Heirs of Salas v. Laperal Realty, Corp.

Code which provides that "contracts take effect only

between the parties, their assigns and heirs".
Augusto Salas, Jr. was the registered owner of a vast tract
of land in Lipa City, Batangas. He entered into an Owner- While rescission, as a general rule, is an arbitrable issue,
Contractor Agreement with Realty Corporation to render they impleaded in the suit for rescission the lot buyers
and provide complete horizontal construction services on who are neither parties to the Agreement nor the latter's
his land. Salas, Jr. executed a Special Power of Attorney assigns or heirs. Consequently, the right to arbitrate as
in favor of Laperal Realty to exercise general control, provided in Article VI of the Agreement was never vested
supervision and management of the sale of his land, for in the lot buyers.
cash or on installment basis. 1989, Salas, Jr. left his home
Laperal Realty, as a contracting party to the Agreement,
in the morning for a business trip to Nueva Ecija. He never
has the right to compel the heirs to first arbitrate before
returned. In 1996, Teresita Diaz Salas filed with the
seeking judicial relief. However, to split the proceedings
Regional Trial Court of Makati City a verified petition for
into arbitration for Laperal Realty and trial for the lot
the declaration of presumptive death of her husband,
buyers, or to hold trial in abeyance pending arbitration,
Salas, Jr., who had then been missing for more than
would in effect result in multiplicity of suits, duplicitous
seven (7) years. Meantime, Laperal Realty subdivided the
procedure and unnecessary delay. On the other hand, it
land of Salas, Jr. and sold subdivided portions thereof to
Rockway Real Estate Corporation and South Ridge Village, would be in the interest of justice if the trial court hears
the complaint against all herein respondents and
Inc., to spouses Abrajano and Lava and Oscar Dacillo and
adjudicates petitioners' rights as against theirs in a single
to Eduardo Vacuna, Florante de la Cruz and Jesus Vicente
and complete proceeding.
Capalan. The heirs of Salas Jr. filed a complaint before
the RTC of Lipa City for declaration of nullity of sale, Home Bankers Savings and Trust Co. v. CA
reconveyance, cancellation of contract, accounting and
damages against Laperal Realty and the buyers, alleging Facts: Victor Tancuan issued a Home Bankers Savings and
that they suffered suffered lesion of more than one-fourth Trust Company check worth P25,250,000.00 while
(1/4) of the value of Salas, Jr.'s land. Laperal Realty filed Eugene Arriesgado issued three Far East Bank and Trust
a Motion to Dismiss on the ground that heirs failed to Company checks amounting to P25,200,000.00. Tancuan
submit their grievance to arbitration as required under and Arriesgado exchanged each other's checks and
Article VI of the Agreement. deposited them with their respective banks for collection.
When FEBTC presented Tancuan's HBSTC check for
Issue: Whether or not the complaint shall be dismissed clearing, HBSTC dishonored it for being "Drawn Against
for failure to submit the grievance first to arbitration. Insufficient Funds." HBSTC sent Arriesgado's three FEBTC
Held: No. A submission to arbitration is a contract. As checks through the Philippine Clearing House Corporation
to FEBTC but was returned as "Drawn Against Insufficient
such, the Agreement, containing the stipulation on
Funds." HBSTC received the notice of dishonor but
arbitration, binds the parties thereto, as well as their
refused to accept the checks and returned them to FEBTC
assigns and heirs. But only they, petitioners, as heirs of
through the PCHC for the reason "Beyond Reglementary
Salas, Jr., and Laperal Realty are certainly bound by the
Period," implying that HBSTC already treated the three
Agreement. If Laperal Realty had assigned its rights under
FEBTC checks as cleared and allowed the proceeds
the Agreement to a third party, making the former, the
thereof to be withdrawn. FEBTC demanded
assignor, and the latter, the assignee, such assignee
reimbursement for the returned checks and inquired from
would also be bound by the arbitration provision since
assignment involves such transfer of rights as to vest in HBSTC whether it had permitted any withdrawal of funds
against the unfunded checks and if so, on what date.
the assignee the power to enforce them to the same
HBSTC, however, refused to make any reimbursement
extent as the assignor could have enforced them against
and to provide FEBTC with the needed information.
the debtor or in this case, against the heirs of the original
FEBTC submitted the dispute for arbitration before the
party to the Agreement. However, Rockway Real Estate
PCHC Arbitration Committee. While the arbitration
Corporation, South Ridge Village, Inc., Maharami
proceeding was still pending, FEBTC filed an action for
Development Corporation, spouses Abrajano, spouses
sum of money and damages with preliminary attachment
Lava, Oscar Dacillo, Eduardo Vacuna, Florante de la Cruz
against HBSTC, Robert Young, Victor Tancuan and
and Jesus Vicente Capellan are not assignees of the rights
Eugene Arriesgado with the RTC of Makati. A motion to
of Laperal Realty under the Agreement to develop Salas,
dismiss was filed by HBSTC claiming that the complaint
Jr.'s land and sell the same. They are, rather, buyers of
the land that Laperal Realty was given the authority to stated no cause of action and accordingly ". . . should be
dismissed because it seeks to enforce an arbitral award
develop and sell under the Agreement. As such, they are
which as yet does not exist." RTC denied the motion to
not "assigns" contemplated in Art. 1311 of the New Civil
dismiss. CA dismissed HBSTC’s petition for certiorari Subcontract. Instead of submitting an Answer, Capitol
stating that a party to a pending arbitral proceeding may filed a Motion to Dismiss, alleging that the Complaint was
go to court to obtain conservatory reliefs in connection premature, because there was no prior recourse to
with his cause of action although the disposal of that arbitration. The Subcontract has the following arbitral
action on the merits cannot as yet be obtained. clause:

Issue: Whether or not FEBTC which commenced an "6.The Parties hereto agree that any dispute or conflict as
arbitration proceeding under the auspices of the regards to interpretation and implementation of this
Philippine Clearing House Corporation may subsequently Agreement which cannot be settled between
file a separate case in court over the same subject matter [respondent] and [petitioner] amicably shall be settled by
of arbitration despite the pendency of that arbitration, means of arbitration . . ."
simply to obtain the provisional remedy of attachment
against the bank RTC denied the Motion on the ground that the dispute did
not involve the interpretation or the implementation of
Held: Yes. Section 14 of Republic Act 876, otherwise the Agreement and was, therefore, not covered by the
known as the Arbitration Law, allows any party to the arbitral clause. RTC ruled that the take-over of some work
arbitration proceeding to petition the court to take items by Capitol was not equivalent to a termination, but
measures to safeguard and/or conserve any matter which a mere modification, of the Subcontract. Hence, Capitol
is the subject of the dispute in arbitration. Section 14 was ordered to give full payment for the work completed
simply grants an arbitrator the power to issue subpoena by LM Power Engineering. CA reversed the RTC decision
and subpoena duces tecum at any time before rendering and ordered the referral of the case to arbitration. In its
the award. The exercise of such power is without Petition for review on Certiorari before the SC, LM Power
prejudice to the right of a party to file a petition in court Engineering argued that there is no conflict regarding the
to safeguard any matter which is the subject of the interpretation or the implementation of the Agreement,
dispute in arbitration. In this case, FEBTC filed an action hence arbitration is not required and that the failure to
for a sum of money with prayer for a writ of preliminary file a formal request for arbitration with the Construction
attachment. Undoubtedly, such action involved the same Industry Arbitration Commission (CIAC) precluded the
subject matter as that in arbitration, i.e., the sum of latter from acquiring jurisdiction over the question.
P25,200,000.00 which was allegedly deprived from FEBTC
Issue: Whether or not CIAC has jurisdiction to conduct
in what is known in banking as a "kiting scheme."
arbitration
However, the civil action was not a simple case of a
money claim since FEBTC has included a prayer for a writ Held: Yes. Clearly, the resolution of the dispute between
of preliminary attachment, which is sanctioned by Section the parties herein requires a referral to the provisions of
14 of the Arbitration Law. their Agreement. Within the scope of the arbitration
clause are discrepancies as to the amount of advances
LM Power Engineering Corp. v. Capitol Industrial
Construction Groups and billable accomplishments, the application of the
provision on termination, and the consequent set-off of
Facts: LM Power Engineering Corporation and Capitol expenses. Being an inexpensive, speedy and amicable
Industrial Construction Groups Inc. entered into a method of settling disputes, arbitration — along with
"Subcontract Agreement" involving electrical work at the mediation, conciliation and negotiation — is encouraged
Third Port of Zamboanga. Capitol took over some of the by the Supreme Court. Aside from unclogging judicial
work contracted to LM Power Engineering which the latter dockets, arbitration also hastens the resolution of
had failed to finish it because of its inability to procure disputes, especially of the commercial kind. It is thus
materials. Upon completing its task under the Contract, regarded as the "wave of the future" in international civil
LM Power Engineering billed Capitol in the amount of and commercial disputes. Brushing aside a contractual
P6,711,813.90. Contesting the accuracy of the amount of agreement calling for arbitration between the parties
advances and billable accomplishments listed by LM, would be a step backward. Consistent with the above-
Capitol refused to pay and also took refuge in the mentioned policy of encouraging alternative dispute
termination clause of their Agreement which allowed resolution methods, courts should liberally construe
Capitol to set off the cost of the work that LM Power arbitration clauses. Provided such clause is susceptible of
Engineering had failed to undertake — due to termination an interpretation that covers the asserted dispute, an
or take-over — against the amount it owed the LM Power order to arbitrate should be granted. Any doubt should be
Engineering. Because of the dispute, LM filed with the resolved in favor of arbitration.
RTC of Makati a complaint for the collection of the amount
Section 1 of Article II of the old Rules of Procedure
representing the alleged balance due it under the
Governing Construction Arbitration indeed required the
submission of a request for arbitration. On the other is carried). During the lifetime of the said Agreement,
hand, Section 1 of Article III of the new Rules of Florex International, Inc. delivered to AMML cargo of
Procedure Governing Construction Arbitration has various foodstuffs, with Oakland, California as port of
dispensed with this requirement and recourse to the CIAC discharge and San Francisco as place of delivery. Under
may now be availed of whenever a contract "contains a this arrangement, AMML was the principal carrier while
clause for the submission of a future controversy to Sea Land was the containership operator. The consignee
arbitration. The foregoing amendments in the Rules were refused to pay for the cargo, alleging that delivery thereof
formalized by CIAC Resolution Nos. 2-91 and 3-93. The was delayed. Thus, Florex filed a complaint against
difference in the two provisions was clearly explained in Maersk-Tabacalera Shipping Agency (Filipinas) Inc., for
China Chang Jiang Energy Corporation (Philippines) v. reimbursement of the value of the cargo and other
Rosal Infrastructure Builders et al. quoted thus: "Under charges. According to Florex, the cargo was delayed since
the present Rules of Procedure, for a particular it was discharged in Long Beach, California, instead of in
construction contract to fall within the jurisdiction of Oakland, California as stipulated. AMML filed its Answer
CIAC, it is merely required that the parties agree to submit alleging that even on the assumption that Florex was
the same to voluntary arbitration. Unlike in the original entitled to reimbursement, it was Sea Land who should
version of Section 1, as applied in the Tesco case, the law be liable. Accordingly, AMML filed a Third Party Complaint
as it now stands does not provide that the parties should against Sea Land which actually received and transported
agree to submit disputes arising from their agreement Florex's cargo on its vessels and unloaded them. Sea Land
specifically to the CIAC for the latter to acquire jurisdiction prayed either for dismissal or suspension of the Third
over the same. Rather, it is plain and clear that as long as Party Complaint on the ground that there exists an
the parties agree to submit to voluntary arbitration, arbitration agreement between it and AMML. Both the trial
regardless of what forum they may choose, their court and the Court of Appeals denied Sea Land’s prayer
agreement will fall within the jurisdiction of the CIAC, for arbitration.
such that, even if they specifically choose another forum,
Issue: Whether or not the Third Party Complaint should
the parties will not be precluded from electing to submit
proceed without arbitration
their dispute before the CIAC because this right has been
vested upon each party by law, i.e., E.O. No. 1008." Held: No. AMML's Third Party Claim against Sea Land to
Clearly, there is no more need to file a request with the proceed would be in violation of Clause 16.2 of the
Agreement. As summarized, the clause provides that
CIAC in order to vest it with jurisdiction to decide a
whatever dispute there may be between the Principal
construction dispute. The arbitral clause in the Agreement
Carrier and the Containership Operator arising from
is a commitment on the part of the parties to submit to
contracts of carriage shall be governed by the provisions
arbitration the disputes covered therein. Because that
of the bills of lading deemed issued to the Principal Carrier
clause is binding, they are expected to abide by it in good
by the Containership Operator. To sustain the Third Party
faith. And because it covers the dispute between
Complaint would be to allow AMML to hold Sea Land liable
theparties in the present case, either of them may compel
under the provisions of the bill of lading issued by AMML
the other to arbitrate. Since LM Power Engineering has
already filed a Complaint with the RTC without prior as Principal Carrier to Florex, under which Florex is suing
in its Complaint, not under the bill of lading Sea Land, as
recourse to arbitration, the proper procedure to enable
containership operator, issued to respondent AMML, as
the CIAC to decide on the dispute is to request the stay
Principal Carrier, contrary to what is contemplated in
or suspension of such action, as provided under RA 876
Clause 16.2.
or the Arbitration Law.

Sea Land Service, Inc. v. CA Arbitration is the mode by which the liability of the
Containership Operator may be finally determined. This is
Facts: Sea-Land Services, Inc. and A.P. Moller/Maersk clear from the mandate of Clause 16.3 that "(T)he
Line, both carriers of cargo in containerships as well as Principal Carrier shall have the right to seek damages
common carriers, entered into a contract entitled, "Co- and/or an indemnity from the Containership Operator by
operation in the Pacific," a vessel sharing agreement arbitration" and that it "shall be entitled to commence
whereby they mutually agreed to purchase, share and such arbitration at any time until one year after its liability
exchange needed space for cargo in their respective has been finally determined by agreement, arbitration
containerships. Under the Agreement, they could be, award or judgment." Pursuant to Clause 16.3 of the
depending on the occasion, either a principal carrier (with Agreement, respondent AMML, when faced with such a
a negotiable bill of lading or other contract of carriage suit "shall use all reasonable endeavours to defend" itself
with respect to cargo) or a containership operator (owner, or "settle such suits for as low a figure as reasonably
operator or charterer of containership on which the cargo possible." In turn, AMML can seek damages and/or
indemnity from Sea Land as Containership Operator for favor of its employer and the MCHC would have to protect
whatever final judgment may be adjudged against it and preserve its own interest; hence, the two (2) votes
under the Complaint of Florex. The crucial point is that would certainly be against the lone arbitrator of Zosa.
collection of said damages and/or indemnity from Sea
Land should be by arbitration. Issue: Whether or not the arbitration clause is properly
declared partially void
Magellan Capital Management, Corp. v. Zosa
Held: Yes. The Supreme Court finds the trial court's
Facts: Under a management agreement, Magellan Capital observations on why the composition of the panel of
Holdings Corporation [MCHC] appointed Magellan Capital arbitrators should be voided, incisively correct.
Management Corporation [MCMC] as manager for the
First, it is error for MCHC and MCMC to claim that the case
operation of its business and affairs. Pursuant thereto,
should fall under the jurisdiction of the Securities and
MCHC, MCMC, and Rolando M. Zosa entered into an
Exchange Commission. The controversy does not in
"Employment Agreement" designating Zosa as President
anyway involve the election/appointment of officers of
and Chief Executive Officer of MCHC. Under the
"Employment Agreement", the term of Zosa's MCHC. Zosa's amended complaint focuses heavily on the
illegality of the Employment Agreement's "Arbitration
employment shall be co-terminous with the management
Clause" initially invoked by him in seeking his termination
agreement, or until March 1996, unless sooner terminated
benefits under Section 8 of the employment contract. And
pursuant to the provisions of the Employment Agreement.
under Republic Act No. 876, otherwise known as the
On May 10, 1995, the majority of MCHC's Board of
"Arbitration Law," it is the regional trial court which
Directors decided not to re-elect Zosa as President and
exercises jurisdiction over questions relating to
Chief Executive Officer of MCHC on account of loss of trust
arbitration.
and confidence arising from alleged violation of the
resolution issued by MCHC's board of directors and of the According to Article 2045 of the Civil Code, “Any clause
non-competition clause of the Employment Agreement. giving one of the parties power to choose more arbitrators
Nevertheless, Zosa was elected to a new position as than the other is void and of no effect." The dispute or
MCHC's Vice-Chairman/Chairman for New Ventures controversy between MCMC and MCHC and Zosa should
Development. Later, Zosa communicated his resignation be settled in the arbitration proceeding in accordance with
for good reason from the position of Vice-Chairman under the Employment Agreement, but under the panel of three
the Employment Agreement on the ground that said (3) arbitrators, one (1) arbitrator to represent the Zosa,
position had less responsibility and scope than President (1) arbitrator to represent both MCMC and MCHC and the
and Chief Executive Officer. He demanded that he be third arbitrator to be chosen by both parties.
given termination benefits as provided for in the
Employment Agreement. MCHC communicated its non- Arbitration proceedings are designed to level the playing
acceptance of Zosa's resignation for good reason, but field among the parties in pursuit of a mutually acceptable
instead informed him that the Employment Agreement is solution to their conflicting claims. Any arrangement or
terminated for cause, and advised Zosa that he shall have scheme that would give undue advantage to a party in
no further rights under the said Agreement or any claims the negotiating table is anathema to the very purpose of
against the Manager or the Corporation except the right arbitration and should, therefore, be resisted.
to receive his termination benefits. Disagreeing with the
Del Monte Corp.-USA v. CA
position taken by MCHC, Zosa invoked the Arbitration
Clause of the Employment Agreement. However, instead Facts: In a Distributorship Agreement, Del Monte
of submitting the dispute to arbitration, Zosa, filed an Corporation-USA appointed Montebueno Marketing, Inc.
action for damages against MCHC before the RTC of Cebu as the sole and exclusive distributor of its Del Monte
to enforce his benefits under the Employment Agreement. products in the Philippines for a period of 5 years,
MCHC filed a motion to dismiss arguing that the trial court renewable for two (2) consecutive 5 year periods with the
has no jurisdiction over the instant case since Zosa's consent of the parties. The Agreement provided, among
claims should be resolved through arbitration pursuant to others, for an arbitration clause which states that disputes
Section 23 of their Employment Agreement. The RTC arising out of the Agreement shall be resolved in the City
denied the motion to dismiss and in its judgment, of San Francisco, State of California, under the Rules of
declared the arbitration clause partially void insofar as it the American Arbitration Association. Immediately after
concerns the composition of the panel of arbitrators. It its appointment, MMI appointed Sabrosa Foods, Inc. with
appears that MCMC and MCHC have one (1) arbitrator the approval of DMC-USA, as MMI's marketing arm to
each to compose the panel of three arbitrators. As MCMC concentrate on its marketing and selling function as well
is the Manager of MCHC, its decision or vote in the as to manage its critical relationship with the trade. Two
arbitration proceeding would naturally and certainly be in years later, MMI, SFI and MMI's Managing Director Liong
Liong C. Sy filed a Complaint against DMC-USA, its could be called for but only as to DMC-USA and Paul E.
Managing Director Derby, its Regional Director Daniel Derby, Jr., and MMI and LILY SY, and not as to the other
Collins, its Head of credit Services, Luis Hidalgo and parties in this case. In recognizing the right of the
Dewey, Ltd., owner by assignment of its trademark here. contracting parties to arbitrate or to compel arbitration,
before the RTC of Malabon, Metro Manila predicated on the splitting of the proceedings to arbitration as to some
the alleged violations by DMC-USA of Arts. 20, 21 and 23 of the parties on one hand and trial for the others on the
of the Civil Code. DMC-USA products continued to be other hand, or the suspension of trial pending arbitration
brought into the country by parallel importers despite the between some of the parties, should not be allowed as it
appointment of MMI as the sole and exclusive distributor would, in effect, resultin multiplicity of suits, duplicitous
of Del Monte products thereby causing them great procedure and unnecessary delay.
embarrassment and substantial damage. DMC-USA filed
The object of arbitration is to allow the expeditious
a Motion to Suspend Proceedings invoking the arbitration
determination of a dispute. Clearly, the issue before us
clause in their Agreement. The trial court deferred
could not be speedily and efficiently resolved in its
consideration of the Motion to Suspend Proceedings as
entirety if we allow simultaneous arbitration proceedings
the grounds alleged therein did not constitute the
and trial, or suspension of trial pending arbitration.
suspension of the proceedings considering that the action
Accordingly, the interest of justice would only be served
was for damages with prayer for the issuance of Writ of
if the trial court hears and adjudicates the case in a single
Preliminary Attachment and not on the Distributorship
and complete proceeding.
Agreement. CA affirmed the decision of the RTC and held
that in determining whether DMC-USA had violated the Cargill Philippines, Inc. v. San Fernando Regala
Distributorship Agreement "would require a full blown Trading, Inc.
trial" making arbitration "out of the question."
Facts: San Fernando Regala Trading, Inc. was engaged in
Issue: Whether or not the dispute between the parties buying and selling of molasses and Cargill Philippines, Inc.
warrants an order compelling them to submit to was one of its various sources from whom it purchased
arbitration. molasses. The parties entered into an agreement wherein
SFRTI would purchase from Cargill 12,000 metric tons of
Held: No. As RA 876 expressly authorizes arbitration of
Thailand origin cane blackstrap molasses. Cargill, as
domestic disputes, foreign arbitration as a system of
seller, failed to comply with its obligations under the
settling commercial disputes was likewise recognized
contract, despite demands from SFRTI, thus, SFRTI filed
when the Philippines adhered to the United Nations
with the RTC of Makati City a Complaint for Rescission of
"Convention on the Recognition and the Enforcement of
Contract with Damages. Cargill filed a Motion to
Foreign Arbitral Awards of 1958" under the 10 May 1965
Dismiss/Suspend Proceedings and to Refer Controversy to
Resolution No. 71 of the Philippine Senate, giving
Voluntary Arbitration, invoking the Arbitration clause in
reciprocal recognition and allowing enforcement of
international arbitration agreements between parties of their contract which provides “Any dispute which the
Buyer and Seller may not be able to settle by mutual
different nationalities within a contracting state. However,
agreement shall be settled by arbitration in the City of
while the arbitration clause is valid and the dispute
New York before the American Arbitration Association.
between the parties is arbitrable, arbitration should not
be had in this case. The Arbitration Award shall be final and binding on both
parties.” SFRTI filed an Opposition, arguing that the
The Agreement between DMC-USA and MMI is a contract. arbitration clause should be struck down as void for being
The provision to submit to arbitration any dispute arising contrary to public policy since it provided that the
therefrom and the relationship of the parties is part of arbitration award shall be final and binding on both
that contract and is itself a contract. As a rule, contracts parties, thus, ousting the courts of jurisdiction. RTC
are respected as the law between the contracting parties denied the motion to dismiss, declaring the Arbitration
and produce effect as between them, their assigns and clause void since the Arbitration Law contemplates an
heirs. Clearly, only parties to the Agreement, are bound arbitration proceeding that must be conducted in the
by the Arbitration Clause are the only signatories thereto. Philippines under the jurisdiction and control of the RTC;
Daniel Collins and Luis Hidalgo, and SFI, not parties to the and before an arbitrator who resides in the country; and
Agreement and cannot even be considered assigns or that the arbitral award is subject to court approval,
heirs of the parties, are not bound by the Agreement and disapproval and modification, and that there must be an
the arbitration clause therein. Consequently, referral to appeal from the judgment of the RTC. CA upheld the
arbitration in the State of California pursuant to the validity of the arbitration clause because there was
arbitration clause and the suspension of the proceedings nothing in the Civil Code, or R.A. No. 876, that require
in the civil case pending the return of the arbitral award that arbitration proceedings must be conducted only in
the Philippines and the arbitrators should be Philippine informed EPCIB and the other selling shareholders of an
residents. It also found that the RTC ruling effectively overpayment of the subject shares, claiming there was an
invalidated not only the disputed arbitration clause, but overstatement of valuation of accounts amounting to
all other agreements which provide for foreign arbitration. P478 million and that the sellers violated their warranty
Nonetheless, CA still held that the case cannot be brought under Section 5 (g) of the SPA. As no settlement was
under the Arbitration Law for the purpose of suspending reached, RCBC commenced arbitration proceedings wit h
the proceedings before the RTC, since Arbitration is not the International Chamber of Commerce- International
proper when one of the parties repudiated the existence Court of Arbitration in accordance with Section 10 of the
or validity of the contract. SPA. In its request for arbitration, RCBC charged Bankard
with deviating from and contravening generally accepted
Issue: Whether or not the proceedings before the court accounting principles and practices, due to which the
should be suspended on account of the arbitration clause.
financial statements of Bankard prior to the stock
Held: Yes. An arbitration agreement which forms part of purchase were far from fair and accurate, and resulted in
the main contract shall not be regarded as invalid or non- the overpayment of P556 million. ICC-ICA required the
existent just because the main contract is invalid or did parties to pay their advance on costs but only RCBC
not come into existence, since the arbitration agreement heeded while BDO insisted that it would be unfair to
shall be treated as a separate agreement independent of require them to share in the costs of arbitrating what is
the main contract. To reiterate a contrary ruling would essentially a price issue that is now time-barred under the
suggest that a party's mere repudiation of the main SPA. Upon the commencement of the hearings, the
contract is sufficient to avoid arbitration and that is Arbitration Tribunal decided that hearings will be initially
exactly the situation that the separability doctrine sought confined to issues of liability (liability phase) while the
to avoid. Thus, even the party who has repudiated the substantial issues will be heard on a later date (quantum
main contract is not prevented from enforcing its phase). Meanwhile, EPCIB's corporate name was officially
arbitration clause. changed to Banco De Oro (BDO)-EPCIB after its merger
with BDO was duly approved by the Securities and
Moreover, it is worthy to note that SFRTI filed a complaint Exchange Commission. As such, BDO assumed all the
for rescission of contract and damages with the RTC. In obligations and liabilities of EPCIB under the SPA.
so doing, SFRTI alleged that a contract exists between Arbitration Tribunal rendered the first partial award in
them and Cargill. It is that contract which provides for an favor of RCBC. RCBC filed with the Makati City RTC,
arbitration clause. The arbitration agreement clearly Branch 148 a motion to confirm the First Partial Award,
expressed the parties' intention that any dispute between while BDO filed a motion to vacate the same. Makati RTC
them as buyer and seller should be referred to arbitration. issued an order confirming the First Partial Award.
It is for the arbitrator and not the courts to decide Thereafter, BDO directly filed with the Supreme Court a
whether a contract between the parties exists or is valid. petition for review on certiorari under Rule 45. SC
affirmed the RTC’s ruling. As regards the proceedings for
SRFTI cannot rely on the case of Gonzales v. Climax
the Second Partial Award, RCBC filed an Application for
Mining Ltd., where the SC held:
Reimbursement of Advance on Costs Paid, praying for the
“when we declared that the case should not be brought issuance of a partial award directing BDO to reimburse its
for arbitration, it should be clarified that the case referred payment in the amount representing BDO’s share in the
to is the case actually filed by Gonzales before the DENR Advance on Costs and to consider BDO’s counterclaims
Panel of Arbitrators, which was for the nullification of the withdrawn for their failure to pay their equal share in the
main contract on the ground of fraud, as it had already advance on costs. BDO filed an opposition to the said
been determined that the case should have been brought application alleging that the Arbitration Tribunal has lost
before the regular courts involving as it did judicial its objectivity in an unnecessary litigation over the
issues." payment of BDO’s share in the advance costs. The
Arbitration Tribunal rendered the Second Partial Award in
RCBC v. BDO favor of RCBC, ordering the reimbursement and
Facts: RCBC entered into a Share Purchase Agreement considered BDO’s counterclaim as withdrawn. EPCIB/BDO
with Equitable-PCI Bank, Inc., George L. Go and the filed before the Makati RTC a Motion to Vacate Second
individual shareholders of Bankard, Inc. for the sale to Partial Award while RCBC moved for the confirmation of
RCBC of 226,460,000 shares of Bankard constituting 67% the same. The RTC confirmed the Second Partial Award.
of the latter's capital stock. After completing payment of EPCIB filed in the CA a petition for review with application
the contract price, the corresponding deeds of sale over for TRO and/or writ of preliminary injunction in
the subject shares were executed. The dispute between accordance with Rule 19, Section 4 of the Special Rules
the parties arose sometime in May 2003 when RCBC of Court on Alternative Dispute Resolution. Meanwhile,
the Arbitration Tribunal issued the Final Award in favor of identification or inference" of partiality. Despite the
RCBC. Makati RTC, Branch 148 confirmed the Final increasing adoption of arbitration in many jurisdictions,
Award. Meanwhile, CA reversed and set aside the there seems to be no established standard for
confirmation of the second award. RCBC filed a petition determining the existence of evident partiality. In the US,
for review on certiorari in the Supreme Court. Since the evident partiality "continues to be the subject of
Final Award has been confirmed, RCBC filed an Urgent somewhat conflicting and inconsistent judicial
Motion for a Writ of Execution. BDO filed for a stay order interpretation when an arbitrator's failure to disclose prior
and/or TRO/writ of preliminary injunction, and to quash dealings is at issue."
the Writ of Execution during pendency of the proceedings
before the CA. The Court adopts the reasonable impression of
partiality standard, which requires a showing that a
Issue: I. Whether or not there is legal ground to vacate reasonable person would have to conclude that an
the second partial award arbitrator was partial to the other party to the arbitration.
Such interest or bias, moreover, "must be direct, definite
II. Whether or not BDO is entitled to injunctive relief
and capable of demonstration rather than remote,
Held: uncertain, or speculative." When a claim of arbitrator's
evident partiality is made, "the court must ascertain from
I. Yes. A review brought to the SC under the Special ADR such record as is available whether the arbitrators'
Rules is not a matter of right but of sound judicial conduct was so biased and prejudiced as to destroy
discretion, which will be granted only for serious and fundamental fairness." Courts are generally without
compelling reasons resulting in grave prejudice to the power to amend or overrule merely because of
aggrieved party. The mere fact that the petitioner disagreement with matters of law or facts determined by
disagrees with the Court of Appeals' determination of the arbitrators. They will not review the findings of law
questions of fact, of law or both questions of fact and law, and fact contained in an award, and will not undertake to
shall not warrant the exercise of the Supreme Court's substitute their judgment for that of the arbitrators. A
discretionary power. The error imputed to the Court of contrary rule would make an arbitration award the
Appeals must be grounded upon any of the prescribed commencement, not the end, of litigation.
grounds under Rule 19.36 of the Special ADR Rules. As a
rule, the award of an arbitrator cannot be set aside for It is the finding of evident partiality which constitutes legal
mere errors of judgment either as to the law or as to the ground for vacating the Second Partial Award and not the
facts. Courts are without power to amend or overrule Arbitration Tribunal's application of the ICC Rules
merely because of disagreement with matters of law or adopting the "contractual approach" tackled in Secomb's
facts determined by the arbitrators. They will not review article. Alternative dispute resolution methods or ADRs —
the findings of law and fact contained in an award, and like arbitration, mediation, negotiation and conciliation —
will not undertake to substitute their judgment for that of are encouraged by this Court. By enabling parties to
the arbitrators, since any other rule would make an award resolve their disputes amicably, they provide solutions
the commencement, not the end, of litigation. Errors of that are less time-consuming, less tedious, less
law and fact, or an erroneous decision of matters confrontational, and more productive of goodwill and
submitted to the judgment of the arbitrators, are lasting relationship. Institutionalization of ADR was
insufficient to invalidate an award fairly and honestly envisioned as "an important means to achieve speedy and
made. Judicial review of an arbitration is, thus, more impartial justice and declog court dockets." The most
limited than judicial review of a trial. Accordingly, the SC important feature of arbitration, and indeed, the key to its
examine the merits of the petition solely on the statutory success, is the public's confidence and trust in the
ground raised for vacating the Second Partial Award: integrity of the process. For this reason, the law
evident partiality, pursuant to Section 24 (b) of the authorizes vacating an arbitral award when there is
Arbitration Law (RA 876) and Rule 11.4 (b) of the Special evident partiality in the arbitrators.
ADR Rules. Evident partiality is not defined in our II. No. Rule 19.22 of the Special ADR Rules states:
arbitration laws. As one of the grounds for vacating an
arbitral award under the Federal Arbitration Act (FAA) in Rule 19.22. Effect of appeal. — The appeal shall not stay
the United States (US), the term "encompasses both an the award, judgment, final order or resolution sought to
arbitrator's explicit bias toward one party and an be reviewed unless the Court of Appeals directs otherwise
arbitrator's inferred bias when an arbitrator fails to upon such terms as it may deem just.
disclose relevant information to the parties." Evident
We find no reversible error or grave abuse of discretion in
partiality in its common definition thus implies "the
the CA's denial of the application for stay order or TRO
existence of signs and indications that must lead to an
upon its finding that BDO failed to establish the existence
of a clear legal right to enjoin execution of the Final Award the party to make their own arrangements to resolve their
confirmed by the Makati City RTC, Branch 148, pending disputes."
resolution of its appeal.
It is in the best interest of justice that in the enforcement
TUNA PROCESSING INC. v. PHILIPPINE of a foreign arbitral award, the Court deny availment by
KINGFORD, INC. the losing party of the rule that bars foreign corporations
not licensed to do business in the Philippines from
Facts: Kanemitsu Yamaoka, (licensor) co-patentee of U.S.
maintaining a suit in our courts. When a party enters into
Patent No. 5,484,619, Philippine Letters Patent No.
a contract containing a foreign arbitration clause and, as
31138, and Indonesian Patent No. ID0003911
in this case, in fact submits itself to arbitration, it becomes
(collectively referred to as the "Yamaoka Patent"), and
bound by the contract, by the arbitration and by the result
five Philippine tuna processors, namely, Angel Seafood
of arbitration, conceding thereby the capacity of the other
Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna
party to enter into the contract, participate in the
Resources, Santa Cruz Seafoods, Inc., and Philippine
arbitration and cause the implementation of the result.
Kingford Inc. (licensees) entered into a Memorandum of
Clearly, on the matter of capacity to sue, a foreign arbitral
Agreement for the establishment of Tuna Processors, Inc.
award should be respected not because it is favored over
in the State of California, for the purpose of granting
domestic laws and procedures, but because Republic Act
licenses under the Yamaoka patents, and collecting No. 9285 has certainly erased any conflict of law question.
royalties. Due to a series of events, the licensees,
including Kingford, withdrew from TPI and ABSCBN v. WINS
correspondingly reneged on their obligations. TPI
Facts: ABS-CBN Broadcasting Corporation entered into a
submitted the dispute for arbitration before the
licensing agreement with World Interactive Network
International Centre for Dispute Resolution in the State of
Systems (WINS) Japan Co., Ltd., under which, WINS was
California, United States and won the case against
Kingford. Thereafter, TPI filed a Petition for Confirmation, granted the exclusive license to distribute and sublicense
the distribution of the television service known as "The
Recognition, and Enforcement of Foreign Arbitral Award
Filipino Channel" (TFC) in Japan. A dispute arose between
before the RTC of Makati City. The petition was dismissed
the parties when ABSCBN accused WINS of inserting nine
on the ground that TPI lacked legal capacity to sue in the
episodes of WINS WEEKLY, a weekly 35-minute
Philippines since Article 133 of the Corporation Code
provides: community news program for Filipinos in Japan, into the
TFC programming from March to May 2002. ABSCBN
“Sec. 133. Doing business without a license. — No foreign claimed that these were "unauthorized insertions"
corporation transacting business in the Philippines constituting a material breach of their agreement.
without a license, or its successors or assigns, shall be Consequently, ABSCBN notified WINS of its intention to
permitted to maintain or intervene in any action, suit or terminate the agreement. Thereafter, WINS filed an
proceeding in any court or administrative agency of the arbitration suit pursuant to the arbitration clause of its
Philippines; but such corporation may be sued or agreement with ABSCBN. It contended that the airing of
proceeded against before Philippine courts or WINS WEEKLY was made with ABSCBN’s prior approval.
administrative tribunals on any valid cause of action It also alleged that ABSCBN only threatened to terminate
recognized under Philippine laws.” their agreement because it wanted to renegotiate the
terms thereof to allow it to demand higher fees. WINS
Issue: Whether or not a foreign corporation not licensed
also prayed for damages for ABSCBN’s alleged grant of an
to do business in the Philippines have legal capacity to exclusive distribution license to another entity, NHK
sue under the provisions of the Alternative Dispute
(Japan Broadcasting Corporation). The Arbitrator found in
Resolution Act of 2004
favor of WINS. ABSCBN filed in the CA a petition for
Held: Yes. As between a general and special law, the review under Rule 43 of the Rules of Court or, in the
latter shall prevail — generalia specialibus non derogant. alternative, a petition for certiorari under Rule 65 of the
Following said principle, the Alternative Dispute same Rules, with application for temporary restraining
Resolution Act of 2004 shall apply in this case as the Act, order and writ of preliminary injunction. It alleged serious
as its title — An Act to Institutionalize the Use of an errors of fact and law and/or grave abuse of discretion
Alternative Dispute Resolution System in the Philippines amounting to lack or excess of jurisdiction on the part of
and to Establish the Office for Alternative Dispute the arbitrator. WINS on the other hand, filed a petition for
Resolution, and for Other Purposes — would suggest, is a confirmation of arbitral award before the RTC. CA
law especially enacted "to actively promote party rendered the assailed decision dismissing ABS-CBN's
autonomy in the resolution of disputes or the freedom of petition for lack of jurisdiction. It stated that as the TOR
itself provided that the arbitrator's decision shall be final
and unappealable and that no motion for reconsideration Memorandum of Agreement. Under the MOA, TEAM
shall be filed, then the petition for review must fail. It undertook to pay Fruehauf 14.7 million pesos as unpaid
ruled that it is the RTC which has jurisdiction over rent (for the period of December 1986 to June 1988).
questions relating to arbitration. It held that the only They also entered a 15-year lease contract, expiring June
instance it can exercise jurisdiction over an arbitral award 9, 2003, that was renewable for another 25 years upon
is an appeal from the trial court's decision confirming, mutual agreement. The contract included an arbitration
vacating or modifying the arbitral award. It further stated agreement. On May 2003, TEAM informed Fruehauf that
that a petition for certiorari under Rule 65 of the Rules of it would not be renewing the lease and despite the
Court is proper in arbitration cases only if the courts contract having expired, TEAM’s subleasee, Capitol
refuse or neglect to inquire into the facts of an arbitrator's Publishing House, vacated only the premises on March 5,
award. 2005. Thereafter, Fruehauf filed before the RTC a
"Submission of an Existing Controversy for Arbitration.”
Issue: Whether or not ABSCBN availed of the proper
The arbitral tribunal awarded Fruehauf: (1) 8.2 million
remedy
pesos as (the balance of) unpaid rent from June 9, 2003
Held: No. As RA 876 did not expressly provide for errors until March 5, 2005; and (2) 46.8 million pesos as
of fact and/or law and grave abuse of discretion (proper damages. Further, that TEAM had the obligation to deliver
grounds for a petition for review under Rule 43 and a the existing improvements on the land upon the
petition for certiorari under Rule 65, respectively) as expiration of the lease. TEAM petitioned the RTC to
grounds for maintaining a petition to vacate an arbitral partially vacate or modify the arbitral award. RTC, finding
award in the RTC, it necessarily follows that a party may insufficient grounds, denied the petition and confirmed
not avail of the latter remedy on the grounds of errors of the arbitral award. TEAM filed a notice of appeal but the
fact and/or law or grave abuse of discretion to overturn RTC refused to give due course because according to
an arbitral award. Section 29 of the Arbitration Law, an ordinary appeal
under Rule 41 is not the proper mode of appeal against
In cases not falling under any of the grounds to vacate an an order confirming an arbitral award. Then, TEAM filed
award, the Court has already made several a petition for certiorari before the CA arguing that the RTC
pronouncements that a petition for review under Rule 43 gravely abused its discretion in: (1) denying due course
or a petition for certiorari under Rule 65 may be availed to its notice of appeal; and (2) denying the motion to
of in the CA. Which one would depend on the grounds partially vacate and/or modify the arbitral award. TEAM
relied upon by the petitioner. argued that an ordinary appeal under Rule 41 was the
proper remedy against the RTC's order confirming,
However, the remedies of appeal and certiorari are
modifying, correcting, or vacating an arbitral award. It
mutually exclusive and not alternative or successive. The
argued that Rule 42 was not available because the order
issues presented by ABSCBN clearly fall under the
denying its motion to vacate was not rendered in the
classification of errors of fact and law — questions which
exercise of the RTC's appellate jurisdiction. Further, Rule
may be passed upon by the CA via a petition for review
43 only applies to decisions of quasi-judicial bodies.
under Rule 43. ABSCBN cleverly crafted its assignment of
Finally, an appeal under Rule 45 to the Supreme Court
errors in such a way as to straddle both judicial remedies,
would preclude it from raising questions of fact or mixed
that is, by alleging serious errors of fact and law (in which
questions of fact and law. CA initially dismissed the
case a petition for review under Rule 43 would be proper)
petition but upon motion for reconsideration, held that
and grave abuse of discretion (because of which a petition
that the mere filing of a notice of appeal is sufficient as
for certiorari under Rule 65 would be permissible). The
the issues raised in the appeal were not purely questions
alternative petition filed in the CA, being an inappropriate
of law. CA further revisited the merits of the arbitral award
mode of appeal, should have been dismissed outright by
and found several errors in law and in fact. It held: (1)
the CA.
that TEAM was not obliged to pay rent because it was
FRUEHAUF v. TECHNOLOGY Capitol, not TEAM, that remained in possession of the
property upon the expiration of the lease; and (2) that
Facts: Fruehauf Electronics Philippines Corp. leased Fruehauf was not entitled to compensation for the repairs
several parcels of land in Pasig City to Signetics Filipinas on the buildings because it did not become the owner of
Corporation for a period of 25 years. Signetics ceased its the building until after the expiration of the lease.
operations and was bought by Team Holdings Limited. Fruehauf argues that courts do not have the power to
THL later changed its name to Technology Electronics substitute their judgment for that of the arbitrators. It
Assembly and Management Pacific Corp. Fruehauf filed an also insists that an ordinary appeal is not the proper
unlawful detainer case against TEAM. In an effort to remedy against an RTC's order confirming, vacating,
amicably settle the dispute, both parties executed a
correcting or modifying an arbitral award but a petition The right to an appeal is neither a natural right nor an
for review on certiorari under Rule 45. indispensable component of due process; it is a mere
statutory privilege that cannot be invoked in the absence
Issue: Whether or not can ordinary appeal under Rule 41
of an enabling statute. Neither the Arbitration Law nor the
was the proper remedy against the RTC's order
ADR Law allows a losing party to appeal from the arbitral
confirming, modifying, correcting, or vacating an arbitral
award. The statutory absence of an appeal mechanism
award.
reflects the State's policy of upholding the autonomy of
Held: NO. Citing Insular Savings Bank v. Far East Bank arbitration proceedings and their corresponding arbitral
and Trust Co., the ABS-CBN Case pronounced that the awards.
losing party in an arbitration proceeding may avail of
Once the RTC orders the confirmation, vacation, or
three alternative remedies: (1) a petition to vacate the
correction/modification of a domestic arbitral award, the
arbitral award before the RTC; (2) a petition for review
aggrieved party may move for reconsideration within a
with the CA under Rule 43 of the Rules of Court raising
non-extendible period of fifteen (15) days from receipt of
questions of fact, of law, or of both; and (3) a petition for
the order. The losing party may also opt to appeal from
certiorari under Rule 65 should the arbitrator act beyond
the RTC's ruling instead. The Arbitration Law did not
its jurisdiction or with grave abuse of discretion. At first
specify which Court had jurisdiction to entertain the
glance, the logic of this position appears to be sound. appeal but left the matter to be governed by the Rules of
However, a critical examination of the supporting
Court. As the appeal was limited to questions of law and
authorities would show that the conclusion is wrong.
was described as "certiorari proceedings," the mode of
First, the pronouncements made in the ABS-CBN Case appeal can be interpreted as an Appeal by Certiorari to
and in the Insular Savings Bank Case (which served as the SC under Rule 45. When the ADR Law was enacted in
the authority for the ABS-CBN Case) were both obiter 2004, it specified that the appeal shall be made to the CA
dicta. in accordance with the rules of procedure to be
promulgated by this Court. The Special ADR Rules
Second, even if we disregard the obiter dicta character of provided that the mode of appeal from the RTC's
both pronouncements, a more careful scrutiny order confirming, vacating, or
deconstructs their legal authority. The ABS-CBN Case correcting/modifying a domestic arbitral award
committed the classic fallacy of equivocation. It equated was through a petition for review with the CA.
the term "voluntary arbitrator" with the term
"arbitrator/arbitration tribunal." Whether or not the arbitral tribunal correctly passed upon
the issues is irrelevant. Simple errors of fact, of law, or of
The first rule of legal construction, verba legis, requires fact and law committed by the arbitral tribunal are not
that, wherever possible, the words used in the justiciable errors in this jurisdiction. The court cannot
Constitution or in the statute must be given their ordinary substitute its judgment for that of the arbitral tribunal.
meaning except where technical terms are employed.
Notably, all of the cases cited in the ABS-CBN Case
involved labor disputes. The term "Voluntary Arbitrator"
does not refer to an ordinary "arbitrator" who voluntarily
agreed to resolve a dispute. "Ordinary" or "commercial"
arbitrators under the Arbitration Law and the ADR Law,
and "voluntary arbitrators" under the Labor Code are not
synonymous with each other. Interchanging them with
one another results in the logical fallacy of equivocation
— using the same word with different meanings.

Arbitral tribunals and the RTC are not co-equal bodies

because the RTC is authorized to confirm or to vacate (but
not reverse) arbitral awards. If arbitrators are to be
deemed included in the scope of Rule 43, it would be
placed on equal footing with the RTC and remove arbitral
awards from the scope of RTC review. All things
considered, there is no legal authority supporting the
position that commercial arbitrators are quasi-judicial
bodies.
DFA v. BCA which to file its Amended Statement of Claims and gave
petitioner time to formally interpose its objections.
Facts: In an Amended Build-Operate-Transfer
Agreement, Department of Foreign Affairs awarded the As Procedural Order No. 12 denied DFA’s motion for
Machine Readable Passport and Visa Project to BCA reconsideration of Procedural Order No. 11, DFA filed a
International Corporation. During the implementation of petition for certiorari under Rule 65 of the Rules of Court
the MRP/V Project, DFA sought to terminate the with application for issuance of a temporary restraining
Agreement. However, BCA opposed the termination and order and/or writ of preliminary injunction, seeking to
filed a Request for Arbitration, pursuant to Section 19.02 annul and set aside Procedural Order No. 11 and 12.
of the Agreement. An ad hoc arbitral tribunal was
DFA contends that the parties in this case have agreed to
constituted. In an Order, the arbitral tribunal approved
refer any dispute to arbitration under the 1976 UNCITRAL
BCA's request to apply in court for the issuance of
Arbitration Rules and to compel a party to be bound by
subpoena. BCA filed before the RTC a Petition for
the application of a different rule on arbitration such as
Assistance in Taking Evidence pursuant to the
the Alternative Dispute Resolution (ADR) Act of 2004 or
Implementing Rules and Regulations (IRR) of "The
Republic Act (RA) No. 9285 transgresses such vested right
Alternative Dispute Resolution Act of 2004," or Republic
and amounts to vitiation of consent to participate in the
Act No. 9285 (RA 9285). In its petition, BCA sought the
arbitration proceedings.
issuance of subpoena ad testificandum and subpoena
duces tecum against Undersecretary Franklin M. Drilon Issue:
and Ambassador Belen F. Anota, among others as well as
the presentation of certain documents. RTC ruled in favor (a) Whether or not the UNCITRAL Arbitration Rules
of BCA and held that the evidence sought to be produced shall govern.
was no longer covered by the deliberative process (b) Whether or not the petition for certiorari before
privilege. It held that acts, transactions or decisions are the SC is proper
privileged only before a definite proposition is reached by
Held:
the agency and since DFA already made a definite
proposition and entered into a contract, DFA's acts, (a) NO.
transactions or decisions were no longer privileged. RTC
issued the subpoena duces tecum and subpoena ad Under Article 33 of the UNCITRAL Arbitration Rules
testificandum. RTC denied the motion to quash and held governing the parties, "the arbitral tribunal shall apply the
law designated by the parties as applicable to the
that the motion was actually a motion for reconsideration, substance of the dispute." "Failing such designation by
which is prohibited under Rule the parties, the arbitral tribunal shall apply the law
determined by the conflict of laws rules which it considers
9.9 of the Special Rules of Court on Alternative Dispute
applicable." Established in this jurisdiction is the rule that
Resolution. Undersecretary Franklin M. Ebdalin, Atty.
the law of the place where the contract is made governs,
Voltaire Mauricio and Luisito Ucab (Mr. Ucab) testi?ed
or lex loci contractus. As the parties did not designate the
before the
applicable law and the Agreement was perfected in the
arbitral tribunal pursuant to the subpoena. Philippines, our Arbitration laws, particularly, RA No. 876,
RA No. 9285 and its IRR, and the Special ADR Rules apply.
G.R. 225051 The IRR of RA No. 9285 provides that "[t]he arbitral
tribunal shall decide the dispute in accordance with such
In an Amended Build-Operate-Transfer (BOT)
law as is chosen by the parties. In the absence of such
Agreement, DFA awarded the Machine Readable Passport
agreement, Philippine law shall apply."
and Visa Project (MRP/V Project) to BCA International
Corporation. In the course of implementing the MRPN As held in an earlier case between the same parties:
Project, conflict arose and DFA sought to terminate the
Agreement. BCA opposed the termination and filed a “Arbitration is deemed a special proceeding and governed
Request for Arbitration. After filing its statement of by the special provisions of RA 9285, its IRR, and the
Claims, BCA manifested that it shall file an Amended Special ADR Rules. RA 9285 is the general law applicable
Statement of Claims so that its claim may conform to the to all matters and controversies to be resolved through
evidence they have presented. DFA opposed, arguing that alternative dispute resolution methods. While enacted
such amendment at the very late stage of the proceedings only in 2004, we held that RA 9285 applies to pending
will cause undue prejudice to its interests. However, the arbitration proceedings since it is a procedural law, which
Arbitral Tribunal gave respondent a period of time within has retroactive effect.

xxxx
The IRR of RA 9285 reiterate that RA 9285 is procedural nor fully measuring the court's discretion, indicate the
in character and applicable to all pending arbitration serious and compelling, and necessarily, restrictive nature
proceedings. Consistent with Article 2046 of the Civil of the grounds that will warrant the exercise of the
Code, the Special ADR Rules were formulated and were Supreme Court's discretionary powers, when the Court of
also applied to all pending arbitration proceedings Appeals:
covered by RA 9285, provided no vested rights are
a. Failed to apply the applicable standard or test for
impaired. Thus, contrary to DFA's contention, RA 9285,
judicial review prescribed in these Special ADR Rules in
its IRR, and the Special ADR Rules are applicable to the
present arbitration proceedings. The arbitration between arriving at its decision resulting in substantial prejudice to
the aggrieved party;
the DF A and BCA is still pending, since no arbitral award
has yet been rendered. Moreover, DF A did not allege any b. Erred in upholding a final order or decision despite the
vested rights impaired by the application of those lack of jurisdiction of the court that rendered such final
procedural rules. order or decision;
(b) NO. The appeal by certiorari is not from a final Order c. Failed to apply any provision, principle, policy or rule
of the Court of Appeals or the Regional Trial Court, but contained in these Special ADR Rules resulting in
from an interlocutory order of the Arbitral Tribunal; substantial prejudice to the aggrieved party; and
hence, the petition must be dismissed.
d. Committed an error so egregious and harmful to a
Court intervention is allowed under RA No. 9285 in the party as to amount to an undeniable excess of
following instances: (1) when a party in the arbitration jurisdiction.
proceedings requests for an interim measure of
protection; (2) judicial review of arbitral awards by the
Regional Trial Court (RTC); and (3) appeal from the RTC
decisions on arbitral awards to the Court of Appeals.

Court intervention in the Special ADR Rules is allowed

through these remedies:

(1) Specific Court Relief, which includes Judicial Relief

Involving the Issue of Existence, Validity and
Enforceability of the Arbitral Agreement, Interim
Measures of Protection, Challenge to the Appointment of
Arbitrator, Termination of Mandate of Arbitrator,
Assistance in Taking Evidence, Confidentiality/Protective
Orders, Confirmation, Correction or Vacation of A ward in
Domestic Arbitration, all to be filed with the RTC;

(2) a motion for reconsideration may be filed by a party

with the RTC on the grounds specified in Rule 19.1;

(3) an appeal to the Court of Appeals through a petition

for review under Rule 19.2 or through a special civil action
for certiorari under Rule 19.26; and

(4) a petition for certiorari with the Supreme Court from

a judgment or final order or resolution of the Court of
Appeals, raising only questions of law.

Under the Special ADR Rules, review by the Supreme

Court of an appeal by certiorari is not a matter of right,
thus:

RULE 19.36. Review Discretionary. - A review by the

Supreme Court is not a matter of right, but of sound
judicial discretion, which will be granted only for serious
and compelling reasons resulting in grave prejudice to the
aggrieved party. The following, while neither controlling
GONZALES v. CLIMAX On the other hand, a mining dispute is a dispute involving
(a) rights to mining areas, (b) mineral agreements,
Facts: Jorge Gonzales, as claimowner of mineral deposits
FTAAs, or permits, and (c) surface owners, occupants and
located within the Addendum Area of Influence in Didipio,
claimholders/concessionaires. Under Republic Act No.
in the provinces of Quirino and Nueva Vizcaya, ntered into
7942 (otherwise known as the Philippine Mining Act of
a co-production, joint venture and/or production-sharing
1995), the Panel of Arbitrators has exclusive and original
letter-agreement with Geophilippines, Inc, and Inmex jurisdiction to hear and decide these mining disputes.
Ltd. Under the agreement, Gonzales granted to
Geophilippines, Inc. and Inmex Ltd. collectively, the It is apparent that the Panel of Arbitrators is bereft of
exclusive right to explore and survey the mining claims jurisdiction over the Complaint filed by Gonzales. The
for a period of thirty-six (36) months within which the basic issue in Gonzales’s Complaint is the presence of
latter could decide to take an operating agreement on the fraud or misrepresentation allegedly attendant to the
mining claims and/or develop, operate, mine and execution of the Addendum Contract and the other
otherwise exploit the mining claims and market any and contracts emanating from it, such that the contracts are
all minerals that may be derived therefrom. The rendered voidable or annullable under article 1390 of the
Agreement was extended for another 3 years and in an NCC. Whether the case involves void or voidable contracts
Addendum Contract, Arimco Mining Corporation would is still a judicial question. It may, in some instances,
apply to the Government of the Philippines for permission involve questions of fact especially with regard to the
to mine the claims as the Government's contractor under determination of the circumstances of the execution of
a Financial and Technical Assistance Agreement (FTAA). the contracts. But the resolution of the validity or voidness
Arimco Mining Corporation obtained the FTAA and carried of the contracts remains a legal or judicial question as it
out work under the FTAA. Later, an Operating and requires the exercise of judicial function. It requires the
Financial Accommodation Contract was entered into ascertainment of what laws are applicable to the dispute,
between Climax-Arimco Mining Corporation and Climax the interpretation and application of those laws, and the
Mining Ltd., as first parties, and Australasian Philippines rendering of a judgment based thereon. Clearly, the
Mining Inc., as second party. Subsequently an dispute is not a mining conflict. The complaint was not
Assignment, Accession Agreement was entered into merely for the determination of rights under the mining
between Climax-Arimco Mining Corporation and contracts since the very validity of those contracts is put
Australasian Philippines Mining Inc. And eventually, the in issue. The Complaint is not exclusively within the
FTAA was transferred by Climax Mining Corporation to jurisdiction of the Panel of Arbitrators just because, or for
APMI through a Memorandum of Agreement. Gonzales as long as, the dispute involves an FTAA.
filed before the Panel of Arbitrators, Region II, Mines and
The Complaint also raised the issue of the constitutionality
Geosciences Bureau of the Department of Environment
of the FTAA, which is definitely a judicial question. The
and Natural Resources, against Climax-Arimco Mining
question of constitutionality is exclusively within the
Corporation, Climax, and APMI, a Complaint seeking the
jurisdiction of the courts to resolve as this would clearly
declaration of nullity or termination of the Addendum
involve the exercise of judicial power. The Panel of
Contract, the FTAA, the Operating and Financial
Accommodation Contract, the Assignment, Accession Arbitrators does not have jurisdiction over such an issue
since it does not involve the application of technical
Agreement, and the Memorandum of Agreement. He
knowledge and expertise relating to mining.
sought said reliefs on the grounds of "FRAUD,
OPPRESSION and/or VIOLATION of Section 2, Article XII Arbitration before the Panel of Arbitrators is proper only
of the CONSTITUTION perpetrated by these foreign when there is a disagreement between the parties as to
RESPONDENTS. some provisions of the contract between them, which
Issue: Whether or not the complaint filed by Gonzales needs the interpretation and the application of that
particular knowledge and expertise possessed by
raises a mining dispute over which the Panel of Arbitrators
has jurisdiction members of that Panel. It is not proper when one of the
parties repudiates the existence or validity of such
Held: No. A judicial question is a question that is proper contract or agreement on the ground of fraud or
for determination by the courts, as opposed to a moot oppression as in this case. The validity of the contract
question or one properly decided by the executive or cannot be subject of arbitration proceedings. Allegations
legislative branch. A judicial question is raised when the of fraud and duress in the execution of a contract are
question involves the determination of what the law is and matters within the jurisdiction of the ordinary courts of
what the legal rights of the parties are with respect to the law. These questions are legal in nature and require the
matter in controversy. application and interpretation of laws and jurisprudence
which is necessarily a judicial function.
The question of validity of the contract containing the benefits arising from the Amended BOT Agreement to
agreement to submit to arbitration will affect the PPC. As set out in Article 8 of the original and the
applicability of the arbitration clause itself. A party cannot Amended BOT Agreement, the MRP/V Project was divided
rely on the contract and claim rights or obligations under into six phases: Phase 1. Project Planning Phase, Phase
it and at the same time impugn its existence or validity. 2. Implementation of the MRP/V Project at the Central
Indeed, litigants are enjoined from taking inconsistent Facility, Phase 3. Implementation of the MRP/V Project at
positions. As previously discussed, the complaint should the Regional Consular Offices, Phase 4. Full
have been filed before the regular courts as it involved Implementation, including all Foreign Service Posts,
issues which are judicial in nature. Phase 5. In Service Phase and Phase 6.
Transition/Turnover.
***The Supreme Court clarified in a later case (Cargill):
Both the DFA and BCA impute breach of the Amended
“when we declared that the case should not be brought
BOT Agreement against each other. According to the DFA,
for arbitration, it should be clarifiied that the case referred
delays in the completion of the phases permeated the
to is the case actually filed by Gonzales before the DENR
MRP/V Project due to the submission of deficient
Panel of Arbitrators, which was for the nullification of the
documents as well as intervening issues regarding
main contract on the ground of fraud, as it had already
BCA/PPC's supposed financial incapacity to fully
been determined that the case should have been brought implement the project. On the other hand, BCA contends
before the regular courts involving as it did judicial
that the DFA failed to perform its reciprocal obligation to
issues.”
issue to BCA a Certificate of Acceptance of Phase 1 within
DFA v. FALCON 14 working days of operation purportedly required by
Section 14.04 of the Amended BOT Agreement. BCA
Facts: Being a member state of the International Civil bewailed that it took almost three years for the DFA to
Aviation Organization (ICAO), the Philippines has to issue the said Certificate allegedly because every
comply with the commitments and standards set forth in appointee to the position of DFA Secretary wanted to
ICAO Document No. 9303 which requires the ICAO review the award of the project to BCA. BCA further
member states to issue machine readable travel alleged that it was the DFA's refusal to approve the
documents (MRTDs) by April 2010. Thus, in line with the location of the DFA Central Facility which prevented BCA
DFA's mandate to improve the passport and visa issuance from proceeding with Phase 2 of the MRP/V Project. After
system, as well as the storage and retrieval of its related seeking the opinion of the Department of Finance and the
application records, and pursuant to our government's Department of Justice regarding the appropriate legal
ICAO commitments, the DFA implemented the Machine actions in connection with BCA's alleged delays in the
Readable Passport and Visa Project (the MRP/V Project) completion of the MRP/V Project, DFA sent a letter to BCA
under the Build-Operate-and-Transfer (BOT) scheme. through its project company PPC, invoking BCA's
Thus, a Prequalification, Bids and Awards Committee financial warranty under Section 5.02 (A) of the
(PBAC) published an invitation to pre-qualify and bid for Amended BOT Agreement. The DFA required BCA to
the supply of the needed machine-readable passports and submit (a) proof of adequate capitalization (i.e., full or
visas, and conducted the public bidding for the MRP/V substantial payment of stock subscriptions); (b) a bank
Project. BCA International Corporation’s bid was found to guarantee indicating the availability of a credit facility of
be the sole complying bid. In compliance with the Notice P700 million; and (c) audited financial statements for the
of Award, BCA incorporated a project company, the years 2001 to 2004. In Reply, BCA, through PPC, informed
Philippine Passport Corporation (PPC) to undertake and the former of its position that its financial capacity was
implement the MRP/V Project. Thereafter, a Build- already passed upon during the prequalification process
Operate-Transfer Agreement between the DFA and PPC and that the Amended BOT Agreement did not call for any
was signed. Later, it was amended twice, changing additional financial requirements for the implementation
among others, the Project Completion date of the MRP/V of the MRP/V Project. Nonetheless, BCA submitted its
Project which set the completion of the implementation financial statements for the years 2001 and 2002 and
phase of the project within 18 to 23 months from the date requested for additional time within which to comply with
of effectivity of the Amended BOT Agreement as opposed the other financial requirements which the DFA insisted
to the previous period found in the original BOT on. According to the DFA, BCA's financial warranty is a
Agreement which set the completion within 18 to 23 continuing warranty which requires that it shall have the
months from receipt of the NTP (Notice to Proceed) in necessary capitalization to finance the MRP/V Project in
accordance with the Project Master Plan. An Assignment its entirety and not on a "per phase" basis as BCA
Agreement Plan was executed by BCA and PPC, whereby contends. BCA, in turn, submitted various letters and
BCA assigned and ceded its rights, title, interest and documents to prove its financial capability to complete the
MRP/V Project. However, the DFA claimed these this new e-Passport Project by the BSP and the DFA would
documents were unsatisfactory or of dubious authenticity. render BCA's remedies moot inasmuch as the e-Passport
Then later, BCA terminated its Assignment Agreement Project would then be replacing the MRP/V Project which
with PPC and notified the DFA that it would directly BCA was carrying out for the DFA. Thus, BCA filed a
implement the MRP/V Project, allegedly upon the Petition for Interim Relief under Section 28 of the
instance, or with the conformity, of the DFA. However, Alternative Dispute Resolution Act of 2004 (R.A. No.
DFA sent a Notice of Termination to BCA and PPC due to 9285), with the RTC of Pasig City, Branch 71, presided
their alleged failure to submit proof of financial capability over by Judge Franco T. Falcon. DFA filed an Opposition
to complete the entire MRP/V Project in accordance with alleging that BCA has no cause of action against it as the
the financial warranty under Section 5.02 (A) of the contract between them is for machine readable passports
Amended BOT Agreement. BCA sent a letter to the DFA and visas which is not the same as the contract it has with
demanding that it immediately reconsider and revoke its the BSP for the supply of electronic passports. The DFA
previous notice of termination, otherwise, BCA would be also pointed out that the Filipino people and the
compelled to declare the DFA in default pursuant to the government's international standing would suffer great
Amended BOT Agreement. When the DFA failed to damage if a TRO would be issued to stop the e-Passport
respond to said letter, BCA issued its own Notice of Project. The DFA mainly anchored its opposition on
Default against the DFA, stating that if the default is not Republic Act No. 8975, which prohibits trial courts from
remedied within 90 days, BCA will be constrained to issuing a TRO, preliminary injunction or mandatory
terminate the MRP/V Project and hold the DFA liable for injunction against the bidding or awarding of a contract
damages. BCA's request for mutual discussion or project of the national government. After summary
under Section 19.01 of the Amended BOT hearing, the court ordered the issuance of a TRO and set
Agreement was purportedly ignored by the DFA for hearing BCA's application for preliminary injunction.
and left the dispute unresolved through amicable According to the DFA and the BSP, the trial court did not
means within 90 days. Consequently, BCA filed its have any jurisdiction over the case considering that BCA
Request for Arbitration with the Philippine Dispute did not pay the correct docket fees and that only the
Resolution Center, Inc. (PDRCI), pursuant to Section Supreme Court could issue a TRO on the bidding for a
19.02 of the Amended BOT Agreement. Initially, the DFA, national government project like the e-Passport Project
through a letter requested for an extension of time to file pursuant to the provisions of Republic Act No. 8975.
its answer, "without prejudice to jurisdictional and other Under Section 3 of Republic Act No. 8975, the RTC could
defenses and objections available to it under the law." only issue a TRO against a national government project if
Subsequently, however, in a letter the DFA declined the it involves a matter of extreme urgency involving a
request for arbitration before the PDRCI. While it constitutional issue, such that unless a TRO is issued,
expressed its willingness to resort to arbitration, the DFA grave injustice and irreparable injury will arise. Despite
pointed out that under Section 19.02 of the Amended BOT opposition, the trial court issued an Order granting BCA's
Agreement, there is no mention of a specific body or application for preliminary injunction. DFA and the BSP
institution that was previously authorized by the parties filed a Petition for Certiorari and prohibition under Rule 65
to settle their dispute. The DFA further claimed that the of the Rules of Court imputing grave abuse of discretion
arbitration of the dispute should be had before an ad hoc on the trial court when it granted interim relief to BCA.
arbitration body, and not before the PDRCI which has as
Issue:
its accredited arbitrators, two of BCA's counsels of record.
Likewise, the DFA insisted that PPC, allegedly an a. Whether or not the E-Passport Project is a national
indispensable party in the instant case, should also government project
participate in the arbitration. Upon yet another request
for opinion, in DOJ Opinion No. 35 (2006), DOJ concurred b. Whether or not the RTC has power to issue the writ of
with the steps taken by the DFA, stating that there was Preliminary Injunction
basis in law and in fact for the termination of the MRP/V
c. Whether or not the issuance of the Writ of Preliminary
Project. Moreover, the DOJ recommended the immediate
Injunction is proper
implementation of the project (presumably by a different
contractor) at the soonest possible time. Thereafter, the Held:
DFA and the BSP entered into a Memorandum of
Agreement for the latter to provide the former passports a. NO.
compliant with international standards. For BCA, the BSP's Section 2 (a) of Republic Act No. 8975 provides:
invitation to bid for the supply and purchase of e-
Passports (the e-Passport Project) would only further Section 2. Definition of Terms. —
delay the arbitration it requested from the DFA. Moreover,
(a) "National government projects" shall refer to all ePassport Project was a procurement contract under
current and future national government infrastructure, Republic Act No. 9184. During the testimony of DFA
engineering works and service contracts, including Assistant Secretary Domingo Lucenario, Jr. before the
projects undertaken by government-owned and - trial court, he admitted that the e-Passport Project is a
controlled corporations, all projects covered by Republic BSP procurement project and that it is the "BSP that will
Act No. 6975, as amended by Republic Act No. 7718, pay the suppliers." Being a government procurement
otherwise known as the Build-Operate-and-Transfer Law, contract under Republic Act No. 9184, only the
and other related and necessary activities, such as site civil works component of the e-Passport Project
acquisition, supply and/or installation of equipment and would be considered an infrastructure project that
materials, implementation, construction, completion, may not be the subject of a lower court-issued writ
operation, maintenance, improvement, repair and of injunction under Republic Act No. 8975.
rehabilitation, regardless of the source of funding.
Could the e-Passport Project be considered as
Under Section 2 (a) of the BOT Law as amended by
"engineering works or a service contract" or as "related
Republic Act No. 7718, private sector infrastructure or
and necessary activities" under Republic Act No. 8975
development projects are those normally financed and
which may not be enjoined?
operated by the public sector but which will now be wholly NO. To be considered a service contract or related
or partly implemented by the private sector, including but activity, petitioners must show that the ePassport Project
not limited to x x x information technology networks and is an infrastructure project or necessarily related to an
database infrastructure, x x x In contrast, under infrastructure project. This, DFA and BSP failed to do for
Republic Act No. 9184 or the Government Procurement they saw fit not to present any evidence on the details of
Reform Act, which contemplates projects to be funded by the e-Passport Project before the trial court and this
public funds, the term "infrastructure project" was limited Court. There is nothing on record to indicate that the e-
to only the "civil works component" of information Passport Project has a civil works component or is
technology projects. necessarily related to an infrastructure project.
There is no legal or rational basis to apply the definition Indeed, the reference to Section 30.4 75 of the IRR of
of the term "infrastructure project" in one statute to Republic Act No. 9184 (a provision specific to the
another statute enacted years before and which already procurement of goods) in the BSP's request for interest
defined the types of projects it covers. Rather, a reading and to bid confirms that the e-Passport Project is a
of the two statutes involved will readily show that there is procurement of goods and not an infrastructure
a legislative intent to treat information technology project. Thus, within the context of Republic Act No.
projects differently under the BOT Law and the 9184 — which is the governing law for the e-Passport
Government Procurement Reform Act. This limited Project — the said Project is not an infrastructure project
definition of "infrastructure project" in relation to that is protected from lower court issued injunctions
information technology projects under Republic Act No. under Republic Act No. 8975, which, to reiterate, has for
9184 is significant since the IRR of Republic Act No. 9184 its purpose the expeditious and efficient implementation
has some provisions that are particular to infrastructure and completion of government infrastructure projects.
projects and other provisions that are applicable only to
procurement of goods or consulting services. Implicitly, b. YES.
the civil works component of information technology
Under Section 28, Republic Act No. 9285 or the
projects are subject to the provisions on infrastructure
Alternative Dispute Resolution Act of 2004, the grant of
projects while the technological and other components
an interim measure of protection by the proper court
would be covered by the provisions on procurement of
before the constitution of an arbitral tribunal is allowed.
goods or consulting services as the circumstances may
Section 3 (h) of the same statute provides that the "Court"
warrant. Taking into account the different treatment of
as referred to in Article 6 of the Model Law shall mean a
information technology projects under the BOT Law and
Regional Trial Court. Republic Act No. 9285 is a general
the Government Procurement Reform Act, DFA and BSP’s
law applicable to all matters and controversies to be
contention the trial court had no jurisdiction to issue a
resolved through alternative dispute resolution methods.
writ of preliminary injunction in the instant case would
This law allows a Regional Trial Court to grant interim or
have been correct if the e-Passport Project was a project
provisional relief, including preliminary injunction, to
under the BOT Law as they represented to the trial court.
parties in an arbitration case prior to the constitution of
However, DFA and BSP presented no proof that the e- the arbitral tribunal. This general statute, however, must
Passport Project was a BOT project. On the contrary, give way to a special law governing national government
evidence adduced by both sides tended to show that the projects, Republic Act No. 8975 which prohibits courts,
except the Supreme Court, from issuing TROs and writs the rescission were (1) DFNN's failure to secure the
of preliminary injunction in cases involving national conformity
government projects. However, the prohibition in
of Smart and Globe, which accounts for "90% of the
Republic Act No. 8975 is inoperative in this case,
mobile subscribers at the time of the execution" of the
since DFA and BSP failed to prove that the e-
Lease Agreement, and (2) DFNN's failure to secure the
Passport Project is national government project as
conformity of the Philippine Gaming Management
defined therein. Thus, the trial court had
Commission, and its system provider, International
jurisdiction to issue a writ of preliminary
injunction against the e-Passport Project. Lottery & Totalizator Systems, Inc., both of which claimed
that the DFNN interface "would result in the hacking of
c. NO. their system." After having filed criminal complaints
against the officers of the PCSO before the Office of the
BCA's petition for interim relief before the trial court is
Ombudsman, DFNN proposed arbitration to settle their
essentially a petition for a provisional remedy (i.e.,
differences. DFNN agreed with the conditions of PCSO for
preliminary injunction) ancillary to its Request for
it to agree to Arbitration that: (1) DFNN would withdraw
Arbitration in PDRCI. BCA specifically prayed that the trial
all the complaints it had filed before the Office of the
court grant it interim relief pending the constitution of the
Ombudsman, and that (2) it would comply with the
arbitral tribunal in the said PDRCI case. Unfortunately, arbitration clause in the Lease Agreement on a discussion
during the pendency of this case, the PDRCI Case was
and settlement in good faith before resorting to
dismissed by the PDRCI for lack of jurisdiction, in view of
arbitration. PCSO Board of Directors issued Resolution No.
the lack of agreement between the parties to arbitrate
1210, series of 2009, approving the proposals of the
before the PDRCI.
Philippine Gaming Management Commission, in
In view of intervening circumstances, BCA can no longer partnership with International Lottery & Totalizator
be granted injunctive relief and the civil case before the Systems, Inc., and Pacific Online Systems Corporation, in
trial court should be accordingly dismissed. However, partnership with DFNN, to reopen the project, and to
this is without prejudice to the parties litigating the allow these same companies to operate it with the
main controversy in arbitration proceedings, in understanding that DFNN would no longer question the
accordance with the provisions of the Amended rescission of the Lease Agreement. In a meeting to
BOT Agreement, which should proceed with dispatch. discuss the guidelines of the project's implementation,
DFNN raised its concern about the legal basis of the
It does not escape the attention of the Court that the proceedings as PCSO Board of Directors allegedly
delay in the submission of this controversy to arbitration unilaterally revised the project. DFNN also brought up the
was caused by the ambiguity in Section 19.02 of the issue of having two separate mobile access numbers
Amended BOT Agreement regarding the proper body to required for Luzon and Visayas-Mindanao operations
which a dispute between the parties may be submitted contrary to the nationwide operation stated in the Lease
and the failure of the parties to agree on such an arbitral Agreement, its offer of establishing a mutual sharing and
tribunal. However, this Court cannot allow this impasse to profit-sharing between the parties, and its offer to the
continue indefinitely. The parties involved must sit down Philippine Gaming Management Commission to use its
together in good faith and finally come to an system instead of utilizing different content providers for
understanding regarding the constitution of an arbitral each telecommunications company. DFNN filed a Petition
tribunal mutually acceptable to them. for Interim Measure of Protection in Aid of Arbitration —
Preliminary Injunction with Application for Temporary
PCSO v. DFNN Inc.
Order of Protection before the Regional Trial Court of
Facts: Philippine Charity Sweepstakes Office, and DFNN, Quezon City, Branch 220 against PCSO, seeking to
Inc., a publicly listed company "engaged in the design, restrain the implementation of Resolution No. 1210,
development and implementation of wireless personal series of 2009 pending the commencement of arbitration
communication devices,” entered into an Equipment proceedings between the parties, per the arbitration
Lease Agreement. The parties agreed that DFNN would clause in the Lease Agreement.
lease the "hardware, software and know how" to design
RTC issued an Order granting the urgent application for
and develop a system that would allow the use of
the issuance of a temporary order of protection. In
personal communication devices to receive and process
compliance with the Order, DFNN posted a bond of
bets for its lotto operations. Later, PCSO issued Board
P500,000.00. Later, RTC issued an order granting the
Resolution No. 80, series of 2005, which unilaterally
issuance of a writ of Preliminary Injuction, without
rescinded the Lease Agreement. The reasons given for
prejudice to the subsequent grant, modification,
amendment, revision, or revocation by the arbitral
tribunal. The trial court found that the Lease Agreement (b) Take action that would prevent, or refrain from taking
was not validly terminated since the PCSO failed to action that is likely to cause, current or imminent harm or
substantiate its claim that DFNN was at fault for the prejudice to the arbitral process itself;
cancellation of the Lease Agreement. The trial court also
(c) Provide a means of preserving assets out of which a
found that PCSO failed to present proof that it served
subsequent award may be satisfied; or
DFNN with a written notice of default for its alleged
inability to perform the obligations of the Lease (d) Preserve evidence that may be relevant and material
Agreement. to the resolution of the dispute.
The Court of Appeals issued a Resolution dismissing the Under Republic Act No. 9285 or the Alternative Dispute
appeal. According to the Court of Appeals, the Special Resolution Act of 2004, a court may grant an interim
Rules of Court on Alternative Dispute Resolution (Special measure of protection or provisional relief:
ADR Rules) required that the appeal of an order granting
an interim measure of protection should be made by a (i) to prevent irreparable loss or injury;
petition for review, not by an ordinary appeal. It stated
(ii) to provide security for the performance of any
that the trial court's ruling on the invalidity of the Lease
obligation;
Agreement's rescission did not convert the case into an
ordinary civil action pursuant to the United Nations (iii) to produce or preserve any evidence; or
Commission on International Trade Law (UNCITRAL
Model Law) on International Commercial Arbitration. Its (iv) to compel any other appropriate act or omission.
ruling was intended merely as an interim measure of Interim measures of protection serve to protect the status
protection. PCSO filed a Petition for Review on Certiorari quo during the pendency of the arbitration proceeding. It
before the Supreme Court. Before a comment could be is merely ancillary to the main action. Considering that the
filed, PCSO filed a Manifestation requesting the Supreme Ad Hoc Arbitral Tribunal has already rendered an Arbitral
Court to stay the proceedings pending the resolution of Award, this case has become moot. A case becomes moot
the arbitration proceedings commenced by the parties. when, due to supervening events, it ceases to present a
Pending litigation before the SC, PCSO stated that the Ad justiciable controversy. Any resolution on the merits will
Hoc Arbitration Panel had rendered an Arbitral Award. It have no practical effect or value.
found that PCSO improperly terminated the Lease
Agreement, and ordered it to pay DFNN the amount of PCSO has previously manifested to this Court to stay the
P27,000,000.00 as liquidated damages. PCSO further proceedings in view of the pendency of the arbitration. 55
reported that it has filed a Petition for Confirmation of the DFNN was also of the opinion that the Petition should be
Arbitral Award, which is now pending for resolution with dismissed since the commencement of the arbitration
the Regional Trial Court of Mandaluyong. DFNN, on the proceedings has already rendered the case moot.
other hand, has filed a Petition for Correction of Arbitral
Considering that no party will be prejudiced by the
Award, which is now pending before the Court of Appeals.
termination of this action, the withdrawal of the Petition
Issue: Whether or not the Supreme Court should proceed is granted.
with the determination of propriety of the issuance of the
BUSAN UNIVERSAL RAIL, Inc. v. DEPARTMENT OF
Preliminary Injunction
TRANSPORTATION-MRT 3
Held: NO. Interim measure of protection is defined under
Facts: As a result of a negotiated procurement under
the UNCITRAL Model Law on International Commercial
Republic Act No. 9184, Department of Transportation
Arbitration as:
(DOTr)-Metro Rail Transit (MRT) 3 and the Joint Venture
Section 1. Interim measures. — composed of Busan Transportation Corporation, Edison
Development and Construction, Tramat Mercantile, Inc.,
Article 17. Power of arbitral tribunal to order interim TMICorp, Inc., and Castan Corporation entered into a
measures. — contract for the Department of Transportation and
(2) An interim measure is any temporary measure, Communications (DOTC)-MRT3 System Maintenance
whether in the form of an award or in another form, by Provider, 43 light rail vehicles (LRVs) General Overhaul
which, at any time prior to the issuance of the award by and Total Replacement of the Signaling System. The Joint
which the dispute is finally decided, the arbitral tribunal Venture was incorporated as a special purpose company
orders a party to: known as Busan Universal Rail, Inc. (BURI). The total
amount of the MRT3 Contract is P3,809,128,888.00
(a) Maintain or restore the status quo pending broken down into four packages. After commencing with
determination of the dispute;
the performance of its obligations under Package 1, BURI court before the constitution of an arbitral tribunal is
sent to DOTr billings 1-8 which were accordingly paid. allowed. However, RA 8975 prohibits the issuance of
However, in a Memorandum, DOTr Undersecretary for temporary restraining orders and preliminary injunctions
Railways Cesar B. Chavez required BURI to submit against national government projects.
additional supporting documents and directed the
On the application of RA 9285 vis-a-vis RA 8975, the case
withholding of certain amounts. BURI replied through a
of Falcon is instructive:
letter and gave its explanation, but Billing No. 9 was still
not settled. In a letter, Usec. Chavez directed BURI to “Republic Act No. 9285 is a general law applicable to all
explain why the MRT3 Contract should not be terminated matters and controversies to be resolved through
with the happening of a series of serious incidents. BURI alternative dispute resolution methods. This law allows a
invoked Subsection No. 20 on Settlement of Disputes Regional Trial Court to grant interim or provisional relief,
under Section III, General Conditions of the Contract and including preliminary injunction, to parties in an
requested for a meeting for a mutual consultation. In arbitration case prior to the constitution of the arbitral
another letter, Usec. Chavez again directed BURI to tribunal. This general statute, however, must give way to
explain why the MRT3 Contract should not be terminated a special law governing national government projects,
saying that BURI was bound to have delivered 17 Republic Act No. 8975 which prohibits courts, except the
overhauled LRVs to MRT3, however, not a single one was Supreme Court, from issuing TROs and writs of
turned over. BURI again invoked Subsection No. 20 under preliminary injunction in cases involving national
Section III of the GCC. As none of the request for mutual government projects.”
consultation was acceded to, BURI notified DOTr of its
intention to commence arbitration proceedings. BURI x x x Under Section 3(d) of [RA 8975], trial courts are
thereafter sent DOTr a Notice of Arbitration formally prohibited from issuing a TRO or writ of preliminary
demanding arbitration. BURI instituted before the RTC a injunction against the government to restrain or prohibit
Petition for the Issuance of Interim Measures of the termination or rescission of any such national
Protection, with Prayer for the Issuance of a Temporary government project/contract.
Order of Protection under the Special ADR Rules,
The rationale for this provision is easy to understand. For
essentially seeking to maintain the status quo and enjoin
if a project proponent — that the government believes to
respondent from terminating the MRT3 Contract. RTC
be in default — is allowed to enjoin the termination of its
denied the petition. Subsequently, DOTr issued a Notice
contract on the ground that it is contesting the validity of
to Terminate the MRT3 Contract. BURI moved for a partial
said termination, then the government will be unable to
reconsideration (omnibus motion) of the RTC Order.
enter into a new contract with any other party while the
Meanwhile, DOTr issued a Decision terminating the MRT3
controversy is pending litigation. Obviously, a court's
Contract. RTC denied BURI’s omnibus motion, citing RA
grant of injunctive relief in such an instance is prejudicial
8975, entitled "An Act to Ensure the Expeditious
to public interest since government would be indefinitely
Implementation and Completion of Government
hampered in its duty to provide vital public goods and
Infrastructure Projects by Prohibiting Lower Courts from
services in order to preserve the private proprietary rights
Issuing Temporary Restraining Orders, Preliminary
of the project proponent. On the other hand, should it
Injunctions or Preliminary Mandatory Injunctions,
turn out that the project proponent was not at fault, the
Providing Penalties for Violations Thereof, and for Other
BOT Law itself presupposes that the project proponent
Purposes," the RTC held that it has no jurisdiction over
can be adequately compensated for the termination of the
the petition. It ruled that the issues raised in the petition
contract.
are arbitrable.

Issue: Whether or not the RTC has jurisdiction to issue

the protection and restraining order

Held: NO.

The MRT3 Contract was entered into as a result of a

negotiated procurement under RA 9184, or the
Government Procurement Reform Act. Under Section 28
of RA 9285 or the Alternative Dispute Resolution Act of
2004, as referred to in Section 59, Rule XVIII of the
Revised Implementing Rules and Regulations of RA 9184
or the said Government Procurement Reform Act, the
grant of an interim measure of protection by the proper