Title
Korea Technologies Co., Ltd. vs. Lerma
Case
G.R. No. 143581
Decision Date
Jan 7, 2008
KOGIES and PGSMC disputed a machinery contract; arbitration clause upheld, RTC allowed interim measures, and counterclaims deemed compulsory. Arbitration mandated.

Case Summary (G.R. No. 143581)

Contractual and Procedural History

The March 5, 1997 contract and April 7 amendment contained an arbitration clause (Art. 15) requiring disputes to be settled in Seoul under KCAB rules with final and binding awards. PGSMC unilaterally rescinded the contract on June 1, 1998, filed estafa charges, and threatened to dismantle the plant. KOGIES sought arbitration and specific performance in RTC, securing a TRO.

Trial Court Proceedings and Ruling

The RTC denied KOGIES’s preliminary injunction (July 23, 1998) holding that (1) PGSMC fully paid USD 1,224,000, extinguishing KOGIES’s proprietary rights over the machinery; and (2) the arbitration clause ousted judicial jurisdiction and was void as against public policy. On September 21, 1998, the RTC granted PGSMC’s motion to inspect the plant and denied KOGIES’s motions to reconsider.

Court of Appeals Decision

On May 30, 2000, the CA affirmed both RTC orders. It deemed the RTC’s factual finding on payment unreviewable by certiorari, held the arbitration clause void for ousting courts, ruled PGSMC’s counterclaims compulsory (no docket fees or non-forum-shopping certificate required), and found KOGIES’s certiorari petition premature.

Issues on Appeal

KOGIES’s Rule 45 petition challenged the CA’s rulings that: (1) factual issues were beyond certiorari; (2) the arbitration clause was contrary to public policy; (3) counterclaims required no fees or certificate; (4) the petition was premature; and (5) interlocutory orders are not certiorari-able.

Procedural Contentions

The Court held that under the 1997 Rules of Civil Procedure, compulsory counterclaims incur no docket fees or non-forum-shopping certification. It corrected the CA’s misapplication of Gamboa v. Cruz and reaffirmed that interlocutory orders issued with grave abuse of discretion may be challenged via certiorari when no plain, speedy, and adequate remedy exists.

Validity of the Arbitration Clause

Applying Civil Code Art. 2044 and the 1987 Constitution’s policy favoring arbitration, the Court ruled the clause valid and not against public policy. Philippine law governs as the contract was perfected locally. Precedents (Chung Fu Industries; Del Monte) confirm that arbitration agreements are enforceable contracts.

International Arbitration and RA 9285

Under RA 9285 (Alternative Dispute Resolution Act of 2004), which retroactively applies to pending cases and incorporates the UNCITRAL Model Law, the RTC must refer parties to arbitration (Sec. 24) unless the agreement is inoperative. Foreign arbitral awards must be confirmed by the Regional Trial Court (Secs. 42–44, 47–48), and may only be rejected on New York Convention grounds (Sec. 45).

Jurisdiction over Foreign Arbitral Awards

While the KCAB conducts the arbitration, confirmation, setting aside, modification, or enforcement of its award falls under RTC jurisdiction (Secs. 42, 45). Decisions of the RTC on such awards are appealable to the CA (Sec. 46) and reviewable by the Supreme Court under Rule 45. Thus, foreign awards do not oust Philippine courts.

Interim Measures and Court’s Role

RA 9285 and UNCITRAL Model Law (Art. 17) authorize courts to grant interim measures before or during arbitration. The RTC may issue provisional relief to prevent irreparable harm or preserve assets. The Court upheld the RTC’s authority to grant injunctions or allow transfer of machinery as an interim protective measure.

Unilateral Rescission and Arbitration Ma

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