ARBITRATION PANEL DECISION

Complainant: Pampanga Energy Company (PEC)

Respondent: Construction Company (CC)

Case Number: Case No. 15-NNNNN

Panel Members: Claveria, Carina Amor D.

Pineda, Paul Christopher G.

Rogel, Angeline P.

The dispute involved in this case relates to an alleged breach of a construction contract

entered into by the parties. The complainant avers that respondent committed various defects in

the technical design and construction of their power station. On the other hand, respondent

claims it was owed large sums of money by complainant under the contract. In addition, the

respondent raises an issue which threatens the very core of the present arbitral process—that the

Tribunal has no jurisdiction over the matter at hand.

The Tribunal shall now resolve the issues presented before it.

I. THE PARTIES

Pampanga Energy Company (“PEC”), a Philippine company, is the owner of a power

station in Pampanga. Sometime in October 2012, PEC employed Construction Company (“CC”),

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also a Philippine company, to design, construct, commission, test, complete and hand over the

power station to it.

In mid-2013, disputes arose between the parties. PEC claimed that it is entitled to

liquidated damages while CC claimed numerous extensions of time which the complainant

refused to allow. It was alleged by CC that it was owed large sums of money by PEC under the

contract. As a counterclaim, complainant PEC claimed that there were many technical design

and construction defects in various parts of the project.

II. PROCEDURAL HISTORY

On November 4, 2013 PEC commenced arbitration proceedings against CC and filed a

Notice of Arbitration with the Hong Kong International Arbitration Centre (“HKIAC”). Fourteen

days later, on November 18, CC commenced its own arbitration proceedings against PEC and

submitted its Request for Arbitration to the Construction Industry Arbitration Commission

(“CIAC”).

On the same day, CC applied for an anti-suit injunction against the HKIAC proceedings

before the Regional Trial Court (“RTC”) of Manila. Such application was granted and

consequently, the injunction was issued on November 25, 2013.

CC subsequently served its answer before the HKIAC on November 29, 2013. CC

contended that this Arbitral Tribunal has no jurisdiction and that the RTC of Manila has issued

an anti-suit injunction which deserves utmost “respect” from us on the ground of equity.

III. PARTIES’ CONTENTIONS

1. The Respondent

Construction Company (CC) contends that since the case involves dispute arising from a

construction industry contract entered into by parties relating to constructions in the Philippines,

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CIAC has original and exclusive jurisdiction. CC noted that jurisdiction is conferred by law and

cannot be defeated by the agreement of the parties. Since the jurisdiction of CIAC is conferred

by law, it cannot be subjected to any condition; nor can it be waived or diminished by the

stipulation, act or omission of the parties, as long as the parties agreed to submit their

construction contract dispute to arbitration, or if there is an arbitration clause in the construction

contract.

CC cites Section 4 of Executive Order No. 1008 which provides:

Sec. 4. Jurisdiction. The CIAC shall have original and exclusive

jurisdiction over disputes arising from, or connected with,

contracts entered into by parties involved in construction in the

Philippines, whether the dispute arises before or after the

completion of the contract, or after the abandonment or breach

thereof. These disputes may involve government or private

contracts. For the Board to acquire jurisdiction, the parties to a

dispute must agree to submit the same to voluntary arbitration.

CC stressed that in effect, this provision makes it clear that the only requirement for

CIAC to acquire jurisdiction is for the parties to agree to submit their dispute to voluntary

arbitration. Thus, when the parties agreed to be bound by the arbitration agreement, they were

deemed to have submitted themselves under the CIAC.

In its answer, CC also alleged that the waiver by the parties of applicable Philippine laws

such as Executive Order No. 1008 and Republic Act No. 9285 is invalid. According to CC, if the

parties have expressly agreed that the substantive law of the Philippines shall govern, they shall

not be permitted to divest the laws specifically mandated to govern them.

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In the matter of the anti-suit injunction secured by CC before the RTC of Manila, CC

would want this Tribunal to respect said relief and dismiss respondent’s claim lodged before the

HKIAC. CC interposes the defense of equity that where the proceeding merely intended to

oppress and vex the other party, an anti-suit injunction must be recognized. CC emphasized that

in the principle of comity and reciprocity, an anti-suit injunction that has been granted by a court

of competent jurisdiction must be respected.

2. The Complainant

Meanwhile, in its submission before the Arbitral Tribunal, Pampanga Energy Company

(“PEC”) contended that CC made a distorted interpretation of the rulings of the Supreme Court

of the Philippines when it stated that only the CIAC has exclusive and original jurisdiction over

the dispute presented herein.

Citing the Philippine jurisprudence of China Chang Jiang Energy Corporation vs. Rosal

Infrastracture Builders1, PEC refuted respondent’s claims by stating that the CIAC does not

possess sole jurisdiction over construction disputes where parties have stipulated and filed for

arbitration in another forum. In said case, the Philippine High Court held that notwithstanding

the validity of Section 1, Article III, such does not mean that the parties may no longer stipulate

to submit their disputes to a different arbitral body. Instead, the law gives the parties an

alternative forum before whom they may submit their controversies.

PEC claims that for filing a Notice of Arbitration before the HKIAC several days before

the respondent filed for arbitration before the CIAC, this Tribunal has first acquired jurisdiction

on the matter. Also, the claimant submitted that under the doctrine of Kompetenz/Kompetenz,

the arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the

existence or validity of the arbitration agreement.

1 G.R. No. 125706, 30 September 1996

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As to the matter of anti-suit injunction issued by the RTC of Manila, the claimant argues

that such injunction may be validly disregarded by this Tribunal as the same is not a court of the

seat of arbitration. According to PEC, only the courts of Hong Kong may issue such order since

the seat of arbitration is Hong Kong, and not the Philippines.

IV. FINDINGS OF THE ARBITRAL TRIBUNAL

1. The tribunal has jurisdiction over the dispute

In resolving this dispute at hand, the tribunal must first answer the question whether it has

jurisdiction over the case since the other substantive issues raised in the pleadings are dependent

to whether or not jurisdiction lies in this tribunal.

True to the contentions of the respondent, the tribunal, based on the existing laws and

jurisprudence, must answer the question on jurisdiction in the affirmative.

In claiming that the tribunal has no jurisdiction in this case, the respondents cited

Philippine laws and jurisprudence. One of this is E.O. 1008, Creating an Arbitration Machinery

in the Construction Industry of the Philippines. The respondent pointed out Section 4 which

states:

The CIAC shall have original and exclusive jurisdiction over

disputes arising from, or connected with, contracts entered into by

parties involved in construction in the Philippines, whether the

dispute arises before or after the completion of the contract, or

after the abandonment or breach thereof. xxx

To further support their allegations that only the CIAC has original and exclusive

jurisdiction over all construction disputes in the Philippines, the respondents relied on the CIAC

Rules of Procedure Governing Construction Arbitration, particularly Section 1, Article III, (as

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cited in China Chang Jiang vs. Rosal Infrastracture Builders, HUTAMA-RSEA Joint Operations,

Inc. v. Citra Metro Manila Tollways Corporation) to wit:

Effect of the Agreement to Arbitrate

Section 1. Submission to CIAC Jurisdiction – An arbitration clause

in a construction contract or a submission to arbitration of a

construction dispute shall be deemed an agreement to submit an

existing or future controversy to the CIAC jurisdiction,

notwithstanding the reference to a different arbitral institution or

arbitral body in such contract or submission. xxxx

However, the law should be reconciled with the existing jurisprudence governing

substantial issues involving jurisdiction in arbitral processes. It must be in the forefront of

everyone’s minds that in relying on jurisprudence, it must be accentuated that pronouncements of

the Court should not be served in a piece-meal fashion and that the parties should not single out

parts of the decision favorable to their position.

The tribunal finds solace in the case of China Chang Jiang vs. Rosal Infrastracture

Builders as cited by the petitioner.

In the abovementioned case, the Philippine Supreme Court enunciated:

“Now that Section 1, Article III, as amended, is submitted to test in

the present petition, we rule to uphold its validity with full

certainty. However, this should not be understood to mean that the

parties may no longer stipulate to submit their disputes to a

different forum or arbitral body. Parties may continue to stipulate

as regards their preferred forum in case of voluntary arbitration,

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but in so doing, they may not divest the CIAC of jurisdiction as

provided by law. xxx

xxx When the law provides that the Board acquires jurisdiction

when the parties to the contract agree to submit the same to

voluntary arbitration, the law in effect, automatically gives the

parties an alternative forum before whom they may submit their

disputes. That alternative forum is the CIAC. This, to the mind of

the Court, is the real spirit of E.O. No. 1008, as implemented by

Section 1, Article III of the CIAC Rules.

While both parties made reference to the case of China Chang Jiang, said case must be

read in its entirety and not in a part and parcel form. While we agree with the respondent’s

contention that a mere agreement to arbitrate vests CIAC the jurisdiction to take over the case,

such is only true when parties have not previously agreed to submit their dispute in a particular

forum.2

Thus, the respondent’s reliance on HUTAMA-RSEA Joint Operations, Inc. vs. Citra

Metro Manila Tollways Corporation case is misplaced. In that case, the arbitration agreement in

the contract did not provide for an institution where parties may submit their construction

disputes. Said absence of a specific agreement on the appropriate institution/tribunal to handle

the case automatically vests CIAC of original and exclusive jurisdiction over the matter.

The factual milieu in the case of HUTAMA is not present in the issue submitted before

this Tribunal. In this case, it is clear that both parties agreed to submit their disputes to another

forum, particularly the HKIAC. Therefore, when CC and PEC previously agreed to submit

before the HKIAC tribunal, in effect, they have made CIAC as an alternative forum.

2 CHINA CHANG JIANG

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At this point, it may be relevant to define the Doctrine of Adherence of Jurisdiction. This

rule states that once the jurisdiction of a court attaches, the court cannot be ousted by subsequent

happenings or events, although of a character that would have prevented jurisdiction from

attaching in the first instance; the court retains jurisdiction until it finally disposes of the case.3

In the normal course of proceedings, a court or tribunal acquires jurisdiction over the

person of the plaintiff through the submission of complaints or any initiatory pleading. When the

claimant first submitted its Notice of Arbitration before the Tribunal, in effect, HKIAC being the

agreed venue, already acquired jurisdiction. Applying the doctrine laid down in the China Chang

case, CIAC becomes merely an alternative forum.

In the same note, since HKIAC was first vested the authority to hear and determine the

case, under the Doctrine of Adherence of Jurisdiction, it shall retain the authority to hear such

until its final disposition. The mere objection of the respondents on jurisdiction is an event which

would not oust the HKIAC tribunal of the power to render proper resolution of this controversy.

Moreover, to further bolster this Tribunal’s jurisdiction in the present case, it is

noteworthy to examine the very arbitration agreement entered into by PEC and CC. The records

of this case provide:

By clause 31 of the engineering procurement and construction

contract, the parties agreed to the following:

“31.1 Any unresolved dispute shall be referred to and finally

resolved by arbitration administered by the Hong Kong

International Arbitration Centre under the Rules, except as

the Rules may be modified herein. The arbitration proceedings

3 REGINA ONGSIAKO REYES, Petitioner, vs. COMMISSION ON ELECTIONS and JOSEPH SOCORRO B. TAN

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shall be conducted, and the award shall be rendered, in the English

language. The seat of arbitration shall be Hong Kong .

31.2 This clause and the parties’ agreement to arbitrate herein

shall be governed by the laws of Hong Kong.”

It is well emphasized that in arbitration proceedings, various laws, rules, and guidelines

in the arbitral proceedings are observed in an order of hierarchy4 as follows:

I. Arbitration Agreement

II. Arbitration Rules

III. National Laws

IV. International Arbitration Practice

V. International Treaties

It is submitted that this hierarchy guidelines will help the arbitration tribunal to determine

the existence and validity of arbitration agreements, jurisdiction, and granting the reliefs prayed

for by the parties.

As exemplified in the above enumeration, the top of the hierarchy is the Arbitration

Agreement, followed by Arbitration Rules, then by the National Laws, the International

Arbitration Practice and the International Treaties.

The Arbitration agreement is the underpinning for the regulatory framework governing

the private dispute resolution process5 and it is the law between the parties. The agreement, as a

binding stipulation between them, shall be followed by said parties in good faith. Since the

arbitration agreement between PEC and CC clearly provided that “Any unresolved dispute shall

4 Moses, The Principles and Practice of International Commercial Arbitration (2012), Second Ed., p. 6

5 Supra Note 4

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456

be referred to and finally resolved by arbitration administered by the Hong Kong International

Arbitration Centre under the Rules, except as the Rules may be modified herein”, this stipulation

validly consented by the parties, is dictated not only by public policy and also by law that it be

faithfully recognized in any court to which this case is pending.

2. DOCTRINE OF SEPARABILITY IN RELATION TO ANTI-SUIT INJUNCTION

In reality, the present controversy actually involves two distinct contract in one

document. This is in conformity to the “Doctrine of Separability,” which treats an arbitration

agreement contained in a contract as a separate agreement from the contract itself.6

When the parties enter to a contract stipulating an agreement to arbitrate, they are in

effect concluding two separate agreements.7 Both the Laws of Philippine and Hong Kong

recognize this doctrine and are uniform in accepting and implementing this principle. This is

elucidated in the case of Gonzales vs. Climax Mining Ltd8 which held:

“The doctrine of separability, or severability as other writers call it,

enunciates that an arbitration agreement is independent of the main

contract. The arbitration agreement is to be treated as a separate

agreement and the arbitration agreement does not automatically

terminate when the contract of which it is part comes to an end.

The separability of the arbitration agreement is especially

significant to the determination of whether the invalidity of the

main contract also nullifies the arbitration clause. Indeed, the

doctrine denotes that the invalidity of the main contract, also

6 Greenberg, et al. International Commercial Arbitration – An Asia-Pacific Perspective (2010). First Ed. Par. 4.36, p. 155.7Id at Par. 4.47, p. 158.8 G.R. No. 161957, 22 January 2007.

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referred to as the "container" contract, does   not   affect the validity

of the arbitration agreement. Irrespective of the fact that the main

contract is invalid, the arbitration clause/agreement still remains

valid and enforceable.

The separability of the arbitration clause is confirmed in Art. 16(1)

of the UNCITRAL Model Law and Art. 21(2) of the UNCITRAL

Arbitration Rules.”

In the same way the High Court of Hong Kong ruled:

“The problem with this argument is that it does not take into

account that the arbitration agreement contained in another

written agreement has a life of its own. The doctrine of

separability has now been enshrined in the Model Law and has

been fully accepted in case law in England and Hong Kong. x x x”

In effect, the arbitration clause contracted by the party is separate from the document

which it is contained, the law that will govern the arbitration and the contract must be separate. 9

The two agreements having different purpose, it is very clear that different law applies to each.10

Considering the premises, the agreement entered and expressly stipulated by the parties,

it can be now deduced that the engineering and procurement contract (EPC), which is the main

(construction) contract is governed by the Philippine law; while Clause 31, another separate and

distinct contract pertaining to the arbitration agreement, is governed by the law of Hong Kong.

9 Supra note 19 at Par. 4.50, p. 159.10Supra note 22 at Par. 4.50, pp. 159-160.

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The contention of CC as to the invalidity of the arbitration clause supported by the cases

held by the Supreme Court is misplaced. Considering that Hong Kong Law is the governing

decree over the Arbitration Agreement (Clause 31) and Philippine Law applies only to the EPC

Contract. Since the agreement not to apply E.O. No. 1008 and R.A. No. 9285 is contained in

Clause 31, judicial pronouncement and Philippine laws are no longer controlling.

Furthermore, the Philippine cases cited by CC are not similar to facts and circumstances

of the instant case. None of these cases portray a fact wherein the parties have chosen two

different laws to separately govern their main contract and their arbitration agreement.

As evidenced by paragraph 31.1 of the arbitration clause, both parties have intended to be

governed and be bound by the rules of HKIAC. And, to further clarify their intentions, they even

agreed to submit to the domestic laws of Hong Kong, in case an arbitration proceeding is

commenced, as what actually transpired in this case.

Considering the principle of doctrine of separability and its effect to the contract, the

claim of the respondent regarding the applicability of certain Philippine Laws supposedly

conferring jurisdiction to the CIAC is untenable, since it is Hong Kong Law, not Philippine Law,

which governs the Arbitration Agreement.

As to the matter of the Anti-suit injunction ordered by the Manila Court on November 25,

2013, the tribunal is in the opinion that the said order cannot stay, much less, intervene with the

proceedings of this Arbitral Tribunal in determining jurisdiction and deciding upon the merits of

the case.

The respondent’s prayer to recognize said anti-suit injunction order issued by the Manila

Regional Court on the basis of the Arbitration Ordinance of Hong Kong (CAP 609) stating that

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the relief granted by courts outside Hong Kong should be respected is a fact in which this

tribunal cannot agree.

Indeed, there is a clear misinterpretation of the Arbitration Ordinance in connection with

the facts prevailing in this dispute. PEC and CC, as evidenced by their arbitration agreement,

have clearly agreed to set Hong Kong as the seat of arbitration. Being the seat of arbitration it

actually serves as the legal domicile of the arbitration.11 Therefore, it is only the courts of Hong

Kong that could provide interim reliefs, as in this case, the anti-suit injunction sought by the

respondent.

On the final note, this Tribunal, in finding that it has jurisdiction in this case, is guided by

an established principle (Kompetenz-kompetenz)12 in arbitration proceedings that arbitrators are

vested with the ability to rule on their own jurisdiction and such is almost fully accepted as a part

of a long founded practice in international arbitration.13

V. CONCLUSION

PREMISES CONSIDERED, with the failure of the respondent Construction Company to

prove that this Tribunal lacks jurisdiction to hear the dispute, the members of this Honorable

Tribunal hereby grants the petitioner Pampanga Energy Company’s prayer to continue with the

arbitral proceedings. The tribunal rules in the negative as to the recognition of the anti-suit

injunction filed by the respondent before the RTC of Manila.

This Tribunal orders the petitioner and respondent to file their respective memoranda to

support their position as to the merits of the case.

11 Belohlavek, Importance of the Seat of Arbitration in International Arbitration: Delocalization and Denationalization of Arbitration as an Outdated Myth, 31 ASA BULLETIN 2/2013 (JUNE), at p. 263.12 This empowers an arbitral tribunal to decide on any and all objections as to its own jurisdiction. This doctrine, which is followed in most jurisdictions, provides that arbitrators are competent to determine their own competence.13 Greenberg, et al. International Commercial Arbitration – An Asia-Pacific Perspective (2010). First Ed. Par. 5.46, p. 214. Supra note at p. 91.

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SO ORDERED.

Rogel, Angeline P.

Chairman

Pineda, Paul Christopher G. Claveria, Carina Amor D.

Arbitrator Arbitrator

26th September 2015

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