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and subsequently rescinded the insurance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 CA-
CA: 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. Contract or for the breach thereof, shall
However when deposited, these were finally be settled by arbitration in Seoul,
dishonored for the reason PAYMENT Korea in accordance with the Commercial
STOPPED. KOGIES sent demand letters.. Arbitration Rules of the Korean
Commercial Arbitration Board. The award
PGSMC later on informed KOGIES that it was rendered by the arbitration(s) shall be
canceling their contract on the ground that final and binding upon both parties
concerned.
KOGIES had altered the quantity and
lowered the quality of the machineries and
Ruling:
equipment
Petitioner(KOGIES) is correct. The court
KOGIES wrote PGSMC informing the latter
held: the law of the place where the
that PGSMC could not unilaterally rescind
contract is made governs. Lex loci
their contract. It also insisted that their
contractus.
disputes should be settled by arbitration
The contract in this case was perfected here
PGSMC wrote KOGIES reiterating the
in the Philippines. Therefore, our laws ought
contents of its June 1, 1998 letter
to govern. Nonetheless, Art. 2044 of the
threatening that the machineries,
Civil Code sanctions the validity of mutually
equipment, and facilities installed in the
agreed arbitral clause or the finality and
plant would be dismantled and transferred
binding effect of an arbitral award. Art.
2044 provides, Any stipulation that the
Court History:
arbitrators award or decision shall be final,
This prompted KOGIES to institute an
is valid, without prejudice to Articles 2038,
Application for Arbitration before the Korean
2039 and 2040.
Commercial Arbitration Board (KCAB) in
Arts. 2038,[31] 2039,[32] and 2040[33]
Seoul, Korea
abovecited refer to instances where a
compromise or an arbitral award, as applied
KOGIES filed a Complaint for Specific
to Art. 2044 pursuant to Art. 2043,[34] may
Performance, against PGSMC before the
be voided, rescinded, or annulled, but these
RTC of Muntinlupa City. RTC granted a TRO.
would not denigrate the finality of the
arbitral award.
PGSMC filed an opposition to the TRO
arguing that KOGIES was not entitled to the
“The arbitration clause was mutually and
TRO since Art. 15, the arbitration clause,
voluntarily agreed upon by the parties. It
was null and void for being against public
has not been shown to be contrary to any
policy as it ousts the local courts of
law, or against morals, good customs,
jurisdiction over the instant controversy.
public order, or public policy.
We find no reason why the arbitration
RTC: held that Art. 15 of the Contract as
clause should not be respected and
amended was invalid as it tended to oust
complied with by both parties. “
the trial court or any other court jurisdiction
over any dispute that may arise between
Discussion:
the parties.
For domestic arbitration proceedings,
we have particular agencies to arbitrate
CA: affirmed the trial court and declared
disputes arising from contractual relations.
the arbitration clause against public policy
In case a foreign arbitral body is
chosen by the parties, the arbitration
Issue:
rules of our domestic arbitration
WoN Art. 15 of the contract (arbitration
bodies would not be applied. As
claude) is valid?
signatory to the Arbitration Rules of the
Article 15. Arbitration. All disputes, UNCITRAL Model Law on International
controversies, or differences which may Commercial Arbitration of the United
arise between the parties, out of or in Nations Commission on International Trade
relation to or in connection with this 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.
 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
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
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):
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: