Korea Technologies vs Lerma, G.R. No. 143581, 7 January 2008.

 Petitioner Korea Technologies Co., Ltd. Or KOGIES is a Korean corporation which is

engaged in the supply and installation of LPG Cylinder manufacturing plants, while PR
Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic corporation.
 The two companies executed a contract in the Philippines hereby KOGIES would set up
an LPG Cylinder Manufacturing Plant in Cavite. Later, they executed an amendment in
Korea which stated 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. The total contract price amounted to USD 1,530,000
 PGSMC encountered financial difficulties so the initial operations could not be
conducted. Thus, the parties were forced to agree that KOGIES would be deemed to
have completely complied with the terms and conditions of the contract.
 For the remaining balance of USD306,000 for the installation and initial operation of the
plant, PGSMC issued two postdated check which were dishonored upon presentment by
KOGIES for the reason PAYMENT STOPPED.
 KOGIES sent a demand letter to PGSMC threatening criminal action for violation of
Batas Pambansa Blg. 22 in case of nonpayment.
 PGSMC replied that the two checks it issued KOGIES were fully funded but the
payments were stopped for reasons previously made known to KOGIES.
 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 Car-mona plant.
PGSMC filed an Affidavit-Complaint for Estafa against Mr. Dae Hyun Kang, President of
KOGIES.
 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 and insisted that their disputes should be settled by
arbitration as agreed upon in Article 15, the arbitration clause of their contract. 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.
 KOGIES filed a Complaint for Specific Performance before the Muntinlupa City Regional
Trial Court.
 The RTC granted a (TRO) on July 4, 1998 (in favor of KOGIES)
 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
  KOGIES averred that PGSMC violated Art. 151 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
 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.
 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
 CA affirmed the trial court and declared the arbitration clause against public policy and
ruled 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.

Whether the arbitration clause (which stipulates that the arbitration must be done in Seoul,
Korea) must be upheld? YES, the arbitration clause is not contrary to public policy, and was
mutually and voluntarily agreed upon by the parties.

In this jurisdiction, it is established that the law of the place where the contract is made governs.
This is also known as Lex loci contractus.

The court has previously ruled that a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a contract. [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.
In the case at bar, the contract was perfected in the Philippines, thus, Philippine law governs.
Art. 2044 of the Civil Code sanctions the validity of mutually agreed arbitral clause or the finality
and binding effect of an 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.

The Court also held that the arbitration clause is not contrary to public policy. The Court said
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.
Applying the foregoing to the case at bar, 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.

1
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.
What law 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 or the Alternative Dispute Resolution Act is applicable in this case.

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

Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model Law
are the following:
 The RTC must refer to arbitration in proper cases:
o 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
 Foreign arbitral awards must be confirmed by the RTC:
o 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. S
o Sec. 35 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.
o THUS, foreign arbitral awards need first to be confirmed by the RTC. When
confirmed, they are enforced as a final and executory decision of our courts of
law.
 The RTC has jurisdiction to review foreign arbitral awards
o 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.
o Thus, 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.
 The grounds for judicial review are different in domestic and foreign arbitral awards
o 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.
o For final domestic arbitral awards, which also need confirmation by the RTC
pursuant to Sec. 23 of RA 876 and shall be recognized as final and executory
 decisions of the RTC, they may only be assailed before the RTC and vacated on
the grounds provided under Sec. 25 of RA 876
 RTC decision of assailed foreign arbitral award appealable
o 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
An arbitration clause, while final and binding, does not oust the courts of jurisdiction since it can
still be subject to judicial review under the conditions set forth in RA 9285.

Based on the foregoing features of RA 9285, PGSMC must submit to the foreign arbitration as it
bound itself through the subject contract. 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. 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

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

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 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.

Lanuza v. BF Corporation, G.R. No. 174938, 1 Oct. 2014.

 BF Corp. filed a collection complaint against Shangri-La and the members of its Board of
Directors, namely: Alfredo Ramos, Rufo Colayco, Antonio Olbes, Gerardo Lanuza, Jr.,
Maximo Licauco III, and Benjamin Ramos.
 BF Corp. alleged that it entered into agreements with Shangri-La wherein it undertook to
construct for Shang a mall and a multilevel parking structure along EDSA.
o Shang had been consistent in paying. However, by Oct. 1991, it started
defaulting in payment.
 o Shang induced BF Corp. to continue with the construction of the buildings using
its own funds and credit despite Shang’s default and it misrepresented that it had
funds to pay for its obligations.
o BF Corp. eventually completed the construction so Shang took possession of the
structures despite owing an outstanding balance.
o Finally, Shang refused to pay despite several demands.
 Therefore BF Corp. filed the collection complaint and included the members of BoD of
Shang, alleging that Shang’s directors were in bad faith in directing the company’s
affairs. Thus they should be held solidarily liable with Shang.
 Shang filed a motion to suspend the proceedings in view of BF Corp.’s failure to
submit its dispute to arbitration, in accordance with the arbitration clause provided in
their contract. The provision in the contract provides:

35. Arbitration

(1) Provided always that in case any dispute or difference shall arise between the Owner or
the Project Manager on his behalf and the Contractor, either during the progress or after the
completion or abandonment of the Works as to the construction of this Contract or as to any
matter or thing of whatsoever nature arising there under or in connection therewith (including
any matter or thing left by this Contract to the discretion of the Project Manager or the
withholding by the Project Manager of any certificate to which the Contractor may claim to be
entitled or the measurement and valuation mentioned in clause 30(5)(a) of these Conditions
or the rights and liabilities of the parties under clauses 25, 26, 32 or 33 of these Conditions),
the owner and the Contractor hereby agree to exert all efforts to settle their differences or
dispute amicably. Failing these efforts then such dispute or difference shall be referred to
arbitration in accordance with the rules and procedures of the Philippine Arbitration Law.
xxx xxx xxx
(6) The award of such Arbitrators shall be final and binding on the parties. The decision of the
Arbitrators shall be a condition precedent to any right of legal action that either party may
have against the other. . .

 The Supreme Court ordered that the case be submitted to arbitration.

 BF Corporation then initiated the Arbitration Proceedings, but BF and Shangri-La failed to
reach an agreement as to what law should govern the arbitration proceedings.
 The TC issued an order directing the parties to conduct the proceedings in accordance with
Republic Act No. 876.
 Shang filed an omnibus motion and BF Corp. an urgent motion for clarification, both seeking
to clarify the term “parties,” and whether Shang’s directors should be included in the
arbitration proceedings and served with separate demands for arbitration.
o RTC: YES. Shang’s directors were interested parties who must also be served
with a demand for arbitration. CA affirmed RTC. Hence, this petition.

Petitioners’ arguments
They are third parties to the contract between BF Corporation and Shangri-La. Provisions
including arbitration stipulations should bind only the parties. Based on our arbitration laws,
parties who are strangers to an agreement cannot be compelled to arbitrate. Petitioners point
out that our arbitration laws were enacted to promote the autonomy of parties in resolving their
disputes. Compelling them to submit to arbitration is against this purpose and may be
tantamount to stipulating for the parties

Respondent’s argument:
BF Corporation further argued that because petitioners were impleaded for their solidary liability,
they are necessary parties to the arbitration proceedings. The full resolution of all disputes in the
arbitration proceedings should also be done in the interest of justice.

Whether petitioners should be made parties to the arbitration proceedings, pursuant to

the arbitration clause provided in the contract between BF Corporation and Shangri-La

HELD: YES. They must be made parties to the arbitration proceedings.

The allegation that Lanuza et al. acted in bad faith in directing the affairs of Shangri-La is an
incidental issue which would be properly resolved in the arbitration proceedings, since if they
acted in bad faith the corporate personality would be disregarded and they would be held
solidarily liable with Shangri-La.

Petitioners may be compelled to submit to the arbitration proceedings in accordance with

Shangri-La and BF Corporation’s agreement, in order to determine if the distinction between
Shangri-La’s personality and their personalities should be disregarded.

This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to avoid
litigation and settle disputes amicably and more expeditiously by themselves and through their
choice of arbitrators.

“When there are allegations of bad faith or malice against corporate directors or representatives,
it becomes the duty of courts or tribunals to determine if these persons and the corporation
should be treated as one. Without a trial, courts and tribunals have no basis for determining
whether the veil of corporate fiction should be pierced. Courts or tribunals do not have such
prior knowledge. Thus, the courts or tribunals must first determine whether circumstances exist
to warrant the courts or tribunals to disregard the distinction between the corporation and the
persons representing it.

In Eastboard Navigation, Ltd. v. Ysmael and Company, Inc, the Court held:

As a corollary to the question regarding the existence of an arbitration agreement, defendant

raises the issue that, even if it be granted that it agreed to submit its dispute with plaintiff to
arbitration, said agreement is void and without effect for it amounts to removing said dispute
from the jurisdiction of the courts in which the parties are domiciled or where the dispute
occurred. It is true that there are authorities which hold that "a clause in a contract providing that
all matters in dispute between the parties shall be referred to arbitrators and to them alone, is
contrary to public policy and cannot oust the courts of jurisdiction, however, there are authorities
which favor "the more intelligent view that arbitration, as an inexpensive, speedy and amicable
method of settling disputes, and as a means of avoiding litigation, should receive every
encouragement from the courts which may be extended without contravening sound public
policy or settled law". Congress has officially adopted the modern view when it reproduced in
the new Civil Code the provisions of the old Code on Arbitration. And only recently it approved
Republic Act No. 876 expressly authorizing arbitration of future disputes.72 (Emphasis supplied)

In view of our policy to adopt arbitration as a manner of settling disputes, arbitration clauses are
liberally construed to favor arbitration.

Thus, in LM Power Engineering Corporation v. Capitol Industrial Construction Groups, Inc., this
court said:

Being an inexpensive, speedy and amicable method of settling disputes, arbitration — along
with mediation, conciliation and negotiation — is 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.

A more clear-cut statement of the state policy to encourage arbitration and to favor
interpretations that would render effective an arbitration clause was later expressed in Republic
Act No. 9285:

SEC. 2. Declaration of Policy.- It is hereby declared the policy of the State to actively promote
party autonomy in the resolution of disputes or the freedom of the party to make their own
arrangements to resolve their disputes. Towards this end, the State shall encourage and
actively promote the use of Alternative Dispute Resolution (ADR) as an important means to
achieve speedy and impartial justice and declog court dockets. As such, the State shall provide
means for the use of ADR as an efficient tool and an alternative procedure for the resolution of
appropriate cases. Likewise, the State shall enlist active private sector participation in the
settlement of disputes through ADR. This Act shall be without prejudice to the adoption by the
Supreme Court of any ADR system, such as mediation, conciliation, arbitration, or any
combination thereof as a means of achieving speedy and efficient means of resolving cases
pending before all courts in the Philippines which shall be governed by such rules as the
Supreme Court may approve from time to time.
European Resources and Technologies, Inc. v. Wenceslao, G.R. No. 159586, 26 July 2004.

 Respondents (German Consortium or Consortium) made a bid to the Clark Development

Corporation (CDC) to construct, operate, and manage the Integrated Waste
Management Center at the Clark Special Economic Zone (CSEZ).
 The CDC accepted the bid and awarded the contract to the German Consortium.
 The terms and conditions were embodied in a contract for services.
o Such contract provides that the German consortium shall be empowered to enter
into a contract or agreement for the use of the integrated waste management
center by corporations, LGUs, entities, and persons not only within the CSEZ but
also outside
 Article VIII, Section 7 of the Contract for Services provides that the German Consortium
shall undertake to organize a local corporation as its representative for this project.
o This resulted to the German consortium entering into a joint venture (JV) with
D.M. Wenceslao and Associates, Inc. (DMWAI) and Ma. Elena B. Villarama
(doing business as LBV and Associates, embodied in a Memorandum of
Understanding (MOU).
o Under the MOU, the parties agreed to jointly form a local corporation to which the
German Consortium shall assign its right under the contract of services. The
parties likewise agreed to prepare and finalize a shareholders’ agreement which
shall provide that the German consortium shall own 15% equity in the JV,
DMWAI with 70%, and LBV and Associates with 15%.
 Without the shareholders’ agreement having been executed, the German consortium
and petitioner European Resources and Technologies Inc. (ERTI) entered into MOA
whereby the German consortium ceded its rights and obligations under the contract of
services to ERTI and assigned unto ERTI its license from CDC to engage in the
business of providing environmental services needed in the CSEZ in connection with the
waste management within the CSEZ and other areas.
 The parties also agreed that should there be a disagreement between them relative to
the interpretation/implementation of the MOA and the collateral documents including but
not limited to the contract for services between the German Consortium and CDC, the
dispute shall be referred to a panel of arbitrators.
 Eventually, ERTI received a letter from BN Consultants stating that the German
Consortium’s contract for the formation of the JV has been terminated since:
o The CDC did not give its approval to the request of the consortium for the
assignment of rights to ERTI
o The shareholders’ agreement was not prepared and finalized
o There is no more factual/legal basis for the JV to continue
o The MOU is terminated, the MOA is also deemed terminated or extinguished.
  Attached to the letter above was a copy of the letter of the CDC stating that the German
consortium’s assignment of an 85% majority interest to another party violated its
representation to undertake both the financial and technical aspects of the project, as
this was considered a substantial modification of the consortium’s representations. ERTI
then sent a letter to CDC to ask for reconsideration.
 Even before CDC could act upon the letter of ERTI, the consortium filed a complaint for
injunction and applied for a TRO against petitioners before the RTC, claiming that
ERTI’s continued misrepresentations to the public as to their right to accept solid wastes
from third parties for processing at the waste management center will cause irreparable
damage to the consortium and its exclusive right to operate the waste management
center at the CSEZ. This was opposed by ERTI, as they sent a letter to the consortium
demanding that the parties proceed to arbitration as provided by the MOA. At the
hearing in the RTC, petitioners objected to the presentation of evidence on the ground
that the RTC had no JD over the case since the German Consortium was composed of
foreign corporations doing business in the country without a license. Moreover, the MOA
provides that the dispute should be referred to arbitration.
 RTC granted the writ of preliminary injunction and CA dismissed petition for certiorari
brought to it from the RTC’s decision

Whether or not the CA committed reversible error in:

a. Ruling that petitioners are estopped from assailing the capacity of the
respondents to institute the suit for injunction.
b. Ruling that respondents are entitled to an injunctive writ.
c. Not holding that the dispute is covered by the arbitration clause in the
memorandum of agreement
d. Issuing the writ of preliminary injunction that is tantamount to a decision of the
case on the merits

There is no general rule or governing principle laid down as to what constitutes “doing” or
“engaging in “or “transacting” business in the Philippines. It has often been held that a single act
or transaction may be considered as “doing business” when a corporation performs acts for
which it was created or exercises some of the functions for which it was organized (i.e.
participating in bidding process). In this case, the consortium is doing business in the
Philippines without the appropriate license by participating in the bidding. It is likewise clear from
the other provisions of the contract for services that it will be the consortium which shall manage
and conduct the operations of the waste management center for at least 25 years.

The general rule is that an unlicensed foreign non-resident corporations cannot file suits in the
Philippines, as stated in section 133 of the corporation code (what is required is license from the
SEC and an agent for service of process).

An exception thereto is that the party is estopped from questioning the capacity of a foreign
corporation to institute an action in our courts where it had obtained benefits from its dealings
with such foreign corporation and thereafter committed a breach of or sought to renege on its
obligations.

In this case, petitioners clearly have not received any benefit from its transactions with the
German consortium. In fact, it is the petitioners who have expended a considerable amount of
money and effort preparatory to the implementation of the MOA.

To rule that the German Consortium has the capacity to institute an action against petitioners
even when the latter have not committed any breach of its obligation would be tantamount to an
unlicensed foreign corporation gaining access to our courts for protection and redress.

The object of requiring a license is not to prevent the foreign corporation from performing single
acts, but to prevent it from acquiring domicile for the purpose of business without taking the
steps necessary to render it amenable to suits in the local courts. In other words, the foreign
corporation is merely prevented from being in a position where it takes the good without
accepting the bad.

Whether or not the CA committed reversible error in: Not holding that the dispute is
covered by the arbitration clause in the memorandum of agreement

The Supreme Court held that the matter shall not be referred to arbitration. The MOA between
ERTI and the consortium provided that “should there be a disagreement, the same shall be
endorsed to a panel of arbitrations which shall be convened in accordance with the process
ordained under the Arbitration Law of the Republic of the Philippines.”

Generally, arbitration agreements are valid, binding, enforceable and not contrary to public
policy such that when there obtains a written provision for arbitration which is not complied with,
the trial court should suspend the proceedings and order the parties to proceed to arbitration in
accordance with the terms of their agreement. The exception to this is that even if there is an
arbitration clause, there are instances when referral to arbitration does not appear to be the
most prudent action. The object of arbitration is to allow the expeditious determination of a
dispute. However, the following reasons show why the object of submitting the case to
arbitration would not be met in this particular case:
 The dispute between German Consortium and petitioners involves the disapproval by the
CDC of the assignment by the German Consortium of its rights under the Contract for
Services to ERTI. Admittedly, the arbitration clause is contained in the MOA to which only
the German Consortium and petitioner ERTI were parties.
 Even if the case is brought before an arbitration panel, the decision will not be binding upon
CDC who is a non-party to the arbitration agreement. What is more, the arbitration panel will
not be able to completely dispose of all the issues of this case without including CDC in its
proceedings. Accordingly, the interest of justice would only be served if the trial court hears
and adjudicates the case in a single and complete proceeding.