European Resources and Technologies, Inc. and Delfin J. Wenceslao vs. Ingenieuburo Birkhahn + Nolte, Ingeniurgesellschaft mbh and Heers & Brockstedt Gmbh & Co.

An unlicensed foreign corporation doing business in the Philippines cannot maintain an action in Philippine courts, and a party is estopped from challenging such corporation's capacity to sue only where that party had obtained benefits from its dealings with the foreign corporation and thereafter committed a breach of or sought to renege on its obligations. A preliminary injunction requires a clear and unmistakable right in esse on the part of the movant, and where the right asserted is contingent upon a judicial declaration of rescission, the writ cannot be issued.

Petitioner European Resources and Technologies, Inc. (ERTI) is a domestic corporation organized under Philippine law, joined by Delfin J. Wenceslao. Respondents Ingenieuburo Birkhahn + Nolte Ingeniurgesellschaft mbh and Heers & Brockstedt GmbH & Co. are German corporations collectively referred to as the "German Consortium." The German Consortium had been awarded a contract by the Clark Development Corporation (CDC) to construct, operate, and manage the Integrated Waste Management Center at the Clark Special Economic Zone (CSEZ), with the Contract for Services requiring the German Consortium to organize a local corporation as its representative for the project. The dispute arises from the subsequent assignment of the German Consortium's rights to ERTI and the CDC's disapproval of that assignment.

The German Consortium tendered and submitted its bid to the Clark Development Corporation (CDC) to construct, operate, and manage the Integrated Waste Management Center at the Clark Special Economic Zone (CSEZ). CDC accepted the bid and awarded the contract, executing the Contract for Services on October 6, 1999. The contract empowered the German Consortium to enter into contracts for the use of the waste management center by entities within and outside the CSEZ, imposed tipping fees for waste collected within the CSEZ, required payment of US$1.50 per ton for non-hazardous solid waste collected outside the CSEZ, guaranteed 19,800 tons per year of solid waste volume, and had a term of twenty-five years. Article VIII, Section 7 of the Contract for Services required the German Consortium to organize a local corporation as its representative.

On April 18, 2000, the German Consortium entered into a Joint Venture with D.M. Wenceslao and Associates, Inc. (DMWAI) and Ma. Elena B. Villarama (doing business as LBV and Associates), embodied in a Memorandum of Understanding (MOU). Under the MOU, the parties agreed to jointly form a local corporation to which the German Consortium would assign its rights under the Contract for Services. Pursuant to this agreement, petitioner ERTI was incorporated. The parties agreed to prepare and finalize a Shareholders' Agreement within one month, providing that the German Consortium would own fifteen percent of the equity, DMWAI seventy percent, and LBV&A fifteen percent. The MOU provided that if the Shareholders' Agreement was not executed, the MOU would be considered null and void.

On August 1, 2000, without the Shareholders' Agreement having been executed, the German Consortium and ERTI entered into a Memorandum of Agreement (MOA) whereby the German Consortium ceded its rights and obligations under the Contract for Services in favor of ERTI and assigned its license from CDC. The MOA contained an arbitration clause providing that disputes relative to interpretation or implementation of the MOA and collateral documents shall be referred to a panel of arbitrators.

On December 11, 2000, ERTI received a letter from BN Consultants Philippines, Inc., signed by Mr. Holger Holst for and on behalf of the German Consortium, stating that the contract with DMWAI, LBV&A, and ERTI had been terminated on the following grounds: (a) CDC did not give its approval to the assignment; (b) the parties failed to prepare and finalize the Shareholders' Agreement; (c) there was no more factual or legal basis for the joint venture to continue; and (d) with the termination of the MOU, the MOA was also deemed terminated. Attached was a letter from CDC stating that the German Consortium's assignment of an eighty-five percent majority interest to another party violated its representation to undertake both the financial and technical aspects of the project.

On February 20, 2001, ERTI sent a letter to CDC requesting reconsideration of its disapproval. Before CDC could act, the German Consortium filed a complaint for injunction before the Regional Trial Court of Angeles City, claiming that ERTI's continued misrepresentation as to its right to accept solid wastes would cause irreparable damage. Petitioners filed their Opposition and demanded that the parties proceed to arbitration in accordance with Section 17 of the MOA. At the hearings, petitioners objected to the presentation of evidence on the ground that the trial court had no jurisdiction since the German Consortium was composed of foreign corporations doing business in the country without a license, and that the MOA provided for arbitration. The trial court overruled the objection and granted the writ of preliminary injunction on June 28, 2001.

• Lack of Legal Capacity: Petitioners argued that the trial court had no jurisdiction over the case since the German Consortium was composed of foreign corporations doing business in the Philippines without a license, and therefore could not institute the suit.
• Arbitration Clause: Petitioners argued that the dispute was covered by the arbitration clause in the MOA, which provided that disagreements relative to interpretation or implementation of the agreement shall be referred to a panel of arbitrators.
• Improper Issuance of Injunction: Petitioners argued that the issuance of the writ of preliminary injunction was tantamount to granting the main prayer of the complaint without the benefit of a trial, since the purpose of a preliminary injunction is to prevent threatened or continuous irremediable injury, not to railroad the main case.
• No Estoppel: Petitioners maintained that they were not estopped from challenging the respondents' capacity to sue because they had not received any benefit from their transactions with the German Consortium and were not seeking to back out from their obligations under the MOU and MOA.

• Estoppel: Respondents argued that petitioners were estopped from assailing the capacity of the respondents to institute the suit for injunction, relying on the doctrine that a party who had contracted with and benefited from a foreign corporation cannot question its capacity to sue.
• Validity of Assignment: Respondents claimed that the MOA should be deemed subject to a suspensive condition, that is, that CDC's prior written consent must be obtained for the validity of the assignment, and that the disapproval by CDC rendered the assignment ineffective.
• Entitlement to Injunction: Respondents claimed that ERTI's continued misrepresentation as to its right to accept solid wastes from third parties would cause irreparable damage to the Consortium and its exclusive right to operate the waste management center.

• Legal Capacity to Sue: Whether the German Consortium, as unlicensed foreign corporations doing business in the Philippines, had the legal capacity to institute the injunction suit against the petitioners.
• Estoppel: Whether the petitioners were estopped from challenging the respondents' capacity to sue.
• Arbitration: Whether the dispute should be referred to arbitration pursuant to the arbitration clause in the MOA.
• Propriety of Injunction: Whether the issuance of the writ of preliminary injunction was proper where the respondents' right was not clear and unmistakable.

• Legal Capacity to Sue: No. The German Consortium was doing business in the Philippines without the appropriate license as required by law, and Section 133 of the Corporation Code prohibits unlicensed foreign corporations transacting business in the Philippines from maintaining or intervening in any action, suit, or proceeding in any court or administrative agency of the Philippines.
• Estoppel: No. Petitioners were not estopped from challenging the respondents' capacity to sue because they had not received any benefit from their transactions with the German Consortium, did not seek to back out from their obligations, and were insisting on the full validity and implementation of their agreements.
• Arbitration: No. Referral to arbitration was not the most prudent action because the dispute involved the disapproval by CDC of the assignment, and CDC, being a non-party to the arbitration agreement, would not be bound by any arbitral decision; the interest of justice would only be served if the trial court heard and adjudicated the case in a single and complete proceeding.
• Propriety of Injunction: No. The respondents' right to operate and manage the waste management center to the exclusion of petitioner ERTI could not be said to be clear and unmistakable, since the MOA had not yet been judicially declared as rescinded when the complaint was lodged in court.

• Legal Capacity to Sue: There is no general rule or governing principle laid down as to what constitutes "doing" or "engaging in" or "transacting" business in the Philippines. A single act or transaction may be considered as "doing business" when a corporation performs acts for which it was created or exercises some of the functions for which it was organized. The act of participating in a bidding process constitutes "doing business" because it shows the foreign corporation's intention to engage in business in the Philippines. By participating in the bidding conducted by the CDC for the operation of the waste management center, the German Consortium exhibited its intent to transact business in the Philippines. Although the Contract for Services provided for the establishment of a local corporation to serve as respondents' representative, it is clear from the other provisions of the Contract for Services as well as the letter by the CDC containing the disapproval that it will be the German Consortium which shall manage and conduct the operations of the waste management center for at least twenty-five years. The local corporation to be established will merely act as a conduit or extension of the German Consortium. Section 133 of the Corporation Code specifically provides that no foreign corporation transacting business in the Philippines without a license shall be permitted to maintain or intervene in any action, suit, or proceeding in any court or administrative agency of the Philippines.

• Estoppel: There are exceptions to the general rule that unlicensed foreign corporations cannot file suits in the Philippines. A party is estopped from questioning the capacity of a foreign corporation to institute an action in our courts where it had obtained benefits from its dealings with such foreign corporation and thereafter committed a breach of or sought to renege on its obligations. The rule relating to estoppel is deeply rooted in the axiom of commodum ex injuria sua non habere debet — no person ought to derive any advantage from his own wrong. In this case, petitioners have clearly not received any benefit from its transactions with the German Consortium. In fact, petitioners were the ones who have expended a considerable amount of money and effort preparatory to the implementation of the MOA. Neither do petitioners seek to back out from their obligations under both the MOU and the MOA by challenging respondents' capacity to sue. To rule that the German Consortium has the capacity to institute an action against petitioners even when the latter have not committed any breach of its obligation would be tantamount to an unlicensed foreign corporation gaining access to our courts for protection and redress. The object of requiring a license is not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring domicile for the purpose of business without taking the steps necessary to render it amenable to suits in the local courts.

• Arbitration: Arbitration agreements are valid, binding, enforceable, and not contrary to public policy, such that when there obtains a written provision for arbitration which is not complied with, the trial court should suspend the proceedings and order the parties to proceed to arbitration. However, there are exceptions to this rule. Even if there is an arbitration clause, there are instances when referral to arbitration does not appear to be the most prudent action. The object of arbitration is to allow the expeditious determination of a dispute. The dispute between the parties involves the disapproval by the CDC of the assignment by the German Consortium of its rights under the Contract for Services to petitioner ERTI. The arbitration clause is contained in the MOA to which only the German Consortium and petitioner ERTI were parties. Even if the case is brought before an arbitration panel, the decision will not be binding upon CDC who is a non-party to the arbitration agreement. The arbitration panel will not be able to completely dispose of all the issues of this case without including CDC in its proceedings. Accordingly, the interest of justice would only be served if the trial court hears and adjudicates the case in a single and complete proceeding.

• Propriety of Injunction: Before an injunctive writ can be issued, it is essential that the following requisites are present: (1) there must be a right in esse or the existence of a right to be protected; and (2) the act against which injunction is to be directed is a violation of such right. The onus probandi is on the movant to show that there exists a right to be protected, which is directly threatened by the act sought to be enjoined. There must be a showing that the invasion of the right is material and substantial and that there is an urgent and paramount necessity for the writ to prevent a serious damage. At the time of its application for an injunctive writ, respondents' right to operate and manage the waste management center, to the exclusion of or without any participation by petitioner ERTI, cannot be said to be clear and unmistakable. The MOA executed between respondents and petitioner ERTI has not yet been judicially declared as rescinded when the complaint was lodged in court. Hence, a cloud of doubt exists over respondent German Consortium's exclusive right relating to the waste management center.

• Doing Business Without a License — A foreign corporation is considered "doing business" in the Philippines when it performs acts for which it was created or exercises some of the functions for which it was organized, regardless of the volume of business. Participating in a bidding process constitutes "doing business" because it shows the foreign corporation's intention to engage in business in the Philippines. Under Section 133 of the Corporation Code, an unlicensed foreign corporation transacting business in the Philippines cannot maintain or intervene in any action, suit, or proceeding in any court or administrative agency of the Philippines, but may be sued or proceeded against before Philippine courts or administrative tribunals.

• Estoppel Against Challenging Capacity of Foreign Corporation — A party is estopped from questioning the capacity of a foreign corporation to institute an action in Philippine courts where that party had obtained benefits from its dealings with such foreign corporation and thereafter committed a breach of or sought to renege on its obligations. The rule is rooted in the axiom of commodum ex injuria sua non habere debet — no person ought to derive any advantage from his own wrong. The estoppel does not apply where the party challenging capacity has not received any benefit and is insisting on the full validity and implementation of the agreements.

• Requisites for Preliminary Injunction — Before an injunctive writ can be issued, it is essential that: (1) there must be a right in esse or the existence of a right to be protected; and (2) the act against which injunction is to be directed is a violation of such right. The onus probandi is on the movant to show that there exists a right to be protected, which is directly threatened by the act sought to be enjoined. The invasion of the right must be material and substantial, and there must be an urgent and paramount necessity for the writ to prevent serious damage. The right of the complainant must be clear and unmistakable.

• Exception to Arbitration Clause — While arbitration agreements are valid, binding, enforceable, and not contrary to public policy, referral to arbitration is not the most prudent action where the dispute involves a non-party to the arbitration agreement whose participation is necessary for the complete disposition of the case. Where the arbitration panel will not be able to completely dispose of all the issues without including the non-party in its proceedings, the interest of justice would only be served if the trial court hears and adjudicates the case in a single and complete proceeding.

• "To rule that the German Consortium has the capacity to institute an action against petitioners even when the latter have not committed any breach of its obligation would be tantamount to an unlicensed foreign corporation gaining access to our courts for protection and redress. We cannot allow this without violating the very rationale for the law prohibiting a foreign corporation not licensed to do business in the Philippines from suing or maintaining an action in Philippine courts." — This passage articulates the ratio decidendi on the legal capacity of unlicensed foreign corporations to sue, explaining the policy rationale behind the prohibition.

• "The object of requiring a license is not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring domicile for the purpose of business without taking the steps necessary to render it amenable to suits in the local courts. In other words, the foreign corporation is merely prevented from being in a position where it takes the good without accepting the bad." — This passage defines the purpose of the licensing requirement for foreign corporations doing business in the Philippines.

• "At the time of its application for an injunctive writ, respondents' right to operate and manage the waste management center, to the exclusion of or without any participation by petitioner ERTI, cannot be said to be clear and unmistakable. The MOA executed between respondents and petitioner ERTI has not yet been judicially declared as rescinded when the complaint was lodged in court. Hence, a cloud of doubt exists over respondent German Consortium's exclusive right relating to the waste management center." — This passage states the basis for the Court's ruling that the preliminary injunction was improperly issued.

• Communication Materials and Design, Inc. vs. Court of Appeals, G.R. No. 102223, 22 August 1996, 260 SCRA 673 — Controlling precedent on the doctrine of estoppel against challenging the capacity of an unlicensed foreign corporation to sue, where the local party had contracted with and benefited from the foreign corporation.
• Hutchison Ports Philippines Limited vs. Subic Bay Metropolitan Authority, G.R. No. 131367, 31 August 2000, 339 SCRA 434 — Cited for the proposition that the act of participating in a bidding process constitutes "doing business" because it shows the foreign corporation's intention to engage in business in the Philippines.
• Subic Bay Metropolitan Authority vs. Universal International Group of Taiwan, G.R. No. 131680, 14 September 2000, 340 SCRA 359 — Cited for the rule that a foreign corporation organized in another country has no personality to file suits in the Philippines without a license from the SEC and appointment of an agent for service of process.
• Marshall-Wells Co. vs. Elser and Co., 46 Phil. 70 (1924) — Cited for the proposition that the object of requiring a license is not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring domicile for the purpose of business without taking the steps necessary to render it amenable to suits in the local courts.
• Del Monte Corporation-USA vs. Court of Appeals, G.R. No. 136154, 7 February 2001, 351 SCRA 373 — Cited for the exception to the rule on arbitration, where referral to arbitration does not appear to be the most prudent action.
• Philippine Sinter Corporation and Phividec Industrial Authority vs. Cagayan Electric Power And Light Co., Inc., G.R. No. 127371, 25 April 2002, 381 SCRA 582 — Cited for the requisites for the issuance of an injunctive writ.

• Section 133, Corporation Code — Provides that no foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit, or proceeding in any court or administrative agency of the Philippines, but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. Applied to bar the German Consortium from instituting the injunction suit.
• Article 1191, Civil Code of the Philippines — Cited in the footnote to support the proposition that the MOA had not yet been judicially declared as rescinded when the complaint was lodged in court, creating a cloud of doubt over the respondents' exclusive right.
• Section 17, Memorandum of Agreement — The arbitration clause providing that disagreements relative to interpretation or implementation of the agreement and collateral documents shall be endorsed to a panel of arbitrators convened in accordance with the Arbitration Law of the Republic of the Philippines. Applied to determine whether the dispute should be referred to arbitration.

Davide, Jr., C.J., Quisumbing, Carpio, and Azcuna, JJ., concurred.