V.
International Commercial Arbitration
1. International Chamber of Commerce (ICC) Rules of Arbitration
2. United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules,
December 15, 1976
Korea Technologies Co., Ltd. v. Lerma, G.R. No. 143581, January 7, 2008
In our jurisdiction, the policy is to favor alternative methods of resolving disputes, particularly
in civil and commercial disputes. Arbitration along with mediation, conciliation, and
negotiation, being inexpensive, speedy and less hostile methods have long been favored by
this Court.The petition before us puts at issue an arbitration clause in a contract mutually
agreed upon by the parties stipulating that they would submit themselves to arbitration in a
foreign country. Regrettably, instead of hastening the resolution of their dispute, the parties
wittingly or unwittingly prolonged the controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is
engaged in the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder
manufacturing plants, while private respondent Pacific General Steel Manufacturing Corp.
(PGSMC) is a domestic corporation.
On March 5, 1997, PGSMC and KOGIES executed a Contract [1] whereby KOGIES
would set up an LPG Cylinder Manufacturing Plant in Carmona, Cavite. The contract was
executed in the Philippines. On April 7, 1997, the parties executed, in Korea, an Amendment
for Contract No. KLP-970301 dated March 5, 1997[2] amending the terms of payment. The
contract and its amendment stipulated that KOGIES will ship the machinery and facilities
necessary for manufacturing LPG cylinders for which PGSMC would pay USD
1,224,000. KOGIES would install and initiate the operation of the plant for which PGSMC
bound itself to pay USD 306,000 upon the plants production of the 11-kg. LPG cylinder
samples. Thus, the total contract price amounted to USD 1,530,000.
On October 14, 1997, PGSMC entered into a Contract of Lease [3] with Worth
Properties, Inc. (Worth) for use of Worths 5,079-square meter property with a 4,032-square
meter warehouse building to house the LPG manufacturing plant. The monthly rental was PhP
322,560 commencing on January 1, 1998 with a 10% annual increment clause. Subsequently,
the machineries, equipment, and facilities for the manufacture of LPG cylinders were shipped,
delivered, and installed in the Carmona plant. PGSMC paid KOGIES USD 1,224,000.
However, gleaned from the Certificate[4] executed by the parties on January 22,
1998, after the installation of the plant, the initial operation could not be conducted as PGSMC
encountered financial difficulties affecting the supply of materials, thus forcing the parties to
agree that KOGIES would be deemed to have completely complied with the terms and
conditions of the March 5, 1997 contract.
For the remaining balance of USD306,000 for the installation and initial operation
of the plant, PGSMC issued two postdated checks: (1) BPI Check No. 0316412 dated January
30, 1998 for PhP 4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP
4,500,000.[5]
When KOGIES deposited the checks, these were dishonored for the
reason PAYMENT STOPPED. Thus, on May 8, 1998, KOGIES sent a demand letter [6] to PGSMC
threatening criminal action for violation of Batas Pambansa Blg. 22 in case of nonpayment. On
the same date, the wife of PGSMCs President faxed a letter dated May 7, 1998 to KOGIES
President who was then staying at a Makati City hotel. She complained that not only did
KOGIES deliver a different brand of hydraulic press from that agreed upon but it had not
delivered several equipment parts already paid for.
On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully
funded but the payments were stopped for reasons previously made known to KOGIES.[7]
On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract
dated March 5, 1997 on the ground that KOGIES had altered the quantity and lowered the
quality of the machineries and equipment it delivered to PGSMC, and that PGSMC would
dismantle and transfer the machineries, equipment, and facilities installed in the Carmona
plant. Five days later, PGSMC filed before the Office of the Public Prosecutor an Affidavit-
Complaint for Estafa docketed as I.S. No. 98-03813 against Mr. Dae Hyun Kang, President of
KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not
unilaterally rescind their contract nor dismantle and transfer the machineries and equipment
on mere imagined violations by KOGIES. It also insisted that their disputes should be settled
by arbitration as agreed upon in Article 15, the arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1,
1998 letter threatening that the machineries, equipment, and facilities installed in the plant
would be dismantled and transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted
an Application for Arbitration before the Korean Commercial Arbitration Board (KCAB)
in Seoul, Korea pursuant to Art. 15 of the Contract as amended.
On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as
Civil Case No. 98-117[8] against PGSMC before the Muntinlupa City Regional Trial Court
(RTC). The RTC granted a temporary restraining order (TRO) on July 4, 1998, which was
subsequently extended until July 22, 1998. In its complaint, KOGIES alleged that PGSMC had
initially admitted that the checks that were stopped were not funded but later on claimed that
it stopped payment of the checks for the reason that their value was not received as the
former allegedly breached their contract by altering the quantity and lowering the quality of
the machinery and equipment installed in the plant and failed to make the plant operational
although it earlier certified to the contrary as shown in a January 22, 1998
Certificate. Likewise, KOGIES averred that PGSMC violated Art. 15 of their Contract, as
amended, by unilaterally rescinding the contract without resorting to arbitration. KOGIES also
asked that PGSMC be restrained from dismantling and transferring the machinery and
equipment installed in the plant which the latter threatened to do on July 4, 1998.
On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not
entitled to the TRO since Art. 15, the arbitration clause, was null and void for being against
public policy as it ousts the local courts of jurisdiction over the instant controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory
Counterclaim[9] asserting that it had the full right to dismantle and transfer the machineries
and equipment because it had paid for them in full as stipulated in the contract; that KOGIES
was not entitled to the PhP 9,000,000 covered by the checks for failing to completely install
and make the plant operational; and that KOGIES was liable for damages amounting to PhP
4,500,000 for altering the quantity and lowering the quality of the machineries and
equipment. Moreover, PGSMC averred that it has already paid PhP 2,257,920 in rent (covering
January to July 1998) to Worth and it was not willing to further shoulder the cost of renting
the premises of the plant considering that the LPG cylinder manufacturing plant never
became operational.
After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an
Order denying the application for a writ of preliminary injunction, reasoning that PGSMC had
paid KOGIES USD 1,224,000, the value of the machineries and equipment as shown in the
contract such that KOGIES no longer had proprietary rights over them. And finally, the RTC
held that Art. 15 of the Contract as amended was invalid as it tended to oust the trial court or
any other court jurisdiction over any dispute that may arise between the parties. KOGIES
prayer for an injunctive writ was denied.[10] The dispositive portion of the Order stated:

WHEREFORE, in view of the foregoing consideration, this Court believes
and so holds that no cogent reason exists for this Court to grant the writ
of preliminary injunction to restrain and refrain defendant from
dismantling the machineries and facilities at the lot and building of
Worth Properties, Incorporated at Carmona, Cavite and transfer the
same to another site: and therefore denies plaintiffs application for a
writ of preliminary injunction.
On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim.
[11]
KOGIES denied it had altered the quantity and lowered the quality of the machinery,
equipment, and facilities it delivered to the plant. It claimed that it had performed all the
undertakings under the contract and had already produced certified samples of LPG
cylinders. It averred that whatever was unfinished was PGSMCs fault since it failed to procure
raw materials due to lack of funds. KOGIES, relying on Chung Fu Industries (Phils.), Inc. v. Court
of Appeals,[12]insisted that the arbitration clause was without question valid.
After KOGIES filed a Supplemental Memorandum with Motion to
Dismiss[13] answering PGSMCs memorandum of July 22, 1998 and seeking dismissal of
PGSMCs counterclaims, KOGIES, on August 4, 1998, filed its Motion for Reconsideration [14] of
the July 23, 1998 Order denying its application for an injunctive writ claiming that the
contract was not merely for machinery and facilities worth USD 1,224,000 but was for the sale
of an LPG manufacturing plant consisting of supply of all the machinery and facilities and
transfer of technology for a total contract price of USD 1,530,000 such that the dismantling
and transfer of the machinery and facilities would result in the dismantling and transfer of the
very plant itself to the great prejudice of KOGIES as the still unpaid owner/seller of the
plant. Moreover, KOGIES points out that the arbitration clause under Art. 15 of the Contract as
amended was a valid arbitration stipulation under Art. 2044 of the Civil Code and as held by
this Court in Chung Fu Industries (Phils.), Inc.[15]
In the meantime, PGSMC filed a Motion for Inspection of Things [16] to determine
whether there was indeed alteration of the quantity and lowering of quality of the
machineries and equipment, and whether these were properly installed. KOGIES opposed the
motion positing that the queries and issues raised in the motion for inspection fell under the
coverage of the arbitration clause in their contract.
On September 21, 1998, the trial court issued an Order (1) granting PGSMCs
motion for inspection; (2) denying KOGIES motion for reconsideration of the July 23, 1998
RTC Order; and (3) denying KOGIES motion to dismiss PGSMCs compulsory counterclaims as
these counterclaims fell within the requisites of compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration [17] of the
September 21, 1998 RTC Order granting inspection of the plant and denying dismissal of
PGSMCs compulsory counterclaims.
Ten days after, on October 12, 1998, without waiting for the resolution of its
October 2, 1998 urgent motion for reconsideration, KOGIES filed before the Court of Appeals
(CA) a petition for certiorari[18] docketed as CA-G.R. SP No. 49249, seeking annulment of the
July 23, 1998 and September 21, 1998 RTC Orders and praying for the issuance of writs of
prohibition, mandamus, and preliminary injunction to enjoin the RTC and PGSMC from
inspecting, dismantling, and transferring the machineries and equipment in the Carmona
plant, and to direct the RTC to enforce the specific agreement on arbitration to resolve the
dispute.
In the meantime, on October 19, 1998, the RTC denied KOGIES urgent motion for
reconsideration and directed the Branch Sheriff to proceed with the inspection of the
machineries and equipment in the plant on October 28, 1998.[19]
Thereafter, KOGIES filed a Supplement to the Petition [20] in CA-G.R. SP No. 49249
informing the CA about the October 19, 1998 RTC Order. It also reiterated its prayer for the
issuance of the writs of prohibition, mandamus and preliminary injunction which was not
acted upon by the CA. KOGIES asserted that the Branch Sheriff did not have the technical
expertise to ascertain whether or not the machineries and equipment conformed to the
specifications in the contract and were properly installed.
On November 11, 1998, the Branch Sheriff filed his Sheriffs Report [21] finding that
the enumerated machineries and equipment were not fully and properly installed.
The Court of Appeals affirmed the trial court and declared
the arbitration clause against public policy
On May 30, 2000, the CA rendered the assailed Decision [22] affirming the RTC
Orders and dismissing the petition for certiorari filed by KOGIES. The CA found that the RTC
did not gravely abuse its discretion in issuing the assailed July 23, 1998 and September 21,
1998 Orders. Moreover, the CA reasoned that KOGIES contention that the total contract price
for USD 1,530,000 was for the whole plant and had not been fully paid was contrary to the
finding of the RTC that PGSMC fully paid the price of USD 1,224,000, which was for all the
machineries and equipment. According to the CA, this determination by the RTC was a factual
finding beyond the ambit of a petition for certiorari.
On the issue of the validity of the arbitration clause, the CA agreed with the lower
court that an arbitration clause which provided for a final determination of the legal rights of
the parties to the contract by arbitration was against public policy.
On the issue of nonpayment of docket fees and non-attachment of a certificate of
non-forum shopping by PGSMC, the CA held that the counterclaims of PGSMC were
compulsory ones and payment of docket fees was not required since the Answer with
counterclaim was not an initiatory pleading. For the same reason, the CA said a certificate of
non-forum shopping was also not required.
Furthermore, the CA held that the petition for certiorari had been filed prematurely
since KOGIES did not wait for the resolution of its urgent motion for reconsideration of the
September 21, 1998 RTC Order which was the plain, speedy, and adequate remedy
available.According to the CA, the RTC must be given the opportunity to correct any alleged
error it has committed, and that since the assailed orders were interlocutory, these cannot be
the subject of a petition for certiorari.
Hence, we have this Petition for Review on Certiorari under Rule 45.
The Issues
Petitioner posits that the appellate court committed the following errors:
a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE
MACHINERY AND FACILITIES AS A QUESTION OF FACT BEYOND THE
AMBIT OF A PETITION FOR CERTIORARI INTENDED ONLY FOR
CORRECTION OF ERRORS OF JURISDICTION OR GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS OF JURISDICTION,
AND CONCLUDING THAT THE TRIAL COURTS FINDING ON THE SAME
QUESTION WAS IMPROPERLY RAISED IN THE PETITION BELOW;
 b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN
ARTICLE 15 OF THE CONTRACT BETWEEN THE PARTIES FOR BEING
CONTRARY TO PUBLIC POLICY AND FOR OUSTING THE COURTS OF
JURISDICTION;
c. DECREEING PRIVATE RESPONDENTS COUNTERCLAIMS TO
BE ALL COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES
AND CERTIFICATION OF NON-FORUM SHOPPING;
d. RULING THAT THE PETITION WAS FILED PREMATURELY
WITHOUT WAITING FOR THE RESOLUTION OF THE MOTION FOR
RECONSIDERATION OF THE ORDER DATED SEPTEMBER 21, 1998 OR
WITHOUT GIVING THE TRIAL COURT AN OPPORTUNITY TO CORRECT
ITSELF;
e. PROCLAIMING THE TWO ORDERS DATED JULY 23
AND SEPTEMBER 21, 1998 NOT TO BE PROPER SUBJECTS OF
CERTIORARI AND PROHIBITION FOR BEING INTERLOCUTORY IN
NATURE;
f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR
IN HE (SIC) PETITION AND, INSTEAD, DISMISSING THE SAME FOR
ALLEGEDLY WITHOUT MERIT.[23]
The Courts Ruling
The petition is partly meritorious.
Before we delve into the substantive issues, we shall first tackle the procedural
issues.
The rules on the payment of docket fees for counterclaims
and cross claims were amended effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the counterclaims, it should have
paid docket fees and filed a certificate of non-forum shopping, and that its failure to do so was
a fatal defect.
We disagree with KOGIES.
As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its
Answer with Compulsory Counterclaim dated July 17, 1998 in accordance with Section 8 of
Rule 11, 1997 Revised Rules of Civil Procedure, the rule that was effective at the time the
Answer with Counterclaim was filed. Sec. 8 on existing counterclaim or cross-claim states, A
compulsory counterclaim or a cross-claim that a defending party has at the time he files his
answer shall be contained therein.
On July 17, 1998, at the time PGSMC filed its Answer incorporating its
counterclaims against KOGIES, it was not liable to pay filing fees for said counterclaims being
compulsory in nature. We stress, however, that effective August 16, 2004 under Sec. 7, Rule
141, as amended by A.M. No. 04-2-04-SC, docket fees are now required to be paid in
compulsory counterclaim or cross-claims.
As to the failure to submit a certificate of forum shopping, PGSMCs Answer is not an
initiatory pleading which requires a certification against forum shopping under Sec. 5 [24] of
Rule 7, 1997 Revised Rules of Civil Procedure. It is a responsive pleading, hence, the courts a
quo did not commit reversible error in denying KOGIES motion to dismiss PGSMCs
compulsory counterclaims.
Interlocutory orders proper subject of certiorari
Citing Gamboa v. Cruz,[25] the CA also pronounced that certiorari and Prohibition are
neither the remedies to question the propriety of an interlocutory order of the trial court.
[26]
The CA erred on its reliance on Gamboa. Gamboa involved the denial of a motion to acquit
in a criminal case which was not assailable in an action for certiorari since the denial of a
motion to quash required the accused to plead and to continue with the trial, and whatever
objections the accused had in his motion to quash can then be used as part of his defense and
subsequently can be raised as errors on his appeal if the judgment of the trial court is adverse
to him. The general rule is that interlocutory orders cannot be challenged by an appeal.
[27]
Thus, in Yamaoka v. Pescarich Manufacturing Corporation, we held:
The proper remedy in such cases is an ordinary appeal from
an adverse judgment on the merits, incorporating in said appeal the
grounds for assailing the interlocutory orders. Allowing appeals from
interlocutory orders would result in the sorry spectacle of a case being
subject of a counterproductive ping-pong to and from the appellate court
as often as a trial court is perceived to have made an error in any of its
interlocutory rulings. However, where the assailed interlocutory order
was issued with grave abuse of discretion or patently erroneous and the
remedy of appeal would not afford adequate and expeditious relief, the
Court allows certiorari as a mode of redress.[28]
Also, appeals from interlocutory orders would open the floodgates to endless
occasions for dilatory motions. Thus, where the interlocutory order was issued without or in
excess of jurisdiction or with grave abuse of discretion, the remedy is certiorari. [29]
The alleged grave abuse of discretion of the respondent court equivalent to lack of
jurisdiction in the issuance of the two assailed orders coupled with the fact that there is no
plain, speedy, and adequate remedy in the ordinary course of law amply provides the basis for
allowing the resort to a petition for certiorari under Rule 65.
Prematurity of the petition before the CA
Neither do we think that KOGIES was guilty of forum shopping in filing the petition
for certiorari. Note that KOGIES motion for reconsideration of the July 23, 1998 RTC Order
which denied the issuance of the injunctive writ had already been denied. Thus, KOGIES only
remedy was to assail the RTCs interlocutory order via a petition for certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of KOGIES of the September
21, 1998 RTC Order relating to the inspection of things, and the allowance of the compulsory
counterclaims has not yet been resolved, the circumstances in this case would allow an
exception to the rule that before certiorari may be availed of, the petitioner must have filed a
motion for reconsideration and said motion should have been first resolved by the court a
quo. The reason behind the rule is to enable the lower court, in the first instance, to pass upon
and correct its mistakes without the intervention of the higher court.[30]
The September 21, 1998 RTC Order directing the branch sheriff to inspect the
plant, equipment, and facilities when he is not competent and knowledgeable on said matters
is evidently flawed and devoid of any legal support. Moreover, there is an urgent necessity to
resolve the issue on the dismantling of the facilities and any further delay would prejudice the
interests of KOGIES. Indeed, there is real and imminent threat of irreparable destruction or
substantial damage to KOGIES equipment and machineries. We find the resort to certiorari
based on the gravely abusive orders of the trial court sans the ruling on the October 2,
1998 motion for reconsideration to be proper.
The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration
clause. It provides:
Article 15. Arbitration.All disputes, controversies, or
differences which may arise between the parties, out of or in relation to
or in connection with this Contract or for the breach thereof, shall finally
be settled by arbitration in Seoul, Korea in accordance with the
Commercial Arbitration Rules of the Korean Commercial Arbitration
Board. The award rendered by the arbitration(s) shall be final and
binding upon both parties concerned.(Emphasis supplied.)
Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is
null and void.
Petitioner is correct.
Established in this jurisdiction is the rule that the law of the place where the
contract is made governs. Lex loci contractus. The contract in this case was perfected here in
the Philippines. Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code
sanctions the validity of mutually agreed arbitral clause or the finality and binding effect of an
arbitral award. Art. 2044 provides, Any stipulation that the arbitrators award or decision
shall be final, is valid, without prejudice to Articles 2038, 2039 and 2040. (Emphasis
supplied.)
Arts. 2038,[31] 2039,[32] and 2040[33] abovecited refer to instances where a
compromise or an arbitral award, as applied to Art. 2044 pursuant to Art. 2043, [34] may be
voided, rescinded, or annulled, but these would not denigrate the finality of the arbitral
award.
The arbitration clause was mutually and voluntarily agreed upon by the parties. It
has not been shown to be contrary to any law, or against morals, good customs, public order,
or public policy. There has been no showing that the parties have not dealt with each other on
equal footing. We find no reason why the arbitration clause should not be respected and
complied with by both parties. In Gonzales v. Climax Mining Ltd.,[35] we held that submission to
arbitration is a contract and that a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a contract. [36] Again in Del Monte
Corporation-USA v. Court of Appeals, we likewise ruled that [t]he provision to submit to
arbitration any dispute arising therefrom and the relationship of the parties is part of that
contract and is itself a contract.[37]
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration must be done
in Seoul, Korea in accordance with the Commercial Arbitration Rules of the KCAB, and that the
arbitral award is final and binding, is not contrary to public policy. This Court has sanctioned
the validity of arbitration clauses in a catena of cases. In the 1957 case of Eastboard
Navigation Ltd. v. Juan Ysmael and Co., Inc.,[38] this Court had occasion to rule that an
arbitration clause to resolve differences and breaches of mutually agreed contractual terms is
valid. In BF Corporation v. Court of Appeals, we held that [i]n this jurisdiction, arbitration has
been held valid and constitutional. Even before the approval on June 19, 1953 of Republic Act
No. 876, this Court has countenanced the settlement of disputes through arbitration. Republic
Act No. 876 was adopted to supplement the New Civil Codes provisions on arbitration. [39] And
in LM Power Engineering Corporation v. Capitol Industrial Construction Groups, Inc., we
declared that:
Being an inexpensive, speedy and amicable method of settling
disputes, arbitrationalong with mediation, conciliation and negotiationis
encouraged by the Supreme Court. Aside from unclogging judicial
dockets, arbitration also hastens the resolution of disputes, especially of
the commercial kind. It is thus regarded as the wave of the future in
international civil and commercial disputes. Brushing aside a contractual
agreement calling for arbitration between the parties would be a step
backward.
Consistent with the above-mentioned policy of encouraging
alternative dispute resolution methods, courts should liberally construe
arbitration clauses. Provided such clause is susceptible of an
interpretation that covers the asserted dispute, an order to arbitrate
should be granted. Any doubt should be resolved in favor of arbitration.
[40]
Having said that the instant arbitration clause is not against public policy, we come
to the question on what governs an arbitration clause specifying that in case of any dispute
arising from the contract, an arbitral panel will be constituted in a foreign country and the
arbitration rules of the foreign country would govern and its award shall be final and binding.
RA 9285 incorporated the UNCITRAL Model law
to which we are a signatory
For domestic arbitration proceedings, we have particular agencies to arbitrate
disputes arising from contractual relations. In case a foreign arbitral body is chosen by the
parties, the arbitration rules of our domestic arbitration bodies would not be applied. As
signatory to the Arbitration Rules of the UNCITRAL Model Law on International Commercial
Arbitration[41] of the United Nations Commission on International Trade Law (UNCITRAL) in
the New York Convention on June 21, 1985, the Philippines committed itself to be bound by
the Model Law. We have even incorporated the Model Law in Republic Act No. (RA) 9285,
otherwise known as the Alternative Dispute Resolution Act of 2004 entitled An Act to
Institutionalize the Use of an Alternative Dispute Resolution System in the Philippines and to
Establish the Office for Alternative Dispute Resolution, and for Other Purposes, promulgated on
April 2, 2004. Secs. 19 and 20 of Chapter 4 of the Model Law are the pertinent provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION
SEC. 19. Adoption of the Model Law on International
Commercial Arbitration.International commercial arbitration shall be
governed by the Model Law on International Commercial Arbitration
(the Model Law) adopted by the United Nations Commission on
International Trade Law on June 21, 1985 (United Nations Document
A/40/17) and recommended for enactment by the General Assembly in
Resolution No. 40/72 approved on December 11, 1985, copy of which is
hereto attached as Appendix A.
SEC. 20. Interpretation of Model Law.In interpreting the Model
Law, regard shall be had to its international origin and to the need for
uniformity in its interpretation and resort may be made to the travaux
preparatories and the report of the Secretary General of the United
Nations Commission on International Trade Law dated March 25, 1985
 entitled, International Commercial Arbitration: Analytical Commentary
on Draft Trade identified by reference number A/CN. 9/264.
While RA 9285 was passed only in 2004, it nonetheless applies in the instant case
since it is a procedural law which has a retroactive effect. Likewise, KOGIES filed its
application for arbitration before the KCAB on July 1, 1998 and it is still pending because no
arbitral award has yet been rendered. Thus, RA 9285 is applicable to the instant case. Well-
settled is the rule that procedural laws are construed to be applicable to actions pending and
undetermined at the time of their passage, and are deemed retroactive in that sense and to
that extent. As a general rule, the retroactive application of procedural laws does not violate
any personal rights because no vested right has yet attached nor arisen from them. [42]
Among the pertinent features of RA 9285 applying and incorporating the
UNCITRAL Model Law are the following:
(1) The RTC must refer to arbitration in proper cases
Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly
the subject of arbitration pursuant to an arbitration clause, and mandates the referral to
arbitration in such cases, thus:
SEC. 24. Referral to Arbitration.A court before which an action
is brought in a matter which is the subject matter of an arbitration
agreement shall, if at least one party so requests not later than the pre-
trial conference, or upon the request of both parties thereafter, refer the
parties to arbitration unless it finds that the arbitration agreement is
null and void, inoperative or incapable of being performed.
(2) Foreign arbitral awards must be confirmed by the RTC
Foreign arbitral awards while mutually stipulated by the parties in the arbitration
clause to be final and binding are not immediately enforceable or cannot be implemented
immediately. Sec. 35[43] of the UNCITRAL Model Law stipulates the requirement for the
arbitral award to be recognized by a competent court for enforcement, which court under Sec.
36 of the UNCITRAL Model Law may refuse recognition or enforcement on the grounds
provided for. RA 9285 incorporated these provisos to Secs. 42, 43, and 44 relative to Secs. 47
and 48, thus:
SEC. 42. Application of the New York Convention.The New York
Convention shall govern the recognition and enforcement of arbitral
awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall
be filed with the Regional Trial Court in accordance with the rules of
procedure to be promulgated by the Supreme Court. Said procedural
rules shall provide that the party relying on the award or applying for its
enforcement shall file with the court the original or authenticated copy
of the award and the arbitration agreement. If the award or agreement is
not made in any of the official languages, the party shall supply a duly
certified translation thereof into any of such languages.
The applicant shall establish that the country in which foreign
arbitration award was made in party to the New York Convention.
xxxx
SEC. 43. Recognition and Enforcement of Foreign Arbitral
Awards Not Covered by the New York Convention.The recognition and
enforcement of foreign arbitral awards not covered by the New York
Convention shall be done in accordance with procedural rules to be
promulgated by the Supreme Court. The Court may, on grounds of
comity and reciprocity, recognize and enforce a non-convention award as
a convention award.
SEC. 44. Foreign Arbitral Award Not Foreign Judgment.A foreign arbitral
award when confirmed by a court of a foreign country, shall be
recognized and enforced as a foreign arbitral award and not as a
judgment of a foreign court.
A foreign arbitral award, when confirmed by the Regional
Trial Court, shall be enforced in the same manner as final and executory
decisions of courts of law of the Philippines
xxxx
SEC. 47. Venue and Jurisdiction.Proceedings for recognition
and enforcement of an arbitration agreement or for vacations, setting
aside, correction or modification of an arbitral award, and any
application with a court for arbitration assistance and supervision shall
be deemed as special proceedings and shall be filed with the Regional
Trial Court (i) where arbitration proceedings are conducted; (ii) where
the asset to be attached or levied upon, or the act to be enjoined is
located; (iii) where any of the parties to the dispute resides or has his
place of business; or (iv) in the National Judicial Capital Region, at the
option of the applicant.
SEC. 48. Notice of Proceeding to Parties.In a special proceeding
for recognition and enforcement of an arbitral award, the Court shall
send notice to the parties at their address of record in the arbitration, or
if any part cannot be served notice at such address, at such partys last
known address. The notice shall be sent al least fifteen (15) days before
the date set for the initial hearing of the application.
It is now clear that foreign arbitral awards when confirmed by the RTC are deemed
not as a judgment of a foreign court but as a foreign arbitral award, and when confirmed, are
enforced as final and executory decisions of our courts of law.
Thus, it can be gleaned that the concept of a final and binding arbitral award is
similar to judgments or awards given by some of our quasi-judicial bodies, like the National
Labor Relations Commission and Mines Adjudication Board, whose final judgments are
stipulated to be final and binding, but not immediately executory in the sense that they may
still be judicially reviewed, upon the instance of any party.Therefore, the final foreign arbitral
awards are similarly situated in that they need first to be confirmed by the RTC.
(3) The RTC has jurisdiction to review foreign arbitral awards
Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with
specific authority and jurisdiction to set aside, reject, or vacate a foreign arbitral award on
grounds provided under Art. 34(2) of the UNCITRAL Model Law. Secs. 42 and 45 provide:
 SEC. 42. Application of the New York Convention.The New York
Convention shall govern the recognition and enforcement of arbitral
awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall
be filed with the Regional Trial Court in accordance with the rules of
procedure to be promulgated by the Supreme Court. Said procedural
rules shall provide that the party relying on the award or applying for its
enforcement shall file with the court the original or authenticated copy
of the award and the arbitration agreement. If the award or agreement is
not made in any of the official languages, the party shall supply a duly
certified translation thereof into any of such languages.
The applicant shall establish that the country in which foreign
arbitration award was made is party to the New York Convention.
If the application for rejection or suspension of enforcement
of an award has been made, the Regional Trial Court may, if it considers
it proper, vacate its decision and may also, on the application of the party
claiming recognition or enforcement of the award, order the party to
provide appropriate security.
xxxx
SEC. 45. Rejection of a Foreign Arbitral Award.A party to a
foreign arbitration proceeding may oppose an application for
recognition and enforcement of the arbitral award in accordance with
the procedures and rules to be promulgated by the Supreme Court only
on those grounds enumerated under Article V of the New York
Convention. Any other ground raised shall be disregarded by the
Regional Trial Court.
Thus, while the RTC does not have jurisdiction over disputes governed by
arbitration mutually agreed upon by the parties, still the foreign arbitral award is subject to
judicial review by the RTC which can set aside, reject, or vacate it. In this sense, what this
Court held in Chung Fu Industries (Phils.), Inc. relied upon by KOGIES is applicable insofar as
the foreign arbitral awards, while final and binding, do not oust courts of jurisdiction since
these arbitral awards are not absolute and without exceptions as they are still judicially
reviewable. Chapter 7 of RA 9285 has made it clear that all arbitral awards, whether domestic
or foreign, are subject to judicial review on specific grounds provided for.
(4) Grounds for judicial review different in domestic and foreign arbitral awards
The differences between a final arbitral award from an international or foreign
arbitral tribunal and an award given by a local arbitral tribunal are the specific grounds or
conditions that vest jurisdiction over our courts to review the awards.
For foreign or international arbitral awards which must first be confirmed by the
RTC, the grounds for setting aside, rejecting or vacating the award by the RTC are provided
under Art. 34(2) of the UNCITRAL Model Law.
For final domestic arbitral awards, which also need confirmation by the RTC
pursuant to Sec. 23 of RA 876[44] and shall be recognized as final and executory decisions of
the RTC,[45] they may only be assailed before the RTC and vacated on the grounds provided
under Sec. 25 of RA 876.[46]
(5) RTC decision of assailed foreign arbitral award appealable
Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an
aggrieved party in cases where the RTC sets aside, rejects, vacates, modifies, or corrects an
arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.A
decision of the Regional Trial Court confirming, vacating, setting aside,
modifying or correcting an arbitral award may be appealed to the Court
of Appeals in accordance with the rules and procedure to be
promulgated by the Supreme Court.
The losing party who appeals from the judgment of the court
confirming an arbitral award shall be required by the appellate court to
post a counterbond executed in favor of the prevailing party equal to the
amount of the award in accordance with the rules to be promulgated by
the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed before this Court
through a petition for review under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC must submit to the
foreign arbitration as it bound itself through the subject contract. While it may have
misgivings on the foreign arbitration done in Korea by the KCAB, it has available remedies
under RA 9285. Its interests are duly protected by the law which requires that the arbitral
award that may be rendered by KCAB must be confirmed here by the RTC before it can be
enforced.
With our disquisition above, petitioner is correct in its contention that an
arbitration clause, stipulating that the arbitral award is final and binding, does not oust our
courts of jurisdiction as the international arbitral award, the award of which is not absolute
and without exceptions, is still judicially reviewable under certain conditions provided for by
the UNCITRAL Model Law on ICA as applied and incorporated in RA 9285.
Finally, it must be noted that there is nothing in the subject Contract which
provides that the parties may dispense with the arbitration clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the subject contract is valid and binding
on the parties, and not contrary to public policy; consequently, being bound to the contract of
arbitration, a party may not unilaterally rescind or terminate the contract for whatever cause
without first resorting to arbitration.
What this Court held in University of the Philippines v. De Los Angeles [47] and
reiterated in succeeding cases,[48] that the act of treating a contract as rescinded on account of
infractions by the other contracting party is valid albeit provisional as it can be judicially
assailed, is not applicable to the instant case on account of a valid stipulation on
arbitration. Where an arbitration clause in a contract is availing, neither of the parties can
unilaterally treat the contract as rescinded since whatever infractions or breaches by a party
or differences arising from the contract must be brought first and resolved by arbitration, and
not through an extrajudicial rescission or judicial action.
The issues arising from the contract between PGSMC and KOGIES on whether the
equipment and machineries delivered and installed were properly installed and operational in
the plant in Carmona, Cavite; the ownership of equipment and payment of the contract price;
and whether there was substantial compliance by KOGIES in the production of the samples,
given the alleged fact that PGSMC could not supply the raw materials required to produce the
sample LPG cylinders, are matters proper for arbitration. Indeed, we note that on July 1, 1998,
KOGIES instituted an Application for Arbitration before the KCAB in Seoul, Korea pursuant to
Art. 15 of the Contract as amended. Thus, it is incumbent upon PGSMC to abide by its
commitment to arbitrate.
Corollarily, the trial court gravely abused its discretion in granting PGSMCs Motion
for Inspection of Things on September 21, 1998, as the subject matter of the motion is under
the primary jurisdiction of the mutually agreed arbitral body, the KCAB in Korea.
In addition, whatever findings and conclusions made by the RTC Branch Sheriff
from the inspection made on October 28, 1998, as ordered by the trial court on October 19,
1998, is of no worth as said Sheriff is not technically competent to ascertain the actual status
of the equipment and machineries as installed in the plant.
For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders
pertaining to the grant of the inspection of the equipment and machineries have to be recalled
and nullified.
Issue on ownership of plant proper for arbitration
Petitioner assails the CA ruling that the issue petitioner raised on whether the total contract
price of USD 1,530,000 was for the whole plant and its installation is beyond the ambit of a
Petition for Certiorari.
Petitioners position is untenable.
It is settled that questions of fact cannot be raised in an original action for certiorari.
[49]
Whether or not there was full payment for the machineries and equipment and installation
is indeed a factual issue prohibited by Rule 65.
However, what appears to constitute a grave abuse of discretion is the order of the RTC in
resolving the issue on the ownership of the plant when it is the arbitral body (KCAB) and not
the RTC which has jurisdiction and authority over the said issue. The RTCs determination of
such factual issue constitutes grave abuse of discretion and must be reversed and set aside.
RTC has interim jurisdiction to protect the rights of the parties
Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving
the way for PGSMC to dismantle and transfer the equipment and machineries, we find it to be
in order considering the factual milieu of the instant case.
Firstly, while the issue of the proper installation of the equipment and machineries
might well be under the primary jurisdiction of the arbitral body to decide, yet the RTC under
Sec. 28 of RA 9285 has jurisdiction to hear and grant interim measures to protect vested
rights of the parties. Sec. 28 pertinently provides:
SEC. 28. Grant of interim Measure of Protection.(a) It is not
incompatible with an arbitration agreement for a party to request,
before constitution of the tribunal, from a Court to grant such
measure. After constitution of the arbitral tribunal and during arbitral
proceedings, a request for an interim measure of protection, or
modification thereof, may be made with the arbitral or to the extent
that the arbitral tribunal has no power to act or is unable to act
effectivity, the request may be made with the Court. The arbitral
tribunal is deemed constituted when the sole arbitrator or the third
arbitrator, who has been nominated, has accepted the nomination and
written communication of said nomination and acceptance has been
received by the party making the request.
(b) The following rules on interim or provisional relief shall
be observed:
Any party may request that provisional relief be granted
against the adverse party.
Such relief may be granted:
(i) to prevent irreparable loss or injury;
(ii) to provide security for the performance of any obligation;
(iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or omission.
(c) The order granting provisional relief may be conditioned
upon the provision of security or any act or omission specified in the
order.
(d) Interim or provisional relief is requested by written
application transmitted by reasonable means to the Court or arbitral
tribunal as the case may be and the party against whom the relief is
sought, describing in appropriate detail the precise relief, the party
against whom the relief is requested, the grounds for the relief, and the
evidence supporting the request.
(e) The order shall be binding upon the parties.
(f) Either party may apply with the Court for assistance in
implementing or enforcing an interim measure ordered by an arbitral
tribunal.
(g) A party who does not comply with the order shall be liable
for all damages resulting from noncompliance, including all expenses,
and reasonable attorney's fees, paid in obtaining the orders judicial
enforcement. (Emphasis ours.)
Art. 17(2) of the UNCITRAL Model Law on ICA defines an interim measure of
protection as:
Article 17. Power of arbitral tribunal to order interim measures
xxx xxx xxx
(2) An interim measure is any temporary measure, whether in the form
of an award or in another form, by which, at any time prior to the
issuance of the award by which the dispute is finally decided, the arbitral
tribunal orders a party to:
(a) Maintain or restore the status quo pending determination of the
dispute;
(b) Take action that would prevent, or refrain from taking action that is
likely to cause, current or imminent harm or prejudice to the arbitral
process itself;
(c) Provide a means of preserving assets out of which a subsequent
award may be satisfied; or
 (d) Preserve evidence that may be relevant and material to the
resolution of the dispute.
Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction
to issue interim measures:
Article 17 J. Court-ordered interim measures
A court shall have the same power of issuing an interim
measure in relation to arbitration proceedings, irrespective of whether
their place is in the territory of this State, as it has in relation to
proceedings in courts. The court shall exercise such power in accordance
with its own procedures in consideration of the specific features of
international arbitration.
In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation, we
were explicit that even the pendency of an arbitral proceeding does not foreclose resort to the
courts for provisional reliefs. We explicated this way:
As a fundamental point, the pendency of arbitral proceedings does not
foreclose resort to the courts for provisional reliefs. The Rules of the ICC,
which governs the parties arbitral dispute, allows the application of a
party to a judicial authority for interim or conservatory
measures. Likewise, Section 14 of Republic Act (R.A.) No. 876 (The
Arbitration Law) recognizes the rights of any party to petition the court
to take measures to safeguard and/or conserve any matter which is the
subject of the dispute in arbitration. In addition, R.A. 9285, otherwise
known as the Alternative Dispute Resolution Act of 2004, allows the
filing of provisional or interim measures with the regular courts
whenever the arbitral tribunal has no power to act or to act effectively.[50]
It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim
measures of protection.
Secondly, considering that the equipment and machineries are in the possession of
PGSMC, it has the right to protect and preserve the equipment and machineries in the best
way it can. Considering that the LPG plant was non-operational, PGSMC has the right to
dismantle and transfer the equipment and machineries either for their protection and
preservation or for the better way to make good use of them which is ineluctably within the
management discretion of PGSMC.
Thirdly, and of greater import is the reason that maintaining the equipment and
machineries in Worths property is not to the best interest of PGSMC due to the prohibitive
rent while the LPG plant as set-up is not operational. PGSMC was losing PhP322,560 as
monthly rentals or PhP3.87M for 1998 alone without considering the 10% annual rent
increment in maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating
to the preservation or transfer of the equipment and machineries as an interim measure, yet
on hindsight, the July 23, 1998 Order of the RTC allowing the transfer of the equipment and
machineries given the non-recognition by the lower courts of the arbitral clause, has accorded
an interim measure of protection to PGSMC which would otherwise been irreparably
damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial
amount based on the contract. Moreover, KOGIES is amply protected by the arbitral action it
has instituted before the KCAB, the award of which can be enforced in our jurisdiction through
the RTC. Besides, by our decision, PGSMC is compelled to submit to arbitration pursuant to
the valid arbitration clause of its contract with KOGIES.
PGSMC to preserve the subject equipment and machineries
Finally, while PGSMC may have been granted the right to dismantle and transfer the
subject equipment and machineries, it does not have the right to convey or dispose of the
same considering the pending arbitral proceedings to settle the differences of the
parties. PGSMC therefore must preserve and maintain the subject equipment and machineries
with the diligence of a good father of a family [51] until final resolution of the arbitral
proceedings and enforcement of the award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET
ASIDE;
(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-
117 are REVERSED and SET ASIDE;
(3) The parties are hereby ORDERED to submit themselves to the arbitration of
their dispute and differences arising from the subject Contract before the KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and
machineries, if it had not done so, and ORDERED to preserve and maintain them until the
finality of whatever arbitral award is given in the arbitration proceedings.
No pronouncement as to costs. SO ORDERED.
Korea Technologies Co. Ltd vs Lerma GR No. 143581 January 7, 2008
Facts: Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is
engaged in the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder
manufacturing plants, while private respondent Pacific General Steel Manufacturing Corp.
(PGSMC) is a domestic corporation. On March 5, 1997, PGSMC and KOGIES executed a
Contract whereby KOGIES would set up an LPG Cylinder Manufacturing Plant in Carmona,
Cavite. The contract was executed in the Philippines. On April 7, 1997, the parties executed, in
Korea, an Amendment for Contract No. KLP-970301 dated March 5, 1997 amending the terms
of payment. The contract and its amendment stipulated that KOGIES will ship the machinery
and facilities necessary for manufacturing LPG cylinders for which PGSMC would pay USD
1,224,000. KOGIES would install and initiate the operation of the plant for which PGSMC
bound itself to pay USD 306,000 upon the plants production of the 11-kg. LPG cylinder
samples. Thus, the total contract price amounted to USD 1,530,000. On October 14, 1997,
PGSMC entered into a Contract of Lease with Worth Properties, Inc. (Worth) for use of Worths
5,079-square meter property with a 4,032-square meter warehouse building to house the LPG
manufacturing plant. The monthly rental was PhP 322,560 commencing on January 1, 1998
with a 10% annual increment clause. Subsequently, the machineries, equipment, and facilities
for the manufacture of LPG cylinders were shipped, delivered, and installed in the Carmona
plant. PGSMC paid KOGIES USD 1,224,000. However, gleaned from the Certificate executed by
the parties on January 22, 1998, after the installation of the plant, the initial operation could
not be conducted as PGSMC encountered financial difficulties affecting the supply of
materials, thus forcing the parties to agree that KOGIES would be deemed to have completely
complied with the terms and conditions of the March 5, 1997 contract. For the remaining
balance of USD306,000 for the installation and initial operation of the plant, PGSMC issued
two postdated checks: (1) BPI Check No. 0316412 dated January 30, 1998 for PhP 4,500,000;
and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP 4,500,000. When KOGIES
deposited the checks, these were dishonored for the reason PAYMENT STOPPED. Thus, on preferential rate of US$1,860.00 per MT. Chan, on behalf of the corporations, assented and
May 8, 1998, KOGIES sent a demand letter to PGSMC threatening criminal action for violation affixed his signature on the conforme portion of the letter.11
of Batas Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of PGSMCs
President faxed a letter dated May 7, 1998 to KOGIES President who was then staying at a
On April 17, 2000, Ssangyong forwarded to MCC Pro Forma Invoice No. ST2-
Makati City hotel. She complained that not only did KOGIES deliver a different brand of
POSTSO40112 containing the terms and conditions of the transaction. MCC sent back by fax to
hydraulic press from that agreed upon but it had not delivered several equipment parts
Ssangyong the invoice bearing the conformity signature 13 of Chan. As stated in the pro
already paid for.
forma invoice, payment for the ordered steel products would be made through an irrevocable
letter of credit (L/C) at sight in favor of Ssangyong. 14 Following their usual practice, delivery of
Issue: Whether or not the arbitration clause in the contract of the parties should govern.
the goods was to be made after the L/C had been opened.
Held: Yes. Established in this jurisdiction is the rule that the law of the place where the
contract is made governs. Lex loci contractus. The contract in this case was perfected here in In the meantime, because of its confirmed transaction with MCC, Ssangyong placed the order
the Philippines. Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code with its steel manufacturer, Pohang Iron and Steel Corporation (POSCO), in South Korea 15 and
sanctions the validity of mutually agreed arbitral clause or the finality and binding effect of an paid the same in full.
arbitral award. Art. 2044 provides, Any stipulation that the arbitrators award or decision shall
be final, is valid, without prejudice to Articles 2038, 2039 and 2040.
Because MCC could open only a partial letter of credit, the order for 220MT of steel was split
The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not
into two,16 one for 110MT covered by Pro Forma Invoice No. ST2-POSTS0401-117 and
been shown to be contrary to any law, or against morals, good customs, public order, or public
another for 110MT covered by ST2-POSTS0401-2,18 both dated April 17, 2000.
policy. There has been no showing that the parties have not dealt with each other on equal
footing. We find no reason why the arbitration clause should not be respected and complied
with by both parties. In Gonzales v. Climax Mining Ltd., we held that submission to arbitration On June 20, 2000, Ssangyong, through its Manila Office, informed Sanyo Seiki and Chan, by
is a contract and that a clause in a contract providing that all matters in dispute between the way of a fax transmittal, that it was ready to ship 193.597MT of stainless steel from Korea to
parties shall be referred to arbitration is a contract. Again in Del Monte Corporation-USA v. the Philippines. It requested that the opening of the L/C be facilitated.19 Chan affixed his
Court of Appeals, we likewise ruled that [t]he provision to submit to arbitration any dispute signature on the fax transmittal and returned the same, by fax, to Ssangyong. 20
arising therefrom and the relationship of the parties is part of that contract and is itself a
contract.
Two days later, on June 22, 2000, Ssangyong Manila Office informed Sanyo Seiki, thru Chan,
Having said that the instant arbitration clause is not against public policy, we come to the
that it was able to secure a US$30/MT price adjustment on the contracted price of
question on what governs an arbitration clause specifying that in case of any dispute arising
US$1,860.00/MT for the 200MT stainless steel, and that the goods were to be shipped in
from the contract, an arbitral panel will be constituted in a foreign country and the arbitration
two tranches, the first 100MT on that day and the second 100MT not later than June 27, 2000.
rules of the foreign country would govern and its award shall be final and binding.
Ssangyong reiterated its request for the facilitation of the L/C's opening.21
Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to
judgments or awards given by some of our quasi-judicial bodies, like the National Labor
Relations Commission and Mines Adjudication Board, whose final judgments are stipulated to Ssangyong later, through its Manila Office, sent a letter, on June 26, 2000, to the Treasury
be final and binding, but not immediately executory in the sense that they may still be Group of Sanyo Seiki that it was looking forward to receiving the L/C details and a cable copy
judicially reviewed, upon the instance of any party. Therefore, the final foreign arbitral awards thereof that day.22 Ssangyong sent a separate letter of the same date to Sanyo Seiki requesting
are similarly situated in that they need first to be confirmed by the RTC. for the opening of the L/C covering payment of the first 100MT not later than June 28,
2000.23 Similar letters were transmitted by Ssangyong Manila Office on June 27, 2000.24 On
June 28, 2000, Ssangyong sent another facsimile letter to MCC stating that its principal in
MCC Industial Sales Corp. v. Ssangyong Corp., G.R. No. 170633, October 17, 2007 Korea was already in a difficult situation 25 because of the failure of Sanyo Seiki and MCC to
open the L/C's.

Before the Court is a petition for review on certiorari of the Decision1 of the Court of Appeals The following day, June 29, 2000, Ssangyong received, by fax, a letter signed by Chan,
in CA-G.R. CV No. 82983 and its Resolution2 denying the motion for reconsideration thereof. requesting an extension of time to open the L/C because MCC's credit line with the bank had
been fully availed of in connection with another transaction, and MCC was waiting for an
additional credit line.26 On the same date, Ssangyong replied, requesting that it be informed of
Petitioner MCC Industrial Sales (MCC), a domestic corporation with office at Binondo, Manila,
the date when the L/C would be opened, preferably at the earliest possible time, since its Steel
is engaged in the business of importing and wholesaling stainless steel products. 3 One of its
Team 2 in Korea was having problems and Ssangyong was incurring warehousing costs. 27 To
suppliers is the Ssangyong Corporation (Ssangyong),4 an international trading company5 with
maintain their good business relationship and to support MCC in its financial predicament,
head office in Seoul, South Korea and regional headquarters in Makati City, Philippines. 6 The
Ssangyong offered to negotiate with its steel manufacturer, POSCO, another US$20/MT
two corporations conducted business through telephone calls and facsimile or telecopy
discount on the price of the stainless steel ordered. This was intimated in Ssangyong's June
transmissions.7 Ssangyong would send the pro forma invoices containing the details of the
30, 2000 letter to MCC.28 On July 6, 2000, another follow-up letter29 for the opening of the L/C
steel product order to MCC; if the latter conforms thereto, its representative affixes his
was sent by Ssangyong to MCC.
signature on the faxed copy and sends it back to Ssangyong, again by fax. 8

However, despite Ssangyong's letters, MCC failed to open a letter of credit. 30 Consequently, on
On April 13, 2000, Ssangyong Manila Office sent, by fax, a letter9 addressed to Gregory Chan,
August 15, 2000, Ssangyong, through counsel, wrote Sanyo Seiki that if the L/C's were not
MCC Manager [also the President10 of Sanyo Seiki Stainless Steel Corporation], to confirm
opened, Ssangyong would be compelled to cancel the contract and hold MCC liable for
MCC's and Sanyo Seiki's order of 220 metric tons (MT) of hot rolled stainless steel under a
damages for breach thereof amounting to US$96,132.18, inclusive of warehouse expenses,
related interests and charges.31
Later, Pro Forma Invoice Nos. ST2-POSTS080-132 and ST2-POSTS080-233 dated August 16, WHEREFORE, premises considered, Judgment is hereby rendered ordering
2000 were issued by Ssangyong and sent via fax to MCC. The invoices slightly varied the terms defendants MCC Industrial Sales Corporation and Gregory Chan, to pay plaintiff,
of the earlier pro forma invoices (ST2-POSTSO401, ST2-POSTS0401-1 and ST2- jointly and severally the following:
POSTS0401-2), in that the quantity was now officially 100MT per invoice and the price was
reduced to US$1,700.00 per MT. As can be gleaned from the photocopies of the said August
1) Actual damages of US$93,493.87 representing the outstanding principal claim
16, 2000 invoices submitted to the court, they both bear the conformity signature of MCC
plus interest at the rate of 6% per annum from March 30, 2001.
Manager Chan.

2) Attorney's fees in the sum of P50,000.00 plus P2,000.00 per counsel's

On August 17, 2000, MCC finally opened an L/C with PCIBank for US$170,000.00 covering
appearance in court, the same being deemed just and equitable considering that by
payment for 100MT of stainless steel coil under Pro Forma Invoice No. ST2-POSTS080-
reason of defendants' breach of their obligation under the subject contract, plaintiff
2.34 The goods covered by the said invoice were then shipped to and received by MCC.35
was constrained to litigate to enforce its rights and recover for the damages it
sustained, and therefore had to engage the services of a lawyer.
MCC then faxed to Ssangyong a letter dated August 22, 2000 signed by Chan, requesting for a
price adjustment of the order stated in Pro Forma Invoice No. ST2-POSTS080-1, considering
3) Costs of suit.
that the prevailing price of steel at that time was US$1,500.00/MT, and that MCC lost a lot of
money due to a recent strike.36
No award of exemplary damages for lack of sufficient basis. SO ORDERED. 44
Ssangyong rejected the request, and, on August 23, 2000, sent a demand letter to Chan for
37

the opening of the second and last L/C of US$170,000.00 with a warning that, if the said L/C On April 22, 2004, MCC and Chan, through their counsel of record, Atty. Eladio B. Samson, filed
was not opened by MCC on August 26, 2000, Ssangyong would be constrained to cancel the their Notice of Appeal.45 On June 8, 2004, the law office of Castillo Zamora & Poblador entered
contract and hold MCC liable for US$64,066.99 (representing cost difference, warehousing its appearance as their collaborating counsel.
expenses, interests and charges as of August 15, 2000) and other damages for breach. Chan
failed to reply.
In their Appeal Brief filed on March 9, 2005,46 MCC and Chan raised before the CA the
following errors of the RTC:
Exasperated, Ssangyong through counsel wrote a letter to MCC, on September 11, 2000,
canceling the sales contract under ST2-POSTS0401-1 /ST2-POSTS0401-2, and demanding
I. THE HONORABLE COURT A QUO PLAINLY ERRED IN FINDING THAT
payment of US$97,317.37 representing losses, warehousing expenses, interests and charges. 38
APPELLANTS VIOLATED THEIR CONTRACT WITH APPELLEE

Ssangyong then filed, on November 16, 2001, a civil action for damages due to breach of
A. THE HONORABLE COURT A QUO PLAINLY ERRED IN FINDING THAT
contract against defendants MCC, Sanyo Seiki and Gregory Chan before the Regional Trial
APPELLANTS AGREED TO PURCHASE 200 METRIC TONS OF STEEL
Court of Makati City. In its complaint,39Ssangyong alleged that defendants breached their
PRODUCTS FROM APPELLEE, INSTEAD OF ONLY 100 METRIC TONS.
contract when they refused to open the L/C in the amount of US$170,000.00 for the
remaining 100MT of steel under Pro Forma Invoice Nos. ST2-POSTS0401-1 and ST2-
POSTS0401-2. 1. THE HONORABLE COURT A QUO PLAINLY ERRED IN
ADMITTING IN EVIDENCE THE PRO FORMA INVOICES WITH
REFERENCE NOS. ST2- POSTS0401-1 AND ST2-POSTS0401-2.
After Ssangyong rested its case, defendants filed a Demurrer to Evidence 40 alleging that
Ssangyong failed to present the original copies of the pro forma invoices on which the civil
action was based. In an Order dated April 24, 2003, the court denied the demurrer, ruling that II. THE HONORABLE COURT A QUO PLAINLY ERRED IN AWARDING ACTUAL
the documentary evidence presented had already been admitted in the December 16, 2002 DAMAGES TO APPELLEE.
Order41 and their admissibility finds support in Republic Act (R.A.) No. 8792, otherwise
known as the Electronic Commerce Act of 2000. Considering that both testimonial and
III. THE HONORABLE COURT A QUO PLAINLY ERRED IN AWARDING ATTORNEY'S
documentary evidence tended to substantiate the material allegations in the complaint,
FEES TO APPELLEE.
Ssangyong's evidence sufficed for purposes of a prima facie case.42

IV. THE HONORABLE COURT A QUO PLAINLY ERRED IN FINDING APPELLANT

After trial on the merits, the RTC rendered its Decision43 on March 24, 2004, in favor of
Ssangyong. The trial court ruled that when plaintiff agreed to sell and defendants agreed to
buy the 220MT of steel products for the price of US$1,860 per MT, the contract was perfected.
The subject transaction was evidenced by Pro Forma Invoice Nos. ST2-POSTS0401-1
and ST2-POSTS0401-2, which were later amended only in terms of reduction of volume as
well as the price per MT, following Pro Forma Invoice Nos. ST2-POSTS080-1 and ST2-
POSTS080-2. The RTC, however, excluded Sanyo Seiki from liability for lack of competent
evidence. The fallo of the decision reads:
GREGORY CHAN JOINTLY AND SEVERALLY LIABLE WITH APPELLANT MCC. 47
On August 31, 2005, the CA rendered its Decision48 affirming the ruling of the trial court, but
absolving Chan of any liability. The appellate court ruled, among others, that Pro Forma
Invoice Nos. ST2-POSTS0401-1 and ST2-POSTS0401-2 (Exhibits "E", "E-1" and "F") were
admissible in evidence, although they were mere facsimile printouts of MCC's steel
orders.49 The dispositive portion of the appellate court's decision reads:

WHEREFORE, premises considered, the Court holds:

 (1) The award of actual damages, with interest, attorney's fees and costs ordered
by the lower court is hereby AFFIRMED.
(2) Appellant Gregory Chan is hereby ABSOLVED from any liability.
SO ORDERED.50
A copy of the said Decision was received by MCC's and Chan's principal counsel, Atty. Eladio B.
Samson, on September 14, 2005.51 Their collaborating counsel, Castillo Zamora &
Poblador,52 likewise, received a copy of the CA decision on September 19, 2005. 53
On October 4, 2005, Castillo Zamora & Poblador, on behalf of MCC, filed a motion for
reconsideration of the said decision.54 Ssangyong opposed the motion contending that the
decision of the CA had become final and executory on account of the failure of MCC to file the
said motion within the reglementary period. The appellate court resolved, on November 22,
2005, to deny the motion on its merits,55 without, however, ruling on the procedural issue
raised.
Aggrieved, MCC filed a petition for review on certiorari56 before this Court, imputing the
following errors to the Court of Appeals:
THE COURT OF APPEALS DECIDED A LEGAL QUESTION NOT IN ACCORDANCE
WITH JURISPRUDENCE AND SANCTIONED A DEPARTURE FROM THE USUAL AND
ACCEPTED COURSE OF JUDICIAL PROCEEDINGS BY REVERSING THE COURT A
QUO'S DISMISSAL OF THE COMPLAINT IN CIVIL CASE NO. 02-124 CONSIDERING
THAT:
I. THE COURT OF APPEALS ERRED IN SUSTAINING THE ADMISSIBILITY
IN EVIDENCE OF THE PRO-FORMA INVOICES WITH REFERENCE NOS.
ST2-POSTSO401-1 AND ST2-POSTSO401-2, DESPITE THE FACT THAT
THE SAME WERE MERE PHOTOCOPIES OF FACSIMILE PRINTOUTS.
II. THE COURT OF APPEALS FAILED TO APPRECIATE THE OBVIOUS
FACT THAT, EVEN ASSUMING PETITIONER BREACHED THE SUPPOSED
CONTRACT, THE FACT IS THAT PETITIONER FAILED TO PROVE THAT IT
SUFFERED ANY DAMAGES AND THE AMOUNT THEREOF.
III. THE AWARD OF ACTUAL DAMAGES IN THE AMOUNT OF
US$93,493.87 IS SIMPLY UNCONSCIONABLE AND SHOULD HAVE BEEN
AT LEAST REDUCED, IF NOT DELETED BY THE COURT OF APPEALS.57
In its Comment, Ssangyong sought the dismissal of the petition, raising the following
arguments: that the CA decision dated 15 August 2005 is already final and executory, because
MCC's motion for reconsideration was filed beyond the reglementary period of 15 days from
receipt of a copy thereof, and that, in any case, it was a pro forma motion; that MCC breached
the contract for the purchase of the steel products when it failed to open the required letter of
credit; that the printout copies and/or photocopies of facsimile or telecopy transmissions
were properly admitted by the trial court because they are considered original documents
under R.A. No. 8792; and that MCC is liable for actual damages and attorney's fees because of
its breach, thus, compelling Ssangyong to litigate.
The principal issues that this Court is called upon to resolve are the following:
I Whether the CA decision dated 15 August 2005 is already final and executory;
II Whether the print-out and/or photocopies of facsimile transmissions are electronic
evidence and admissible as such;
III Whether there was a perfected contract of sale between MCC and Ssangyong, and, if in the
affirmative, whether MCC breached the said contract; and
IV Whether the award of actual damages and attorney's fees in favor of Ssangyong is proper
and justified.
-I-
It cannot be gainsaid that in Albano v. Court of Appeals,58 we held that receipt of a copy of the
decision by one of several counsels on record is notice to all, and the period to appeal
commences on such date even if the other counsel has not yet received a copy of the decision.
In this case, when Atty. Samson received a copy of the CA decision on September 14, 2005,
MCC had only fifteen (15) days within which to file a motion for reconsideration conformably
with Section 1, Rule 52 of the Rules of Court, or to file a petition for review on certiorari in
accordance with Section 2, Rule 45. The period should not be reckoned from September 29,
2005 (when Castillo Zamora & Poblador received their copy of the decision) because notice to
Atty. Samson is deemed notice to collaborating counsel.
We note, however, from the records of the CA, that it was Castillo Zamora & Poblador, not Atty.
Samson, which filed both MCC's and Chan's Brief and Reply Brief. Apparently, the
arrangement between the two counsels was for the collaborating, not the principal, counsel to
file the appeal brief and subsequent pleadings in the CA. This explains why it was Castillo
Zamora & Poblador which filed the motion for the reconsideration of the CA decision, and
they did so on October 5, 2005, well within the 15-day period from September 29, 2005, when
they received their copy of the CA decision. This could also be the reason why the CA did not
find it necessary to resolve the question of the timeliness of petitioner's motion for
reconsideration, even as the CA denied the same.
Independent of this consideration though, this Court assiduously reviewed the records and
found that strong concerns of substantial justice warrant the relaxation of this rule.
In Philippine Ports Authority v. Sargasso Construction and Development Corporation,59 we ruled
that:
In Orata v. Intermediate Appellate Court, we held that where strong considerations
of substantive justice are manifest in the petition, this Court may relax the strict
application of the rules of procedure in the exercise of its legal jurisdiction. In
addition to the basic merits of the main case, such a petition usually embodies
justifying circumstance which warrants our heeding to the petitioner's cry for
justice in spite of the earlier negligence of counsel. As we held in Obut v. Court of
Appeals:
[W]e cannot look with favor on a course of action which would place the
administration of justice in a straight jacket for then the result would be
a poor kind of justice if there would be justice at all. Verily, judicial
orders, such as the one subject of this petition, are issued to be obeyed,
nonetheless a non-compliance is to be dealt with as the circumstances
attending the case may warrant. What should guide judicial action is the
principle that a party-litigant is to be given the fullest opportunity to
 establish the merits of his complaint or defense rather than for him to
lose life, liberty, honor or property on technicalities.
The rules of procedure are used only to secure and not override or frustrate justice.
A six-day delay in the perfection of the appeal, as in this case, does not warrant the
outright dismissal of the appeal. In Development Bank of the Philippines vs. Court of
Appeals, we gave due course to the petitioner's appeal despite the late filing of its
brief in the appellate court because such appeal involved public interest. We stated
in the said case that the Court may exempt a particular case from a strict
application of the rules of procedure where the appellant failed to perfect its appeal
within the reglementary period, resulting in the appellate court's failure to obtain
jurisdiction over the case. In Republic vs. Imperial, Jr., we also held that there is
more leeway to exempt a case from the strictness of procedural rules when the
appellate court has already obtained jurisdiction over the appealed case. We
emphasize that:
[T]he rules of procedure are mere tools intended to facilitate the
attainment of justice, rather than frustrate it. A strict and rigid
application of the rules must always be eschewed when it would subvert
the rule's primary objective of enhancing fair trials and expediting
justice. Technicalities should never be used to defeat the substantive
rights of the other party. Every party-litigant must be afforded the
amplest opportunity for the proper and just determination of his cause,
free from the constraints of technicalities.60
Moreover, it should be remembered that the Rules were promulgated to set guidelines in the
orderly administration of justice, not to shackle the hand that dispenses it. Otherwise, the
courts would be consigned to being mere slaves to technical rules, deprived of their judicial
discretion. Technicalities must take a backseat to substantive rights. After all, it is circumspect
leniency in this respect that will give the parties the fullest opportunity to ventilate the merits
of their respective causes, rather than have them lose life, liberty, honor or property on sheer
technicalities.61
The other technical issue posed by respondent is the alleged pro forma nature of MCC's
motion for reconsideration, ostensibly because it merely restated the arguments previously
raised and passed upon by the CA.
In this connection, suffice it to say that the mere restatement of arguments in a motion for
reconsideration does not per se result in a pro forma motion. In Security Bank and Trust
Company, Inc. v. Cuenca,62 we held that a motion for reconsideration may not be
necessarily pro forma even if it reiterates the arguments earlier passed upon and rejected by
the appellate court. A movant may raise the same arguments precisely to convince the court
that its ruling was erroneous. Furthermore, the pro forma rule will not apply if the arguments
were not sufficiently passed upon and answered in the decision sought to be reconsidered.
- II -
The second issue poses a novel question that the Court welcomes. It provides the occasion for
this Court to pronounce a definitive interpretation of the equally innovative provisions of the
Electronic Commerce Act of 2000 (R.A. No. 8792) vis--vis the Rules on Electronic Evidence.
Although the parties did not raise the question whether the original facsimile transmissions
are "electronic data messages" or "electronic documents" within the context of the Electronic
Commerce Act (the petitioner merely assails as inadmissible evidence the photocopies of the
said facsimile transmissions), we deem it appropriate to determine first whether the said fax
transmissions are indeed within the coverage of R.A. No. 8792 before ruling on whether the
photocopies thereof are covered by the law. In any case, this Court has ample authority to go
beyond the pleadings when, in the interest of justice or for the promotion of public policy,
there is a need to make its own findings in order to support its conclusions.63
Petitioner contends that the photocopies of the pro forma invoices presented by respondent
Ssangyong to prove the perfection of their supposed contract of sale are inadmissible in
evidence and do not fall within the ambit of R.A. No. 8792, because the law merely admits as
the best evidence the original fax transmittal. On the other hand, respondent posits that, from
a reading of the law and the Rules on Electronic Evidence, the original facsimile transmittal of
the pro forma invoice is admissible in evidence since it is an electronic document and,
therefore, the best evidence under the law and the Rules. Respondent further claims that the
photocopies of these fax transmittals (specifically ST2-POSTS0401-1 and ST2-POSTS0401-
2) are admissible under the Rules on Evidence because the respondent sufficiently explained
the non-production of the original fax transmittals.
In resolving this issue, the appellate court ruled as follows:
Admissibility of Pro Forma
Invoices; Breach of Contract
by Appellants
Turning first to the appellants' argument against the admissibility of the Pro Forma
Invoices with Reference Nos. ST2-POSTS0401-1 and ST2-POSTS0401-2 (Exhibits
"E", "E-1" and "F", pp. 215-218, Records), appellants argue that the said documents
are inadmissible (sic) being violative of the best evidence rule.
The argument is untenable.
The copies of the said pro-forma invoices submitted by the appellee are admissible
in evidence, although they are mere electronic facsimile printouts of appellant's
orders. Such facsimile printouts are considered Electronic Documents under the
New Rules on Electronic Evidence, which came into effect on August 1, 2001. (Rule
2, Section 1 [h], A.M. No. 01-7-01-SC).
"(h) 'Electronic document' refers to information or the representation of
information, data, figures, symbols or other modes of written expression,
described or however represented, by which a right is established or an
obligation extinguished, or by which a fact may be proved and affirmed,
which is received, recorded, transmitted, stored, processed, retrieved or
produced electronically. It includes digitally signed documents and any
printout or output, readable by sight or other means, which accurately
reflects the electronic data message or electronic document. For
purposes of these Rules, the term 'electronic document' may be used
interchangeably with 'electronic data message'.
An electronic document shall be regarded as the equivalent of an original document
under the Best Evidence Rule, as long as it is a printout or output readable by sight
or other means, showing to reflect the data accurately. (Rule 4, Section 1, A.M. No.
01-7-01-SC)
The ruling of the Appellate Court is incorrect. R.A. No. 8792,64 otherwise known as the
Electronic Commerce Act of 2000, considers an electronic data message or an electronic
document as the functional equivalent of a written document for evidentiary purposes. 65 The
Rules on Electronic Evidence66 regards an electronic document as admissible in evidence if it
complies with the rules on admissibility prescribed by the Rules of Court and related laws,
and is authenticated in the manner prescribed by the said Rules.67 An electronic document is
also the equivalent of an original document under the Best Evidence Rule, if it is a printout or
output readable by sight or other means, shown to reflect the data accurately. 68
Thus, to be admissible in evidence as an electronic data message or to be considered as the
functional equivalent of an original document under the Best Evidence Rule, the writing must
foremost be an "electronic data message" or an "electronic document."
The Electronic Commerce Act of 2000 defines electronic data message and electronic
document as follows:
Sec. 5. Definition of Terms. For the purposes of this Act, the following terms are
defined, as follows:
xxx
c. "Electronic Data Message" refers to information generated, sent, received or
stored by electronic, optical or similar means.
xxx
f. "Electronic Document" refers to information or the representation of information,
data, figures, symbols or other modes of written expression, described or however
represented, by which a right is established or an obligation extinguished, or by
which a fact may be proved and affirmed, which is received, recorded, transmitted,
stored, processed, retrieved or produced electronically.
The Implementing Rules and Regulations (IRR) of R.A. No. 8792,69 which was signed on July
13, 2000 by the then Secretaries of the Department of Trade and Industry, the Department of
Budget and Management, and then Governor of the Bangko Sentral ng Pilipinas, defines the
terms as:
Sec. 6. Definition of Terms. For the purposes of this Act and these Rules, the
following terms are defined, as follows: xxx
(e) "Electronic Data Message" refers to information generated, sent, received or
stored by electronic, optical or similar means, but not limited to, electronic data
interchange (EDI), electronic mail, telegram, telex or telecopy. Throughout these
Rules, the term "electronic data message" shall be equivalent to and be used
interchangeably with "electronic document." x x x x
(h) "Electronic Document" refers to information or the representation of
information, data, figures, symbols or other modes of written expression, described
or however represented, by which a right is established or an obligation
extinguished, or by which a fact may be proved and affirmed, which is received,
recorded, transmitted, stored, processed, retrieved or produced
electronically. Throughout these Rules, the term "electronic document" shall be
equivalent to and be used interchangeably with "electronic data message."
The phrase "but not limited to, electronic data interchange (EDI), electronic mail, telegram,
telex or telecopy" in the IRR's definition of "electronic data message" is copied from the Model
Law on Electronic Commerce adopted by the United Nations Commission on International
Trade Law (UNCITRAL),70 from which majority of the provisions of R.A. No. 8792 were
taken.71 While Congress deleted this phrase in the Electronic Commerce Act of 2000, the
drafters of the IRR reinstated it. The deletion by Congress of the said phrase is significant and
pivotal, as discussed hereunder.
The clause on the interchangeability of the terms "electronic data message" and "electronic
document" was the result of the Senate of the Philippines' adoption, in Senate Bill 1902, of the
phrase "electronic data message" and the House of Representative's employment, in House
Bill 9971, of the term "electronic document."72 In order to expedite the reconciliation of the
two versions, the technical working group of the Bicameral Conference Committee adopted
both terms and intended them to be the equivalent of each one. 73 Be that as it may, there is a
slight difference between the two terms. While "data message" has reference to information
electronically sent, stored or transmitted, it does not necessarily mean that it will give rise to a
right or extinguish an obligation,74 unlike an electronic document. Evident from the law,
however, is the legislative intent to give the two terms the same construction.
The Rules on Electronic Evidence promulgated by this Court defines the said terms in the
following manner:
SECTION 1. Definition of Terms. For purposes of these Rules, the following terms
are defined, as follows: x x x x
(g) "Electronic data message" refers to information generated, sent, received or
stored by electronic, optical or similar means.
(h) "Electronic document" refers to information or the representation of
information, data, figures, symbols or other modes of written expression, described
or however represented, by which a right is established or an obligation
extinguished, or by which a fact may be proved and affirmed, which is received,
recorded, transmitted, stored, processed, retrieved or produced electronically. It
includes digitally signed documents and print-out or output, readable by sight or
other means, which accurately reflects the electronic data message or electronic
document. For purposes of these Rules, the term "electronic document" may be used
interchangeably with "electronic data message."
Given these definitions, we go back to the original question: Is an original printout of
a facsimile transmission an electronic data message or electronic document?
The definitions under the Electronic Commerce Act of 2000, its IRR and the Rules on
Electronic Evidence, at first glance, convey the impression that facsimile transmissions are
electronic data messages or electronic documents because they are sent by electronic means.
The expanded definition of an "electronic data message" under the IRR, consistent with the
UNCITRAL Model Law, further supports this theory considering that the enumeration "xxx [is]
not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy."
And to telecopy is to send a document from one place to another via a fax machine.75
As further guide for the Court in its task of statutory construction, Section 37 of the Electronic
Commerce Act of 2000 provides that
Unless otherwise expressly provided for, the interpretation of this Act shall give due
regard to its international origin and the need to promote uniformity in its
application and the observance of good faith in international trade relations. The
 generally accepted principles of international law and convention on electronic
commerce shall likewise be considered.
Obviously, the "international origin" mentioned in this section can only refer to the UNCITRAL
Model Law, and the UNCITRAL's definition of "data message":
"Data message" means information generated, sent, received or stored by
electronic, optical or similar means including, but not limited to, electronic data
interchange (EDI), electronic mail, telegram, telex or telecopy.76
is substantially the same as the IRR's characterization of an "electronic data message."
However, Congress deleted the phrase, "but not limited to, electronic data interchange (EDI),
electronic mail, telegram, telex or telecopy," and replaced the term "data message" (as found in
the UNCITRAL Model Law ) with "electronic data message." This legislative divergence from
what is assumed as the term's "international origin" has bred uncertainty and now impels the
Court to make an inquiry into the true intent of the framers of the law. Indeed, in the
construction or interpretation of a legislative measure, the primary rule is to search for and
determine the intent and spirit of the law.77 A construction should be rejected that gives to the
language used in a statute a meaning that does not accomplish the purpose for which the
statute was enacted, and that tends to defeat the ends which are sought to be attained by the
enactment.78
Interestingly, when Senator Ramon B. Magsaysay, Jr., the principal author of Senate Bill 1902
(the predecessor of R.A. No. 8792), sponsored the bill on second reading, he proposed to
adopt the term "data message" as formulated and defined in the UNCITRAL Model
Law.79 During the period of amendments, however, the term evolved into "electronic data
message," and the phrase "but not limited to, electronic data interchange (EDI), electronic mail,
telegram, telex or telecopy" in the UNCITRAL Model Law was deleted. Furthermore, the term
"electronic data message," though maintaining its description under the UNCITRAL Model
Law, except for the aforesaid deleted phrase, conveyed a different meaning, as revealed in the
following proceedings: x x x x
Senator Santiago. Yes, Mr. President. I will furnish a copy together with the
explanation of this proposed amendment.
And then finally, before I leave the Floor, may I please be allowed to go back to
Section 5; the Definition of Terms. In light of the acceptance by the good Senator of
my proposed amendments, it will then become necessary to add certain terms in
our list of terms to be defined. I would like to add a definition on what is "data,"
what is "electronic record" and what is an "electronic record system."
If the gentleman will give me permission, I will proceed with the proposed
amendment on Definition of Terms, Section 5.
Senator Magsaysay. Please go ahead, Senator Santiago.
Senator Santiago. We are in Part 1, short title on the Declaration of Policy, Section 5,
Definition of Terms.
At the appropriate places in the listing of these terms that have to be defined since
these are arranged alphabetically, Mr. President, I would like to insert the term
DATA and its definition. So, the amendment will read: "DATA" MEANS
REPRESENTATION, IN ANY FORM, OF INFORMATION OR CONCEPTS.
The explanation is this: This definition of "data" or "data" as it is now fashionably
pronounced in America - - the definition of "data" ensures that our bill applies to
any form of information in an electronic record, whether these are figures, facts or
ideas.
So again, the proposed amendment is this: "DATA" MEANS REPRESENTATIONS, IN
ANY FORM, OF INFORMATION OR CONCEPTS.
Senator Magsaysay. May I know how will this affect the definition of "Data Message"
which encompasses electronic records, electronic writings and electronic
documents?
Senator Santiago. These are completely congruent with each other. These are
compatible. When we define "data," we are simply reinforcing the definition of
what is a data message.
Senator Magsaysay. It is accepted, Mr. President.
Senator Santiago. Thank you. The next term is "ELECTRONIC RECORD." The
proposed amendment is as follows:
"ELECTRONIC RECORD" MEANS DATA THAT IS RECORDED OR STORED ON ANY
MEDIUM IN OR BY A COMPUTER SYSTEM OR OTHER SIMILAR DEVICE, THAT CAN
BE READ OR PERCEIVED BY A PERSON OR A COMPUTER SYSTEM OR OTHER
SIMILAR DEVICE. IT INCLUDES A DISPLAY, PRINTOUT OR OTHER OUTPUT OF
THAT DATA.
The explanation for this term and its definition is as follows: The term
"ELECTRONIC RECORD" fixes the scope of our bill. The record is the data. The
record may be on any medium. It is electronic because it is recorded or stored in or
by a computer system or a similar device.
The amendment is intended to apply, for example, to data on magnetic strips on
cards or in Smart cards. As drafted, it would not apply to telexes or faxes, except
computer-generated faxes, unlike the United Nations model law on electronic
commerce. It would also not apply to regular digital telephone conversations since
the information is not recorded. It would apply to voice mail since the information
has been recorded in or by a device similar to a computer. Likewise, video records are
not covered. Though when the video is transferred to a website, it would be covered
because of the involvement of the computer. Music recorded by a computer system on
a compact disc would be covered.
In short, not all data recorded or stored in digital form is covered. A computer or a
similar device has to be involved in its creation or storage. The term "similar device"
does not extend to all devices that create or store data in digital form. Although
things that are not recorded or preserved by or in a computer system are omitted
from this bill, these may well be admissible under other rules of law. This provision
focuses on replacing the search for originality proving the reliability of systems
instead of that of individual records and using standards to show systems reliability.
 Paper records that are produced directly by a computer system such as printouts are
themselves electronic records being just the means of intelligible display of the
contents of the record. Photocopies of the printout would be paper record subject to
the usual rules about copies, but the original printout would be subject to the rules of
admissibility of this bill.
However, printouts that are used only as paper records and whose computer origin is
never again called on are treated as paper records. In that case, the reliability of the
computer system that produces the record is irrelevant to its reliability.
Senator Magsaysay. Mr. President, if my memory does not fail me, earlier, the lady
Senator accepted that we use the term "Data Message" rather than "ELECTRONIC
RECORD" in being consistent with the UNCITRAL term of "Data Message." So with
the new amendment of defining "ELECTRONIC RECORD," will this affect her accepting
of the use of "Data Message" instead of "ELECTRONIC RECORD"?
Senator Santiago. No, it will not. Thank you for reminding me. The term I would like
to insert is ELECTRONIC DATA MESSAGE in lieu of "ELECTRONIC RECORD."
Senator Magsaysay. Then we are, in effect, amending the term of the definition of
"Data Message" on page 2A, line 31, to which we have no objection.
Senator Santiago. Thank you, Mr. President.
xxxx
Senator Santiago. Mr. President, I have proposed all the amendments that I desire
to, including the amendment on the effect of error or change. I will provide the
language of the amendment together with the explanation supporting that
amendment to the distinguished sponsor and then he can feel free to take it up in
any session without any further intervention.
Senator Magsaysay. Before we end, Mr. President, I understand from the proponent
of these amendments that these are based on the Canadian E-commerce Law of
1998. Is that not right?
Senator Santiago. That is correct.80
Thus, when the Senate consequently voted to adopt the term "electronic data message," it was
consonant with the explanation of Senator Miriam Defensor-Santiago that it would not apply
"to telexes or faxes, except computer-generated faxes, unlike the United Nations model law on
electronic commerce." In explaining the term "electronic record" patterned after the E-
Commerce Law of Canada, Senator Defensor-Santiago had in mind the term "electronic data
message." This term then, while maintaining part of the UNCITRAL Model Law's terminology
of "data message," has assumed a different context, this time, consonant with the term
"electronic record" in the law of Canada. It accounts for the addition of the word "electronic"
and the deletion of the phrase "but not limited to, electronic data interchange (EDI), electronic
mail, telegram, telex or telecopy." Noteworthy is that the Uniform Law Conference of Canada,
explains the term "electronic record," as drafted in the Uniform Electronic Evidence Act, in a
manner strikingly similar to Sen. Santiago's explanation during the Senate deliberations:
"Electronic record" fixes the scope of the Act. The record is the data. The record
may be any medium. It is "electronic" because it is recorded or stored in or by a
computer system or similar device. The Act is intended to apply, for example, to
data on magnetic strips on cards, or in smart cards. As drafted, it would not apply to
telexes or faxes (except computer-generated faxes), unlike the United Nations Model
Law on Electronic Commerce. It would also not apply to regular digital telephone
conversations, since the information is not recorded. It would apply to voice mail,
since the information has been recorded in or by a device similar to a computer.
Likewise video records are not covered, though when the video is transferred to a
Web site it would be, because of the involvement of the computer. Music recorded
by a computer system on a compact disk would be covered.
In short, not all data recorded or stored in "digital" form is covered. A computer or
similar device has to be involved in its creation or storage. The term "similar
device" does not extend to all devices that create or store data in digital form.
Although things that are not recorded or preserved by or in a computer system are
omitted from this Act, they may well be admissible under other rules of law. This
Act focuses on replacing the search for originality, proving the reliability of systems
instead of that of individual records, and using standards to show systems
reliability.
Paper records that are produced directly by a computer system, such as printouts,
are themselves electronic records, being just the means of intelligible display of the
contents of the record. Photocopies of the printout would be paper records subject
to the usual rules about copies, but the "original" printout would be subject to the
rules of admissibility of this Act.
However, printouts that are used only as paper records, and whose computer origin
is never again called on, are treated as paper records. See subsection 4(2). In this
case the reliability of the computer system that produced the record is relevant to
its reliability.81
There is no question then that when Congress formulated the term "electronic data message,"
it intended the same meaning as the term "electronic record" in the Canada law. This
construction of the term "electronic data message," which excludes telexes or faxes, except
computer-generated faxes, is in harmony with the Electronic Commerce Law's focus on
"paperless" communications and the "functional equivalent approach"82 that it espouses. In
fact, the deliberations of the Legislature are replete with discussions on paperless and digital
transactions.
Facsimile transmissions are not, in this sense, "paperless," but verily are paper-based.
A facsimile machine, which was first patented in 1843 by Alexander Bain, 83 is a device that can
send or receive pictures and text over a telephone line. It works by digitizing an image
dividing it into a grid of dots. Each dot is either on or off, depending on whether it is black or
white. Electronically, each dot is represented by a bit that has a value of either 0 (off) or 1
(on). In this way, the fax machine translates a picture into a series of zeros and ones (called a
bit map) that can be transmitted like normal computer data. On the receiving side, a fax
machine reads the incoming data, translates the zeros and ones back into dots, and reprints
the picture.84 A fax machine is essentially an image scanner, a modem and a computer printer
combined into a highly specialized package. The scanner converts the content of a physical
document into a digital image, the modem sends the image data over a phone line, and the
printer at the other end makes a duplicate of the original document. 85 Thus, in Garvida v.
Sales, Jr.,86where we explained the unacceptability of filing pleadings through fax machines,
we ruled that:
 A facsimile or fax transmission is a process involving the transmission and for transactions, it covers sale or purchase of goods and services; (2) for channel/network, it
reproduction of printed and graphic matter by scanning an original copy, one considers any computer-mediated network and NOT limited to Internet alone; (3) it excludes
elemental area at a time, and representing the shade or tone of each area by a transactions received/placed using fax, telephone or non-interactive mail; (4) it considers
specified amount of electric current. The current is transmitted as a signal over payments done online or offline; and (5) it considers delivery made online (like downloading
regular telephone lines or via microwave relay and is used by the receiver to of purchased books, music or software programs) or offline (deliveries of goods). 94
reproduce an image of the elemental area in the proper position and the correct
shade. The receiver is equipped with a stylus or other device that produces a
We, therefore, conclude that the terms "electronic data message" and "electronic document," as
printed record on paper referred to as a facsimile.
defined under the Electronic Commerce Act of 2000, do not include a facsimile transmission.
Accordingly, a facsimile transmission cannot be considered as electronic evidence. It is not
x x x A facsimile is not a genuine and authentic pleading. It is, at best, an exact copy the functional equivalent of an original under the Best Evidence Rule and is not admissible
preserving all the marks of an original. Without the original, there is no way of as electronic evidence.
determining on its face whether the facsimile pleading is genuine and authentic
and was originally signed by the party and his counsel. It may, in fact, be a sham
Since a facsimile transmission is not an "electronic data message" or an "electronic
pleading.87
document," and cannot be considered as electronic evidence by the Court, with greater reason
is a photocopy of such a fax transmission not electronic evidence. In the present case,
Accordingly, in an ordinary facsimile transmission, there exists an original paper- therefore, Pro Forma Invoice Nos. ST2-POSTS0401-1 and ST2-POSTS0401-2 (Exhibits "E"
based information or data that is scanned, sent through a phone line, and re-printed at the and "F"), which are mere photocopies of the original fax transmittals, are not electronic
receiving end. Be it noted that in enacting the Electronic Commerce Act of 2000, Congress evidence, contrary to the position of both the trial and the appellate courts.
intended virtual or paperless writings to be the functional equivalent and to have the
same legal function as paper-based documents.88 Further, in a virtual or paperless
- III -
environment, technically, there is no original copy to speak of, as all direct printouts of the
virtual reality are the same, in all respects, and are considered as originals. 89 Ineluctably, the
law's definition of "electronic data message," which, as aforesaid, is interchangeable with Nevertheless, despite the pro forma invoices not being electronic evidence, this Court finds
"electronic document," could not have included facsimile transmissions, which have an original that respondent has proven by preponderance of evidence the existence of a perfected
paper-based copy as sent and a paper-based facsimile copy as received. These two copies are contract of sale.
distinct from each other, and have different legal effects. While Congress anticipated future
developments in communications and computer technology 90 when it drafted the law, it
In an action for damages due to a breach of a contract, it is essential that the claimant proves
excluded the early forms of technology, like telegraph, telex and telecopy (except computer-
(1) the existence of a perfected contract, (2) the breach thereof by the other contracting party
generated faxes, which is a newer development as compared to the ordinary fax machine to
and (3) the damages which he/she sustained due to such breach. Actori incumbit onus
fax machine transmission), when it defined the term "electronic data message."
probandi. The burden of proof rests on the party who advances a proposition
affirmatively.95 In other words, a plaintiff in a civil action must establish his case by a
Clearly then, the IRR went beyond the parameters of the law when it adopted verbatim the preponderance of evidence, that is, evidence that has greater weight, or is more convincing
UNCITRAL Model Law's definition of "data message," without considering the intention of than that which is offered in opposition to it.96
Congress when the latter deleted the phrase "but not limited to, electronic data interchange
(EDI), electronic mail, telegram, telex or telecopy." The inclusion of this phrase in the IRR
In general, contracts are perfected by mere consent,97 which is manifested by the meeting of
offends a basic tenet in the exercise of the rule-making power of administrative agencies. After
the offer and the acceptance upon the thing and the cause which are to constitute the contract.
all, the power of administrative officials to promulgate rules in the implementation of a
The offer must be certain and the acceptance absolute.98 They are, moreover, obligatory in
statute is necessarily limited to what is found in the legislative enactment itself. The
whatever form they may have been entered into, provided all the essential requisites for their
implementing rules and regulations of a law cannot extend the law or expand its coverage, as
validity are present.99 Sale, being a consensual contract, follows the general rule that it is
the power to amend or repeal a statute is vested in the Legislature. 91 Thus, if a discrepancy
perfected at the moment there is a meeting of the minds upon the thing which is the object of
occurs between the basic law and an implementing rule or regulation, it is the former that
the contract and upon the price. From that moment, the parties may reciprocally demand
prevails, because the law cannot be broadened by a mere administrative issuancean
performance, subject to the provisions of the law governing the form of contracts. 100
administrative agency certainly cannot amend an act of Congress.92 Had the Legislature really
wanted ordinary fax transmissions to be covered by the mantle of the Electronic Commerce
Act of 2000, it could have easily lifted without a bit of tatter the entire wordings of the The essential elements of a contract of sale are (1) consent or meeting of the minds, that is, to
UNCITRAL Model Law. transfer ownership in exchange for the price, (2) object certain which is the subject matter of
the contract, and (3) cause of the obligation which is established.101
Incidentally, the National Statistical Coordination Board Task Force on the Measurement of E-
Commerce,93 on November 22, 2006, recommended a working definition of "electronic In this case, to establish the existence of a perfected contract of sale between the parties,
commerce," as "[a]ny commercial transaction conducted through electronic, optical and respondent Ssangyong formally offered in evidence the testimonies of its witnesses and the
similar medium, mode, instrumentality and technology. The transaction includes the sale or following exhibits:
purchase of goods and services, between individuals, households, businesses and
governments conducted over computer-mediated networks through the Internet, mobile
Significantly, among these documentary evidence presented by respondent, MCC, in its
phones, electronic data interchange (EDI) and other channels through open and closed
petition before this Court, assails the admissibility only of Pro Forma Invoice Nos. ST2-
networks." The Task Force's proposed definition is similar to the Organization of Economic
POSTS0401-1 and ST2-POSTS0401-2 (Exhibits "E" and "F"). After sifting through the
Cooperation and Development's (OECD's) broad definition as it covers transactions made over
records, the Court found that these invoices are mere photocopies of their original fax
any network, and, in addition, it adopted the following provisions of the OECD definition: (1)
transmittals. Ssangyong avers that these documents were prepared after MCC asked for the
splitting of the original order into two, so that the latter can apply for an L/C with greater
facility. It, however, failed to explain why the originals of these documents were not presented.
To determine whether these documents are admissible in evidence, we apply the ordinary
Rules on Evidence, for as discussed above we cannot apply the Electronic Commerce Act of
2000 and the Rules on Electronic Evidence.
Because these documents are mere photocopies, they are simply secondary evidence,
admissible only upon compliance with Rule 130, Section 5, which states, "[w]hen the original
document has been lost or destroyed, or cannot be produced in court, the offeror, upon proof
of its execution or existence and the cause of its unavailability without bad faith on his part,
may prove its contents by a copy, or by a recital of its contents in some authentic document, or
by the testimony of witnesses in the order stated." Furthermore, the offeror of secondary
evidence must prove the predicates thereof, namely: (a) the loss or destruction of the original
without bad faith on the part of the proponent/offeror which can be shown by circumstantial
evidence of routine practices of destruction of documents; (b) the proponent must prove by a
fair preponderance of evidence as to raise a reasonable inference of the loss or destruction of
the original copy; and (c) it must be shown that a diligent and bona fide but unsuccessful
search has been made for the document in the proper place or places. It has been held that
where the missing document is the foundation of the action, more strictness in proof is
required than where the document is only collaterally involved.103
Given these norms, we find that respondent failed to prove the existence of the original fax
transmissions of Exhibits E and F, and likewise did not sufficiently prove the loss or
destruction of the originals. Thus, Exhibits E and F cannot be admitted in evidence and
accorded probative weight.
It is observed, however, that respondent Ssangyong did not rely merely on Exhibits E and F to
prove the perfected contract. It also introduced in evidence a variety of other documents, as
enumerated above, together with the testimonies of its witnesses. Notable among them
are Pro Forma Invoice Nos. ST2-POSTS080-1 and ST2-POSTS080-2 which were issued by
Ssangyong and sent via fax to MCC. As already mentioned, these invoices slightly varied the
terms of the earlier invoices such that the quantity was now officially 100MT per invoice and
the price reduced to US$1,700.00 per MT. The copies of the said August 16, 2000 invoices
submitted to the court bear the conformity signature of MCC Manager Chan.
Pro Forma Invoice No. ST2-POSTS080-1 (Exhibit "X"), however, is a mere photocopy of its
original. But then again, petitioner MCC does not assail the admissibility of this document in
the instant petition. Verily, evidence not objected to is deemed admitted and may be validly
considered by the court in arriving at its judgment. 104 Issues not raised on appeal are deemed
abandoned.
As to Pro Forma Invoice No. ST2-POSTS080-2 (Exhibits "1-A" and "2-C"), which was certified
by PCIBank as a true copy of its original,105 it was, in fact, petitioner MCC which introduced
this document in evidence. Petitioner MCC paid for the order stated in this invoice. Its
admissibility, therefore, is not open to question.
These invoices (ST2-POSTS0401, ST2-POSTS080-1 and ST2-POSTS080-2), along with the
other unchallenged documentary evidence of respondent Ssangyong, preponderate in favor of
the claim that a contract of sale was perfected by the parties.
This Court also finds merit in the following observations of the trial court:
Defendants presented Letter of Credit (Exhibits "1", "1-A" to "1-R") referring to Pro
Forma Invoice for Contract No. ST2POSTS080-2, in the amount of US$170,000.00,
and which bears the signature of Gregory Chan, General Manager of MCC. Plaintiff,
on the other hand, presented Pro Forma Invoice referring to Contract No. ST2-
POSTS080-1, in the amount of US$170,000.00, which likewise bears the signature
of Gregory Chan, MCC. Plaintiff accounted for the notation "1/2" on the right upper
portion of the Invoice, that is, that it was the first of two (2) pro forma invoices
covering the subject contract between plaintiff and the defendants. Defendants, on
the other hand, failed to account for the notation "2/2" in its Pro Forma Invoice
(Exhibit "1-A"). Observably further, both Pro Forma Invoices bear the same date
and details, which logically mean that they both apply to one and the same
transaction.106
Indeed, why would petitioner open an L/C for the second half of the transaction if there was
no first half to speak of?
The logical chain of events, as gleaned from the evidence of both parties, started with the
petitioner and the respondent agreeing on the sale and purchase of 220MT of stainless steel
at US$1,860.00 per MT. This initial contract was perfected. Later, as petitioner asked for
several extensions to pay, adjustments in the delivery dates, and discounts in the price as
originally agreed, the parties slightly varied the terms of their contract, without necessarily
novating it, to the effect that the original order was reduced to 200MT, split into two
deliveries, and the price discounted to US$1,700 per MT. Petitioner, however, paid only half of
its obligation and failed to open an L/C for the other 100MT. Notably, the conduct of both
parties sufficiently established the existence of a contract of sale, even if the writings of the
parties, because of their contested admissibility, were not as explicit in establishing a
contract.107 Appropriate conduct by the parties may be sufficient to establish an agreement,
and while there may be instances where the exchange of correspondence does not disclose
the exact point at which the deal was closed, the actions of the parties may indicate that a
binding obligation has been undertaken.108
With our finding that there is a valid contract, it is crystal-clear that when petitioner did not
open the L/C for the first half of the transaction (100MT), despite numerous demands from
respondent Ssangyong, petitioner breached its contractual obligation. It is a well-entrenched
rule that the failure of a buyer to furnish an agreed letter of credit is a breach of the contract
between buyer and seller. Indeed, where the buyer fails to open a letter of credit as stipulated,
the seller or exporter is entitled to claim damages for such breach. Damages for failure to
open a commercial credit may, in appropriate cases, include the loss of profit which the seller
would reasonably have made had the transaction been carried out.109
- IV -
This Court, however, finds that the award of actual damages is not in accord with the evidence
on record. It is axiomatic that actual or compensatory damages cannot be presumed, but must
be proven with a reasonable degree of certainty. 110 In Villafuerte v. Court of Appeals,111 we
explained that:
Actual or compensatory damages are those awarded in order to compensate a
party for an injury or loss he suffered. They arise out of a sense of natural justice
and are aimed at repairing the wrong done. Except as provided by law or by
stipulation, a party is entitled to an adequate compensation only for such pecuniary
loss as he has duly proven. It is hornbook doctrine that to be able to recover actual
damages, the claimant bears the onus of presenting before the court actual proof of
the damages alleged to have been suffered, thus:
 A party is entitled to an adequate compensation for such pecuniary loss
actually suffered by him as he has duly proved. Such damages, to be
recoverable, must not only be capable of proof, but must actually be
proved with a reasonable degree of certainty. We have emphasized that
these damages cannot be presumed and courts, in making an award
must point out specific facts which could afford a basis for measuring
whatever compensatory or actual damages are borne.112
In the instant case, the trial court awarded to respondent Ssangyong US$93,493.87 as actual
damages. On appeal, the same was affirmed by the appellate court. Noticeably, however, the
trial and the appellate courts, in making the said award, relied on the following documents
submitted in evidence by the respondent: (1) Exhibit "U," the Statement of Account dated
March 30, 2001; (2) Exhibit "U-1," the details of the said Statement of Account); (3) Exhibit
"V," the contract of the alleged resale of the goods to a Korean corporation; and (4) Exhibit "V-
1," the authentication of the resale contract from the Korean Embassy and certification from
the Philippine Consular Office.
The statement of account and the details of the losses sustained by respondent due to the said
breach are, at best, self-serving. It was respondent Ssangyong itself which prepared the said
documents. The items therein are not even substantiated by official receipts. In the absence of
corroborative evidence, the said statement of account is not sufficient basis to award actual
damages. The court cannot simply rely on speculation, conjecture or guesswork as to the fact
and amount of damages, but must depend on competent proof that the claimant had suffered,
and on evidence of, the actual amount thereof.113
Furthermore, the sales contract and its authentication certificates, Exhibits "V" and "V-1,"
allegedly evidencing the resale at a loss of the stainless steel subject of the parties' breached
contract, fail to convince this Court of the veracity of its contents. The steel items indicated in
the sales contract114 with a Korean corporation are different in all respects from the items
ordered by petitioner MCC, even in size and quantity. We observed the following
discrepancies:
From the foregoing, we find merit in the contention of MCC that Ssangyong did not adequately
prove that the items resold at a loss were the same items ordered by the petitioner. Therefore,
as the claim for actual damages was not proven, the Court cannot sanction the award.
Nonetheless, the Court finds that petitioner knowingly breached its contractual obligation and
obstinately refused to pay despite repeated demands from respondent. Petitioner even asked
for several extensions of time for it to make good its obligation. But in spite of respondent's
continuous accommodation, petitioner completely reneged on its contractual duty. For such
inattention and insensitivity, MCC must be held liable for nominal damages. "Nominal
damages are 'recoverable where a legal right is technically violated and must be vindicated
against an invasion that has produced no actual present loss of any kind or where there has
been a breach of contract and no substantial injury or actual damages whatsoever have been
or can be shown.'"117 Accordingly, the Court awards nominal damages of P200,000.00 to
respondent Ssangyong.
As to the award of attorney's fees, it is well settled that no premium should be placed on the
right to litigate and not every winning party is entitled to an automatic grant of attorney's
fees. The party must show that he falls under one of the instances enumerated in Article 2208
of the Civil Code.118 In the instant case, however, the Court finds the award of attorney's fees
proper, considering that petitioner MCC's unjustified refusal to pay has compelled respondent
Ssangyong to litigate and to incur expenses to protect its rights.
WHEREFORE, PREMISES CONSIDERED, the appeal is PARTIALLY GRANTED. The Decision
of the Court of Appeals in CA-G.R. CV No. 82983 is MODIFIED in that the award of actual
damages is DELETED. However, petitioner is ORDERED to pay respondent NOMINAL
DAMAGES in the amount of P200,000.00, and the ATTORNEY'S FEES as awarded by the trial
court. SO ORDERED.
MCC INDUSTRIAL SALES CORPORATION vs. SSANGYONG CORPORATION
G.R. No. 170633; October 17, 2007
Facts: Petitioner is engaged in the business of importing and wholesaling stainless steel
products. One of its suppliers is the responded, an international trading company with head
office in Seoul, South Korea and regional headquarters in Makati City, Philippines. The two
corporations conducted business through telephone calls and facsimile or telecopy
transmissions. Respondent would send the pro forma invoices containing the details of the
steel product order to petitioner; if the latter conforms thereto, its representative affixes his
signature on the faxed copy and sends it back to the respondent, again by fax.
Respondent filed a civil action for damages due to breach of contract against petitioner before
the Regional Trial Court of Makati City. In its complaint, respondent alleged that defendants
breached their contract when they refused to open the letter of credit in the amount of
US$170,000.00 for the remaining 100MT of steel under Pro Forma Invoice Nos. ST2-
POSTS0401-1 and ST2-POSTS0401-2.
After respondent rested its case, petitioner filed a Demurrer to Evidence alleging that
respondent failed to present the original copies of the pro forma invoices on which the civil
action was based. Petitioner contends that the photocopies of the pro forma invoices
presented by respondent Ssangyong to prove the perfection of their supposed contract of sale
are inadmissible in evidence and do not fall within the ambit of R.A. No. 8792, because the law
merely admits as the best evidence the original fax transmittal. On the other hand, respondent
posits that, from a reading of the law and the Rules on Electronic Evidence, the original
facsimile transmittal of the pro forma invoice is admissible in evidence since it is an electronic
document and, therefore, the best evidence under the law and the Rules. Respondent further
claims that the photocopies of these fax transmittals (specifically ST2-POSTS0401-1 and ST2-
POSTS0401-2) are admissible under the Rules on Evidence because the respondent
sufficiently explained the non-production of the original fax transmittals.
Issue: Whether the print-out and/or photocopies of facsimile transmissions are electronic
evidence and admissible as such?
Held: Electronic document shall be regarded as the equivalent of an original document under
the Best Evidence Rule, as long as it is a printout or output readable by sight or other means,
showing to reflect the data accurately. Thus, to be admissible in evidence as an electronic data
message or to be considered as the functional equivalent of an original document under the
Best Evidence Rule, the writing must foremost be an electronic data message or an
electronic document.
The Implementing Rules and Regulations (IRR) of R.A. No. 8792 defines the Electronic Data
Message refers to information generated, sent, received or stored by electronic, optical or
similar means, but not limited to, electronic data interchange (EDI), electronic mail, telegram,
telex or telecopy.
The phrase but not limited to, electronic data interchange (EDI), electronic mail, telegram,
telex or telecopy in the IRRs definition of electronic data message is copied from the Model
Law on Electronic Commerce adopted by the United Nations Commission on International
Trade Law (UNCITRAL), from which majority of the provisions of R.A. No. 8792 were taken.
While Congress deleted this phrase in the Electronic Commerce Act of 2000, the drafters of
the IRR reinstated it. The deletion by Congress of the said phrase is significant and pivotal.
Moreover, when Congress formulated the term electronic data message, it intended the same
meaning as the term electronic record in the Canada law. This construction of the term
electronic data message, which excludes telexes or faxes, except computer-generated faxes,
is in harmony with the Electronic Commerce Laws focus on paperless communications and
the functional equivalent approach that it espouses. Facsimile transmissions are not, in this
sense, paperless, but verily are paper-based.
[I]n an ordinary facsimile transmission, there exists an original paper-based information or
data that is scanned, sent through a phone line, and re-printed at the receiving end. [I]n a
virtual or paperless environment, technically, there is no original copy to speak of, as all direct
printouts of the virtual reality are the same, in all respects, and are considered as originals.
Ineluctably, the laws definition of electronic data message, which, as aforesaid, is
interchangeable with electronic document, could not have included facsimile transmissions,
which have an original paper-based copy as sent and a paper-based facsimile copy as
received. These two copies are distinct from each other, and have different legal effects. While
Congress anticipated future developments in communications and computer technology when
it drafted the law, it excluded the early forms of technology, like telegraph, telex and telecopy
(except computer-generated faxes, which is a newer development as compared to the
ordinary fax machine to fax machine transmission), when it defined the term electronic data
message.
[T]he terms electronic data message and electronic document, as defined under the
Electronic Commerce Act of 2000, do not include a facsimile transmission. Accordingly, a
facsimile transmission cannot be considered as electronic evidence. It is not the functional
equivalent of an original under the Best Evidence Rule and is not admissible as electronic
evidence.
Department of Foreign Affairs v. BCA International Corp., G.R. No. 210858, June 29,
2016
Gonzales v. Climax Mining Ltd., G.R. No. 161957, 167994, January 22, 2007
This is a consolidation of two petitions rooted in the same disputed Addendum Contract
entered into by the parties. In G.R. No. 161957, the Court in its Decision of 28 February
2005[1] denied the Rule 45 petition of petitioner Jorge Gonzales (Gonzales). It held that the
DENR Panel of Arbitrators had no jurisdiction over the complaint for the annulment of the
Addendum Contract on grounds of fraud and violation of the Constitution and that the action
should have been brought before the regular courts as it involved judicial issues. Both parties
filed separate motions for reconsideration. Gonzales avers in his Motion for
Reconsideration[2] that the Court erred in holding that the DENR Panel of Arbitrators was
bereft of jurisdiction, reiterating its argument that the case involves a mining dispute that
properly falls within the ambit of the Panels authority. Gonzales adds that the Court failed to
rule on other issues he raised relating to the sufficiency of his complaint before the DENR
Panel of Arbitrators and the timeliness of its filing.
Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for Partial
Reconsideration and/or Clarification[3] seeking reconsideration of that part of the Decision
holding that the case should not be brought for arbitration under Republic Act (R.A.) No. 876,
also known as the Arbitration Law. [4] Respondents, citing American jurisprudence [5] and the
UNCITRAL Model Law,[6] argue that the arbitration clause in the Addendum Contract should
be treated as an agreement independent of the other terms of the contract, and that a claimed
rescission of the main contract does not avoid the duty to arbitrate. Respondents add that
Gonzaless argument relating to the alleged invalidity of the Addendum Contract still has to be
proven and adjudicated on in a proper proceeding; that is, an action separate from the motion
to compel arbitration. Pending judgment in such separate action, the Addendum Contract
remains valid and binding and so does the arbitration clause therein. Respondents add that
the holding in the Decision that the case should not be brought under the ambit of the
Arbitration Law appears to be premised on Gonzaless having impugn[ed] the existence or
validity of the addendum contract. If so, it supposedly conveys the idea that Gonzaless
unilateral repudiation of the contract or mere allegation of its invalidity is all it takes to avoid
arbitration. Hence, respondents submit that the courts holding that the case should not be
brought under the ambit of the Arbitration Law be understood or clarified as operative only
where the challenge to the arbitration agreement has been sustained by final judgment.
Both parties were required to file their respective comments to the other partys motion for
reconsideration/clarification.[7] Respondents filed their Comment on 17 August 2005,[8] while
Gonzales filed his only on 25 July 2006.[9]
On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May 2005, or while the
motions for reconsideration in G.R. No. 161957 [10] were pending, wherein Gonzales challenged
the orders of the Regional Trial Court (RTC) requiring him to proceed with the arbitration
proceedings as sought by Climax-Arimco Mining Corporation (Climax-Arimco).
On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were consolidated upon the
recommendation of the Assistant Division Clerk of Court since the cases are rooted in the
same Addendum Contract.
We first tackle the more recent case which is G.R. No. 167994. It stemmed from the petition to
compel arbitration filed by respondent Climax-Arimco before the RTC of Makati City on 31
March 2000 while the complaint for the nullification of the Addendum Contract was pending
before the DENR Panel of Arbitrators. On 23 March 2000, Climax-Arimco had sent Gonzales a
Demand for Arbitration pursuant to Clause 19.1 [11] of the Addendum Contract and also in
accordance with Sec. 5 of R.A. No. 876. The petition for arbitration was subsequently filed and
Climax-Arimco sought an order to compel the parties to arbitrate pursuant to the said
arbitration clause. The case, docketed as Civil Case No. 00-444, was initially raffled to Br. 132
of the RTC of Makati City, with Judge Herminio I. Benito as Presiding Judge. Respondent
Climax-Arimco filed on 5 April 2000 a motion to set the application to compel arbitration for
hearing.
On 14 April 2000, Gonzales filed a motion to dismiss which he however failed to set for
hearing. On 15 May 2000, he filed an Answer with Counterclaim, [12] questioning the validity of
the Addendum Contract containing the arbitration clause. Gonzales alleged that the
Addendum Contract containing the arbitration clause is void in view of Climax-Arimcos acts of
fraud, oppression and violation of the Constitution.Thus, the arbitration clause, Clause 19.1,
contained in the Addendum Contract is also null and void ab initio and legally inexistent.
On 18 May 2000, the RTC issued an order declaring Gonzaless motion to dismiss moot and
academic in view of the filing of his Answer with Counterclaim.[13]
On 31 May 2000, Gonzales asked the RTC to set the case for pre-trial. [14] This the RTC denied
on 16 June 2000, holding that the petition for arbitration is a special proceeding that is
summary in nature.[15] However, on 7 July 2000, the RTC granted Gonzaless motion for
reconsideration of the 16 June 2000 Order and set the case for pre-trial on 10 August 2000, it
being of the view that Gonzales had raised in his answer the issue of the making of the
arbitration agreement.[16]
Climax-Arimco then filed a motion to resolve its pending motion to compel arbitration. The
RTC denied the same in its 24 July 2000 order.
On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio I. Benito for not
possessing the cold neutrality of an impartial judge. [17] On 5 August 2000, Judge Benito issued
an Order granting the Motion to Inhibit and ordered the re-raffling of the petition for
arbitration.[18] The case was raffled to the sala of public respondent Judge Oscar B. Pimentel of
Branch 148.
On 23 August 2000, Climax-Arimco filed a motion for reconsideration of the 24 July
2000 Order.[19] Climax-Arimco argued that R.A. No. 876 does not authorize a pre-trial or trial
for a motion to compel arbitration but directs the court to hear the motion summarily and
resolve it within ten days from hearing. Judge Pimentel granted the motion and directed the
parties to arbitration. On 13 February 2001, Judge Pimentel issued the first assailed order
requiring Gonzales to proceed with arbitration proceedings and appointing retired CA Justice
Jorge Coquia as sole arbitrator.[20]
Gonzales moved for reconsideration on 20 March 2001 but this was denied in the Order
dated 7 March 2005.[21]
Gonzales thus filed the Rule 65 petition assailing the Orders dated 13 February
2001 and 7 March 2005 of Judge Pimentel. Gonzales contends that public respondent Judge
Pimentel acted with grave abuse of discretion in immediately ordering the parties to proceed
with arbitration despite the proper, valid, and timely raised argument in his Answer with
Counterclaim that the Addendum Contract, containing the arbitration clause, is null and
void. Gonzales has also sought a temporary restraining order to prevent the enforcement of
the assailed orders directing the parties to arbitrate, and to direct Judge Pimentel to hold a
pre-trial conference and the necessary hearings on the determination of the nullity of the
Addendum Contract.
In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:
SEC. 6. Hearing by court.A party aggrieved by the failure,
neglect or refusal of another to perform under an agreement in writing
providing for arbitration may petition the court for an order directing
that such arbitration proceed in the manner provided for in such
agreement. Five days notice in writing of the hearing of such
application shall be served either personally or by registered mail
upon the party in default. The court shall hear the parties, and upon
being satisfied that the making of the agreement or such failure to
comply therewith is not in issue, shall make an order directing the
parties to proceed to arbitration in accordance with the terms of the
agreement. If the making of the agreement or default be in issue the
court shall proceed to summarily hear such issue. If the finding be that
no agreement in writing providing for arbitration was made, or that
there is no default in the proceeding thereunder, the proceeding shall
be dismissed. If the finding be that a written provision for arbitration
was made and there is a default in proceeding thereunder, an order
shall be made summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof.
The court shall decide all motions, petitions or applications
filed under the provisions of this Act, within ten (10) days after such
motions, petitions, or applications have been heard by it.
Gonzales also cites Sec. 24 of R.A. No. 9285 or the Alternative Dispute Resolution
Act of 2004:
SEC. 24. Referral to Arbitration.A court before which an
action is brought in a matter which is the subject matter of an
arbitration agreement shall, if at least one party so requests not later
than the pre-trial conference, or upon the request of both parties
thereafter, refer the parties to arbitration unless it finds that the
arbitration agreement is null and void, inoperative or incapable of
being performed.
According to Gonzales, the above-quoted provisions of law outline the procedure to be
followed in petitions to compel arbitration, which the RTC did not follow. Thus, referral of the
parties to arbitration by Judge Pimentel despite the timely and properly raised issue of nullity
of the Addendum Contract was misplaced and without legal basis. Both R.A. No. 876 and R.A.
No. 9285 mandate that any issue as to the nullity, inoperativeness, or incapability of
performance of the arbitration clause/agreement raised by one of the parties to the alleged
arbitration agreement must be determined by the court prior to referring them to
arbitration. They require that the trial court first determine or resolve the issue of nullity, and
there is no other venue for this determination other than a pre-trial and hearing on the issue
by the trial court which has jurisdiction over the case. Gonzales adds that the assailed 13
February 2001 Order also violated his right to procedural due process when the trial court
erroneously ruled on the existence of the arbitration agreement despite the absence of a
hearing for the presentation of evidence on the nullity of the Addendum Contract.
Respondent Climax-Arimco, on the other hand, assails the mode of review availed of by
Gonzales. Climax-Arimco cites Sec. 29 of R.A. No. 876:
SEC. 29. Appeals.An appeal may be taken from an order made in a
proceeding under this Act, or from a judgment entered upon an award
through certiorari proceedings, but such appeals shall be limited to
questions of law. The proceedings upon such an appeal, including the
judgment thereon shall be governed by the Rules of Court in so far as
they are applicable.
Climax-Arimco mentions that the special civil action for certiorari employed by Gonzales is
available only where there is no appeal or any plain, speedy, and adequate remedy in the
ordinary course of law against the challenged orders or acts. Climax-Arimco then points out
that R.A. No. 876 provides for an appeal from such orders, which, under the Rules of Court,
must be filed within 15 days from notice of the final order or resolution appealed from or of
the denial of the motion for reconsideration filed in due time. Gonzales has not denied that the
relevant 15-day period for an appeal had elapsed long before he filed this petition for
certiorari. He cannot use the special civil action of certiorari as a remedy for a lost appeal.
Climax-Arimco adds that an application to compel arbitration under Sec. 6 of R.A. No. 876
confers on the trial court only a limited and special jurisdiction, i.e., a jurisdiction solely to
determine (a) whether or not the parties have a written contract to arbitrate, and (b) if the
defendant has failed to comply with that contract. Respondent cites La Naval Drug
Corporation v. Court of Appeals,[22] which holds that in a proceeding to compel arbitration, [t]he
arbitration law explicitly confines the courts authority only to pass upon the issue of whether
there is or there is no agreement in writing providing for arbitration, and [i]n the affirmative,
the statute ordains that the court shall issue an order summarily directing the parties to
proceed with the arbitration in accordance with the terms thereof. [23] Climax-Arimco argues
that R.A. No. 876 gives no room for any other issue to be dealt with in such a proceeding, and
that the court presented with an application to compel arbitration may order arbitration or
dismiss the same, depending solely on its finding as to those two limited issues. If either of
these matters is disputed, the court is required to conduct a summary hearing on it. Gonzaless
proposition contradicts both the trial courts limited jurisdiction and the summary nature of
the proceeding itself.
Climax-Arimco further notes that Gonzaless attack on or repudiation of the Addendum
Contract also is not a ground to deny effect to the arbitration clause in the Contract. The
arbitration agreement is separate and severable from the contract evidencing the parties
commercial or economic transaction, it stresses. Hence, the alleged defect or failure of the
main contract is not a ground to deny enforcement of the parties arbitration agreement. Even
the party who has repudiated the main contract is not prevented from enforcing its
arbitration provision. R.A. No. 876 itself treats the arbitration clause or agreement as a
contract separate from the commercial, economic or other transaction to be arbitrated.The
statute, in particular paragraph 1 of Sec. 2 thereof, considers the arbitration stipulation an
independent contract in its own right whose enforcement may be prevented only on grounds
which legally make the arbitration agreement itself revocable, thus:
SEC. 2. Persons and matters subject to arbitration.Two or more persons
or parties may submit to the arbitration of one or more arbitrators any
controversy existing, between them at the time of the submission and
which may be the subject of an action, or the parties to any contract
may in such contract agree to settle by arbitration a controversy
thereafter arising between them. Such submission or contract shall be
valid, enforceable and irrevocable, save upon such grounds as exist at
law for the revocation of any contract. x x x x
The grounds Gonzales invokes for the revocation of the Addendum Contractfraud and
oppression in the execution thereofare also not grounds for the revocation of the arbitration
clause in the Contract, Climax-Arimco notes. Such grounds may only be raised by way of
defense in the arbitration itself and cannot be used to frustrate or delay the conduct of
arbitration proceedings. Instead, these should be raised in a separate action for rescission, it
continues.
Climax-Arimco emphasizes that the summary proceeding to compel arbitration under Sec. 6
of R.A. No. 876 should not be confused with the procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of
R.A. No. 876 refers to an application to compel arbitration where the courts authority is
limited to resolving the issue of whether there is or there is no agreement in writing providing
for arbitration, while Sec. 24 of R.A. No. 9285 refers to an ordinary action which covers a
matter that appears to be arbitrable or subject to arbitration under the arbitration
agreement. In the latter case, the statute is clear that the court, instead of trying the case, may,
on request of either or both parties, refer the parties to arbitration, unless it finds that the
arbitration agreement is null and void, inoperative or incapable of being
performed. Arbitration may even be ordered in the same suit brought upon a matter covered
by an arbitration agreement even without waiting for the outcome of the issue of the validity
of the arbitration agreement. Art. 8 of the UNCITRAL Model Law[24] states that where a court
before which an action is brought in a matter which is subject of an arbitration agreement
refers the parties to arbitration, the arbitral proceedings may proceed even while the action is
pending.
Thus, the main issue raised in the Petition for Certiorari is whether it was proper for the RTC,
in the proceeding to compel arbitration under R.A. No. 876, to order the parties to arbitrate
even though the defendant therein has raised the twin issues of validity and nullity of the
Addendum Contract and, consequently, of the arbitration clause therein as well. The
resolution of both Climax-Arimcos Motion for Partial Reconsideration and/or Clarification in
G.R. No. 161957 and Gonzaless Petition for Certiorari in G.R. No. 167994 essentially turns on
whether the question of validity of the Addendum Contract bears upon the applicability or
enforceability of the arbitration clause contained therein. The two pending matters shall thus
be jointly resolved.
We address the Rule 65 petition in G.R. No. 167994 first from the remedial law
perspective. It deserves to be dismissed on procedural grounds, as it was filed in lieu of appeal
which is the prescribed remedy and at that far beyond the reglementary period. It is
elementary in remedial law that the use of an erroneous mode of appeal is cause for dismissal
of the petition for certiorari and it has been repeatedly stressed that a petition for certiorari is
not a substitute for a lost appeal. As its nature, a petition for certiorari lies only where there is
no appeal, and no plain, speedy and adequate remedy in the ordinary course of law. [25] The
Arbitration Law specifically provides for an appeal by certiorari, i.e., a petition for review
under certiorari under Rule 45 of the Rules of Court that raises pure questions of law. [26] There
is no merit to Gonzaless argument that the use of the permissive term may in Sec. 29, R.A. No.
876 in the filing of appeals does not prohibit nor discount the filing of a petition for certiorari
under Rule 65.[27] Proper interpretation of the aforesaid provision of law shows that the term
may refers only to the filing of an appeal, not to the mode of review to be employed. Indeed,
the use of may merely reiterates the principle that the right to appeal is not part of due
process of law but is a mere statutory privilege to be exercised only in the manner and in
accordance with law.
Neither can BF Corporation v. Court of Appeals[28] cited by Gonzales support his
theory. Gonzales argues that said case recognized and allowed a petition for certiorari under
Rule 65 appealing the order of the Regional Trial Court disregarding the arbitration
agreement as an acceptable remedy. [29] The BF Corporation case had its origins in a complaint
for collection of sum of money filed by therein petitioner BF Corporation against Shangri-la
Properties, Inc. (SPI). SPI moved to suspend the proceedings alleging that the construction
agreement or the Articles of Agreement between the parties contained a clause requiring
prior resort to arbitration before judicial intervention. The trial court found that an
arbitration clause was incorporated in the Conditions of Contract appended to and deemed an
integral part of the Articles of Agreement. Still, the trial court denied the motion to suspend
proceedings upon a finding that the Conditions of Contract were not duly executed and signed
by the parties. The trial court also found that SPI had failed to file any written notice of
demand for arbitration within the period specified in the arbitration clause. The trial court
denied SPI's motion for reconsideration and ordered it to file its responsive pleading.Instead
of filing an answer, SPI filed a petition for certiorari under Rule 65, which the Court of
Appeals, favorably acted upon. In a petition for review before this Court, BF Corporation
alleged, among others, that the Court of Appeals should have dismissed the petition for
certiorari since the order of the trial court denying the motion to suspend proceedings is a
resolution of an incident on the merits and upon the continuation of the proceedings, the trial
court would eventually render a decision on the merits, which decision could then be elevated
to a higher court in an ordinary appeal.[30]
The Court did not uphold BF Corporations argument. The issue raised before the
Court was whether SPI had taken the proper mode of appeal before the Court of Appeals. The
question before the Court of Appeals was whether the trial court had prematurely assumed
jurisdiction over the controversy. The question of jurisdiction in turn depended on the
question of existence of the arbitration clause which is one of fact. While on its face the
question of existence of the arbitration clause is a question of fact that is not proper in a
petition for certiorari, yet since the determination of the question obliged the Court of
Appeals as it did to interpret the contract documents in accordance with R.A. No. 876 and
existing jurisprudence, the question is likewise a question of law which may be properly taken
cognizance of in a petition for certiorari under Rule 65, so the Court held. [31]
The situation in B.F. Corporation is not availing in the present petition. The
disquisition in B.F. Corporation led to the conclusion that in order that the question of
jurisdiction may be resolved, the appellate court had to deal first with a question of law which
could be addressed in a certiorari proceeding. In the present case, Gonzaless petition raises a
question of law, but not a question of jurisdiction. Judge Pimentel acted in accordance with the
procedure prescribed in R.A. No. 876 when he ordered Gonzales to proceed with arbitration
and appointed a sole arbitrator after making the determination that there was indeed an
arbitration agreement. It has been held that as long as a court acts within its jurisdiction and
does not gravely abuse its discretion in the exercise thereof, any supposed error committed by
it will amount to nothing more than an error of judgment reviewable by a timely appeal and
not assailable by a special civil action of certiorari.[32] Even if we overlook the employment of
the wrong remedy in the broader interests of justice, the petition would nevertheless be
dismissed for failure of Gonzalez to show grave abuse of discretion.
Arbitration, as an alternative mode of settling disputes, has long been recognized and
accepted in our jurisdiction. The Civil Code is explicit on the matter.[33] R.A. No. 876 also
expressly authorizes arbitration of domestic disputes. Foreign arbitration, as a system of
settling commercial disputes of an international character, was likewise recognized when the
Philippines adhered to the United Nations "Convention on the Recognition and the
Enforcement of Foreign Arbitral Awards of 1958," under the 10 May 1965 Resolution No. 71 of
the Philippine Senate, giving reciprocal recognition and allowing enforcement of international
arbitration agreements between parties of different nationalities within a contracting state.
[34]
The enactment of R.A. No. 9285 on 2 April 2004 further institutionalized the use of
alternative dispute resolution systems, including arbitration, in the settlement of disputes.
Disputes do not go to arbitration unless and until the parties have agreed to abide by the
arbitrators decision. Necessarily, a contract is required for arbitration to take place and to be
binding. R.A. No. 876 recognizes the contractual nature of the arbitration agreement, thus:
SEC. 2. Persons and matters subject to arbitration.Two or more persons
or parties may submit to the arbitration of one or more arbitrators
any controversy existing, between them at the time of the
submission and which may be the subject of an action, or the parties to
any contract may in such contract agree to settle by arbitration a
controversy thereafter arising between them. Such submission or
contract shall be valid, enforceable and irrevocable, save upon
such grounds as exist at law for the revocation of any contract.
Such submission or contract may include question arising out of
valuations, appraisals or other controversies which may be collateral,
incidental, precedent or subsequent to any issue between the parties.
A controversy cannot be arbitrated where one of the parties to the
controversy is an infant, or a person judicially declared to be
incompetent, unless the appropriate court having jurisdiction approve
a petition for permission to submit such controversy to arbitration
made by the general guardian or guardian ad litem of the infant or of
the incompetent. [Emphasis added.]
Thus, we held in Manila Electric Co. v. Pasay Transportation Co.[35] that a submission
to arbitration is a contract. A clause in a contract providing that all matters in dispute between
the parties shall be referred to arbitration is a contract, [36] and in Del Monte Corporation-USA v.
Court of Appeals[37] that [t]he provision to submit to arbitration any dispute arising therefrom
and the relationship of the parties is part of that contract and is itself a contract. As a rule,
contracts are respected as the law between the contracting parties and produce effect as
between them, their assigns and heirs.[38]
The special proceeding under Sec. 6 of R.A. No. 876 recognizes the contractual
nature of arbitration clauses or agreements. It provides:
SEC. 6. Hearing by court.A party aggrieved by the failure,
neglect or refusal of another to perform under an agreement in
writing providing for arbitration may petition the court for an order
directing that such arbitration proceed in the manner provided for in
such agreement.Five days notice in writing of the hearing of such
application shall be served either personally or by registered mail
upon the party in default. The court shall hear the parties, and upon
being satisfied that the making of the agreement or such failure to
comply therewith is not in issue, shall make an order directing the
parties to proceed to arbitration in accordance with the terms of the
agreement. If the making of the agreement or default be in issue the
court shall proceed to summarily hear such issue. If the finding be that
no agreement in writing providing for arbitration was made, or
that there is no default in the proceeding thereunder, the proceeding
shall be dismissed. If the finding be that a written provision for
arbitration was made and there is a default in proceeding thereunder,
an order shall be made summarily directing the parties to proceed
with the arbitration in accordance with the terms thereof.
The court shall decide all motions, petitions or applications
filed under the provisions of this Act, within ten days after such
motions, petitions, or applications have been heard by it. [Emphasis
added.]
This special proceeding is the procedural mechanism for the enforcement of the contract to
arbitrate. The jurisdiction of the courts in relation to Sec. 6 of R.A. No. 876 as well as the
nature of the proceedings therein was expounded upon in La Naval Drug Corporation v. Court
of Appeals.[39] There it was held that R.A. No. 876 explicitly confines the court's authority only
to the determination of whether or not there is an agreement in writing providing for
arbitration. In the affirmative, the statute ordains that the court shall issue an order
"summarily directing the parties to proceed with the arbitration in accordance with the terms
thereof." If the court, upon the other hand, finds that no such agreement exists, "the
proceeding shall be dismissed."[40] The cited case also stressed that the proceedings are
summary in nature.[41] The same thrust was made in the earlier case of Mindanao Portland
Cement Corp. v. McDonough Construction Co. of Florida[42] which held, thus:
Since there obtains herein a written provision for
arbitration as well as failure on respondent's part to comply therewith,
the court a quorightly ordered the parties to proceed to arbitration in
accordance with the terms of their agreement (Sec. 6, Republic Act
876). Respondent's arguments touching upon the merits of the
dispute are improperly raised herein. They should be addressed to the
arbitrators. This proceeding is merely a summary remedy to enforce
the agreement to arbitrate. The duty of the court in this case is not to
resolve the merits of the parties' claims but only to determine if they
should proceed to arbitration or not. x x x x[43]
Implicit in the summary nature of the judicial proceedings is the separable or
independent character of the arbitration clause or agreement. This was highlighted in the
cases of Manila Electric Co. v. Pasay Trans. Co.[44] and Del Monte Corporation-USA v. Court of
Appeals.[45]
The doctrine of separability, or severability as other writers call it, enunciates that
an arbitration agreement is independent of the main contract. The arbitration agreement is to
be treated as a separate agreement and the arbitration agreement does not automatically
terminate when the contract of which it is part comes to an end. [46]
The separability of the arbitration agreement is especially significant to the
determination of whether the invalidity of the main contract also nullifies the arbitration
clause. Indeed, the doctrine denotes that the invalidity of the main contract, also referred to as
the container contract, does not affect the validity of the arbitration agreement. Irrespective
of the fact that the main contract is invalid, the arbitration clause/agreement still remains
valid and enforceable.[47]
The separability of the arbitration clause is confirmed in Art. 16(1) of the
UNCITRAL Model Law and Art. 21(2) of the UNCITRAL Arbitration Rules. [48]
The separability doctrine was dwelt upon at length in the U.S. case of Prima Paint
Corp. v. Flood & Conklin Manufacturing Co. [49] In that case, Prima Paint and Flood and Conklin
(F & C) entered into a consulting agreement whereby F & C undertook to act as consultant to
Prima Paint for six years, sold to Prima Paint a list of its customers and promised not to sell
paint to these customers during the same period.The consulting agreement contained an
arbitration clause. Prima Paint did not make payments as provided in the consulting
agreement, contending that F & C had fraudulently misrepresented that it was solvent and
able for perform its contract when in fact it was not and had even intended to file for
bankruptcy after executing the consultancy agreement. Thus, F & C served Prima Paint with a
notice of intention to arbitrate. Prima Paint sued in court for rescission of the consulting
agreement on the ground of fraudulent misrepresentation and asked for the issuance of an
order enjoining F & C from proceeding with arbitration. F & C moved to stay the suit pending
arbitration. The trial court granted F & Cs motion, and the U.S. Supreme Court affirmed.
The U.S. Supreme Court did not address Prima Paints argument that it had been
fraudulently induced by F & C to sign the consulting agreement and held that no court should
address this argument. Relying on Sec. 4 of the Federal Arbitration Actwhich provides that if a
party [claims to be] aggrieved by the alleged failure x x x of another to arbitrate x x x, [t]he
court shall hear the parties, and upon being satisfied that the making of the agreement for
arbitration or the failure to comply therewith is not in issue, the court shall make an order
directing the parties to proceed to arbitration x x x. If the making of the arbitration agreement
or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed
summarily to the trial thereofthe U.S. High Court held that the court should not order the
parties to arbitrate if the making of the arbitration agreement is in issue. The parties should
be ordered to arbitration if, and only if, they have contracted to submit to arbitration. Prima
Paint was not entitled to trial on the question of whether an arbitration agreement was made
because its allegations of fraudulent inducement were not directed to the arbitration clause
itself, but only to the consulting agreement which contained the arbitration agreement.
[50]
Prima Paint held that arbitration clauses are separable from the contracts in which they are
embedded, and that where no claim is made that fraud was directed to the arbitration clause
itself, a broad arbitration clause will be held to encompass arbitration of the claim that the
contract itself was induced by fraud.[51]
There is reason, therefore, to rule against Gonzales when he alleges that Judge
Pimentel acted with grave abuse of discretion in ordering the parties to proceed with
arbitration. Gonzaless argument that the Addendum Contract is null and void and, therefore
the arbitration clause therein is void as well, is not tenable. First, the proceeding in a petition
for arbitration under R.A. No. 876 is limited only to the resolution of the question of whether
the arbitration agreement exists. Second, the separability of the arbitration clause from the
Addendum Contract means that validity or invalidity of the Addendum Contract will not affect
the enforceability of the agreement to arbitrate. Thus, Gonzaless petition for certiorari should
be dismissed.
This brings us back to G.R. No. 161957. The adjudication of the petition in G.R. No.
167994 effectively modifies part of the Decision dated 28 February 2005 in G.R. No.
161957. Hence, we now hold that the validity of the contract containing the agreement to
submit to arbitration does not affect the applicability of the arbitration clause itself. A
contrary ruling would suggest that a partys mere repudiation of the main contract is sufficient
to avoid arbitration. That is exactly the situation that the separability doctrine, as well as
jurisprudence applying it, seeks to avoid. We add that when it was declared in G.R. No. 161957
that the case should not be brought for arbitration, it should be clarified that the case referred
to is the case actually filed by Gonzales before the DENR Panel of Arbitrators, which was for
the nullification of the main contract on the ground of fraud, as it had already been
determined that the case should have been brought before the regular courts involving as it
did judicial issues.
The Motion for Reconsideration of Gonzales in G.R. No. 161957 should also be
denied. In the motion, Gonzales raises the same question of jurisdiction, more particularly
that the complaint for nullification of the Addendum Contract pertained to the DENR Panel of
Arbitrators, not the regular courts. He insists that the subject of his complaint is a mining
dispute since it involves a dispute concerning rights to mining areas, the Financial and
Technical Assistance Agreement (FTAA) between the parties, and it also involves
claimowners. He adds that the Court failed to rule on other issues he raised, such as whether
he had ceded his claims over the mineral deposits located within the Addendum Area of
Influence; whether the complaint filed before the DENR Panel of Arbitrators alleged ultimate
facts of fraud; and whether the action to declare the nullity of the Addendum Contract on the
ground of fraud has prescribed.
These are the same issues that Gonzales raised in his Rule 45 petition in G.R. No.
161957 which were resolved against him in the Decision of 28 February 2005. Gonzales does
not raise any new argument that would sway the Court even a bit to alter its holding that the
complaint filed before the DENR Panel of Arbitrators involves judicial issues which should
properly be resolved by the regular courts. He alleged fraud or misrepresentation in the
execution of the Addendum Contract which is a ground for the annulment of a voidable
contract. Clearly, such allegations entail legal questions which are within the jurisdiction of
the courts.
The question of whether Gonzales had ceded his claims over the mineral deposits
in the Addendum Area of Influence is a factual question which is not proper for determination
before this Court. At all events, moreover, the question is irrelevant to the issue of jurisdiction
of the DENR Panel of Arbitrators. It should be pointed out that the DENR Panel of Arbitrators
made a factual finding in its Order dated 18 October 2001, which it reiterated in its Order
dated 25 June 2002, that Gonzales had, through the various agreements, assigned his interest
over the mineral claims all in favor of [Climax-Arimco] as well as that without the complainant
[Gonzales] assigning his interest over the mineral claims in favor of [Climax-Arimco], there
would be no FTAA to speak of. [52] This finding was affirmed by the Court of Appeals in its
Decision dated 30 July 2003 resolving the petition for certiorari filed by Climax-Arimco in
regard to the 18 October 2001 Order of the DENR Panel.[53]
The Court of Appeals likewise found that Gonzaless complaint alleged fraud but did
not provide any particulars to substantiate it. The complaint repeatedly mentioned fraud,
oppression, violation of the Constitution and similar conclusions but nowhere did it give any
ultimate facts or particulars relative to the allegations.[54]
Sec. 5, Rule 8 of the Rules of Court specifically provides that in all averments of
fraud, the circumstances constituting fraud must be stated with particularity. This is to enable
the opposing party to controvert the particular facts allegedly constituting the same. Perusal
of the complaint indeed shows that it failed to state with particularity the ultimate facts and
circumstances constituting the alleged fraud. It does not state what particulars about Climax-
Arimcos financial or technical capability were misrepresented, or how the misrepresentation
was done.Incorporated in the body of the complaint are verbatim reproductions of the
contracts, correspondence and government issuances that reportedly explain the allegations
of fraud and misrepresentation, but these are, at best, evidentiary matters that should not be
included in the pleading.
As to the issue of prescription, Gonzaless claims of fraud and misrepresentation
attending the execution of the Addendum Contract are grounds for the annulment of a
voidable contract under the Civil Code.[55] Under Art. 1391 of the Code, an action for
annulment shall be brought within four years, in the case of fraud, beginning from the time of
the discovery of the same. However, the time of the discovery of the alleged fraud is not clear
from the allegations of Gonzaless complaint. That being the situation coupled with the fact
that this Court is not a trier of facts, any ruling on the issue of prescription would be uncalled
for or even unnecessary.
 WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is DISMISSED. Such
dismissal effectively renders superfluous formal action on the Motion for Partial
Reconsideration and/or Clarification filed by Climax Mining Ltd., et al. in G.R. No. 161957.
The Motion for Reconsideration filed by Jorge Gonzales in G.R. No. 161957 is
DENIED WITH FINALITY. SO ORDERED.
Transfield Phils., Inc. v. Luzon Hydro Corp., G.R. No. 146717, May 19, 2006
The adjudication of this case proved to be a two-stage process as its constituent parts involve
two segregate but equally important issues. The first stage relating to the merits of the case,
specifically the question of the propriety of calling on the securities during the pendency of
the arbitral proceedings, was resolved in favor of Luzon Hydro Corporation (LHC) with the
Courts Decision[1] of 22 November 2004. The second stage involving the issue of forum-
shopping on which the Court required the parties to submit their respective memoranda [2] is
disposed of in this Resolution.
The disposal of the forum-shopping charge is crucial to the parties to this case on account of
its profound effect on the final outcome of the international arbitral proceedings which they
have chosen as their principal dispute resolution mechanism. [3]
LHC claims that Transfield Philippines, Inc. (TPI) is guilty of forum-shopping when it filed the
following suits:
1. Civil Case No. 04-332 filed on 19 March 2004, pending before
the Regional Trial Court (RTC) of Makati, Branch 56 for confirmation,
recognition and enforcement of the Third Partial Award in case 11264
TE/MW, ICC International Court of
Arbitration,entitled Transfield Philippines, Inc. v. Luzon Hydro
Corporation.[4]
2. ICC Case No. 11264/TE/MW, Transfield Philippines, Inc. v.
Luzon Hydro Corporation filed before the International Court of
Arbitration, International Chamber of Commerce (ICC) a request for
arbitration dated 3 November 2000 pursuant to the Turnkey Contract
between LHC and TPI;
3. G.R. No. 146717, Transfield Philippines, Inc. v. Luzon Hydro
Corporation, Australia and New Zealand Banking Group Limitedand
Security Bank Corp. filed on 5 February 2001, which was an appeal by
certiorari with prayer for TRO/preliminary prohibitory and mandatory
injunction, of the Court of Appeals Decision dated 31 January 2001 in
CA-G.R. SP No. 61901.
a. CA-G.R. SP No. 61901 was a petition for review of the Decision
in Civil Case No. 00-1312, wherein TPI claimed that LHCs call
on the securities was premature considering that the issue of
default has not yet been resolved with finality; the petition
was however denied by the Court of Appeals;
b. Civil Case No. 00-1312 was a complaint for injunction with
prayer for temporary restraining order and/or writ of
preliminary injunction dated 5 November 2000, which sought
to restrain LHC from calling on the securities and respondent
banks from transferring or paying of the securities; the
complaint was denied by the RTC.
On the other hand, TPI claims that it is LHC which is guilty of forum-shopping when it raised
the issue of forum-shopping not only in this case, but also in Civil Case No. 04-332, and even
asked for the dismissal of the other case based on this ground. Moreover, TPI argues that LHC
is relitigating in Civil Case No. 04-332 the very same causes of action in ICC Case No.
11264/TE/MW, and even manifesting therein that it will present evidence earlier presented
before the arbitral tribunal.[5]
Meanwhile, ANZ Bank and Security Bank moved to be excused from filing a
memorandum. They claim that with the finality of the Courts Decision dated 22 November
2004, any resolution by the Court on the issue of forum-shopping will not materially affect
their role as the banking entities involved are concerned. [6] The Court granted their respective
motions.
On 1 August 2005, TPI moved to set the case for oral argument, positing that the resolution of
the Court on the issue of forum-shopping may have significant implications on the
interpretation of the Alternative Dispute Resolution Act of 2004, as well as the viability of
international commercial arbitration as an alternative mode of dispute resolution in the
country.[7] Said motion was opposed by LHC in its opposition filed on 2 September 2005, with
LHC arguing that the respective memoranda of the parties are sufficient for the Court to
resolve the issue of forum-shopping. [8] On 28 October 2005, TPI filed its Manifestation and
Reiterative Motion[9] to set the case for oral argument, where it manifested that the
International Chamber of Commerce (ICC) arbitral tribunal had issued its Final Award
ordering LHC to pay TPI US$24,533,730.00 (including the US$17,977,815.00 proceeds of the
two standby letters of credit). TPI also submitted a copy thereof with a Supplemental
Petition[10] to the Regional Trial Court (RTC), seeking recognition and enforcement of the said
award.[11]
The essence of forum-shopping is the filing of multiple suits involving the same parties for the
same cause of action, either simultaneously or successively, for the purpose of obtaining a
favorable judgment.[12] Forum-shopping has likewise been defined as the act of a party against
whom an adverse judgment has been rendered in one forum, seeking and possibly getting a
favorable opinion in another forum, other than by appeal or the special civil action of
certiorari, or the institution of two or more actions or proceedings grounded on the same
cause on the supposition that one or the other court would make a favorable disposition. [13]
Thus, for forum-shopping to exist, there must be (a) identity of parties, or at least such parties
as represent the same interests in both actions; (b) identity of rights asserted and relief
prayed for, the relief being founded on the same facts; and (c) the identity of the two
preceding particulars is such that any judgment rendered in the other action will, regardless
of which party is successful, amount to res judicata in the action under consideration.[14]
There is no identity of causes of action between and among the arbitration case, the instant
petition, and Civil Case No. 04-332.
The arbitration case, ICC Case No. 11264 TE/MW, is an arbitral proceeding
commenced pursuant to the Turnkey Contract between TPI and LHC, to determine the
primary issue of whether the delays in the construction of the project were excused delays,
which would consequently render valid TPIs claims for extension of time to finish the
project. Together with the primary issue to be settled in the arbitration case is the equally
important question of monetary awards to the aggrieved party.
On the other hand, Civil Case No. 00-1312, the precursor of the instant petition, was
filed to enjoin LHC from calling on the securities and respondent banks from transferring or
paying the securities in case LHC calls on them. However, in view of the fact that LHC collected
the proceeds, TPI, in its appeal and petition for review asked that the same be returned and
placed in escrow pending the resolution of the disputes before the ICC arbitral tribunal. [15]

While the ICC case thus calls for a thorough review of the facts which led to the
delay in the construction of the project, as well as the attendant responsibilities of the parties
therein, in contrast, the present petition puts in issue the propriety of drawing on the letters
of credit during the pendency of the arbitral case, and of course, absent a final determination
by the ICC Arbitral tribunal. Moreover, as pointed out by TPI, it did not pray for the return of
the proceeds of the letters of credit. What it asked instead is that the said moneys be placed in
escrow until the final resolution of the arbitral case. Meanwhile, in Civil Case No. 04-332, TPI
no longer seeks the issuance of a provisional relief, but rather the issuance of a writ of
execution to enforce the Third Partial Award.
Neither is there an identity of parties between and among the three (3) cases. The
ICC case only involves TPI and LHC logically since they are the parties to the Turnkey
Contract. In comparison, the instant petition includes Security Bank and ANZ Bank, the banks
sought to be enjoined from releasing the funds of the letters of credit. The Court agrees with
TPI that it would be ineffectual to ask the ICC to issue writs of preliminary injunction against
Security Bank and ANZ Bank since these banks are not parties to the arbitration case, and that
the ICC Arbitral tribunal would not even be able to compel LHC to obey any writ of
preliminary injunction issued from its end. [16] Civil Case No. 04-322, on the other hand,
logically involves TPI and LHC only, they being the parties to the arbitration agreement whose
partial award is sought to be enforced.
As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to the
courts for provisional reliefs. The Rules of the ICC, which governs the parties arbitral dispute,
allows the application of a party to a judicial authority for interim or conservatory measures.
[17]
Likewise, Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Law) [18] recognizes the
rights of any party to petition the court to take measures to safeguard and/or conserve any
matter which is the subject of the dispute in arbitration. In addition, R.A. 9285, otherwise
known as the Alternative Dispute Resolution Act of 2004, allows the filing of provisional or
interim measures with the regular courts whenever the arbitral tribunal has no power to act
or to act effectively.[19]
TPIs verified petition in Civil Case No. 04-332, filed on 19 March 2004, was captioned as one
For: Confirmation, Recognition and Enforcement of Foreign Arbitral Award in Case 11264
TE/MW, ICC International Court of Arbitration, Transfield Philippines, Inc. v. Luzon Hydro
Corporation (Place of arbitration: Singapore).[20] In the said petition, TPI prayed:
1. That the THIRD PARTIAL AWARD dated February 18, 2004 in
Case No. 11264/TE/MW made by the ICC International Court of
Arbitration, the signed original copy of which is hereto attached as
Annex H hereof, be confirmed, recognized and enforced in accordance
with law.
2. That the corresponding writ of execution to enforce Question
31 of the said Third Partial Award, be issued, also in accordance with
law.
3. That TPI be granted such other relief as may be deemed just
and equitable, and allowed, in accordance with law.[21]
The pertinent portion of the Third Partial Award[22] relied upon by TPI were the
answers to Questions 10 to 26, to wit:
Question 30 Did TPI [LHC] wrongfully draw upon the security?
Yes
Question 31 Is TPI entitled to have returned to it any sum wrongfully
taken by LHC for liquidated damages?
Yes
Question 32 Is TPI entitled to any acceleration costs?
TPI is entitled to the reasonable costs
TPI incurred after Typhoon Zeb as a
result of LHCs 5 February 1999 Notice to
Correct.[23]
According to LHC, the filing of the above case constitutes forum-shopping since it is
the same claim for the return of US$17.9 Million which TPI made before the ICC Arbitral
Tribunal and before this Court. LHC adds that while Civil Case No. 04-332 is styled as an
action for money, the Third Partial Award used as basis of the suit does not authorize TPI to
seek a writ of execution for the sums drawn on the letters of credit. Said award does not even
contain an order for the payment of money, but instead has reserved the quantification of the
amounts for a subsequent determination, LHC argues. In fact, even the Fifth Partial Award,
[24]
dated 30 March 2005, does not contain such orders. LHC insists that the declarations or the
partial awards issued by the ICC Arbitral Tribunal do not constitute orders for the payment of
money and are not intended to be enforceable as such, but merely constitute amounts which
will be included in the Final Award and will be taken into account in determining the actual
amount payable to the prevailing party.[25]
R.A. No. 9825 provides that international commercial arbitrations shall be
governed shall be governed by the Model Law on International Commercial Arbitration
(Model Law) adopted by the United Nations Commission on International Trade Law
(UNCITRAL).[26] The UNCITRAL Model Law provides:
ARTICLE 35. Recognition and enforcement
(1) An arbitral award, irrespective of the country in which it was
made, shall be recognized as binding and, upon application in writing to
the competent court, shall be enforced subject to the provisions of this
article and of article 36.
(2) The party relying on an award or applying for its enforcement shall
supply the duly authenticated original award or a duly certified copy
thereof, and the original arbitration agreement referred to in article 7 or
a duly certified copy thereof. If the award or agreement is not made in an
official language of this State, the party shall supply a duly certified
translation thereof into such language.
Moreover, the New York Convention,[27] to which the Philippines is a signatory,
governs the recognition and enforcement of foreign arbitral awards. The applicability of the
New York Convention in the Philippines was confirmed in Section 42 of R.A. 9285. Said law
also provides that the application for the recognition and enforcement of such awards shall be
filed with the proper RTC. While TPIs resort to the RTC for recognition and enforcement of the
Third Partial Award is sanctioned by both the New York Convention and R.A. 9285, its
application for enforcement, however, was premature, to say the least. True, the ICC Arbitral
Tribunal had indeed ruled that LHC wrongfully drew upon the securities, yet there is no order
for the payment or return of the proceeds of the said securities. In fact, Paragraph 2142, which
is the final paragraph of the Third Partial Award, reads:
2142. All other issues, including any issues as to quantum and
costs, are reserved to a future award.[28]
Meanwhile, the tribunal issued its Fifth Partial Award[29] on 30 March 2005. It
contains, among others, a declaration that while LHC wrongfully drew on the securities, the
drawing was made in good faith, under the mistaken assumption that the contractor, TPI, was
in default. Thus, the tribunal ruled that while the amount drawn must be returned, TPI is not
entitled to any damages or interests due to LHCsdrawing on the securities.[30] In the Fifth
Partial Award, the tribunal ordered:
6. Order
6.1 General
166. This Fifth Partial Award deals with many issues of
quantum. However, it does not resolve them all. The
outstanding quantum issues will be determined in a
future award. It will contain a reconciliation of the amounts
awarded to each party and a determination of the net amount
payable to Claimant or Respondent, as the case may be.
167. In view of this the Tribunal will make no orders for payment in this
Fifth Partial Award. The Tribunal will make a number of
declarations concerning the quantum issues it has resolved in
this Award together with the outstanding liability issues. The
declarations do not constitute orders for the payment of
money and are not intended to be enforceable as
such. They merely constitute amounts which will be
included in the Final Award and will be taken into account
in determining the actual amount payable.[31] (Emphasis
Supplied.)
Further, in the Declarations part of the award, the tribunal held:
6.2 Declarations
168. The Tribunal makes the following declarations:
xxx
3. LHC is liable to repay TPI the face value of the securities drawn down
by it, namely, $17,977,815. It is not liable for any further damages
claimed by TPI in respect of the drawdown of the securities.
x x x.[32]
Finally, on 9 August 2005, the ICC Arbitral tribunal issued its Final Award, in
essence awarding US$24,533,730.00, which included TPIs claim of U$17,977,815.00 for the
return of the securities from LHC.[33]
The fact that the ICC Arbitral tribunal included the proceeds of the securities shows
that it intended to make a final determination/award as to the said issue only in the Final
Award and not in the previous partial awards. This supports LHCs position that when the
Third Partial Award was released and Civil Case No. 04-332 was filed, TPI was not yet
authorized to seek the issuance of a writ of execution since the quantification of the amounts
due to TPI had not yet been settled by the ICC Arbitral tribunal. Notwithstanding the fact that
the amount of proceeds drawn on the securities was not disputed the application for the
enforcement of the Third Partial Award was precipitately filed. To repeat, the declarations
made in the Third Partial Award do not constitute orders for the payment of money.
Anent the claim of TPI that it was LHC which committed forum-shopping, suffice it to say that
its bare allegations are not sufficient to sustain the charge.
WHEREFORE, the Court RESOLVES to DISMISS the charges of forum-shopping filed by both
parties against each other.
No pronouncement as to costs.
SO ORDERED.
Transfield Philippines vs Luzon Hydro Electric Corp. GR No 146717, Nov 22, 2004
MARCH 15, 2014 LEAVE A COMMENT
The independent nature of the letter of credit may be: (a) independence in toto where the
credit is independent from the justification aspect and is a separate obligation from the
underlying agreement like for instance a typical standby; or (b) independence may be only as
to the justification aspect like in a commercial letter of credit or repayment standby, which is
identical with the same obligations under the underlying agreement. In both cases the
payment may be enjoined if in the light of the purpose of the credit the payment of the credit
would constitute fraudulent abuse of the credit.
Facts: Transfield Philippines (Transfield) entered into a turn-key contract with Luzon Hydro
Corp. (LHC).Under the contract, Transfield were to construct a hydro-electric plants in
Benguet and Ilocos. Transfield was given the sole responsibility for the design, construction,
commissioning, testing and completion of the Project. The contract provides for a period for
which the project is to be completed and also allows for the extension of the period provided
that the extension is based on justifiable grounds such as fortuitous event. In order to
guarantee performance by Transfield, two stand-by letters of credit were required to be
opened. During the construction of the plant, Transfield requested for extension of time citing
typhoon and various disputes delaying the construction. LHC did not give due course to the
extension of the period prayed for but referred the matter to arbitration committee. Because
of the delay in the construction of the plant, LHC called on the stand-by letters of credit
because of default. However, the demand was objected by Transfield on the ground that there
is still pending arbitration on their request for extension of time.
Issue: Whether or not LHC can collect from the letters of credit despite the pending
arbitration case
Held: Transfields argument that any dispute must first be resolved by the parties, whether
through negotiations or arbitration, before the beneficiary is entitled to call on the letter of
credit in essence would convert the letter of credit into a mere guarantee.
The independent nature of the letter of credit may be: (a) independence in toto where the
credit is independent from the justification aspect and is a separate obligation from the
underlying agreement like for instance a typical standby; or (b) independence may be only as
to the justification aspect like in a commercial letter of credit or repayment standby, which is
identical with the same obligations under the underlying agreement. In both cases the
payment may be enjoined if in the light of the purpose of the credit the payment of the credit
would constitute fraudulent abuse of the credit.
Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in
that the settlement of a dispute between the parties is not a pre-requisite for the release of
funds under a letter of credit. In other words, the argument is incompatible with the very
nature of the letter of credit. If a letter of credit is drawable only after settlement of the
dispute on the contract entered into by the applicant and the beneficiary, there would be no
practical and beneficial use for letters of credit in commercial transactions.
The engagement of the issuing bank is to pay the seller or beneficiary of the credit once the
draft and the required documents are presented to it. The so-called independence principle
assures the seller or the beneficiary of prompt payment independent of any breach of the
main contract and precludes the issuing bank from determining whether the main contract is
actually accomplished or not. Under this principle, banks assume no liability or responsibility
for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, WHEREFORE, premises considered, the petition in G.R. No. 199238 is DENIED. The Resolution
or for the general and/or particular conditions stipulated in the documents or superimposed dated September 13, 2011 of the Court of Appeals in CA-G.R. SP No. 120888 is AFFIRMED.
thereon, nor do they assume any liability or responsibility for the description, quantity,
weight, quality, condition, packing, delivery, value or existence of the goods represented by
The petition in G.R. No. 196171 is DENIED. The Decision dated December 23, 2010 of the
any documents, or for the good faith or acts and/or omissions, solvency, performance or
Court of Appeals in CA-G.R. SP No. 113525 is hereby AFFIRMED.
standing of the consignor, the carriers, or the insurers of the goods, or any other person
whomsoever.
SO ORDERED.1

Both RCBC Capital and BDO filed motions for partial reconsideration of the above decision.
RCBC Capital Corp. v. Banco de Oro Unibank, Inc., G.R. No. 196171, 199238, December
10, 2012 Meanwhile, in G.R. No. 200213, RCBC Capital filed its Comment, to which a Reply was filed by
BDO. By Resolution dated July 22, 2013, both parties were directed to submit their respective
memoranda within 30 days from notice.
Before the Court are: (1) the Joint Motion and Manifestation dated October 1, 2013 filed in
G.R. Nos. 196171 & 199238 by RCBC Capital Corporation ("RCBC Capital"), BDO Unibank, Inc.
("BDO"), and George L. Go, in his personal capacity and as attorney-in-fact of the individual In their Joint Motion and Manifestation filed in G.R. Nos. 196171 & 199238, the parties submit
stockholders as listed in the Share Purchase Agreement dated May 27, 2000 and pray that
("Go/Shareholders"), thru their respective counsels; and (2) the Joint Motion and
Manifestation dated October 1, 2013 filed in G.R. No. 200213 by BDO and RCBC Capital thru
5. After negotiations, the Parties have mutually agreed that it is in their best
their respective counsel.
interest and general benefit to settle their differences with respect to their
respective causes of action, claims or counterclaims in the RCBC Capital Petition
All three petitions emanated from arbitration proceedings commenced by RCBC Capital and the BDO Petition, with a view to a renewal of their business relations.
pursuant to the arbitration clause under its Share Purchase Agreement (SPA) with EPCIB
involving the latters shares in Bankard, Inc. In the course of arbitration conducted by the
6. Thus, the parties have reached a complete, absolute and final settlement of their
Tribunal constituted and administered by the International Chamber of Commerce-
claims, demands, counterclaims and causes of action arising, directly or indirectly,
International Commercial Arbitration (ICC-ICA), EPCIB was merged with BDO which assumed
from the facts and circumstances giving rise to, surrounding or arising from both
all its liabilities and obligations.
Petitions, and have agreed to jointly terminate and dismiss the same in accordance
with their agreement.
G.R. No. 196171 is a petition for review under Rule 45 seeking to reverse the Court of Appeals
(CA) Decision dated December 23, 2010 in CA-G.R. SP No. 113525 which reversed and set
7. In view of the foregoing compromise between the Parties, BDO, RCBC Capital and
aside the June 24, 2009 Order of the Regional Trial Court (RTC) of Makati City, Branch 148 in
Go/Shareholders, with the assistance of their respective counsels, have decided to
SP Proc. Case No. M-6046. The RTC confirmed the Second Partial Award issued by the
jointly move for the termination and dismissal of the above-captioned cases with
Arbitration Tribunal ordering BDO to pay RCBC Capital proportionate share in the advance
prejudice.
costs and dismissing BDOs counterclaims.

G.R. No. 199238 is a petition for certiorari under Rule 65 assailing the September 13, 2011
Resolution in CA-G.R. SP No. 120888 which denied BDOs application for the issuance of a stay
order and/or temporary restraining order (TRO)/preliminary injunction against the RTC of
Makati City, Branch 148 in Sp. Proc. Case No. M-6046. Acting upon RCBC Capitals urgent
motion, the RTC issued on August 22, 2011 a writ of execution for the implementation of the
courts order confirming the Final Award rendered by the Arbitration Tribunal on June 16,
2010.
On the other hand, G.R. No. 200213, filed on February 6, 2012, is a petition for review under
Rule 45 praying for the reversal of the CAs Decision dated February 24, 2011 and Resolution
dated January 13, 2012 in CA-G.R. SP No. 113402. The CA denied BDOs petition for certiorari
and prohibition with application for issuance of a TRO and/or writ of preliminary injunction
against the RTC of Makati City, Branch 148 in Sp. Proc. Case No. M-6046. By Order dated June
24, 2009, the RTC denied BDOs motion for access of the computerized accounting system of
Bankard, Inc. after Chairman Richard Ian Barker had denied BDOs request that it be given
access to the said source of facts or data used in preparing the accounting summaries
submitted in evidence before the Arbitration Tribunal.
PRAYER
WHEREFORE, RCBC CAPITAL CORPORATION, BDO UNIBANK, INC. and GEORGE L. GO, IN HIS
PERSONAL CAPACITY AND AS ATTORNEY-IN-FACT OF THE INDIVIDUAL STOCKHOLDERS AS
LISTED IN THE SHARE PURCHASE AGREEMENT DATED 27 MAY 2000 respectfully pray that
this Honorable Court order the termination and dismissal of the above-captioned cases, with
prejudice. RCBC Capital BDO and Go/Shareholders respectfully pray for such other relief as
may be deemed just or equitable under the premises. 2
BDO and RCBC Capital likewise submit and pray in their Joint Motion and Manifestation in
G.R. No. 200213 that
3. After negotiations, the Parties have mutually agreed that it is in their best
interest and general benefit to settle their differences with respect to their
respective causes of action, claims or counterclaims in the above-captioned case,
with a view to a renewal of their business relations.

4. Thus, the Parties have reached a complete, absolute and final settlement of their
G.R. Nos. 196171 & 199238 were consolidated and a Decision was rendered by this Court on claims, demands, counterclaims and causes of action arising, directly or indirectly,
December 10, 2012, the dispositive portion of which states:
from the facts and circumstances giving rise to, surrounding or arising from the
present Petition, and have agreed to jointly terminate and dismiss the present
Petition in accordance with their agreement.
5. In view of the foregoing compromise between the Parties, BDO and RCBC Capital,
with the assistance of their respective counsels, have decided to jointly move for
the termination and dismissal of the above-captioned case with prejudice.1wphi1
PRAYER
WHEREFORE, BDO UNIBANK, INC. and RCBC CAPITAL CORPORATION respectfully pray that
this Honorable Court order the termination and dismissal of the above-captioned case, with
prejudice.
BDO and RCBC Capital respectfully pray for such other relief as may be deemed just or
equitable under the premises.3
Under this Court s Resolution dated November 27, 2013, G.R. No. 200213 is ordered
consolidated with G.R. Nos. 196171 199238.
IN VIEW OF THE FOREGOING and as prayed for, G.R. Nos. 196171, 199238 and 200213 are
hereby ordered DISMISSED with prejudice and are deemed CLOSED and TERMINATED.