844 Phil. 813
TIJAM, J.:
On September 16, 1996, Mabuhay, IDHI, and Sembcorp entered into a Shareholders' Agreement[8] (Agreement) setting out the terms and conditions governing their relationship in connection with a planned business expansion of WJSC and WJNA. Sembcorp decided to invest in the said corporations. As a result of Sembcorp's acquisition of shares, Mabuhay and IDHI's shareholding percentage in the said corporations were reduced, as follows:[9]
WJSC WJNAMabuhay 70% 70%IDHI 30% 30%
Pursuant to Article 13 of the Agreement, Mabuhay and IDHI voluntarily agreed to jointly guarantee that Sembcorp would receive a minimum accounting return of US$929,875.50 (Guaranteed Return) at the end of the 24th month following the full disbursement of the Sembcorp's equity investment in WJNA and WJSC. They further agreed that the Guaranteed Return shall be paid three (3) months from the completion of the special audits of WJSC and WJNA as per Article 13.3 of the Agreement.[10]
WJSC WJNAMabuhay 45.5% 45.5%IDHI 19.5% 19.5%Sembcorp 35.0% 35.0%
Article XIX. APPLICABLE LAW; ARBITRATIONOn December 6, 1996, Sembcorp effected full payment of its equity investment. Special audits of WJNA and WJSC were then carried out and completed on January 8, 1999. Said audits revealed that WJSC and WJNA both incurred losses.[12]
19.1 This Agreement and the validity and performance thereof shall be governed by the laws of the Republic of the Philippines.
19.2 Any dispute, controversy or claim arising out of or relating to this Agreement, or a breach thereof, other than intra-corporate controversies, shall be finally settled by arbitration in accordance with the rules of conciliation and arbitration of the International Chamber of Commerce by one arbitrator with expertise in the matter at issue appointed in accordance with said rules. The arbitration proceeding including the rendering of the award shall take place in Singapore and shall be conducted in the English Language. This arbitration shall survive termination of this Agreement. Judgment upon the award rendered may be entered in any court having jurisdiction or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be.[11]
(1) payment of the sum of US$929,875.50;On April 20, 2004, a Final Award[16] was rendered by Dr. Anan Chantara-Opakom (Dr. Chantara-Opakorn), the Sole Arbitrator appointed by the ICC. The dispositive portion of the award reads:
(2) alternatively, damages;
(3) interest on the above sum at such rate as the Arbitral Tribunal deems fit and just;
(4) cost of the arbitration; and
(5) Such further and/or other relief as the Arbitral Tribunal deems fit and just.[15]
The Sole Arbitrator hereby decides that the Sole Arbitrator has jurisdiction over the parties' dispute and directs [Mabuhay] to make the following payments to [Sembcorp]:Consequently, on April 14, 2005, Sembcorp filed a Petition for Recognition and Enforcement of a Foreign Arbitral Award[18] before the RTC ofMakati City, Branch 149.[19]
1. Half of the Guaranteed Return or an amount of US$464,937.75 (Four Hundred Sixty Four Thousand Nine Hundred Thirty Seven and Point Seventy Five US Dollars);
2. Interest at the rate of 12% per annum on the said amount of US$464,937.75 calculated from the date of this Final Award until the said amount of US$464,937.75 is actually and completely paid by [Mabuhay] to [Sembcorp]; and
3. A reimbursement of half of the costs of arbitration fixed by the ICC Court at US$57,000 or the aggregate half of which amount to US$28,500 together with an interest at the rate of 12% per annum calculated from the date of this Final Award until the said amount is actually and completely paid by [Mabuhay] to [Sembcorp].[17]
WHEREFORE, premises considered, this court finds in favor of the defendant Mabuhay Holdings Corporation, hence it hereby DISMISSED the petition for the recognition and enforcement of the subject Arbitral Award for the simple reason that it was issued in violation of the agreement. Moreover, this court cannot recognize the Arbitral Award because it was not the work of an expert as required under the agreement. Finally, the payment obligation in interest of 12% per annum on the US Dollar Amounts ($464,937.75 and $28,500) as ordered by the Sole Arbitrator is contrary to law and existing jurisprudence, hence void. Thus, it cannot be enforced by this Court.Aggrieved, Sembcorp appealed to the CA via a Notice of Appeal under Rule 41 of the Rules of Court.[25]
Cost de oficio.
SO ORDERED.[24]
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 approved on December 11, 1985, copy of which is hereto attached as Appendix "N'.
x x x x
SEC. 42. Application of the New York Convention. - The New York Convention shall govern the recognition and enforcement of arbitral awards covered by the said Convention.
The recognition and enforcement of such arbitral awards shall be filled (sic) with regional trial court in accordance with the rules of procedure to be promulgated by the Supreme Court. Said procedural rules shall provide that the party relying on the award or applying for its enforcement shall file with the court the original or authenticated copy of the award and the arbitration agreement. If the award or agreement is not made in any of the official languages, the party shall supply a duly certified translation thereof into any of such languages.Five years after the enactment of the ADR Act, the Department of Justice issued the ADR Act's Implementing Rules and Regulations (IRR)[35], and the Supreme Court issued the Special Rules of Court on Alternative Dispute Resolution[36] (Special ADR Rules). These two rules, in addition to the ADR Act incorporating the New York Convention and the Model Law, are our arbitration laws.
The applicant shall establish that the country in which foreign arbitration award was made is a party to the New York Convention.
x x x x (Emphasis ours)
Rule 19.12. Appeal to the Court of Appeals. - An appeal to the Court of Appeals through a petition for review under this Special Rule shall only be allowed from the following final orders of the Regional Trial Court:Mabuhay thus contends that filing a petition for review and not a notice of appeal is the proper remedy to contest the RTC's refusal to enforce the Final Award.
x x x x
k. Refusing recognition and/or enforcement of a foreign arbitral award; (Emphasis supplied)
x x x x
Rule 19.36. Review discretionary. - A review by the Supreme Court is not a matter of right, but of sound judicial discretion, which will be granted only for serious and compelling reasons resulting in grave prejudice to the aggrieved party. The following, while neither controlling nor fully measuring the court's discretion, indicate the serious and compelling, and necessarily, restrictive nature of the grounds that will warrant the exercise of the Supreme Court's discretionary powers, when the Court of Appeals:In relation to the applicable standard or test for judicial review by the CA in arriving at its decision, the Special ADR Rules further provide:a. Failed to apply the applicable standard or test for judicial review prescribed in these Special ADR Rules in arriving at its decision resulting in substantial prejudice to the aggrieved party;The mere fact that the petitioner disagrees with the Court of Appeals' determination of questions of fact, of law or both questions of fact and law, shall not warrant the exercise of the Supreme Court's discretionary power. The error imputed to the Court of Appeals must be grounded upon any of the above prescribed grounds for review or be closely analogous thereto.
b. Erred in upholding a final order or decision despite the lack of jurisdiction of the court that rendered such final order or decision;
c. Failed to apply any provision, principle, policy or rule contained in these Special ADR Rules resulting in substantial prejudice to the aggrieved party; and
d. Committed an error so egregious and harmful to a party as to amount to an undeniable excess of jurisdiction.
A mere general allegation that the Court of Appeals has committed serious and substantial error or that it has acted with grave abuse of discretion resulting in substantial prejudice to the petitioner without indicating with specificity the nature of such error or abuse of discretion and the serious prejudice suffered by the petitioner on account thereof, shall constitute sufficient ground for the Supreme Court to dismiss outright the petition. (Emphasis ours)
Rule 19.20. Due course. - If upon the filing of a comment or such other pleading or documents as may be required or allowed by the Court of Appeals or upon the expiration of the period for the filing thereof, and on the basis of the petition or the records, the Court of Appeals finds prima facie that the Regional Trial Court has committed an error that would warrant reversal or modification of the judgment, final order, or resolution sought to be reviewed, it may give due course to the petition; otherwise, it shall dismiss the same.Here, Mabuhay did not specifically raise any of the grounds under Rule 19.36 above in its petition before this Court. Nonetheless, considering the dearth of jurisprudence on enforcement of foreign arbitral awards and the fact that the CA reversed the RTC decision, the Court exercises its discretion to review the CA decision solely for purposes of determining whether the CA applied the aforecited standard of judicial review.
x x x x
Rule 19.24. Subject of appeal restricted in certain instance. - If the decision of the Regional Trial Court refusing to recognize and/or enforce, vacating and/or setting aside an arbitral award is premised on a finding of fact, the Court of Appeals may inquire only into such fact to determine the existence or non-existence of the specific ground under the arbitration laws of the Philippines relied upon by the Regional Trial Court to refuse to recognize and/or enforce, vacate and/or set aside an award. Any such inquiry into a question of fact shall not be resorted to for the purpose of substituting the court's judgment for that of the arbitral tribunal as regards the latter's ruling on the merits of the controversy. (Emphasis ours)
Rule 13.11. Court action. - It is presumed that a foreign arbitral award was made and released in due course of arbitration and is subject to enforcement by the court.Under Article V of the New York Convention, the grounds for refusing enforcement and recognition of a foreign arbitral award are:
The court shall recognize and enforce a foreign arbitral award unless a ground to refuse recognition or enforcement of the foreign arbitral award under this rule is fully established.
The decision of the court recognizing and enforcing a foreign arbitral award is immediately executory.
In resolving the petition for recognition and enforcement of a foreign arbitral award in accordance with these Special ADR Rules, the court shall either [a] recognize and/or enforce or [b] refuse to recognize and enforce the arbitral award. The court shall not disturb the arbitral tribunal's determination of facts and/or interpretation of law. (Emphasis ours)
1. 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:The aforecited grounds are essentially the same grounds enumerated under Section 36[43] of the Model Law. The list is exclusive. Thus, Section 45 of the ADR Act provides:(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; or2. 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:
(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.(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. (Emphasis ours)
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 procedural 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. (Emphasis ours)In Our jurisdiction, We have incorporated the grounds enumerated under the New York Convention in our arbitration laws. Article 4.36, Rule 6[44] of the IRR and Rule 13.4[45] of the Special ADR Rules reiterated the exact same exclusive list of grounds.
In accordance with the aforecited rules, Dr. Chantara-Opakom was appointed upon the proposal of the Thai National Committee.Article 9 - Appointment and Confirmation of the Arbitrators
x x x x
3. Where the Court is to appoint a sole arbitrator or the chairman of an Arbitral Tribunal, it shall make the appointment upon a proposal of a National Committee of the ICC that it considers to be appropriate. If the Court does not accept the proposal made, or if the National Committee fails to make the proposal requested within the time limit fixed by the Court, the Court may repeat its request or may request a proposal from another National Committee that it considers to be appropriate.
x x x x
5. The sole arbitrator or the chairman of the Arbitral Tribunal shall be of a nationality other than those of the parties. However, in suitable circumstances and provided that neither of the parties objects within the time limit fixed by the Court, the sole arbitrator or the chairman of the Arbitral Tribunal may be chosen from a country of which any of the parties is a national. (Emphasis ours)
The Special ADR Rules recognize the principle of competence competence, which means that the arbitral tribunal may initially rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement or any condition precedent to the filing of a request for arbitration.The Special ADR Rules expounded on the implementation of the said principle:
Rule 2.4. Policy implementing competence-competence principle. The arbitral tribunal shall be accorded the first opportunity or competence to rule on the issue of whether or not it has the competence or jurisdiction to decide a dispute submitted to it for decision, including any objection with respect to the existence or validity of the arbitration agreement. When a court is asked to rule upon issue/s affecting the competence or jurisdiction of an arbitral tribunal in a dispute brought before it, either before or after the arbitral tribunal is constituted, the court must exercise judicial restraint and defer to the competence or jurisdiction of the arbitral tribunal by allowing the arbitral tribunal the first opportunity to rule upon such issues. (Emphasis ours)To recall, the Agreement provides that "(a)ny dispute, controversy or claim arising out of or relating to this Agreement, or breach thereof, other than intra-corporate controversies, shall be finally settled by arbitration..."
x x x Indeed, during the cross-examination of Mr. Chay, he admitted that there was no transfer of shares from IDHI to the Claimant [p. 130 of Transcript of Proceedings]:Again, the Special ADR Rules specifically provides that in resolving the petition for recognition and enforcement of a foreign arbitral award, the court shall not disturb the arbitral tribunal's determination of facts and/or interpretation of law.[50]
x x x x
During the re-examination of Mr. Chay by the Respondent's counsel, he again admitted that the transfer of the shares from IDHI to the Claimant has not taken effect [p. 155 of Transcript of Proceedings]:
x x x x
It is clear that the Claimant's claim is neither premised on allegations of mismanagement of WJNA and WJSC, nor on who manages or controls or who has the right to manage or control WJNA and WJSC, nor is it a claim to effect the transfer of the share, nor an action for registration of the shares transfer [sic] already transferred from IDHI to the Claimant in the books of WJNA and WJSC. The nature of the Claimant's claim is not intrinsically connected with the regulation of the corporation. The Claimant's claim in this arbitration is straightforward: that the Respondent agreed, under a contract, to make payment of certain amount of money to the Claimant upon the occurrence of a specified event; that the said event occurred but the Respondent refused to pay such amount of money to the Claimant; that the Claimant filed the Request in order to enforce the payment. Accordingly, the Sole Arbitrator is of the opinion that the dispute in this arbitration is not an intra-corporate controversy, and, hence, it is not excluded from arbitration under Article 19.2 of the Shareholders' Agreement.[49] (Emphasis ours)
x x x At any rate, courts should not rashly extend the rule which holds that a contract is void as against public policy. The term "public policy" is vague and uncertain in meaning, floating and changeable in connotation. It may be said, however, that, in general, a contract which is neither prohibited by law nor condemned by judicial decision, nor contrary to public morals, contravenes no public policy. In the absence of express legislation or constitutional prohibition, a court, in order to declare a contract void as against public policy, must find that the contract as to the consideration or thing to be done, has a tendency to injure the public, is against the public good, or contravenes some established interests of society, or is inconsistent with sound policy and good morals, or tends clearly to undermine the security of individual rights, whether of personal liability or of private property.[58] (Emphasis ours)An older case, Ferrazzini v. Gsell[59], defined public policy for purposes of determining whether that part of the contract under consideration is against public policy:
By "public policy," as defined by the courts in the United States and England, is intended that principle of the law which holds that no subject or citizen can lawfully do that which has a tendency to be injurious to the public or against the public good, which may be termed the "policy of the law," or "public policy in relation to the administration of the law." Public policy is the principle under which freedom of contract or private dealing is restricted by law for the good of the public. In determining whether a contract is contrary to public policy the nature of the subject matter determines the source from which such question is to be solved. (Emphasis ours and citation omitted)In light of the foregoing and pursuant to the State's policy in favor of arbitration and enforcement of arbitral awards, the Court adopts the majority and narrow approach in determining whether enforcement of an award is contrary to Our public policy. Mere errors in the interpretation of the law or factual findings would not suffice to warrant refusal of enforcement under the public policy ground. The illegality or immorality of the award must reach a certain threshold such that, enforcement of the same would be against Our State's fundamental tenets of justice and morality, or would blatantly be injurious to the public, or the interests of the society.
Turning now to Sembcorp's prayer for the award of attorney's fees and exemplary damages, We find the same bereft of legal and factual bases. Article 2208 of the Civil Code allows attorney's fees to be awarded if the claimant is compelled to litigate with third persons or to incur expenses to protect his interest by reason of an unjustified act or omission of the party from whom it is sought, there must be a showing that the losing party acted willfully or in bad faith and practically compelled the claimant to litigate and incur litigation expenses. Meanwhile, in order to obtain exemplary damages under Article 2232 of the Civil Code, the claimant must prove that the assailed actions of the defendant are not just wrongful, but also wanton, fraudulent, reckless, oppressive or malevolent.We affirm the aforecited findings of the CA. However, We find no conflict between the fallo and the ratio decidendi of the CA Decision. The fallo of the CA Decision includes "[n]o pronouncement as to cost." The CA also reversed and set aside the RTC Decision in its entirety. As such, even the pronouncement of the RTC as to costs is set aside. Accordingly, We find no merit in Mabuhay's prayer for a statement in the dispositive portion expressly stating that it is not liable for attorney's fees and exemplary damages.
Indeed, Sembcorp was compelled to file the instant appeal. However, such fact alone is insufficient to justify an award of attorney's fees and exemplary damages when there is no sufficient showing of MHC's [Mabuhay] bad faith in refusing to abide by the provisions of the Final Award. To Us, MHC's [Mabuhay] persistent acts in rejecting Sembcorp's claim proceed from an erroneous conviction in the righteousness of its cause.[65]
(a) Ordinary appeal. - The appeal to the Court of Appeals in cases decided by the Regional Trial Court in the exercise of its original jurisdiction shall be taken by filing a notice of appeal with the court which rendered the judgment or final order appealed from and serving a copy thereof upon the adverse party. x x x[41] Lanuza, Jr. v. BF Corporation, et al., 744 Phil. 612 (2014).
(a) at the request of the party against whom it is invoked, if that party furnishes to the competent court where recognition or enforcement is sought proof that:[44] Article 4.36. Grounds for Refusing Recognition or Enforcement.(i) a party to the arbitration agreement referred to in article 7 was 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
(ii) the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iii) the award deals with a dispute 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
(iv) the composition of the arbitral tribunal 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
(v) the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which, or under the law of which, that award was made; or (b) if the court finds that: (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or (ii) the recognition or enforcement of the award would be contrary to the public policy of this State.
(a) The parties to the arbitration agreement are, 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; orRecognition and enforcement of an arbitral award may also be refused if the Regional Trial Court where recognition and enforcement is sought finds that:
(b) the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(c) the award deals with dispute 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 tribunal 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 court of the country in which, or under the law of which, that award was made.
(a) the subject-matter of the dispute is not capable of settlement by arbitration under the law of the Philippines; orA party to a foreign arbitration proceeding may oppose an application for recognition and enforcement of the arbitral award in accordance with the Special ADR Rules only on the grounds enumerated under paragraphs (a) and (c) of Article 4.35 (Recognition and Enforcement). Any other ground raised shall be disregarded by the Regional Trial Court.
(b) the recognition or enforcement of the award would be contrary to the public policy of the Philippines.
(i). A party to the arbitration agreement was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereof, under the law of the country where the award was made; orb. The court finds that:
(ii). The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iii). The award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or 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, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or
(iv). The composition of the arbitral tribunal 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 arbitration took place; or
(v). The award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which that award was made; or
(i). The subject-matter of the dispute is not capable of settlement or resolution by arbitration under Philippine law; orThe court shall disregard any ground for opposing the recognition and enforcement of a foreign arbitral award other than those enumerated above. (Emphasis ours)
(ii). The recognition or enforcement of the award would be contrary to public policy.