Navigating Forum Shopping in International Arbitration: A Philippine Perspective

TLDR: This case clarifies the boundaries of forum shopping in the context of international arbitration in the Philippines. Parties must be careful not to file multiple suits involving the same cause of action and parties to avoid accusations of forum shopping, which can have serious repercussions on the outcome of their disputes. Seeking provisional remedies or enforcing interim awards requires a nuanced approach to avoid running afoul of the rules against forum shopping.

G.R. NO. 146717, May 19, 2006

Introduction

Imagine a scenario where a company, embroiled in a complex international arbitration, seeks to protect its interests by simultaneously pursuing legal remedies in local courts. This delicate balancing act raises a critical question: when does the pursuit of justice become an act of forum shopping, potentially undermining the integrity of the dispute resolution process? This is the central issue in the case of Transfield Philippines, Inc. vs. Luzon Hydro Corporation, a landmark decision that sheds light on the application of forum shopping rules in the context of international commercial arbitration in the Philippines.

Transfield Philippines, Inc. (TPI) and Luzon Hydro Corporation (LHC) were engaged in a dispute arising from a Turnkey Contract. As the dispute escalated, TPI initiated arbitration proceedings before the International Chamber of Commerce (ICC) while simultaneously pursuing legal actions in Philippine courts. LHC accused TPI of forum shopping, arguing that TPI was attempting to obtain a favorable judgment by pursuing multiple suits based on the same cause of action. The Supreme Court was tasked with determining whether TPI’s actions constituted forum shopping, and in doing so, clarified the interplay between international arbitration and domestic litigation.

Legal Context: Forum Shopping and International Arbitration

Forum shopping is a legal term that refers to the practice of litigants seeking to have their case heard in the court that is most likely to provide a favorable judgment. In the Philippines, forum shopping is strictly prohibited as it clogs court dockets, wastes judicial resources, and creates the potential for inconsistent rulings. The Supreme Court has defined forum shopping as “the act of a party against whom an adverse judgment has been rendered in one forum, seeking and possibly getting a favorable opinion in another forum, other than by appeal or the special civil action of certiorari, or the institution of two or more actions or proceedings grounded on the same cause on the supposition that one or the other court would make a favorable disposition.”

The elements of forum shopping are:

• Identity of parties, or at least such parties as represent the same interests in both actions;
• Identity of rights asserted and relief prayed for, the relief being founded on the same facts; and
• The identity of the two preceding particulars is such that any judgment rendered in the other action will, regardless of which party is successful, amount to res judicata in the action under consideration.

However, the legal landscape becomes more complex when international arbitration is involved. The Philippines is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and Philippine law, particularly Republic Act No. 9285 (the Alternative Dispute Resolution Act of 2004), recognizes and supports international commercial arbitration as a primary means of resolving disputes. RA 9285 explicitly states: “It is the policy of the State to actively promote the use of alternative dispute resolution methods to de-clog court dockets and to encourage a more active role by private sector in the settlement of disputes.”

Crucially, the law also acknowledges that parties may need to seek provisional remedies from local courts even while arbitration proceedings are ongoing. Section 28 of R.A. No. 9285 states: “It is not incompatible with an arbitration agreement for a party to request, before constitution of the tribunal, from a Court an interim measure of protection and for the Court to grant such measure. After constitution of the arbitral tribunal and during arbitral proceedings, a request for an interim measure of protection, or modification thereof, may be made with the arbitral tribunal or to the extent that the arbitral tribunal has no power to act or is unable to act effectively, the request may be made with the Court.”

Case Breakdown: Transfield vs. Luzon Hydro

The dispute between TPI and LHC arose from a Turnkey Contract for a construction project. When delays occurred, LHC called on certain securities (letters of credit) provided by TPI. TPI, believing the delays were excused, initiated arbitration proceedings before the ICC. Simultaneously, TPI filed a case in a Philippine court seeking to enjoin LHC from calling on the securities. After LHC collected the proceeds, TPI asked that the funds be placed in escrow pending the outcome of the arbitration.

Subsequently, after obtaining a Third Partial Award from the ICC, TPI filed another case in the Philippines seeking recognition and enforcement of that award. LHC then accused TPI of forum shopping, arguing that TPI was pursuing the same claims in multiple forums.

The Supreme Court analyzed the various legal actions taken by TPI and concluded that TPI was not guilty of forum shopping. The Court reasoned that there was no identity of causes of action between the arbitration case, the injunction case, and the action for recognition and enforcement of the partial award. The arbitration case concerned the underlying contractual dispute, while the injunction case sought provisional relief to protect TPI’s interests pending arbitration. The action for recognition and enforcement was a separate proceeding authorized under the New York Convention and R.A. 9285.

The Court emphasized the importance of allowing parties to seek provisional remedies from local courts during arbitration proceedings. As the Court stated, “As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to the courts for provisional reliefs… Likewise, Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Law) recognizes the rights of any party to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration. In addition, R.A. 9285, otherwise known as the ‘Alternative Dispute Resolution Act of 2004,’ allows the filing of provisional or interim measures with the regular courts whenever the arbitral tribunal has no power to act or to act effectively.”

However, the Court cautioned that TPI’s application for enforcement of the Third Partial Award was premature because the award did not contain an order for the payment or return of money. The Court noted that the ICC Arbitral Tribunal had reserved the quantification of amounts for a future award. “True, the ICC Arbitral Tribunal had indeed ruled that LHC wrongfully drew upon the securities, yet there is no order for the payment or return of the proceeds of the said securities… To repeat, the declarations made in the Third Partial Award do not constitute orders for the payment of money.”

Practical Implications

This case provides valuable guidance for parties involved in international commercial arbitration in the Philippines. It clarifies that seeking provisional remedies or enforcing interim awards in local courts does not automatically constitute forum shopping. However, parties must carefully distinguish between actions that are genuinely aimed at preserving their rights or enforcing arbitral awards and actions that are merely attempts to relitigate the same issues in a different forum.

Key Lessons:

• Parties should carefully define the scope of each legal action they pursue, ensuring that each action addresses a distinct legal issue or seeks a different form of relief.
• When seeking provisional remedies, parties should clearly demonstrate the need for such remedies and explain why the arbitral tribunal is unable to provide effective relief.
• When seeking enforcement of arbitral awards, parties should ensure that the award contains a clear and unambiguous order for the payment of money or other specific performance.

Frequently Asked Questions

What is forum shopping?
Forum shopping is the practice of litigants seeking to have their case heard in the court that is most likely to provide a favorable judgment. It is prohibited in the Philippines.

Is it permissible to file a case in court while arbitration is ongoing?
Yes, it is permissible to seek provisional remedies from local courts even while arbitration proceedings are ongoing, as long as it is not an attempt to relitigate the same issues.

What is an interim measure of protection?
An interim measure of protection is a temporary order issued by a court or arbitral tribunal to preserve assets or prevent irreparable harm pending the resolution of a dispute.

What is required to enforce a foreign arbitral award in the Philippines?
To enforce a foreign arbitral award in the Philippines, a party must file a petition with the Regional Trial Court and provide the duly authenticated original award or a duly certified copy thereof, and the original arbitration agreement or a duly certified copy thereof.

What if the arbitral award is not in English or Filipino?
If the award or agreement is not made in an official language of the Philippines, the party must supply a duly certified translation thereof into such language.

Can I seek attorney’s fees if I win my arbitration case?
The availability of attorney’s fees depends on the terms of the arbitration agreement and the applicable law. It’s best to consult with legal counsel.

What should I do if I suspect the other party is forum shopping?
If you suspect the other party is forum shopping, you should raise the issue with the court or arbitral tribunal and provide evidence to support your claim.

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