
the arbitral clause, has accorded an interim measure of protection to PGSMC which would otherwise
been irreparably damaged. KOGIES is not unjustly prejudiced as it has already been paid a substantial
amount based on the contract. Moreover,KOGIES is amply protected by the arbitral action it has
instituted before the KCAB, the award of which can be enforced in our jurisdiction through the RTC.
Besides, by our decision, PGSMC is compelled to submit to arbitration pursuant to the valid arbitration
clause of its contract with KOGIES.

PGSMC to preserve the subject equipment and machineries: While PGSMC may have been granted the right to
dismantle and transfer the subject equipment and machineries, it does not have the right to convey or dispose of
the same considering the pending arbitral proceedings to settle the differences of the parties. PGSMC therefore
must preserve and maintain the subject equipment and machineries with the diligence of a good father of a family
until final resolution of the arbitral proceedings and enforcement of the award, if any.

2.)

DEPARTMENT OF FOREIGN AFFAIRS vs. BCA INTERNATIONAL CORPORATION

G.R. No. 210858; June 29, 2016
FACTS:
 In an Amended Build-Operate-Transfer Agreement, petitioner DFA awarded the Machine
Readable Passport and Visa Project (MRPN Project) to BCA International Corporation (BCA)
 During the implementation of the MRPN Project, DFA sought to terminate the Agreement.
However, BCA opposed the termination and filed a Request for Arbitration in lieu of their
agreement that:
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.
 an ad hoc arbitral tribunal was constituted. In an Order, 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.
 BCA filed before the RTC a Petition for Assistance in Taking Evidence pursuant to the
Implementing Rules and Regulations of The ADR Act of 2004 (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:
- Secretary of Foreign affairs or his representatives
- Secretary of Finance or his representatives

33
 - Chairman of the Commission on Audit or her representatives
- Executive Director of the Department of Trade and Industry Build-Operate Transfer Center
- Chairman of the DFA MRP/V Advisory Board or his representatives
 DFA filed its comment, alleging that the presentation of the witnesses and documents was
prohibited by law and protected by the deliberative process privilege.

RTC DECISION:
 RTC ruled in favor of BCA and held that the evidence sought to be produced was no longer
covered by the deliberative process privilege.
 RTC issued the subpoena due es tecum and subpoena ad testificandum. DFA filed a motion to
quash the subpoena duces tecum and subpoena ad testificandum, which BCA opposed. 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)

 Said persons/officers testified before the arbitral tribunal pursuant to the subpoena.
 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.
 The Court issued a temporary restraining order enjoining the arbitral tribunal from taking
cognizance of the testimonies

ISSUE/S:
(1) WON 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) WON the witnesses presented during the hearings before the ad hoc arbitral tribunal are
prohibited from disclosing information on the basis of the deliberative process privilege.

SUPREME COURT DECISION:

We partially grant the petition.

(1) YES, the 1976 UNCITRAL Arbitration Rules and the Rules of Court apply to the present
arbitration proceedings, not RA 9285 and the Special ADR Rules.

The Special ADR Rules specifically provide that they shall apply to assistance in taking
evidence, and the RTC order granting assistance in taking evidence shall be immediately
executory and not subject to reconsideration or appeal. An appeal with the CA is only
possible where the RTC denied a petition for assistance in taking evidence. An appeal to
the SC from the CA is allowed only under any of the grounds specified in the Special ADR
Rules.

34
 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.

Established in this jurisdiction is the rule that the law of the place where the contract is
made governs, or lex loci contractus. 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.

(2) In the present case, considering that the RTC erred in applying the ruling in Chavez v.
Public Estates Authority, and 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.

"Privileged information" should be outside the scope of the constitutional right to

information, just like military and diplomatic secrets and similar matters affecting
national security and public order. In these exceptional cases, even the occurrence of a
"definite proposition" will not give rise to the public's right to information. Deliberative
process privilege is one kind of privileged information, which is within the exceptions of
the constitutional right to information.

The deliberative process privilege can also be invoked in arbitration proceedings under
RA 9285. Under RA 9285, 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.

35
 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, under 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.

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. "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."

DISPOSITIVE PORTION:

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.

DISCUSSION:

Deliberative Process Privilege

Deliberative process privilege is one kind of privileged information, which is within the
exceptions of the constitutional right to information. In In Re: Production of Court Records and
Documents and the Attendance of Court Officials and Employees as Witnesses, we held that:
Court deliberations are traditionally recognized as privileged communication. Section 2,
Rule 10 of the IRSC provides:

36
 Section 2. Confidentiality of court sessions. - Court sessions are executive in character, with only
the Members of the Court present. Court deliberations are confidential and shall not be disclosed
to outside parties, except as may be provided herein or as authorized by the Court.

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." The privilege is not exclusive to the
Judiciary.

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. The deliberative process privilege applies if its
purpose is served, that is, "to protect the frank exchange of ideas and opinions critical to the
government's decision[-]making process where disclosure would discourage such discussion in
the future."

Traditionally, U.S. courts have established two fundamental requirements, both of which must
be met, for the deliberative process privilege to be invoked:
(1) the communication must be predecisional - antecedent to the adoption of an agency
policy
(2) communication must be deliberative - a direct part of the deliberative process in that it
makes recommendations or expresses opinions on legal or policy matters.

"The 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.

3.) ( full case )

TRANSFIELD PHILIPPINES, INC., Petitioner, v. LUZON HYDRO

CORPORATION, AUSTRALIA AND NEW ZEALAND BANKING GROUP
LIMITED and SECURITY BANK CORPORATION, Respondents.

RESOLUTION

TINGA, J.:

37
The adjudication of this case proved to be a two-stage process as its
constituent parts involve two segregate but equally important issues. The
first stage relating to the merits of the case, specifically the question of the
propriety of calling on the securities during the pendency of the arbitral
proceedings, was resolved in favor of Luzon Hydro Corporation (LHC) with
the Court's Decision1 of 22 November 2004. The second stage involving the
issue of forum-shopping on which the Court required the parties to submit
their respective memoranda2 is disposed of in this Resolution.

The disposal of the forum-shopping charge is crucial to the parties to this

case on account of its profound effect on the final outcome of the
international arbitral proceedings which they have chosen as their principal
dispute resolution mechanism.3

LHC claims that Transfield Philippines, Inc. (TPI) is guilty of forum-shopping

when it filed the following suits:

1. Civil Case No. 04-332 filed on 19 March 2004, pending before the
Regional Trial Court (RTC) of Makati, Branch 56 for confirmation, recognition
and enforcement of the Third Partial Award in case 11264 TE/MW, ICC
International Court of Arbitration, entitled Transfield Philippines, Inc. v.
Luzon Hydro Corporation.4

2. ICC Case No. 11264/TE/MW, Transfield Philippines, Inc. v. Luzon Hydro

Corporation filed before the International Court of Arbitration, International
Chamber of Commerce (ICC) a request for arbitration dated 3 November
2000 pursuant to the Turnkey Contract between LHC and TPI;

3. G.R. No. 146717, Transfield Philippines, Inc. v. Luzon Hydro Corporation,

Australia and New Zealand Banking Group Limited and Security Bank
Corp. filed on 5 February 2001, which was an appeal by certiorari with
prayer for TRO/preliminary prohibitory and mandatory injunction, of the
Court of Appeals Decision dated 31 January 2001 in CA-G.R. SP No. 61901.

A. CA-G.R. SP No. 61901 was a Petition for Review of the Decision in Civil
Case No. 00-1312, wherein TPI claimed that LHC's call on the securities was
premature considering that the issue of default has not yet been resolved
with finality; the petition was however denied by the Court of Appeals;

b. Civil Case No. 00-1312 was a complaint for injunction with prayer for
temporary restraining order and/or writ of preliminary injunction dated 5
November 2000, which sought to restrain LHC from calling on the securities
and respondent banks from transferring or paying of the securities; the
complaint was denied by the RTC.

38
On the other hand, TPI claims that it is LHC which is guilty of forum-
shopping when it raised the issue of forum-shopping not only in this case,
but also in Civil Case No. 04-332, and even asked for the dismissal of the
other case based on this ground. Moreover, TPI argues that LHC is
relitigating in Civil Case No. 04-332 the very same causes of action in ICC
Case No. 11264/TE/MW, and even manifesting therein that it will present
evidence earlier presented before the arbitral tribunal.5

Meanwhile, ANZ Bank and Security Bank moved to be excused from filing a
memorandum. They claim that with the finality of the Court's Decision dated
22 November 2004, any resolution by the Court on the issue of forum-
shopping will not materially affect their role as the banking entities involved
are concerned.6 The Court granted their respective motions.

On 1 August 2005, TPI moved to set the case for oral argument, positing
that the resolution of the Court on the issue of forum-shopping may have
significant implications on the interpretation of the Alternative Dispute
Resolution Act of 2004, as well as the viability of international commercial
arbitration as an alternative mode of dispute resolution in the country. 7 Said
motion was opposed by LHC in its opposition filed on 2 September 2005,
with LHC arguing that the respective memoranda of the parties are sufficient
for the Court to resolve the issue of forum-shopping. 8 On 28 October 2005,
TPI filed its Manifestation and Reiterative Motion9 to set the case for oral
argument, where it manifested that the International Chamber of Commerce
(ICC) arbitral tribunal had issued its Final Award ordering LHC to pay TPI
US$24,533,730.00 (including the US$17,977,815.00 proceeds of the two
standby letters of credit). TPI also submitted a copy thereof with a
Supplemental Petition10 to the Regional Trial Court (RTC), seeking
recognition and enforcement of the said award.11

The essence of forum-shopping is the filing of multiple suits involving the

same parties for the same cause of action, either simultaneously or
successively, for the purpose of obtaining a favorable judgment. 12 Forum-
shopping has likewise been defined as the act of a party against whom an
adverse judgment has been rendered in one forum, seeking and possibly
getting a favorable opinion in another forum, other than by appeal or the
special civil action of certiorari, or the institution of two or more actions or
proceedings grounded on the same cause on the supposition that one or the
other court would make a favorable disposition.13

Thus, for forum-shopping to exist, there must be (a) identity of parties, or at

least such parties as represent the same interests in both actions; (b)
identity of rights asserted and relief prayed for, the relief being founded on
the same facts; and (c) the identity of the two preceding particulars is such

39
that any judgment rendered in the other action will, regardless of which
party is successful, amount to res judicata in the action under
consideration.14

There is no identity of causes of action between and among the arbitration

case, the instant petition, and Civil Case No. 04-332.

The arbitration case, ICC Case No. 11264 TE/MW, is an arbitral proceeding
commenced pursuant to the Turnkey Contract between TPI and LHC, to
determine the primary issue of whether the delays in the construction of the
project were excused delays, which would consequently render valid TPI's
claims for extension of time to finish the project. Together with the primary
issue to be settled in the arbitration case is the equally important question of
monetary awards to the aggrieved party.

On the other hand, Civil Case No. 00-1312, the precursor of the instant
petition, was filed to enjoin LHC from calling on the securities and
respondent banks from transferring or paying the securities in case LHC calls
on them. However, in view of the fact that LHC collected the proceeds, TPI,
in its appeal and Petition for Review asked that the same be returned and
placed in escrow pending the resolution of the disputes before the ICC
arbitral tribunal.15

While the ICC case thus calls for a thorough review of the facts which led to
the delay in the construction of the project, as well as the attendant
responsibilities of the parties therein, in contrast, the present petition puts in
issue the propriety of drawing on the letters of credit during the pendency of
the arbitral case, and of course, absent a final determination by the ICC
Arbitral tribunal. Moreover, as pointed out by TPI, it did not pray for the
return of the proceeds of the letters of credit. What it asked instead is that
the said moneys be placed in escrow until the final resolution of the arbitral
case. Meanwhile, in Civil Case No. 04-332, TPI no longer seeks the issuance
of a provisional relief, but rather the issuance of a writ of execution to
enforce the Third Partial Award.

Neither is there an identity of parties between and among the three (3)
cases. The ICC case only involves TPI and LHC logically since they are the
parties to the Turnkey Contract. In comparison, the instant petition includes
Security Bank and ANZ Bank, the banks sought to be enjoined from
releasing the funds of the letters of credit. The Court agrees with TPI that it
would be ineffectual to ask the ICC to issue writs of preliminary injunction
against Security Bank and ANZ Bank since these banks are not parties to the
arbitration case, and that the ICC Arbitral tribunal would not even be able to
compel LHC to obey any writ of preliminary injunction issued from its

40
end.16 Civil Case No. 04-322, on the other hand, logically involves TPI and
LHC only, they being the parties to the arbitration agreement whose partial
award is sought to be enforced.

As a fundamental point, the pendency of arbitral proceedings does not

foreclose resort to the courts for provisional reliefs. The Rules of the ICC,
which governs the parties' arbitral dispute, allows the application of a party
to a judicial authority for interim or conservatory measures. 17 Likewise,
Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Law) 18recognizes
the rights of any party to petition the court to take measures to safeguard
and/or conserve any matter which is the subject of the dispute in arbitration.
In addition, R.A. 9285, otherwise known as the "Alternative Dispute
Resolution Act of 2004," allows the filing of provisional or interim measures
with the regular courts whenever the arbitral tribunal has no power to act or
to act effectively.19

TPI's verified petition in Civil Case No. 04-332, filed on 19 March 2004, was
captioned as one "For: Confirmation, Recognition and Enforcement of
Foreign Arbitral Award in Case 11264 TE/MW, ICC International Court of
Arbitration, 'Transfield Philippines, Inc. v. Luzon Hydro Corporation (Place of
arbitration: Singapore)."20 In the said petition, TPI prayed:

1. That the THIRD PARTIAL AWARD dated February 18, 2004 in Case No.
11264/TE/MW made by the ICC International Court of Arbitration, the signed
original copy of which is hereto attached as Annex "H" hereof, be confirmed,
recognized and enforced in accordance with law.

2. That the corresponding writ of execution to enforce Question 31 of the

said Third Partial Award, be issued, also in accordance with law.

3. That TPI be granted such other relief as may be deemed just and
equitable, and allowed, in accordance with law.21

The pertinent portion of the Third Partial Award22 relied upon by TPI were the
answers to Questions 10 to 26, to wit:

"Question 30 Did TPI [LHC] wrongfully draw upon the security? cralawlibrary

Yes

"Question 31 Is TPI entitled to have returned to it any sum wrongfully taken

by LHC for liquidated damages? cralawlibrary

Yes

41
"Question 32 Is TPI entitled to any acceleration costs? cralawlibrary

TPI is entitled to the reasonable costs TPI incurred after Typhoon Zeb as a
result of LHC's 5 February 1999 Notice to Correct.23

According to LHC, the filing of the above case constitutes forum-shopping

since it is the same claim for the return of US$17.9 Million which TPI made
before the ICC Arbitral Tribunal and before this Court. LHC adds that while
Civil Case No. 04-332 is styled as an action for money, the Third Partial
Award used as basis of the suit does not authorize TPI to seek a writ of
execution for the sums drawn on the letters of credit. Said award does not
even contain an order for the payment of money, but instead has reserved
the quantification of the amounts for a subsequent determination, LHC
argues. In fact, even the Fifth Partial Award,24 dated 30 March 2005, does
not contain such orders. LHC insists that the declarations or the partial
awards issued by the ICC Arbitral Tribunal do not constitute orders for the
payment of money and are not intended to be enforceable as such, but
merely constitute amounts which will be included in the Final Award and will
be taken into account in determining the actual amount payable to the
prevailing party.25

R.A. No. 9825 provides that international commercial arbitrations shall be

governed shall be governed by the Model Law on International Commercial
Arbitration ("Model Law") adopted by the United Nations Commission on
International Trade Law (UNCITRAL).26 The UNCITRAL Model Law provides:

ARTICLE 35. Recognition and enforcement

(1) An arbitral award, irrespective of the country in which it was made, shall
be recognized as binding and, upon application in writing to the competent
court, shall be enforced subject to the provisions of this article and of article
36.

(2) The party relying on an award or applying for its enforcement shall
supply the duly authenticated original award or a duly certified copy thereof,
and the original arbitration agreement referred to in article 7 or a duly
certified copy thereof. If the award or agreement is not made in an official
language of this State, the party shall supply a duly certified translation
thereof into such language.

Moreover, the New York Convention,27 to which the Philippines is a signatory,

governs the recognition and enforcement of foreign arbitral awards. The
applicability of the New York Convention in the Philippines was confirmed in
Section 42 of R.A. 9285. Said law also provides that the application for the

42
recognition and enforcement of such awards shall be filed with the proper
RTC. While TPI's resort to the RTC for recognition and enforcement of the
Third Partial Award is sanctioned by both the New York Convention and R.A.
9285, its application for enforcement, however, was premature, to say the
least. True, the ICC Arbitral Tribunal had indeed ruled that LHC wrongfully
drew upon the securities, yet there is no order for the payment or return of
the proceeds of the said securities. In fact, Paragraph 2142, which is the
final paragraph of the Third Partial Award, reads:

2142. All other issues, including any issues as to quantum and costs, are
reserved to a future award.28

Meanwhile, the tribunal issued its Fifth Partial Award29 on 30 March 2005. It
contains, among others, a declaration that while LHC wrongfully drew on the
securities, the drawing was made in good faith, under the mistaken
assumption that the contractor, TPI, was in default. Thus, the tribunal ruled
that while the amount drawn must be returned, TPI is not entitled to any
damages or interests due to LHC's drawing on the securities. 30 In the Fifth
Partial Award, the tribunal ordered:

6. Order

6.1 General

166. This Fifth Partial Award deals with many issues of quantum. ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

However, it does not resolve them all. The outstanding quantum issues
will be determined in a future award. It will contain a reconciliation of
the amounts awarded to each party and a determination of the net amount
payable to Claimant or Respondent, as the case may be.

167. In view of this the Tribunal will make no orders for payment in this Fifth
Partial Award. The Tribunal will make a number of declarations concerning
the quantum issues it has resolved in this Award together with the
outstanding liability issues. The declarations do not constitute orders
for the payment of money and are not intended to be enforceable as
such. They merely constitute amounts which will be included in the
Final Award and will be taken into account in determining the actual
amount payable.31 (Emphasis Supplied.)

Further, in the Declarations part of the award, the tribunal held:

6.2 Declarations

43
168. The Tribunal makes the following declarations:

xxx

3. LHC is liable to repay TPI the face value of the securities drawn down by
it, namely, $17,977,815. It is not liable for any further damages claimed by
TPI in respect of the drawdown of the securities.

x x x.32

Finally, on 9 August 2005, the ICC Arbitral tribunal issued its Final Award, in
essence awarding US$24,533,730.00, which included TPI's claim of
U$17,977,815.00 for the return of the securities from LHC. 33

The fact that the ICC Arbitral tribunal included the proceeds of the securities
shows that it intended to make a final determination/award as to the said
issue only in the Final Award and not in the previous partial awards. This
supports LHC's position that when the Third Partial Award was released and
Civil Case No. 04-332 was filed, TPI was not yet authorized to seek the
issuance of a writ of execution since the quantification of the amounts due to
TPI had not yet been settled by the ICC Arbitral tribunal. Notwithstanding
the fact that the amount of proceeds drawn on the securities was not
disputed the application for the enforcement of the Third Partial Award was
precipitately filed. To repeat, the declarations made in the Third Partial
Award do not constitute orders for the payment of money.

Anent the claim of TPI that it was LHC which committed forum-shopping,
suffice it to say that its bare allegations are not sufficient to sustain the
charge.

WHEREFORE, the Court RESOLVES to DISMISS the charges of forum-

shopping filed by both parties against each other.

No pronouncement as to costs.

SO ORDERED.

44
4.) Tuna processing vs Philippine Kingford

G.R. No. 185582 February 29, 2012

TUNA PROCESSING, INC., Petitioner,

vs.
PHILIPPINE KINGFORD, INC., Respondent.

DECISION

PEREZ, J.:

Can 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?

In this Petition for Review on Certiorari under Rule 45,1 petitioner Tuna
Processing, Inc. (TPI), a foreign corporation not licensed to do business in the
Philippines, prays that the Resolution2 dated 21 November 2008 of the
Regional Trial Court (RTC) of Makati City be declared void and the case be
remanded to the RTC for further proceedings. In the assailed Resolution, the
RTC dismissed petitioner’s Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award3 against respondent Philippine
Kingford, Inc. (Kingford), a corporation duly organized and existing under the
laws of the Philippines,4 on the ground that petitioner lacked legal capacity to
sue.5

The Antecedents

On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the

"licensor"), co-patentee of U.S. Patent No. 5,484,619, Philippine Letters
Patent No. 31138, and Indonesian Patent No. ID0003911 (collectively referred
to as the "Yamaoka Patent"),6 and five (5) Philippine tuna processors, namely,
Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna
Resources, Santa Cruz Seafoods, Inc., and respondent Kingford (collectively
referred to as the "sponsors"/"licensees")7 entered into a Memorandum of
Agreement (MOA),8 pertinent provisions of which read:

45
 1. Background and objectives. The Licensor, co-owner of U.S.Patent
No. 5,484,619, Philippine Patent No. 31138, and Indonesian Patent No.
ID0003911 xxx wishes to form an alliance with Sponsors for purposes
of enforcing his three aforementioned patents, granting licenses under
those patents, and collecting royalties.

The Sponsors wish to be licensed under the aforementioned patents in

order to practice the processes claimed in those patents in the United
States, the Philippines, and Indonesia, enforce those patents and
collect royalties in conjunction with Licensor.

xxx

4. Establishment of Tuna Processors, Inc. The parties hereto agree

to the establishment of Tuna Processors, Inc. ("TPI"), a corporation
established in the State of California, in order to implement the
objectives of this Agreement.

5. Bank account. TPI shall open and maintain bank accounts in the
United States, which will be used exclusively to deposit funds that it
will collect and to disburse cash it will be obligated to spend in
connection with the implementation of this Agreement.

6. Ownership of TPI. TPI shall be owned by the Sponsors and

Licensor. Licensor shall be assigned one share of TPI for the purpose of
being elected as member of the board of directors. The remaining
shares of TPI shall be held by the Sponsors according to their
respective equity shares. 9

xxx

The parties likewise executed a Supplemental Memorandum of

Agreement10 dated 15 January 2003 and an Agreement to Amend
Memorandum of Agreement11 dated 14 July 2003.

Due to a series of events not mentioned in the petition, the licensees,

including respondent Kingford, withdrew from petitioner TPI and
correspondingly reneged on their obligations.12 Petitioner 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.13 Pertinent portions of the award read:

13.1 Within thirty (30) days from the date of transmittal of this Award to the
Parties, pursuant to the terms of this award, the total sum to be paid
by RESPONDENT KINGFORD to CLAIMANT TPI, is the sum of ONE

46
MILLION SEVEN HUNDRED FIFTY THOUSAND EIGHT HUNDRED FORTY
SIX DOLLARS AND TEN CENTS ($1,750,846.10).

(A) For breach of the MOA by not paying past due

assessments, RESPONDENT KINGFORD shall pay CLAIMANT the
total sum of TWO HUNDRED TWENTY NINE THOUSAND THREE
HUNDRED AND FIFTY FIVE DOLLARS AND NINETY CENTS
($229,355.90) which is 20% of MOA assessments since September 1,
2005[;]

(B) For breach of the MOA in failing to cooperate with CLAIMANT

TPI in fulfilling the objectives of the MOA, RESPONDENT
KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED
SEVENTY ONE THOUSAND FOUR HUNDRED NINETY DOLLARS
AND TWENTY CENTS ($271,490.20)[;]14 and

(C) For violation of THE LANHAM ACT and infringement of

the YAMAOKA 619 PATENT, RESPONDENT KINGFORD shall
pay CLAIMANT the total sum of ONE MILLION TWO HUNDRED
FIFTY THOUSAND DOLLARS AND NO CENTS ($1,250,000.00). xxx

xxx15

To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before
the RTC of Makati City. The petition was raffled to Branch 150 presided by
Judge Elmo M. Alameda.

At Branch 150, respondent Kingford filed a Motion to Dismiss.16 After the

court denied the motion for lack of merit,17 respondent sought for the
inhibition of Judge Alameda and moved for the reconsideration of the order
denying the motion.18 Judge Alameda inhibited himself notwithstanding
"[t]he unfounded allegations and unsubstantiated assertions in the
motion."19 Judge Cedrick O. Ruiz of Branch 61, to which the case was re-
raffled, in turn, granted respondent’s Motion for Reconsideration and
dismissed the petition on the ground that the petitioner lacked legal capacity
to sue in the Philippines.20

Petitioner TPI now seeks to nullify, in this instant Petition for Review on
Certiorari under Rule 45, the order of the trial court dismissing its Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award.

Issue

47
The core issue in this case is whether or not the court a quo was
correct in so dismissing the petition on the ground of petitioner’s
lack of legal capacity to sue.

Our Ruling

The petition is impressed with merit.

The Corporation Code of the Philippines expressly provides:

Sec. 133. Doing business without a license. - No foreign corporation

transacting business in the Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under
Philippine laws.

It is pursuant to the aforequoted provision that the court a quo dismissed the
petition. Thus:

Herein plaintiff TPI’s "Petition, etc." acknowledges that it "is a foreign

corporation established in the State of California" and "was given the
exclusive right to license or sublicense the Yamaoka Patent" and "was
assigned the exclusive right to enforce the said patent and collect
corresponding royalties" in the Philippines. TPI likewise admits that it does
not have a license to do business in the Philippines.

There is no doubt, therefore, in the mind of this Court that TPI has been
doing business in the Philippines, but sans a license to do so issued by the
concerned government agency of the Republic of the Philippines, when it
collected royalties from "five (5) Philippine tuna processors[,] namely[,] Angel
Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna Resources,
Santa Cruz Seafoods, Inc. and respondent Philippine Kingford, Inc." This
being the real situation, TPI cannot be permitted to maintain or intervene in
any action, suit or proceedings in any court or administrative agency of the
Philippines." A priori, the "Petition, etc." extant of the plaintiff TPI should be
dismissed for it does not have the legal personality to sue in the
Philippines.21

The petitioner counters, however, that it is entitled to seek for the

recognition and enforcement of the subject foreign arbitral award in
accordance with Republic Act No. 9285 (Alternative Dispute Resolution Act
of 2004),22 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

48
UNCITRAL Model Law on International Commercial Arbitration (Model
Law),23 as none of these specifically requires that the party seeking for the
enforcement should have legal capacity to sue. It anchors its argument on
the following:

In the present case, enforcement has been effectively refused on a ground

not found in the [Alternative Dispute Resolution Act of 2004], New York
Convention, or Model Law. It is for this reason that TPI has brought this
matter before this most Honorable Court, as it [i]s imperative to clarify
whether the Philippines’ international obligations and State policy to
strengthen arbitration as a means of dispute resolution may be defeated by
misplaced technical considerations not found in the relevant laws.24

Simply put, how do we reconcile the provisions of the Corporation Code of

the Philippines on one hand, and theAlternative Dispute Resolution Act of
2004, the New York Convention and the Model Law on the other?

In several cases, this Court had the occasion to discuss the nature and
applicability of the Corporation Code of the Philippines, a general law, viz-a-
viz other special laws. Thus, in Koruga v. Arcenas, Jr.,25 this Court rejected the
application of the Corporation Code and applied the New Central Bank Act. It
ratiocinated:

Koruga’s invocation of the provisions of the Corporation Code is misplaced. In

an earlier case with similar antecedents, we ruled that:

"The Corporation Code, however, is a general law applying to all types of

corporations, while the New Central Bank Act regulates specifically banks
and other financial institutions, including the dissolution and liquidation
thereof. As between a general and special law, the latter shall prevail
– generalia specialibus non derogant." (Emphasis supplied)26

Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential

Agrarian Reform Council,27 this Court held:

Without doubt, the Corporation Code is the general law providing for the
formation, organization and regulation of private corporations. On the other
hand, RA 6657 is the special law on agrarian reform. As between a general
and special law, the latter shall prevail—generalia specialibus non
derogant.28

Following the same principle, the Alternative Dispute Resolution Act of

2004 shall apply in this case as the Act, as its title - An Act to Institutionalize
the Use of an Alternative Dispute Resolution System in the Philippines and to
Establish the Office for Alternative Dispute Resolution, and for Other
Purposes - would suggest, is a law especially enacted "to actively promote

49
party autonomy in the resolution of disputes or the freedom of the party to
make their own arrangements to resolve their disputes."29 It specifically
provides exclusive grounds available to the party opposing an application for
recognition and enforcement of the arbitral award.30

Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal

law, applies in the instant petition, we do not see the need to discuss
compliance with international obligations under the New York
Convention and theModel Law. After all, both already form part of the law.

In particular, the Alternative Dispute Resolution Act of 2004 incorporated

the New York Convention in the Act by specifically providing:

SEC. 42. Application of the New York Convention. - The New York Convention
shall govern the recognition and enforcement of arbitral awards covered by
the said Convention.

xxx

SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign

arbitration proceeding may oppose an application for recognition and
enforcement of the arbitral award in accordance with the procedural rules to
be promulgated by the Supreme Court only on those grounds enumerated
under Article V of the New York Convention. Any other ground raised shall be
disregarded by the regional trial court.

It also expressly adopted the Model Law, to wit:

Sec. 19. Adoption of the Model Law on International Commercial

Arbitration. International commercial arbitration shall be governed by the
Model Law on International Commercial Arbitration (the "Model Law")
adopted by the United Nations Commission on International Trade Law on
June 21, 1985 xxx."

Now, does a foreign corporation not licensed to do business in the Philippines

have legal capacity to sue under the provisions of the Alternative Dispute
Resolution Act of 2004? We answer in the affirmative.

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

50
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; or

(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; or

(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
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; or

(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.

51
Clearly, not one of these 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,31 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
13.5.32 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,"33 it is specifically required that a petition "to determine
any question concerning the existence, validity and enforceability of such
arbitration agreement"34 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"35 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."36

Indeed, it is in the best interest of justice that in the enforecement of a

foreign arbitral award, we 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 our 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,37 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.38

Clearly, on the matter of capacity to sue, a foreign arbitral award should be

respected not because it is favored over domestic laws and procedures, but
because Republic Act No. 9285 has certainly erased any conflict of law
question.

52
Finally, even assuming, only for the sake of argument, that the court a
quo correctly observed that the Model Law, not the New York Convention,
governs the subject arbitral award,39 petitioner 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.40

Premises considered, 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.

II

The remaining arguments of respondent Kingford are likewise unmeritorious.

First. There is no need to consider respondent’s contention that petitioner TPI

improperly raised a question of fact when it posited that its act of entering
into a MOA should not be considered "doing business" in the Philippines for
the purpose of determining capacity to sue. We reiterate that the foreign
corporation’s capacity to sue in the Philippines is not material insofar as the
recognition and enforcement of a foreign arbitral award is concerned.

Second. Respondent cannot fault petitioner for not filing a motion for
reconsideration of the assailed Resolution dated 21 November
2008 dismissing the case. We have, time and again, ruled that the prior filing
of a motion for reconsideration is not required in certiorari under Rule 45.41

Third. While we agree that petitioner failed to observe the principle of

hierarchy of courts, which, under ordinary circumstances, warrants the
outright dismissal of the case,42 we opt to relax the rules following the
pronouncement in Chua v. Ang,43 to wit:

[I]t must be remembered that [the principle of hierarchy of courts] generally

applies to cases involving conflicting factual allegations. Cases which depend
on disputed facts for decision cannot be brought immediately before us as
we are not triers of facts.44 A strict application of this rule may be excused
when the reason behind the rule is not present in a case, as in the present
case, where the issues are not factual but purely legal.1âwphi1 In these
types of questions, this Court has the ultimate say so that we merely
abbreviate the review process if we, because of the unique circumstances of
a case, choose to hear and decide the legal issues outright.45

Moreover, the novelty and the paramount importance of the issue herein
raised should be seriously considered.46Surely, there is a need to take
cognizance of the case not only to guide the bench and the bar, but if only to

53
strengthen arbitration as a means of dispute resolution, and uphold the
policy of the State embodied in theAlternative Dispute Resolution Act of
2004, to wit:

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 party 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. xxx

Fourth. As regards the issue on the validity and enforceability of the foreign
arbitral award, we leave its determination to the court a quo where its
recognition and enforcement is being sought.

Fifth. Respondent claims that petitioner failed to furnish the court of origin a
copy of the motion for time to file petition for review on certiorari before the
petition was filed with this Court.47 We, however, find petitioner’s reply in
order. Thus:

26. Admittedly, reference to "Branch 67" in petitioner TPI’s "Motion for Time
to File a Petition for Review on Certiorari under Rule 45" is a typographical
error. As correctly pointed out by respondent Kingford, the order sought to be
assailed originated from Regional Trial Court, Makati City, Branch 61.

27. xxx Upon confirmation with the Regional Trial Court, Makati City, Branch
61, a copy of petitioner TPI’s motion was received by the Metropolitan Trial
Court, Makati City, Branch 67. On 8 January 2009, the motion was forwarded
to the Regional Trial Court, Makati City, Branch 61.48

All considered, petitioner TPI, although a foreign corporation not licensed to

do business in the Philippines, is not, for that reason alone, precluded from
filing the Petition for Confirmation, Recognition, and Enforcement of Foreign
Arbitral Award before a Philippine court.

WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial

Court, Branch 61, Makati City in Special Proceedings No. M-6533 is
hereby REVERSED and SET ASIDE. The case is REMANDED to Branch 61
for further proceedings.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice

WE CONCUR:

54
 ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION MARIA LOURDES P. A. SERENO

Associate Justice Associate Justice

BIENVENIDO L. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in

consultation before the case was assigned to the writer of the opinion of the
Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairperson’s Attestation, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was assigned to
the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

5.) Insular savings bank vs far eastern

Insular Savings Bank vs. Far East Bank And Trust Company, G.R. No. 141818, June 22, 2006 Facts:
Respondent filed a complaint against Home Bankers Trust and Company

(HBTC) with
the Philippine Clearing House Corporation’s (PCHC) Arbitration Committee
, seeking recovery from the petitioner, the sum of P25,200,000.00 representing the total
amount of the three checks drawn and debited against its clearing account. Before the

55
termination of the arbitration proceedings, respondent filed another complaint but this time
with the Regional Trial Court (RTC) for Sum of Money and Damages with Preliminary
Attachment. The RTC suspended the proceedings pending the decision of the Arbitration
Committee. The PCHC Arbitration Committee rendered its decision in favor of respondent.
Petitioner motion for reconsideration was denied. It then filed a petition for review in the earlier
case filed by respondent in the RTC. The RTC dismissed the petition for review, for lack of
jurisdiction.

Issue: Whether or not the petitioner availed the proper remedy contesting the decision
rendered by the Arbitration Committee.

Ruling: Negative. Petitioner had several judicial remedies available at its disposal after the
Arbitration Committee denied its Motion for Reconsideration. It may petition the proper RTC to
issue an order vacating the award on the grounds provided for under Section 24 of the
Arbitration Law. Petitioner likewise has the option to file a petition for review under Rule 43 of
the Rules of Court with the Court of Appeals on questions of fact, of law, or mixed questions of
fact and law. Lastly, petitioner may file a petition for certiorari under Rule 65 of the Rules of
Court on the ground that the Arbitrator Committee acted without or in excess of its jurisdiction
or with grave abuse of discretion amounting to lack or excess of jurisdiction. Since this case
involves acts or omissions of a quasi-judicial agency, the petition should be filed in and
cognizable only by the Court of Appeals

( digest 2)

FACTS:

On December 11, 1991, Far East Bank and Trust Company (Respondent) filed a complaint
against Home Bankers Trust and Company (HBTC) with the Philippine Clearing House
Corporation’s (PCHC) Arbitration Committee.

Respondent sought to recover from the petitioner, the sum of P25,200,000.00 representing the
total amount of the three checks drawn and debited against its clearing account. HBTC sent
these checks to respondent for clearing by operation of the PCHC clearing system. Thereafter,
respondent dishonored the checks for insufficiency of funds and returned the checks to HBTC.
However, the latter refused to accept them since the checks were returned by respondent after
the reglementary regional clearing period.

Meanwhile, on January 17, 1992, before the termination of the arbitration proceedings,
respondent filed another complaint but this time with the Regional Trial Court (RTC) in Makati
City for Sum of Money and Damages with Preliminary Attachment.

56
The complaint was filed not only against HBTC but also against Robert Young, Eugene Arriesgado
and Victor Tancuan (collectively known as Defendants), who were the president and depositors
of HBTC respectively. Aware of the arbitration proceedings between respondent and petitioner,
the RTC, in an Omnibus Order suspended the proceedings in the case against all the defendants
pending the decision of the Arbitration Committee

On February 2, 1998, the PCHC Arbitration Committee rendered its decision in favor of
respondent. The motion for reconsideration filed by petitioner was denied by the Arbitration
Committee.

Consequently, to appeal the decision of the Arbitration Committee, petitioner filed a petition for
review in the earlier case filed by respondent in Branch 135 of the RTC of Makati.

In an order dated January 20, 1999, the RTC directed both petitioner and respondent to file
their respective memoranda, after which, said petition would be deemed submitted for
resolution.
Both parties filed several pleadings. On February 8, 1999, respondent filed a Motion to Dismiss
Petition for Review for Lack of Jurisdiction, which was opposed by the petitioner.

On November 9, 1999, the RTC dismissed the petition for review.

The RTC denied petitioner’s motion for reconsideration, hence, this petition.

ISSUE:

Whether the Regional Trial Court erred in dismissing the Petition of Petitioner for lack of
jurisdiction on the ground that it should have been docketed as a separate case.

HELD:

No, As provided in the PCHC Rules, the findings of facts of the decision or award rendered by
the Arbitration Committee shall be final and conclusive upon all the parties in said arbitration
dispute. Under Article 2044 of the New Civil Code, the validity of any stipulation on the finality
of the arbitrators’ award or decision is recognized. However, where the conditions described in
Articles 2038, 2039 and 2040 applicable to both compromises and arbitrations are obtaining,
the arbitrators’ award may be annulled or rescinded. Consequently, the decision of the
Arbitration Committee is subject to judicial review.
Furthermore, petitioner had several judicial remedies available at its disposal after the
Arbitration Committee denied its Motion for Reconsideration.

It may petition the proper RTC to issue an order vacating the award
• Invoking the grounds provided for under Section 24 of the Arbitration Law;
• Filing a petition for review under Rule 43 of the Rules of Court with the Court of Appeals on
questions of fact, of law, or mixed questions of fact and law; and Lastly,

57
• Petitioner may file a petition for certiorari under Rule 65 of the Rules of Court on the ground
that the Arbitrator Committee acted without or in excess of its jurisdiction or with grave abuse
of discretion amounting to lack or excess of jurisdiction.

Since this case involves acts or omissions of a quasi-judicial agency, the petition should be filed
in and cognizable only by the Court of Appeals.

In this instance, petitioner did not avail of any of the abovementioned remedies available to it.
Instead it filed a petition for review with the RTC where Civil Case No. 92-145 is pending
pursuant to Section 13 of the PCHC Rules to sustain its action. Clearly, it erred in the procedure
it chose for judicial review of the arbitral award.

Jurisdiction over the subject matter is conferred by law and not by the consent or acquiescence
of any or all of the parties or by erroneous belief of the court that it exists.

In the instant case, petitioner and respondent have agreed that the PCHC Rules would govern in
case of controversy. However, since the PCHC Rules came about only as a result of an
agreement between and among member banks of PCHC and not by law, it cannot confer
jurisdiction to the RTC. Thus, the portion of the PCHC Rules granting jurisdiction to the RTC to
review arbitral awards, only on questions of law, cannot be given effect.

Consequently, the proper recourse of petitioner from the denial of its motion for
reconsideration by the Arbitration Committee is to file either a motion to vacate the arbitral
award with the RTC, a petition for review with the Court of Appeals under Rule 43 of the
Rules of Court, or a petition for certiorari under Rule 65 of the Rules of Court.

Alternative dispute resolution methods or ADRs – like arbitration, mediation, negotiation and
conciliation – are encouraged by the Supreme Court. By enabling parties to resolve their
disputes amicably, they provide solutions that are less time-consuming, less tedious, less
confrontational, and more productive of goodwill and lasting relationships. It must be borne in
mind that arbitration proceedings are mainly governed by the Arbitration Law and suppletorily
by the Rules of Court

6.) Stronghold insurance company vs spouses store

G.R. No. 204689, January 21, 2015

STRONGHOLD INSURANCE COMPANY, INC., Petitioner, v. SPOUSES RUNE AND LEA

STROEM, Respondents.

DECISION

58
 LEONEN, J.:

For resolution is a Petition for Review1 under Rule 45 of the Rules of Court assailing the Decision 2 dated
November 20, 2012 of the Court of Appeals in CA-G.R. CV No. 96017. The Court of Appeals affirmed 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 Agreement 4 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 chanroblesvirtuallawlibrary

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 chanroblesvirtuallawlibrary

Asis-Leif failed to finish the project on time despite repeated demands of the Spouses Stroem. 8 chanroblesvirtuallawlibrary

Spouses Stroem subsequently rescinded the agreement.9 They then hired an independent appraiser to
evaluate the progress of the construction project.10 chanroblesvirtuallawlibrary

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 chanroblesvirtuallawlibrary

On April 5, 2001, Stronghold sent a letter to Asis-Leif requesting that the company settle its obligations with
the Spouses Stroem. No response was received from Asis-Leif. 12 chanroblesvirtuallawlibrary

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 chanroblesvirtuallawlibrary

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 ?4,500,000.00 with 6% legal interest from the time of
first demand.16 The dispositive portion of the trial court Decision reads: chanRoblesvirt ualLawlibrary

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 to pay the plaintiff the sums
of:
chanRoblesvirtualLawlibrary

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 attorney’s fees and other litigation expenses.

Defendant is further ordered to pay the costs of this suit.

SO ORDERED.17

Both Stronghold and the Spouses Stroem appealed to the Court of Appeals. 18 chanroblesvirtuallawlibrary

The Court of Appeals affirmed with modification the trial court’s Decision. It increased the amount of
attorney’s fees to ?50,000.00.19 chanroblesvirtuallawlibrary

59
The dispositive portion of the Court of Appeals Decision reads: chanRoblesvirtualLawlibrary

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 attorney’s 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 chanroblesvirtuallawlibrary

We noted the Spouses Stroem’s Comment on July 31, 2013. 22 We also required Stronghold to file its Reply
to the Comment,23 which was noted on December 9, 2013.24 chanroblesvirtuallawlibrary

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 view of the arbitration clause in the agreement and considering
that “[Republic Act No. 876] explicitly confines the court’s 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 chanroblesvirtuallawlibrary

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 to the bond are ALB/Ms. Asis-[L]eif, Spouses Stroem and [Stronghold] such
that ALB/Ms. Asis-[L]eif never ceased to be a party to the surety agreement.” 27 chanroblesvirtuallawlibrary

In any case, Stronghold’s 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 in holding that Stronghold changed its
theory with regard to the notice requirement29 and in modifying the trial court’s award of attorney’s
fees.30
chanroblesvirtuallawlibrary

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 Stroem’s Motion for Partial
Reconsideration of the Court of Appeals Decision dated November 20, 2012. 32 chanroblesvirtuallawlibrary

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 chanroblesvirtuallawlibrary

Contrary to Stronghold’s argument, Spouses Stroem argues that stronghold is liable for the full amount of
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 chanroblesvirtuallawlibrary

The issues for consideration are: chanRoblesvirt ualLawlibrary

(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
(4) Whether petitioner Stronghold Insurance Company, Inc. is liable
under Performance Bond No. LP/G(13)83056.

60
 (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 to any 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,
2012.36 Petitioner 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 chanroblesvirtuallawlibrary

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, attorney’s fees, and costs of the suit.39 chanroblesvirtuallawlibrary

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 chanroblesvirtuallawlibrary

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: chanRoblesvirtualLawlibrary

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 is such that any judgment rendered in the pending cases, regardless of which party is
successful, amount to res judicata in the other case.”44 chanroblesvirtuallawlibrary

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 rule’s 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 chanroblesvirtuallawlibrary

Records show that petitioner’s duly authorized officer certified the following on January 21, 2013: chanRoblesvirt ualLawlibrary

4. I further certify that: (a) I have not commenced any other action or proceeding involving the same issues
in the Supreme Court, Court of Appeals, or any other tribunal or agency; (b) to the best of my knowledge,

61
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
petitioner’s disregard of the rules.

This court has held before that: chanRoblesvirtualLawlibrary

[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 CIAC’s 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 chanroblesvirtuallawlibrary

Section 4 of Executive Order No. 100854 is clear in defining the exclusive jurisdiction of the CIAC: chanRoblesvirt ualLawlibrary

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 time and
delays; maintenance and defects; payment, default of employer or contractor and changes in contract cost.

Excluded from the coverage of this law 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 Republic Act No. 9285 or the Alternative Dispute Resolution Act of 2004 states: chanRoblesvirt ualLawlibrary

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.

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.”56chanroblesvirtuallawlibrary

62
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 chanroblesvirtuallawlibrary

In this case, there is no dispute as to 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 that may 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.60chanroblesvirtuallawlibrary

Prudential Guarantee and Assurance Inc. v. Anscor Land, Inc.61 involved circumstances similar to the present
case. In Prudential, property owner Anscor Land, Inc. (ALI) entered into a contract for the construction of
an eight-unit townhouse located in Capitol Hills, Quezon City with contractor Kraft Realty and Development
Corporation (KRDC).62 KRDC secured the completion of the construction project through a surety and
performance bond issued by Prudential Guarantee and Assurance Inc. (PGAI). 63 chanroblesvirtuallawlibrary

The delay in the construction project resulted in ALI’s termination of the contract and claim against the
performance bond.64 “ALI [subsequently] commenced arbitration proceedings against KRDC and PGAI in the
CIAC.”65 PGAI, however, argued that it was not a party to the construction contract. 66 chanroblesvirtuallawlibrary

The CIAC ruled that PGAI was not liable under the performance bond. 67 Upon review, the Court of Appeals
held that PGAI was jointly and severally liable with KRDC under the performance bond. 68 chanroblesvirtuallawlibrary

PGAI appealed the Court of Appeals Decision and claimed that CIAC did not have jurisdiction over the
performance bond.69 This court ruled: chanRoblesvirt ualLawlibrary

A guarantee or a surety contract under Article 2047 of the Civil Code of the Philippines is an accessory
contract because it is dependent for its existence upon the principal obligation guaranteed by it.

In fact, the primary and only reason behind the acquisition of the performance bond by KRDC was to
guarantee to ALI that the construction project would proceed in accordance with the contract terms and
conditions. In effect, the performance bond becomes liable for the completion of the construction project in
the event KRDC fails in its contractual undertaking.

Because of the performance bond, the construction contract between ALI and KRDC is guaranteed to be
performed even if KRDC fails in its obligation. In practice, a performance bond is usually a condition or a
necessary component of construction contracts. In the case at bar, the performance bond was so connected
with the construction contract that the former was agreed by the parties to be a condition for the latter to
push through and at the same time, the former is reliant on the latter for its existence as an accessory
contract.

Although not the construction contract itself, the performance bond is deemed as an associate of the main
construction contract that it cannot be separated or severed from its principal. The Performance Bond is
significantly and substantially connected to the construction contract that there can be no doubt it is the
CIAC, under Section 4 of EO No. 1008, which has jurisdiction over any dispute arising from or connected
with it.70 (Emphasis supplied, citations omitted)

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

63
comply with the requirements of the contract . . . and make good [on the] damages sustained by the project
owner in case of the contractor’s failure to so perform.”72 chanroblesvirtuallawlibrary

It is settled that the surety’s solidary obligation for the performance of the principal debtor’s obligation is
indirect and merely secondary.73 Nevertheless, the surety’s liability to the “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 chanroblesvirtuallawlibrary

Verily, “[i]n enforcing a surety contract, the ‘complementary-contracts-construed-together’ doctrine finds

application. According to this principle, an accessory contract must be read in its entirety and together with
the principal agreement.”75 Article 1374 of the Civil Code provides: chanRoblesvirt ualLawlibrary

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: chanRoblesvirtualLawlibrary

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 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 (Emphasis supplied)

This court, however, cannot apply the ruling in Prudential to the present case. Several factors
militate against petitioner’s claim.

The contractual stipulations in this case and in Prudential are different. The relevant provisions of the
Owners-Contractor Agreement in this case state: chanRoblesvirt ualLawlibrary

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 as otherwise 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
.... cralawred

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

64
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: chanRoblesvirt ualLawlibrary

Article 1
CONTRACT DOCUMENTS

1.1 The following shall form part of this Contract and together with this Contract, are known as the
“Contract Documents”: chanRoblesvirt ualLawlibrary

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-Leif’s duty to construct a two-
storey residence building with attic, pool, and landscaping over respondents’ property. 81 chanroblesvirtuallawlibrary

To be clear, it is in the Owners-Contractor Agreement that the arbitration clause is found. 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, petitioner’s 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: chanRoblesvirt ualLawlibrary

The CIAC was created through Executive Order No. 1008 (E.O. 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.

65
( digest )

The Facts:
Rune and Lea (Spouses Stroem) entered into an Owners-
Contractor Agreement for the construction of a two-
storey building with Asis-Leif & Company, Inc., Pursuant
to the agreement, Asis-Leif and Cynthia Asis-Leif secured
Performance Bond No. LP/G(13)83056 from Stronghold
Insurance Company, Inc. (Stronghold), binding
themselves jointly and severally to pay the spouses
Stroem the agreed amount of P4.5 Million in the event the
construction project is not finished. The company did not
finish the project, and an independent appraisal firm hired
by the spouses to evaluate the project’s progress
evaluated it as to 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. Despite demand from the spouses Stroem
for Asis-Leif to settle its obligations, no response was
received from the company. Hence, the spouses filed a
Complaint with Preliminary Attachment against Asis-Leif,
Cunthia Asis-Leif, and Stronghold, for breach of contract
and sum of money. Only Stronghold answered the
summons, as Asis-Leif absconded the country. After
trial, the RTC rendered judgment in favour of the spouses
and ordered Stronghold to pay them P4.5 Million plus 6%

66
interest from the time of first demand. Both parties
appealed to the CA. The latter decided in favour of the
spouses, and dismissed the appeal of Stronghold.
Stronghold, without declaring in its petition for review on
certiorari with the Supreme Court that it filed a Partial
Motion for Reconsideration of the CA, elevated the case
to the Supreme Court. It agues that the RTC had no
jurisdiction over the case, as it is the Construction
Industry Arbitration Committee which had jurisdiction
over the subject matter, pursuant to the arbitration clause
in the agreement between the spouses and Asis-Leif,
which are part and parcel of the conditions of the bond.
Were it not for such stipulations, Stronghold would not
have agreed to the bond. Likewise, Stronghold is liable
only for the amount of the unfinished work, not the entire
obligation. On the other hand, the spouses argue
otherwise. They aver that Stronghold was guilty of
forum-shopping; the Owners-Contractor Agreement is
separate and distinct from the Performance Bond; the
company is liable to them for the entire amount as the
terms of the bond clearly show that Stronghold bound
itself as a surety. Therefore, notice to Stronghold is not
required for it to be liable.
The Issues:
1. Whether or not Stronghold was guilty of forum
shopping;

67
2. Whether or not the CIAC, not the RTC had jurisdiction
over the case;
3. Whether or not Stronghold is liable under the
Performance Bond; if so, the extent of its liability; and the
nature of tis liability, as an ordinary suretyship or as a
corporate suretyship.
The Court’s ruling:
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.
Petitioner 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.
Respondents filed their Motion for Partial
Reconsideration of the Court of Appeals Decision on
December 11, 2012. They sought the modification of the
Decision as to the amounts of moral damages, exemplary
damages, attorney’s fees, and costs of the suit.

68
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. Still, petitioner did not
disclose in its Verification and Certification Against
Forum Shopping the pendency of respondents’ Motion for
Partial Reconsideration.
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.”
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[.] (Citation omitted)

69
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 is such that any judgment rendered in the
pending cases, regardless of which party is successful,
amount to res judicata in the other case.”
Rule 42, Section 2 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 rule’s purpose is to deter the unethical practice of
pursuing simultaneous remedies in different forums,
which “wreaks havoc upon orderly judicial procedure.”
Failure to comply with the rule is a sufficient ground for
the dismissal of the petition.
Records show that petitioner’s 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 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

70
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.
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
petitioner’s 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.
(Emphasis supplied)
On this basis, this case should be dismissed.
On arbitration and the CIAC’s jurisdiction

71
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. 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. Jurisdiction is conferred by the
Constitution or by law. “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.”
Section 4 of Executive Order No. 1008 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.

72
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 time and delays;
maintenance and defects; payment, default
of employer or contractor and changes in
contract cost.
Excluded from the coverage of this law 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 Republic Act 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.
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)

73
In Heunghwa Industry Co., Ltd., v. DJ Builders
Corporation, 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.”
This court has ruled that when a dispute arises from a
construction contract, the CIAC has exclusive and original
jurisdiction. 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.”
In this case, there is no dispute as to 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 that may
invoke the arbitration clause in the contract.

74
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[,]” is significantly and substantially
connected to the construction contract and, therefore,
falls under the jurisdiction of the CIAC.
Prudential Guarantee and Assurance Inc. v.
Anscor Land, Inc. involved circumstances similar to
the present case. In Prudential, property owner
Anscor Land, Inc. (ALI) entered into a contract for the
construction of an eight-unit townhouse located in
Capitol Hills, Quezon City with contractor Kraft Realty and
Development Corporation (KRDC). KRDC secured the
completion of the construction project through a surety
and performance bond issued by Prudential Guarantee
and Assurance Inc. (PGAI).
The delay in the construction project resulted in ALI’s
termination of the contract and claim against the
performance bond. “ALI [subsequently] commenced
arbitration proceedings against KRDC and PGAI in the
CIAC.” PGAI, however, argued that it was not a party to
the construction contract.
The CIAC ruled that PGAI was not liable under the
performance bond. Upon review, the Court of Appeals
held that PGAI was jointly and severally liable with KRDC
under the performance bond.

75
PGAI appealed the Court of Appeals Decision and
claimed that CIAC did not have jurisdiction over the
performance bond. This court ruled:
A guarantee or a surety contract under Article 2047 of the
Civil Code of the Philippines is an accessory contract
because it is dependent for its existence upon the
principal obligation guaranteed by it.
In fact, the primary and only reason behind the
acquisition of the performance bond by KRDC was to
guarantee to ALI that the construction project would
proceed in accordance with the contract terms and
conditions. In effect, the performance bond becomes
liable for the completion of the construction project in the
event KRDC fails in its contractual undertaking.
Because of the performance bond, the construction
contract between ALI and KRDC is guaranteed to be
performed even if KRDC fails in its obligation. In practice,
a performance bond is usually a condition or a necessary
component of construction contracts. In the case at bar,
the performance bond was so connected with the
construction contract that the former was agreed by the
parties to be a condition for the latter to push through and
at the same time, the former is reliant on the latter for its
existence as an accessory contract.
Although not the construction contract itself,
the performance bond is deemed as an

76
associate of the main construction contract
that it cannot be separated or severed from
its principal. The Performance Bond is
significantly and substantially connected to
the construction contract that there can be
no doubt it is the CIAC, under Section 4 of EO
No. 1008, which has jurisdiction over any
dispute arising from or connected with
it. (Emphasis supplied, citations omitted)
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.” 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 contractor’s
failure to so perform.”
It is settled that the surety’s solidary obligation for the
performance of the principal debtor’s obligation is
indirect and merely secondary. Nevertheless, the surety’s
liability to the “creditor or promisee of the principal is

77
said to be direct, primary and absolute; in other words, he
is directly and equally bound with the principal.”
Verily, “[i]n enforcing a surety contract, the
‘complementary-contracts-construed-together’ doctrine
finds application. According to this principle, an
accessory contract must be read in its entirety and
together with the principal agreement.” 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 to some of the

78
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.
(Emphasis supplied)
This court, however, cannot apply the ruling
in Prudential to the present case. Several
factors militate against petitioner’s 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 as otherwise
modified by mutual agreement of parties, and attached to
this agreement.
Attachment 5.1
Working Drawings
Attachment 5.2
Outline Specifications
Attachment 5.3

79
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, CONTRACTORshall 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. (Emphasis
in the original)
In contrast, the provisions of the construction contract in
Prudential provide:
Article 1
CONTRACT DOCUMENTS

80
1.1 The following shall form part of this
Contract and 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) (Emphasis supplied)
This court in Prudential held that the construction
contract expressly incorporated the performance bond
into the contract. 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.
Consequently, the performance bond merely referenced
the contract entered into by respondents and Asis-Leif,
which pertained to Asis-Leif’s duty to construct a two-
storey residence building with attic, pool, and
landscaping over respondents’ property.

81
To be clear, it is in the Owners-Contractor Agreement that
the arbitration clause is found. 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[.]” Not being
a party to the construction agreement, petitioner cannot
invoke the arbitration clause. Petitioner, thus, cannot
invoke the jurisdiction of the CIAC.
Moreover, petitioner’s 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. In LICOMCEN, Incorporated v.
Foundation Specialists, Inc., 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.O. 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

82
contributor to the gross national product. (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.
LEONEN, J.:
Carpio, (Chairperson), Velasco, Jr.,* Del
Castillo, and Mendoza, JJ., concur.
SECOND DIVISION, G.R. No. 204689, January
21, 2015, STRONGHOLD INSURANCE
COMPANY, INC., PETITIONER, VS. SPOUSES
RUNE AND LEA STROEM, RESPONDENTS.

83