Chung Fu industries vs.

CA party as compensation, consequential damage

and/or interest thereon;
Facts: Chung Fu Industries and Roblecor
Industries forged a construction agreement e. The parties mutually agree that the decision
whereby, Roblecor committed to construct and of the arbitrator shall be final and
finish on December 31, 1989, Chung Fu’s unappealable. Therefore, there shall be no
ndustrial/factory complex in Tanawan, Tanza, further judicial recourse if either party disagrees
Cavite for and in consideration of with the whole or any part of the arbitrator's
P42,000,000.00. In the event of disputes arising award.
from the performance of subject contract, it
was stipulated therein that the issue(s) shall be f. As an exception to sub-paragraph (e) above,
submitted for resolution before a single the parties mutually agree that either party is
arbitrator chosen by both parties. entitled to seek judicial assistance for purposes
Apart from the aforesaid construction of enforcing the arbitrator's award;
agreement, Chung Fu and Roblecor entered into
two (2) other ancillary contracts, to wit: for the Respondent Regional Trial Court approved the
construction of a dormitory and support arbitration agreement hereafter, Engr. Willardo
facilities; and for the installation of electrical, Asuncion was appointed as the sole arbitrator.
water and hydrant systems at the plant site.
However, respondent Roblecor failed to Arbitrator Asuncion ordered petitioners to
complete the work despite the extension of immediately pay respondent contractor, the
time allowed it by Chung Fu. Subsequently, the sum of P16,108,801.00. He further declared the
latter had to take over the construction when it award as final and unappealable, pursuant to
had become evident that Roblecor was not in a the Arbitration Agreement precluding judicial
position to fulfill its obligation. review of the award.
Claiming an unsatisfied account of
P10,500,000.00 and unpaid progress billings of Roblecor moved for the confirmation of said
P2,370,179.23, Roblecor filed a petition for award. On the other hand, Chung Fu moved to
Compulsory Arbitration with prayer for remand the case for further hearing and asked
Temporary Restraining Order before the RTC for a reconsideration of the judgment award
pursuant to the arbitration clause in the claiming that Arbitrator Asuncion committed
construction agreement. Chung Fu moved to twelve (12) instances of grave error by
dismiss the petition and further prayed for the disregarding the provisions of the parties'
quashing of the restraining order. contract. However the court denied it.
The trial court granted Roblecor's Motion for
Subsequent negotiations between the parties Confirmation of Award and accordingly, entered
eventually led to the formulation of an judgment in conformity therewith. Moreover, it
arbitration agreement which, among others, granted the motion for the issuance of a writ of
provides: execution filed by respondent.
Chung Fu elevated the case via a petition
2. The parties mutually agree that the for certiorari to respondent Court of Appeals.
arbitration shall proceed in accordance with the However the CA affirmed the decision of RTC. It
following terms and conditions: — held that Chung Fu and its officers, as
signatories to the Arbitration Agreement are
d. The parties mutually agree that they will bound to observe the stipulations thereof
abide by the decision of the arbitrator including providing for the finality of the award and
any amount that may be awarded to either precluding any appeal therefrom.
Issue: WON the subject arbitration award is Eugene Arriesgado and Victor Tancuan
indeed beyond the ambit of the court's power (collectively known as Defendants), who were
of judicial review. the president and depositors of HBTC
Ruling: No. respectively. Aware of the arbitration
It is stated explicitly under Art. 2044 of the Civil proceedings between respondent and
Code that the finality of the arbitrators' award is petitioner, the RTC, in an Omnibus
not absolute and without exceptions. Where Order, suspended the proceedings in the case
the conditions described in Articles 2038, 2039 against all the defendants pending the decision
and 2040 applicable to both compromises and of the Arbitration Committee.
arbitrations are obtaining, the arbitrators'
award may be annulled or rescinded.  The PCHC Arbitration Committee rendered its
Additionally, under Sections 24 and 25 of the decision in favor of respondent sentencing
Arbitration Law, there are grounds for vacating, HBTC to pay.
modifying or rescinding an arbitrator's award.
Thus, if and when the factual circumstances The motion for reconsideration filed by
referred to in the above-cited provisions are petitioner was denied by the Arbitration
present, judicial review of the award is properly Committee. Consequently, to appeal the
warranted. decision of the Arbitration Committee,
petitioner filed a Petition for Review in the
earlier case filed by respondent. In an order, the
INSULAR SAVINGS BANK v. FEBTC RTC directed both petitioner and respondent to
file their respective memoranda, after which,
Facts: said petition would be deemed submitted for
resolution.
Far East Bank and Trust Company (Respondent)
filed a complaint against Home Bankers Trust Both parties filed several pleadings. Respondent
and Company (HBTC) with the Philippine (FEBTC) filed a Motion to Dismiss Petition for
Clearing House Corporation's (PCHC) Arbitration Review for Lack of Jurisdiction, which was
Committee. Respondent sought to recover from opposed by the petitioner. Respondent then
the petitioner, the sum of P25,200,000.00 filed its Reply to the opposition, to which
representing the total amount of the three petitioner filed a Rejoinder. Respondent
checks drawn and debited against its clearing submitted its Surrejoinder.
account. HBTC sent these checks to respondent
for clearing by operation of the PCHC clearing RTC rendered the assailed Order which held,
system. Thereafter, respondent dishonored the thus:
checks for insufficiency of funds and returned
the checks to HBTC. However, the latter refused Acting on plaintiff Far East Bank and Trust
to accept them since the checks were returned Company's "Motion To Dismiss Petition For
by respondent after the reglementary regional Review For Lack Of Jurisdiction", considering
clearing period. that the Petition for Review is a separate and
distinct case, the same must comply with all the
Meanwhile, before the termination of the requirements for filing initiatory pleadings for
arbitration proceedings, respondent filed civil actions before this Court so that since the
another complaint but this time with the commencement of the subject petition lacks the
Regional Trial Court (RTC) in Makati City for Sum mandatory requirements provided for, except
of Money and Damages with Preliminary the payment of docket fees, for lack of
Attachment. The complaint was filed not only
against HBTC but also against Robert Young,
jurisdiction, the Petition for Review is hereby of Court. Thus, the RTC of Makati did not err in
dismissed. dismissing the Petition for Review for lack of
jurisdiction but not on the ground that
The RTC denied petitioner's motion for petitioner should have filed a separate case
reconsideration. from Civil Case No. 92-145 but on the necessity
of filing the correct petition in the proper court.
Issue: It is immaterial whether petitioner filed the
Petition for Review in Civil Case No. 92-145 as
Whether or not the RTC erred in dismissing the an appeal of the arbitral award or whether it
petition of petitioner for lack of jurisdiction on filed a separate case in the RTC, considering
the ground that it should have been docketed that the RTC will only have jurisdiction over an
as a separate case. arbitral award in cases of motions to vacate the
same. Otherwise, as elucidated herein, the
Ruling: Court of Appeals retains jurisdiction in petitions
for review or in petitions for certiorari .
No. Jurisdiction is the authority to hear and Consequently, petitioner's arguments, with
determine a cause - the right to act in a case. respect to the filing of separate action from Civil
Jurisdiction over the subject matter is the power Case No. 92-145 resulting in a multiplicity of
to hear and determine the general class to suits, cannot be given due course.
which the proceedings in question belong.
Jurisdiction over the subject matter is conferred Alternative dispute resolution methods or ADRs
by law and not by the consent or acquiescence - like arbitration, mediation, negotiation and
of any or all of the parties or by erroneous conciliation - are encouraged by the Supreme
belief of the court that it exists. Court. By enabling parties to resolve their
disputes amicably, they provide solutions that
In the instant case, petitioner and respondent are less time-consuming, less tedious, less
have agreed that the PCHC Rules would govern confrontational, and more productive of
in case of controversy. However, since the PCHC goodwill and lasting relationships. It must be
Rules came about only as a result of an borne in mind that arbitration proceedings are
agreement between and among member banks mainly governed by the Arbitration Law and
of PCHC and not by law, it cannot confer suppletorily by the Rules of Court.
jurisdiction to the RTC. Thus, the portion of the
PCHC Rules granting jurisdiction to the RTC to LM POWER ENGINEERING CORP vs CAPITOL
review arbitral awards, only on questions of INDUSTRIAL CONSTRUCTION GROUPS INC.
law, cannot be given effect.
Facts:
Consequently, the proper recourse of petitioner In 183, LM Power and Capital Industrial
from the denial of its motion for Construction entered into a “Subcontract
reconsideration by the Arbitration Committee is Agreement” involving electrical work at Third
to file either a motion to vacate the arbitral Port of Zamboanga. Later on, Capitol took over
award with the RTC, a Petition for Review with some of the contract works to LM Power. It was
the Court of Appeals under Rule 43 of the Rules alleged that LM Power had failed to finish the
of Court, or a petition for certiorari under Rule work because of its inability to procure
65 of the Rules of Court. In the case at bar, materials. Upon completion of the work, LM
petitioner filed a Petition for Review with the Power billed Capitol, but the latter refused to
RTC when the same should have been filed with pay. Capitol then took refuge in the termination
the Court of Appeals under Rule 43 of the Rules clause of the Subcontract Agreement.
 This prompted LM Power to file a suspension of such action, as provided under RA
complaint for the collection of the amount of 876 [the Arbitration Law].
money representing the alleged balance due.
Instead of submitting an Answer, Capitol filed a
Motion to Dismiss on the ground that the
complaint filed against them was premature,
because there was no prior arbitration that
happened. the amount of advances and billable
The RTC denied the motion, on the accomplishments, the application of the
ground that the dispute did not involve the provision on termination, and the consequent
interpretation or the implementation of the set-off of expenses. The arbitral clause in the
Agreement, therefor not covered by the arbitral Agreement is a commitment on the part of the
clause. The CA reversed the trial court’s ruling parties to submit to arbitration the disputes
and ordered the referral of the case to covered therein. Because that clause is binding,
arbitration. they are expected to abide by it in good faith.
And because it covers the dispute between the
Issue: Whether or not the dispute is arbitrable parties in the present case, either of them may
Ruling: No. compel the other to arbitrate. Since petitioner
Essentially, the dispute arose from the has already filed a Complaint with the RTC
parties’ congruent positions on whether certain without prior recourse to arbitration, the
provisions of their Agreement could be applied proper procedure to enable the CIAC to decide
to the facts. The instant case involves technical on the dispute is to request the stay or
discrepancies that are better left to an arbitral suspension of such action, as provided under RA
body that has expertise in those areas. In any 876 [the Arbitration Law].
event, the inclusion of an arbitration clause in a
contract does not ipso facto divest the courts of Equitable vs. RCBC
jurisdiction to pass upon the findings of arbitral
bodies, because the awards are still judicially Facts:
reviewable under certain conditions. Clearly,
the resolution of the dispute between the Petitioners Equitable PCI Bank, Inc. (EPCIB) and
parties herein requires a referral to the the individual shareholders of Bankard, Inc., as
provisions of their Agreement. Within the scope sellers, and respondentRCBC Capital
of the arbitration clause are discrepancies as to Corporation (RCBC), as buyer, executed a Share
the amount of advances and billable Purchase Agreement (SPA) for the purchase of
accomplishments, the application of the petitioners’ interests in Bankard, representing
provision on termination, and the consequent 226,460,000 shares, for the price of PhP
set-off of expenses. The arbitral clause in the 1,786,769,400.
Agreement is a commitment on the part of the
parties to submit to arbitration the disputes To expedite thepurchase, RCBC agreed to
covered therein. Because that clause is binding, dispense with the conduct of a due diligence
they are expected to abide by it in good faith. audit on the financial status of Bankard. On
And because it covers the dispute between the June 2, 2000, RCBC deposited the stipulated
parties in the present case, either of them may downpayment amount in an escrow account
compel the other to arbitrate. Since petitioner after which it was given full management and
has already filed a Complaint with the RTC operational control of Bankard. June 2, 2000 is
without prior recourse to arbitration, the also considered by the parties as the Closing
proper procedure to enable the CIAC to decide Date referred to in the SPA.
on the dispute is to request the stay or
Sometime in September 2000, RCBC had the tribunal considered the rescission of the
Bankard’s accounts audited, creating for the SPA and ASPA as impracticable and "totally out
purpose an audit team and the conclusion was of the question.
that the warranty, as contained in Section 5(h)
of the SPA (simply Sec. 5[h] hereinafter), was RCBC filed with the RTC a Motion to Confirm
correct. RCBC paid the balance of the contract Partial Award. The RTC issued the first assailed
price. The corresponding deeds of sale for the order confirming the Partial Award and denying
shares in question were executed in January the adverted separate motions to vacate and to
2001. Thereafter RCBC informed petitioners of suspend and inhibit. From this order, petitioners
its having overpaid the purchase price of the sought reconsideration, but their motion was
subject shares, claiming that there was an denied by the RTC.
overstatement of valuation of accounts
amounting to PhP 478 million, resulting in the Issue: WON there is manifest disregard of the
overpayment of over PhP 616 million. Thus, law by the ICC-ICA
RCBC claimed that petitioners violated their
warranty, as sellers, embodied inSec. 5(g) of the Held: None.
SPA (Sec. 5[g] hereinafter). As earlier recited, the ICC-ICA’s Partial Award
dated September 27, 2007 was confirmed by
RCBC, in accordance with Sec. 10 of the SPA, the RTC in its first assailed order of January 8,
filed a 2008. Thereafter, the RTC, by order of March
Request for Arbitration dated May 12, 2004 17, 2008, denied petitioners’ motion for
with the ICC-ICA. In the request, RCBC charged reconsideration. Therefrom, petitioners came
Bankard with deviating from, contravening and directly to this Court on a petition for review
not following generally accepted accounting under Rule 45 of the Rules of Court.
principles and practices in maintaining their This is a procedural miscue for petitioners who
books. Arbitration in the ICC-ICA proceeded erroneously bypassed the Court of Appeals (CA)
after the formation of the arbitration tribunal in pursuit of its appeal. While this procedural
consisting of retired Justice Santiago gaffe has not been raised by RCBC, still we
M.Kapunan, nominated by petitioners; Neil would be remiss in not pointing out the proper
Kaplan, RCBC’s nominee; and Sir Ian Barker, mode of appeal from a decision of the RTC
appointed by the ICC-ICA. After drawn out confirming, vacating, setting aside, modifying,
proceedings with each party alleging deviation or correcting an arbitral award.
and non-compliance by the other Rule 45 is not the remedy available to
with arbitration rules, the tribunal, with Justice petitioners as the proper mode of appeal
Kapunan dissenting, rendered a Partial Award . assailing the decision of the RTC confirming as
On the matter of prescription, the tribunal held arbitral award is an appeal before the CA
that pursuant to Sec. 46 of Republic Act No. (RA)
RCBC’s claim is not time-barred, the claim 9285, otherwise known as the Alternative
properly falling under the contemplation of Sec. Dispute Resolution Act of 2004, or completely,
5(g) and not Sec. 5(h). As such, the tribunal An Act to Institutionalize the Use of an
concluded, RCBC’s claim was filed within the Alternative Dispute Resolution System in the
three (3)-year period under Sec. 5(g) and that Philippines and to Establish the Office for
the six (6)-month period under Sec. 5(h) did not Alternative Dispute Resolution, and for other
apply. Purposes, promulgated on April 2, 2004 and
became effective on April 28, 2004 after its
The tribunal also exonerated RCBC from laches, publication on April 13, 2004.
the latter having sought relief within the three It is clear from the factual antecedents that RA
(3)-year period prescribed in the SPA. Notably, 9285 applies to the instant case. This law was
already effective at the time the arbitral manufacture of LPG cylinders were shipped,
proceedings were commenced by RCBC through delivered, and installed in the Carmona plant.
a request for arbitration filed before the ICC-ICA PGSMC paid KOGIES USD 1,224,000.
on May 12, 2004. Besides, the assailed
confirmation order of the RTC was issued on However, gleaned from the Certificate executed
March 17, 2008. Thus, petitioners clearly took by the parties on January 22, 1998, after the
the wrong mode of appeal and the instant installation of the plant, the initial operation
petition can be outright rejected and dismissed. could not be conducted as PGSMC encountered
financial difficulties affecting the supply of
materials, thus forcing the parties to agree that
KOREA TECHNOLOGIES V. LERMA KOGIES would be deemed to have completely
complied with the terms and conditions of the
Facts: March 5, 1997 contract.

Petitioner Korea Technologies Co., Ltd. (KOGIES) For the remaining balance of USD306,000 for
is a Korean corporation which is engaged in the the installation and initial operation of the
supply and installation of Liquefied Petroleum plant, PGSMC issued two postdated checks: (1)
Gas (LPG) Cylinder manufacturing plants, while BPI Check No. 0316412 dated January 30, 1998
private respondent Pacific General Steel for PhP 4,500,000; and (2) BPI Check No.
Manufacturing Corp. (PGSMC) is a domestic 0316413 dated March 30, 1998 for PhP
corporation. 4,500,000.

PGSMC and KOGIES executed a Contract When KOGIES deposited the checks, these were
whereby KOGIES would set up an LPG Cylinder dishonored for the reason "PAYMENT
Manufacturing Plant in Carmona, Cavite. The STOPPED." Thus, KOGIES sent a demand letter
contract was executed in the Philippines. The to PGSMC threatening criminal action for
parties executed, in Korea, an Amendment for violation of Batas Pambansa Blg. 22 in case of
Contract No. KLP-970301 amending the terms nonpayment. On the same date, the wife of
of payment. The contract and its amendment PGSMC’s President faxed a letter to KOGIES’
stipulated that KOGIES will ship the machinery President who was then staying at a Makati City
and facilities necessary for manufacturing LPG hotel. She complained that not only did KOGIES
cylinders for which PGSMC would pay USD deliver a different brand of hydraulic press from
1,224,000. KOGIES would install and initiate the that agreed upon but it had not delivered
operation of the plant for which PGSMC bound several equipment parts already paid for.
itself to pay USD 306,000 upon the plant’s
production of the 11-kg. LPG cylinder samples. PGSMC replied that the two checks it issued
Thus, the total contract price amounted to USD KOGIES were fully funded but the payments
1,530,000. were stopped for reasons previously made
known to KOGIES.
PGSMC entered into a Contract of Lease with
Worth Properties, Inc. (Worth) for use of PGSMC informed KOGIES that PGSMC was
Worth’s 5,079-square meter property with a canceling their Contract on the ground that
4,032-square meter warehouse building to KOGIES had altered the quantity and lowered
house the LPG manufacturing plant. The the quality of the machineries and equipment it
monthly rental was PhP 322,560 with a 10% delivered to PGSMC, and that PGSMC would
annual increment clause. Subsequently, the dismantle and transfer the machineries,
machineries, equipment, and facilities for the equipment, and facilities installed in the
Carmona plant. Five days later, PGSMC filed PGSMC filed an opposition to the TRO arguing
before the Office of the Public Prosecutor an that KOGIES was not entitled to the TRO since
Affidavit-Complaint for Estafa against Mr. Dae Art. 15, the arbitration clause, was null and void
Hyun Kang, President of KOGIES. for being against public policy as it ousts the
local courts of jurisdiction over the instant
KOGIES wrote PGSMC informing the latter that controversy.
PGSMC could not unilaterally rescind their
contract nor dismantle and transfer the PGSMC filed its Answer with Compulsory
machineries and equipment on mere imagined Counterclaim asserting that it had the full right
violations by KOGIES. It also insisted that their to dismantle and transfer the machineries and
disputes should be settled by arbitration as equipment because it had paid for them in full
agreed upon in Article 15, the arbitration clause as stipulated in the contract; that KOGIES was
of their contract. not entitled to the PhP 9,000,000 covered by
the checks for failing to completely install and
PGSMC again wrote KOGIES reiterating the make the plant operational; and that KOGIES
contents of its letter threatening that the was liable for damages amounting to PhP
machineries, equipment, and facilities installed 4,500,000 for altering the quantity and lowering
in the plant would be dismantled and the quality of the machineries and equipment.
transferred. Thus, KOGIES instituted an Moreover, PGSMC averred that it has already
Application for Arbitration before the Korean paid PhP 2,257,920 in rent (covering January to
Commercial Arbitration Board (KCAB) in Seoul, July 1998) to Worth and it was not willing to
Korea pursuant to Art. 15 of the Contract as further shoulder the cost of renting the
amended. premises of the plant considering that the LPG
cylinder manufacturing plant never became
KOGIES filed a Complaint for Specific operational.
Performance against PGSMC before the
Muntinlupa City Regional Trial Court (RTC). The After the parties submitted their Memoranda,
RTC granted a temporary restraining order the RTC issued an Order denying the application
(TRO) which was subsequently extended. In its for a writ of preliminary injunction, reasoning
complaint, KOGIES alleged that PGSMC had that PGSMC had paid KOGIES USD 1,224,000,
initially admitted that the checks that were the value of the machineries and equipment as
stopped were not funded but later on claimed shown in the contract such that KOGIES no
that it stopped payment of the checks for the longer had proprietary rights over them. And
reason that "their value was not received" as finally, the RTC held that Art. 15 of the Contract
the former allegedly breached their contract by as amended was invalid as it tended to oust the
"altering the quantity and lowering the quality trial court or any other court jurisdiction over
of the machinery and equipment" installed in any dispute that may arise between the parties.
the plant and failed to make the plant KOGIES’ prayer for an injunctive writ was
operational although it earlier certified to the denied.
contrary as shown in a Certificate. Likewise,
KOGIES averred that PGSMC violated Art. 15 of KOGIES filed its Reply to Answer and Answer to
their Contract, as amended, by unilaterally Counterclaim. KOGIES denied it had altered the
rescinding the contract without resorting to quantity and lowered the quality of the
arbitration. KOGIES also asked that PGSMC be machinery, equipment, and facilities it delivered
restrained from dismantling and transferring to the plant. It averred that whatever was
the machinery and equipment installed in the unfinished was PGSMC’s fault since it failed to
plant which the latter threatened to do. procure raw materials due to lack of funds.
KOGIES, relying on Chung Fu Industries (Phils.),
Inc. v. Court of Appeals, insisted that the of Appeals (CA) a petition for certiorari, seeking
arbitration clause was without question valid. annulment of the RTC Orders and praying for
the issuance of writs of prohibition, mandamus,
After KOGIES filed a Supplemental and preliminary injunction to enjoin the RTC
Memorandum with Motion to Dismiss and PGSMC from inspecting, dismantling, and
answering PGSMC’s memorandum and seeking transferring the machineries and equipment in
dismissal of PGSMC’s counterclaims, KOGIES the Carmona plant, and to direct the RTC to
filed its Motion for Reconsideration of the Order enforce the specific agreement on arbitration to
denying its application for an injunctive writ resolve the dispute.
claiming that the contract was not merely for
machinery and facilities worth USD 1,224,000 In the meantime, the RTC denied KOGIES’
but was for the sale of an "LPG manufacturing urgent motion for reconsideration and directed
plant" consisting of "supply of all the machinery the Branch Sheriff to proceed with the
and facilities" and "transfer of technology" for a inspection of the machineries and equipment in
total contract price of USD 1,530,000 such that the plant.
the dismantling and transfer of the machinery
and facilities would result in the dismantling Thereafter, KOGIES filed a Supplement to the
and transfer of the very plant itself to the great Petition informing the CA about the RTC Order.
prejudice of KOGIES as the still unpaid It also reiterated its prayer for the issuance of
owner/seller of the plant. the writs of prohibition, mandamus and
preliminary injunction which was not acted
In the meantime, PGSMC filed a Motion for upon by the CA. KOGIES asserted that the
Inspection of Things to determine whether Branch Sheriff did not have the technical
there was indeed alteration of the quantity and expertise to ascertain whether or not the
lowering of quality of the machineries and machineries and equipment conformed to the
equipment, and whether these were properly specifications in the contract and were properly
installed. KOGIES opposed the motion positing installed.
that the queries and issues raised in the motion
for inspection fell under the coverage of the The Branch Sheriff filed his Sheriff’s Report
arbitration clause in their contract. finding that the enumerated machineries and
equipment were not fully and properly
The trial court issued an Order (1) granting installed.
PGSMC’s motion for inspection; (2) denying
KOGIES’ motion for reconsideration of the RTC The Court of Appeals affirmed the trial court
Order; and (3) denying KOGIES’ motion to and declared the arbitration clause against
dismiss PGSMC’s compulsory counterclaims as public policy.
these counterclaims fell within the requisites of
compulsory counterclaims. Issue:

KOGIES filed an Urgent Motion for Whether or not the arbitration clause in Article
Reconsideration of the RTC Order granting 15 of their contract for being contrary to public
inspection of the plant and denying dismissal of policy and for ousting the courts of jurisdiction
PGSMC’s compulsory counterclaims. is null and void.

Ten days after, without waiting for the Ruling:

resolution of its urgent motion for
reconsideration, KOGIES filed before the Court The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of not been shown to be contrary to any law, or
Art. 15 of the Contract, the arbitration clause. It against morals, good customs, public order, or
provides: public policy. There has been no showing that
the parties have not dealt with each other on
Article 15. Arbitration.—All disputes, equal footing. We find no reason why the
controversies, or differences which may arbitration clause should not be respected and
arise between the parties, out of or in complied with by both parties. In Gonzales v.
relation to or in connection with this Climax Mining Ltd.,35 we held that submission to
Contract or for the breach thereof, shall arbitration is a contract and that a clause in a
finally be settled by arbitration in Seoul, contract providing that all matters in dispute
Korea in accordance with the between the parties shall be referred to
Commercial Arbitration Rules of the arbitration is a contract.36 Again in Del Monte
Korean Commercial Arbitration Corporation-USA v. Court of Appeals, we
Board. The award rendered by the likewise ruled that "[t]he provision to submit to
arbitration(s) shall be final and arbitration any dispute arising therefrom and
binding upon both parties concerned. the relationship of the parties is part of that
(Emphasis supplied.) contract and is itself a contract."37

Petitioner claims the RTC and the CA erred in Arbitration clause not contrary to public policy
ruling that the arbitration clause is null and
void. The arbitration clause which stipulates that the
arbitration must be done in Seoul, Korea in
Petitioner is correct. accordance with the Commercial Arbitration
Rules of the KCAB, and that the arbitral award is
Established in this jurisdiction is the rule that final and binding, is not contrary to public
the law of the place where the contract is made policy. This Court has sanctioned the validity of
governs. Lex loci contractus. The contract in this arbitration clauses in a catena of cases. In the
case was perfected here in the Philippines. 1957 case of Eastboard Navigation Ltd. v. Juan
Therefore, our laws ought to govern. Ysmael and Co., Inc.,38 this Court had occasion
Nonetheless, Art. 2044 of the Civil Code to rule that an arbitration clause to resolve
sanctions the validity of mutually agreed differences and breaches of mutually agreed
arbitral clause or the finality and binding effect contractual terms is valid. In BF Corporation v.
of an arbitral award. Art. 2044 provides, "Any Court of Appeals, we held that "[i]n this
stipulation that the arbitrators’ award or jurisdiction, arbitration has been held valid and
decision shall be final, is valid, without constitutional. Even before the approval on
prejudice to Articles 2038, 2039 and 2040." June 19, 1953 of Republic Act No. 876, this
(Emphasis supplied.) Court has countenanced the settlement of
disputes through arbitration. Republic Act No.
Arts. 2038,31 2039,32 and 204033 abovecited refer 876 was adopted to supplement the New Civil
to instances where a compromise or an arbitral Code’s provisions on arbitration." 39 And in LM
award, as applied to Art. 2044 pursuant to Art. Power Engineering Corporation v. Capitol
2043,34 may be voided, rescinded, or annulled, Industrial Construction Groups, Inc., we
but these would not denigrate the finality of the declared that:
arbitral award.
Being an inexpensive, speedy and
The arbitration clause was mutually and amicable method of settling
voluntarily agreed upon by the parties. It has disputes, arbitration––along with
mediation, conciliation and
 negotiation––is encouraged by the clause, stipulating that the arbitral award is final
Supreme Court. Aside from unclogging and binding, does not oust our courts of
judicial dockets, arbitration also hastens jurisdiction as the international arbitral award,
the resolution of disputes, especially of the award of which is not absolute and without
the commercial kind. It is thus regarded exceptions, is still judicially reviewable under
as the "wave of the future" in certain conditions provided for by the
international civil and commercial UNCITRAL Model Law on ICA as applied and
disputes. Brushing aside a contractual incorporated in RA 9285.
agreement calling for arbitration
between the parties would be a step Finally, it must be noted that there is nothing in
backward. the subject Contract which provides that the
parties may dispense with the arbitration
Consistent with the above-mentioned clause.
policy of encouraging alternative
dispute resolution methods, courts
should liberally construe arbitration
clauses. Provided such clause is
susceptible of an interpretation that
covers the asserted dispute, an order to
arbitrate should be granted. Any doubt
should be resolved in favor of
arbitration.40

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.

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