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(G.R. No. 143581) Korea Technologies vs. Hon. Lerma (Digest)
(G.R. No. 143581) Korea Technologies vs. Hon. Lerma (Digest)
Facts:
Korea Technologies Co., Ltd. (KOGIES), herein petitioner, is a Korean corporation which is
engaged in the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants,
while private respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic corporation.
On March 5, 1997, PGSMC and KOGIES executed a Contract whereby KOGIES would set up
an LPG Cylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines.
However, PGMC stopped payment of its balance under the contract because KOGIES allegedly
used inferior quality materials contrary to what was agreed upon. PGMC then sent a notice cancelling
the contract.
KOGIES wrote PGSMC informing the latter that PGSMC could not unilaterally rescind their
contract nor dismantle and transfer the machineries and equipment on mere imagined violations by
KOGIES. It also insisted that their disputes should be settled by arbitration as agreed upon in the
arbitration clause of their contract. KOGIES instituted an Application for Arbitration before the Korean
Commercial Arbitration Board (KCAB) in Seoul, Korea. Meanwhile, KOGIES also filed a complaint for
specific performance against PGSMC in the Regional Trial Court of Muntinlupa City (RTC).
KOGIES then filed before the Court of Appeals (CA) a petition for certiorari seeking annulment
of certain interlocutory orders of the RTC and praying for, among other reliefs, to direct the RTC to
enforce the specific agreement on arbitration to resolve the dispute.
The CA affirmed the trial court and declared the arbitration clause to be against public policy
because it provided for a final determination of the parties’ legal rights, therefore ousting the courts
of its jurisdiction.
Issue:
Ruling:
According to the Supreme Court, the arbitration clause which stipulates that the arbitration
must be done in Seoul, Korea and that the arbitral award is final and binding, is not contrary to public
policy. The courts should liberally construe arbitration clauses. Provided such clause is susceptible of
an interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any doubt
should be resolved in favor of arbitration.
Also, Article 2044 of the Civil Code sanctions the validity of mutually agreed arbitral clause or the
finality and binding effect of an arbitral award. Under the said provision, "Any stipulation that the
arbitrators’ award or decision shall be final, is valid, without prejudice to Articles 2038, 2039
and 2040."