Clark Paul A. Rivera 2-A

Alternative Dispute Resolution January 10, 2014

5. Cargill Philippines, Inc. vs San Fernando Regala Trading, Inc. (641 SCA 31)

FACTS: San Fernando Regala Trading, Inc. (SFRTI) entered into a contract with Cargill Philippines, Inc. (Cargill) wherein SFRTI would purchase from Cargill 12,000 metric tons of Thailand origin cane blackstrap molasses. Cargill failed to comply with its obligation, prompting SFRTI to file a complaint in the RTC praying for the rescission of the contract. Cargill filed a motion to dismiss/suspend the proceedings and to refer the controversy to voluntary arbitration to be done in the city of New York before the American Arbitration association pursuant to the arbitration clause in their contract. Cargill alleged that their contract was never consummated because SFRTI never returned the proposed agreement bearing its written acceptance of conformity, contending that the controversy between the parties was whether or not the alleged contract between them was legally in existence and the RTC was not the proper venue to ventilate the issue. It also alleges that it must first comply with the arbitration clause before resorting to court, thus the RTC must either dismiss or suspend the proceedings and direct the parties to proceed with arbitration. SFRTI opposed by arguing that the RTC has jurisdiction over the action for rescission of the contract and could not be changed by the subject arbitration clause. The RTC denied Cargill’s motion. On appeal, the CA said that since the agreement bearing the arbitration clause was never consummated, it was proper that the issue must first be resolved in court, adding that arbitration is not proper when one of the parties repudiated the existence or validity of the contract.

ISSUE: Should the existence of the container agreement determine whether or not the parties should enter into arbitration first?

HELD: The answer is in the affirmative. The doctrine of separability states that an arbitration agreement is independent of the container agreement. Even if the validity of the main or container contract is challenges, the arbitration agreement shall still stand and remain valid and enforceable. The decision of the CA was reversed and set aside. The parties were thus ordered to submit themselves to the arbitration of their dispute.

6. Gonzales vs Climax Mining Ltd. (512 SCRA 148)

7. ABS-CBN Broadcasting Corporation vs World Interactive Network Systems (WINS) Japan Co., Ltd. (544 SCRA 308)

FACTS: The parties entered into a licensing agreement wherein WINS was granted the exclusive license to distribute and sublicense the television service known as “The Filipino Channel” (TFC) in Japan. A dispute arose between the parties wherein ABS-CBN accused WINS of unauthorized insertions of a weekly community news program into the TFC programming. ABS-CBN notified WINS of its intention to terminate their agreement. WINS filed an arbitration suit pursuant to the arbitration clause of their agreement. It contended that its airing of WINS WEEKLY was made with ABS-CBN’s prior approval. When the arbitration

proceedings concluded, the arbitrator found in favor of WINS, that the written exchanges between the parties signified the approval of ABS-CBN, and that ABS-CBN threatened to terminate the agreement due to its desire to renegotiate the terms thereof for higher fees. ABS-CBN filed with the CA a petition for review, or in the alternative, a petition for certiorari with application for temporary restraining order and writ of preliminary injunction, alleging serious errors of fact that the arbitrator committed grave abuse of discretion. On the other hand WINS filed a petition for confirmation of arbitral award before the RTC. Consequently ABS-CBN filed a supplemental petition in the CA seeking to enjoin the RTC from hearing WINS’ petition for confirmation of arbitral award. The CA dismissed ABS-CBN’s petition for lack of jurisdiction saying that the arbitrator’s decision is final and unappealable, ruling that it is the RTC which has jurisdiction over questions relating to arbitration.

ISSUE: Whether or not ABS-CBN as an aggrieved party in a voluntary arbitration dispute may avail of remedies such as a petition for review or a petition for certiorari directly with the CA instead of filing a petition to vacate the award in the RTC when the grounds invoked to overturn the arbitrator’s decision are other than those enumerated in 876.

HELD: The courts are not divested of jurisdiction to pass upon the findings of arbitral bodies because the awards are still judicially reviewable. Decisions of voluntary arbitrators fall within the power and jurisdiction of the Court to inquire whether they have gravely abused their discretion in the exercise of their functions and prerogatives. Nevertheless, the Court sustained the dismissal of ABS-CBN’s petition by the CA because the remedies it availed of were wrong. Appeal and Certiorari are mutually exclusive and not alternative or successive. The alternative petition filed by ABS-CBN in the CA is an inappropriate mode of appeal and should have been dismissed outright by the CA.

8. Transfield Philippines, Inc. vs. Luzon Hydro Corporation (490 SCRA 14)

FACTS: The two parties entered into a turnkey contract whereby Transfield Philippines, Inc (TPI) as contractor would construct a hydro-electric power station for Luzon Hydro Corporation (LHC). It was agreed that the date of completion of the project would be on 1 June 2000, and that TPI was entitled to claim extensions of time for reasons enumerated in the turnkey contract which included variations, force majeure, and delays caused by LHC itself. To secure the performance of the obligation, TPI opened in favor of LHC two standby letters of credit (securities), one with Australia and New Zealand Banking group limited and one with Security Bank Corporation (both respondents as well).

A standby letter of credit is a commercial device designed to replace surety contracts to entice both a buyer who wants control over his products before he pays for them and a seller who wants to be paid first before he gives his products away to enter into a contract. This letter of credit ensured that LHC could draw upon the respondent banks in the event that TPI incurs in delay with respect to the agreed project. When TPI indeed incurred in delay, LHC even while engaged in arbitration proceedings with TPI called upon the letters of credit and withdrew from the respondent banks the sum of money it was ensured in the event TPI’s obligation would not be performed.

ISSUE: Should LHC have waited until the arbitration proceedings concluded before it should have withdrew the money ensured by the letters of credit?

HELD: No. If LHC were to wait until the arbitration proceedings have concluded before withdrawing, then there would have been no point in having letters of credit. The letters of credit are ancillary remedies intended to protect the subject matter of the dispute. As laid down in the

case, the pendency of the arbitration proceedings would not per se make LHC’s draws on the securities wrongful for there was nothing in the turnkey contract indicating that the parties intended all disputes regarding delay should first be settled through arbitration before LHC would be allowed to call upon the letters of credit. It is therefore absurd to conclude that the draws on the letters of credit were fraudulent given the fact that the ICC and CIAC have not ruled with finality on the existence of default.