Case Digest: Mabuhay Holdings Corp., v. Sembcorp Logistic Limited, G.R. No. 212734, December 5, 2018

 Corporation Law | Joint Venture

Joint Ventures may result in the formation of a joint venture corporation. In such case, it must comply with applicable nationalization laws. In addition, the joint venture may give certain shareholders or groups of shareholders power to select or nominate a specified number of directors, give to the shareholders control over the selection and retention of employees, or set up procedure for settlement of disputes. The limited liability rule applies even if the corporation is the result of a joint venture agreement.

However, the joint venture corporation itself is subject to corporate law not to partnership law.  The parties to the joint venture agreement cannot cite the provisions of the law on partnership with respect to the corporation itself and its relationship with its shareholders. 
  • Mabuhay Holdings Corporation (Mabuhay) and Infrastructure Development & Holdings, Inc. (IDHI) are Philippine corporations. Sembcorp Logistics Limited (Sembcorp) is a Singaporean company.
  • Mabuhay and IDHI established Water Jet Shipping Corporation (WJSC) and Water Jet Netherlands Antilles, N.Y. (WJNA) for ferry services.
  • An Agreement was made for Sembcorp's investment in WJSC and WJNA, reducing Mabuhay and IDHI's shares.
  • Disputes were subject to arbitration in Singapore as per the Agreement.
  • An arbitrator ruled in favor of Sembcorp for half the Guaranteed Return, interest, and arbitration costs.
  • Sembcorp filed for recognition and enforcement of the arbitral award in the Philippines.
  • Mabuhay opposed enforcement citing conflict outside the arbitration scope, improper composition of the arbitral authority, and violation of public policy.
  • RTC: Dismissed the petition citing a conversion of the obligation into an intra-corporate matter due to merger or confusion of IDHI into Sembcorp.
  • CA: Reversed the RTC decision.

WoN the enforcement of the award would be contrary to public policy of the Philippines. NO

Violation of partnership law

Mabuhay contends that it entered into a joint venture, which is akin to a particular partnership, with Sembcorp. Applying the laws on partnership, the payment of the Guaranteed Return to Sembcorp is a violation of Article 1799 of the Civil Code, as it shields the latter from sharing in the losses of the partnership. Ergo, enforcement of the Final Award would be contrary to public policy as it upholds a void stipulation.

The restrictive approach to public policy necessarily implies that not all violations of the law may be deemed contrary to public policy. It is not uncommon for the courts in Contracting States of the New York Convention to enforce awards which does not conform to their domestic laws.

At any rate, Mabuhay's contention is bereft of merit. 

The joint venture between Mabuhay, IDHI, and Sembcorp was pursued under the Joint Venture Corporations, WJSC and WJNA. By choosing to adopt a corporate entity as the medium to pursue the joint venture enterprise, the parties to the joint venture are bound by corporate law principles under which the entity must operate. Among these principles is the limited liability doctrine. The use of a joint venture corporation allows the co-venturers to take full advantage of the limited liability feature of the corporate vehicle which is not present in a formal partnership arrangement. In fine, Mabuhay's application of Article 1799 is erroneous.

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