FACTS:

Mabuhay Holdings Corporation (Mabuhay) and Infrastructure Development & Holdings, Inc. (IDHI) are corporations incorporated under Philippine Laws. Respondent Sembcorp Logistics Limited (Sembcorp), formerly known as Sembawang Maritime Limited, is a Singaporean company. Mabuhay and IDHI incorporated Water Jet Shipping Corporation (WJSC) and Water Jet Netherlands Antilles, N.Y. (WJNA) for carrying passengers on a common carriage by inter-island fast ferry. They later entered into a Shareholders' Agreement with Sembcorp for a planned expansion of WJSC and WJNA. Under the Agreement, Mabuhay and IDHI agreed to jointly guarantee a minimum accounting return to Sembcorp. Sembcorp later requested payment of the guaranteed return from Mabuhay and IDHI. After failure to receive payment, Sembcorp filed for arbitration and a Final Award was rendered in its favor. Sembcorp then filed a Petition for Recognition and Enforcement of the Foreign Arbitral Award before the RTC. The RTC dismissed the petition, ruling that the Final Award could not be enforced because the obligations had been rescinded and converted into an intra-corporate matter. The CA reversed the RTC decision, recognizing the Final Award and remanding the case for execution. Mabuhay filed a petition for review with the Supreme Court. The core issue is whether the RTC correctly refused to enforce the Final Award.

ISSUES:

1. Whether the Final Award is considered a "foreign arbitral award" and governed by the New York Convention and the Model Law.

2. Whether the CA has jurisdiction to act on Sembcorp's appeal.

3. Whether or not the Court of Appeals committed an error that would warrant the exercise of the Supreme Court's discretionary power.

4. Whether the composition of the arbitral authority was in accordance with the agreement of the parties and the ICC Rules.

5. Whether the sole arbitrator possessed the required expertise in the matter at issue, specifically in Philippine law.

6. Whether the challenge to the appointment of the arbitrator can be raised in court;

7. Whether the sole arbitrator must have expertise on Philippine law;

8. Whether the dispute is an intra-corporate controversy.

9. Whether the arbitral tribunal had jurisdiction over the dispute between Mabuhay Holdings Corporation and Sembcorp Utilities Pte Ltd.

10. Whether the enforcement of the arbitral award would be contrary to public policy.

11. Whether Article 1799 of the Civil Code is applicable to the joint venture agreement in this case.

12. Whether the imposition of twelve percent (12%) annual interest from the date of the Final Award is contrary to Philippine law and jurisprudence.

13. Whether Mabuhay is liable for attorney's fees and exemplary damages.

RULING:

1. Yes, the Final Award is considered a "foreign arbitral award" as it was rendered in Singapore. As such, it is governed by the New York Convention and the Model Law.

2. The CA has jurisdiction to act on Sembcorp's appeal. Although the Special ADR Rules, which provide for the proper remedy to contest the RTC's refusal to enforce the Final Award, took effect after the filing of Sembcorp's notice of appeal, Sembcorp had a vested right to due process in relying on the existing rule at the time. Therefore, the CA had jurisdiction to act on Sembcorp's appeal.

3. The Supreme Court found that Mabuhay did not specifically raise any of the grounds for review provided under the Special ADR Rules in its petition. However, the Court exercised its discretion to review the decision of the Court of Appeals, solely for the purpose of determining whether the CA applied the proper standard of judicial review.

4. The composition of the arbitral authority was in accordance with the agreement of the parties and the ICC Rules. The appointment of Dr. Chatara-Opakom as the sole arbitrator was made upon the proposal of the Thai National Committee, as provided in the ICC Arbitration Rules of 1998. The appointment was in line with the agreed upon procedure and the requirement that the arbitrator be of a nationality other than those of the parties, unless both parties agree otherwise.

5. The sole arbitrator was not required to possess expertise in Philippine law. The Agreement stipulated that the arbitrator with expertise in the matter at issue shall be appointed in accordance with the ICC Rules. The requirement for expertise in the matter at issue does not necessarily refer to expertise in Philippine law. The parties agreed to submit their dispute to institutional arbitration rules and, by doing so, agreed to the procedure under such rules for the selection and appointment of arbitrators.

6. The challenge to the appointment of the arbitrator cannot be raised in court unless the appointing authority fails or refuses to act on the challenge within a specified period.

7. The sole arbitrator is not required to have expertise on Philippine law unless the parties specifically exclude foreign arbitrators in the contract.

8. The arbitral tribunal has the competence to rule on its own jurisdiction, including any objections to the existence or validity of the arbitration agreement. The dispute is not an intra-corporate controversy and is within the scope of disputes submitted to arbitration.

9. The Court finds no reason to disturb the arbitral tribunal's ruling in favor of its jurisdiction over the dispute. Sembcorp failed to sufficiently prove that it acquired the subject shares of IDHI, thus, the tribunal's decision stands.

10. The Court adopts a narrow approach in determining whether enforcement of an award is contrary to public policy. Mere errors in interpretation of the law or factual findings do not meet the threshold for public policy grounds to refuse enforcement. The illegality or immorality of the award must blatantly be injurious to the public or against the fundamental tenets of justice and morality.

11. The application of Article 1799 of the Civil Code to the joint venture agreement is erroneous. The parties to the joint venture are bound by corporate law principles, including the limited liability doctrine. The use of a joint venture corporation allows the co-venturers to take advantage of the limited liability feature, which is not present in a formal partnership arrangement.

12. The imposition of twelve percent (12%) annual interest from the date of the Final Award is not contrary to Philippine law and jurisprudence. Mere incompatibility of a foreign arbitral award with domestic mandatory rules on interest rates does not amount to a breach of public policy. The interest rate imposed in this case is not unreasonably high or unconscionable.

13. Mabuhay is not liable for attorney's fees and exemplary damages. While Sembcorp was compelled to file the appeal, there is no sufficient showing of Mabuhay's bad faith in refusing to abide by the provisions of the Final Award. Mabuhay's persistent acts in rejecting Sembcorp's claim proceeded from an erroneous conviction in the righteousness of its cause.

PRINCIPLES:

• The New York Convention governs the recognition and enforcement of foreign arbitral awards by Philippine courts.

• The Model Law, adopted by the United Nations Commission on International Trade Law, is the governing law on international commercial arbitrations in the Philippines.

• The ADR Act incorporates the New York Convention and the Model Law into Philippine law.

• The Special ADR Rules retroactively apply to pending cases, as long as no vested rights are impaired or prejudiced.

• The proper remedy to contest the RTC's refusal to enforce a foreign arbitral award is a petition for review under the Special ADR Rules. However, in this case, Sembcorp's notice of appeal was filed before the Special ADR Rules took effect, and therefore, the CA had jurisdiction to act on Sembcorp's appeal.

• Review by the Supreme Court in arbitral cases is not a matter of right, but of sound judicial discretion. It will be granted only for serious and compelling reasons resulting in grave prejudice to the aggrieved party.

• The grounds for exercise of the Supreme Court's discretionary power are provided under Rule 19.36 of the Special ADR Rules, which include failure to apply the applicable standard or test for judicial review, lack of jurisdiction, failure to apply any provision or principle in the Special ADR Rules, and an error amounting to an undeniable excess of jurisdiction.

• Mere disagreements with the Court of Appeals' determination of questions of fact or law is not a ground for the exercise of the Supreme Court's discretionary power. The error must be grounded upon the prescribed grounds for review or be closely analogous.

• The Court of Appeals may give due course to a petition if it finds prima facie that the Regional Trial Court has committed an error that warrants reversal or modification of the judgment, final order, or resolution sought to be reviewed. Otherwise, it shall dismiss the petition.

• In inquiries into facts in relation to the refusal to recognize and enforce an arbitral award, the Court of Appeals may only determine the existence or non-existence of the specific ground relied upon by the RTC. It cannot substitute its judgment for that of the arbitral tribunal as regards the merits of the controversy.

• Philippine jurisdiction adopts a policy in favor of arbitration, as declared in the ADR Act and the Special ADR Rules. There is a presumption in favor of enforcement of a foreign arbitral award, and it can only be refused if a ground for refusal is fully established. The court shall not disturb the determination of facts and interpretation of law by the arbitral tribunal.

• The grounds for refusing enforcement and recognition of a foreign arbitral award are those enumerated under Article V of the New York Convention, as incorporated in Philippine arbitration laws.

• The composition of the arbitral authority must be in accordance with the agreement of the parties and the applicable arbitration rules.

• The requirement for expertise in the matter at issue when appointing an arbitrator does not necessarily refer to expertise in the law of a specific jurisdiction. The parties are free to agree on the procedure to be followed in the conduct of arbitral proceedings, including the appointment of arbitrators.

• A challenge to the appointment of an arbitrator can only be raised in court if the appointing authority fails to act on the challenge within a specified period.

• The appointment of a sole arbitrator does not necessarily require expertise on the substantive law of the contract.

• The arbitral tribunal has the competence to rule on its own jurisdiction, including objections to the existence or validity of the arbitration agreement.

• Disputes submitted to arbitration should be within the scope of the arbitration agreement.

• The term "public policy" is vague and uncertain, but in general, a contract is void as against public policy if it tends to injure the public, is against the public good, contravenes established interests of society, or is inconsistent with sound policy and good morals.

• The restrictive approach to public policy under the New York Convention and Model Law allows enforcement of awards that do not conform to domestic laws.

• Mere errors in the interpretation of the law or factual findings do not warrant refusal of enforcement under the public policy ground. The illegality or immorality of the award must reach a certain threshold to be contrary to public policy.

• The parties to a joint venture are bound by corporate law principles under which the entity must operate.

• The limited liability doctrine is applicable to joint venture corporations.

• The incompatibility of a foreign arbitral award with domestic mandatory rules on interest rates does not amount to a breach of public policy.

• To refuse enforcement of a foreign arbitral award, it must be contrary to public policy.

• Awards may be refused or partially enforced if the awarded interest is unreasonably high or unconscionable.

• The awarding of attorney's fees and exemplary damages requires a showing of bad faith on the part of the losing party.

• The State favors arbitration and the enforcement of arbitral awards.