Case Number 2: Mabuhay Holdings Corporation vs. Sembcorp Logistics Limited [GR No.
212734, December 5, 2018]
Facts: In 1996, Sembcorp Logistics Limited (“Sembcorp”) and two Philippine corporations
(including Mabuhay Holdings Corporation, “MHC”) entered into an agreement under which
Sembcorp would receive a minimum accounting return (the “Guaranteed Return”) in exchange
for its investment in a joint venture. Under the Shareholder’s Agreement, Mabuhay agreed to
guarantee that Sembcorp would receive return for its investment within a certain period.
Mabuhay failed to pay the Guaranteed Return despite demand. This prompted Sembcorp to file
a Request for Arbitration before the ICC in accordance with the arbitration clause under the
Agreement. The arbitration proceedings were held in Singapore. The sole arbitrator ruled in
favor of Sembcorp and directed Mabuhay to pay US Dollar 464,937.75 plus interest of 12
percent per annum calculated from the date of the award until full payment. Thereafter,
Sembcorp petitioned the Regional Trial Court of Makati City to enforce the arbitral award. The
trial court, however, dismissed the petition and ruled that the award could not be enforced
because it was contrary to law. Sembcorp appealed to the Court of Appeals which reversed the
trial court’s decision. Mabuhay appealed to the Supreme Court and argued that the
enforcement of the Final Award would be contrary to public policy because it was violative of
Philippine law. Specifically, Mabuhay argued that the payment of the Guaranteed Return would
violate Philippine laws on partnership and the rate of interest awarded was supposedly
contrary to law.
Issue: Whether or not the RTC correctly refused to enforce the Final Award. Stated differently,
was Mabuhay able to establish a ground for refusing the enforcement of the Final Award under
our applicable laws and jurisprudence on arbitration?
Ruling: The Supreme Court dismissed Mabuhay’s petition and upheld the enforcement of the
arbitral award.
The Supreme Court reminded the lower courts to apply the Philippine arbitration laws
accordingly and highlighted how arbitration contributes to judicial reforms. It
stated: “[a]rbitration, as a mode of alternative dispute resolution, is one of the viable solutions
to the long-standing problem of clogged court dockets. . . . In this light, We uphold the policies
of the State favoring arbitration and enforcement of arbitral awards, and have due regard to
the said policies in the interpretation of our arbitration laws.”
The Supreme Court recognized that most jurisdictions adopt a narrow and restrictive approach
in defining public policy pursuant to the pro-enforcement of New York Convention such that
this exception is "a safety valve to be used in those exceptional circumstances when it would be
impossible for a legal system to recognize an award and enforce it without abandoning the very
fundaments on which it is based. An example of a narrow approach adopted by several
jurisdictions is that the public policy defense may only be invoked "where enforcement [of the
award] would violate the forum state's most basic notions of morality and justice."
In Mabuhay, the jurisdictional issue was whether the dispute referred to arbitration is an intra-
corporate controversy – a type of dispute that was expressly excluded from the parties’
arbitration agreement. The Supreme Court held that the findings of an arbitral tribunal on
jurisdictional issues relating to the scope of the arbitration agreement are binding on Philippine
courts. The Supreme Court supported this conclusion on the basis of the kompetenz-
kompetenz principle and the finality of the arbitral tribunal’s determination of facts or
interpretation of law.
In Mabuhay, the sole arbitrator was challenged during the arbitral proceedings, and the ICC
Court rejected the challenge. When the same issue was raised in the enforcement proceedings,
the Supreme Court, citing a rule that deals with the Philippine courts’ role in challenge
proceedings, held that Philippine courts may no longer review the grounds raised in the
challenge proceedings and that it would “not entertain any challenge . . . disguised as a ground
for refusing enforcement of an award.”
Before Mabuhay, there was no domestic authority or guidance in the Philippines on
determining what is contrary to public policy under the New York Convention. This gave lower
courts an almost unbridled discretion to refuse enforcement of foreign arbitral awards on the
ground of public policy.
