[December 18, 2008] Equitable PCI Banking Corporation, et al., petitioners, vs. RCBC Capital Corporation, respondent.

PCI and the individual shareholders of Bankard, Inc., as sellers, and the respondent RCBC, as buyer, executed a Share Purchase Agreement for the purchase of petitioners’ interests in Bankard, representing 226,460,000 shares, for the price of P1,786,769,400. To expedite the purchase, RCBC agreed to dispense with the conduct of a due diligence audit on the financial status of Bankard. The SPA provided for Warranties (Financial Condition of Bankard) and Remedies (In case of Breach of Warranties).

After having deposited the down payment in an escrow account as agreed, RCBC paid the balance of the contract price on December 28, 2000. The corresponding deeds of sale for the shares in question were executed in January 2001.

Thereafter, in a letter of May 5, 2003, RCBC informed petitioners of its having overpaid the purchase price of the subject shares, claiming that there was an overstatement of valuation of accounts amounting to P478 million, resulting in the overpayment of over P616 million. Thus, RCBC claimed that petitioners violated their warranty, as sellers, embodied in the provisions of the SPA.

Due to unsuccessful attempts at settlement, RCBC filed a Request for Arbitration with the International Chamber of Commerce-International Court of Arbitration (ICC-ICA) where it prayed for the rescission of the SPA, restitution of the purchase price, payment of actual damages in the amount of P573,132,110, legal interest on the purchase price until actual restitution, moral damages, and litigation and attorney’s fees. As alternative to rescission and restitution, RCBC prayed for damages in the amount of at least P809,796,092 plus legal interest.

The tribunal rendered a Partial Award entitling RCBC to claim damages for the aforementioned breaches. RCBC filed with the RTC a Motion to Confirm Partial Award. On the same day, petitioners countered with a Motion to Vacate the Partial Award. The RTC issued an order confirming the Partial Award and denying the adverted separate motions to vacate and to suspend and inhibit. From this PCI sought reconsideration but their motion was again denied by the trial court, thus they came directly to the SC via petition for review.

ISSUES: WoN PCI’s action to directly seek recourse to the SC is via petition for review proper; WoN the Court may validly overturn an Arbitral Award based on the grounds used by PCI; and WoN PCI was denied Due Process

Ruling: a) No. Under Sec. 46 of RA 9285 or the Alternative Dispute Resolution Act of 2004, Rule 45 is not the remedy available to PCI because the proper mode of appeal is an appeal before the CA.

In Korea Technologies Co., Ltd v. Lerma, the court explained, “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”. Thereafter, the CA decision may further be appealed or reviewed before this Court through a petition for review under Rule 45 of the Rules of Court.

b) No. As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to the law or as to the facts. Courts are without power to amend or overrule merely because of disagreement with matters of law or facts determined by the arbitrators since any other rule would make an award the commencement, not the end, of litigation. Judicial review of an arbitration is, thus, more limited than judicial review of a trial.

Nonetheless, the arbitrators’ awards is not absolute and without exceptions. The arbitrators cannot resolve issues beyond the scope of the submission agreement. In the same manner, an award must be vacated if it was made in “manifest disregard of the law.”

When faced with questions of law, an arbitration panel does not act in manifest disregard of the law unless (1) the applicable legal principle is clearly defined and not subject to reasonable debate; and (2) the arbitrators refused to heed that legal principle. Thus, to justify the vacation of an arbitral award on account of “manifest disregard of the law,” the arbiter’s findings must clearly and unequivocally violate an established legal precedent. Anything less would not suffice.

In the present case, PCI, in a bid to establish that the arbitral award was issued in manifest disregard of the law, allege that the Partial Award violated the principles of prescription, due process, and estoppel. A review of petitioners’ arguments would, however, show that their arguments are bereft of merit. Thus, the Partial Award dated September 27, 2007 cannot be vacated.

c) No. As explained in the case of Lastimoso v. Asayo, “[d]ue process in an administrative context does not require trial type proceedings similar to those in courts of justice. Where an opportunity to be heard either through oral arguments or through pleadings is accorded, there is no denial of procedural due process.” The pleadings reveal that RCBC granted PCI’s requests for production of documents and accounting records. More so, they had more than three (3) years to prepare for their defense after RCBC’s submission of its brief of evidence. Finally, it must be emphasized that PCI had the opportunity to appeal the Partial Award to the RTC, which they in fact did. Later, PCI even moved for the reconsideration of the denial of their appeal. The foregoing events unequivocally demonstrate ample opportunity for PCI to verify and examine RCBC’s summaries, accounting records, and reports. Having been able to appeal and move for a reconsideration of the assailed rulings, PCI cannot claim a denial of due process.

As regards PCI’s claim that its right to due process was violated when they were allegedly denied the right to cross-examine RCBC’s witnesses, the same is also bereft of merit. Where a party has had the opportunity to cross-examine a witness but failed to avail himself of it, he necessarily forfeits said right and the testimony given on direct examination of the witness will be received or allowed to remain in the record. Moreover, the Court En Banc, in one case, added that in administrative proceedings, cross-examination is not indispensable. PCI themselves admit having had the opportunity to cross-examine RCBC’s witnesses during the hearings before the tribunal, but declined to do so by reserving such right at a later time.

Having had the opportunity to cross-examine RCBC’s witnesses, PCI were not denied their right to due process.

[February 25, 1992] Chung Fu Industries, Inc., petitioners, vs. CA and Roblecor Philippines, Inc., respondents.

Chung Fu and Roblecor forged a construction agreement whereby the latter committed to construct and finish on December 31, 1989, Chung Fu's industrial/factory complex in Tanawan, Tanza, Cavite for and in consideration of P42 million. In the event of disputes arising from the performance of subject contract, it was stipulated therein that the issue(s) shall be submitted for resolution before a single arbitrator chosen by both parties.

Apart from the aforesaid construction agreement, Chung Fu and Roblecor entered into 2 other ancillary contracts: one for the construction of a dormitory and support facilities with a contract price of P3,875,285, to be completed on or before October 31, 1989; and the other for the installation of electrical, water and hydrant systems at the plant site, commanding a price of P12.1 million and requiring completion thereof one month after civil works have been finished.

However, respondent Roblecor failed to complete the work despite the extension of time allowed it by Chung Fu. Subsequently, the latter had to take over the construction when it had become evident that Roblecor was not in a position to fulfill its obligation.

Claiming an unsatisfied account of P10.5 million and unpaid progress billings of P2,370,179.23, Roblecor on May 18, 1990, filed a petition for Compulsory Arbitration with prayer for Temporary Restraining Order before the RTC, pursuant to the arbitration clause in the construction agreement. Chung Fu moved to dismiss the petition and further prayed for the quashing of the restraining order.

Subsequent negotiations between the parties eventually led to the formulation of an arbitration agreement which, among others, provided that, “there shall be no further judicial recourse if either party disagrees with the whole or any part of the arbitrator's award.”

The RTC approved of the arbitration agreement and thereafter appointed Engr. Willardo Asuncion as the Sole arbitrator. Subsequently, Arbitrator Asuncion ordered Chung Fu to immediately pay Roblecor, the sum of P16,108,801. He further declared the award as final and unappealable, pursuant to the Arbitration Agreement precluding judicial review of the award.

The trial court as well as the appellate court denied Chung Fu’s appeals, hence this present recourse to the SC.

ISSUE: WoN the parties who agree to submit their disputes to arbitration further provide that the arbitrators' award shall be final, unappealable and executor; and WoN an arbitration award is beyond the ambit of the court's power of judicial review where the parties agree that the decision of the arbitrator shall be final and unappealable as in the instant case

Ruling: a) Yes. Article 2044 of the Civil Code recognizes the validity of such stipulation, thus: “Any stipulation that the arbitrators' award or decision shall be final is valid, without prejudice to Articles 2038, 2039 and 2040.”

Similarly, the Construction Industry Arbitration Law provides that the arbitral award "shall be final and inappealable except on questions of law which shall be appealable to the Supreme Court."

b) No. It is stated explicitly under Article 2044 of the Civil Code that the finality of the arbitrators' award is not absolute and without exceptions. Where the conditions described in Articles 2038, 2039 and 2040 applicable to both compromises and arbitrations are obtaining, the arbitrators' award may be annulled or rescinded. Additionally, under Sections 24 and 25 of the Arbitration Law, there are grounds for vacating, modifying or rescinding an arbitrator's award. Thus, if and when the factual circumstances referred to in the above-cited provisions are present, judicial review of the award is properly warranted.

What if courts refuse or neglect to inquire into the factual milieu of an arbitrator's award to determine whether it is in accordance with law or within the scope of his authority? How may the power of judicial review be invoked?

This is where the proper remedy is certiorari under Rule 65 of the Revised Rules of Court. It is to be borne in mind, however, that this action will lie only where a grave abuse of discretion or an act without or in excess of jurisdiction on the part of the voluntary arbitrator is clearly shown. For “the writ of certiorari is an extra-ordinary remedy and that certiorari jurisdiction is not to be equated with appellate jurisdiction”.

It should be stressed, too, that voluntary arbitrators, by the nature of their functions, act in a quasi-judicial capacity. It stands to reason, therefore, that their decisions should not be beyond the scope of the power of judicial review of this Court.

After close study of the list of errors the Court found that Chung Fu has amply made out a case where the voluntary arbitrator failed to apply the terms and provisions of the Construction Agreement which forms part of the law applicable as between the parties, thus committing a grave abuse of discretion. Furthermore, in granting unjustified extra compensation to Roblecor for several items, he exceeded his powers — all of which would have constituted ground for vacating the award under Section 24 (d) of the Arbitration Law.