Case-3-6.doc

B. International Commercial Arbitration

3. Steamship Mutual Underwriting Association (Bermuda) Limited v. Sulpicio Lines, Inc., G.R. Nos. 196072 & 208603, [September 20, 2017]) Facts: Steamship was a Bermuda-based Protection and Indemnity Club, managed outside London, England. - It insures its members-shipowners against "third party risks and liabilities" for claims arising from (a) death or injury to passengers; (b) loss or damage to cargoes; and (c) loss or damage from collisions. Sulpicio insured its fleet of inter-island vessels with Steamship. One (1) of these vessels was the M/V Princess of the World, evidenced by a Certificate of Entry and Acceptance issued by Steamship [the certificate incorporated by reference an arbitration agreement set forth in its Club Rules] July 7, 2005, M/V Princess of the World was gutted by fire while on voyage from Iloilo to Zamboanga City, resulting in total loss of its cargoes. Sulpicio claimed indemnity from Steamship. Steamship denied the claim and subsequently rescinded the insurance coverage ( on the ground that "Sulpicio was grossly negligent in conducting its business regarding safety, maintaining the seaworthiness of its vessels as well as proper training of its crew.") Court History: Sulpicio filed a Complaint with the RTC of Makati City. Steamship filed its MtD and/or to Refer Case to Arbitration pursuant to RA No. 9285, or the ADR Act of 2004, and to Rule 4716 of the 2005/2006 Club Rules, which supposedly provided for arbitration in London of disputes between Steamship and its members. The other defendants filed separate MtD.

RTC Makati: denied the motions to dismiss. held that "arbitration [did] not appear to be the most prudent action, . . . considering that the other defendants . . . ha[d] already filed their [respective] [a]nswers." CA (thru Rule 65): dismissed the petition. Found no grave abuse of discretion on the part of the RTC in denying Steamship's MtD and/or to Refer Case to Arbitration or any convincing evidence to show that a valid arbitration agreement existed between the parties. SC( Steamship filed Petition for Review). [Side issue, not that important in relation ra sa contempt case: At the same time Sulpicio filed a Petition for Indirect Contempt: Without Sulpicio's knowledge or consent, Steamship initiated and "concluded" an arbitration proceeding which Steamship was the victor. [[it settled its judgment liability of P4,121,600.00 in Civil Case entitled Verna Unabia v. Sulpicio Lines, However, the actual amount reimbursed by Steamship was not P4,121,600.00, equivalent to US$96,958.47, but only US$27,387.48.35 Steamship deducted US$69,570.99, which allegedly represented Sulpicio's share in the arbitration costs for the arbitration in London]] Issue: WoN there is a valid and binding arbitration agreement between the parties. Ruling: Note: The agreement entered into by the parties is more than an insurance contract, not only does Sulpicio obtain insurance coverage but also becomes a member. Sulpicio's acceptance of the Certificate of Entry and Acceptance manifests its acquiescence to all its provisions. There is no showing in the records or in Sulpicio's contentions that it objected to any of the terms in this Certificate. Its acceptance, likewise, operated as an acceptance of the entire provisions of the Club Rules.

(When a contract is embodied in two (2) or more writings, the writings of the parties should be read and interpreted together in such a way as to render their intention effective.) SC made reference to CA’s ruling: The Court of Appeals ruled that the arbitration agreement in the 2005/2006 Club Rules is not valid because it was not signed by the parties. In domestic arbitration, the formal requirements of an arbitration agreement are that it must "be in writing and subscribed by the party sought to be charged, or by his lawful agent." In international commercial arbitration, it is likewise required that the arbitration agreement must be in writing. An arbitration agreement is in writing if it is contained (1) in a document signed by the parties, (2) in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or (3) in an exchange of statements of claim and defense in which the existence of an agreement is alleged by a party and not denied by another. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract. -A contract may be encompassed in several instruments even though every instrument is not signed by the parties, since it is sufficient if the unsigned instruments are clearly identified or referred to and made part of the signed instrument or instruments. Thus, an arbitration agreement that was not embodied in the main agreement but set forth in another document is binding upon the parties, where the document was incorporated by reference to the main agreement. The arbitration agreement contained in the Club Rules, which in turn was referred to in the Certificate of Entry and Acceptance, is

binding upon Sulpicio even though there was no specific stipulation on dispute resolution in this Certificate. The dispute between Sulpicio Lines, Inc. and Steamship Mutual Underwriting (Bermuda) Limited is referred to arbitration in London in accordance with Rule 47 of the 2005/2006 Club Rules.

4. Cargill Philippines Inc. vs. Fernando Regala Trading Inc., GRN 175404, Jan. 31 2011 Facts: San Fernando Regala Trading, Inc. filed with the RTC of Makati City a Complaint for Rescission of Contract with Damages against Cargill Philippines. San Fernando is engaged in buying and selling of molasses and Cargill was one of its various sources from whom it purchased molasses. They entered into a contract dated July 11, 1996 wherein it was agreed upon that San Fernando would purchase from Cargill 12,000 metric tons of Thailand origin cane blackstrap molasses. Cargill, as seller, failed to comply with its obligations under the contract, despite demands from respondent, thus, the latter prayed for rescission of the contract and payment of damages. Cargill filed a MtD and/or Suspend Proceedings and To Refer Controversy to Voluntary Arbitration, Issue: Ruling: Cargill argued that the alleged contract was never consummated because San Fernando never returned the proposed agreement bearing its written acceptance or conformity nor did respondent open the Irrevocable Letter of Credit at sight. He further contended that the controversy between the parties was WoN the alleged contract between the parties was legally in existence and the RTC was not the proper forum to ventilate such issue. It claimed that the

contract contained an arbitration clause which provides arbitration in NY. Court History: Issue involved: whether the arbitration clause contained in the contract subject of the complaint is valid and enforceable RTC: Denied the MtD/Suspend Proceedings and To Refer Controversy To Voluntary Arbitration. -petition for certiorari with the CACA: denying the petition and affirming the RTC Orders. It held that the MtD/suspension of the proceeding and referring it to voluntary arbitration cannot take place, the issue must first be settled in the RTC, since the issue involved a question of fact. Arbitration is not proper when one of the parties repudiated the existence or validity of the contract. Elevated to the SC - Petitioner alleges that the CA adopted inconsistent positions when it found the arbitration clause between the parties as valid and enforceable and yet in the same time decreed that the arbitration cannot proceed because petitioner assailed the existence of the entire agreement containing the arbitration clause. Issue: whether the CA erred in finding that this case cannot be brought under the arbitration law for the purpose of suspending the proceedings in the RTC. Alternative Issue: Can a party claim that a contract was never consummated and, at the same time, invokes the arbitration clause provided for under the contract which it alleges to be non-existent or invalid. Ruling: The provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of the contract and is itself a contract. The validity of the contract containing the agreement to submit to arbitration does not affect the applicability of the arbitration

clause itself. Applying the doctrine of separability, or severability which 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 a part comes to an end. The invalidity of the main 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. The parties are hereby ORDERED to SUBMIT themselves to the arbitration of their dispute, pursuant to their July 11, 1996 agreement.

5. Korea Technologies Co., v. Hon. Alberto A. Lerma and Pacific General Steel Manufacturing Corporation (G.R. No. 143581, Jan. 7, 2008.), Facts: Korean Technologies (KOGIES) is a Korean corporation which is engaged in the supply and installation of LPG Cylinder manufacturing plants; it entered into a contract with Pacific General Steel Manufacturing Corp. (PGSMC - domestic corp.) - whereby KOGIES would set up an LPG Cylinder Manufacturing Plant in Carmona, Cavite October 14, 1997, PGSMC entered into a Contract of Lease with Worth Properties for use of a 5,079-square meter property with a warehouse building to house the LPG manufacturing plant. After the installation of the plant, the initial operation could not be conducted as PGSMC encountered financial difficulties 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 owed to KOGIES,

PGSMC issued two postdated checks. However when deposited, these were dishonored for the reason PAYMENT STOPPED. KOGIES sent demand letters.. PGSMC later on informed KOGIES that it was canceling their contract on the ground that KOGIES had altered the quantity and lowered the quality of the machineries and equipment KOGIES wrote PGSMC informing the latter that PGSMC could not unilaterally rescind their contract. It also insisted that their disputes should be settled by arbitration PGSMC 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 Court History: This prompted KOGIES to institute an Application for Arbitration before the Korean Commercial Arbitration Board (KCAB) in Seoul, Korea KOGIES filed a Complaint for Specific Performance, against PGSMC before the RTC of Muntinlupa City. RTC granted a TRO. 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 Issue: WoN Art. 15 of the contract (arbitration claude) is valid? 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.

Ruling: Petitioner(KOGIES) is correct. The court held: 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. 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. We find no reason why the arbitration clause should not be respected and complied with by both parties. “ Discussion: 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 of the United Nations Commission on International Trade Law (UNCITRAL) in the NY Convention on June 21, 1985, the Philippines committed

itself to be bound by the Model Law. We have even incorporated the Model Law in (RA) 9285, otherwise known as the Alternative Dispute Resolution Act of 2004 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. 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.

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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 are not immediately enforceable or cannot be implemented immediately. → Sec. 35 of the UNCITRAL Model Law requires arbitral award to be recognized by a competent court for enforcement, under Sec. 36 such court may refuse recognition or enforcement on the grounds provided for. → recognition and enforcement of such arbitral awards shall be filed with the Regional Trial Court. (3) The RTC has jurisdiction to review foreign arbitral awards → 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.  Article V. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) The award has not yet become binding on the parties, or has been

set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. 2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: (a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or (b) The recognition or enforcement of the award would be contrary to the public policy of that country. (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 BASED ON THE FOREGOING FEATURES OF RA 9285, GSMC must submit to the foreign arbitration as it bound itself through the subject contract. The parties are hereby ORDERED to submit themselves to the arbitration of their dispute and differences arising from the subject Contract before the KCAB

common issues presented were: [1) whether typhoon Zeb and any of its associated events constituted force majeure to justify the extension of time sought by petitioner; and [2) whether LHC had the right to terminate the Turnkey Contract for failure of petitioner to complete the Project on target date. WITH RESPECT SA SECURITIES (Standby Letters of Credit):

6. TRANSFIELD PHILIPPINES, INC., vs. LUZON HYDRO CORPORATION, G.R.. No. 146717 May 19, 2006 Facts: Transfield(petitioner) and (respondent) Luzon Hydro Corporation (LHC) entered into a Turnkey Contract, whereby petitioner, as Turnkey Contractor, undertook to construct, on a turnkey basis, a hydro-electric power station in Ilocos Sur. The Contract provides that: (1) the target completion date of the Project shall be on 1 June 2000, or such later date as may be agreed upon by the parties or otherwise determined in accordance with the Turnkey Contract; and (2) petitioner is entitled to claim extensions of time (EOT) for reasons enumerated in the Turnkey Contract, among which are variations, force majeure, and delays caused by LHC itself.(3) Further, in case of dispute, the parties are bound to settle their differences through mediation, conciliation and such other means enumerated under Clause 20.3 of the Turnkey Contract. To secure performance of petitioner's obligation, Transfield opened in favor of LHC two (2) standby letters of credit Transfield sought various EOT to complete the Project. However, LHC denied these requests - this gave rise to a series of legal actions: 1st of the actions was a Request for Arbitration (which LHC filed before the CIAC-Construction Industry Arbitration Commission) followed by another Request for Arbitration filed by Transfield in ICC (International Chamber of Commerce) In

both

arbitration

proceedings,

the

Transfield foreseeing that LHC would claim on the securities, informed the bank of the pending arbitration proceeding and prohibited any transfer, release, or disposition of the Securities. Despite this, both banks informed petitioner that they would pay on the Securities if and when LHC calls on them. COURT HISTORY: Transfield filed a complaint for Injunction(with prayer for TRO and writ of preliminary injunction) against LHC in the RTC Makati. It sought to restrain LHC from calling on the Securities and respondent banks from transferring, paying on, or in any manner disposing of the Securities. RTC issued a (72)-hour TRO, which was extended for another (17) days RTC denied petitioner's application for a writ of preliminary injunction. It ruled that petitioner had no legal right and suffered no irreparable injury to justify the issuance of the writ. Employing the principle of "independent contract" in letters of credit, the trial court ruled that LHC should be allowed to draw on the Securities for liquidated damages The trial court further ruled that the banks were mere custodians of the funds and as such they were obligated to transfer the same to the beneficiary for as long as the latter could submit the required certification of its claims. CA (petitioner,Petition for Certiorari under Rule 65) Contention: LHC's call on the Securities was premature considering that the issue of its default had not yet been resolved with finality by the CIAC and/or the ICC.

-CA issued a TRO, BUT upon expiration of the TRO , representatives of LHC went to ANZ Bank and withdrew the total amount of US$4,950,000.00, reducing the balance in ANZ Bank to US$1,852,814.00. -CA dismissed the petition of certiorari and expressed conformity with the trial court's decision SC Petitioner contends that the courts below improperly relied on the "independence principle" on letters of credit when this case falls squarely within the "fraud exception rule." (Transfield contents: LHC knowingly misrepresented that petitioner had incurred delays— notwithstanding its knowledge and admission that delays were excused under the Turnkey Contract. The core issue: applicability of the "independence principle" and "fraud exception rule" in letters of credit. SC discussion: a letter of credit is a written instrument whereby the writer requests or authorizes the addressee to pay money or deliver goods to a third person and assumes responsibility for payment of debt therefor to the addressee. Article 3 of the UCP provides that credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the credit. Issue: Ruling: