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History of ADR voluntary arbitrator is clearly shown.

It should be stressed, too, that voluntary


arbitrators, by the nature of their functions, act in a quasi-judicial capacity. It stands to
Chung Fu Industries v CA reason, therefore, that their decisions should not be beyond the scope of the power of
Facts: Petitioner Chung Fu Industries (Philippines) and private respondent Roblecor judicial review of this Court.
Philippines, Inc. forged a construction agreement whereby respondent contractor In the case at bar, petitioners assailed the arbitral award on the following grounds,
committed to construct and finish petitioner corporation’s industrial/factory complex. most of which allege error on the part of the arbitrator in granting compensation for
In the event of disputes arising from the performance of subject contract, it was various items which apparently are disputed by said petitioners. After closely studying
stipulated therein that the issue(s) shall be submitted for resolution before a single the list of errors, as well as petitioners’ discussion of the same in their Motion to
arbitrator chosen by both parties. Roblecor filed a petition for Compulsory Arbitration Remand Case For Further Hearing and Reconsideration and Opposition to Motion for
with prayer for Temporary Restraining Order before respondent RTC to claim the Confirmation of Award, we find that petitioners have amply made out a case where
unsatisfied account and unpaid progress billings. Chung Fu moved to dismiss the the voluntary arbitrator failed to apply the terms and provisions of the Construction
petition and further prayed for the quashing of the restraining order. Subsequent Agreement which forms part of the law applicable as between the parties, thus
negotiations between the parties eventually led to the formulation of an arbitration committing a grave abuse of discretion. Furthermore, in granting unjustified extra
agreement which, among others, provides: The parties mutually agree that the decision compensation to respondent for several items, he exceeded his powers — all of which
of the arbitrator shall be final and unappealable. Therefore, there shall be no further would have constituted ground for vacating the award under Section 24 (d) of the
judicial recourse if either party disagrees with the whole or any part of the arbitrator’s Arbitration Law.
award. Respondent RTC approved the arbitration agreement and thereafter, Engr. Wherefore, the petition is granted. The Resolutions of the CA as well as the Orders of
Willardo Asuncion was appointed as the sole arbitrator. Arbitrator Asuncion ordered respondent RTC are hereby SET ASIDE. Accordingly, this case is REMANDED to
petitioner to immediately pay respondent contractor and further declared the award as the court of origin for further hearing on this matter. All incidents arising therefrom
final and unappealable. Roblecor then moved for the confirmation of said award which are reverted to the status quo ante until such time as the trial court shall have passed
was accordingly confirmed and a writ of execution granted to it. Meanwhile, Chung upon the merits of this case.
Fu moved to remand the case for further hearing and asked for a reconsideration of the
judgment award claiming that Arbitrator Asuncion committed twelve (12) instances Del Monte Corporation-USA v CA
of grave error by disregarding the provisions of the parties’ contract. Chung Fu’s Facts:
Motion was denied and similarly its motion for reconsiderationn. Chung Fu elevated  1 July 1994 - in a Distributorship Agreement, Del Monte Corporation-USA
the case via a petition for certiorari to respondent CA. The respondent appellate court (DMC-USA) appointed Montebueno Marketing, Inc. (MMI) as the sole and
concurred with the findings and conclusions of respondent trial court. A motion for exclusive distributor of its Del Monte products in the Philippines for a period
reconsideration of said resolution was filed by petitioner, but was similarly denied. of five (5) years, renewable for two (2) consecutive five (5) year periods with
the consent of the parties.
Issue: Whether or not petitioners are estopped from questioning the arbitration award  Said agreement provided for an arbitration clause, which states:
allegedly in view of the stipulations in the parties’ arbitration agreement that “the This Agreement shall be governed by the laws of the State of California
decision of the arbitrator shall be final and unappealable” and that “there shall be no and/or, if applicable, the United States of America. All disputes arising out
further judicial recourse if either party disagrees with the whole or any part of the of or relating to this Agreement or the parties’ relationship, including the
arbitrator’s award.” termination thereof, shall be resolved by arbitration in the City of San
Francisco, State of California, under the Rules of the American Arbitration
Ruling: We rule in the negative. It is stated explicitly under Art. 2044 of the Civil Code Association. The arbitration panel shall consist of three members, one of
that the finality of the arbitrators’ award is not absolute and without exceptions. Where whom shall be selected by DMC-USA, one of whom shall be selected by MMI,
the conditions described in Articles 2038, 2039 and 2040 applicable to both and third of whom shall be selected by the other two members and shall have
compromises and arbitrations are obtaining, the arbitrators’ award may be annulled or relevant experience in the industry
rescinded. Additionally, under Sections 24 and 25 of the Arbitration Law, there are  October 1994 - appointment of MMI as the sole and exclusive distributor of
grounds for vacating, modifying or rescinding an arbitrator’s award. Thus, if and when Del Monte products in the Philippines was published in several newspapers
the factual circumstances referred to in the above-cited provisions are present, judicial in the country.
review of the award is properly warranted.  Immediately after its appointment, MMI appointed Sabrosa Foods, Inc. (SFI),
This is where the proper remedy is certiorari under Rule 65 of the Revised Rules of with the approval of DMC-USA, as MMI’s marketing arm to concentrate on
Court. It is to be borne in mind, however, that this action will lie only where a grave its marketing and selling function as well as to manage its critical relationship
abuse of discretion or an act without or in excess of jurisdiction on the part of the with the trade.
 3 October 1996 - MMI, SFI and MMI’s Managing Director Liong Liong C.  21 October 1996 – DMC-USA et al. filed a Motion to Suspend Proceedings,
Sy (LILY SY) filed a Complaint against DMC-USA, Managing Director of invoking the arbitration clause.
Del Monte Corporation’s Export Sales Department Paul E. Derby, Jr.,  RTC: deferred consideration of DMC-USA et al.’s Motion to Suspend
Regional Director of Del Monte Corporation’s Export Sales Department Proceedings as the grounds alleged therein did not constitute the suspension
Daniel Collins, Head of Credit Services Department of Del Monte of the proceedings considering that the action was for damages with prayer
Corporation Luis Hidalgo and Dewey Ltd. before Malabon RTC. for the issuance of Writ of Preliminary Attachment and not on the
 MMI et al. predicated their complaint on the alleged violations by Del Monte Distributorship Agreement
et al. of Articles 201, 212 and 233 of the Civil Code.  DMC-USA et al. filed a MR to which MMI et al. filed their
According to them, DMC-USA products continued to be brought into the comment/opposition.
country by parallel importers despite the appointment of MMI as the sole and  DMC-USA et al. filed a reply. They later on filed a Motion to Admit
exclusive distributor of Del Monte products thereby causing them great Supplemental Pleading.
embarrassment and substantial damage. They alleged that the products  Said motion was admitted.
brought into the country by these importers were aged, damaged, fake or  As a result of the admission of the Supplemental Complaint, DMC-USA et
counterfeit, so that in March 1995 they had to cause, after prior consultation al. filed on 22 July 1997 a Manifestation adopting their Motion to Suspend
with Antonio Ongpin, Market Director for Special Markets of Del Monte Proceedings of 17 October 1996 and Motion for Reconsideration of 14
Philippines, Inc., the publication of a "warning to the trade" paid January 1997.
advertisement in leading newspapers. DMC-USA and Paul E. Derby, Jr.,  11 November 1997 - the Motion to Suspend Proceedings was denied by the
apparently upset with the publication, instructed private respondent MMI to trial court on the ground that it "will not serve the ends of justice and to allow
stop coordinating with Antonio Ongpin and to communicate directly instead said suspension will only delay the determination of the issues, frustrate the
with DMC-USA through Paul E. Derby, Jr. quest of the parties for a judicious determination of their respective claims,
 MMI et al. further averred that: and/or deprive and delay their rights to seek redress.
1. DMC-USA et al. knowingly and surreptitiously continued to deal with  On appeal, the CA affirmed the RTC decision.
the former in bad faith by involving disinterested third parties and by  Hence, this petition.
proposing solutions which were entirely out of their control
2. they had exhausted all possible avenues for an amicable resolution and Issue:
settlement of their grievances WON the dispute between the parties warrants an order compelling them to submit to
3. as a result of the fraud, bad faith, malice and wanton attitude of DMC- arbitration [NO]
USA et al., they should be held responsible for all the actual expenses
incurred by MMI et al. in the delayed shipment of orders which resulted Ratio:
in the extra handling thereof, the actual expenses and cost of money for
 There is no doubt that arbitration is valid and constitutional in our
the unused Letters of Credit (LCs) and the substantial opportunity losses
jurisdiction. Even before the enactment of RA 876, this Court has
due to created out-of-stock situations and unauthorized shipments of Del countenanced the settlement of disputes through arbitration. Unless the
Monte-USA products to the Philippine Duty Free Area and Economic
agreement is such as absolutely to close the doors of the courts against the
Zone
parties, which agreement would be void, the courts will look with favor upon
4. the bad faith, fraudulent acts and willful negligence of DMC-USA et al.,
such amicable arrangement and will only interfere with great reluctance to
motivated by their determination to squeeze MMI et al. out of the
anticipate or nullify the action of the arbitrator. Moreover, as RA 876
outstanding and on-going Distributorship Agreement in favor of another
expressly authorizes arbitration of domestic disputes, foreign arbitration as a
party, had placed Lily Sy on tenterhooks since then
system of settling commercial disputes was likewise recognized when the
5. the shrewd and subtle manner with which DMC-USA et al. concocted
Philippines adhered to the United Nations "Convention on the Recognition
imaginary violations by MMI of the Distributorship Agreement in order
and the Enforcement of Foreign Arbitral Awards of 1958" under the 10 May
to justify the untimely termination thereof was a subterfuge
1965 Resolution No. 71 of the Philippine Senate, giving reciprocal

1 Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, 3 Art. 23. Even when an act or event causing damage to another's property was not due to the
shall indemnify the latter for the same. fault or negligence of the defendant, the latter shall be liable for indemnity if through the act or
2 Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary event he was benefited.
to morals, good customs or public policy shall compensate the latter for the damage.
recognition and allowing enforcement of international arbitration agreements would only be served if the trial court hears and adjudicates the case in a
between parties of different nationalities within a contracting state. single and complete proceeding.
 A careful examination of the instant case shows that the arbitration clause in
the Distributorship Agreement between DMC-USA and MMI is valid and the Dispositive: Petition denied.
dispute between the parties is arbitrable. However, this Court must deny the
petition. La Naval Drug Corp. v CA
 The Agreement between DMC-USA and MMI is a contract. The provision Facts: I n 1989, a conflict between La Naval Drug Corporation and a certain Wilson
to submit to arbitration any dispute arising therefrom and the relationship of Yao arose regarding a lease contract. Yao invoked a provision in the lease contract
the parties is part of that contract and is itself a contract. As a rule, contracts whereby pursuant to R.A. 876 (Arbitration Law), they should refer the matter to
are respected as the law between the contracting parties and produce effect arbitration. Hence, the parties agreed to refer the issue to three arbitrators however,
as between them, their assigns and heirs. certain complications arose when they were choosing a third arbitrator. This prompted
 Clearly, only parties to the Agreement, i.e., DMC-USA and its Managing Yao to go to court to demand the arbitrators to proceed with the arbitration. Yao went
Director for Export Sales Paul E. Derby, Jr., and MMI and its Managing to the regional trial court (Angeles City) and the case was filed as a summary
Director LILY SY are bound by the Agreement and its arbitration clause as proceeding case under R.A. 876. Yao also prayed for an award for damages in his
they are the only signatories thereto. favor.
o Daniel Collins and Luis Hidalgo, and SFI, not parties to the Agreement
and cannot even be considered assigns or heirs of the parties, are not In its answer, La Naval asserted that the case should be dismissed as it was filed
bound by the Agreement and the arbitration clause therein. prematurely; La Naval questioned Yao’s claim for damages as it averred that the same
 Consequently, referral to arbitration in the State of California pursuant to the should be litigated independently and not in the same summary proceeding case.
arbitration clause and the suspension of the proceedings in Civil Case No. However, La Naval also posed a counterclaim.
2637-MN pending the return of the arbitral award could be called for but
only as to DMC-USA and Paul E. Derby, Jr., and MMI and LILY SY, and The RTC resolved the matter regarding the arbitrators (it appointed a third arbitrator).
not as to the other parties in this case, in accordance with the recent case The RTC also ruled that La Naval is estopped from questioning Yao’s claim for
of Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation, which damages for being out of jurisdiction as La Naval itself filed a counterclaim for
superseded that of Toyota Motor Philippines Corp. v. Court of Appeals. damages.
o In Toyota, the Court ruled that "[t]he contention that the arbitration
clause has become dysfunctional because of the presence of third parties ISSUE: Whether or not the RTC has jurisdiction over the claims for damages between
is untenable ratiocinating that "[c]ontracts are respected as the law parties.
between the contracting parties" and that "[a]s such, the parties are
thereby expected to abide with good faith in their contractual HELD: No. R.A. 876 is clear that summary proceedings under said law shall only
commitments." involve the matter of arbitration. The parties’ claims for damages must be litigated in
o However, in Salas, Jr., only parties to the Agreement, their assigns or another civil case.
heirs have the right to arbitrate or could be compelled to arbitrate. The
Court went further by declaring that in recognizing the right of the The Supreme Court went on to discuss that where the court clearly has no jurisdiction
contracting parties to arbitrate or to compel arbitration, the splitting of over the subject matter, in this case the claim and counterclaim for damages, the court
the proceedings to arbitration as to some of the parties on one hand and must dismiss the case (in this case, the claim and counterclaim for damages). Lack of
trial for the others on the other hand, or the suspension of trial pending jurisdiction over the subject matter as a defense may be raised at any time. Failure to
arbitration between some of the parties, should not be allowed as it raise such defense shall not estop the defendant from raising such defense (as opposed
would, in effect, result in multiplicity of suits, duplicitous procedure and to the defense of lack of jurisdiction over the person which is deemed waived if the
unnecessary delay. defendant voluntarily appeared – if defendant voluntarily appeared, then he is estopped
 The object of arbitration is to allow the expeditious determination of a from raising that defense).
dispute.
Clearly, the issue before us could not be speedily and efficiently resolved in Role of the 3 Branches of the Government in ADR
its entirety if we allow simultaneous arbitration proceedings and trial, or
suspension of trial pending arbitration. Accordingly, the interest of justice Salient Features of the ADR Act of 2004
 Jurisdiction
 Venue and Place of Arbitration the finality and binding effect of an arbitral award. Art. 2044 provides, Any stipulation
 Specific Cases of Court Involvement that the arbitrators award or decision shall be final, is valid, without prejudice to
Articles 2038, 2039 and 2040.
Korea Technologies Co. Ltd. v Lerma
Facts: Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation The arbitration clause was mutually and voluntarily agreed upon by the parties. It has
which is engaged in the supply and installation of Liquefied Petroleum Gas (LPG) not been shown to be contrary to any law, or against morals, good customs, public
Cylinder manufacturing plants, while private respondent Pacific General Steel order, or public policy. There has been no showing that the parties have not dealt with
Manufacturing Corp. (PGSMC) is a domestic corporation. On March 5, 1997, PGSMC each other on equal footing. We find no reason why the arbitration clause should not
and KOGIES executed a Contract whereby KOGIES would set up an LPG Cylinder be respected and complied with by both parties. In Gonzales v. Climax Mining Ltd.,
Manufacturing Plant in Carmona, Cavite. The contract was executed in the we held that submission to arbitration is a contract and that a clause in a contract
Philippines. On April 7, 1997, the parties executed, in Korea, an Amendment for providing that all matters in dispute between the parties shall be referred to arbitration
Contract No. KLP-970301 dated March 5, 1997 amending the terms of payment. The is a contract. Again in Del Monte Corporation-USA v. Court of Appeals, we likewise
contract and its amendment stipulated that KOGIES will ship the machinery and ruled that [t]he provision to submit to arbitration any dispute arising therefrom and the
facilities necessary for manufacturing LPG cylinders for which PGSMC would pay relationship of the parties is part of that contract and is itself a contract.
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. Having said that the instant arbitration clause is not against public policy, we come to
LPG cylinder samples. Thus, the total contract price amounted to USD 1,530,000. On the question on what governs an arbitration clause specifying that in case of any
October 14, 1997, PGSMC entered into a Contract of Lease with Worth Properties, dispute arising from the contract, an arbitral panel will be constituted in a foreign
Inc. (Worth) for use of Worths 5,079-square meter property with a 4,032-square meter country and the arbitration rules of the foreign country would govern and its award
warehouse building to house the LPG manufacturing plant. The monthly rental was shall be final and binding.
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 Thus, it can be gleaned that the concept of a final and binding arbitral award is similar
cylinders were shipped, delivered, and installed in the Carmona plant. PGSMC paid to judgments or awards given by some of our quasi-judicial bodies, like the National
KOGIES USD 1,224,000. However, gleaned from the Certificate executed by the Labor Relations Commission and Mines Adjudication Board, whose final judgments
parties on January 22, 1998, after the installation of the plant, the initial operation are stipulated to be final and binding, but not immediately executory in the sense that
could not be conducted as PGSMC encountered financial difficulties affecting the they may still be judicially reviewed, upon the instance of any party. Therefore, the
supply of materials, thus forcing the parties to agree that KOGIES would be deemed final foreign arbitral awards are similarly situated in that they need first to be
to have completely complied with the terms and conditions of the March 5, 1997 confirmed by the RTC.
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 May 8, 1998,
KOGIES sent a demand letter 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.

Issue: Whether or not the arbitration clause in the contract of the parties should govern.

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 the Philippines. Therefore, our laws ought to govern. Nonetheless,
Art. 2044 of the Civil Code sanctions the validity of mutually agreed arbitral clause or

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